Deadly Trifecta – Economic Depression, COVID-19 and Riots

America has probably never faced a crushing economic depression, a lethal pandemic, and a debilitating nation-wide civil unrest all at the same time.

When you thought it was safe to reopen stores and businesses, then came this civil unrest caused by the senseless murder of an innocent man that ignited the collective consciousness of the public. The death of a black man, George Floyd caused by police brutality, was the proverbial straw that broke the camel’s back.

Viewer discretion advised: This video includes scenes of graphic violence!

Something similar happened to another black man in early March 1991 who was an activist and writer named Rodney King. Luckily, Mr. King didn’t die of the police brutality, but the incident was filmed by a TV channel crew (there were no smart phones then) and beamed across the world. When all the white police officers involved in that brutality were acquitted by the Los Angeles justice system of any wrongdoing, the country went up in flames marked by week-long rioting particularly in the LA area.

There are other innocent black men killed by police this year, but the public did not react the way it did for George Floyd. So, what sparked this series of looting and rioting?

Firstly, the minute details of George Floyd’s ignominious death were filmed by a bystander on his smartphone which went viral all across US and rest of the world. Secondly, Americans in general have been simmering with pent-up anger and frustration because of the lockdown. This came at the precise tipping point where they couldn’t take it anymore.

Hope and pray something good comes out of George Floyd’s death that will prevent the death of more innocent people in the future.

The market is going to experience a big mismatch between demand and supply as the markets reopens. We will develop more on that tomorrow but let us look at our major asset classes now.

EQUITIES

There is not much change in the equity markets. The NASDAQ has made new highs while the oldest major index Dow has been lagging. The S&P 500 which is a blend of the Dow, Nasdaq and other stocks has held the middle ground.

Based on the advance/decline ratios and NYSE TRIN the flow has been more favouring the advancing issues than declining ones. The S&P 500 could make a higher recovery high, but it is not a must. If it exceeds 3140, there is something that we need to reconsider in our analysis. Now a move below 2980 should indicate that the pressure to the upside could be over.

BONDS

The pressure in the bonds is building up to the downside but has not broken sufficiently with enough follow through.

EURO

The short-term EUR/USD price action has been inching higher and it should top out in the 1.1190 to 1.1240 window.

GOLD

Geopolitical issues and the US domestic situation have given gold a bid tone but it has remained below the May 18 high.

Meanwhile, silver has made three higher highs. A move below 1690 in gold will weaken its chances of making any new highs but otherwise a shot at 1800 cannot be excluded.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.