The Markets?

Why would you sell after it tanked?

It’s about time to start deploying your cash. Drop was fairly predictable if you study how the market had reacted to pandemics before

I'm not a good market timer in the sense of reading the psychology of other market participants.

What I do know is the virus narrative is pretty badly biased to the downside. Almost seems like some folks have a vested interest in creating drama about it.

4 weeks ago, I started pointing out to people that the death rate is shaping up to be ~2% of confirmed cases. For whatever, reason, nobody wanted to hear that. Everyone wanted to believe it was much higher than that. I suspect people have a skeptic bias, like they just feel smarter casting doubt and pursuing conspiracy theorie. I don't know . . regardless, my 2% figure was hammered by fear-mongering investors I engaged with. First they questioned the adjustments I made in calculating it, and then when I proved that criticism wrong they resorted to calling me a naive sucker who believes official Chinese data. Nevermind that non-China data also supported me

Now, 4 weeks later, its wide consensus that the death rate is 2% of confirmed cases. Amazingly, that is now being used by the fear-mongers as evidence of how bad the situation is. That's right: the same number that was too low for them a month earlier, so low that they called me naive for spreading it, is now their Exhibit A for how bad this virus is. Their case now is, 2% is 20x higher than the typical flu death rate (0.1%) and thus this is much worse than the flu.

Well, they are wrong again. The flu death rate is 0.1% of all infections while the coronavirus death rate is 2% of confirmed cases. Once you consider that testing kits are in short supply and their use is heavily skewed to sicker patients, its not hard to extrapolate that death rate among all coronavirus infections may indeed be as low as the flu.

Amazingly, they also spin the fact of limited testing kits as an argument for the spread of the virus being worse than estimated. And they could be correct there, but they can't have it both ways. Either the cases are higher which makes the death rate lower, or vice versa. Can't take a known quantity of deaths and simultaneously argue that both cases and death rate are understated.

I don't pretend to be an expert on this, but what I observe is a strong bias towards making things sound worse than they are, for whatever reason. I've taken some pain in the portfolio this week but I'm remaining very net long (more than average) as I think the truth comes out sooner than later

1. COVID-19 is spread by a novel coronavirus that is accelerating in its global spread. Countries have not done enough to prepare their public health systems for a new global pandemic (which is what we seem to be heading towards). This means that countries will have to resort to GDP-damaging measures, such as quarantines and isolationism, which increase trade barriers by reducing the flow of goods, services, and people.
2. This translates into a reduction in expected GDP. Just calculate the expected global GDP number the day before the virus broke out in China. Divide it by 252. That's the daily damage done if trade stops. You can approximate this better, but it should give you a clear idea that growth will be lower by every day the virus is not contained, and will be exacerbated by punitive measures countries employ to stop it from spreading.
3. Compare this with the prior growth forecast-- the IMF expected a rebound in 2H of 2020. That base case is now being challenged, and the market expects it to lose. Bofa and GS came out today saying their earnings forecast for 2020 is flat and that global growth will be under 3%.
4. Input this new estimate into your ERP model = earnings growth * dividend payout ratio + GDP growth = 0% * 0.75 + 3% = 3% growth to US equity markets -- compare this to bond yields of 1.6% -- if your max (100% equity allocation) return is 3% with a std of 16% (historical realized vol), versus 1.6% with a std of 3%, which one will you overallocate to? Bonds clearly.
5. What should you do? With imp. vol. so high, cut your equity holdings in half and put it in income producing assets (such as non-convertible preferreds or bonds) or lower volatility stocks (defensive sectors like utilities, healthcare, telecom, etc.). Use options to establish beta exposure if the market rallies in the short term with 2-4% of your portfolio. Use your excess cash wisely by investing in stocks you think might be super depressed ("if everyone's going to be locked up, maybe we'll see an increase in NFLX subs?").
6. Once the VIX starts to move down you can reallocate to equities.

Note: not financial advice, speak to your Merrill dude