It's getting emotional now. It's getting heated and angry and visceral. That's good because you don't even get near a bottom until people forget that money can be made in the market and, instead, think only of the house of pain.
What defines an emotional market, one where traders are flailing and investors are drowning? I think examples work best when you are trying to analyze what happens before a bottom is reached.
First, let's take lanthanum, praseodymium and ytterbium. Don't know those three words? Get used to them. Those are three of the multiple rare-earth minerals that China might restrict because we have been playing hardball with Huawei, putting it on the entity list that makes it all but impossible for this $100 billion in sales company to get U.S. parts.
The rare-earth materials are used in a host of applications, everything from autos to tractors to computers, meaning General Motors (GM) , Caterpillar (CAT) and Apple (AAPL) , among dozens of other companies.
Now not all is lost. In the best article I have read on the topic, TheStreet's Eric Jhonsa on Real Money reminds us that while China accounts for 70% of the global production of 170,000 tons of these elements, Vietnam, Russia and Brazil have ample supply, too. It's just not being used.
There's only one problem, as Jhonsa points out. Our countries are so intertwined, perhaps far more than our governments realized when this trade war began, that we are now expecting the unexpected and it's totally beleaguering us. When you get into the emotional mindset you begin to think that there's no real end to where this can go. Think about all the companies that we can target. We can crack down on Xiaomi (XIACF) or ZTE (ZTCOY) or Lenovo (LNVGY) , Jhonsa points out, one at a time, each day, just putting it out there.
Then they can fire back with the boycott of Apple, the cancellation of Boeing (BA) orders, the Luckin (LK) coupons to lure people from Starbucks (SBUX) . This can go on and on and on. When you get in this mode you expect that President Trump will lower the boom on another Chinese company if the Chinese really restrict rare earth metals. Tit for tat for tit for tat, you come to recognize there is no end to this pain now.
Second, there's Johnson & Johnson (JNJ) , with a stock that lost more than $15 billion in value Wednesday because it's on trial in Oklahoma for selling opioids. JNJ made the Duragesic patch which was prescribed 600,000,000 times and had 1.6 billion patient days exposed over a 15-year period. Number of addictions reported when used properly? 103. JNJ wasn't really a factor in selling opioids in the state. For example, it had 0.87% of the Oklahoma Medicaid Opioid Prescription market from 1996 to 2017. JNJ's pain products in 2013 amounted to fewer than 500 Oklahoma prescriptions.
Back in March Purdue Pharma, which made the much more prescribed Oxycontin, paid $270 million to the state. Teva (TEVA) just paid $85 million for its role in selling another much more widely used opiate.
Hmm, $270 million, $85 million, $15 billion? What's wrong with this picture? Simple, the loss of $15 billion in market cap demonstrates wild emotional behavior. I think it us overblown. We bought some Wednesday for the charitable trust, which you can follow along by joining the Action Alerts PLUS club. But I expect, in this charged environment, that this, the company with one of the best balance sheets on earth, might see its stock go lower because the trial just began and trials have a way of making defendants look real bad.
To me, it's just another opportunity. To the worn out and despondent it's just another nightmare that has them throwing away Band-Aids and baby powder.
Third there's what I call the Workday (WDAY) problem. Workday reported a fantastic quarter, the best of the cloud kings so far, with some monster wins, Cisco (CSCO) , Geico, Procter & Gamble (PG) , Siemens (SIEGY) , Airbus (EADSY) . These are orders for their human capital management and financial management products that should have, logically, gone to SAP (SAP) or Oracle (ORCL) . They didn't. The stock's down ten. I know you could say it ran into the quarter. But what the stock's action says is that even if you shoot the lights out and blow the doors off you get your head handed to you. There is nothing wrong with Workday. It will rise up again. You do, however, see little imperative in owning a stock if the company behind it reports an amazing quarter and no one cares.
Fourth, there is retail. We had some weaker quarters Wednesday from Canada Goose (GOOS) , Abercrombie & Fitch (ANF) and Capri (CPRI) . These are not unimportant companies. But they are also not Walmart (WMT) , Target (TGT) or Amazon (AMZN) .
No matter. After you saw these quarters you could only conclude that the consumer must be in real trouble. Has to be.
So, fifth, if the consumer is in real trouble then let's hide in the staples. Whoops! Goldman Sachs (GS) just took General Mills (GIS) to a sell for heaven's sake. This is the one of the best of the group, a remarkably transformed company, one that embraces more organic and natural foods than ever before and also has the fabulous Blue Buffalo pet food. No place to hide.
Sixth and best of all, or worst of all, depending upon how you feel about it, is what I call the twitter factor. That's where I am bombarded and dumped on for being a cheerleader for this market even though I have been saying for months now that we would be oversaturated with supply from IPOs while we would not be able to reach a trade deal easily because the hardliners are in charge. What have people been saying about me?
What else have the critics been saying? How about that the market is wildly overvalued. That's one that I am getting now. But where were these people just a few weeks ago when the market was flying and I was telling you to trim stocks into the strength? How about that the trade war will lead us into a recession? In reality, we are a service economy and while some of our companies will be hurt by China and weakness in Europe, by my count you have to stretch to get to 30% of our companies that will be hurt by trade wars.
Or how about we are going to repeal all of the points that we have gotten ever since Trump got in? I have read that one many a time in my file of late. What can I say? What's it based on? What's the evidence?
To me we have a president who has one eye on the Dow and one eye on trade. We have a Federal Reserve that raised one time too many. We have companies that are doing much better than most expected coming into the year.
My take? Just like we can talk ourselves into a recession we can talk ourselves into a bear market. What I would say, though, is we are simply having a real rough patch. I see many a company that I want to buy more of, but I respect the gloom. We have built a great deal of cash for my trust. We are not going to sell anymore. We are only interested in buying.
Finally, I sense that the real despair comes from those who are all in or who have borrowed money to buy stocks. However, I think it's time to pick. That's not cheerleading. That's just acknowledging that as people get progressively more disgusted and disheartened, the sadness and anger and resentment -- particularly toward me -- historically makes for a better time to buy not sell.