Transcript:
America is burning. That’s what every media outlet will tell you. And investors are asking me, should I sell my stocks?
Hi, I’m Jason Kelly with The Kelly Letter. And I’m here today to tell you right up front, absolutely not.
0:16
The riots that are taking place across America started about a week ago.
We need not get into why they happened or the history of America or any other aspect of this that you can find anywhere in mainstream media, in order to analyze the impact on our portfolio.
So I want to be clear that today I am talking about the financial aspect of the riots taking place across America. I am not making any social commentary, or even talking about policing in America or any of the other issues involved in what is going on. I am purely focused on the financial impact of this and what it means to you as a stock investor.
0:58
It’s been about a week since these have been going on.
And people have been surprised that stocks have risen more than 3% over the past week. Why is that?
How in the world can stocks keep rising, and — in a slightly bigger picture — how in the world have stocks continued rising during this “unprecedented, enormous economic shutdown, Great Depression 2.0,” etc. Insert adjective here; insert calamity description here.
The reason — as we’ve been noting all along, I’ve been saying to you since March, you’ve been emailing me in agreement since March — is that this is not a real recession. This is an artificial shutdown, a purposeful shutdown of the economy, a pause switch, not a complete crash of organic damage.
1:43
With that in mind, that’s why stocks have been rising.
So as stocks rise — I’ll do it this way — as the stock market works its way higher under the big general theme of the world economy is coming back from this deliberate shut down for the pandemic.
As that’s going on, and now on the timeline, we insert riots. In one country. It is the world’s largest economy, but one country in the world we have riots taking place.
All right, ask yourself, what impact does it have on Apple’s business plan, or Microsoft’s business plan, or Coca Cola’s business plan, that a guy somewhere threw a rock through a window, or a bunch of people somewhere else gathered outside the White House even, or people shut down a street in Denver, Colorado or attacked a squad car in Los Angeles, California?
2:38
These are big news. There are issues at stake here. But what do these mean to the business of the economy? Not much and nothing long term. We’ve had riots before. We’ve had social issues before. We’ve had, had everything before.
The stock market rises twice as often as it falls, as I’ve repeatedly emphasized, but even specifically through very similarly motivated riots, I suppose we could say, the stock market has risen.
Now, even pulling out farther from that for a bigger-picture look, the stock market itself has only a tenuous connection to the economy. By the time we get employment figures, or unemployment claims, by the time we see data from a month ago or two months ago, the stock market has already moved on. Now it might be going lower if it anticipates a recession, for example. It might be going higher if it anticipates a recovery. But there really isn’t the direct connection to the economy that the media frequently implies there to be.
3:40
Recently, and in this very specific case of the recovery that we are in, stocks are rising because there’s almost nowhere else to put your money and the economy is coming back.
It is coming back dramatically and we have a long way to go and stock investors who have been brave enough to get into stocks from the bottom in March are loving how much potential is left in this.
4:02
This is not about that big picture recovery. We have talked about that extensively: that it’s going on and will keep going on, that’s why oil and stock prices are rising, interest rates are dropping, and that continues fueling the fire under equities and commodities, etc. That macro theme remains.
4:22
Then the only question becomes during these riots, has the macro theme been changed by riots? No, not even coast-to-coast riots, not even riots in every major city. No.
As a matter of fact, I would submit that these riots are happening at a very good time — economically. I emphasize I’m not in favor of riots. I know you’re not either. But what I’m talking about here is that the economy was already pushed down.
It’s not a great depression. The economy was already paused, stores were already closed. So we are probably having less impact on economic projections from these riots at this time than we might have had if these riots had happened during a more elevated economic period.
Let’s say they’d happened in January or last December. Things are going along just fine, businesses are open. Let’s say it was the holiday shopping season when this happened, then we might see a quicker more direct impact on the stock market because investors would think, “Oh no, the retail sales season is being interrupted,” if it were December. Or, “As goes January so goes the year” — that myth might have taken over in January so people thought, “Ah, things are crashing now, Main Street is closing under the rocks and bricks and fires of these riots, so that’s going to be terrible.”
