Emerging-markets investing pioneer Mark Mobius made those remarks Tuesday in an interview with CNBC, putting him in the investing camp that expects an inevitable cascade of brutal economic data and corporate earnings hasn’t been fully discounted by investors.
Mobius, who founded Mobius Capital Partners in 2018 after a three-decade run at Franklin Templeton Investments, said corporate earnings would be “pretty bad” and that while some bargains have emerged, investors should keep some cash ready to deploy in the event of a further market downturn.
U.S. stocks hit all-time highs in February, then plunged into a bear market as the global spread of COVID-19 forced the U.S. and countries around the world to largely lock down their economies in an effort to contain the outbreak. Stocks have taken back a large chunk of lost ground since March 23, however, with recent gains tied to expectations the pandemic is near its peak, turning attention to efforts to reopen economies.
Market bulls have argued that the unprecedented nature of the shock and the massive response from the Federal Reserve, other central banks, and governments have rendered most comparisons to past bear markets debatable.
Others have cautioned that stocks are largely sticking to the bear market script.
“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” he said. “We might see a double bottom.”
I cannot make any claims about the virus itself and this post is the reaction of major stock markets. A good explanation I’ve found on epidemics and exponential growth is this one on YouTube which I recommend watching if you are not already up to speed.
Looking at the current situation it appears that the market has room to fall further as the economic fallout continues and the virus spreads.
If the virus starts to slow down, it won’t be long before stocks find a bottom given the huge amount of stimulus that central banks are providing.
The most important thing is that we need to see the number of new daily cases start to flatten out.
Currently the virus is spreading at an exponential rate and that is causing businesses and services around the world to enter lock-down.
That has dire consequences for company profits.
To summarize some of the information in the mentioned video above, exponential growth means that as you go from one day to the next you have to multiply by some constant.
In the case of coronavirus, daily cases have been increasing by about 1.15 to 1.25 times the previous day’s cases. This results in an exponential curve with the number of new cases increasing on a daily basis. In fact, a virus provides a textbook example of exponential growth since what causes new cases are existing cases. However, there comes a time when exponential growth has to slow down.
For example, as millions of people become sick there are fewer people that can be infected so the rate of new cases must decrease. Likewise, measures such as hand washing and limiting gatherings also have the effect of reducing the spread.
So an exponential curve will eventually level out at an inflection point and turn into what’s called a logistics curve. At this point the number of new cases each day levels out and then starts decreasing. We have already seen this happen in China and now it is happening in South Korea too.
New cases in China leveling out. Source: John Hopkins University.
Growth Factor = No. New Cases Today / No. New Cases Yesterday
A value over 1 indicates that we are still on the exponential part of the curve and there may be higher magnitudes of new cases ahead of us. In other words the growth is not slowing down.
This is the case right now in the USA and Europe. Whereas a value of 1 means that growth is leveling out and a value under 1 means new cases are decreasing.
Taking China as an example, the coronavirus spread began at an exponential rate which has gradually leveled off thanks to drastic shutdown measures.
With new cases appearing to have peaked the country has been able to get back to work and reboot its economy. Meanwhile, the United States and Europe have only just started to see new cases increase, indicating that they are likely to be near the beginning of the exponential curve.
What does all this mean for the stock market now?
I think we need to see the growth rate of new cases in the US and Europe start to level off before we can put in a major stock market bottom. So we need to see the daily growth rate drop to one or below and then stay there, perhaps for a week or so.
Once that happens I think we will see a bottom in stocks and a significant relief rally thanks to the huge amount of stimulus that is being provided by central banks.
It is because of this stimulus that we will see the slingshot. Importantly, though, I don’t think we need to see growth rates level off for the whole world.
It would be enough to see growth rates in the US and Europe start to slow for a bottom to be put in. That’s because these areas (plus China) account for the vast majority of global GDP.
To keep on track of this I am using the coronavirus dashboard developed by John Hopkins University which seems to provide the most up to date and reliable figures that I’ve found. The dashboard provides the latest statistics on new cases which can then be used to calculate growth rates.
Analyzing these numbers it doesn’t seem all that surprising that 10% drop in US stocks that day coincided with a huge daily growth rate of 2.8 times (this is for locations outside Mainland China).
Ultimately, virus growth rates and the stock market are linked and so long as the curve is exponential the markets are going to struggle.
Stock markets are likely to rally every time the virus looks to have been defeated, even when it’s not.
