Why it is Too Early to Buy Stocks – King Dollar


Wow… what a week! The past week felt like a few years of economic policies all rolled into one. It felt like 1997 and 2008 playing out at the same time, on fast forward. That’s how insane it was.

But enough with the chit chat, we’ve a lot to cover today, so let’s jump straight into the details.

Basics: What happened the past week?

I’ve decided to skip going through the financial charts in the weekly roundup. Most of them are public info anyway. If you feel strongly about having them back, just leave a comment below and I’ll add them next week.

This week:

  • Started with the Feds cutting rates to zero, and launching QE4 on Sunday night
  • Moved to the Feds extending the repo program to $1.5 trillion by midweek
  • Feds then unfroze the commercial paper market via the Commercial Paper Funding Facility (basically saved the money market funds – another playbook from 2008)
  • And ended on Thursday night with the Feds extending USD swaps to multiple central banks across the globe.

Oh, and don’t forget Trump’s announcement of the $1 trillion fiscal package. And along the way, the ECB also launched their 750 billion euro bond buying program.

For those who are newer to financial markets, what happened over the past week, is that financial markets have been falling apart.

And when I refer to financial markets I don’t mean stocks, that’s a small part of what makes up financial markets. I mean the underlying credit spreads, USD liquidity, the US Treasury market, repo program, the stuff that really drives the global financial system.

So everything the Feds did the past week, was simply to unclog the financial markets. It wasn’t even to stimulate the economy. It was there mainly to keep things working, until we can get to the recovery phase.

Because if they didn’t do so the past week, then there was a real risk that the entire global credit system would have frozen up (like what happened in 08), and the global economy ends before we even get through to the fiscal stimulus phase.

So yes, the Feds just saved us the past week.

Do be forewarned that what follows could be a pretty technical discussion. I tried to dial it back as much as I could, but make no mistake, what happened in markets the past week was not straightforward. If this is too heavy for you, just skip to the end where I share my conclusion. For those of you who can, I urge you to try to understand this, it has big consequences for what is to come in the coming months.

Do note that I’m not going to cover everything in detail because there’s just too much to talk about. I’ll just touch on the big ones.

For those of you who haven’t signed up for our mailing list, please do consider signing up, its absolutely free. It’s a weekly newsletter that goes out at noon every Sunday, and rounds up the week’s posts so you never miss anything. I do share additional information there sometimes that could be handy (there’s a FH 7 Commandments for Investing you get when you first sign up).

As always, this article is written on 21 March 2020, and will not be updated going forward. Updated thoughts are on Patron.

Why is USD so strong?

And the biggest story the past week, was the King Dollar (USD).

Understanding the power of the King Dollar requires a bit of a background.

So the US economy is about 18% of the global GDP. But, about 50% of global commerce is denominated in USD, because the USD is the world’s global reserve currency.

So oil is denominated in USD, same for commodities, as well as a huge bulk of global trade and commerce. A lot of corporates and governments also take up USD debt during the good times because of cheaper borrowing costs.

During the good times, the USD keeps flowing through the system. Customers pay suppliers, who use the money to pay creditors, who then lend to customers, and so on.

What happens then, when the entire world stops, because of something called Coronavirus?

The flow of USD stops, right?

So suppliers no longer get paid, because nobody wants to buy the products. Nobody wants to buy goods anymore, and they’re trying to find a way to go back on the original agreement. And at the same time, the price of oil and commodities drops. So every single supplier who used to supply oil and commodities now earns a lot less USD.

But the USD obligations are still there. These companies have borrowed in USD, and they have also promised to pay other suppliers in USD. They no longer get the USD from their customers. Where do they get USD from?

So over the past week, we saw a massive liquidation across all asset classes, as all kinds of EM stocks and anything that was liquid started getting sold, so that companies around the world could buy USD.

See that spike circled in red? That’s what happens when the entire world starts buying USD.

