Now... of course, this is all my musing and my own thoughts, so don't take them as what will really happen in the future.
It's just me thinking about probabilities and how things will turn out.
The Virus...
It's a simple thing. Humans are smart. We won't die out just cos of some virus.
There will be 2 things that could happen.
1) The virus disappears as containment and quarantine measures work.
2) The virus becomes a normal occurrence like the flu.
The bark is worse than the bite. Currently the panic of a little known virus has caused the world to panic, and Governments are pushed to action, cos they cannot be seen by the citizens to be doing nothing.
The problem is the coronavirus could spread quickly. If suddenly 20% of Singaporeans get it, the healthcare system won't be able to handle the influx. This is the same for any other country. The hope is probably to just spread out and slow down the spread of the disease. So that the infection rate is low and spread out over time so that the healthcare system can cope.
This shall pass...
The markets... this is of course more interesting.
I've been waiting for an event like this for 6 years.
I wrote about this before.
I've been holding pretty much liquid assets for the past 6 years waiting for a strong market event and I think, this is probably it.
And this is how I think it could pan out...
If this remains a consumption/recession issue, I'm expecting the markets to fall by 40% from peak.
S&P high was 3380 a 40% down would be 2028.
I'm not expecting it to be a quick drop, probably 3-6 months for it to slowly go down to this level as consumption and businesses feel the hit.
IF it somehow becomes a financial crisis, then there's a chance of a 60% drop from peak.
That's S&P at 1352 and this will be a quick drop like in 2008. This is highly unlikely since the FED has come out to reduce interest rates and start quantitative easing again.
Due to the FED moves...
Initially during this crisis, I'm expecting the USD to remain strong against the SGD.
Gold is expected to drop. My belief is gold has peaked at 1700 and will not cross that in the short term.
HOWEVER... After the 40-60% drop in S&P, the USD is expected to weaken against the SGD as the money supply increases. It could drop to they days of SGD1.22 = USD1 due to the liquidity that the FED has injected into the markets.
The issue here becomes... IF someone buys the S&P after the 40% drop (3-6 months later), they would be buying USD at a higher rate to invest in the S&P. Then they will incur a potential loss of around 10-15% as the USD weakens against the SGD.
Of course the way to avoid this is to hedge against the drop of SGD/USD. This can be done using a margins trading account.
BUT, as the USD weakens, gold is expected to strengthen and should end up more than the last peak of 1700 to reach a new peak of unknown level.
And this too shall pass...
In 5 years, the effects of the market downturn would be no more.
The S&P is expected to recover to more than the last peak of 3380.
The weakened USD would recover to around the same levels as before the crisis. So there's no real need to hedge against the drop of the USD.
Gold will weaken 10-20% off the new peak. It could settle at 1700 as the new average price.
Ok... now of course this is my own thoughts of what I'm expecting to happen. And I'll make decisions based on what I'm expecting.
In no way am I suggesting anyone else makes any investment decisions based on my expectations of what the market will do.
I just thought of penning down my thoughts on how the "crisis" would pan out and 6 months later or 2 years later I can look back and review what happened versus what I thought would happen.
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