The data isn’t entirely accurate so there is likely to be some false starts. It’s also possible that the market will be able to lead a flattening in the virus whether it is caused by luck, government intervention or some other reason.
But eventually the market will get it right, it always does.
That being said, when stocks are up and the exponential curve has leveled off, review your Daily, then your Weekly charts with signals for Green Light Trade Signals because that will mean we are close to a bottom, or the bottom may be in!
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The rise in the stock market will eventually force the Federal Reserve to abandon its attempt to appease international central bankers who are still locked into negative interest rates.
This is actually the exact pattern that took place after the first real G4 meeting, as I call it when the US Fed lowered rates in 1927 to try to deflect the capital flows back to help Europe. It is ironic that history is repeating this same way once again…
Kansas City Federal Reserve President Esther George stated today that the Fed may need to “reverse” the three rate cuts implemented in 2019 that brought rates down to 1.5% to 1.75%… “We will need to asses whether the 2019 rate cuts prove to be ‘insurance cuts’ that will need to be reversed if headwinds fade.”
The Fed will once again turn to its domestic policy objectives and stop trying to help Europe which is trapped into its negative rate policy. Even Sweden has abandoned negative rates stating they have failed to provide what they were claimed to have accomplished.
I want to remind you that rising interest rates are bullish, not bearish. When the time comes to let you know when and what to buy and sell, we will provide those signals to our members. As money continues to move out of Europe to the USA we will let you know here.
Our info coming directly from REPO traders remains unsure to what extent the FED had to pour in money to prevent short-term interest rates from rising. The analysis which is still mostly calling this Quantitative Easing is just laughable.
The economy is doing well in the USA and unemployment is back to the lowest levels since the ’60s. There is absolutely no basis to “stimulate” the economy.
We can see that the Inverted Yield Curve going into the summer was the warning sign that confirmed our forecast we faced a liquidity crisis beginning in September 2019. Like the weather, everything is moving to the extremes in both directions.
The collapse in the yield curve to invert has ABSOLUTELY nothing to do with a pending recession everyone was touting. The inverted yield curve was being driven by a panic to get out of the Euro. The Euro has been destroyed as a reserve currency because other central banks do not want to hold Euros with negative interest rates which they see as a tax on their reserves for the benefit of Europe.
We can see that the REPO Crisis is not about QE, but trying to prevent the short-term rates from rising. It had nothing to do with taxes and what everyone was attributing it to back in September.
The Repo crisis has been an ongoing crisis because the Fed is trying to prevent the inevitable – the rise in interest rates back to normal levels which reflect risk!
Some people have asked to please explain what this has as an impact upon the average person?
What I am describing is that the trend is back to interest rates rising and this is what the Fed is trying so desperately to prevent. This is all about manipulating the interest rates and fighting against the free market.
The experiment with negative interest rates to stimulate the economies of Europe and Japan have completely failed. But the respective central banks are now trapped. They have utterly destroyed their bond markets, and in the process ensuring their own demise. As they try to maintain negative interest rates, the capital flows are working hard to undermine both european and eastern central banks and the Federal Reserve is caught in the crosshairs.
The REPO Crisis is NOT about Quantitative Easing, it is about trying to PREVENT interest rates from rising which will blow-up the world economy.
Here is my point:
We have to be very careful and attentive, all of what you read and hear by the media now it 100% about “self preservation”. Stay close to your charts and signals.
The vast majority of analysts commenting on this have NEVER advised institutions. They are clueless with respect to what is really taking place. In many cases, even the institutional traders are people who have their coffee cups constantly refilled from beads of sweat pouring from their forehead from what is taking place. Even the COT managers are confused.
Here is my point:
We have to be very careful and attentive, all of what you read and hear by the media now it 100% about “self preservation”.
Stay close to your charts and signals as the vast majority will miss the slingshot move up after the coming false crash.
The vast majority of analysts are clueless with respect to what is really taking place. In many cases, even the institutional traders are people who have their coffee cups constantly refilled from beads of sweat pouring from their forehead from what is taking place. Even the COT managers are confused.
