TradeSmith Daily

March 2020

Why “Flattening the Curve” Means Sacrificing the Economy

March 12, 2020TradeSmith Research Team

Global financial markets are facing a stark reality this week. To save lives during an outbreak, the health care system has to function. To keep the system functional, the caseload has to spread out over time. To spread the caseload over time, the rate of early cases must be slowed. To slow the rate of early cases, the economy must be sacrificed. The term to describe this process, now trending globally, is “flattening the curve.” It comes from a visual

Read now

The Next Two Weeks are on High Alert for Crash Risk

March 13, 2020TradeSmith Research Team

The next two weeks have heightened “crash risk” for various reasons. While vigilance is always a good idea, it makes sense to be even more vigilant over the next 10 trading days or so. “Hold on,” you might say, “Didn’t the market just crash?” After all, the Dow Jones industrial average saw its biggest single-day decline since 1987 this week. Meanwhile European equities had their biggest down day ever in percentage terms, and the S&P 500 broke a record for

Read now

You Don’t Need to Hoard Food or Empty Your Bank Account

March 16, 2020TradeSmith Research Team

Thucydides, an Athenian general and historian from the fifth century B.C., has words of wisdom that apply well in a time of crisis. Here they are: “The bravest are surely those who have the clearest vision of what lies before them, glory and danger alike, and yet notwithstanding, go out to meet it.” Real courage means knowing the stakes and rising to the occasion. In day-to-day life, there isn’t much call for this. In the midst of a crisis, however,

Read now

U.S. Treasury Bonds are the Most Important Market in the World Right Now

March 19, 2020TradeSmith Research Team

The most important market to watch right now might be 30-year U.S. Treasury Bonds, known as “long bonds.” Treasury bonds are supposed to rise in value when the stock market falls sharply. There isn’t a rule that requires this. Instead, it is just the normal way things work: When stocks drop heavily and across the board, capital flows out of stocks and into “safe havens.” One of the largest and deepest “safe haven” destinations in the world is U.S. Treasury

Read now

Why Mental Capital is Just as Important as Financial Capital

March 23, 2020TradeSmith Research Team

Investment success depends on two types of capital, financial and mental. We are all familiar with financial capital. This is what goes in the brokerage account. Financial capital is what we use to buy and sell stocks, options, cryptocurrency, or whatever it is. But mental capital, though less well known, is just as important. Without mental capital, financial capital is useless. The wise investor practices risk management not just with financial capital, but mental capital, too. So, what is mental

Read now

The Four Things America Needs to Beat the Pandemic (and Save the Economy, Too)

March 25, 2020TradeSmith Research Team

The coronavirus pandemic is not just one global crisis. It is actually two distinct crises rolled into one. On the one hand, there is a public health crisis. The speed of contagion combined with the severity of symptoms — for about 20% of those who catch the virus — leads to hospitals becoming overrun. At the same time, there is an economic crisis. The work stoppages and severe “social distancing” measures required to slow the contagion rate — and protect

Read now

Self-Delusion is Not a Valid Coping Mechanism

March 25, 2020TradeSmith Research Team

Self-delusion is not a valid coping mechanism. In order to protect their capital, investors should remember this at all times. In the midst of a national crisis, citizens should remember it, too. Under normal conditions, optimism is a desirable trait. Optimists have a natural ability to enjoy life. Seeing the bright side of things is good for mental health, and it’s a form of motivation to see the glass as half full. But optimism at the wrong time, or in

Read now

The Odds of a V-Shaped Recovery are Zero

March 31, 2020John Banks

There are multiple economic recovery scenarios, and varying expectations for how long each one could take. These scenarios are often described as letters of the alphabet. A “V-shaped” recovery is the best-case scenario. In a V-shaped recovery, the economy bounces back as quickly as it fell. V-shaped recoveries are fast and vigorous. A “U-shaped” recovery is the middle-of-the-road scenario. There is a flat stretch of time at the bottom of the recovery, and then a near-vertical return to normalcy. The

Read now