MARCH 18TH (EVENING) – The DOW closed below 20,000 for the first time since 2017. Today’s low was 18,917. Nothing occurred in the last two days that would change my range forecast for an intermediate bottom. All I can say is further declines are ahead.
And this is a way too long post. But, I had lots of things on my mind:)
I saw an indicator that may be useful in telling us when an intermediate bottom is occurring. I will share this one with you so you can follow it yourself. Go to this web page:
There is a table for the Top 10 Creations (aka inflows, people buying) and Top 10 Redemptions (aka outflows, people selling). Then look for the Vanguard S&P 500 ETF (VOO). Incredibly over the past two weeks people have BOUGHT over $12 billion of this ETF. In the first phase of a Bear Market, the public buys the dip thinking the market will rally back to new highs. This is when the Smart Money sells their holdings to the public so they get caught holding the bag as Joe Granville would say. When you see VOO in the Redemption column, then we might be near a significant bottom. When VOO is being sold in HUGE amounts then we know the public has thrown in the towel and never want to own stocks again. Remember that for every transaction there is a buyer and seller. So, when the public finally caves the Smart Money will be buying everything the public dumps.
Another indicator many traders follow is called TRIN. I won’t explain it here (I am sure somewhere on the web it is explained). But, amazingly, this indicator is at a level seen at market tops. Not market bottoms. Like VOO above, there is massive buying going on. There is no panic. All the way down people have been buying and buying. In fact, two friends told me their advisors said to just keep buying as the market declines. Those advisors get paid for such brilliant advice:( For those who know about TRIN, when we see 5-day average readings over 1.60, then we start looking for a bottom to occur.
Some items of note. As of today you can pay the government interest to hold your money for 4 weeks to 3 months. Negative interest rates have arrived in America. I do hope banks will soon pay us interest on the loans we get from them:)
I saw this information from an automobile expert and wanted to add Auto Dealerships to the list of commercial properties that will likely see significant closings and bankruptcies. If all auto dealerships are forced to close (like many other retail establishments….and supposedly one state has required dealerships to close, already) for 1 week, it will cost the car industry $7.4 billion and 94,400 American jobs. The government will lose out on $2 billion in taxes. But, that is now insignificant when trillion dollar bailouts are being handed out.
Remember that is only one week of closure. As we have seen, closures are much longer than that. Banks need to be looking at their floor plan and real estate loans immediately. As I have tried to explain for almost 30 years, an auto dealership is never the highest & best use of a site. It is an interim use from the day it is built. This special purpose property type is going to result in a lot of losses for lenders. It is time to get those loans in order.
As for auto stocks, it is likely all of them will go bankrupt. If I recall right, only Ford did not go bankrupt in The Great Depression II ten years ago. I wonder how the people that bought the great Tesla stock at $969 feel with it hitting $350 today. I wouldn’t be surprised to see it fall another 50% and hit a new annual low below $175.
Almost no one pays attention to parabolic patterns and what happens when they occur. I learned about this from one of my idols, Joseph Granville, back when I was a teenager in the 1970s. Essentially when something has a blow off parabolic rise it gives up the entire gain when it crashes. Or at least say 85%-95% of its gains. There are probably hundreds of stocks that have graphs showing a parabolic rise and this subsequent crash.
Oil crumbled right thru $25 and bottomed near $20 today before having a dead cat bounce back to $23 at the close. I believe it was yesterday that Morgan Stanley said that oil would hit $30. It closed at $28. They get paid the big bucks to provide such wonderful advice:)
As for the China Virus, an American in Wuhan said only one new case has occurred in the past week. Wuhan is basically back to normal. And China did nothing like the USA has done to slow this virus down. So, I am wondering if a month from now we will see optimism as the number of cases rolls over and starts to decline. Maybe Tax Day will have a bit of silver lining. The next two weeks will be bleak as the number of cases soars due to tests finally occurring. But, a month from now we may see a light at the end of the tunnel that is not a train coming at us. Always think ahead.
