This Week’s Message: Highlights From The Week Thus Far

This is likely to be the last you’ll hear from me till early next week: Heading out with the family to slide around on some snow for a few days. 

Well, okay, as long-time subscribers will attest, even while I’m on vacation, my promises of going silent notwithstanding, your email inbox remains in danger.

Since I’m on my may out, and tying up loose ends at the office, I’m going to make this week’s main message easypeasy and just offer up a few highlights from this week’s messages.

Here you go:

It’s not at all wacky that amid what was arguably a slowly deteriorating global macro backdrop to begin with the COVID-19 threat would send stocks reeling. I.e., given the lock down in China, huge supply-chain issues, spread to other countries, travel restrictions, companies stepping up and lowering earnings guidance, and so on — regardless of whether this morphs into the next bear market — a strong selloff was/is the appropriate response.

What is wacky is that world health officials, politicians and folks in the mainstream media are, in the case of the World Health Organization, even mentioning the stock market, and/or, in the case of politicians and the media, literally making aggressive market calls and recommendations.

Well, let’s say it’s wacky if anyone’s listening.”

We can sum up investing as follows. There are:

1. Good investments that make money.
2. Good investments that lose money.
3. Bad investments that lose money.
4. Bad investments that make money.

#1’s are great. #2’s are fine, unavoidable, and possess a livable probability rate. #3’s, while costly, are the most predictable and, therefore — being costly — should be readily avoided. #4’s: I can’t think of a worst case scenario than a new investor hitting a #4 right out of the gate. The perverse feedback from that experience could absolutely send him or her to the poorhouse — as he or she might think that he or she’s discovered a high probability investing method and chalk up the subsequent string of losses to rotten luck. I.e., believing what are in reality #3’s to be #2’s. The emotional imprint from that early “success” may indeed last longer than his or her capital.

Unfortunately — as I’ve observed over the years — it’s not just “new” investors who are capable of falling prey to #4s…”

Beyond the coronavirus, Sri-Kumar’s statement speaks to our view that at this stage of the cycle central bank stimulus has pretty much run its course — when it comes to the real economy, that is. Ah, but when it comes to the stock market, central banks can absolutely keep things afloat… well, till they can’t.

Sadly, however — and this is inevitable — the present destinations of all the easy money, the equity and the credit markets, will ultimately (don’t know when) have to come to grips with the fact that the underlying economy (the fundamentals) nowhere near supports their lofty levels and massive debt service obligations. That, alas, is when unsuspecting investors get hurt, badly.

It’s the inevitability of the business cycle…”

“Speaking of the potential epochness of the next bear market, there’s of course that ginormous elephant in the room that we’ve been illustrating herein for months; the massive corporate debt bubble — fueled by a decade+ of easy money policy — that has sucked in pension funds, etc., that can’t capture remotely enough yield on the safe-end of the curve to satisfy their return requirements.

Epoch bear markets are typically accompanied by a credit crisis; the next one, alas — whenever it occurs — has all the makings…”

“”Economies and markets cycle up and down. Whichever direction they’re going at the moment, most people come to believe that they’ll go that way forever. This thinking is a source of great danger since it poisons the markets, sends valuations to extremes, and ignites bubbles and panics that most investors find hard to resist.”

In a nutshell:

“…everything in the investing environment conspires to make investors do the wrong thing at the wrong time.””

“As I was preparing this message, 23 minutes into the session, the S&P 500 was off -1.04%, and the Dow was down 293 points.

Then, while I was applying the finishing touches, stocks literally screamed higher, with the Dow showing a +200 print — the Fed just surprise-announced an .50% rate cut.

Now, as I try to close this message, the Dow’s down 100 points, but it’s jumping all over the place by the second. Could go green again any minute. If indeed traders fade this news, it could get ugly in a hurry…”

“Well, they faded it, and it’s getting ugly: As I type, the S&P 500 is down 2.63% and the Dow’s off 737 points.”

“Yes, the coronavirus is indeed doing a number on the markets, not to mention the economy. But, remember, we were cautious long before the virus outbreak.”

Thanks for reading!


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