History tells us there have been critical times in our past which have represented historic (comparatively speaking) opportunities to be able to think beyond the current event which may be causing an uproar.
The odds are very high we are living another one of those times now. As an investor with cash holdings, this is of serious importance to consider.
As an investor, one must center their focus on what their goals are – well down the road – trying hard not to react as the masses do in times like this.
For sure, know thatI fully understandthat it is far easier to write about doing this than actually doing this.
Primarily due to my significant concern (from 37 years of this) for each person reading these notes in the mornings, I will try hard to cut through the thick fog of fear and panic to see where the light may be shining on the future.
First, seeing investors with solid, long-term plans being forced out of markets through fear or panic and/or algo-driven, black box trading, sometimes uncontrolled – is painful.
Now, dominos are falling which pretty much suggest a set of events we must now go through.
Emotional reactions have been unleashed and history has lost its reference – along with any semblance of the normal financial metrics one is trained to focus upon. Now, every decision – at least in the near-term – is being based almost entirely on “the worst possible outcome we can imagine in our minds.”
With that – in record time, we have seen the averages move from record highs to a bear market.
My hunch? Once the solution is triggered, the recovery will be just as shocking.
While I know this does not matter right this moment – we had referenced earlier that we would need to embrace the idea that the roller-coaster rides for markets would most assuredly speed up in the 2020’s and 2030’s.
I did not think it would happen so quickly – which I suppose sounds like a joke. We can expect this perspective shift to now erase all that was happening before 25 days ago – and replace with very scary thoughts and perspectives about the future.
As much as this will not stop the feelings and emotions racing through many right now, history says this will pass. The darkest hours of our past can no longer be replicated in our minds as intensely as they were when we lived through them. It will be the same in the years ahead for this one.
Think 9/11 – say, 2-3 hours after the first plane hit. Think hours after the Christmas tsunami in 2004. Official tallies show it killedat least 225,000peopleacross a dozen countries, with Indonesia, Sri Lanka, India, Maldives, andThailandsustaining massive damage.Indonesianofficials estimated that thedeathtoll there alone ultimately exceeded 200,000, particularly in northern Sumatra’s Aceh province.
While Panic Unfolds
In every panic – and market or economic crisis – there are wild swings and terrible thrusts downward in the averages as fears drive emotional reactions – which then drive sometimes very erratic decisions. At the same time, there are actions by others who tend to end up with more of the capital over time.
I point this out not to make one feel ashamed of the emotional expression – but more to try to let logic help define the perspective ahead.
One does not know exactly yet, but we can be pretty darn confident that Warren Buffett – highly criticized just weeks ago for holding $128 Billion in cash on the Berkshire balance sheet – is now spending some of that money. He has not yet taken out a full-page WSJ ad like he did in October, 2008 – but we can remain confident he is not sitting on his hands.
Likewise, another investor in that category (Carl Icahn) has already shown up in three separate headlines in the last 2 days – buying large chunks of companies as panic ensues:
Again, please note this is not to make light of the current mayhem – but to merely suggest one think about how these people ended up so wealthy. It does not mean everything they ever did worked. It does not mean that their timing was perfect – in fact, it often isn’t. It does, however, have something to do with the innate ability to lean into the storms which will always come to us as the world of building wealth, over time, evolves.
So Where To Now?
Let me ask you a question.
Pretend for a moment that you are the head of the NBA. You are watching all of the headlines and wondering what will unfold just like everyone else. All the NBA lawyers start sending you notes about “liability” and “Hey we can’t have someone arrive in our arena, somehow come in contact with COVID-19, then go home and cause their 84-year-old grandmother to die of pneumonia 36 days later.” And then, the news hits – one of your players has tested positive.
Admit it – in that same set of circumstances – with the politically-charged, social media driven “crowd speak” of today – you would almost immediately arrive at the same decision. Then, one merely needs to carry it one step to the left – and you are the person running Major League Baseball, having just watched the NBA’s decision. Yours will quickly follow.
The dominos falling now will create – very, very likely – at least a 2-quarter negative hit to GDP. Recall the definition of recession is two, consecutive quarters of negative growth. After the last 22 days – and the historic nature of decisions made for reaction to this virus, it would be remiss if one did not assume that negative quarters are ahead.
