The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

V or U or L ?


It was less than ten years ago, May 6th, 2010 at 2:36 PM, that the stock market quickly dropped a thousand points.  Thirty-six minutes later, the market had regained the thousand points.  This became known as the “Flash Crash.”  Because the bottom resembled the letter “V”, analysts still speculate whether downturns will be V-shaped, U-shaped, or L-shaped.

There does seem to be some relationship between the speed of the slide and the speed of the recovery.  In other words, a rapid loss usually has a rapid recovery or have a V-shaped bottom.  Because the current market dropped 19% in a month, it is speculated that the recovery will be equally rapid, but I don’t think so.

According the Relative Strength Index, the market was over-valued BEFORE the slide.  Also, there is an expression in oil business that “the best cure for $30/bbl oil is $30/bbl.”  In other words, production of oil will slow so much that supply will soon decrease.  While painful, it is self-healing.  (Of course, we do need to closely watch the bonds issued by oil producers.)  Third, all viruses are different.  We know too little about the coronavirus to predict this is just a two month nightmare, not to mention its reoccurence rate.  Fourth, we haven’t begun to understand damage to supply chains worldwide.

At best, we could see a U-shaped recovery, but I expect it will be an L-shaped one.

We are a fee-only advisor providing best interest fiduciary services to clients
in Chesapeake, Newport News, Norfolk, Suffolk, Virginia Beach, Williamsburg, and the surrounding areas of Hampton Roads.


Contact Us Bottom