I am currently the most short in the market I've ever been (and losing money fast). This is the worst economic hit I've seen in my lifetime. I was around for the dot com bust and the 2008 financial crisis, and this seems much worse to me. This doesn't however mean the market needs to go down, but I think the fact that the S&P is only down 13% means the chance of a drop is significant.
Here are the reasons why I think it will pay off to be conservative and this will not be a big V recovery.
- The unemployment rate is skyrocketing. People who are unemployed will scale back their purchases, even once the virus is killed.
- Businesses will probably see this as a lesson to de-leverage some and keep a larger cash position for crazy things like this in the future.
- Normal people that are still employed are not going to be going out to restaurants, shopping, or anything else that requires gathering of people until they feel safe. Traffic patterns in China are way down on the weekends, showing they are not going back to their normal lives.
- There is already a narrative shift for startups and businesses to cut back and hunker down. The normal hiring pace at startups and big companies has been cut way back.
- We will likely see second and third wave outbreaks as lockdowns are lifted.
There are some things that could cause the market to keep going up though...
- A miracle cure could be found to treat people.
- A vaccine to prevent people from getting sick could be found.
- The Government can print and give away so much money that it keeps deflation at bay.
A miracle cure still wouldn't prevent people from getting sick, and would likely not be available to everyone. A vaccine will take a while to prove it is safe and effective. I think #3 is the one I'm betting on as the reason why the market doesn't go down (if that happens). If this happens I hope you have hard assets like gold, bitcoin, real estate, etc.
When I close out my position in a few months I'll post the results. It will be a binary outcome so I am really writing this to lock myself into posting results even if I go down in flames.