US and UK Coronavirus Pandemic 2nd and 3rd Waves Trend Implications for the Stock Market

29,200! That was the high the Dow put in early September just 400 points shy of it's ALL TIME HIGH before correcting, taking the Dow down to its recent low of 26,500 and up into its recent close of 27584. Where on any measure the Dow was OVERBOUGHT, for instance following the March low the Dow has had its greatest bull run of the duration of the bull market that began March 2009, by rising over 60% in just six months! 

Where all we had to do as investors was to BUY going into the Mid March low and then NOT to make the mistake of SELLING after just a few weeks or months as weak hands tend to do.

30th April 2020 - AI Mega-trend Stocks Buying Levels Q2 2020 

When to Sell Your AI Stocks

I get many comments asking when to sell the AI stocks given the sharp rallies over the past 6 weeks so as to capitalise on their gains. Which in my opinion defeats the whole point have having invested at deep discounts for 20-30% or so gains from March purchases, which is trading stocks rather than investing and in my opinion is nothing compared to what is to come, for instance imagine all those who bought Amazon at say $1700 and then sold it at $2000, and now are regretting doing so at $2375, hoping that it will fall to $2000 again so they can buy back in, which just illustrates investors in the AI mega-trend need to adjust their mindset.

a. TIME which is to be invested in for YEARS, and likely more than a decade, that's not to say AI stocks are not likely to rise by double digits most years but you want the acorns to grow into a HUGE Oaks!

b. The AI trend is EXPONENTIAL which means the stock price accounting for splits should be heading exponentially higher than where ever it trades this year.

So personally I am not even thinking of selling any AI stocks, instead my mindset is focused on trying to buy more, and this is AFTER having increased my exposure significantly during March!

Before I get going with my analysis that concludes in a detailed trend forecast for the Stock Market for the remainder of 2020 , then it is a useful exercise to go through the primary drivers of the stock market trend thus far this year namely that of rampant government / central bank money printing and the coronavirus second wave that I warned to expect 4 months ago in terms of the number of new cases for the obvious reason that more people are being tested than during the first wave due to government incompetence at that time, which unfortunately still persists in the US and UK.

Part 1

  • Stocks Correction
  • The Inflation Mega-trend - The Great CPI Con trick.
  • The Corona Depression Second Wave Current State
  • UK Government Coronavirus Second Wave Panic
  • US Pandemic Presidential Election Forecast Implications

Part 2 - Stock Market Trend Forecast October to December 2020 

  • Dow Short-term Analysis
  • Dow Long-term Trend Analysis
  • VIX Analysis
  • Dow Stock Market Trend Forecast Conclusion
  • AI Stocks Buying Levels Current State
  • The Inflation Mega-trend - The Great CPI Con trick 

I was watching BBC News the other day and they had an economist on, ex member of the Bank of England's MPC explaining why Quantitative Easing had not and does not cause inflation. Firstly the UK and the rest of the world HAVE had inflation as the following graph illustrates that Inflation (CPI) is on an exponential curve. If QE did not cause inflation than the CPI curve would be FLAT! Okay, yes it is not HIGH inflation but nevertheless it is INFLATION! 

The consequences of which is LOSS OF PURCHASING POWER OF SAVINGS AND EARNNGS OF 23% over the past 10 years. And that is on the CPI measure! Real inflation that most of the population experiences tends to be just over twice that of CPI, so the reality is that the people of Britain have lost 50% of the purchasing power of their earnings and savings over the past 10 years! And THAT is the INFLATIONARY consequences of Quantitative Easing!

This illustrates the point that virtually all economists tend to just be peddlers of economic propaganda, because economics is NOT a science, it is a propaganda tool aimed towards fooling the masses that their monetary reality is y, despite it being x. 

QE has has not only caused consumer prices inflation but also ASSET PRICE Inflation on an epic scale for which we need only look at stock and house prices.

What is Inflation?

Inflation is simply the loss of purchasing power of the currency.

CPI which the economists focus on because it has been manipulated to such an extent to churn out subdued numbers is just one measure of inflation as the above illustrates there are also other measures of loss of purchasing power of a currency i.e. asset prices, and then there are producers prices abd wage prices.

