ACT NOW, Sell the market!

I am posting this, not for you, but for me.

Have you ever believed you knew something so true, that you want to share with others to understand?
Some its God, others its their living values, others is activities benefits like exercise,  and still some others is facts that seem to not be recognized by others.

Today is some FACTS I want you to really absorb.

• The stock market is a value based on emotion.  If it was based on pure fact, company values could be computed by accounting and price fixed.  Stocks enable speculation to be captured into a dollar value.  Speculation is emotion.
• There is a pandemic of lifetime proportions building.  Even if as humans we curb the pending disaster, between now and then there will be emotional negative views thrown into the world.
• The general view of the market has been herd mentality positive since 2010, and since 2008 from low to high the market has risen every year on average almost 13%, the average the market has risen since 2001 is 6%.
•  Reversion to the mean is due, to help reduce the 13% annual average since 2008, a year after a 29% gain increases likelihood of a  reversion to the mean.
• There is a discipline called "Chart analysis" which looks at market charts to identify patterns and use them to help predict next events.  Monday we had a market gap down, Tuesday into Wednesday we had a gap fill.  Wednesday was FOMC meeting and the  market melted into close.  This reads bad after a series of other events in charts to the downside.
• If the market moves down, your emotions will trap you making personal bets with yourself "I'll sell at new market highs".  Think back to the tipping point in 2008 that you refused to sell, sell near the decade high while its easy decision.  How do I know that what happened to you? We are all trapped by emotions to make decisions.
• UPDATE 2/18/2020 - Or with new highs dismiss fears as nothing can stop the market, once again trapping you into buy and hold after 400%+ run up in the market.
• Read my posts for more Year of an explosive market and Choose your expected returns

The potential downside is substantial.  The market reversion WILL be 10% to 50%.    My suggestion is if you are over age of 50, I am not a market professional, make your own decisions.  Sell today, re-evaluate March 1st.  If selling after 400%+ move up since 2008, after 29% gain in 2019, and 3% up in January (which is 50% of typical annual move up) during a pandemic which WILL trigger emotional negative views.

I believe this so firmly I am placing very high risk trades on the market in anticipation of a market decline.  Last time I did this was in August 2008.  So I am acting on this view, not just spewing it.  And if I am wrong, I will lose much more than if I played it safe in fixed funds for February.


Chances are if you are reading this, my will is to clear MY conscience that I did my best as a friend to try to help you.  Good luck!



UPDATE: 2/2/2020
from Hussman Funds, worth a read:
https://www.hussmanfunds.com/comment/mc200130/
Update 2/8/20
State street asserts 70% chance of recession in next 6 months
China is starting to impact world trade, iPhone delays is one example
Update: 2/18/2020
Dow Futures Slide as Morgan Stanley Warns ‘Downturn’ Has Begun
Apple warns it will miss quarterly revenue target due to effects of coronavirus
Largest Shipping Decline Since 2009 and That's Before Coronavirus
HSBC To Cut 35,000 Jobs, Shed $100 Billion In Assets As Profits Plunge
Dramatic Coronavirus Timelapse Reveals an Economical Wrecking Ball in China
China Shutdown To Crush India’s Already-Crumbling Economy

Potential Pandemic Precautions

Updated 3-1/2020

See updated view:
https://websurfinmurf.blogspot.com/2020/03/covid-19-what-is-next.html

Updated 1-27-2020

Please consider spending $100-200 now to stock up on precautions for you and your family as the Novel Coronavirus unfolds.  Items I recommended are below, worse case you buy and hopefully avoid a common flu this season.  What does it cost, $100-200 bucks?!  I spend more on a single dinner with my family, don't be cheap.

If you're convinced, read Items to order and skip the second part of this post.  If you won't take precautions, skip to bottom and read "Why the concern about Novel Coronavirus".   I created hyper-links for you to read the what I did, to see what influenced my decisions.

Items to order

Vitamins

Consider a daily vitamin high in Vitamin C: Airborne 1000mg Vitamin C

Science has shown elderberry prevents catching the flu:
Elderberry daily dose, 100mg to keep your defenses up
ElderBerry daily dose, 150 mg to keep your defenses up
Elderberry liquid, to pack a punch when you need it.

Sanitizers

To prevent transmission, go over-the-top with hand sanitizers with 70% alcohol content.
Economical bottle, keep one at home and at work:
https://www.amazon.com/dp/B0013CNOMU/ref=psdc_2265897011_t2_B00J4EXQPY

Travel packs
https://www.amazon.com/gp/product/B00DDZMLLK/ref=ox_sc_act_title_3?smid=A2A3AJ6U4IV7UO&psc=1

Gloves/Masks

I can't see this as being needed or used.   But if you want to order 'while supplies last", get a mask of N99 or N100 rating.  These things have almost no backlog supply so most are already sold out.
For gloves, ignoring this crazy post, I love these gloves ! (click)  I use it to clean up disgusting messes at home.

