Back to Zero – rates are falling – liquidity waves are rolling in and the Fed is reacting to the very same event we covered a week or two ago for you here – and which dwarfed the markets in 2008-2009.
The dash for cash (exceedingly high levels of fear) is creating liquidity responses again.
The Fed will step in and do what it has done before – provide the dollar cash the world is demanding. By the way, you may notice the world is not demanding Chinese yuan or Rubles or Pesos – the world is demanding the US Dollar.
Living in Historical Times…
Witnessing all of this unfold is a first for everyone. Suggesting we know exactly how to define all the elements as it unfolds would be foolish – no one can.
We are left with heeding the larger lessons of the past. When viewed during stable periods, history teaches us there have been critical times in our past which have later represented incredible (comparatively speaking) opportunities to be able to think beyond the current event which may be causing an uproar. It is key to be able to stand still and patient when storms are all around.
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.
Given the massive amount of news (both good and bad) over the weekend beginning right after the close on Friday, we can fully expect that the wild gyrations we have witnessed since the start of the Coronavirus coverage will continue.
Keep this in mind at the end: Everyonewho will impact the US economy for the next 50 years – is already alive. TheDemogronomics™Benefits and theBarbell Economy™have not been erased or delayed.
√ We have the strongest long-term demographics of any developed nation on Earth. The impact of these elements is brewing strongly and continuing under the surface.
√ This will be more clear – and acceptable – when the current panic recedes.
As difficult as it is – we need to remain focused,as long-term investors- on the impact of this significant current under the surface and not the waves during the storm on the surface.
From Us to You
Before we get into topics which may interest you below, please note again that our systems are set for us to be able to work from anywhere – to make sure you can remain served and your answers and needs can be completely met.
All of our phones can be answered from anywhere, our cloud platform allows us to answer your questions at any time – and that will not change in the new world we seem to be forced into for the next 8 weeks or so to combat the potential growth curve of this virus.
In the meantime, feel free to answer this morning note with any suggestion or request you might have as we all dig in and learn to work online and exist farther apart than normal – for the safety and health concerns of our neighbors.
We are working on a couple items for online gatherings we will prep – either as a powerpoint type presentation update and/or a conference call dial-in update which will provide an open platform to cover ideas, facts and opportunity as these seismic elements flow through our economic system between now and the welcome heat of summer.
Please Click on the image below that”It’s Never Been This Bad…”before:
Notes from the Data Above
Yes – we have 6,664 deaths from cases around the globe – and that number rises every hour. All but 417 (currently) of them have taken place in the top 5 countries.
The US has indeed seen cases spike as much more testing rolls in. We can expect that to rise in a very significant way in the next 2 weeks as “millions get tested.”
I would simply suggest we notice that a very large part of the cases are called “Mild” – which according to the CDC is a bad cold – many with no symptoms.
√ To be specific – as of this hour, we have 3,802 active cases logged – and 10 of them are called “Serious or Critical.”
√ We have had 69 deaths – most coming, sadly, from the first outbreak area in the nursing home in Seattle.
Let’s all know this in advance: it is likely to feel very scary if/when we see those cases move to 5 or even 6-figure counts in the US as millions go to drive-thru test sites.
It will be imperativethat we heed the data internally though and not react to the headline number with more hysteria. In other words, let’s really focus on the “serious case” column. We have heard repeatedly that “Mild” is more like a cold – and according to doctors on the case, many in the “Mild” column won’t even have symptoms.
Just a reminder, the normal flu season which unfolds in Americaeach and every yearis a far larger event as noted below in the reminder graphic.
Again, please do not take from my words that I am being insensitive to the nature and the massive impact of this illness (and more importantly our response to this illness). But I feel we do need to remain confident that this panic will turn out like all other panics.
It has a life-span and it will come to a close.
Time will fix this – time will repair and pullback the fears.
America will overcome and conquer this illness and its impact and we will have set the stage to be far better off for it when we are done. Vast amounts of business and manufacturing will be permanently redirected to the US and the years ahead will be positive.
However, this event willsadly infect investor crowd psyche for a far greater amount of time – likely far more than 2008-2009. See for yourself in the updated VIX panic chart over the weekend from Scott:
Back to the Fed
Remember in ’08-’09 that Fed and Government action did not immediately stop the panic. This time is likely no different.
The Fed is also communicating to back-stop money market accounts again as they did during the 2008-2009 crisis. Recall, then as now, this is being driven by massive requests for cash money flooding the system.
√ We can expect the following additional injections – though it is a huge guess as to how they will be timed:
√ Rescue funds for back-stopping airlines, cruises and travel elements given it is government action causing the all-stop.
