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As ASX 200 enters a bull market, Harvard professor warns of economic catastrophe, something that could yet see the share market falls exceed those of the GFC

Yesterday, the S&P/ASX 200 Index (ASX: XJO) officially re-entered bull market territory. Since the ASX 200 has now risen more than 20% from the lows we saw in mid-March, a changing of the mammalian guard is now necessary. It appears the bear market we’ve been enduring since March has turned out be one of the shortest in the history of the ASX.

But perhaps ASX investors may be getting a little ahead of themselves. Harvard professor of economics Kenneth Rogoff certainly thinks so.

In an opinion piece for The Guardian, Professor Rogoff warns that the Global Financial Crisis last decade is increasingly looking like a “dry run for today’s economic catastrophe”.

Rogoff notes that despite unprecedented monetary easing from central banks like the Reserve Bank of Australia, capital is “pouring out of emerging markets” and asset markets in advanced economies are “cratering”.

Even though governments are pulling out all stops to fight this crisis, Rogoff argues that won’t be enough to stave off a “deep economic slump and financial crisis”, commenting:

Until the health crisis is resolved, the economic situation will look exceedingly grim. And even after an economic restart, the damage to businesses and debt markets will have lingering effects, especially considering that global debt was already at record-breaking levels before the crisis began.

It will be difficult to persuade businesses to invest and hire, especially when they are anticipating higher tax bills when it is all over. And it is possible that stock market losses so far have been less than those of 2008 only because everyone remembers how values shot back up during the recovery. But if that crisis does turn out to have been a mere dry run for this one, investors shouldn’t expect a quick rebound.

It’s a grim prognosis, but one that is difficult to argue with until we get some more clarity over how long this disaster is going to last.

How to invest in the age of coronavirus

Even if Professor Rogoff’s worst-case scenarios come true, I think adherence to tried-and-true investing principles is our best bet.

Remember the share market is nothing more or less than a place where parcels of business ownership are traded. If you have confidence in a company to make money over a long period of time (despite what’s happening with our economy today), then you might be presented with a chance to buy into this confidence at a decent price.

That price might even look like an absolute bargain in a few years’ time.

Yes, it is a very tough time to be investing. But that isn’t dissuading the best investors in the world like Warren Buffett from investing right now – so I don’t think it should dissuade any of us! No one knows how to time a market, and no one has the benefit of hindsight. But if you see a company you like trading at a good price, I think that’s the right way to invest in this Brave New World.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.