And that might have had a bigger impact, psychologically, on investors. In this case, come on, how much more depressed can sentiment be? Most people are still bearish on stocks.
You and I, as Kelly Letter Signal System followers, are much more bullish just by following the numbers and the reaction that we do, than almost all commentators out there. Most everybody thinks this is bad, it’s going to get worse.
Well, if so then insert the riots and it’s still bad, and I guess it already got worse so this is another reason to think it can only get better from here.
6:09
But to put a finer point on it, if you own a store in one of these urban areas that’s under attack right now, your store is closed, you might have it shuttered or boarded up or just closed, maybe your windows are exposed.
You don’t have any revenue going on. And now the mob shows up and smashes the storefront.
You have an insurance claim, you may have to go to the SBA for a distress loan, there may be some damage that you suffer, but you were already on pause. You were already without revenue. So there wasn’t a shocking interruption. There was yet another log on the fire, so to speak, maybe a little too sharp of a metaphor in this case, but you see what I mean? Business was already closed, now it’s, what, more closed? Not really. You can’t get more closed.
6:57
If ever there was a time to get help from the government, whether federal, state or local, this is it.
Banks and emergency lending have never been more open. Interest rates are so low.
So the the environment for businesses to recover from any kind of setback right now is pretty well primed. That’s why I say this may actually be a very good time for these riots to take place, whatever damage is going to be done by them to be done and then there will be the same recovery we were already on.
So I have a feeling, stock-market-wise, we’re doing this, we’re working our way higher. Boom, we’ve got the flames here. The country burns for a while, and then the stock market just keeps going along because this has nothing to do with Europe getting back on its feet, Asia getting back on its feet, oil demand rising, technology companies that have dominated dominating even more.
7:54
And as a matter of fact, on that tech point, what are these rioters using to broadcast their images, to show their videos, to put their voices out there? And what are other participants? I don’t think they’re opposers, really. But what is everybody using to communicate their views during this time? Technology, the same technology that helped us get through the shutdown.
You see where this is going. People are on social media, they’re on their tech devices, they are using that web of technologies and modern communication to get out their message, to coordinate and run the very riots that are taking place.
So there’s just no indication that this has any kind of long-term macro impact. Even in the micro economy of the corner store that might be affected by these riots, this is a great time to get economic relief because the country is set up and in the mood to provide such economic relief and sales were already paused.
8:53
All which is to say if you are following The Kelly Letter signal plans, or in the stock market in any other way, this has no bearing whatsoever on what you do.
If you’re following my Signal System plans you stay put till the end of this month when we follow the signal as usual. Riots, viruses, explodingly great business plans — all of it is just put into the hopper. Each of these is just a price pressure at the end of each quarter, the price pressures have all added up, the price has gone where it goes and we react appropriately.
9:25
That can be hard to remember during times when it’s this emotional, but I would submit that times like this are a wonderful opportunity to remind ourselves why we take our emotions out of these decisions.
It’s easy to look at images of buildings on fire and people being injured and policemen putting their lives on the line. All of it. Nobody likes to see this. You can look at that and you think, “Huh!” You kind of go into a survival mode and when you’re in survival mode you naturally want to protect things and what do you want to protect? Your money?
“Well, I don’t want to be exposed to crashing stocks at a time like this. The last thing I need is a depressed stock account.”
So you might be tempted to sell into safety and they’re even called safe havens, the flight to safety that takes place. It’s all emotionally driven. Times like this, you can rely on the mathematics of the signal plan to see that, well, nothing changes here.
And for all we know …
10:19
I don’t want to say this is going to be good for the market, but it’s just irrelevant to the market.
This is a pressure you don’t want to be involved with in any way. So set your emotions aside, financially. Do not take any action in your stock market or commodities portfolio because of these riots.
If you want to be involved some other way or have an opinion for some other matter, well, that’s your business. But stock-market-wise, leave this one alone.
Hope this helps. Stay safe and have a good week. Kelly Letter investors, I will see you on Sunday.
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Thank you for watching!
