Crypto Market Commentary 

27 February 2020

Doc's Daily Commentary


The 26 February ReadySetLive session with Doc and Mav is listed below.

Mind Of Mav

The Correction Is Here: What Next?


The Dow (INDU) dropped 1,191 points, or 4.4% in its worst one-day point drop in history. The index has fallen more than 10% below its most-recent peak, putting it in correction territory.

The S&P 500 (SPX) closed down 4.4% and finished the day below the 3,000 point mark. The index is also in correction territory.

The markets have now completely erased the last 7 months of gains on the S&P and the last 2 years of gains on the Dow in the last 5 days.

This has been the 18th worst weekly drop in 124 years of the Dow by percentage as well. Still a day to go.

As they say, stocks take the stairs on the way up and the elevator on the way down. Or, sometimes, the cliff. 

Goldman Sachs revised its earnings estimate for the year for U.S. companies to $165 per share, representing 0% growth in 2020.

This is a dramatic break from the consensus forecast of Wall Street, which still calls for earnings to climb 7% this year.

“Our reduced profit forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, disruption to the supply chain for many US firms, a slowdown in US economic activity, and elevated business uncertainty,” the firm’s chief U.S. equity strategist, David Kostin, said in a note to clients.

It gets worse. Goldman Sachs also predicts that the 10-year Treasury yield will fall below 1%. It’s currently at a new all-time low of 1.25%, so if the coronavirus does spread further, Sachs’ forecast will almost certainly be confirmed.

If it is confirmed, this will mean that investors have lost faith in stock markets as reliable sources of capital growth. In turn, it will mean they’ve lost faith in the economy.

Nothing pretty here. Pretty much ugly across the global board. Whether you consider airlines, gambling, shipping, cruise lines, the banking sector, or a variety of other industries. The outlook stands somewhere between “uncertain” and “bleak.” The supply chain in many industries, and commodities, is also coming into question. The stock markets, after a fabulous run in 2019, are under the hammer as a result of all of this.

The coronavirus outbreak is now the global economic story. Consider these points.

1. The primary way that countries are combating the disease is by quarantining an entire area, which means the flow of goods into and out of that area is stopped, perhaps completely.

2. Add that to the interconnectedness of the global economy and you have a recipe for economic growth grinding to a halt.

3. Points 1 and 2 slow business activity.

4. Points 1 and 2 also mean a decline in global trade, which is another component of the GDP equation.

5. Consumers’ paychecks will be hit by a drop in hours worked, which lowers income.

6. Consumers are also scared, which means they are less likely to go out and do things, which causes a drop in retail sales.

7. Points 4 and 5 apply to personal spending, which accounts for a large percentage of developed economies’ economic growth.

8. Assuming points 1-7 are accurate, the only source left for growth is fiscal policy, which governments have been loathed to use.

We now have a recipe for a recession that can be transmitted between economies via an already slowed global trading system and once injected into an economy, amplified through reduced consumer activity.

So “where is this opportunity,” and “how do I play it?” Virtually no one in the media is discussing it at all. There has been no focus of any kind on the flip side here, and yet it sits there, staring you in the face.

For one, let’s consider that this is not the end of the human race, the global economy, or any major paradigm. 

Let’s consider the long term. Since 1926, if you invested in the stock market for just one random day you would have a 54% chance of making money, for any given year a 74% chance, for any given 10-year period, a 94% chance, and for any 20-year period, the market went up 100% of the time.

Amazingly, the worst, the absolute worst, 20-year period saw a 54% return on investment. While the absolute worst 30-year period saw 854% return on investment.

Goldman Sachs’ analysts suggest that companies exposed to global suppliers, markets and third-parties will take the brunt of this shock. As Goldman’s chief U.S. equity strategist David Kostin predicts:

“Pandemic risk is real and our basket of firms that are domestically-oriented will likely outperform companies with a high share of foreign sales.”

So expect things to get worse before they get better. And in the meantime, expect gold and other safe havens to rise.

Whether Bitcoin and digital assets are among those that investors flock to remains to be seen.

But, let’s remember that these are exactly the conditions we’ve been waiting for:

A breakdown of the world economy as the supply chain buckles. 

A breakdown of world commerce as consumers become fearful.

A potential for sovereign currency value debasement as central banks flood their economies to try and keep them afloat. 

A potential for capital flight into alternative currencies as nation-states and central banks prove ill-equipped to deal with the economic hit. 

All it takes are a couple of dominos to fall, and these conditions will start to emerge.


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