Big Storm Brewing In 2020 And Beyond

Century of Storms

Throughout our history there are financial storms.  There are booms and busts with basic human greed and fear.  In this article we focus on the current storm situation, triggered by the global Convid-19 virus pandemic. Today the situation gets worsen by the unilateral declaration on applying China’s national security law on autonomous Hong Kong. This defies the basic rule of law negotiated in 1997.  The economy of Hong Kong known as the “Pearl of East” will be greatly damaged if China carries through its unlawful declaration.

We first define a good storm meter to evaluate the past century of storms and then apply our technical analysis to the current 2020 storm which has already started.

A Good Storm Meter

Market volatility as measured by VIX index is a good storm meter.  It is clear that the general equity market prefer calmness and growth in the economy.  Investors do not like violence and other human misdeeds.  The following chart displayed a century of equity market (S&P500) versus market volatility (VIX).

Chart 1 – Century of Storms as represented by S&P500 versus VIX

Note 3 Regions (A, B, C) with Very High Volatility

We focus on 3 regions with abnormal high volatility:  The Great Depression of 1929, the Great Financial Crisis of 2008 and the Current Convid-19 Crisis of 2020.  We will discuss our analysis of the 2020 crisis in the following section.

Fourier Analyses of 2008 & 2020 Storms

Chart 2 – Fourier Cycle Analyses of Monthly VIX

Our analysis showed that the peak of 2020 Volatility will reach a very high level in 2021-2022.  Note the coincidence of 10-year and 6-year cycles, as marked by a blue square.  Compare to the less severe 2008 Crisis in terms of VIX measurements.

Reliable Anchor in Storms

To no one’s surprise, gold has for centuries provided us a reliable safe-haven anchor in times of crisis.  We expect this is true today.

Chart 3 – Gold as Good Anchor in Storms

Summary

The above is our attempt in analyzing the current 2020 crisis.  We believe this storm will last a few years before true recovery.  This is Nature’s way of correcting the excesses. We further believe that behind the Nature, there is an Omnipotent One who judges the world with fairness.  This is a wonderful promise that gives us hope.

“And He judges the world with righteousness; He judges the peoples with uprightness.”

We are not certified or qualified financial advisors.  Please consult your certified financial advisors for actual trading and investing.

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