Could This Be The Last Straw?

We all know the story of how a single straw broke the camel’s back. It is not because the straw was particularly heavy but this was the last straw on a camel which is already carrying hundreds and thousands more straws.

With the market free falling last week, wiping out all the gains in 2020 and more, many begin to wonder, “Could this be the last straw that breaks the market?”

Personally, I think it is and this is why.

This Virus is just Beginning.

As of writing, 1 Mar, the COVID19 has spread to more than 20 countries. I must confess I am not a medical professional but I spoke with many of them. My conclusion is the COVID19 is highly infectious. Just look at how South Korea went from zero cases to more than 2000 cases in 1 week. The power of exponential growth.

With this infection rate, it will likely spread further. To more countries and to more people.

The blessing in disguise is the fatality is very low ~2%. However, the trouble is that the patients get very sick before recovery. I can’t find official numbers I can rely on but current guesstimate stands at 10-20% of the infected get in some form of respiratory complication, and a good number of them require ICU admission.

What does this mean to the market?

Now, remember the market is made up of consensus and confidence. People only keep their money in the market when they are feeling confident.

However, with news of more countries and more people getting infected, I believe the confidence level will continue to fall. The fear of the virus will spread faster than the virus itself. Hence, this will cause the market to continue to drop.

With a large downward momentum like this, it will also reveal other problems in this fragile market which were previously hidden, such as high corporate and government debt, overly inflated valuations and poor credit rating junk bonds.

Therefore, while the COVID19 is not very deadly, it is likely to become endemic. I believe this might be the start of a bear market. The straw that breaks the market’s back with Domino effects following.

In my next post, I will share why I hope this is the start of a bear market and why it could be good for you!