Cause for optimism

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Steve Sokolowski
Posts: 4417
Joined: Wed Aug 27, 2014 3:27 pm
Location: State College, PA

Cause for optimism

Post by Steve Sokolowski » Mon Mar 09, 2020 11:22 am

On February 29, I pointed out that the only event that matters right now for the cryptocurrency industry is the coronavirus. I projected in the previous post that the price of bitcoins would fall to a low of $7700, which is what happened earlier today. The initial drop from $10,500 started because of the halving, but everything since then has been almost solely caused by the virus.

A year from now, when we look back at the charts for various coins, it will be necessary to "cut out" this month and a few months after this. There was no virus in the past that caused such a severe shock, and until the next pandemic arrives, it will be incorrect to consider these few months for any long-term predictions.

In the ten days since my last post, events have provided reason for optimism, and the stock market selloff is an overreaction. First, it has become clear from China and South Korea that the virus can be controlled. The Chinese reduced the number of infections from 2500 per day in late January to 40 yesterday, just 40 days later. Outside of Wuhan, the only infections were those imported from outside the country - and only 0.0056% of people in China were infected. In South Korea, caseloads above 1,000 per day have been reduced to 300 or less, because there have been so many tests. In Singapore, the virus hasn't gotten a foothold because temperature checks are performed frequently at malls and high traffic areas. Far from being a civilization-ending catastrophe, or even one where half the world is infected, it's now clear that it will only be a disaster where governments are incompetent at instituting common-sense measures like isolation.

Unfortunately, one of those governments that is incompetent is the United States. Had people been tested and incoming visitors isolated before the first cases started arriving, control may have been achieved like has occurred in China. Instead, incompetence cost 16 people their lives at a nursing home. This outcome isn't surprising, because the best people have all resigned from Trump's Cabinet, leaving many figureheads who are inexperienced. I expect the United States to be the hardest hit country in the world, or maybe the second after China, given how connected it is to other areas and how incompetent its government is.

Nevertheless, even with many idiots in charge, the economy isn't going to fall apart; it will just change. While China will get back to normal, Trump's incompetence will likely cause Americans to have to limit activities until the virus is finally controlled. But limiting activities isn't earth-shattering; it's just a change from the previous way of life. Even if the change were permanent, society could continue to operate in such a state indefinitely. In fact, as I indicated in the previous post, it's quite possible that terrorists will release many of these pandemics throughout the mid-2020s until technology is finally able to permanently cure all viruses in the late '20s. Whether temporarily or permanently, money and economic activity will simply be redeployed from some industries to others - and most of those ways are positive.

For example, the cruise industry is likely to fall apart. On the other hand, funding for medical research is going to soar. It's certainly much better to spend money on a curing serious diseases than on providing entertainment for guests on cruise ships. In-person business meetings are becoming less frequent, but most meetings are unnecessary and a waste of money anyway. Many employers force programmers and accountants to go to an office every day, which is not necessary for most of these jobs anymore. Working from home causes people to have more time for kids and keeps cars off the roads, reducing pollution, eliminating traffic accidents, and saving money on car maintenance. Expensive sports stadiums that cost taxpayer dollars, in a long-term scenario, would be replaced by advanced VR headsets and haptic gloves. A careful examination of the changes brought on by the virus reveals that many of them are actually positive.

Even the impact on the life-critical industries most negatively affected could be mitigated. If it were necessary due to future pandemics, factories could be redesigned so that people don't come into contact with each other very often, as could foodservice establishments. People who used to spend most of their time with other people would have difficulty adjusting, but eventually they would and the world would go on.

That said, I don't expect many of these changes to occur because money can work miracles. I suspect that, in two weeks, an existing drug will be found that will reduce the death rate from serious complications of coronavirus infection. There are already multiple phase 3 trials occurring for this purpose. Once production of that drug is scaled up, a month later it will probably also be found that minor infections can also be treated to prevent hospitalization. Thus, by early May, it may be considered an "acceptable risk," because the hospitalization rate is lowered so much, to resume normal events. I also suspect that far from requiring 18 months, a vaccine will become available for the highest-risk patients, or for exposed patients, in half that time. That doesn't even include the possibility that the virus becomes less virulent in warmer weather, or that it will mutate to a less deadly strain.

The greatest risk right now is that the Indian government could lose control of the virus and cause a catastrophe on an unimaginable level. Look at pictures of the trains in Mumbai and how many deaths already occur due to people falling off in overcrowded situations. It would not be possible to distribute enough drugs to Indians to prevent such a catastrophe if this outcome occurs before production can be ramped up.

Today's stock market crash is a capitulation, and an overreaction to the crude oil prices. China's economy is getting back online, and the previous projections by analysts of supply chain disruptions are likely to be wrong. Likewise, bitcoins have fallen out of their normal cycle, and traditional supports and resistances are meaningless. The time to stop selling coins is when the news looks the worst; when the number of cases starts to decline in the United States, it will already be too late. There is still considerable risk involved in making financial decisions at this point, but I am going to change from "sell-all" mode to "hold a bit" mode. It no longer looks like the virus is going to infect billions of people, at least in industrialized nations, and the economy is going to change and reallocate capital to different industries, not be destroyed. The current shock is temporary while this change occurs and there may be another shock when things return to normal.

The traditional pre-halving crash will keep prices down even if the virus fears subside, so I'll wait a while before switching to "hold all" mode in the case that there is one last panic before the bear market finally reverses.

There is demand for cryptocurrencies, but it has been overcome by events. As soon as even the smallest amount of positive news comes out about the virus, the underlying demand, which has been there but overshadowed by world events, will be unleashed and will finally end the June 2019 bear market.
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