Well, its official, its a bear market. We somehow still cannot call it a crash but a correction. I don't mind this bear market at all cause it is "within reason" and "within grasp". Let's look at how different the current bear market is from the 2008 crash and 1998 Asian crisis.
1998 - This one you can feel it in your bones. Once it happened, there was an immediate domino effect on all emerging markets' currencies. Our currencies were suddenly seeing 20%-35% drop in value in a matter of days. That sobering crash allowed us to see the extent of the mess that easy credit had on everyone, and how everyone geared to the hilt.
I immediately knew I would be out of a job within a few weeks. You know very well that the whole Asian emerging markets' economies will shrink, the effect was close to 20%-30%. Companies were trying their hardest to park loans and renegotiate terms, but it was inevitable, we needed these companies and these loans to fail. The longer we stave them off the longer the contraction and slower the recovery.
That was a big lesson from Japanese markets. Since the correction in 92/93 in Japan, all listed companies there refrained from facing the music. Even banks dared not collect. The whole taichi movement last 12-15 years.
2008 - This was scary cause it involved the very existence of the top 5 banks. If they failed, the whole capitalist system could unravel, and that could unravel the whole financial infrastructure for all markets and capital flows.
It was a lot scarier because financial markets and its derivative instruments (in particular) have dwarfed the real economy. Hence any big missteps will be amplified in a bad way to the real economy.
2020 - This one has to do with the virus morphing into a pandemic. Oil prices has shock value but not much to do with the real bear market. Saudi Arabia wanted Russia and the rest of OPEC to toe the line. Russia wants lower prices in order to kill off Americal shale/fracking producers. At most, the US producers will file for bankruptcy. The top 5 banks in the US only has between 1%-3% of the loans exposed to shale/fracking companies. No big deal.
The good thing about this bear market is that it has very little impact on the integrity of the financial markets and liquidity. The prolonged impact is what everyone is looking at. But just on the fact that it has little systemic effect on the financial system is a huge load of relief. In that way, this bear market IS NOT SO SCARY.
Looking at China, where the outbreak has peaked, we saw economic activity dropping by 30-40% over a 2-3 month period. HK had a longer tough run with the protests over democracy reforms and almost immediately by the corona virus - companies on the frontline are failing by the droves. Nobody will sympathize with the mall or commercial property owners. The lack of business will not be able to counter 50% discounts to rentals.
These frontline industries (retail shops, f&b outlets, airlines, etc..) will feel the brunt very fast, as soon as 1-2 months. Subsequently, the contraction will be felt via employment cutbacks. By 4-6 months, significant job losses will be next. Followed by defaults on mortgages and subsequent forced sales and personal bankruptcies.
Governments can step in to address the situation: no mortgage payments for 3 months or personal tax cuts... but business failures will overwhelm and job losses at smaller firms will be more pronounced than bigger ones.
The markets are now trying to discount a substantive contraction in their economies by 20-30% over a 1-2 month period. If it drags on, the equity markets will dive again later.
For now, we are reaching a good level for a quick buyback during tomorrow's weakness. Trade, don't hold as the situation is still fluid.
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