√ Tax cuts (payroll) and Tax filing delays.
√ More Fed support to keep capital moving throughout the system.
√ Hopefully – they finally put the uptick rule back in which will greatly quell the speed of change during market hours…but that is not yet a done deal for sure.
Thoughts of Others
As one might guess, we are tracking and reading a lot of data and insight from others, if only for the contrary tilt of the crowd which has been historically valuable – even while it includes times where it is also extremely painful.
I thought you may like a few of these thoughts/perspectives from others, so I include a few of them for you here:
If you have time, an interesting piece to read would be:What Would Ben Graham Do in Today’s Market?
The piece provides a very large viewpoint – and has some valuable added insight credited to Jason Zweig , beginning here with Zweig:
“First, determine whether you are an investor or a speculator. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices,” Graham wrote. The speculator, on the other hand, cares mainly about “anticipating and profiting from market fluctuations.”
If you’re an investor, “price fluctuations have only one significant meaning,” according to Graham: “an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage,” warned Graham. He “would be better off if his stocks had no market quotation at all, for he would then be spared themental anguish caused him byother persons’mistakes of judgment.” (The italics are Graham’s.)
The writer’s thoughts had many of the same themes often noted here while watching the massive one-day moves:
“The prices you see on your screen today are the transitory manic depressive opinions of the often mentally unstable Mr. Market. (If I have offended Mr. Market, my apologies). Mr. Market did not carefully value your companies today and decided that they are now worth less. No, he woke up in a grumpy mood and indiscriminately marked them down as if they were overripe bananas at the grocery store. (You cannot have enough metaphors here.)
The stock prices on your screen say nothing about what these companies are worth.
Nothing at all.
But that is all that is going to matter in the long run. I promise you one thing: The value of your companies doesn’t change 8% a day, day after day.”
These are valuable comments to consider for true investors. Maybe keep a copy handy and look back at it a year from now.
More Stark Images
A few images may also help for you to see the extremes we have reached – looking back on this in a year might be an interesting lesson. The first from Warren’s Partner – when asked about the 50% drop in the 2008-2009 Great Recession.
It will tend to take your breath away for a moment – but history proves it logical, correct and very valuable:
Panic Intense and Record-Setting on All Fronts
This will be a good thing for the investor – usually sooner than feared in past scenarios.
The images below Mr. Munger’s quote above are all confirming outright, uncontrolled panic. It is dangerous to every plan – and it never works for long-term investors.
√ I am sorry as I know in advance while typing those words that they will seem – currently – to be completely inept, out of touch and not understanding that”it’s never been this bad…” – hence the video above.
I do think you will get a kick out of this one though – from Barron’s Covers – a mere 8 weeks apart (40 trade sessions):
Let’s end with something positive:
√ The entire consensus now is that this will only get worse, it will stay worse for a very long time and it will plunge the world into economic darkness ahead.
√ The good news? When you get this large a consensus – you tend to see it NOT happen as feared.
On that front, here is a look under the hood that many will not cover or heed:
Economic forecaster Lakshman Achuthan is seeing an encouraging market pattern that indicates the economy may avoid a recession.
He did not fall off the turnip truck yesterday. Let’s take a look:
The red line above shows easy to speculate commodities, which includesoilandcopper.
The blue line follows instead -hard to speculate groupssuch as rubber, benzene and some textiles.
Both groups would be falling simultaneously during a severe economic downturn.However, the only drop so far is in very speculative commodity markets.
This suggests, according to Achuthan, that the U.S. and global economy may be in better shape than Wall Street thinks:
“I really need to see these difficult to speculate in commodity prices really start to plunge. They just haven’t done that,” he stated on Friday.
“Those things that are tough to speculate in have not seen their price inflation roll over. They’re holding up. In fact, they’re above their December low.”
His further explanation: “The downward trend may be driven more by fear and greed than economic fundamentals. The presumption there is that the supply chains around the world as result of the virus are kind of just breaking down,” said Achuthan.
“The markets were really concerned about supply chains being disrupted in all kinds of industries.”
“The economy was not in a window of vulnerabilitywhen the virus hit,” he said. “We had a bit of a grace period to take action to limit the damage of all of this. And, even today, a recession is not fully baked into the cake as dramatic as things have been.”
Regardless, Achuthan believes it’s vital to stay vigilant and watch leading economic indicators “like a hawk.”
“It’s very sensitive right now toactions taken to stem the pandemic,” Achuthan said. “That grace period will not be there forever. But the window of vulnerability on recession has not fully opened up yet.”
Reality Hurts Sometimes
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.