Market Fundamentals vs. Coronavirus

Published on
March 4th, 2020
33 minutes

Market Fundamentals vs. Coronavirus

The Expert View ·
Featuring Nick Reece

Published on: March 4th, 2020 • Duration: 33 minutes

Will coronavirus trigger a bear market – or are we simply experiencing an ordinary market correction? Nick Reece, senior financial analyst & portfolio manager at Merk Investments, joins Real Vision to unpack the underlying state of the global economy and risk asset prices in order to explore this timely and important topic. Using his analytic framework, Reece covers global manufacturing output, market volatility, earnings multiples, labor cycle analysis, historical examples, and the relative rates of return across multiple asset classes. Filmed on February 26, 2020 in New York.



  • AL
    Austin L.
    11 April 2020 @ 18:22
    He did call the helicopter money.....
  • MR
    Michael R.
    13 March 2020 @ 02:14
    Quite an optimist. Not buying it given the headline evidence.
  • TW
    Thorne W.
    6 March 2020 @ 16:35
    With all due respect, Nick is too young to know what he's talking about. Young people, unless they are also historians, by definition suffer from recency bias. The only way he could possibly be correct is if the Fed goes negative and drives all money into equities. So he could be right for the wrong reasons.
    • JL
      James L.
      8 March 2020 @ 10:22
      maybe you're too old to know what you're talking about then?
    • Ja
      James a.
      8 March 2020 @ 12:25
      u are right
    • TW
      Thorne W.
      10 March 2020 @ 22:10
      Nothing against young folks, they're our only hope! Perhaps I'm just jealous he's young? His analysis was fine. My point that I failed to articulate well is that so many global-macro phenomena are converging such that I just don't see equities chugging along further given that the US quadrupling was entirely CB-driven. Eventually the curtain was pulled back on the Wizard of Oz to expose him as a sad sack. CBs are like the Wizard of Oz, the curtain will be pulled back. Once another generation of young people understands the magnitude of the theft that has occurred and is underway, there will be significant political change.
  • JG
    James G.
    8 March 2020 @ 23:49
    Equine Excrement. This guy is totally underestimating the effect that will come with a pandemic.
  • HS
    Hernádi S.
    8 March 2020 @ 11:37
    Wow, a few minutes in this is clearly wrong... good luck with the normal correction treory though...
  • SB
    Scott B.
    4 March 2020 @ 18:59
    I appreciate differing views. The last thing we need is for Real Vision to become an Echo Chamber, pandering to a sole viewpoint. Shameful to insult a researched opinion that differs from yours.
    • DI
      Daniel I.
      5 March 2020 @ 00:53
      His P/E multiple and asset allocation argument was strong. Still think the overall argument was weak and his viewpoint was poorly articulated.
    • JL
      James L.
      8 March 2020 @ 09:57
      Agreed. So much hate just because he doesn't share the same outlook. RV is an echo chamber
  • OG
    Owen G.
    7 March 2020 @ 09:00
    This was filmed on the 26th of February, slightly problematic as this was a low day for the increase in the number of new cases, prior to the very recent growth outside of China. If you asked him the same questions today, then some of the answers may be different.
  • WB
    William B.
    7 March 2020 @ 04:14
  • AL
    Alexander L.
    6 March 2020 @ 14:25
    Body language and "gulping" between sentences indicates deception.
  • PW
    Patrick W.
    6 March 2020 @ 01:40
    Thank goodness at least he stated that going back to 1999 P/E is not his base case. Forget the folly of having to drag out the most insane bubble in our lifetime to make the current situation seem not as insane, I see two missing key drivers for getting us back to those valuations: the lack of exciting new technology and the lack of a demographic tailwind. I would not compare any recent excitement over WeWork or Tesla to the kind of euphoria about The Information Superhighway that permeated daily life back in the '90s. Back then, you could not get away from the giddiness whether you were simply getting your coffee or watching the local evening news. It was almost as if everyone was slightly drunk, high, or both, all the time. If you read Edward Chancellor's Devil Take the Hindmost, most bubbles had some kind of precursor new thing that caused everyone to at least entertain the possibility that this time may truly be different. I don't see that new thing now. Where is the demographic tailwind? He referenced the 10 million people on disability who would be tempted by the current labor conditions to re-join the labor force. I highly doubt it. What would be the upside? If someone were to give me $1,000 a month, I could move to some cheap place and have SSDI pay my rent, food, and Coronas (the beer, not the virus) and spend my days lounging on the beach watching Real Vision. If I were to give up the SSDI to re-join the labor force, I lose both the geographical and the time freedom, and I run the risk of never getting back a guaranteed pension equivalent to several hundred thousand in investible assets for the possibility of picking up a mid-five-figures job that, after taxes and expenses, nets me $10k/year in savings if I am super frugal. Look at the page on Disability Insurance I don't see the last ten years of economic expansion causing a big dip in the number of people on SSDI. Look at the age distribution of those on SSDI. Over 65% are 50 or older. I'd say a mid-five-figures job after 50 and after a long gap on your resume is actually the most optimistic case. I don't see the economic motivation for someone to come off SSDI to join the labor force. Is the Corona Virus the thing that pricks the bubble? I agree with the guest that we don't know, but I feel that having to reference 1999 as a justification right off the bat weakened his overall presentation.