For most people the most 3 important measures of inflation are - 

1. Wage prices

2. Asset prices

3. Consumer prices.

All measures report the LOSS of purchasing power. Rising US house prices is a measure of loss of purchasing power of the US dollar. Due to the Law of Entropy assets are supposed depreciate in value over time, but due to government money printing (debt) and central bank monetization (QE) they don't, they buck the laws physics by INCREASING in value, that IS THE CONSEQUENCES OF QE! 

And for this reason QE is for Ever Because to unwind QE would result in an increase in entropy i.e. a collapse in asset prices that would bankrupt the banks and collapse the financial system.

Therefore I tend to wince whenever I hear the the likes of the BBC reporting on Inflation because all they are peddling is government economic propaganda aimed at fooling the masses of price stability so that they can continue to get away with their money printing con trick.

Don't be fooled folks, there is only one way to protect your wealth that is by being invested in assets that cannot be easily printed such as housing or are leveredged to inflation revenue increasing stocks.

I should mention that there likely will come a time when the money printing confidence trick no longer works i.e. people lose confidence in the currency, in which respect its a case of damage limitation.

1. The greatest destruction will be wrought on savers who will see the value of their savings completely wiped out! In fact its already been happening for some years with negative interest rates.

2. The destruction of the purchasing power of wages, again it's already been happening on a slow burn where people have to work more for less purchasing power than 10 years ago!. 

3. Asset prices would fall in real terms but unlikely in nominal terns as the economy contracts and the amount of debt increases requiring the liquidation of assets.

So investing in assets is still the only way to limit the damage done for when the currency confidence trick ends. Definitely a lot more survivable than all those poor souls with money in savings accounts.

The Corona Depression Second Wave Current State

It's now approaching 4 months since I warned to expect a second pandemic wave for the UK and US as a consequence of widespread rebellions and protests such as the black lives matters protests starting to take place at the time (Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035!) where in terms of the number of daily cases then this was expected to result in a higher second peak for the obvious reason being that a lot more people are now being tested then at the height of the pandemic in April when in the likes of the UK was testing perhaps as few as 1/20th the number of those infected.

Therefore whilst the number of covid cases was expected to rocket higher the number of deaths 'should' not rise to anywhere near the catastrophe of the first pandemic wave due to intelligence both of the medical professional and amongst the general population though not the governments or their advisors who remain moronic, always acting too little too late and thus resulting catastrophic consequences for the people and the economy, as acting too little results in more severe economic activity squeezing lockdown measures in attempts to slowdown the spread of the virus and the resulting spikes in excess deaths though at lower successive peaks in terms of seriously ill as per my conclusion of Mid March (US and UK Coronavirus Pandemic Projections and Trend Forecasts to End April 2020)

So back in April the metric to watch was the number of excess deaths in attempts at determining the magnitude of the pandemic as the actual number infected was anyone's guess i.e. for the UK I estimated the 5000 or so daily cases testing positive was more likely to be 15 to 20 times higher. 

Whilst my last update of 2nd September Gold Price Trend Forecast into Mid 2021, Is Intel Dying?, Can Trump Win 2020? showed that the US second higher peak had materialised whilst the UK was thus far managing to contain the virus though was likely in the calm before the storm stage given that schools and universities were about to open and some 1 million holiday makers from covid hot spots had just returned late August that this analysis updates.

UK Government Loses Control of the Coronavirus Pandemic 2nd Wave Forecast Consequences 

Britains incompetent government has once more lost control of the Chinese Coronavirus pandemic that is now at the very beginnings of a second wave that looks set to be about half as severe as that of March and Aprils first wave in advance of which British Police have been steadily given new powers to accumulate arrest points towards criminalizing people who for instance don't wear masks or are found in groups of 6 or more whilst those who breach self isolation rules could be hit with fines of upto £10,000. Police forces increasingly putting high risk areas and groups of people under surveillance, which translates into ethnic and deprived areas receiving special attention, officers roaming the streets, shops and super markets looking for law breakers with even plans to deploy the army in support of the police towards enforcement of local lockdown's.

