What we are seeing now is what we saw back in the financial crisis of 2008-2009, says Chief Market Economist, Spartan Capital Securities.
We had the coronavirus scare first. Now, crude prices are falling. Also, for the first time ever, 10-year US yields have gone below 0.5%. What is the outlook for the global markets?
It is a very serious situation. Oil prices collapsing is not good for the global economy and certainly not for the US economy. Quite obviously, Russia’s decision not to join Saudi Arabia and rest of OPEC is politically motivated. Certainly, the collapse in yields and the huge selloff in the equity markets are indicating that we could be headed for a global recession. The oil situation just complicates that and it certainly ups the chances of a global recession.
What we are seeing now is what we saw back in the financial crisis of 2008-2009. Some of that can be attributed to panic selling, but the fact that Russians were politically motivated not to join the OPEC members, has not only economic but geopolitical consequences as well. I am afraid that with the price of oil down to these levels, we could see serious geopolitical problems erupting in the Gulf area. That would add to the turmoil that the global economy is headed for.
Where do local investors go today? If you look at oil, it is really receding. Equity markets are not giving too many returns, bond yields are at all-time low. The only thing that seems to be shining amidst all this is gold. What would be your advice for investors? Where would you look for opportunities?
I would hold to my gold positions. If there is some sort of a dip in gold, I would add to gold. I would not necessarily flee the equity markets but certainly stay with positions that can outweigh the chances of recession. Basically you need to be recession proof at this time because what the markets are signalling is recession is not that far away.
Within all this mayhem do you see any specific opportunities like say aviation stocks as crude forms the major component of their expenses? Would you have any preferred picks in the US or emerging markets or any sectors in the coming 6 to 12 months?
I am not going to signal any sectors, but I can tell you that markets get overbought, markets get oversold and we all know that good companies are not going to go out of business and there are a lot of value companies that have been posting 52-week lows. I suspect that that is going to continue for a bit longer. For the long haul, there could be a lot of good buys out there. But by the same token, you need to be hedged and the only way you can hedge yourself in a market like this is by buying ha ..
That is why if you get a dip in gold prices, add to it. I am not suggesting that individuals should have portfolios made up 100% of gold. But I am suggesting that anywhere from 10% to 15% investment on gold so that it becomes a hedge in your portfolio.