What the CDC recommends.

What I recommend above, and wash your hands constantly, 20 seconds+ each time.  For more click below.

https://www.cdc.gov/coronavirus/2019-ncov/about/prevention-treatment.html

Over-the-Top options.

Buy food, don't eat out, or have others prepare your food and stock up.
Avoid planes, trains, etc.  Work at home if possible.  At this time I plan to continue normal life, but will curb eating out.
One of the medicines that in theory will help is https://www.kaletra.com/ . Its impossible to get at a reasonable price.

Why the concern on Novel Coronavirus

The last successful pandemic was the Spanish flu , killing about 75 million people back in 1918.
We have better medicine, more knowledge, but we do travel much more than back then making spreading much faster.  Latest news as of this post predicts doubling of cases every 6 days.  If this is true in the USA alone assuming 100 people are infected now, we can expect 1 in 3 catching this virus in 4 months.    The medical system isn't able to cope with exponential contagions and will become over-whelmed.

So what if we catch it?   What makes this virus different is carriers take up to 14 days to show symptoms.  The infection rate is 2.6, meaning if you get infected you will on average infect 2.6 people.   This is why there is an exponential component.   China has been playing down this disease, but if we are to believe their under-reported numbers, the death rate is 2.65%.   Since they may have lower medical treatment, and they are likely under-reporting, we can go with this death rate for outside China as a guess.

At this contagion rate in 4  months if 1 out of 3 people do catch the virus, we can expect 2.7 million to die in USA.  Yes this is fantastical, and yes I hope its under 10,000 and this post will be a joke in June.  But the point is, the best knowledge today says this is what is possible.  The question really is what will be the death rate in the USA once we hit 1 million infected.  By then the medical facilities will be fully utilized.

To read more about coronavirus click here, or  watch here.

Still not convinced? Again, whats the big deal to buy vitamins, and sanitizers that will be good for next winter also.  If someone you love has frail health, there is no better reason to act.
Best I can do, good luck.

Update 2/8/2020
China has been hiding numbers and not even counting infected.  Neil Ferguson estimates 50K new cases a day as of Feb 5th, doubling every 5 days, with extreme infection in 4 weeks in China
Super Spreaders proven, one patient infects 57 people in a hospital
Update 2/18/2020
Coronavirus is 20x Deadlier than the Flu
Half the Population of China, 760 Million, Now Locked Down

Choose your expected 2020 return

The market is up 3% in the first two weeks of 2020!
The average return in the market since 2001 is 6%, we have achieved 50% of the annual return in 2 weeks, quite impressive!  This is on track for up 50% in 2020 at this pace.

Please read my thoughts on 2020 in post  "The Year of an Explosive Market" from January 1st.

With 3% up in first two weeks, 50% of total gains on average over the last 19 years in the market, I urge considering taking some risk off the table if you are over 50 years old.

At a minimum take a look at the chart below and you evaluate what you think is a "good return" in 2020 with your expectations.

I compiled quite a bit of data to give you information 'at a glance' to decide if the risk vs rewards is worth it.  For 2020, I assumed all percentages from close of Friday 1/17, and not from 1/1/2020.  We are already up 3%, so if the targets I call out are hit, we will in fact have even greater returns.

The year of an explosive market

The Shorter Take

The markets in 2019 did very well, up about 35%!   BUT if you look at August 2018 until today, its up about 12%.  Remember, back in 2018 the market took a hard turn for the last half of that year.

Looking ahead we have two paths ahead, a banner year of gains, perhaps +50% or more, or a market correction.  I am truly torn which one we will see.  The president of the US will press against any fiscal responsibility to keep the market roaring, as he has shown by pressuring the private group, the Federal Reserve Bank.  President Trump stated publicly that we should join in on the reducing of interest rates to negative, to be competitive to the world.  Austria has issued 100 year bonds with NEGATIVE interest rates.   Germany currently pays a negative rate for 1 to 15 year bonds!  Compare that to the USA paying 2.4% for a 30 year bond.

If the USA tries to join in on unconstrained 'free debt', and the world can sustain it, I really do think the market up 50% in 2020 is possible.  S&P 500 from 3250 to 4,875!  

