For many people, 2020 was a crazy and unforgettable year.
From endless panic to extreme greed, the first half of the year and the second half of the year were two very different kinds of “madness”, so to speak. Investors also experienced the feeling of going from “hell” to “heaven”.
The unstoppable plunge: the “great escape” of assets under panic
In January, when the new epidemic began to spread in China, the global financial markets did not realize the seriousness of the matter and did not react violently enough to feel the breath of panic.
On Feb. 3, the first day of trading after the Chinese New Year, A shares opened directly lower, plunging more than 8%. After the A-share plunge, U.S. stocks opened higher for three consecutive days and continued to set new all-time highs for nearly a month, just two days before the plunge, U.S. stocks also experienced five consecutive rallies, unaware that a disaster was creeping in.
By Feb. 24, U.S. stocks finally panicked.
At that time, the epidemic began to spread rapidly in Europe, Italy began to close the city, and although the epidemic in the United States had not yet reached a very serious point, people knew that the fall was only a matter of time.
Panic swept through the European and American financial markets at once, and a scene that happened in the A-share market in early February played out in an even crazier way in the European and American markets.
February 24, the day, U.S. stocks jumped low, the Dow plunged more than a thousand points, European stocks also fell, that was the first “Black Monday” of the year. By then, investors realized that the new epidemic was a global public health crisis and that no one, no country, would be immune.
The plunge in U.S. stocks on Feb. 24 pushed down the first domino, followed by an unstoppable decline in global financial markets, which were all black that week, with the S&P 500 index falling nearly 12% in a week.
After a week of continuous collapse, the Federal Reserve sat down, the evening of March 3, the Federal Reserve announced an emergency interest rate cut of 50 basis points, the U.S. stocks briefly stopped the decline. But only 50 basis points of interest rate cut obviously can not appease the panic market.
U.S. stocks rose for just one day before crashing again. On March 5, U.S. stocks opened lower after jumping lower, and in the two weeks after that, U.S. stocks crashed more wildly than anyone could have imagined – in just two weeks, U.S. stocks melted down four times!
(a) At 21:34 on March 9, 2020, the S&P 500 plunged 7% and U.S. stocks triggered a meltdown, the second one in more than three decades, the first being on October 27, 1997.
(b) At 21:35 on March 12, 2020, the S&P 500 fell to 7%, and investors witnessed the third meltdown in the history of U.S. stocks.
March 16, 2020 at 21:30, when the S&P 500 plunged to 8% at the opening bell and investors witnessed the fourth meltdown in the history of U.S. stocks.
At 00:56 on March 19, 2020, the S&P 500 Index extended its decline to 7%, and investors witnessed the fifth meltdown in the history of U.S. stocks.
After the second meltdown of U.S. stocks on March 9, Warren Buffett sent out a lament, saying that he had encountered this situation for the first time in his 89 years of life.
That is undoubtedly the darkest period of the global financial markets, investors like crazy to sell all the assets that can be sold, U.S. stocks, the dollar, the euro, the pound, bonds …… and even gold.
According to normal logic, U.S. stocks experienced such an appalling plunge, safe-haven assets should have gone crazy, however, the opposite was true, starting on March 9, in just two weeks, spot gold fell from above $1650 to near $1450.
The foreign exchange market is also dark, the euro from 1.14 mark above to 1.06 near, down more than 800 points; the pound from 1.31 above to 1.14 near, plunging more than 1700 points; in this period of darkness, the U.S. dollar alone, the only safe haven for funds, in almost all assets are plunging, the dollar index rose wildly, and stood on the highest point of the year 102.84.
By April, when people thought the dark moment had passed, crude oil collapsed again. early April 21, WTI crude oil May futures settled at -$37.63 per barrel, closing in negative territory for the first time in history, plunging $55.9, or 305.97%.
The successive plunges of various assets in March and April have shown us the enormous destructive power of the epidemic. The global economy came to a massive halt and all industries were caught in a capital cut-off, thus triggering a liquidity crisis that investors had probably never encountered before, resulting in a wave of selling.
During that time, $30 trillion in global stock market capitalization evaporated, making it one of the largest crashes ever, both in terms of speed and size.
