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Opportunity Abides

Dennis asked:

Where is our government getting all of this money it is giving to my neighbors and me? Am I right in assuming that the government is just printing, printing, printing more money to throw at the country to stimulate our economy? If so:

  • What is going to happen to our economy in the near future?
  • How bad economically could it really get for us?
  • How do you see the next 12-24 months?
  • President Trump says that things are going to come back bigger and better than ever. Do you believe this?

Yes, the government is spending like there is no tomorrow even though there is a tomorrow and it will include the knock-on effects of higher government debt and a bigger Federal Reserve balance sheet.

It is impossible to know what consequences the supportive policy will create in the future. However, we heard similar questions and warnings back in 2008 when the Federal Reserve and government intervened. We were told the dollar would collapse, hyperinflation would set in, and Washington would go bankrupt.

These bearish forecasts were wrong. The current repeat of the same warnings could be wrong, too.

What-iffing in an ominous tone is easy to do. What if this, what if that, has been going on since the beginning of mass media, through which the stock market has risen two thirds of the time. I bet it will keep doing so.

I suspect that the reopening of the economy is going to go better than people fear. Expectations are so low that there is almost no way to disappoint. Perhaps small-business help will actually get to small businesses. That would be a positive surprise, and change of pace. Maybe companies will report more than zero earnings. That would be positive as well.

To Dennis’s first three questions, the only honest answer is that nobody knows. I believe the economy will muddle higher, that businesses will reopen, and that they will need employees. These factors will improve reports.

As for the next 12-24 months, well, why not the next 5-17 months, or 9.5-27.3 months? Time frames are arbitrary. Beats me, beats you, and beats every pundit. There will be a muddle higher over a not-as-long-as-you-think time frame. That’s my take. I don’t know how many months.

But you know what? I don’t need to know in order to confidently buy cheap stock prices. That’s the business we’re in around here, and this is as simple as it gets:

  • You know the economy will recover.
  • You know stocks will go higher.
  • You do not know when, and cannot know when.
  • You know that if you wait for better data, you will miss the stock recovery.

I submit that, therefore, it is best to continue our quarterly plans that have done such a good job navigating thus far, or engage in some other form of gradually putting money into stocks

What else would you do? Avoid stocks at cheap prices so you can kick yourself later?

Dennis’s last question was:

President Trump says that things are going to come back bigger and better than ever. Do you believe this?

It’s a loaded question with “Trump” thrown in there. It’s irrelevant what Trump or another person says about the economy. Who cares? Dennis could have plugged in any other name and my answer would be the same. “Trump says…” or “Jim Cramer says…” or even “Lady Gaga says…” — whatever.

Unload the baggage of “Trump says…” and the question becomes merely:

Do you think things are going to come back bigger and better than ever?

Answer: Of course! Haven’t they always? Humanity will get through this, life will resume, and we will look back on this the same way we look back on subprime, 9/11, the dot com collapse, and every other historical incident.

I could quote a collection of economists here, but why? They’re z-vals, arguing over arbitrary time frames and other irrelevant details.

Your job as an investor is to keep your eye on the ball of growing your portfolio balance. This is not the place for worldviews or big-picture guessing games. Leave that to the people who suffer no accountability for their 50% mistake rates.

All you need to know now is that the US Treasury and Federal Reserve want to keep the financial markets intact — and stock prices heading higher. Let them sort out future consequences. They did a darned good job of it last time, unlike bearish pundits. Side with the profiteers this time.

Like the chart at the top asks: How much of the recovery are you willing to miss?

Posted in US Economy | 5 Responses

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Posted in Video | 8 Responses

Now Goldman is Bullish

Two weeks ago, on March 31, I sent you an email with the subject:

“Goldman is bearish, so what?”

The Kelly Letter had just followed its quarter guidance—enormous buy signals across the board—and some subscribers were worried that it had done so right into the maw of a crash foretold by none other than Goldman Sachs.

The firm said that investors could not be confident that a new bull market had begun until the virus spread in the United States began tapering, stimulus measures were working, and Goldman’s US Equity Sentiment Indicator bottomed out.

I wrote that bulls could counter all three:

 

  • On a semi-log plot, worldwide cases of the virus are already leveling out. We’re not out of the woods yet, but we can envision getting there—and the stock recovery will beat us out of the woods.
  •  

  • Anybody waiting for confirmation that bankruptcies will be avoided is going to miss the recovery. How many bankruptcies are fine by Goldman? Surely more than zero, so when does the green light for bankruptcy avoidance go on? Probably about the time the S&P 500 reaches the firm’s 3000 target level.
  •  

  • Maybe Goldman’s sentiment indicator has not bottomed (Although, how can they know?), but others have shown grim sentiment. CNN’s Fear & Greed Index already reached the extreme fear levels it bottomed at in the fourth-quarter 2018 crash. The CBOE Volatility Index (VIX) reached the same panic zone it reached in the subprime mortgage crash.

 

Yesterday, Goldman flipped bullish.

The same team of z-val strategists lead by chief coin tosser David Kostin wrote in a note to clients that the worst of the crash is behind us.

The team admitted that its “previous near-term downside of 2000 [for the S&P 500] is no longer likely. Our year-end S&P 500 target remains 3000 (+8%).”

Here’s why:

“The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the US economy and financial markets and lifted the S&P 500 out of bear market territory. …

“If the US does not experience a second surge in infections after the economy reopens, the ‘do whatever it takes’ stance of policy makers means the equity market is unlikely to make new lows.”

Then—and this will sound familiar—the firm pointed out that bear markets usually end before economic bad news reaches its worst.

The same David Kostin crew sent a note to clients on March 20 (one trading session ahead of the bottom):

“We now forecast S&P 500 EPS of $110 in 2020, a decline of 33% from 2019. … We have cut our 2020 earnings forecast three times in 30 days (-37% in total) as the magnitude of the economic slowdown has become increasingly apparent. …

“The stock market is a leading indicator of business trends, and corporate activity continues to deteriorate with no signs yet of a bottom. The first quarter has not even ended and companies have yet to release 1Q results but equities have already collapsed by 32% in one month. The speed of business erosion is unprecedented. …

“In the near-term, we expect the S&P 500 will fall towards a low of 2000.”

From that day’s close through yesterday’s, here’s how SPY and our ETFs have performed:

+20%  SPY

+18%  IJR
+44%  MVV
+59%  TQQQ

Thanks for the warning, Dave & Co.

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Stick with our brand of price reaction.

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Posted in Stock Market Forecasts | Tagged , | 6 Responses

The 30 Down Rule

What is the 30 Down rule?

Why did we change from four sell skips to one for 6Sig and 9Sig? Why is 3Sig not in it? When do we rebalance?

— Jason Kelly is the author of The Neatest Little Guide to Stock Market Investing and The 3% Signal, and writes an investing newsletter called The Kelly Letter. He lives near Tokyo.


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Posted in Video | 2 Responses

The Best Way to Invest in this Cheap Stock Market

Leverage or non-leverage? All at once, or gradually?

I answer these and other questions from subscribers looking to take advantage of cheap prices in the stock market.

— Jason Kelly is the author of The Neatest Little Guide to Stock Market Investing and The 3% Signal, and writes an investing newsletter called The Kelly Letter. He lives near Tokyo.


Want more videos like this? Subscribe to The Kelly Letter YouTube channel.

Thank you for watching!

Posted in Video | 6 Responses
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