“How horrible is it out there?” “How deep will the recession be and how many companies won’t survive?” “Has the market bottomed?” “Is it time to start buying?” Questions we ask ourselves but how to think long term and live in the Moment?
Depending on when you tune in, it has become as much a market timing event as a viewing choice. It’s a tough way to make long-term investing decisions. We would all like to make intelligent forecasts about where markets will head in the coming months. And plan accordingly. But it’s devilishly difficult not to think like a day trader. Maybe not having a lot of faith is just an inevitable symptom of what is going on. Market price action, like the people you encounter when trying to do the routine activities that are available, is somehow simultaneously optimistic and strong, while being frustrated and negative. And it’s hard to argue that all of the above emotions are not appropriate.
So how do you trade in this environment?
First of all, you just can’t go “all in” on anything. It’s too hard to feel that strongly betting on something that has a large element of the unknowable. Certainly in the short- and medium-term horizons. But deep down inside, it’s difficult not to succumb to the notion, which many investors have successfully done over the years, that you just shouldn’t try to fade the Fed. And if there were ever a time that they are committed market participants it’s now. Which isn’t to say they are necessarily omnipotent. And no reason to believe they can push things along in a straight line. It’s also unlikely that they will stop trying, no matter what it ultimately means for the state of markets and accepted economic theory
Of course, the Fed can’t possibly do it alone. This is a global problem of biblical proportions. So you need to accept that every central bank, and government gets the memo. To be an optimist, you need to be betting on all of them. The response, so far, has been mostly impressive. The list of countries pitching in is a long and meaningful one.
The need for this kind of joint response helps explain why there is so much frustration with Europe as they continue to dither over whether to issue debt jointly. It’s become impossible to have much sympathy for the two-tier union. They like to call the notion “Corona bonds,” as if that illusion will make the idea more palatable to the hold-outs. But that ship has sailed. They should call them “Euro bonds” and get on with it.
Not, perhaps, getting enough attention today is the fact that China’s Politburo met to emphasize not only their ongoing fight to control the spread of the disease but to promote additional pro- growth strategies. This is potentially an important and potent force reengaging in the global economic battle. It is significant that they appear to be emphasizing fiscal, not monetary, measures. The world’s economy needed them during the last “financial crisis to end all crises” and does so again today. They said they wanted to implement policies to help them try to achieve their annual targets and meet the “Six Stabilities.” We should all be rooting for their success. In this matter, everyone should realize we are ultimately on the same side
Will the market be up or down today? It doesn’t matter all that much but having an eye on Market Profile and on the theme of the day will help. Markets aren’t going to simply go up and never look back. We have no idea, nor does anyone else, what timeline this virus will impose on the global economic recovery nor the precise path asset prices will follow. But I have a pretty good notion that long-term optimists have some pretty powerful friends.