  • TD
    Thomas D.
    5 March 2020 @ 23:23
    Nice long term chart that goes all the way to 2010....How about applying the assumptions to a number of longer term time frames (ie. 100 years and markets (Japan and Europe for example). This is the kind of analysis that led investors to assume that 2002 was a secular bottom...
  • WG
    Wade G.
    5 March 2020 @ 19:23
    I thought there was a lot to think about and reflect on here. I'm bearish and out of equities and it helps me to listen to views that more constructive than mine. I think many of the sanguine or bullish views he expressed are worth contemplating. I like that he referenced the possibility that the right analog could be Japan 90s (deep correction that lasts). Though he doesn't land there, he sees both extremes. I wish the early part on earnings yield was more comprehensive. As noted below, duration, as exploited by Lacy Hunt, may have a role to play here. And my concern with his chart and inferences on PEs for the market, suggesting perhaps that equities aren't so over-valued here, ignores concepts that I think require understanding. Namely that profit margins historically profoundly mean-reverting, rendering all PE market valuation methods inferior to measures based on sales, size of economy, etc. Market valuation metrics that actually predict subsequent returns all show record, or near-record valuations. Still, I think there was a lot here that folks, especially bears, should ponder.
  • EK
    Edward K.
    5 March 2020 @ 19:11
    Not saying it is going to happen but his point that we could have a recession without a bear market is something to ponder and/or adjust your bets accordingly. Do not think he is being unduly optimistic but rather presenting a possible outcome.
  • JB
    Jon B.
    5 March 2020 @ 14:03
    appreciate the variety of viewpoints.
  • JA
    Jordan A.
    5 March 2020 @ 02:53
    It seems like a lot of people are having this; what flaming sack of garbage is the best place to put your money conversion, without even realizing what they're talking about. Is there really no alternative? I guess we'll see.
  • HC
    Hahns C.
    4 March 2020 @ 18:59
    REALLY - China's manufacturing purchasing managers’ index plunged to 35.7 in February from 50 the previous month. Where did you see the "flash Feb" numbers?!! Bad information.
    • RC
      Ryan C.
      5 March 2020 @ 02:49
      To be fair, I think this was filmed before that data was released.
  • ML
    Mike L.
    5 March 2020 @ 02:39
    The key assumption in his argument is that the negative effects of the virus will be short and temporary. This may not be the case.
  • kb
    kriss b.
    5 March 2020 @ 02:03
    he doesn't sound like he believes what he's saying
  • TJ
    Tom J.
    5 March 2020 @ 00:42
    I'm surprised to see more down-thumb ratings compared to up-thumb ratings. From what I listened to, he made mention of several important factors (PMI's, Inflation, AAII, etc) as it could translate from bull market to bear market. Even with a 13% pullback, looking at the Monthly chart(s) in equities, we're STILL in bull mode in a master secular trend. It's true the Fixed Income investor community is smarter than Equities investor community, but it's very likely the bond bullies are over-reacting to a non-existent liquidity crisis. Lastly, we aren't seeing some of these major BBB+ bonds get downgraded that were forecasted to happen this year. So I agree with him. We're going to continue seeing earnings slowdown and inflationary slowdown through the first half of the year - and I'd definitely be a BUYER if much of the current data doesn't abruptly change for the worse.
    • TM
      The-First-James M.
      5 March 2020 @ 01:32
      Havr you seen the recent Chinese PMI print? The data has already abrubtly changed for the worse, and I'd respectfully suggest this process has only just begun.
  • TM
    The-First-James M.
    5 March 2020 @ 01:30
    Talks about Treasury Yields in the context of being pointless due to how low they are. Completely fails to talk about price convexity on longer duration Treasuries if rates fall to zero or go negative. Sure, this game will not last forever, but I know what I'd rather own vis-a-vis equities in any further panic that occurs in the near future...
  • DG
    Dave G.
    5 March 2020 @ 00:13
    I'm sure he is not alone in is thoughts and positioning in fact the bulls are the majority out there. BTFD been working for 12 years.
  • PV
    Peter V.
    4 March 2020 @ 14:31
    Horrible interview... When you compare to SARS you are not doing your home work! I would rather have less interview but better quality, this interview is not good quality!
    • RM
      Robert M.
      4 March 2020 @ 22:42
      Really love it when they compare it to Ebola as if that disease would spread rapidly from Africa and is an apples to apples comparison. The thing about SARS and Ebola is that the death rate was much higher, so when more people are dying, there is actually less transmission as they are not getting on an airplane and flying to NYC. With coronavirus, people are spreading without knowing they are sick and it is moving rapidly now through the US. While the death rate may be about 1%, it is still much higher than the flu and particularly more deadly for those over 65. Outside of last week, think this is really being underestimated in the US markets.
