Corona-Crash – it is probably not over yet

By 25/02/2020News
Corona Crash

25.02.2020 – Special Report. After Monday’s bloodbath some brave bulls hope that the Corona panic was the last heavy sellout. But in the meantime many brokers are concentrating on other, worrying statements. They say that we are only at the beginning of the end. For perhaps Covid-19 is the dreaded Disease X – the global super disease that experts have long been warning about. The consequences for the stock market are incalculable.

Corona equals Disease-X

Unfortunately, extremely worrying reports are currently circulating among investors. According to a report in the blog “Summit News”, Marion Koopmans, Professor of Virology and advisor to the World Health Organization, recently stated that Corona could be the feared Disease X, which experts have been warning about for years. The outbreak could become exactly the case for which the globalised society must prepare itself.

Expert: Up to 70 percent of the world population is infected

And recently Marc Lipsitch, Profossor of Epidemiology at Harvard told the “Atlantic” that corona “will ultimately not be containable” – the virus cannot be contained. In the coming years, 40 to 70 percent of the world’s population will become infected with Covid-19. Lipsitch also gave the green light in some cases: this means that not all victims would become seriously ill – many would only develop mild cases of the disease or even asymptomatic consequences. But he also said that the 100 to 200 people infected in the USA were enough to spread the disease.
These warners are not just any conspiracy theorists – they know what they are talking about. Ergo, the really big crash on the stock market could still be coming.

Imminent end for the global economy

Because in the real economy, the current situation can be described in this way: Corona is paralysing the supply chains. And that is why the economy is crashing. Entire cities in China are sealed off, people stay at home out of fear. Foxconn, for example, is paying its workers special bonuses to show up at work to produce smartphones for Apple. But only a few come. If this situation spreads to the USA, South Korea, Japan, Italy and at some point Germany, the global economy will grind to a halt.

Supply Chain Shock

Goldman Sachs has just warned of the consequences of a prolonged stop in the supply chains. The supply chain effect is not linear. If the manufacturing crisis extends into the second quarter or beyond and warehouses are emptied, production will collapse dramatically.

The Rabobank became more specific over a week ago. According to this, there are four scenarios: The Bad; The Worse; The Ugly; And The Unthinkable. The latter, the as yet unthinkable variant, can be summarized as follows: The virus spreads worldwide and mutates. In the event of a pandemic, the world would face the scenario of a dystopian Hollywood movie. We declare: A dystopia is a narrative that presents a negative distortion of future humanity. Meaning: Zombie World.


Morgan Stanley warns of new sellout

The stock market is threatened with new adversity in the short term. In the midst of yesterday’s bloodbath of the bulls, Christopher Metli, Executive Director of Morgan Stanley’s QDS division, warned of an increased sell-off. Specifically, he said from the Quantitative and Derivative Strategies Group that yesterday there was a $10 billion selling pressure. If the S&P 500 closes below 3,235 points, liquidations of positions by “systematic and price reactive traders” could rise to $60 billion this week and “generate a self-fulfilling downward move”. What is probably meant are panic selling and the tearing of stop-losses. We are curious if this prophecy will come true: The S&P 500 closed 3.4 percent lower at 3,226 yesterday.

Only volatility is guaranteed

Our conclusion: We have long reported on warning voices that the stock market, with its ever new all-time highs, underestimates the consequences of a pandemic for the global economy. However, the question arises whether the accumulation of warnings is not gradually leading to a final panic. What would speak for short positions.

Ultimately, everything will depend on fighting the virus. If infection rates suddenly drop or an effective vaccine becomes quickly available, the shattered courses will rush back up again. The only thing that is clear is that volatility will remain with us.

We will keep an eye on the matter for you – and wish you successful trades!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.