A quadruple-whammy of not-awesome trade-related comments today spoiled the party…
0602ET *TRUMP TO RESTORE TARIFF ON STEEL SHIPPED FROM BRAZIL, ARGENTINA
1035ET *TRUMP WILL INCREASE TARIFFS IF NO CHINA DEAL, ROSS TELLS FOX
1200ET *TRUMP AIDE SAYS IT’S UP TO CHINA IF DEAL WILL BE MADE THIS YR
1230ET *CHINA TO RELEASE ‘UNRELIABLE ENTITY LIST’: GLOBAL TIMES
And then US Macro data poured cold water on China and EU economic hope as construction spending plunged and manufacturing ISM disappointed significantly.But that ‘surprising’ surge in a government-provided survey of manufacturers in China was offered up as evidence that (despite US weakness) everything will be ok and the trough is in…
Chinese stocks clung to very modest gains overnight (trade headlines hit after the China close)…European stocks were hammered on trade turmoil (despite PMIs beating expectations)…And European bonds were also down (in price) along with stocks (10Y Bunds +8bps)…US equities suffered their biggest daily drop in 6 weeks…Dow futures were down over 400 points from the overnight highs…Momo was dumped at the open but the trend in value/momo reversed around the European close…VIX spiked above 15 intraday but once again vol-sellers returned after Europe’s close…Credit was smashed today (after last week’s insane surge)…Treasury yields surged on the day, led by the long-end (2Y was marginally lower in yield)…Most notably, the ultra-bond futures collapsed overnight (hitting a 3-point limit circuit breaker)…And today saw a major steepening of the yield curve… (the yield curve move has the smell of rate-locks given the underlying macro data, but we will have to wait and see what the calendar looks like – high-grade dealers expect this week to bring $15b-$20b in supply. This is likely to be December’s busiest week, with just about $25b for the full-month in store, according to estimates — that’s $8b more than last year and in line with the $23b that priced in December 2017)The dollar was dumped today (biggest daily drop in 6 weeks)……breaking down through its 50- and 100-day moving-averages…Yuan also lost ground as trade-deal hope faded…Bitcoin has been unable to get back above $7400…Gold, Copper, and Silver ended the day lower (despite a tumbling dollar) but oil popped on Saudi calls for more production cuts/extensions at OPEC (as its Aramco IPO looms)…But, with regard to oil, it is still a lot lower than before Friday’s plunge…
The 2019 FOMO rally’s resilience has taken it far enough in the face of a cloudy forecast. Any declines from here could get very steep indeed.And then there’s this…And the US is just as bad (if not worse)…And this…
The long term Wealth Preserver traders my be bored with this post, but we have a correction coming soon. In fact, it could occur at any moment. Actually, it should be more of a pull back in a longer term bull market.
We have had one heck of a run since the beginning of October and the likelihood is that it will continue because of QE 4.0. But in every bull run, there a pull backs and I see one coming very soon.
There are two indicators that are usually accurate and both are screaming retracement. So lets take a quick look at each.
The VIX index values move up when the market is falling. The reverse is true when market advances – the index values, fear and volatility decline.
A real world comparative study of the past records since 1990 reveals several instances when the overall market, represented by S&P 500 index (Orange Graph) spiked leading to the VIX values (Blue Graph) going down around the same time, and vice versa.
One should also note that VIX movement is much more than that observed in the index. For example, when S&P 500 declined around 15% between August 1, 2008 and October 1, 2008, the corresponding rise in VIX was nearly 260%.
In absolute terms, VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk and investors’ fear from a current market decline.
VIX values below 20 generally correspond to stable, stress-free periods in the markets. Usually when values decline to around 12 it is a sign that a market pullback is coming soon.
As you see in the chart we are sitting at around 12-13 on the VIX right now and both times this year in fell to this level, we had strong declines in the stock market.
The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market. Published every Friday by the Commodity Futures Trading Commission. The COT report is a snapshot of the commitment of the classified trading groups as of Tuesday that same week.
The report provides investors with up-to-date information on futures market operations and increases the transparency of these complex exchanges. It is used by many futures traders as a market signal on which to trade. When the commercials are Long, they expect the near-term future stock market to rise. When the commercials are short, the expect the near-term future stock market to decline.
Well the result of both market indicators means a pull back within a longer term bull market is imminent.
Since the VIX is bumping against a historically proven low, we would expect volatility to rise as it has done every single time in history. In fact, the commercial investors (HUGE MONEY INVESTORS) at the “Commitment of Traders” are now hedging their Stock Market holdings 2 to 1 betting on a market pull back decline.
Both of these combined usually add up to one conclusion. We are topping and setup for a market pullback. We just do not know how large of a decline will occur and precisely when it starts. But when it does start, I will let you know immediately and you can check your membership charts to see when a Red Sell signal appears and execute your trades accordingly.
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