More than a dozen market veterans including Buffet, El-Erian, Gross, Gundlach, Tepper and even Fed Chairman Powell have been putting forth very bearish short term projections on the economy and markets. At the same time most risk assets have been moving up significantly driven by unprecedented liquidity. Howard Marks of Oaktree, maybe the wisest of all, has described the current situation as impossible to handicap.
We are also navigating these markets very methodically to ensure we are playing the proper offense and defense. With that in mind, patience is our mantra now, as we try to find clarity in the chaos. We can be assured of continued fiscal and monetary support, but the pace of the restart, combined with the permanent economic damage and changes in consumer behavior, remain very unclear to all. Below is a more concise outline of the pros and cons we see looking out the next 90 to 180 days
- The Bull Case
- Unprecedented fiscal and monetary action will drive up risk assets
- Covid-19 Vaccine or antiviral cocktail
- Successful restart of the economy in Q2/Q3
- “There Is No Alternative” to stocks (TINA)
- Covid-19 pandemic has accelerated the shift to the “new economy”
- Zero rates for an extended period
- The Bear Case
- Significant drop in 2020 and 2021 GDP and earnings
- Slow re-start of economy
- Lasting change in consumer behavior
- Unpredictability of Covid-19 virus
- Permanent damage to “old economy”
Low Rate environment unless we get US credit issue
Acceleration of “tele” and ecommerce across most industries
Deterioration of US/China relations
Political toxicity – election risk and beyond
Please let me know if you have any questions via phone at 804-774-2087 or email at Jesse.Ellington@middleburgfinancial.com.
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