During the panic plunge in financial markets, central banks took unprecedented rescue actions, the Federal Reserve also took action three times, the first emergency interest rate cut of 50 basis points, the market only slowed down a day; the second, an emergency interest rate cut of 100 points plus $ 700 billion easing program, the U.S. stocks melted down again that day; the third, directly announced an unlimited amount of QE, which stopped the decline.
It is worth noting that this time, the Federal Reserve in just one month to take the scale of QE, has completely exceeded the scale of the entire financial crisis in 2008. This crisis has reinforced a consensus among investors that when the market collapses, the central bank will definitely come to the rescue and will do whatever it takes.
The past few financial crises, the Fed has not been pushed to the brink, the hands of sufficient ammunition, but this time it can be said to be the bottom of the card out. An unlimited QE, people also already know where its bottom line is. As long as the market needs, the money printing machine can print money 24 hours a day without stopping.
The “unreasonable” madness: the brutal entry of money
The Federal Reserve’s unlimited easing and the global central mothers’ “uncontrolled” water release not only calmed the panic in the financial markets, but also opened a round of “incomprehensible” bull market in the blink of an eye.
After the plunge, the market did not enter the buffer period, but immediately opened the rising market. The previous plunge was rather like a “misunderstanding”, in March-April the most aggressive fall of several types of assets, such as U.S. stocks, gold, etc., in the following months like crazy up.
The most “unconventional” is the U.S. stocks, short in March has almost forced the long side into a desperate situation, but who would have thought that the long side with the liquidity support of the central bank, almost instantly reversed the situation.
On March 24, the Dow jumped more than 11%, but who would have dared to think at the time that a volatile round of rallies would have started from here.
From March 24 to December 29, the S&P 500 index rose by a cumulative 66.58%; the cumulative gain of 87.30% for the Nasdaq; the Dow rose by a cumulative 63.17%. The three major U.S. stock indexes have hit record highs, and the Dow has long stood firm at the 30,000-point mark.
From the performance of a full year, the global 16 major stock indexes, 12 stock indexes rose. Among them, the Nasdaq and the SZSE topped the list with cumulative gains of 43.22% and 33.93%, respectively. In addition, the Korea Composite Index rose 28.34%, the Nikkei 225 Index rose 16.53%, India’s SENSEX 30 Index rose 15.42%, the S&P 500 Index rose 15.36%, the Shanghai Stock Exchange Index rose 10.78% and the Dow Index rose 6.30%.
Gold has also seen an unprecedented bull run. Since March 20 after the start of the rally, spot gold rose all the way, only 3 days to recover more than half of the previous decline, since then it is all the way up, in late July there was a strong wave of pull-up, a breakthrough of the 2011 historical highs; August 4, spot gold broke through the $ 2000 mark for the first time, has been up to $ 2074 before hitting the top.
Precious metal futures also performed well, COMEX gold futures prices this year rose 23.58%, COMEX silver futures prices rose even more to 47.17%.
The strong investment demand has become the direct driving force of the gold bull market. Data show that the global gold ETF positions in the first ten months of this year, has been a net inflow state. 2020 first 10 months, the global gold ETF net inflow 1022 tons, November began a net outflow. As of November, total global gold ETF positions stood at 3,793 tons, or about $215 billion.
Unlike U.S. stocks, gold’s rise is quite “reasonable”. Because in the global central bank easing environment, interest rates are already at very low levels, coupled with the expectation of inflation, gold has a reasonable long-term rise.
Non-US currencies also reaped a good report card, have recovered the March decline. So far this year, the euro rose 9.21% against the dollar, the British pound rose 1.80% against the dollar, the Australian dollar rose 8.35% against the dollar, the New Zealand dollar rose 6.08% against the dollar, and the dollar fell 4.71% against the yen. The US dollar index, on the other hand, fell by a cumulative 6.9%.
Thus, after the epic plunge, global central banks managed to create a bull market with their liquidity support at any cost. With the fundamentals severely damaged, such a large rise in a short period of time has seen only valuations and bubbles rise.
In the past nine months, countries around the world have announced $22 trillion in stimulus packages. The major central banks have been successful in driving asset prices higher and shortening the recession by buying over $1 trillion in assets each month through QE.
