DON’T BE SURPRIZED!
The market may still go up a little. However, I believe the rally from 18,213 to 24,259 is probably over and the ‘Bear Market,’ (which I continue to believe will last another six to nine months) is ready to resume its downward journey. As I said in ISL #731: A RALLY IS OVERDUE- USE IT TO SELL . In the middle of every Bear Market there is always a surge of hope. In this case the hope was influenced by the $2 trillion ‘Stimulus Package’ and the Federal Reserve stepping up to flood the system with cash and buying bonds. There is probably another small stimulus package coming. However, I believe the effects of the ‘Coronavirus’ on the economy are still underestimated. As Defense Secretary Rumsfeld said in 2002, “there are also unknown unknowns—the ones we don’t know we don’t know.” For instance, one of the things we did not expect, is for the price of oil per barrel to go negative and what does this do to the ‘derivative’ market in oil and what effect will this have on the banks that hold theses dangerous securities? In other words I believe there are consequences from this virus, that have not yet been calculated in today’s sock evaluations. Neiman Marcus just declared bankruptcy. How many more retail stores, restaurants, and other business will follow suite and what unexpected implications will that have on the economy and the stock market? It was the surprise failure of Lehman Brothers in September 2008, which really shook up the markets in 2008/09. What will it be this time?
What I said in ISL #734 is worth repeating, “In my business career as a broker, I lived through three market crashes of 50% or more. Before a bottom was reached, the 1973- 1974 crash took about 2 years and the 2000 and the 2008 crashes took a year. I can remember thinking at the beginning of these crashes, that a 20% decline represented a ‘buying opportunity.’ Many investors today have never lived through one of these 50% decline events. So I can understand why many of you are optimistic. However, I believe that the Financial Industry has not truly fully disclosed stock market risk to the investing public. Instead the Financial Industry gives the false advice that, “on the long term, the stock market will always recover.” Keynes has a famous quote that states “in the long run, we will all be dead.” Because of my experience, I will tell you “to never grab a falling knife.” If I am wrong about my downside projection, and I hope I am, waiting a little longer to buy is worth avoiding the risk, should I be right!
TEMPETATIONS TO REOPEN THE ECONOMY
Fauci says it all in one statement, “The virus will tell us when it is safe.” President Trump has said, “The cure is worse than the disease” and that we should reopen the economy sooner rather than later. Presently the virus is infecting some 30,000 US citizens a day and since April 7, the virus has killed some 1800 Americans every day. Some are now saying that THIS is acceptable and we should reopen the economy. (Daily 1,774 Americans die of heart disease and cancer kills 1,641 per day.) Those that are encouraging the reopening the economy are bolstered by a report from Washington’s Institute for Health Metrics and Evacuation, which has reduced its predicted American death toll from the virus from 240,000 to 60,000. Of course these gains have been achieved only by shutting down the country. A White House plan to ‘phase in’ a reopening would raise the death toll no matter how carefully it is executed. Without the present lockdown, The Centers of Control and Prevention in March predicted that without controls the virus would have reached 48% to 65% of all Americans and would have killed 1.7 million. As I said in ISL 733, “This reminds me of an old Jack Benny joke ‘You’re money or your life’ says a robber. Jack Benny pauses and says, ‘Wait, I’m thinking!’ Not funny!”
Dr. Thomas R Friedman formally of the Center for Disease Control (CDC) has said that the reopening the economy would require 1) declining cases for 14 days, quick testing procedures for everyone going back to work and the ability to trace contacts of 90% of those infected. The CDC has estimated that 25% of those who test positive are silent carriers. That is why testing is so important to reopening the economy. If these procedures are not followed (testing, testing testing), here is the bad news. According to an article The Hammer and Dance by Thomas Pueyo, if Americans pour back in public, within three weeks the virus will again blossom, forcing another lockdown in repeating cycles until a vaccine is found (which is at least a year away). Sorry, but it appears that the public and the economy must still experience a lot of intense pain before we can get back to ’normal.’ Here, I use the word ‘normal’ loosely, because we will really never be the same.
THE ENEQUALITY OF THE STIMLUS!
Once again the poorest of the US will suffer the most. Many of those who need the $1,200 the most don’t have a bank account and don’t file a tax form and are therefore off the grid for payment. There are 30 million small businesses that need support. Only 1.5 million were served, before the $350 billion fund was used up. Unfortunately, it appears most of the money went to publicly traded companies who had good bank relationship and the professional ability to file quickly. (like chain stores) Harvard, who has a $41 billion endowment Fund, got $9 million. (They have a course called Greed 101). Most little struggling business were to slow to act. Also it appears that those who have enough cash flow or still have a running business, were the first to apply. They have kept their employees, because they are still functioning and therefore will not have to pay back their loans. Free money! This is not the same for small business like restaurants and small retail shops that have been shut down. Those employers cannot afford to pay employees, because they need the money for living necessities. Many employees who filed for unemployment are better off than the self-employed, who cannot qualify for unemployment insurance. In 2008 the big banks used the ‘stimulus’ to give bonus to management, while eliminating the completion of smaller banks that did not get the stimulus. Ten banks now control 75% of the deposits. Big Corps will again use the stimulus money to do the same thing and in addition, they will use the money to automate production and eliminate employees. Big business will get $500 billion. Trump unencumbered, will decide which business survive and which fail. Who said the world is fair?
DOWNSIDE PROJECTIONS ARE THE SAME
If thing get as worse, as I think they will, real support won’t develop until at least the 2016 Dow lows of 16,000-18,000 and maybe lower! I am now thinking that under a ‘worst case’ scenario my Dow prediction is 10,000 – 12,000, my S&P prediction is 2,000 or below and my NASDAQ prediction is 5,000 or lower. This Bear Market will probably last six to nine month or longer, so don’t expect everything to happen at once. The pain will probably be drawn out until at least the end of the year! “Read ’em and weep! These are the cards we have been dealt.
Carl M Birkelbach 4/21/2020
DOW 23,074 ( Noon EST) -551 Down 2.3%%
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Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com