So I see a lot of people commenting that the sell-off this week was caused by margin calls. I don’t quite agree with that. I think margin calls was one factor definitely, but the biggest factor here, is probably a rush into USD. A rush that was fueled by a sale of anything that is liquid, and can be sold quickly. Stocks, REITs, paper gold, you name it, it was sold.

USD Swaps tamed the USD Monster

Then on Thursday night the Feds announced USD Swaps with many central banks. These are basically agreements to swap USD with local currencies, allowing the local central banks to loan the money on to institutions that need USD (without needing to tap on their reserves – which would have further crowded out USD liquidity).

This came out of the 2008 playbook. The only difference? In 2008 it took 8 months for us to get USD Swaps. In 2020, we took 4 days.

But the USD Swaps were absolutely the right move. So on Friday, once these USD Swaps were in place, the King Dollar fell immediately, and risk assets started rallying across the globe.

So that massive rally we saw in Asian stocks yesterday? My bet is that it’s due to the USD Swaps.

Will the USD Swaps work?

The million dollar question, is will the USD swaps be sufficient to tame the King Dollar? I actually don’t know the answer to that. We’re in unchartered waters here, even in 2008 we never had a situation where the USD swaps weren’t sufficient.

If I were to venture a guess, I would say that the USD swaps will be sufficient in the short term. The USD will drop, and this will spark a huge rally in global risk assets. But eventually, as the economic and liquidity situation continues to tighten, the USD swaps may prove to be insufficient, and the USD will start going up again.

Why do I say so? I think that in 2008, a lot of the USD demand came from banks. This time around, a lot of the USD demand will come from companies. So giving USD swaps to central banks works, but the key is going to be the transmission from central banks to the companies. And I’m skeptical on how quickly, and how efficiently this transmission can be carried out.

But to be clear, no one knows the answer to this. Not even the professionals.

What will a strong USD do to the global economy?

What happens then if the USD comes roaring back? Simply put, nothing good.

To understand what happens to the world when there is a roaring USD and a deflationary bust in commodities prices, we just need to look at 1997. The Asian Financial Crisis.

Expect to see massive devaluations in EM currencies, and a massive inflationary bust in EM countries if this plays out. All those EM companies who borrowed heavily in USD debt during the good years? They’re going to regret it pretty soon.

I’ve set out the March performance of the USD against major EM currencies below. And this is only MARCH btw. These kind of massive moves in EM forex never end well.

Repo Facilities

Repo is a pretty technical concept that is hard to simplify. It basically allows you to deposit US Treasuries with the Federal Reserve, in exchange for short term liquidity.

Over the past year or two, hedge funds have been buying US Treasuries heavily, depositing them in repo for liquidity, and using that liquidity to buy more US Treasuries. And they did this until they were leveraged to the gills.

And then March 2020 happened. The virus forced a huge unwind in all these leveraged trades, which instantly blew up US Treasury liquidity.

And as VAR (Value at Risk) spiked, many big banks were forced to derisk, contributing to decreased liquidity at a time when the market needed it the most.

Incidentally, this also contributed to the blowup in risk parity funds the past week (they leverage US Treasuries).

However, it seems that for now, the $1.5 trillion repo facility launched by the Feds may have address this issue, *for now*. The US Treasury market is still experiencing record stress though, so it’s still one to monitor.

Is it time to start buying stocks?

I set out my framework to approach stock buying in the previous articles. All of which remain relevant, and I highly recommend you to take a look.

Let me run through each of the 2 buy signals.

Note: This analysis applies only to markets outside of China. My current thinking is that China stocks deserve a separate analysis.

Buy Signal 1 (Drastic Government action to combat COVID-19)

Over the past week, we’ve seen drastic action coming out of:

  • Europe – Pretty much the whole of Europe will be on lockdown by next week
  • US – California just locked down, I think the rest of the nation goes into full lockdown soon
  • Asia – Philippines and Malaysia locked down. Many other countries have closed borders

In other words, over the next 1 to 2 weeks my Buy Signal 1 is probably about to be triggered.