Before I go into greater detail about the economic health, I do what to call out one thing for you to seriously consider.   If you are over the age of 55, and therefore may not have 10-15 years for your savings to return with a market correction-recovery, what is your strategy in investing?   The market has recovered about 480% since 2008, that is very good growth!  That took 10 years to do, but if you where in the market in 2007, you took ~6 years just to stay even assuming you never sold.  

PLEASE take serious consideration of your strategy to withstand a market correction that takes typically 10 years to recover.   RISK only what you can afford to wait even longer to grow your savings.  I drew S&P 500 from 1991 to today to illustrate how amazing the market has been, and yes, can be in 2020.  My opinion is  50% into cash/conservative investments in 2020 is wise after 480% gains if you are 55 or older.  See your professional adviser for whats right for you.

One cautionary factor is to the USA has advanced its debt spending substantially since 2016 with tax cuts.   Our deficit is now at over 1 trillion a year at the HEIGHT of the US economy.  To put that into perspective, if you where paid at 2.7 million an hour 24x7 since the birth of Jesus (year 0) you still wouldn't have enough money to pay 1 year of USA's debt spending!

If we assume the USA and the world will not enter into the one way abyss of racing to the bottom of free debt, lets look at other economic factors that may affect the market.

The question is , if we needed massive tax cuts, QE easing by the banks to get here, what is the government willing to do to keep this party ontrack for the year ahead?

NOTE: I am long the market in the under-valued precious metal sector and Marijuana stocks.

ETF's are GDX, GDXJ, and MJ.

The details

I advise you stop reading here unless you want to understand where I get my view from.

I have gathered items I have found interesting across a variety of sources.   My own thoughts of peak valuation was done in August 2019 post Decade old topping pattern completing.  Although the graphs have advanced, my opinion is the same.

Below is a quote from Hussman Funds, you can read their full post  The Meaning of Valuation .

Yes, interest rates are low, but with them, so are the discount rates and long-term returns that are embedded into current prices. Indeed, the most reliable valuation measures suggest that stock prices are presently about three times the level that would imply future long-term returns close to the historical norm. That may sound like a preposterous assertion, but we’ve seen such extremes before, and they’ve ended quite badly.

Worse, there is a great deal of evidence to support the assertion that interest rates are low because structural economic growth rates are also low. In that kind of environment, a proper discounted cash flow analysis would show that no valuation premium is “justified” by the low interest rates at all. Hiking valuation multiples in response to this situation only adds insult to injury.

Last week, our estimate of prospective 12-year nominal annual total returns on a conventional portfolio mix (invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills) fell to the lowest level in U.S. history, plunging below the level previously set at the peak of the 1929 market bubble. The chart below shows these estimates (blue), along with the actual subsequent 12-year total returns that have followed (red).

Another Hussman post, you can read full here: One Tier and Rubble Down Below

The next chart shows the percentage change in median price/revenue ratios since January 2018. Notice the striking loss of uniformity here. What we see here is essentially a “Nifty Fifty” type of environment, where the most richly valued deciles have accounted for a disproportionate share of the gains while more value-oriented sectors have stagnated or even lost value. This is the hallmark of a market that is losing its engines, yet at the same time maintaining the face of speculation.

We’ve observed precisely the same pattern in the late stages of previous bubbles. Indeed, during much of the tech bubble and the mortgage bubble, value-oriented stocks outperformed other deciles through the bulk of the advance. However, that pattern shifted profoundly as the market approached its peak, with investors increasingly chasing high-valuation “glamour” stocks while the broader market gradually lost its sponsorship.

MISH post: Jim Bianco says this is QE, Like Y2K

We are in QE, free money for the financial system!  this goes back to my point, if we continue to support the system with free money, S&P 500 up 50% in 2020 is possible!

Smaller articles, the titles sum up the gist, click through to learn more.

Consumer confidence down 4th time out of 5 months.

Manufacturing ISM Down 5th Month to Lowest Since June 2009

Nine States Projected to Contract in 2020: More on the Way
Cass Year-Over-Year Freight Index Sinks to a 12-Year Low
Manufacturing Has Peaked This Economic Cycle
No improvement in corporate profits since 2012
China Posts Slowest Growth in 29 Years But Still Overstated
Ticking Time bomb of record high corporate debt

World Bank warns of global debt crisis amid borrowing build up.

Global debt-to-GDP ratio has now hit an all-time high of 322%

Bills due on vacant chines properties    - ( China  is significantly financially worse than USA )

Capital flight: Money leaving China at record rate  - (If China has its crisis, the world will go with it )

250 Trillion in Global Debt: How Can That Be Paid Back?

China’s Birthrate Hits Historic Low, in Looming Crisis for Beijing