It also shows that from retail investors to Wall Street and mainstream financial institutions, reliance on central bank and government bailouts has now become a terrible habit.
Bull Market Flagger Rotation: The Next Growth Area for Profit-seeking Money
As we entered the fourth quarter, especially after the breakthrough in vaccines, money began to chase new growth points, and bitcoin and commodities began to become the focus of market attention, opening up an unexpected round of madness.
From the end of October, bitcoin, which has not received much attention this year, began to come to the fore.
From October 20 to the end of November this period, bitcoin began to accelerate its rise, and the K-line became significantly steeper. However, what really started to make people feel crazy was a couple of spikes in mid-December, when bitcoin rose above the $20,000 mark on December 16, hitting a new all-time high, and then went straight to $23,000 the next day.
After that, bitcoin took a break for about a week before the bulls went on the offensive again at the end of the month and soared like nobody’s business all the way up to $29,000. Just as it broke $20,000, some analysts set their sights on the $30,000 mark, and now it’s only a matter of time before bitcoin breaks the $30,000 mark.
Institutional investors who previously shied away from bitcoin are instead carrying the banner of the bitcoin bull market this time around. However, it is important to know that bitcoin itself is only a virtual asset, it can be worth a thousand dollars today, and may be worthless tomorrow, depending on the attitude of the regulators. A good example of this is Ripple, which has been spiking and plummeting by dozens of percentage points over the past few days.
Therefore, behind such a crazy rise, is the institution really bullish on it, or is it just a game, deliberately pulling higher people to take over. This is a risk that ordinary investors cannot avoid.
After entering December, the call for a bull market in commodities is getting louder and louder. Wall Street financial institutions are buzzing that commodities are ushering in a “super bull cycle”.
In fact, in the past nine months, a number of overseas commodities have risen amazingly, for example, London copper prices once rose through $ 8,000 / ton, up about 80% from late March; London aluminum hit a new high of $ 2096 / ton in early December, up about 44% from the March low; London zinc hit a new high of $ 2900 / ton last week, up about 61% from the March low of $ 1763 / ton.
Domestic iron ore and other ferrous systems have also seen a wave of crazy rallies recently. Iron ore surged more than 60% during the year, once rising to 1,147 yuan per ton, a 9-year high and a new high since the contract was listed; copper prices and power coal hit a 7-year high, and coke and coking coal prices approached a 9-year high.
The logic of the commodity madness can be summarized into two main aspects.
On the one hand, because the central banks in Europe and the United States continue to increase their easing efforts, resulting in a flood of global funding liquidity and continued soaring commodity valuations.
On the other hand, the economic outlook has become optimistic as vaccinations begin, which is expected to further boost commodity demand.
As Jeff Currie, head of commodities at Goldman Sachs, said, commodities now have “all the signs” of a super cycle and are opening a structural bull market similar to the 1970s or early 21st century. Institutional investors of all stripes on Wall Street have their eyes on commodities as well.
This means that after the vaccination, the global economic recovery is really looking forward to, and money is starting to look for new growth points, and commodities may be the next battleground for profit-seeking money.
Crisis and opportunity
The year 2020 is undoubtedly a year of disaster for the global economy and the most crazy year in the history of financial markets.
The outbreak of the epidemic at the beginning of the year gave the world a deep understanding of what it means to be afraid of the unknown. The crazy rise after the first wave of the epidemic made investors feel the magic of capital liquidity again.
In financial markets, danger and opportunity always go hand in hand. Each financial crisis is not just a crisis, but also an opportunity.
In 2008, the financial crisis, Lehman collapsed, a large number of investors lost their money; but it is also the financial markets have a tragic decline, some assets to highlight the value of investment. Another example is this year’s crisis, March and April’s plunge is indeed a disaster, but how is it not an opportunity for investors to buy at a low price?
Why is each financial crisis in history is a reshuffle of wealth, distribution?
Because some people only see the risk, but can not see the opportunity; some people see the opportunity, but dare not put into practice; in the crisis, only see the opportunity and put into practice to be eligible to make big money.
This is like providing everyone with a button, not to press to be able to protect themselves, press down there is a 50% chance of getting rich, but also a 50% chance of nothing.
To press or not to press, it is entirely up to each person’s own choice. If it were you, would you press it?
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