And so your regular editor returns to the keyboard.
Thank you to Dan, Shae and Greg for their coverage recently. From crisis always comes opportunity.
It feels like an age since I last wrote to you. What an extraordinary time we’re currently living in.
For most of 2019, I wrote ‘be a little wary of 2020’. Never in my wildest dreams did I expect this.
The most astonishing part of the collapse so far is the absence of any sustained rally. Even 2008 didn’t look like this.
But it’s not totally unprecedented. Here’s one example. I happened to be reading about 1962 yesterday.
Way back then there was a viscous sell-off known as the ‘Kennedy break’. It was named after the US president.
The Dow Jones Index lost 25% in about two months. It was almost straight down then too, if not quite as vicious what we’re seeing now.
In 1962, there was a rally after two months. And we’ll get a rally at some point too this year. But I can’t say when right now.
I wonder if it comes faster than 1962 because we’ve fallen faster. We’ll see. I’m not jumping into the market today. I want to see some evidence first.
Perhaps we could say it depends if we look at China or Italy…
Know clearly if you’re trading or investing
ABC News reports that Italy just had the most COVID-19 deaths in single day. Over 2,000 people remain in intensive care.
And yet China appears to be moving out of the crisis. People are returning to work. Starbucks and Apple have reopened their stores.
The number of COVID-19 cases is falling — if you believe the official statistics.
That could give deep value investors some confidence that the same curve will play out in the US and Europe.
My hesitation is bear markets do not go quietly into the night. The average bear in US stocks since 1946 lasts 12 months. They’re longer if we go back further.
Here’s a nifty graph I saw yesterday that show US stocks throughout the 20th century…
Source: Stansberry Research
This means you need to be very clear about whether you’re trading rallies or investing for the long haul if you go bargain hunting now.
You might find the market whipsaws all over the place over the next 12 months.
Certainly, few companies will be able to provide certainty over their earnings anytime soon.
They can’t even be certain about their operations!
The other land mine out there is that we have no way of knowing where the employment figures go from here.
Think of how many people are employed in hotels, tourism and the restaurant trade. These are getting smashed right now.
The governments and central banks can try and prop these sectors up. But they can’t subsidise or shut down every job in the land indefinitely.
Nothing is certain — and that’s the point. Markets do not like uncertainty. I struggle to see a sustained rise while so much remains in the air.
That’s not to say there won’t be some rise in the market and individual companies could benefit. But I suspect we’re in for a tough 12 months.
It’s not all doom and gloom.
An idea for your watchlist
Also note that a lot of companies throughout history were born in recessions. The nature of capitalism is constant adaption.
We need to be attentive to those ideas too.
I’m looking to stocks that have no attachment to the general economy at all. For example, there are stocks that are pre-revenue that have very exciting futures regardless of where COVID-19 takes us.
Such stocks are always a gamble. But you can claim your stake a lot lower today than a month ago. It’s like a cheap option on future success.
One I suggest you keep an eye on is Medlab Clinical Ltd [ASX:MDC]. I’m not saying buy it now. But it’s developing a treatment for cancer pain.
Unfortunately, cancer isn’t going away anytime soon, and those in pain can’t defer treatment in self-quarantine.
I really hope Medlab is a success because it would mean less suffering for those with the disease.
But that’s an example of the way I’m currently thinking. Perhaps a few long term bets on some long shots. But staying cautious while the bear sinks his claws in.
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