We've hit some real milestones. We have reached a level where there was 10 to 1 down volume to up, which is where the late great Mark Haines said you had to buy. We are watching stocks, all kinds of stocks be thrown out, even if they have nothing to do with China. We've got all sorts of crazy theories about what happens next and how there are so many jeremiads taking prices down.
Isn't this the panic you have to buy?
Let's go over what's making me hesitant to buy aggressively for my charitable trust and yet what makes me want to put money to work, the negatives first because they are less tangential, more pertinent.
First, Downgrades. Where are they? Where's the sweeping negatives from strategists? Where are the number cuts off the Yuan devaluation? Surely there will be some analysts who are paralyzed today who will come out of their foxholes tomorrow. Some will reiterate buys, easy enough now that stocks have fallen. But some will be up huge on a recommendation and are anxious to turn tail.
Fear of the downgrade is what keeps me from recommending Apple (AAPL) aggressively. How can an analyst resist NOT downgrading it because of this trade turmoil? There's no way the numbers can stay the same now that the new tariff directly impacts Apple iPhones. Sure, you could argue that customer satisfaction numbers make it so a 10% adjustment won't mean much. If you have a 98%-99% satisfaction rate are you really going to leave to go to a competitor? That said, the unintended consequence of including Apple in this round of tariffs is that a Samsung phone is now cheaper. The White House doesn't care. It wants Apple out of China. I think that the administration should allow a gradual pull out and this is too harsh, but they most vociferously disagree given how much time they have said they gave Apple to leave.
So we need to see number cuts, price target cuts and outright downgrades before we get aggressive.
Two: Hong Kong. How long can President Xi and the Peoples Liberation Army allow the increasingly violent protests to go on? We cannot ignore these images. We talk endlessly about China not wanting to lose face. Isn't that exactly what is happening at Hong Kong? Are these protesters spitting in the face of Xi? Don't we have to wait until there's a semblance of law and order before we get big. Doesn't mean we go home. Just means we need to be careful to put too much money to work at this level.
Three: The president senses blood whether there is blood or not. He thinks he has the Chinese on the run. He continues to tweet to his followers that the Chinese are paying billions to us. He has the country in an uproar about the pernicious ways of the Chinese when it comes to everything from trade to fentanyl. The more he ratchets up things the more stocks will come down. I have it on pretty good authority that he wants all tariffs at 25%. The administration believes that it is easier to take down a 25% tariff if China gets compliant than it is a 10% tariff which would cause our country to lose leverage. So after September 1, I believe another round of tariffs will be upon us. I am very surprised he hasn't said that U.S. companies have to take a pledge not to build anything in China, not to expand, and not to stay. He wants to starve China and he can't have the U.S. paying for a way out of starvation.
Four: I think the Chinese have totally misread the situation here politically. Elisabeth Warren is leading in the polls in Iowa. If you read her position paper last week she's talking not just about tariffs but climate control initiatives that would directly impact China. I think you could argue that Trump's not as tough on trade as Warren would be. What are the Chinese thinking with their long game?
Finally, the technicals. We aren't oversold yet. We have been flying too high. We have taken out a lot of levels and there's no natural place to land. We need to see at least a minus five on the S&P's proprietary oscillator. We aren't there yet.
So if it is so bad why bother?
Simple: with bonds yielding so little there is whole cohort of 3% yielders that are very attractive.
I earlier gave you a list of stocks and sectors I like the most. The rest of the world's yields are so low you can bet ours will go down, too, if only just from panic and panic buying.
Overall earnings have been quite good for the domestic companies and the international companies. Sure, the latter might take another tumble, but the former is buyable now.
The president is a mercurial man. If the Dow Jones Average keeps plummeting he will lash out at Jay Powell's Fed stewardship or he might talk about some positive phone call he had with Xi. It would be like Trump to tantalize Wall Street to get the selloff turned off.
Lots of stocks are down and down hard. I like to buy stocks that are 10% from their highs and if they are high dollar amount stocks I stage my buys. It's fine to start now if the Chinese market isn't needed to sell goods or you don't make goods in China.
Remember we are a domestic, service economy, not a big exporter, so it's not all that hard to find good stocks. Everything is obscured by the collapse of FAANG plus Microsoft (MSFT) .
The algorithmic traders who are knocking this market down do not know anything about stocks. They are simply people drawing from relationships that may not even exist. They tend to trade the S&P, NOT individual stocks which are too small for them. Sometimes they will trade an index of stocks, like a bank index.
Ignore them. Pick stocks. Make moves based on the fundamentals.
It's not going to be wrong when the smoke clears.
It never is.