Another Way Out

2020年5月27日

The 2020 Pandemic Crash was like a typhoon that whisked across the world, shutting down countries and wrecking economies. Thinking about it more, I wanted to understand if there was a time in history that I could possibly relate what's happening today more closely - rather than a past Recession or Depression. So, I went back to the 1987 Crash aka Black Monday for an examination. This event saw a sharp downturn in the market in a short period of time and on the day known as Black Monday, the DOW lost 22% of its value in 1 single day. Additionally, much like the Covid Crash, it was not brought on by a bubble or some sort of economic breakdown. The 1987 Crash was something more of a computer Algo glitch & Mass Panic Selling event - triggered by fear and uncertainty. This also swept across the world in a similar fashion, and reached major trading markets in several countries before coming to an end.

Below are some of the remarkable similarities:

1987 Market Crash:
- Lost 32% before correcting
- Initially Retraced to the 38.2 Fib level
- 3 Months from Peak to Trough
- FED injected capital into the markets, but didn't lower Interest Rates
- Took 19 months to recover and regain the high

2020 Pandemic Crash:
- Lost 35% before correcting
- Initially Retraced to the 38.2 Fib level
- 1 Month from Peak to Trough
- FED injected LOTS of capital into the markets, and also lowered Interest Rates to 0%

Now to be fair there are some major differences here as well. The massive increase in the Unemployment Rate & Strong Negative GDP Retraction are a couple, and due to shutting down of the economy, these negative outcomes are to be expected. The other major difference is the amount of action taken by the FED and Treasury during these 2 periods. Presently, these agencies have been proactive and extremely strong in their monetary responses to avert another Depression, and in doing so, they may have succeeded - instead offering up a short recession in its place.

I guess where I am going with this is that both of these events have strong similarities, as they were both unexpected, and not malignant in nature. We will still go through a recovery period, but the worst maybe behind us, meaning that the markets may not retest the bottom again (S&P 2191). I do expect further dips and corrections, but nothing lower than S&P 2600. If this is the case, than opening up long-term positions, per each correction, would be wise as we may still be in a Secular Bull Run, and as you know, Secular Bulls can run 15-20yrs. Cheers!


JP - OUT