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What we're living through right now is truly unprecedented. And the trading opportunity that will follow is going to be a once-in-a decade opportunity. More on that below, but first let's dig into what's happening in the markets – and more importantly, why.
A novel virus has commandeered our modern ability to travel fast and far. And it has spread quicker across the globe than ever before, creating a global health crisis. To solve that, we and most other countries around the world are putting our economies temporarily on ice.
That makes this the first global economic crisis that wasn't caused by a financial problem. For example, the Great Financial Crisis of 2007-2009 was caused by problems in the overleveraging of debt in the real estate sector, which through securitization spread to the finance industry and then the world.
Meanwhile, the Dot-Com Crash that started in 2000 was due to a frenzy of overleveraged speculation on tech stocks that weren't making any money.
Going way back, the 1929 Crash was again the result of – you guessed it – overleveraged investors who couldn't survive a modest pullback. At the time, just about anyone could get a margin loan of ten-to-one, meaning you could buy $100 worth of stock with just $10 deposited in your account.
Those crashes were all of a financial nature.
Normally, I'm very wary of people who say that "this time is different." It's almost always a cry for people trying to prop up the bubble of the day.
But this crash really is different. The CAUSE for this crash isn't financial. The cause is a global health issue.
This time, the financial/economic uncertainty is an EFFECT. The financial/economic issues are the result of the underlying fundamental problem: There's a pandemic sweeping the globe.
And when that's the case, you need a different set of tools to fix it…
You Can't Use Financial Fixes for a Pandemic Problem
This is exactly why all the financial stimulus efforts that the Fed (and other central banks), the White House, and Congress have thrown at the problem haven't had any meaningful effect at stopping the markets' freefall.
The Fed has launched their full arsenal of monetary stimulus tools – multiple surprise drops in interest rates, bond purchase programs (aka quantitative easing, or QE), loan backstops – the works! And the market just yawns.
The White House and Congress offer helicopter money – sending everyone $1,000 checks (maybe even two) and bailout packages for affected businesses. And the market says, "Meh."
Monetary and fiscal stimulus packages don't work because they're addressing the effect – not the cause.
Think about being caught outside in a monstrous rainstorm. You'd like to get dry. So you grab a towel and towel off. Problem is the rain just drenches you again instantaneously. People can hand you towel after towel. And you're still going to be wet.
What you need is an umbrella. Something that can keep the rain from hitting you in the first place.
And that's what the market is looking for. Something that keeps the insidious virus from affecting global health and welfare and, by extension, global economics.
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.
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