I think there is a small risk that the situation in Singapore and Indonesia (and Africa and Latam) gets more serious, so it’s one that I’m monitoring closely.

Buy Signal 2 (Fiscal Stimulus sufficient to counteract COVID19)

President Trump recently announced a plan to seek approval from congress for a $1 trillion dollar fiscal stimulus. The Eurozone also announced that they’ll do whatever it takes to rescue SMEs.

For the record, I think whatever we’ve seen so far is insufficient, but it’s definitely a good start. I agree that governments should focus their efforts fully on combating the virus situation, and any talk about fiscal stimulus can be kept general at this stage, with details and formal approval to come.

What’s going to be tricky though, is getting the approvals.


For those who are new to US politics, the US has a Republican controlled Senate, and a Democrat controlled House. And this is election year. Good luck trying to fast track a fiscal package through that.

After what the Republicans did during the Trump impeachment, I think Nancy Pelosi and Chuck Schumer are going to put up a tough fight. It’s election year, and nobody wants to be seen as the guy who bailed out the “airlines who spend 96% of their free cash flow on share buybacks over the past 10 years”.

The Democrats are asking for some tough conditions so far. They want guarantees from the bailed out companies not to retrench, not to engage in share buybacks, and they also want Republicans to drop the corporate tax cut.

Long story short, it’s probably going to be a tough fight. They’ll get it out there eventually, but in the meantime, anything can happen.

Oh, and $1 trillion isn’t going to cut it. We still need bailouts for corporate America.


The problem with the Eurozone is again, politics. Central banks can act quickly, and they have acted. Governments though, governments act slowly, as we will see in the coming weeks.

And with the Eurozone, there are 27 member states. If you think getting 1 country to agree on something was tough, try getting 27 countries.

Again, I believe they will pass a fiscal package eventually, but my fear is that each Eurozone country will focus obsessively on their own country, rather than the welfare of the EU Bloc. If they do so, consequences could be dire.

Buy Signal 3 – Financial Plumbing to clear up

Over the past week, I’ve started to see a lot of disturbing signs in the financial markets.

These include:

US Treasury market freezing up

The US Treasury market is THE most liquid asset class in the entire world. It’s the bedrock of global investments and finance.

Over the past week, we’ve seen record bid-ask spreads in US Treasuries, and the TLT (the biggest Treasury ETF) is trading at historic discounts to underlying NAV.

A smooth functioning US Treasury market is critical for the smooth functioning of global investments and finance, and I want to see this clear up in the coming days before I make big moves.

USD Strength

We talked about USD strength early and the consequences if it doesn’t go away. I’ll want to see at the minimum USD liquidity stress to go away first.

Stabilisation in Credit Spreads

Credit spreads are blowing up across the globe. I know many retail investors out there don’t look at credit markets, but I’ve said this before and I’ll said this again:

Watch the CREDIT markets.

The credit markets is where the real action is.

Stocks are erratic. Some days they go up, some days they go down.

But credit, credit is almost never wrong. Stocks are like your erratic child with moodswings, and credit is like your Einstein. You listen to what credit markets have to say .

And credit spreads are telling us something bad is about to happen

Just look at that high yield spread blowout below. My god. It’s gone vertical, and to levels not seen since 2012 (Euro Debt crisis) and 2016 (oil bust).

If credit spreads don’t at least stabilize in the coming days, I would be highly worried.

Because of this, I’ve decided to add a third buy signal. I want the global financial plumbing to at least unclog, before I start buying in a big way.

That said, I think what the Feds did this week definitely helps, and in the next few days we may start to them come into effect.

Why it is too early to buy stocks?

So in early March I wrote an article saying how I see a global recession coming. It attracted a lot of ridicule at the time, because everyone thought I was crazy.

But I’ve always said my goal on Financial Horse is to share my honest opinion, and to interpret facts as I see them. Whether you guys believe me, and what you choose to do with it, is up to you entirely.

