Posted on March 19, 2020
The bigger story these days is not when the selling will end, but whether it will…
That is, has the coronavirus sent us irrevocably into the grip of a 1930’s style bear market?
Will the fallout be a greater depression?
Are we headed toward a full economic and financial reset, with all the broader social implications that might entail?
We’re going to be addressing that question over the next few weeks, and we hope to be able to arrive at some firm conclusions.
But before anyone gets carried away and decides it’s time to fold up, throw on the sandwich board and set up Camp Hobo down by the railyard, let’s just offer a word of circumspection.
Until we see the “whites of their eyes,” so to speak, we’re not ready to roll over and hibernate.
The bear market will come, to be sure.
But only when the bulls are exhausted.
Not when they’re shocked, or surprised, or even beaten up and scared.
It will come when they’re flat-out exhausted, and they haven’t the resources or lending capacity to lay on another single bullish bet.
Because that’s what makes for a secular change in the market.
We’d love to have your take on the matter, but our very strong impression is that the current market constituency is anything but exhausted.
That may make them foolish.
And it may make them poor – eventually.
It may bring them to gesticulate dramatically in Hamlettian despair, asking whether the “slings and arrows of outrageous fortune” (or the loss thereof) are still worth toiling over.
Or whether a swift removal from the gene pool might be preferable.
But as far as we’re concerned, friends, the bear case is far from proven.
A sideways meander might be in the cards until elections this fall give us a better indication of our economic future.
But extended bear market?
Multi-year secular downtrend?
We just don’t see it.
And now we move to a trade.
This week we’re returning to the shipping group, after a broad coronavirus selloff brought nearly all of them limping into port.
So what changed?
A few things.
First, the bottom falling out of the oil market has moved the entire world to stock up on cheap energy. That means heretofore empty tankers are now being commissioned as storage space.
And that buoys prices.
In addition, new emissions standards for the big shippers just came into force, diminishing the number of compliant barks afloat.
Whether enforcement of the new rules (instituted in January) will come into effect immediately is an open question. Considering the current economic reality, nobody is interested in either getting or giving fines. But the matter stands as a check on supply, and that should also be price supportive.
Many happy returns,