Economy And Markets Analysis: This Ain’t Goldilocks Anymore
The markets sure got ugly last week. While I continue to think that the biotech sector has some interesting opportunities that I’m working on and have started buying a couple new biotech names lately, I’m not in any rush to load up on stocks even as the pullback has kicked in during what has almost always been, at least until this year, a historically strong week for the stock markets.
Valuations have finally started to get somewhat interesting in some of the thousands of stocks out that have come down 30-80% from their 52-week (and all-time) highs, but they are far from being bargains in most cases. And I would expect that many of the stocks that are down more than 70% from their 52-week highs are probably headed much lower as many are headed to $0.
As for this new Omicron variant kicking in and starting to freak people out about the ongoing Coronavirus Crisis, I’ve been writing throughout 2021 that I was worried about the risks that this pandemic wasn’t going to simply go away and that I wasn’t quite sure how we were going to get to the other side of the Coronavirus Crisis.
Here’s something along those lines that I wrote in a Q&A back in February:
“Q. Feet to fire, what are the most probable Black Swan events that can sink the market within the next 6 or 12 months?
A. 1) If more variants, more problems with the pandemic if too many conspiracy theorists and vaccine haters and most especially the billions of poor people in poor countries who can’t get access to the vaccines keep the Coronavirus Crisis front and center instead of fading in the rearview mirror. 2) If interest rates double for the US government. 3) Oil somehow either goes to $10s/$20s and stays there or if it Flips, if oil were to rocket to $80-$100s and stay there. 4) War/terrorism/worldwide escalation of violence. 5) (And perhaps most likely): Dozens of companies that are worth tens of billions and a handful of companies worth more than $100 billion are revealed as fraudulent, panicking the stock market holders and popping this Blow-Off-Top-Phase part of the Bubble-Blowing Bull Market.”
Since I wrote that, the vast majority of the thousands of smaller cap speculative stocks that had gone into a bubblicious vertical rally have crashed 70% or more. The small cap index hasn’t been able to move much higher since then and indeed is back below its February highs. But the bigger S&P 500, Nasdaq and DJIA indices have continued to climb strongly, at least until last week again. But let’s run through those five bullets I mentioned that could take down the market and see where we are with them right now:
1) If more variants, more problems with the pandemic if too many conspiracy theorists and vaccine haters and most especially the billions of poor people in poor countries who can’t get access to the vaccines keep the Coronavirus Crisis front and center instead of fading in the rearview mirror.
Uh, that omicron and delta variants are not good. And what the development of this omicron variant news really does is remind us all that the variant issue isn’t going away for a long time, even if Omicron turns out to no be as terrible as it could be.
2) If interest rates double for the US government.
Interest rates have gone up a lot but they haven’t doubled (yet?).
3) Oil somehow either goes to $10s/$20s and stays there or if it Flips, if oil were to rocket to $80-$100s and stay there.
Oil did spike into the $80s but pulled back big last week. If oil doesn’t stay down out of the $80s, it’s trouble for people at home and for lots of other sectors that are supposed be driving demand as we are supposed to be coming out of the aforementioned pandemic that many people are realizing that we no longer seem to be coming out of.
4) War/terrorism/worldwide escalation of violence.
China’s rumblings, Russia’s rumblings, the endless wars still going on in the Middle East that the US is fully engaged and not fully engaged in, etc. Not good but not much has changed on that front either.
5) (And perhaps most likely): Dozens of companies that are worth tens of billions and a handful of companies worth more than $100 billion are revealed as fraudulent, panicking the stock market holders and popping this Blow-Off-Top-Phase part of the Bubble-Blowing Bull Market.
Yea, I called this ongoing SPAC-Collapse and the unwinding of the SPAC and Fraud Bubble that is still ongoing. There’s still not a SPAC that’s actually gone to zero yet that I know of. There will be hundreds of them that do in coming months and years.
So what to do here?
Throughout November, I repeatedly wrote about why I was Getting More Defensive Into What’s Likely Blow-Off Top Action and Trimming Some Into The Trillion Dollar Euphoria.