A few side thoughts. First, this crisis should set globalization back many decades. I think countries, especially America (finally!), realize the importance of not relying on other countries for critical goods. Of course, most countries are small and have no choice. But, for America to let Asia take over production of so many items is (you fill in the word). Because of globalization the average American wage has not increased for 50 years in real terms. It is all about greed – corporate greed and individuals having the desire for everything they buy to be cheap (or even free!) but wanting to get paid more and more. We can’t have it both ways.
Second, the China Virus might have finally made telecommuting a significant reality. 25 years ago my MBA group wrote a paper that telecommuting was not going to take over as was being projected at the time. The experts were saying that by the Year 2000 most people would be working at home. We argued that the human species was a social animal and wanted to deal with each other in person. We were right. In the past 5 or so years many companies have changed their policies and required all employees to come into the office. It might have taken an annoying little virus to finally make working from home go mainstream.
I wanted to give a shout to a few friends (not by name). One told me a month ago to get ready for martial law. I believe his prediction will come true any day now. Even the California Governor said today he has the right to invoke such. I believe the ONLY way to stop this virus is to lock down the entire country. People just aren’t listening to what they are being told to do. Of course, the leftists will say yep we told you Trump wanted to be a Dictator:) As Ron White says, you can’t fix stupid!
Another friend said he bought some S&P 500 Puts and was up 10x. That was yesterday, so he is up more after today. It is good to know someone plays the downside. Options are extremely difficult to trade. It is pure gambling (as my mentor said, the stock market is the world’s largest casino). I would not recommend trading options to anyone. You can buy ETFs that are short the stock market or industries or many things. And there are 2x and 3x ETFs that will magnify the move by those factors. Unlike options, ETFs do not have time decay working against them.
It is always easier to make money in a Bear Market than it is in a Bull Market. But, 99% of the public never plays the downside. And every time we have a Bear Market people start screaming to make short trading illegal. Too funny. It is ok for insane buying to push markets to unsustainable levels. But, it is not ok for people to push the market back to fair value and then down further to bargain levels. Stop complaining and learn how to play the game or get out.
Some of you have passed along information on the few people that predicted this downturn in advance. I sincerely appreciate it.
As for investments, I obviously cannot give any specific advice. This blog just provides my thoughts for all to see. It helps me get things in print. It reminds me of things to watch for (like VOO and TRIN). And it actually does help some people with their investment decisions.
Thankfully, my wife and step-daughter listened last August/September and let me put their retirement 100% in cash. I think the only time they listen to something I say is when it is about the stock market:( They missed the last 10% of the Bull Market. But, they have had no worries in this crash. And we have enough toilet paper, so no worries outside the market either lol As I tell people, I do follow my own advice with my investments.
Lastly, my step-daughter is selling her horse farm (hopefully, it closes in 3 weeks). Great time to sell. She has been looking at houses to buy right away. I am thinking she might want to hold off until Fall. By then, many local businesses will have failed. Few people will be buying this Summer. Sellers should become desperate. I am seeing my thoughts about residential real estate start to form as I write this.
I remember the only good buy my wife and I ever made was in 1992 when we saw a house for sale in a neighborhood we liked. Doing some research (before the internet was used for such) we found out the owners were losing the restaurant they owned and needed to sell and move in with their parents. We offered almost 20% below the list price and our realtor said don’t hold your breath. We said give them the offer and tell them they have til 11pm tonight to make a decision. We got a call at 10:30pm that they accepted the offer straight up. Every other house we ever bought we lost money on:( Typical of many of us appraisers eh:(
Don’t be afraid to buy low. It is the best way to make money:)
My email is GeorgeRMann@Aol.Com
Yell anytime. Pass my blog along to anyone you want.
Please stay safe. Take extra precautions for the elderly and sickly. Go out of your way to buy what they need for them so they don’t have to go out in to the public and risk their lives. Remember to sanitize everything you do buy for them before they touch it.
It is better to give than to receive. Pass it forward.