As I write this, the UK and the Netherlands have both imposed strict lockdowns on their populations overnight. Some more successfully than others it must be said. Investors are now asking, should I buy the dip?
As the majority of the Dutch population work from home or travel to work on bikes, Londoners continue to pile on to the underground and pass the virus around like sweets.
The below image shows a screenshot of rush hour this morning. Spare a thought for all those workers who don’t have an option to stay at home.
The UK has finally done the right thing and locked the population down, its about 2 weeks too late and the damage has already been done.
You only have to look at China and Italy to see that numbers are falling, lock downs work, FACT. They reduce the spread and give health workers a fighting chance of treating the sick.
2 weeks ago today the UK government allowed Cheltenham horse racing festival to take place. 251,000 people from all over the world attended the UK’s premier horse-racing event. The Government was so afraid of loosing all that income from hotels, gambling and alcohol it let an event go ahead which will undoubtedly cost lives and spread the virus both around the UK and internationally.
So will the lockdowns mark the bottom of the stock market collapse?
I am optimistic we are going to see a stabilisation in the stock market. The UK and US have gone to unprecedented measures to stimulate the economy and guarantee wages. Later this week we expect the Feral Reserve to fire up the printing press and start quantitative easing and bond buying. This will mark the start of the biggest gold market bull in history. If you have not invested in gold yet now is the time. Buy physical gold, invest via a Gold fund or as I do trade it via spread betting firms like IG.
This is a once in a lifetime trade and should not be missed.
But back to the stock market. Will we see a recovery and bounce in the stock market? In a word no.
The world as we know it has changed. We are about to go into a recession at best and possibly a depression, the likes of which have not been seen since the great depression of the 1930s. If you don’t know what a depression looks like, now might be a good time to dust off your history books. It’s not pretty and its not good for stock markets.
With the population trapped inside, only able to consume supermarket food, wine and Netflix. The rest of the economy is paralised. The last 10 years has seen the buy the dip mentality, as markets only headed one way due to globalisation and one of the longest booms in history.
The new world is going to look very different, international boarders have gone back up, the likes of which we have not seen since the creation of the EU. International travel has ground to a halt and while the virus is still alive it is likely to stay that way. Even once a county believes it is clear of the virus they wont openly encourage travel from those counties still struggling to destroy the spread.
A good example of this I believe will be the UK and Netherlands. They have had similar infection trajectories (as seen below thanks to the FT). Both countries have managed it equally badly up until now. Both encouraged large gatherings such as Cheltenham and carnival in the Netherlands and both are paying the price now.
Mega City Handicap
However unlike the UK which has one Mega City in London, the Netherlands is a collection of smaller city’s with excellent infrastructure for cycling. Social distancing is clearly not working in the UK. Until we find a solution it will take a very long time for the virus to leave London. The US will have similar problems in its metropolitan areas, not to mention a president loathed to lock down his economy for fear of loosing votes.
So even when some counties have beaten this, they will likely stay in lockdown and keep their boarders closed for fear of further contagion. Then the global economy will only be as strong as its weakest part. This could easily be measured in years not months.
So for now the restaurants shops, bars and business will stay closed for the next few weeks. All large gatherings in the Netherlands will be banned until June.
Will lockdowns become the air raids of the second world war. Every time there is a new outbreak we all get sent home for a couple of weeks to avoid the spread? Quite possibly.
Conclusion: Should I buy the dip?
So in conclusion taking all the above into account I see very little prospect for growth in the foreseeable. We will not see a V shaped bounce as some expert believe. There will be pockets of reinfections which will be enough to keep boarders and travel to a minimum for a while yet. Supply chains will continue to be be disrupted and we can only hope the warmer months will help in the fight against this invisible enemy.