liberatedstocktrader

Corona Crash, How Much Will We Lose? How Long Will It Last?

Short
SPCFD:SPX   S&P 500 Index
With the current stock market collapse, inevitable parallels are drawn with previous stock market crashes.
Each crash is unique in its own way, with different causes and different market and governmental responses.
The Corona Crash is unique in that it is the most violent and volatile crash so far on record. So far it is not the biggest crash, nor of course the longest crash, but the ferocity in unparalleled.
Using the prediction and measurement tools available in TradingView I have mapped the previous crashes for comparison.

Anatomy of Crashes.
  • 1929 Great Depressions: Lost 83%, Crash Duration 2010 Days, Full Recovery 24 Years
  • 1973/4 Oil Crisis: Lost 35%, Crash Duration 700 Days, Full Recovery 7 Years
  • 1987 Black Friday: Lost 35%, Crash Duration 61 Days, Full Recovery 2 Years
  • 2000 Dotcom Crash: Lost 49%, Crash Duration 944 Days, Full Recovery 7 Years
  • 2007 Credit Crisis: Lost 58%, Crash Duration 485 Days, Full Recovery 7 Years
  • 2020 Corona Crash: Lost 33%, Duration So Far 28 Days, Full Recovery???

So, what can we learn from the historical stock market collapses?

The quickest market recovery was 1987 Black Friday which took 2 years. The last two crashes in 2000 and 2007 took 7 years to recover.

The Corona Crash is so far most similar in nature to the 1987 Black Friday Crash. This could mean that if our governments and central banks manage monetary and fiscal policy optimally, we might be out of this disaster in 2 years.

We are heavily dependent on vaccine development and deployment and even the most optimistic estimates of delivery date are November 2020, but realistically we are talking about 12 to 18 months.

This bear market will not go away anytime soon. We may see some stabilization, but bear markets to not disappear overnight. Additionally, typical market recovery, meaning the index reaches and new high (surpassing the pre-crash high) is between 2 years and 7 years.

Summary

* Average Duration 2 Months to 3 Years
* Average Full Recovery 2 to 7 Years
* Average Loss 35% to 58%

Not great news, but I hope this helps to prepare you mentally for what is to come in this Black Swan Event.

If you like this analysis, please like, share and follow thanks, Barry

Comments

Most similar to '87? No, most similar to the 30's. Debt and interest rates weren't an issue in the 80's. We have overvaluation, extreme debt, near zero rates, and now a supply shock that is rapidly turning into a demand shock. The term we're going to hear a lot going forward is DEFLATION. As the pandemic crisis gets sorted out we're going to wake up to an environment similar to the deflationary collapse of the Great Depression. Many businesses won't survive the shut downs, many jobs will be lost (are already lost), pay will be cut, many loans will be defaulted on, banks will contract credit and many will fail, asset values will fall. All those issues, business failures, defaults, unemployment, credit contraction, bank failures, negative expectations, etc, they all feed on each other in a vicious circle. They lead to more defaults, more unemployment, more bank failures, more credit contraction--that's the hallmark of a deflationary debt collapse. Our system is built on debt and debt is collapsing rapidly and will continue to collapse until severe undervaluation in most assets.

Avoiding a deflationary debt collapse is what the Fed has been trying to avoid for years, but now it's started. Look at carnage in the bank indexes--and it's only just begun. The psychology of the country (and world) will change--we will tighten our belts, reduce consumption, and learn to expect the worst; and these expectations will feed into the collapse as well.

The only thing that will prevent the stock market from falling 87% as it did in the 30's (as well as drops in real estate, rents, and most other things) is the fact we're not on the gold standard. After the market had been decimated by 1932 in the US, they partially went off the gold standard (gold confiscation) and devalued the dollar against gold in '33/'34. And not just the US, most the western world devalued, sometimes multiple times. This time there is no hard money and as everyone can see from the trillions in bailouts, they're doing their best to trash the dollar from the start. We might get more direct devaluations later when the debt collapse becomes a bigger deal than the virus. Either way the market probably won't fall as far because the currency the market is valued in will lose as much or more as the market itself. We get a falling market and lose purchasing power, lucky us.

Watch gold, it will show the dollar devaluation. Banks (and business) indexes will show the debt collapse (but they should be adjusted by gold to see the full collapse). Also the issue is global, I'm sure we'll do better than many (most?) places.
+7 Reply
MystryBox MystryBox
Drops in oil and other industrial commodities also show the business collapse as it progresses. Most everything is going to fall. In the 30's cash was the place to be, at least before the devaluations. But back then cash was gold. So today I don't see anything being safe except gold. If they outlaw gold again crypto will go up.
+1 Reply
@MystryBox, Crypto has no real value
Reply
MystryBox liberatedstocktrader
@liberatedstocktrader, value is something humans give to things. Crypto is useful. In particular crypto can do some things that nothing else does. For anyone that needs what it does, it has value.
+3 Reply
@MystryBox, @liberatedstocktrader, gold has value because it's shiny and heavy. We've been killing each other for tens of thousands of years for this metal. Crypto is no different.
Reply
allanbrawer liberatedstocktrader
@liberatedstocktrader, Actually, Bitcoin facilitates transactions that would otherwise be impossible. Buying/selling of illegal products, transactions in countries with hyperinflation, evading capital controls, etc. There are some more traditional uses as well. The point is that since it provides a useful service, it can't be worthless. Perhaps once the transaction speed issue is resolved, it will get a lot more mainstream. The ultimate goal is near-instant transactions with very low fees - I hope Bitcoin ultimately achieves this.
+1 Reply
@allanbrawer, I agree, the technology has value, the use case has value and blockchain is a real innovation.
Reply
UnknownUnicorn2205027 liberatedstocktrader
@liberatedstocktrader, Lets agree to disagree
Reply
Tiger_Style liberatedstocktrader
@liberatedstocktrader, ZZZZZZZZZ. sooo tired of hearing about crypto's "value" from uninformed "traders".
Reply
@Tiger_Style, Agree with you.
Reply
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