On the Road to Perdition

Monthly Market Commentary: April 1, 2020

According to an analyst, “12 months from now, no one will regret buying stocks,” which are “now at the lowest levels since 2016.” I agree that stocks are extremely oversold despite their sharp rebound in the last few days.

However, I am not so sure that stocks will be higher in twelve months. Nobody regretted not buying the Nikkei Average after the initial 30% decline in 1990 because the Japanese market continued the downtrend for much longer – admittedly with intermediate powerful bear market rallies. It finally bottomed out in 2008.

Similarly, from the March 2000 top the NASDAQ 100 dropped 40% to an intermediate low in May 2000 (two months after the top). From this intermediate low, a 3-month 41% rally followed, which led to renewed severe weakness and brought the NASDAQ 100 Index down to the ultimate low at 795 in October 2002 (down 83% from the March 2000 high). I am sure that nobody really missed anything for not buying the NASDAQ 100 after the first initial decline.

The economist JR Hicks opined about the 1929 crash and the depression that, "Really catastrophic depression is most unlikely to occur as a result of the simple operation of real accelerator mechanism; it is likely to occur when there is profound monetary instability – when the rot in the monetary system goes very deep." This was certainly the case in the late 1920s but probably far less so than what is now the case.

I need to warn my readers that this report is not exactly moral boosting and spirit lifting.

Regarding the Corona Virus please remember the words of Gustave Le Bon, In The Crowd he opined:

"Ideas, Sentiments, emotions, and beliefs possess in crowds a contagious power as intense as that of microbes….. A panic that has seized on a few sheep will soon extend to the whole floc. In the case of men collected in a crowd all emotions are very rapidly contagious, which explains the suddenness of panics."

With kind regards and wishing you all good health and courage,

Yours sincerely
Marc Faber

 

 

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