The cancellations, the stay at home orders, the closed venues and nearly complete shutdown of conferences, gatherings etc., will cause a screeching halt to a number of economic areas.
Note that this does not imply how long it takes the market to seed or sense that recovery as those periods are almost always different.
Now – what does that mean really?
The way investors will look at this (hence the title today of Calling All Investors), might go something like this:
Pipelines and supplies of almost everything we use on a daily basis will become significantly strained – or completely emptied out.
The halt described above will drive activity down in many areas – how much so is not yet known.
The moment, a vaccine or remedy or turn in cases (likely as hot weather approaches) will reached after the markets begin anticipating same.
The quarters immediately following the ugly ones just ahead – will be set to spike much higher in activity in reaction to a supply pipeline which will have been severely constrained.
As such, where we may very well see zero to negative readings in the next 2 quarters – the quarters thereafter would be staged to make up a vast amount of that difference from just restocking.
Just surmise in your mind this type of scenario for the next 6 quarters: (-1, -2, +4, +4.5, +4, +3.5 = 2.166 average GDP).
Recall that even in the Great Recession, YOY GDP growth only sagged for one part of one year.
As bad as it felt, by the following year – it was at a new high.
Again, I am not making light of the situation, I am merely reminding us all that the 80’s and 90’s, home of the Boomers more significant growth years, carried three bear recessions, two bear markets, a historic market crash (% terms) and several “soft spots” in GDP.
These next 20 years are likely to be no different. The risk? The speed with which they unfold will be terrifying and may play even worse on the emotions.
Speaking of Those
In a word, the current readings normally watched on sentiment areunprecedented.
A quick set of snapshots and then some closing thoughts.
There may have been a 1 reading before – but I don’t recall ever seeing it – or hearing about it:
These next 3 charts show you that on almost every technical level one chooses to test, this is a historic level of panicked reactions – across the board.
Please know that this is being somewhat driven by the temporary intra-day bouts of illiquidity created by the algo-trading now taking up more than 90% of daily sessions like the ones we have witnessed recently.
Stops are being run left and right – wherever they are available.
Net net, all of these elements hint at significant value for an investor over time. Maybe not tomorrow, next week or even the next few months – but long-term value nonetheless.
In order, the images below show the number of stocks above their 50, 100 and 200-day moving averages.
Historically, the lower the level, the higher the likelihood of peak selling frenzy. Every reading is now below the previous historical low of the 2008-2009 Great Recession:
As a long-term investor, these periods require we focus on rising income levels and investing where we can in the higher yields created by the panic.
When you see panic drive 10-year yields to 75 basis points – and that same panic drives stocks yields to significant highs – history says those come back to meet at the panic subsides.
IF one was ever concerned at missing the opportunity bred by the panic lows of 2008-2009, I would suggest you seriously consider that we are watching another one of those type events.
This suggests that a combination of bold action, a long-term focus and patience provides an opportunity for many who missed the 2008-2009 recovery.
Why? No real financial metric functioning. Values untethered from the positions, likely due to panic. It is terribly disconcerting and it does cause fear. I most assuredly get it as it does the same thing for me.
We merely have to strive to look beyond the ugliness and try to recognize that every single great mind is working on a solution. We will get beyond this but like always – major panics will change some things forever.
One more reminder: You can track the case issues live at this URL.
On that front, please be aware that while we are seeing more positive tests in the US and lives lost has risen to 41, there are some percentages which might help you to let some of the fears abate slightly -at least that is my hope and reason for providing:
While all must follow doctors orders and the agency recommendations overseeing this event – there are a couple of things one can see from the images above and below – – these are up to the minute counts…
Again, feel free to use the link above for updating if you have an interest. Some data from all the haze of fear:
Note the number of serious cases (5759) above – it has fallen in percent and number for 4 days straight
Nearly half of all cases are fully recovered – and in some areas it is being reported that the plasma from those recovered is helping to heal those who are still ill.
Of the total deaths to date (5080), 4868 come from the counties below (95.82%)
Of the current active cases (62,359), 44,686 come from the countries below (71.65%)
Of the current serious cases (5759), 5466 come from the countries below (94.73%)