In hindsight though, that call turned out to be perfect, and my only regret is not selling more when I wrote that article.

Over the past 2 weeks, I’ve seen a lot of retail investors sharing that they’ve started buying stocks.

Now I get why many people want to buy stocks. We’ve had an 11 year bull market, where stocks just keep going up. Now that stocks are finally coming down, it’s natural to want to buy some. It’s just a matter of time before they go back up right?

My advice though, is that if you want to buy stocks in a big way now, at least have some idea why you think the global economy and financial markets will recover, and recover quick.

That said, I will never comment on what you guys want to do. It’s your money, and if you think now’s the right time to buy stocks, by all means go ahead. Nobody knows with certainty what’s going to happen, and you could be the one laughing all the way to the bank (literally).

When do stocks bottom?

I took a look at some historical references recently. And most of the data I’m looking at, shows that after a big crash like this, there’s almost always a massive rebound, that gets investors thinking that the worst is over.

We see that with 2008, with 1929 and so on.

But after that rebound? There is either (1) a retest of prior lows, or (2) a massive collapse below the prior low.

Why this is the case I have no idea. Your guess is as good as mine. I have a theory that it’s related to investor psychology, but truth is I have no idea.

Because I don’t know what drives this signal, I don’t know whether it will hold true this time around.

But I’m seeing a lot of warning signals right now, and none of my 3 buy signals has triggered yet. I’m also really worried about the second and third order effects arising from the global shutdowns.

I think that in the coming months a lot of companies are going to go bankrupt, and a lot of people are going to be laid off. It’s really scary, and I don’t think we’ve even seen the start of it. All we’ve seen so far is the virus and financial markets impact.

So for me personally?

I think buying stocks now is still on the early side. I’m just going to hold for a little while more.

Closing Thoughts

And just to contradict everything I just said, I’m also seeing a lot of big name counters trading at very interesting valuations now. So despite what my brain is telling me, I just might add to some of those positions in the coming weeks, with a small portion of my warchest.

It really depends on what kind of prices I can get though.

And only a small portion, because I see this playing out over a longer period.

The stocks/REITs I’m looking at are shared on Patron, so do sign up if you’re interested.

I’m really curious to hear thoughts from you guys though. Poke holes in my buying strategy above. I want to know what problems I missed. What am I not seeing? There’s nothing I welcome more than contrary opinions.

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  1. Hello! Thanks for the insightful comments. I agree with your thoughts that the worse may not be over. However I feel we can take comfort in China not reporting new local cases for the last 2 days and I think the recovery will be a ‘made in China’ one. While production and supply chain capability has almost resume to the pre covid time in China, global demand is grinding to a halt. On a more macro picture, what are ur views how recovery will look like? Will China and other ASEAN countries come out stronger due to the shift in supply chain capability?

    • Good question. My view for now is that it’s too early to begin thinking about the recovery phase. A lot of things will happen between now and then that will shape the outcome.

      I do like how China is positioned for now though. They have the potential to gain strongly if they play their cards right.

  2. Thanks FH! Have been reading your articles over the past four months or so and I find them really clear and easy to understand even for a beginner like me!

    Do you foresee the USD strengthening further? For sgporeans who want to invest in the us stock market, a strong USD will make US stocks less attractive. Should we buy more USD now?

    • Hi Jenny,

      Welcome to FH! Glad you’re enjoying the articles!

      Great question, unfortunately, even the professionals are stumped on this one.

      My take – USD strengthens short term (against major currency pairs – no views on SGD), and this has the potential to wreak havoc on the global economy.

  3. My take on this is: as the death tolls will be inevitable, I doubt that headline trading can resist bringing the markets down. i.e. for California alone, if you believe that 25 million people will get it even with a conservative 0.5% death rate, it amounts to 125,000 🙁

  4. Hi, love the article. Just wondering, how would you then analyse the Chinese market? What are some of the metrics you would use to analyse the Chinese market? Also, just wondering how much of China’s growth is reliant on external demand vs domestic consumption?

