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Friday Economic Wrap-Up

Friday Economic Wrap-Up

Yesterday gold went up as high as $1,742 before selling off and is now currently trading around $1,688.

Interest rates have been slashed down to 0%-.25% and QE has been rebooted in earnest.


Government spending continues unabated. The US Federal Deficit is approaching $4 trillion and the US National Debt is over $24 trillion.


The rate of active COVID-19 case growth in the US continues to slow after peaking on 19 March.


With several states considering reopening in May, at least in some capacity this trend will certainly be disrupted and the rate of active case growth will probably rise again.

Not surprisingly, the major US indices bottomed a few days later on 23 March.

Year to Date, the S&P 500 (black) is down 12.6%, Nasdaq (blue) is down 5.52%, Dow Jones (purple) is down 16.96% and gold (yellow) is up 11.16%

A popular theory is that this rapid selloff and equally rapid rebound is a V-shaped recovery.

As of writing the Vanguard S&P 500 VOO ETF fell over 35% from 311.59 down to 200.55 before rallying back 30% up to 261.2

While this certainly is the case right now, I believe that the fallout from COVID-19 will continue for many months and US stocks will make new lows. We’ll see which organizations and governments have been swimming naked as the tide is going out and the results will probably be ugly.

Three Ways to Buy Into this Market

Three Ways to Buy Into this Market

The COVID-19 pandemic is a great tragedy and an unprecedented event in modern history. In the midst of countless negatives–one positive is this market selloff presents a buying opportunity.

As someone who has been overweight cash over the past few years I’ve been looking a selloff like this to be able to increase my exposure to the markets.

I can’t predict when the market will bottom or I would just buy in then. So I want to go over three strategies one could use to enter this market.

COVID-19 case Plateau

It is possible that when the number of active COVID-19 cases plateau that will also be around the time the market bottoms out.

Active Cases in the US continue to climb

As of now the active cases in the US have continued to climb. At some point this will plateau, as it already has in places like South Korea.


Active Cases in South Korea Plateaued in mid-March

Modified Dollar Cost Averaging

This method attempts to capture market exposure at given price levels.

To do this, first determine how much you’re planning on investing. Then break than into a series of price levels. For example, if you’re planning on investing $3,000 at three different price levels, you’d be investing $1,000 per price level.

Price levels could be something like the % fall from the prior peaks drop. So when the market falls 30% from peak, you invest $1,000, when it falls 40%, another $1,000 and if it falls 50% the remaining $1,000.

For example, the S&P 500 peaked at 3393 on 19 February. So $1,00 would be invested at the 30% drop level of 2375, a 40% drop would mean buying in at 2036, 50% would be 1696.

The downside to this is that the market might never fall 40% or 50%. If this happens one wouldn’t buy into the market at these levels and money would be left uninvested. It could also of course fall more, in which case one would have bought in at a higher level.

Looking at the previous bear markets of the past 2 decades, the bottom of markets is not made after just a 35% drop in 33 days.

Given that the number of COVID-19 cases in the US continues to climb I don’t believe the market has bottomed yet. The market has rallied about 14% off of the 23 March lows, but I believe the market will give up these gains and make a new low.

Of course I can’t know for sure.

Good Old Dollar Cost Averaging

This is probably the simplest and most basic method. This is buying a set dollar amount of shares on a set schedule. Such as $100 on the first of each month. When prices are lower, more shares will be purchased and when prices are higher, fewer shares will naturally be purchased.

The downside to this method is that if one has any reasonable belief that the market will fall more, then one is buying in at a higher price than is necessary.

Despite the rally over the past few days, major US indices like the S&P 500 are still down some 23% from the 19 February high.

Of course it’s impossible to know with certainty.

COVID-19 Selloff Buying Opportunity

Gold has been a decent hedge thus far. Gold is up 3% since the 19 February high compared to the S&P 500 which is currently down over 27%.

In the 2000 dot com crash markets didn’t bottom for for nearly two and half years. The 2007-2008 great recession market drop took about 500 days. We are less than 2 months into this crash.

We are certainly living in interesting times. While this has been a sharp and violent selloff, it presents a buying opportunity, if not now at some point over the next few months or years. I personally think the markets will fall lower, perhaps to the 40-50% level before beginning to climb again.