UK Panic Buying 2.0 

And right on queue panic buying is starting once more across Britain's major supermarkets such as Tesco and Morrisons, who Friday announced restrictions on items purchased on many goods including hand sanitisers, toilet rolls, flour, pasts, baby wipes, antibacterial's and eggs which is likely to spread to many other supermarket goods as the number of local lockdown's multiple in the face of the exponential spread of the virus that has now passed above r 1.5. though hopefully to nowhere near the extent of March panic that this video illustrates of just how bad things could get once more all courtesy of an incompetent government advised by moronic mad scientists hence we cannot blame people for panic buying when faced with morons being in charge!

UK Coronavirus Analysis

The 4 metrics to watch as to extent of the human and economic carnage to expect going into Britain's second pandemic wave are the number of daily cases testing positive, hospital admissions and eventually the delayed figure of the number of deaths both covid and excess that will determine the extent of lockdown panic measures to come.

Who is Spreading the Virus

You only have to venture out to the local supermarket and shopping mall to see why the virus is starting to accelerate once more, for what you tend to see are the rebellious youth i.e. aged 18 to 29 of whom probably less than half are wearing masks, whilst those aged say 30 to 49 whilst more likely to wear masks, many have them below their noses or worse below their chins. Thus defeating the whole purpose of wearing masks in attempts at slowing the spread of the virus.

These observations are born out by the data as the following graph illustrates where those aged 20-29 are the primary population pool sparking the spread of the Britains 2nd wave starting early August and is now in full swing reaching over 60 per 100,000, up foam 15 early August. The next pool of spreaders are those aged 30-39, rising from 15 mid August to 45, pools of infected who are now fast feeding the spread of the virus to the rest of the population as all curves are on an upwards trend trajectory.

Whilst the very young i.e. the under 14's have proven to be least likely to be instigators of the spread the virus where the number of infections remains relatively low at 17 per 100k, which means whilst the numbers will increase, Britain's schools 'should' remain open in large part during this second pandemic wave. Whilst Universities will remain technically open but are unlikely to be functioning in any manner other than in providing online resources that in most cases cannot compare to what the likes of Youtube already offers in terms of learning materials for free!

So the primary instigators of Britains second pandemic wave are those roughly aged between 18-40 for not following social distancing and mask wearing guidelines hence the broadcast media being full of bad behaviour when the pubs close, and the plight of thousands of students under lockdown on campuses, though there that maybe by design i.e. get the young infected so as to foster herd immunity. Anyway for most students Universities are a scam. 

Covid Hospital Admissions

As you can see by the following graph the UK is nowhere near the magnitude of the first wave, and illustrates the extent of the lack of testing during the first wave as currently some 1,500 people are hospitalised compared to 20,000 at the peak. 

However, unfortunately the second peak could end up being just as high in the number of patients hospitalised as the first wave due to the reason that many people in hospital were dying, so there was a fast turnover in patients, whereas during the second wave a lower death rate will mean the beds being clogged up more with patients.

Covid Deaths 28 Days Since Testing Positive

 The only way to reliably measure the extent of the pandemic during the first wave was in the number of deaths, which illustrated the extent to which the government had lost control as the number of daily deaths soared to a peak of 1,224 for the 22nd of April. 

The current number of daily deaths at 37 may seem mild in comparison but so it seemed Mid March when 14 died on the 15th of March. However, the trend trajectory to that point warned of a catastrophe which is precisely where we stand today i.e. deaths per day 2 weeks ago were just 8 per day rising to 37 today which means the UK should brace itself for a huge increase in the death rate to around 1/3rd of tat of the peak of the Pandemic which four weeks from now could easily exceed 400 per day on a best case scenario, worse case reach 600 per day. 

UK Excess Deaths

As the pandemic has gone on the government has chosen to CHANGE the methodology used to measure the number of deaths. Where the current method is to measure those who die within 28 days following a positive test for Covid-19 that currently totals 41,862 deaths.

However, it is clear that the official current method results in a substantially lower death toll number than the preceding method which was by means of death certificates listing Covid-19 where the number jumps by 15,000 to 46,956.