    • I think the key to China is to look at policy responses. China is trying to transition to domestic consumption, but as at right now, a big part of the economy is still driven by external demand, so they will still be hit in the coming months.

  5. “I have not bought a single stock with my warchest just yet.”

    Whatever happened to your 13th Feb post on patreon saying: “Initiated positions in CCB, CRCT, Cloudflare, UOB” ?

    It is one thing to change mind on markets. But quite another to flip flop on what was done (or not done).

    • Hi!

      Most of those positions have already been closed by early March, as disclosed in earlier posts.

      I also think that the analysis for China shares v Global (ex China) shares are different. I see a lot of merit in holding on to China A shares at this stage vs Global shares.


  6. Motto: “If you can’t explain it to six-year-old, you don’t understand it yourself.”

    We now have to navigate the difference between “normal funds” and “warchest money”.

    • In the interests of Full Disclosure: I have made NO purchase of stocks with any form of money since early Feb. The only move has been to close stock positions in early March.

      Does this clear things up?

  7. To be fair, this is a good technical article on the market intracies. Bringing sell side trader knowledge to the general blog readers.

    • Thanks, all I’m doing is to share my personal thoughts. I will keep references to what I’m doing more general in future, to avoid any confusion. Readers should be making decisions on the base principles, not from what I’m doing on a day to day basis.

  8. Interesting read. Also with plenty of caveats and qualifications. I also agree with you that the worst is not over yet and that still should buy a little by little, maybe 10% of bank balance to pick up . I think what you did not address is the possibility of a gradual rebound due to sudden return of confidence. This confidence would come from promise of a successful drug. Because whatever it is , economic recovery will be gradual but stock market recovery can be quite quick.

  9. Hello Finance horse,

    Thanks for your insightful article. I agree with you that now is still not the time to dive in deep.

    i am a newbiz in investing and quite passive due to work reason. I notice that S&P500 and Dow Jone have come down quite a fair bit, are there any ETF that track these in Singapore that i can look into buying? Do they pay dividend? In short, something similar to STI ETF that most people are already quite familiar with.

    Thank you

  10. Thanks FH I think your article is as clear and straightforward as it can be great job!
    What are your thoughts on buying and selling the dips for some quick gains to build your warchest? My transaction costs are not so high

  11. They do have the SPDR S&P500 ETF listed on SGX. Code S27. It’s the same fund as the well-known SPY but listed in Singapore. It’s in USD, and it’s considered a specified investment product (SIP). I’ve not bought it before but I think it does pay dividends. I think it pays you a post-withholding tax amount.

    Issue with this ETF though is the ridiculously low volume and liquidity. The bid-ask slippage is huge (0.5-1% of the price). There’s less than 500 units (yes, not 500K, but 500) traded per day. Furthermore, the price will never be consistent with the actual US market because whenever their market is open, ours is closed, and vice versa, so you’ll never be sure how representative the price is, especially with only <500 units per day.

    I would stay away from it and just take the once-off trouble to set up a USD brokerage account to buy directly into SPY instead, or its Vanguard version VOO.

  12. Hi FH, what is your thought about retail bonds like fraserer 3.65%, astrea, SIA 3.03%?
    It is trading at deep discount to par value. With around 5% to 6% yield.

    • Haven’t relooked at them in detail yet, so can’t comment for now. Credit risk is a different analysis from equities analysis – you want to look at creditworthiness only.

  13. Hi FH , two questions… in your opinion

    Does it make sense to buy safe haven now like gold? Or perhaps even bitcoin

    Secondly , any correlation between US recovery and STI? Should we look towards US when considering SG stocks or reits ?

    • I could be completely wrong on this. But here is my current thinking (for obvious reasons, not financial advice):

      1. Gold will depend on the currency you’re comparing against. Against USD, I think USD strengthens short term. Against EM, I think gold wins. Mid term though, gold looks like a good hedge.

