I’ve often said that it’s usually a bumpy ride to profit, but I will admit that I had no idea we would have to ride out a global pandemic and full-blown market meltdown.
Well, here we are.
We don’t get to pick what happens to us in life, but we do get to choose how we react to it.
We’ve taken a pretty good hit, but we are still standing. I know at times during this onslaught, it has felt like there will never be good news again.
There will be.
The spread of the virus will fade, the economy will reopen, and profits will start flowing into corporate coffers once more.
When it does, it will drive our stocks back to prior levels and eventually onto new highs.
The hard part is being patient and disciplined enough to let that happen.
Don’t Get Fooled by Bear Market Rallies
I know a lot of folks got pretty excited about the 11% up day we had Wednesday, but I would resist the urge to pile in just yet.
If you search through the records, you’ll see that previous double-digit up days occurred during the Great Depression and the Great Credit Crisis as well. Look a little closer and you’ll see that those upswings were not at the eventual bottom.
The next few unemployment and other economic reports will be dismal and could shock people into selling again before we put in a real bottom in stock prices.
I would be delighted to be wrong about that.
With that being said, we are seeing promising signs that a bottom is getting closer.
Insiders continue to buy at a manic rate, and the officers and directors of the companies we own are buying with both fists right now.
The Fed has opened the floodgates and is doing whatever it has to in order to keep the U.S. economy operating.
While it seems Congress is doing as much hurting as helping most of the time, it does look like we will have a stimulus package that gets cash to the businesses and people that need to help them ride out this disaster.
There is another potential source of stimulus out there as well.
It’s estimated that private equity funds could put as much as $2 billion to work buying companies and assets during the decline.
That should help put a floor on the value of American businesses and real assets along with the trillion being spent by the Federal Reserve and the U.S. Government.
In These Markets, Be Careful and Use Common Sense
If you’re in the camp that feels like you must be a buyer during this decline, I suggest you focus on the stocks where the top officers of the company have been buying lots of shares in the open market.
For instance, Michael Dell just spent $26 million to increase his holding in his company, Dell Technologies Inc. (NYSE:DELL)
As we discussed in Wednesday’s bonus edition of Max Wealth, there’s a lot to like about KKR & Co. Inc. (NYSE:KKR), and a lot we can do to make plays around the stock. It’s a fantastic company, and it shouldn’t come as a shock to learn that Robert Lewin, the company’s CFO, recently invested an additional $250,000 of his cash into the company.
The CEO of infrastructure-related products company Arcosa Inc. (NYSE:ACA), Antonio Carrillo, just spent over $450,000 to increase his stake in his company.
Promising Developments on the Front Lines
The headlines the next few weeks will be awful, but there is a significant chance that coronavirus runs out of steam long before the direst forecasts, and we get back the business in this country.
In Wednesday’s Wall Street Journal, two Doctors form Stanford, Dr. Bendavid, and Dr. Bhattacharya wrote an op-ed piece suggesting that empirical research has shown mortality rates of coronavirus are likely grossly overstated.
As more test kits become available thanks to a massive effort from American corporations to get the safety and test equipment in the hands of medical professionals and the public, we may find that much like was the case in South Korea, a long-term total shutdown of the economy is not required to help us protect those who do get sick and support the healthcare system.
Stanford University biology professor Michael Levitt, a Nobel Prize winner in 2013, is also saying that his models – which were correct about the spread and containment of the disease in China – is also saying that it may not be as bad as some reports are predicting.
He told the L.A. Times this week that “The real situation is not as nearly as terrible as they make it out to be.
Having said that, I wouldn’t invite all my friends over for a giant party because of what these doctors are saying, but it is encouraging.
We should know a lot more in a couple of weeks as we get more data from more tests.
Until then, we have to practice social distancing and all the other safety measures until we have better information.
While I am encouraged by some of the research that suggests that we may see a quicker ending to this mess than is the consensus opinion, I am still self-quarantining for the most part.
On those rare instances where I do have to go out, I wear an N95 mask and make liberal use of the hand sanitizer my very resourceful wife made with grain alcohol and aloe vera!
Stay safe and stay hopeful. This will pass.
Hopefully, it will be sooner than the end times predictions we are hearing, and we can get back to what normal is in our day to day lives.
To the Max,