I’m going to give the markets and most of our stocks some wide berth here and will be patient and selective in which names in the portfolio I nibble on here. In the hedge fund, I’d rather sell/add a few more short hedges into Monday morning’s rally.
This market right now might remind me a bit of the market back in February 2019 when I was writing:
I had two main takeaways from the panel I hosted at the CFA Austin annual dinner where the topic was The US and China: When Two Global Economies Collide: Nobody on the panel seemed to be very concerned about COVID-19 and the potential longer-term market/economic ramifications that might come from it. Which makes me more concerned about those potential ramifications, of course…
Remain Cautious: Apple blames COVID-19 for miss
Apple says coronavirus effects will cause revenues to fall short of guidance That’s not good news, but we were quite preparing for this weren’t we? Also, we’ll have to see just how big the market reaction will be to this news tomorrow. Futures had been pointing to an open of nearly half of one percent on the Nasdaq before this news hit a few hours…
COVID 19, Stocks, Gold, Bitcoin (and Trade Alert: Trim some SPCE!)
Before we jump into the transcript from this week’s Live Q&A Chat, I’ll just mention that it’s not normal to buy a stock and have it go up 300% in three months. (TSLA) and (SPCE) are literally up 4x from their lows last year. You’ll note below that I’m trimming more SPCE here today. Meanwhile, the markets continue to look past Covid-19, the coronavirus epidemic and CEOs…
Coronavirus Ramifications and Why It’s Still a Good Time to Be Cautious
The markets today are acting like: “What coronavirus?” as the major indices bounce about 1%. Oh, and then there’s Tesla TSLA TESLA(!) up another [checks screen, rubs eyes, doubles checks screen] 20% today and up more than 250% from where we loading up on it as my favorite pick just nine months ago. But let’s focus on coronavirus, especially since the market isn’t focusing…
Cody back in real-time November 29, 2021. I’m not outright bearish and I continue to hold a lot of longs, but if the risk/reward scenario here of being outright bullish and/or aggressively long doesn’t look attractive with the Goldilocks economic and market set-up that has been the norm for the last year or so doesn’t look so Goldilocks-y right now.
There will be another time to look to start making some aggressive long-term investments again, like there was back in March 2020, after the markets had crashed 30-40% from those aforementioned February highs into The Original Coronavirus Crisis. Recall that I was aggressively buying for the long-term back then:
Don’t doubt the USA or mankind’s ability to prosper
We’re living through a crash. We might have just lived through a crash. But we might still be in the process of living through a crash. The markets hate confusion. The markets can’t discount future cash flows if nobody has any idea what future cash flows will look like post-Coronavirus Crisis time. We don’t even know at this point if there will be a post-Coronavirus Crisis…
Economic Depression Is Possible, But Not Likely
Before the Kurzweil Rate of Change sped things up, here are the generally accepted definitions an economic recession vs. an economic depression: A recession is the contraction phase of the business cycle. The National Bureau of Economic Research (NBER) describes it this way: ‘A recession is a period of decline in total output, income, employment and trade, usually lasting…
Trend Trading, Government “Help,” Bannon vs Bailouts, Buying Bitcoin & More
These markets have been historically crazy for the last month. That’s just a fact. Here’s the transcript from this week’s Live Q&A Chat. Q. Some of our stocks are down below our original basis. Wouldn’t it be better for us to trade with the trend until we have more clarity on the situation? Can’t help but to think we actually should be adding puts. Thanks. A. Most…
Trade Alert: Who’s Going to Benefit In This Strange New World
It’s a strange new world we find ourselves in. Prayers for everybody affected by the Coronavirus, which at this point, is all of us. This is a human tragedy first. But my job… Look, the US and the whole world are already in a major recession. Revenues at companies like Apple for the next 90 days could be down 20% or more versus what the analysts thought they might be…
Trade Alert: Don’t Panic When Everybody’s Panicking
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 …
In summary then, I’m not saying the markets are about to crash 30-50% like they did back in late February/early March of 2020. But I am saying I’m not in a rush to get aggressive yet. Be careful out there. Let the pitches come and swing at the good ones. That’s what we do.
