March 12, 2020: 11:22 am CST
Dear Friends, Family and Clients,
Let me get straight to the point. I almost can't contain my enthusiasm for the buying opportunity I'm seeing in the market. I call bulls**t, on the global pandemic. Here's why.
First, when I went on my morning walk, I heard a male cardinal "sing" for the first time in almost a year. Their call for a mate is unquestionably the most beautiful sound in all of nature. It reminded me that Spring has arrived and winter is behind us.
Just as the market decline has arrived; so too has the sounds for a new and glorious bull market have been sung.
We've been given a second chance to grow our wealth. As sure as the sun was shining this morning; as sure as that bright red cardinal was singing its heart out has helped put the
nature of investing in clear perspective.
I've seen this before. 1979-80, 1987, 1989, 1990, 1996, 1998, 2000, 2003, 2008-09, 2018, and today.
I stood in the trading pits as a professional floor trader for virtually every one one of the declines mentioned above. They all look and smell the same. When you see emotion, when feel hysteria you know the bottom is almost in.
The news media is saying "it's different this time". "We've never had a global pandemic".
My friends, this too shall pass and we still have a lot of dry powder "cash" to deploy.
- Am I happy that I played it safe with your account since Labor Day forward? YES!
- Am I pleased I started nibbling in the last two weeks? Of course not! Buyers remorse!
When the time is right, I'll be buying funds for your account knowing I will NEVER be able to pick the absolute bottom. But that's okay. I don't have to. I know with utmost certainty the market will be much higher 1, 3, 5 and 10 years from today.
In my opinion, the volatility of what we witnessing today is not the
end of your retirement plan. Quite the contrary, it in fact assures us that you will be successfully be able to retire.
Here are some of the reasons why I am so
bullish. They say a picture speaks a 1000 words, so if you don't understand my words, look at the charts below and you'll begin to see what I see.
(**Please forgive me for punctuation, formatting and grammatical errors. My goal is to get this information to you as fast as possible, rather than creating a perfectly formatted newsletter.)
When looking at the charts below, understand this simple legend.
X=positive buying demand
O=negative selling supply
Red=Caution
Green=Opportunity
1. Buy China?:
The equivalent to the S&P 500 or Russell 2000 in China, is the China CSI 500, (symbol: ASHS) is about to bust out to the UPSIDE! The epicenter of the corona virus is not being affected economically; or more accurately is discounted by "smart money".
Year to Date, the Chinese equivalent of the S&P 500 is UP 8.79%. China had issues a few years ago, with the trade war, but I like what I see right now. Like a magician who needs to distract your attention from the trick he is about to deploy, ground zero of coronavirus is a "non-event".
2.
No Time To Sell
We are SOLIDLY in Wealth Accumulation Zone. This calls for increasing contributions and reducing ownership of cash and bonds. We shouldn't necessarily go full 100% long today until we witness a change to a column of 'X''s, indicating demand or buying is back in style. This is only the 5th time in 9 years we've been this oversold and the subsequent rally provided incredibly attractive gains in a short time.
Every time, without exception, for decades, when I don't buy the S&P 500 in the green opportunity zone, I regret it.
The bears repeating.
Every time, without exception, for decades, when I don't buy the S&P 500 deep in the green opportunity zone, I regret it.
3. NASDAQ 100 Is Still Bullish
All the market really did was "retrace", like a clock pendulum or a playground swing back to its bullish trend line. This decline isn't the odd thing. I've been pounding the table for 6 months about it.
It was the October 2019 to January 2020 rally that was curiously overdone. This chart was created yesterday March 11th, so it doesn't include today's decline.
Here is a chart of the S&P 500 going back a decade. It
just stopped on its bullish support line going back to the 2009 Crisis. We're haven't even gone below the lows from 18 months ago!
4. A Coronavirus Recession?
"No one knows with any real certainty how much, or for how long, the Coronavirus will impact the US economy. What we do know is that it will have an impact. And, after data releases of recent weeks, we also know that the US economy was in very good shape before it hit.
...Nonfarm payrolls grew by a very strong 273,000 in January and another 273,000 in February. The unemployment rate was 3.5% in February and initial claims for jobless benefits were 216,000 in the last week of February. Retail sales in January were up 4.4% versus a year ago. In February, sales of cars and light trucks were up 1.9% from a year ago and were above the fourth-quarter average. This suggests that total retail sales for February rose as well.
...Industrial production fell 0.3% in January, but likely rebounded sharply in February. After all, hours worked in manufacturing durable goods rose 0.9% in February and colder weather likely lifted utility output.
...Housing starts have been particularly strong lately, coming in at an average annual pace of 1.597 million in December and January, the fastest pace for any two-month period since 2006.
...The ISM Manufacturing index slipped to 50.1 in February from 50.9 the month before, but a level above 50 still suggests growth in factory activity nationwide. The ISM Non-manufacturing index, which measures a much larger share of the economy, rose to 57.3 in February, signaling strength.
...The early economic headwinds from the Coronavirus are coming from slower production in China, which likely led to a big drop in inventories. We expect this to pull first quarter real GDP down to a 2.0% growth rate and we are now thinking growth will be zero in the second quarter. After that, given previous episodes of rapidly spreading viruses, inventory replenishment should boost growth to the 3.5 - 4.0% annual rate range in the second half of the year.
...This may seem optimistic, but keep in mind what happened when the "Hong Kong flu" hit the US from September 1968 through March 1969, killing around 34,000 people in the US according to the Centers for Disease Control. During the last quarter of 1968 and first quarter of 1969, real GDP grew at an average annual rate of 4.0%.
The "Swine Flu" in 2009 also did not lead to a recession.
...However, a much more negative story unfolded in late 1957 and early 1958 when the US was hit by the "Asian flu," which killed almost 70,000 in the US and didn't spare younger people as much as the Coronavirus. Real GDP was growing around 3% annually in 1957, but as the flu started to peak in Q4, the economy shrank at a 4.1% annual rate, followed by an annualized 10.0% plunge in the first quarter of 1958, the deepest drop for any quarter in the post-World War II era (from 1947 through 2019).
...But then, right after the plunge, the economy rebounded at a 7.8% annual rate for the next five quarters.
...The bottom line is that we've had severe flus before without a recession and when we did have a downturn, the economy bounced back very quickly. The stock market is pricing in a steep drop in profits, which is certainly possible. A strong recovery, which we expect, will reverse this as it has in the past."
In Closing
The Federal Reserve and other media pundits will shout and scream "the recession is coming" or "the depression is coming". The truth is, the economy will be OUT of recession by the time the news hits because these economic events are recorded and documented with luxury of
20/20 hindsight.
Can the stock market go lower? Of course it can. Will the media help quiet disruption? Of course not. They hate with a passion the sitting President. Part of this hysteria is revenge for kicking the media out of the White House press conferences. Orange Man bad.
I do not claim to know exactly how or when things will recover; I just have 100% certainty they will.
Stay strong. It's not different this time. Our collective emotional quota is at an all time low.
Respectfully submitted,
Bill
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