I know that governments’ actions are almost always incompetent, so I’m not terribly surprised that the government has been totally incompetent in how it has approached the coronavirus breakout, but it is always surprising the ways in which they mess something up. In this case, wouldn’t it have been easier to have started manufacturing testing kits as soon as the coronavirus started spreading outside of China, weeks ago? Wouldn’t it be best to be testing everybody with symptoms instead of just testing a few thousand people? Why does the news report the number of cases of coronavirus as if the numbers are factual at all? We have tested maybe 0.1% of the millions of people in this country who might actually have been exposed to coronavirus in some way so we certainly don’t have any way of knowing how many people in this country, much less in other less developed, less transparent economies around the world.
On the one hand, The Trump Administration’s handling of this coronavirus makes me bearish. Again, why haven’t we at least been testing for weeks so we have as much information about how many people in the US actually have this disease. The reason why: government.
So the reported numbers of how many have coronavirus in the US and around the world are about to get much worse as they finally start testing people who should be tested — and at least the news media is starting to remind people of that right now.
And of course, people are now trying to figure out just how much all of this is going to impact the earnings of most companies and some companies are actually going to go bankrupt because of this crisis. Certainly there will be negative economic and earnings ramifications from this coronavirus crisis. Then question now, for the broader market and for most of our own stocks too, is whether or not, we’ve already priced in those ramifications with this 15-20% drop in the broader stock markets. Or has the market already overshot to the downside? Or, if the economic and earnings pain is going to get much worse than it already has, maybe the market has much more downside to go.
As always, it’s best to remember that the stock market is a collection of individual stocks and that each of them will overtime trade according to its own long-term earnings potential.
If you’re selling your stocks at this moment, you’re basically betting that there’s an outright crash and/or an economic depression down the road here. The other problem is that there’s we might right now the markets might be in a growth vs value “air gap.” When you sell a factory, you literally have to meet “air gap” requirements where you can see an actual air gap between the plugs/pipes/fittings and the machine. They don’t want a sulfuric acid machine still accidentally to be connected, after all. And right now the momentum/growth guys are worried there’s no more momentum or growth in their favorite stocks (or at least not “enough” momentum/growth right now) and the value guys are probably thinking that stocks just aren’t quite cheap enough yet either.
Of course, the markets tend to make a fool out of the most number of people it can as often as possible, so maybe the markets won’t let stocks get “cheap enough” before the momentum/growth returns anyway. What if the market’s are about to start looking out to 2021 since it knows 2020 is an aberration?
Meanwhile, as I keep reminding us, the US remains the cleanest shirt in this dirty global economic clothes hamper. With negative interest rates everywhere but the US and with the US remaining the only developed economy with any stability right now, there’s a lot of money still trying to flow to the US.
And with so many trillions of dollars in homeownership values in the US being refinanced and/or bought with never-before-seen interest rates right now, there’s another possible positive catalyst developing for the US, at least, from this coronavirus crisis. Likewise, with the US-based global companies about to make sure they’re not stuck with a China-dependent supply chain any more by building new factories and supply chain redundancies and double-ordering, there’s possible added fuel to whatever economic recovery we get whenever we finally get it.
Finally, there’s the whole oil thing. Look, I’ve kept out of fossil fuels because it’s a secularly declining industry. That said, the energy industry is somewhat important to the US economy although it is not something that makes or breaks it. The banks have how much money lent to the fossil fuel industry? I don’t think it’s anything like the real estate crisis that took down the entire financial sector when the entire financial sector was betting wildly on real estate never having a downturn. On the other hand, the crash in oil certainly will make governments of oil-dependent economies (like Russia and Saudi Arabia) do desperate things.
Two other things to remind you of — If the markets down 30% from the highs we’re already 2/3 of the way there.
The economy, the markets and the financial system itself are all running Kurzweil Rate of Change speeds where new information and developments are priced in and then repriced in instantly.
Look, I know this isn’t fun right now. Investing and trading is not supposed to be fun though. This is hard work. I wish I had just gone to cash a few weeks ago when I got all cautious at the top. Then again, my job’s not to try to time giant market swings with all my capital. At least, we trimmed and sold and got hedged at the top. Now we’ve been nibbling and covering some of the hedges when the markets are in panic mode.
I know that we will not catch the exact bottom just like we didn’t catch the exact top. But I know that I’d rather buy when the markets are in panic mode and I see a lot of stocks that I think are now trading at attractive valuations/entry points.
So I continue to follow the playbook. I’m covering a little more of my index shorts and selling a few index puts today, rolling them down to lower prices again. I’m nibbling on some of our favorite names, including ROKU and FB and AMZN and NVDA. Just a little bit here and there. If the markets sell off another 2-3%, I’ll do more. If the markets rally 5-10% in the next few days, I’ll probably trim and hedge again.
Be cool. I apologize for any typos or editorial mistakes in this one. I wrote this on a riff without stopping and wanted to get it out to you as soon as I finished typing it.