Somewhere in the months and quarters ahead, we are set to find that a reassuring fact remains tested again – but true:
A pessimist on the future of the United States is unlikely to find success when investing in it.
I know, I know – it is very tough to do. In fact, one usually knows how important it is to do – just when it feels the toughest, the darkest – the most “it’ll never get better again…”.
The better news today, beyond all the chatter about risk is this: we are indeed living through another period where the broad outlook is “it’s never been this bad….” We have always called those the 5 most expensive words ever created in investing….for a reason.
Take a few minutes to remind yourself – LOL, when you get a free few minutes:
Be assured we will be adding COVID-19 to the video shortly : )
Now, more than ever, we need to have a protective mental / emotional shield against the massive waves of “news” while recognizing that a very small portion of it remains valuable.
We must get open – we must let the country / world operate – trying to “protect ourselves” from everything does not make us stronger…it makes us weaker.
Yes there will be mistakes.
Yes, some states will be late – and some states will be early.
Yes, you will surely hear the very first time somebody walks into a mall and 4 days later tests positive for COVID.
Yes – assume all of it will happen.
For that week – or hour – it will seem important and all encompassing. In the end, we are very (very) likely to find that this was a dreadful policy choice as in the end, we have the science, the people and the technology to beat this bat out of hell.
But here is the flip-side –
Many things will also work.
Many things will be better.
Many new things will arise and be built.
Many things will surprise us to the upside.
Many things will be adapted to far more easily than all the pessimists want you to fear.
The new normal will become normal sooner than we assume – and we will only be interrupted by the next “new normal.”
We must all remain strong in our thinking – stay focused on the horizon and recognize our history: with patience we conquer – with focus we win – with discipline we overcome – even when painful…indeed we overcome even more forcefully when painful.
Remember, it was not many weeks ago that most were certain the end of our society as we know it – was going to caused byThe China Tariff War….an oldie but a goodie for sure.
The Market’s Voice?
Let’s take a look – it often helps to step back and see the larger current based on human emotional interactions – this covers a few years in time….with a whole bunch of events rolled into it:
The above chart is the S&P 500 Index – now with over a 42%+ Tech weighting. The broader market admittedly looks weaker (below) – and has more work to do.
The patient investor will recognize that the strength of the tech current visible above will indeed be the major rebuilder of the ‘weaker” areas seen in the NYSE Composite below:
So, let’s just review the highlights so you can get a feel for what the influences may be.
Remember, in the short-run (the charts), markets give you a reading on how the crowd “feels”. In the long run, like we highlight in the video above, the market provides growth and a measure of value for the long-term investor.
Top chart first on the S&P 500 –
1) The green star at the top marks the top of the markets roughly 6-8 weeks ago. Keep in mind that when this price is breached to the upside, a new secular bull market will have broken out. Yes, that will take a bit of work. Yes, that will include up – and down – movement. Yes, it won’t be fun. But – secular bulls last for a decade – at least.
2) Note the red bracketed channel – it goes back to the highs of January 2018. Recall, at the time we noted a “trade range was likely” as the rest of 2018 unfolded given the gains of 2017. The point? Two years and 2 months later – along with a global pandemic, we are generally in the same spot. Once remedied – can you just imagine for a moment the amount of force being built into this pipeline – while everyone else tells you what to be terrified of for the rest of your life? We will stick to focusing on the former item.
3) The green boxes highlight the rare occurrences where we have seen prices escape from this lengthy range. The time below – was a few weeks (the bear market). The time above – a few months….
4) We expect the meat of the earnings season over the next two weeks may provide for some pressures on prices to take advantage of on the rebalances ahead – along with those traders who will sell in May and go away – likely to be as wrong this year as it was last. Ample opportunity is set to be seeded as things calm down a bit and this chop unfolds as summer approaches.
Keep this thought though as well: if weDON’Tget a nice little bout of weakness and chop when it is most likely here – the odds slowly become that the market is telling you something most cannot fathom….it is well beyond “pandemic” thinking and instead, focused more on The New Economy of 2021 and beyond.
Now – the second chart…the NYSE Composite – the broad market –
It is clearly weaker on a wide scale as one can see the benefit of a tech focus – which we have covered often. Do not forget – it is this tech wave which will rise through the systems, processes and departments of all those companies struggling to work through this mess.
1) The green star at the top marks the top of the markets roughly 6-8 weeks ago. Again, once this price is breached to the upside, a new secular bull market will have broken out. Yes, that will take a bit of work – but it also suggests a 33% gain once we get back there.
2) Note the red bracketed channel – it too goes back to the highs of January 2018. The point? As you can see – we are well below that channel right now – and I suspect we struggle a bit here as earnings flood through and the “sell in May” crowd preps for an idle summer. My hunch? This summer won’t be as boring as most summers are – and the “swoon” so many fear during summer sessions should be hoped for…
3) The green boxes highlight the rare occurrences where we have seen prices escape from this lengthy range. The time however – note prices have not reached back into the range….yet
4) Again – the earnings season rush over the next two weeks may provide for some pressures on prices to take advantage of on the rebalances ahead – along with those traders who will sell in May and go away – likely to be as wrong this year as it was last. Ample opportunity is set to be seeded as things calm down a bit and this chop unfolds as summer approaches.
The bottom line – we would all be remiss if we underestimate the massive forces at work here in the US – science, technology, AI, super computers – and most important – the people focused like a laser on killing this enemy.
Some High Level Thoughts…
First – once again – cash demand is one of the reasons the Fed had to flood the markets with dollars – all the while seeing the dollar become stronger as the world demands the good ole’ USA currency when the bats hit the fan : ) :
Notice that the last spike to the right far outweighs the spike represented by the 2008-2009 setbacks – and the DOW is 3.5 times higher.
This Calafia chart showsthe 3-mo annualized growth in bank savings and demand deposits. This is another way of demonstrating how strong the demand for money has become (off the charts strong) given the uncertainties of the virus and the economic shutdowns. Cash in accounts in recent data now sits at near $15 Trillion – that is a vast rainy day fund for the US consumer.
Good news – it’s not the banks this time —
This chart now shows you the TED spread: it is the difference between 3-mo Treasury bill yields and 3-mo LIBOR. It is often seen as a barometer of the market’s confidence in banking systems (tighter spreads = more confidence, and vice versa). Yes – spreads are still elevated, but have come well off their initial surge. Note there are also nowhere near the levels seen during most of the 2008-2009 financial crisis.
The main area of concern for credit markets remains the energy sector, since oil prices have tumbled. Be confident that there is more money ready to pounce on “fixing this problem” than the size of the problem itself.
Last but not least – here is the issue we are likely seeing the crowd misunderstand about the “disconnect” between markets and the economy:
We live “now” – the market thinks “next.”
Be assured – like we say at the end of many of our videos – in the New Economy ahead….
Everything is going to change.
Stay Safe and Healthy
Please remember – we are here to help as always.
Try very hard to reduce your stress – as we all work through this together.
Together is how our ancestors built this country.
Together is how we will conquer this enemy and carry us all into the New Age ahead.
It is set to be VASTLY more positive than we currently perceive – as always.