Friday, March 27, 2020

The Corona Virus and all that

As you know from the daily guesstimates I think there is a good chance that the U.S. stock market established a long term low earlier this week. In the unlikely event that this low is broken in the weeks ahead it won't be broken by much.

I hope to post a more thorough stock market assessment and prediction soon. But for now I want to explain why I think the present pessimism about the effects of the Corona virus is way overdone.

The fundamental fact is that warmer spring and summer weather across the country will start limiting the spread of the virus. I think in a couple of weeks most of the country will be returning to work and social life will resume.

Looking ahead there will certainly be a new outbreak of Corona this fall. But by then the country and the world will be well prepared for its resurgence. During the next few months production of test kits, masks, ventilators and the other medical equipment needed to contain the virus will be ramping up quickly. Stockpiles of these items will be readily available when they are needed.

These preparations will contain the Corona virus effectively when it breaks out again this fall. Businesses and schools will remain open. Commercial and social life will continue normally, just as it does during a bad flu season.

I think the stock market sees this as it peers ahead through the mist which always obscures the future. Moreover, as I have mentioned several times in recent guesstimates, the world's central banks are aggressively pursuing policies which provide plenty of liquidity to meet the demands of the flight to safe assets triggered by the virus outbreak. This liquidity will find its way into longer term financial and then into real assets. Consequently a long bull market lies directly ahead.

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