Pandemic of Ice and Fire
History has shown that economic cycles last around 10 years, so as we moved from 2018 to 2019, more and more voices in the industry were sending warnings “It’s coming soon, brace for impact”. Some said that the next black swan would be the US college debt, others the transpacific trade war, but when you looked at the economy and the stock markets, all you could see was that it was chugging along nicely. This makes perfect sense, after all the definition of a black swan event is that you don’t see it coming (otherwise you would prepare for it and there wouldn’t be a crisis, duh!).
So when the “weird flu in China” started to extend to other countries and it began to look like something serious, I said to myself “This is it” and sold all the stocks I had. Unfortunately, I hesitated for a while and, although I made a profit, those few days wiped out a lot of the gains. But then I said to myself “Oh well, at least I made it out in time. Now I’ll have cash in hand so when the markets reach rock bottom I’ll be to get back in at bargain prices. I just have to wait for a few months, until the dust has settled”. So you can imagine my confusion and dismay as the markets rebounded in next to no time, first getting back to their previous levels and then zooming past them (hehe “zooming”, see what I did there?). This time I said to myself “It’s the dead cat bounce, just keep calm and wait it out” and went back to failing at not keeping an eye on the markets. After a few weeks the situation was getting ridiculous, on one hand I kept reading about the record figures of bankruptcies, unemployment and how we were headed for a recession, but on the other hand the stock markets were ignoring the pandemic like spring breakers in Miami Beach.
So then I asked myself “What the fucking hell is going on?” [1]
And the answer is: Ice and Fire
If you take out an ice tray and let the ice cubes melt, when you put it back in the freezer it will form the same ice cubes again. The market is like this, when a lot of stocks are sold it falls but it’s not destroyed, all you need to do in order to fix it is buy them back again.
But when you burn a piece of wood it’s ruined forever, it is destroyed and there is no way to get that same wood back. The only alternative is to somehow find a seed, plant it and wait for it to grow into a new tree. This is the economic fabric. Once the businesses and jobs are gone, you can’t just bring them back with a load of cash, they will have to regrow back, slowly.
Full disclosure, I have bought some stocks since then. After I wrote the Drop the penny post I thought it would be a good time to invest in card companies so I got myself some Visa, Mastercard and American Express (and Twitter too, but that’s just because I like what Jack Dorsey did).
[1] Yes, I’m writing to myself about talking to myself, we’re in 2020 and things don't have to make sense anymore.
Originally published at http://pandemicponderings.wordpress.com on June 20, 2020.
