Dr. Fed’s Corona vaccine

Dr. Fed’s Corona vaccine

Fed made a surprise and unexpected 0.5% interest rate cut on Tuesday, March 3^rd, 2020, last week, post telecon of G-7 Finance Ministers/ Central Bank Chiefs, wherein everyone stopped short of taking any action despite concurrence on coordinated easing.

Later in the day, Federal Reserve announced the rate cut, leading to the US$ bond/ treasury yields dropping to near zero (close to 0.5%) and simultaneous weakening of USD against Euro.

The move was targeted to provide relief to the markets and economy riddled by the impact/ damage (current and potential) of Corona virus on the global economy. The move was more of the nature of giving a shot of pain killers against a deadly disease rather than the ability to treat.

The infliction of Corona virus on the health of the global economy is visible in the form of postponed travel plans, disarrayed industrial production, inventories, supply chains, logistics, accentuation of work and study from home scenario, a single day drop in the world crude oil prices by 30% and accelerated slow down as projected by the World Bank.

The questions that cross my mind is, “Had Corona virus not struck the global markets, would the stocks have risen further?”, or “If Corona virus is brought under control, will the stock markets surge to their respective peaks?”

According to me, the answer is a firm “NO”. The markets could not have climbed relentlessly or the kind of earnings or GDP growth that the companies or the economies, respectively would have required to sustain the momentum in stock markets, would have been tremendous and hard to achieve specifically at a time when the global slowdown is visible and has been duly reported by the World Bank on numerous occasions.

Bearishness of the stock markets could have been easily predicted before the oubreak of Corona virus, by making following comparisons:

   A) Candlestick charts of Dow (monthly) during the crash of 2020 (current) and Nifty50 (fortnightly)/ BSE Sensex during the crash of 2008.

     B)  Broader candlestick pattern on charts of Nifty50 (fortnightly) during the crash of 2020 and Nifty50 (daily)/ BSE Sensex during the crash of 2008.

Crash in Dow has led to crash in global indices. This is the first wave of the global crash and the bearish phase can be expected to last longer in comparison to that in the past, following a decade long bull run.

With every problem comes an opportunity to make new structural changes and shifts in paradigms. I personally feel, the current standstill in economies of the world will lead to innovative, diversified and probably decentralised, localised and dispersed (multiple) solutions in supply chains and logistics, need for and generation of alternative sources of revenue streams for oil based economies, cheaper and focussed solutions to screen public health catering to masses and research on reducing time to provide remedial healthcare solutions from the time of identification of a potential pandemic to the time of delivering effective cure and also consequential allied disaster management and probably many more which I am unable to foresee or think of.

For more charts and continued guidance, the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading worksheets/books are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's or institution’s investment objectives, financial situation or needs and must not be construed as an advice to buy, sell, hold or otherwise deal/ trade in any single or set of commodities, currencies, indices, securities or other investments of any other form(s). Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.