TIP288: Current Stock Market Conditions - 2020 Crash - COVID 19 (Business Podcast)

Episode Summary

Executive Summary: Preston and Stig discuss how they positioned themselves before and during the COVID-19 market crash, then debate whether the crisis will lead to deflation or inflation. Preston argues fiat currencies, bonds, and equities face a historic breakdown and favors cash plus Bitcoin now, later shifting to gold miners and oil. Stig is more cautious, emphasizing long-term compounding, selective buying, and the possibility that the current selloff is creating attractive valuations.

Main Topics: Pre-COVID positioning and early warning signals (Priority: 5/5): Both hosts explain how they viewed the coronavirus risk before the broader market fully reacted. Preston says he reduced exposure early using their momentum tool and exited equities to cash; Stig says he held some cash but not fully out of the market. Inflationary vs. deflationary crisis outlook (Priority: 5/5): The central debate is whether policy responses and supply shocks lead to deflationary depression or an inflationary breakdown. Preston expects global fiat debasement and possible hyperinflation; Stig sees current policy mainly as deflationary stabilization and believes normal activity can eventually resume. Bitcoin, gold, and safe-haven behavior (Priority: 4/5): They discuss why Bitcoin and gold sold off during the panic and whether they can decouple from equities. Preston argues liquidations forced sales into fiat, and expects Bitcoin to outperform once the first wave of deleveraging passes; Stig notes Bitcoin’s crash resembled gold’s 2008 behavior. Valuation, compounding stocks, and bargain hunting (Priority: 4/5): Stig argues that quality compounders like Berkshire Hathaway and Google are becoming more attractive and that investors should keep buying long-term businesses if they can tolerate volatility. He stresses opportunity cost and tax friction, especially for non-U.S. investors. Sector opportunities: airlines, oil, and gold miners (Priority: 4/5): Stig highlights selective opportunities in beaten-down sectors like airlines, while Preston prefers a later-stage trade: gold miners and oil once demand and hospital pressure subside. Preston is more skeptical of oil companies than the commodity itself. Options, LEAPS, and portfolio protection (Priority: 3/5): The audience question prompts a discussion of LEAPS and puts. Preston prefers call options and limited-risk structures, avoids puts, and says timing matters more than just buying cheap options. Stig frames puts as insurance and says their value depends on whether investors can afford a drawdown without them.

Key Arguments: Preston argues the coronavirus shock is not just a recessionary event but a potential global fiat-currency failure triggered by QE, zero/negative rates, fiscal deficits, and emergency stimulus. Preston believes the initial market collapse was driven by balance-sheet impairment and forced liquidation into fiat currencies, which explains why Bitcoin and gold also sold off. Preston expects governments to respond with QE, universal basic income, and massive bailouts, which he thinks will eventually ignite inflation and lift commodities sharply. Stig argues the current selloff is not necessarily cheap in absolute terms; it only looks cheap because investors became accustomed to extreme valuations and free money. Stig believes long-term investors should not panic sell and may continue adding to high-quality compounders if they have long horizons. Stig emphasizes that tax treatment matters: in Denmark, a 43% capital gains tax changes the economics of trading in and out of positions. Both hosts agree that options can be useful, but only when the investor understands volatility, strike pricing, and whether the protection is worth the cost relative to expected drawdown. Preston’s preferred future trades are gold miners, silver miners, and oil once the medical crisis eases and demand begins to recover, because he expects commodities to reprice violently upward.

Data Points: Cash position before crash: ~20% in cash - Preston says he had accumulated cash before the crisis but did not go 100% cash until his momentum tool turned red. Momentum tool signal date: 26 February - Preston says TIP Finance turned red for the S&P 500 and Russell 2000 on Feb. 26, signaling abnormal volatility. Bitcoin annual performance at time of recording: Down ~15% YTD - Preston says Bitcoin was down about 50% from its 2020 high, but still up about 35% from the start of 2020. Bitcoin drawdown from 2020 high: ~50% - Used to illustrate that Bitcoin was sold off with risk assets during market liquidation. U.S. medicine sourcing from China: 80% - Preston cites this to explain why China’s lockdown represented a serious supply-chain risk. Manufacturing drop in some industries: ~80% - Preston references February data showing manufacturing output falling sharply in certain sectors in China. Berkshire Hathaway buyback price: $215 average - Stig notes Buffett repurchased Berkshire shares at an average of $215 in Q4. Berkshire market cap: $460 billion - Stig uses this to contextualize Berkshire’s valuation. Berkshire share price at recording: $172 - Stig says Berkshire is much more attractive now than it has been in years. Potential Berkshire intrinsic value: $250–$300 - Stig previews a future episode on Berkshire intrinsic value. Capital gains tax in Denmark: 43% - Stig explains why trading in and out is less appealing for him than for U.S. investors. U.S. long-term capital gains tax: 15% - Used as a comparison point to show different investor behavior across countries. ECB asset purchases: 750 billion euros - Stig notes the ECB expanded QE dramatically in response to the crisis. Fed rate cut: 1% - Stig says the Fed reduced rates by 100 basis points shortly after an earlier 50 bp cut. Fed securities purchases: $500 billion Treasuries and $200 billion MBS - Stig cites the Fed’s liquidity measures as evidence monetary policy is being exhausted. Airline share price example: Delta fell from $60+ to $23 - Stig cites Delta as an example of a sector hit hard by the travel ban. Boeing bailout request: $50 billion - Preston uses Boeing as an example of likely large-scale corporate bailouts. Potential UBI payment: $1,000 per person - Preston says governments may send cash to anyone with a pulse as universal basic income. Possible oil price target: $100 per barrel - Preston predicts oil could spike dramatically once demand recovers and supply remains constrained. Potential market drawdown benchmark: 50% peak-to-trough - Stig compares the current decline to the 2007–2009 crisis and notes 50% crashes are rare. Historical crash frequency: 12 crashes over 20% in 100 years; now 13 - Stig uses this to frame the current decline as rare but not unprecedented. GDP growth record: 51 of last 55 years positive - Stig argues history favors long-term economic and market growth.

Pivotal Quotes: "I personally think that we're seeing kind of a hundred-year kind of thing going on right now." — Preston: Preston frames the coronavirus shock as a once-in-a-century macro event. "I think what you're seeing is you're seeing the start of an inflationary event that's not going to be slow, but that's going to be insanely dramatic." — Preston: This is his core thesis about fiat breakdown and future asset allocation. "Do not panic and do not sell." — Stig: Stig’s practical advice to long-term investors amid the market crash.

Implications: Listeners are urged to distinguish short-term panic from long-term thesis. The episode suggests very different playbooks: preserve capital and prepare for inflationary assets, or keep buying quality businesses through the downturn. Timing, taxes, and risk tolerance matter enormously.