  • RM
    Robert M.
    4 March 2020 @ 22:34
    I have a major event in 3 weeks in Nashville and the coronavirus is top of our conversation alongside the destructive tornado we had this week. Events are being canceled here and with all our tourism, that industry is concerned. We are moving forward with our event, but recognized the city could shut it down. People are emailing us asking for ticket refunds because of the virus. As far as the virus, many in Nashville (particularly young people) do not believe it will impact things anymore than the flu. Yesterday, I was on a conference call with someone who just took at job with a tech company in LA (moving from Nashville) and she shared about how it is a "big deal" and how no one in her company is going into work and that people are avoiding going out in public (which LA just implemented a state of emergency). Whether the virus turns out to be more deadly than the flu, it did shut down the Chinese economy and my sense is that in the US, we are greatly underestimating its impact. While there has been some hoarding of supplies (i.e. Costco), when this starts hitting mid-market cities, believe you are going to see a similar reaction as what is happening in LA and Seattle. For investors, believe it is foolish to underestimate this risk. While the disease cycle may be short, it is going to put a lot of debt laden companies on the edge of bankruptcy if consumer spending stops dead in its tracks (see China with car sales down 90%). The amount of debt is what makes this different from past virus-related threats to the economy.
  • SL
    Simon L.
    4 March 2020 @ 22:09
    I don't agree with the reflation thesis, I'm really sceptical about those PMI getting back above 50. Different view than mine but well explained and in respectuful way.
  • AC
    Alexandre C.
    4 March 2020 @ 18:43
    won’t look goof on your curriculum
  • RA
    Ralph A.
    4 March 2020 @ 12:55
    A week old video about coronavirus might as well be a year old for normal topics. It is clear to me he has done very little research on the topic. He seems to have the view of SARS was no big deal, this will be like SARS so I don’t need to worry about it. I think the crowd that believes that this is no worse than a bad flu are going to be very unpleasantly surprised when reality breaks through their fantasy.
    • CJ
      Charles J.
      4 March 2020 @ 18:20
      Comparing demand shocks and ignoring where they occurred in the cycle shows an extreme lack of insight. MERS, SARS and Fukushima all occurred after cyclical lows... Doesn't mean this will definitely tip the cycle over, but the fact that so many don't even consider this when comparing them makes me want to pull my hair out. I don't mind if you're bullish, but I want you to at least acknowledge that you're aware of this simple difference and explain what you think mitigates the risk. I can't take him seriously because I'm not even sure he's thought about it.
  • JP
    John P.
    4 March 2020 @ 17:54
    I don’t agree but appreciate hearing some balance and exploring alternative historical analogues. I still felt the discussion was a little topical and lacked hard data
  • jH
    jonathan H.
    4 March 2020 @ 15:59
    A salesman to buy stocks. I am sick of people comparing this with SARs or Mers or flu. This is going to shut us economy down for a few months. All the travel ban and hit to services sector. Did any flu forced Olympic to be postponed? Wake up people. This is a big scenario change!
  • sw
    stefan w.
    4 March 2020 @ 15:45
    Good reminder of the long-equities view, even if it's not a trade for me at this time. Listen carefully and he does implicitly acknowledge that the equity trade is a forced-speculation trade against cash and bonds that give you negligible yield - and he points out you even get better yield in the S&P 500. This is one of the perverse outcomes of QE and low rates that forces speculative investment across the food chain. Read between the lines and form your own view about how you want to position your own risk. Of course when asked directly he's going to tell you to go long equities... if you want to be long US macro he basically lays out what you need to believe. Personally not convinced, but always good to have someone try-it-on and important to recognize (and be fearful of) the big mantras that continue to represent astonishing optimism for seemingly eternal growth...
  • BC
    Bryan C.
    4 March 2020 @ 14:54
    Sounds like a salesman for Merk rather than a legit analyst. He is just trying to convince people to be buy and hold investors in equities. Pretty lame presentation.
  • JA
    John A.
    4 March 2020 @ 14:31
    I’m wondering what Nick thinks the (re)inverted yield curve, and the overall interest rate are signaling. He seems to think that we might be mid-cycle, as the Fed is saying. For my money, I have been on the very long end of treasuries, and heavy on gold, bets on weakening economy and money printing. Does the curve not enter into his thinking?
  • JA
    John A.
    4 March 2020 @ 13:19
    Here, hold this bag for me. 😂
  • MG
    Michael G.
    4 March 2020 @ 12:09
    Many may not agree with Nicks outlook but congratulations Real Vision on keeping it balanced. I personally think TINA will still be in play for a while yet.
  • RW
    Richard W.
    4 March 2020 @ 11:23
    Not an expert!!
  • AO
    Alex O.
    4 March 2020 @ 07:54
    I admire some analysts for being this brave and putting themselves out there like this. With that said, not sure this will age well given China's recent negative PMI/NMI data.