Though even this method under reports the true magnitude of the covid death toll when one looks at the ONS weekly figures in terms of EXCESS deaths above the seasonal average of how many deaths one would normally expect during the course of the year which sees Britains' death tally jump to nearly 65,000.

Therefore where deaths are concerned the most reliable metric to watch are the ONS weekly statistics on excess deaths.

UK Daily Cases Forecast

The number of people testing positive has started to soar doubling from 3,000 a week ago to the latest released data of 6,178. Furthermore the ONS estimates that there are approximately 110,000 people across the UK that are infected right now which would imply that the actual number of infected per 100,000 is 168, as against the official figure of of just 40, so four times the official number are actually infected.

However the current situation is not quite as dire as the above graph suggests for the fundamental reason that as I mentioned earlier barely 1/20th of those infected were being tested during April i.e. only those already ill ending up in hospital were being tested at the time. So during the first pandemic wave as many as 100,000 were catching the virus each day. Though of course NOT everyone infected is being tested right now, probably about half the infected are being tested., so actual number infected per day is around 12,000.

As per my original March analysis I was expecting the second wave to ultimately end up being about half that of the first wave. Which means to expect this wave to peak at just below 50,000 cases per day, say at 42,500 per day, assuming that the first waves peak was at 100,000 per day. Anyway we are likely to see today's official figure of 6,200 positive cases per day increase at least seven fold to about 42,500 per day which given the trend trajectory of doubling roughly every 7 days, though which I expect to slow each week during October as the government issues more lockdown orders and measures across the hot spot regions, thus the forecast number of people testing positive per day by the following dates are - 

So by late October I am expecting the number of daily cases to be nudging 42,500 before stabilising in response to a series of measures to be announced over the coming weeks as the government effectively panics. Where a deviation against the forecast trend will act as an important advance indicator to expect relative economic strength or weakness.

NEW Lockdown's Economic and Social Consequences

The bottom line there is no imminent sign of a working vaccine this side of the 31st December 2020, so the UK is fast heading into it's second pandemic wave that as per my original Mid March analysis should be roughly half half as bad as the first wave in terms of infections and deaths. This still means as many as another 20,000 extra people could die over the coming months based on the 28 day official measure and thus as will result in the government under taking a series of panic measures in attempts at bringing the pandemic back under control.

Thus we are likely to see extensions and amendments to the governments support measures for the economy such as the furlough scheme that ends 31st October, the most recent of which was Fridays announcement by the Chancellor Rishi Sunak for a new scheme to support viable jobs where workers return to work for at least 1/3rd of their normal hours and the government and employer each cover 2/3rds of the hours not unworked, which effectively cuts government support from 80% to 22%.

However, the flaw in the chancellors cunning plan is that this scheme places an extra burden on employers who will be expected to pay 22% of the workers full wage, so they could just sack the worker and hire someone else and just pay them for the hours worked i.e. 33% instead of 55%.

Whilst a series of restrictions in social interactions especially amongst regions and population groups who are not abiding by social distancing and mask wearing guidelines, namely those aged between 18 and 40. Thus activities in venues such as as pubs, clubs and restaurants are expected to increasingly be curtailed, as workers are already being urged to work from home rather than to comminute into work. With the restrictions likely to be announced in phases aimed at high infection hot spots rather than a blanket nationwide lockdown.

With today only a few regions indicated in orange already under lockdown regimes. Whilst at the same time the government is desperate to keep as many schools open as possible so as to ensure economic activity continues as those parents who have to go into work can do so. Whilst Universities will also remain open though increasingly in name only as students will find themselves stuck in their halls of residence and apartments with few activities taking place on campus as lecturers hide themselves away so as to avoid the risk of infection. Thus by Mid October virtually all teaching will be done online, and even that at a quality less than most people can glean from watching youtube videos, despite this students will be forced to pay the full rate in terms of tuition fees for quality of materials and teaching that barely scrapes 1/10th the value of that which they will actually receive.