      2. No views on Bitcoin. I know people who feel strongly on them, but for me, I prefer to remain neutral.

      3. I think US market is instructive for Sg stocks.

  14. Hi FH, this is the first article that I absolutely resonated with my thoughts. I have heard so many “Value investors” shouting buy since a few weeks ago, and I wondered why. It’s so important to look at the credit market, viruses don’t bring down economies, inability to maintain credits will bring down the economy.

    Can I also ask, is there any place/resource that you can recommend for me to learn more about macroeconomic indicators.

    • Thank you for the kind words. Feel free to share alternative views, I am looking for high quality feedback on any blind spots I have.

      Ray Dalio’s Principles for Big Debt Crises is a good place to start. It’s the best text I’ve encountered thus far.

  15. As credit risk has spiked so much, do you see counters like Sheng Siong hold up? Even in the most dire situation, people need to eat.
    On the banks, could you share what could be the impact on DBS (“worlds safest Bank”)
    Lastly, with war of words on in full swing, is there a chance of higher protectionism also.

    • Hi! My thoughts below – not financial advice of course.

      1. I don’t follow Sheng Siong, so can’t comment on that.

      2. Short term? Rising NPL and lower NII. Possible dividend cut.

      3. Agreed, high possibility it plays out this way.

  16. Thank you Zach & financial horse.

    Guess for ETF for STI, i will stick with the unofficial one & only ETF STI. As for S&P, i will use my Saxo account to buy into SPY & VOO when the time comes. These 02 x ETF does pay dividend right?


  17. Hi, it’ll b good to have the financial charts at the start as it’s a good sum up on latest situation. Thanks, learning lot and from your postings!

  18. Mark: There are 2 “official” ETFs which track the STI on the SGX – Nikko AM STI ETF (G3B) and SPDR STI ETF (ES3).

    Do note that ETFs listed on US stock exchange such as SPY/VOO are subjected to 30% dividend withholding tax which may eat into your returns. You may want to check out their equivalents on the London Stock Exchange to reduce your dividend tax liability.

    FH has previously touched on the topic of withholding tax for SG investors – you may wish to read up more on https://financialhorse.com/withholding-tax/

  19. Hi there. Was with wondering on the London listed equivalent for SPY/VOO. Will I be taking on sterling risk if I get those? Or will the value always equal to the US equivalent in US dollar terms.

    Thanks in advance 🙂

    • There’s a small bit of risk of course, but because the underlying asset is USD denominated, the bulk of the risk is USD.

  20. Oh, Big Debt Crises is good. I read it already, very technical though. Nah, no contradiction from me now. I have a feel from observations and all my readings that the crash will take a much longer time than the past 3 weeks.

    It’s just that I want to improve my knowledge so that I can consolidate information into a workable system for myself. (Hence the question.) Looks like I will stay tuned for more content. Haha.

    • Haha it cant be too simple, because a text that is too simple will miss out on a lot of details that really impact what is going on now. It’s like a physics textbook that is too simple. It usually sacrifices some details that could turn out to be crucial.

  21. Hi Financial Horse

    Thanks for your articles – am a fan. Am looking at picking up a book to get a better understanding of the basics of how the economy works, on a macro level. Have some background in finance and economics at university level, but looking at enhancing my understanding of the financial markets. Grateful for any recommendation you may have. Thanks in advance!

  22. Hi,

    Quick question, if the USA are printing more money to stimulate the market through loans, Do u think the usd would weaken/ strengthen in the Long term? The spreads of the usd is at sky high, is this a good time to convert to usd?

    • I can’t comment on when to convert USD of course, that’s ultimately your decision.

      My thinking on USD now is that USD will strengthen against major currency pairs short term. But mid to longer term once the massive QE and fiscal push comes in, it probably starts to weaken. Tough call though, because it also depends on how other countries respond to COVID19. If they print even more money than the US, then it could lead to complete debasement of fiat currency.

  23. Koala, thanks for your input. I appreciate it very much. I will go re-read Finance horse previous article on this topic. Cheers


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