March 19, 2020
By Mish Schneider
Today I asked this question on twitter:
“Can I ask a simple question-why do I see so few thinking sell opp as opposed to the hopeful mentality of this must be a bottom? Why do you think this is like Dec 2018 and not more like October 2008 or worse?”
I got a lot of answers, which I hope to help you ascertain some logical conclusions.
Of course, I myself simply have to look at the chart of High-Grade Investment bonds LQD, to scratch my head on why folks are sure the market is finding a bottom.
Here are the responses by many.
“My guess: they don't want to verbalize that sentiment even if they hold it out of sympathy for people and companies that are suffering.”
“? Rhetorical, Mish? Year of Buy The Dip & never learning about Counter Party Risk plus Unintended Consequences. And how many only started trading since 2011?”
“My guess would be mostly rookie traders started after 09”
“Virus curve (cases) will flatten and the govt. has our back.”
“Too many technical traders that aren’t considering the bigger picture.”
“Hope is a fundamental facet of what makes human beings move forward. Equities are a great example of people expressing that (with a fuzzy 'multiple' the preferred mass mkt method of valuation) .. people have not come to terms w/ length of this yet, alien concept to them...”
“Some talked about the hopefulness of us humans.”
“Others talked about the lack of experience of many newer investors.”
“And some talked about the inability for folks to think about the worst-case scenarios.”
Here’s more tweets, followed by my take:
“I guess seeing the cases flatten in China and South Korea are the green shoots. (2) The cash injections will take time, but it will eventually take effect, and (3) Most everything is so cheap now (when you buy it takes much less cash to purchase a 1000 shares).”
“Long investors apply some and waiting to see. Plus its day trading market. i think we will stay some time between spx 2300 to 2600 before next leg down”
“I don’t have enough letters to answer this, but we are slow to switch mindsets. Everyone who was not bearish two weeks ago are holding on to bull market thinking. They won’t switch to bearish thinking until we get to the bottom of the second leg!”
“Went to PT on Tuesday. And when they heard I was a trader, all anyone wanted to talk about was when to buy. We might feel the fear bc we are so engaged but it hasn’t hit Main Street yet. To them it is still just a buying opportunity which tells me all I need to know.”
All great answers and extremely telling.
I often talk about the disconnect between Main and Wall Street. The last comment strikes me as extremely interesting because it parrots what the public hears from the media and from their financial advisors.
Passive investing, to which I say DANGEROUS.
Since I am all over social media, here is a post I did on Facebook last week:
We are not fans of passive investing. And this market does not look ready to go back up.
We recommend that folks find out what’s in their 401s. How much of their salary is going to continue to pump into them and what is the contingency plan should we take a long time to recover or worse go down another 10-20% more.
Most hide their heads in the sand and are told not to worry. Market always comes back. But at what cost?
Finally, they should ask what policy on guiding decisions is they make to add or subtract holdings, penalties for withdrawing and for buying back stocks when (if) it turns. And for some, getting out altogether best response. Especially boomers who need this money to retire and live on.
The bigger point-be proactive therefore self-empowering.
And-read Plant Your Money Tree-it takes you through 2008 and beyond.
The bottom line is this:
Nobody knows how the virus will continue to wreak havoc, although the outlook is not great.
A bounce in a raging bear market is expected and not a bottom in a day.
The credit markets scream crisis.
The fallout to individuals, families, small businesses and corporations is only at the beginning stages.
With all the massive coordinated injection of money by central banks, all the market could muster was a 188-point bounce-and that’s after a 35% crash from the highs.
I end with a tweet from George Goncalves, a bond market veteran:
“It’s uncharted territory and no need to rush to call bottoms, let things work themselves out, wait for vol to come off & liquidity to return. Given so many unforeseen items that still lie ahead, what is the rush? Expect many false dawns (bear mkt rallies) until we bottom.”
Russell 2000 (IWM) Until this clears 110-noise. Under 93.64 another leg down
Dow (DIA) Still could not close over Mon low 201.51. Inside day range-189.67-205.44
Nasdaq (QQQ) That this could not close over 179.22 Wednesday’s high is concerning
KRE (Regional Banks) Unless this clears over 35.00, just a dead cat bounce
SMH (Semiconductors) Inside day range-96.00-104.17
IYT (Transportation) That this could not close over 129.49 Wednesday’s high is concerning
IBB (Biotechnology) At least there’s some consolidation. Better over 104.50
XRT (Retail) Now that Kohl’s announced stores closing, who else follows? Watch 29.25 as pivotal
Volatility Index (VXX) Best news for bulls is the reversal top here. 50.00 support
Junk Bonds (JNK) Really ugly unless it can turn and take out 92.40
LQD (iShs iBoxx High yield Bonds) We can start with needing a move over 108.32. We are 2010 lows right now