Anyway at the least this suggests that the UK is heading for some economic contraction, though which would definitely come nowhere the 23% drop of the catastrophe of the March lockdown given that many business and workers who have not been fully furloughed have adapted to some degree by working around the virus i.e. at home or in better adapted to the virus work places, so whilst UK GDP will probably decline in the quarter October to December, it should be nowhere near the scale of the 20% contraction of April to June, that will likely be followed by a bounce of roughly 14% for July to September, where my best guess is to expect GDP to contract by between 2 to 4% during Q4 the magnitude of which will depends on how bad the second wave actually turns out to be and the resulting government panic measures announced to counter it. Nevertheless it will be no where near as bad as for Q2 and there is even a chance if the government gets an early grip on the Second Wave AND schools remaining open then the UK could even scrape by with positive of 1% to 2% GDP for Q4 2020 given the amount of stimulus I expect the government to be shortly announcing.

And if the UK is representative of much of the rest of Europe than there is the potential for Second Wave to result in upwards economic surprises i.e. the doom and gloom of those expecting even half of the level of contraction of the first wave may not materialise for most economies.

The US Pandemic Presidential Election

The US Coronavirus Second wave materialised at full gallop during the summer months that undoubtedly played a strong part in bolstering Biden's lead over Trump, given that every statement the President made about the virus miraculously disappearing has so far amounted to nothing. 

And how the virus impacts going into the election will determine whether Biden narrows or extends his current 7% poll lead over Trump

US Daily Cases Analysis

The 2nd peak that I warned off a near 4 months ago has more than materialised, with just over 1 month to go until voting day is there any sign that the timing of the second peak will work in either Trump or Biden's favour?

My last look at the start of September painted a picture of falling cases following a late July peak which if sustained would work in Trumps favour.

However, as I warned at the time given that the US was heading into colder weather thus the probability was high for a THIRD peak that would take the number of daily covid cases to a new high.

Unfortunately for Trump that is precisely what is starting to transpire. the trough following the second peak is starting to turn up. Whilst it is still early days, nevertheless inline with my forecast I expect the trend to continue higher into voting day for a higher 3rd peak beyond the 78,750 per day of July 24th. Which is not good news for the Trump campaign as the coronavirus trend trajectory is not going to move the polls in Trumps favour.

Worst still many of the hotspots (daily cases per 100,000 over the past 7 days) are in Trump red target states, that implies to expect a higher death toll some 4 weeks time in these states..

The only saving grace is that the number of deaths for the 2nd peak did not exceed the first peak. Which means that at least the US medical establishment is better able to treat the disease without it killing the patients. Such improvement in covid-19 treatment will be critical in coping with the 3rd wave and gives some propaganda value for Trump to focus on despite the horrific headline number of over 210,000 dead americans that looks set to exceed 250,000 by voting day.

However as long as the number of deaths per day does not average above 1,000 per day than this should not do additional damage to Trumps electoral prospects.

The 1st Presidential Debate

With the sound off, Trump won the debate as Biden came across as the shaky old codger, lacking stamina to be President for next 4 years. Whilst Trump does not even look like he has aged since 2016! And with the sound on, on balance Biden won 55/45, giving Trump several thrashings, which given his track record on the virus was not too hard a thing to do as the following excerpt illustrates.

At the end of the day Trumps incompetent handling of the pandemic has been just as bad as that of many western governments and leaders. It's just that unlike for instance Boris Johnson, Trump has an election right smack bang in the middle of a pandemic, which is definitely bad news for Trumps prospects of getting re-elected.

In terms of stock market implications then as is the case for the UK then the US should is also expect to experience an upwards economic surprise during the remainder of the year, especially as the market discounts the vaccine light at the end of the coronavirus tunnel.

Stock Market Trend Forecast Oct to Dec 2020

Unfortunately flu like symptoms stating Sunday means that the rest of this analysis that concludes in a detailed stock market trend forecast is delayed for a few days. Hopefully I just have the flu which means it should soon be gone, whilst I have yet to successfully book an NHS Covid test,  I will try again in a few hours. Though in all probability what I have is the flu, sore throat, runny noise, cough, slightly elevated temperature, which I am usually done and dusted within 7 to 10 days. 

Meanwhile the NHS is promising flu jabs to all those aged over 50, though not likely to start becoming manifest for the 50-64's until at least JANUARY! Another example of too little too late to be of much value!

Your analyst. continuing with daily doses of Vitamin C and D. 

Nadeem Walayat

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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