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Financial news I consider important, with my opinion, which is worth as much as you paid for it.

Sunday, March 22, 2020

Market - Whats Next?

Wow, that has been some crazy last 4 weeks!   I had *hoped* to find a short term bottom around SPX 2450-2600, and we did stay there for a bit, but we blew through it.  I dumped my speculative longs.

Next stop is SPX 1800-2200 range.  I am guessing if we get footing it will be around 1900.  I'll try again to go long then.  But tomorrow could be the short term bottom as we break through 2200.

Short Take Summary

Guess is 10-15 trillion dollars injected into the public sector from the government/Fed in very short period of time over-reacting to the pandemic.  (50 trillion global?)When the worst is over, there will be the largest movement of money from bonds to risk-on stocks and/or commodities.    Stocks will be embolden that the government won't let anything bad happen, so full risk train is on!    Problem will be governments will enter into crisis to roll over debt, and interest rates rise.   Rather than see governments fail, the federal reserve will up its game by buying debt in "Quantitative Easing" making the Fed the largest asset owner in the world by far.   At some point, we will have a global currency crisis.

I put a list together of stock names and price points I think are good, just put buy orders in at that price.  Of course feel free to wait and buy when you think a bottom is in.

GDX - Gold Miners  ETF -  NOW and anything below $17
                                           - This thing should hit its all time high $65 in the next 2 years.
                                           - In March 2009, $35 vs $17 bottom of 2008.
GOLD - A well run gold company - NOW or as low as $10
IXN - World Technology ETF - 120
Amazon -  $1,500, and a steal at $1,000
Microsoft - $100
Facebook -   NOW @ $149 (but stock is too new for other levels), $80 a good price.
QQQ - Nasdaq (tech) ETF - $135
IBB - Biotech ETF - $75
APPL - I am concerned over their supply lines - $145, steal at $95
Gld - etn of gold price , buy at anytime
Slv - etn of silver price, buy at anytime

The idea is not to go 100% in at levels above, but gain confidence to START to go in, and scale in based on the environment.  Consider putting in bids on these very good long term bets at sale prices.  No matter what happens, they should have value in the long run.

Below are four bonus 'speculation' higher risk, but higher reward.

MJ - Marijuana ETF - Now ($9) If skeptical a steal at $5
USO - Oil , it is risky, but at all time lows - $4 is good price (normally >10).
BitCoin - Buy cryptos at CoinBase to diversify.
Get an account at InteractiveBrokers , able to shoot money to any currency, stock, bond, or futures around the world instantly.

A professional that is worth reading,  is fund manager, Hussman.

I ranted below as to why, read on if you want

We are going to run into new market risks that may distort the market.  The stock market could close.  Yes you read that right.  It should never close beyond 1 day, but at the stage of panic it could close for weeks.  If it does, make sure your positions are something you want for a few weeks, for you can't sell it until the market reopens.

Further, we could get direct buying of the market by the fed.  If this happens prior to falling to SPX 1500, as a country, we have lost our mind.  Capitalism is king, we HATE socialism, for the rich or the poor.  Once we cross this line, the government will be expected to buy directly into the market at any correction until the currency system collapses.

At SPX 1500 if this happens and there is direct purchasing, I still think we lost our minds, but I can understand, we'll be in 2008 collapse territory.

I do also think sometime in a week or three, we will have cases slowing since we are FINALLY taking the proper precautions in the USA.    My hope is by week of April 6th we will see 'good news' for our actions.   Maybe this bottom isn't a number but a change in the news that is needed.

At the bottom is a graph showing our current position, we have lost only 3 years of gains, not too bad out of an 11 year bull run.  Heck if we go up from here, the worst world disaster in our lifetime would cost us only 1-2 years of market losses!  Somehow I am uneasy claiming this is what to expect.

For those who did listen to my post "ACT NOW! Sell the market!", I'd like to propose some next steps.

What the biggest challenge now ISN'T the financial system risk, but what governments will do.  Meaning, they are likely to shift the risk from the public sector to the government.  The Federal Reserve had 4.5 Trillion in bad debt, up from zero in 2008.   At the PEAK of the US economy we had a run rate of 1 TRILLION new debt per year, and that's at the very best economy of all times?

So lets get to it, what is likely to happen. 

I believe the US government is going to over react, as will the fed and world banks, AND too soon.  What may happen then is while free money starts to flow, we may not see a stock market recovery, but a free-fall stop, potentially a short term bounce.

At some point, we will see infection rates drop, because of keeping everyone home.  Then we may start to lighten restrictions.  Eventually go too far in giving people confidence.  Then we'll have more infections, and this winter should be quite bad.  If medical treatments come to the forefront, then the winter wont be bad.  So lets look at both shall we?

BAD winter

A bad winter means we can NOT inoculate or cure people, so draconian efforts must be in place during flu season.  Therefore the economy cannot recover during peak shopping 'year over year', but may do better than expected using home shopping.   By March 2021 things may look up, as we have had enough time to find better treatments, staff up, deploy treatments, and a percent of society has had it.   Basically we are past the 60% mark in infections and we are seeing the end. 
See section market rebound below.

Good winter

A good winter means we can inoculate or cure people, so draconian efforts do NOT have to be in place.   In effect we enter flu season with optimism, and the infection rate and death rate is lower than projected.   We are seeing the end of this.  See section Market Rebound below.

Market Rebound

Assuming we get the government to over-react, as well as the fed, and world banks, trillions of money will be injected into the system in a VERY short time with 'low cost' of debt.   The governments stop companies who did very bad things (like have no savings, counting on a bail out, and it was delivered!)  The message to the world is the companies that where doing good things, like being able to weather a financial disaster should not be positioned to take over bad companies.  Bad companies make more money for investors and executives, and the risk train is back on full steam, all aboard!!

With risk ON, we will have US Treasury rates at near zero rates to start to go up.  People will move away for no-interest bonds to the high potential of the market, all aboard!

With such large amount of money in government debt, the migration will be MORE distorting than the money into government debt.  When money moved into 'safe debt' vs 'risk' of the market, the market deleveraged and tanked hard core.  This "justified' the transfer of risk to government debt.

Once government debt falls out of favor, and the exodus has begun, who will save our government debt machine?  After all in January 2020 in the state of the union speech , the USA was declared at its peak financially even though to operate at such an awesome economy needs 1 trillion of new debt per year on top of the existing 23 trillion of debt.

With an economy routed in 2020 due to the pandemic, fantastical debt run up, and money injected everywhere to reward companies not prepared and punish those who where, what will be the choices?

Can the government THEN increase taxes , jeopardizing the companies it just bailed out?  How about only tax the good companies, and don't tax the weak ones?   Government cut spending across the board, like social security, medicaid?  Or defense with a really unstable and pissed off China?

If people in power buckled to save weak companies and new debt is the answer, why would the answer change in the next crisis?  Assuming USA spends 4 trillion as being discussed, and we have net 5 trillion of government NEW debt in 2020, and the fed pumps another 10 trillion, thats 15 trillion new debt in 2020 for USA alone!   There are 130 million people working, so that's  115K new debt for every working person, on top of the existing 176K per working person, for 200K per person debt!

This may bring on new challenges, how to float this debt instead of paying it.  This has worked since interest rates have declined since 1982.   You can kick the can with lower rates.  But finally, FINALLY, the debt monster will awaken, and we'll have the final bubble popping start.

To prepare for the NEXT bubble is the key to navigating the next few years, and time to get items on sale for that long term.  Back to the top of this post for some ideas, and good luck!

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