You need to cut through the noise of the stock and bond market department store and get right to the shoe department. That's where the answers are.
Let me explain.
Right now there are three sets of storylines that are in play, when only one of them is going to get you in and out of this market with your assets intact and your portfolio stronger.
Storyline number one: Interest rates are going down and that's a signal that the stock market's economically sensitive stocks must be sold until the Fed cuts rates.
I rebel against this storyline. This is a line that has to do with people believing that we have had a Fed bubble that has buoyed all stocks and, don't worry, it will do so again, so stand pat. If you actually are an S&P 500 trader, you may think this is right. But if you think that earnings have anything more to do with stock performance than that notion, you can hold your fire until the Fed cuts show you that you have been brainwashed by the risk-on-risk-off people and you might as well go to the roulette table. The Fed could cut three times right now, in succession, and it is not going to have you book the Diamond Princess or that long-awaited tour to Milan that you have put off so many times.
I understand that people have to report on the Fed. I understand that its doings matter. But it is not the shoe department, where we are headed. It is a diversion that can -- and has -- frozen a lot of people. This is NOT 2018, when the Fed has to deal with its own bear market. The Fed's not causing this bear market, the infection is.
Storyline number two: The election. After last night's debate, you can see the possibility of the Democratic Party coalescing to try to stop Bernie Sanders, given how he was being painted into the socialist with communist leanings stance that he most likely really belongs to. Even fellow traveler Elizabeth Warren seemed to cool it in the anti-capitalistic rhetoric. Did someone get to the Democrats? I think you are starting to get heat from party heads that Sanders could be a disaster.
Why does this matter? Because, the storyline that could rival the shoe drop scenario I am about to roll out is that there will be an economic slowdown caused by the pandemic, the President and his Chief Economic Adviser Larry Kudlow are too cheery, we get a freeze up in retail and next thing you know we get a big spike in unemployment and WHOEVER is the Democratic nominee wins.
Of course, the truth is the Democratic party is a runaway train -- like the party circa 1972, when it had a death wish. Only a complete collapse of the economy in six months could cause that to happen. Not impossible. But that storyline seems less in play, given that the Senate does not seem likely to go Democratic and Speaker Nancy Pelosi has obvious contempt for "the radicals."
You are therefore getting a chance to buy some healthcares when this story loses credence, if Sanders doesn't sweep in South Carolina.
Storyline number three: Which brings me to the only storyline that is really in play -- the virus itself.
Normally, at minus 4 on the S&P oscillator, where we are right now, you need to stop shorting, stop selling and start buying. So we are going to do what's normal because despite the CDC's warning, even China has been able to get past its worse moments of the virus -- and could it have been handled less intelligently?
But we have some shoes I would like to see drop in this department store. First, I would expect to see some confirmed cases in more than one big city with concomitant panic storylines aided by the media. Shoe box not yet checked.
Two, I would expect to see our first coronavirus deaths and the hysteria that the media will make of the event. Shoe box not yet checked.
Third, I would expect to hear about school and office closings and a dramatic decline in people going out. Olympics are cancelled. Ball games postponed. Conventions put off. Shoe box not yet checked.
Fourth, I could imagine that there will be some bungling in the health care system that makes us feel less certain about the administration and more certain that the Democrats are going to surge in November. Shoe box not yet checked.
Finally, it's possible we will begin to see the similarities to the actual flu and realize that most people who do get it do not die and that the precautions do work and we even have some better ways to take care of those who get pneumonia than we have now. That shoe has definitely not dropped.
The trick is to know which shoe drop is the one where you have to be buying, given how things are oversold. I think that shoe drop number one is too early. Show drop number two, though, seems about the right level to be more aggressive. That's been where it was right with the much more deadly ebola virus.
Contrast these two for a moment: Ebola was hard to catch but much more deadly. This Covid is easy to catch but much less deadly. The former did not disrupt the enterprise economy that much, but slowed the consumer economy. This is doing both. The ebola disease was solved quickly. So far, not so good with this, one even as Moderna (MRNA) and Gilead (GILD) are making progress.
Is the economy more in danger of something you fear killing you or something you fear being sick from?
I think it is the former.
Which is why I believe that when the second shoe drops, you are going to get a better chance to buy than you will right now.
But to buy before the first shoe drops? You are believing in some pretty amazing health care and medical care work and a total breakthrough in treatment.
I am not there yet.
If you are, then you are almost ready to buy.
