Mr. Greed-And-Fear at Jefferies Says Stay Fearful in Markets

(Bloomberg) -- With his weekly “Greed & Fear” newsletter, Christopher Wood has charted the life of animal spirits for decades from the Asia crisis, tech bubble to the global financial meltdown.

In this 2020 financial crash, the Jefferies LLC analyst has a simple message: It ain’t over by a long shot. The peaking of infection rates in major European countries “may not mark the bottom of market sentiment,” Wood wrote.

Here are his key points:

• The most important number for investors right now is not the amount of stimulus, but the rate of new infections.
• Counter-trend rallies can happen at any time -- these are rallies to sell because infection rates in Europe are following a Wuhan-like trajectory, rather than more contained outbreaks in Asia.
• Watch for infections peaking, especially in France, Germany and Switzerland, to see if a Western democracy can curb the spread of the illness.
• U.K. tried a different strategy which will lead to either success or disaster. Wood sees infections taking longer to peak, raising fears of a breakdown in law and order.
• America risks following the British strategy by default, because of political hold ups.
• The deflationary response of market means the virus looks like a catalyst for a more “more formal merging” of monetary and fiscal policy.
• A lot of temporary policies will become permanent. This ultimately could lead to the end of the bull market in government bonds in a disinflationary boom.

For anyone attempting to navigate current market turbulence, these conclusions will sound ominously plausible right now. The sell-off and volatility may have become self-reinforcing, but it was all sparked by a health crisis that is having a knock-on effect to the economy. Until the virus is dealt with, it is difficult to imagine any meaningful economic and market recovery.

The good news? When infection rates peak, it may at least mark the beginning of the end.

“Greed & fear is still hoping, as doubtless is the Donald, that the Coronavirus cycle will be a four-month affair, more akin to a tidal wave, than the trigger of a long lasting depression,” Wood wrote. “Economies can certainly recover quickly from national disasters.”

©2020 Bloomberg L.P.