Now's a Good Time to Go Against the Crowd
No one listened to Buffett... Our editors aren't acting out of the ordinary... We're not ignoring the coronavirus... Impacts into July?... Dr. Doom's take... Now's a good time to go against the crowd...
These are the times when you want to stay level-leaded...
But it's hard – so hard – isn't it? That's just the way we humans are.
On Monday, while Warren Buffett – who is considered the greatest investor of his generation – was saying during an interview "don't buy or sell" on the coronavirus headlines, the major U.S. stocks indexes were getting ready to have their worst day since February 2018.
"The real question is: 'Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?'" Buffett said.
No, they hadn't... Nor had they gotten any better this morning, when the U.S. indexes started higher before, finishing about even.
Of course, how you feel about Buffett's comments might… and should… depend on your time horizon, risk tolerance, and investing goals. Those are different for everyone.
We'll just point out that Buffett is 89. Just last week, he alluded to possible successors in his annual letter to Berkshire Hathaway (BRK) shareholders. And he's still taking the long view.
Fortunately, our editors aren't acting out of the ordinary, either...
Nobody has "broken glass in case of emergency."
Notably, DailyWealth editor Dr. Steve Sjuggerud remains steady about the "Melt Up" in U.S. stocks. Two days doesn't change a thesis.
To hear Steve and his research team say it, it would be unusual if we didn't see multiple corrections before the final euphoric move in stocks.
As we wrote Monday, Steve has noted many times that the tech-heavy Nasdaq Composite Index has experienced no fewer than five double-digit corrections during the last big Melt Up in stocks in the late 1990s.
The two-day pullback we just experienced coincides with the worldwide outbreak of a previously unknown virus – even if it might be an overdue correction.
In reality, the sell-off reflects a tangled web of factors that were already on investors' minds. When you layer on the virus, everyone panics and sells their stocks...
For instance, health care reform has been a worry... (Bernie "Medicare for All" Sanders is leading the race for the Democratic nomination for president at the moment)...
And "easy money" policies around the world were another fear... Hong Kong, which is in a recession, is set to give people easy-money soon. It plans to hand out 10,000 Hong Kong dollars each to 7 million adults. The move is part of a roughly $15 billion stimulus package.
Meanwhile, things around the office are 'running on or close to schedule'...
That phrase was beaten into me for life during my days riding the Long Island Rail Road...
On Monday, Dr. David "Doc" Eifrig and his team put out their latest trade for Advanced Options subscribers.
Given the advisory's relatively short-term holding time, Monday's issue was focused on the dominant narrative in the market today... and offered a bullish play on a "chaos hedge." As they wrote...
We don't see the coronavirus headlines slowing down anytime soon...
As a result, fear has crept back into the minds of many investors: fear of the virus continuing to spread to other countries... and fear of how China's slowdown will impact the global economy...
Investors are panicking... and have fled to safe havens.
Of course, we can't talk "safe havens" without looking at what John Doody is saying...
On Monday, John and Garrett Goggin published their latest Silver Stock Analyst issue, which analyzed the recent price movement in precious metals and detailed why silver is trading at a big discount to gold.
If you don't have some of these safe-haven assets in your portfolio, you'd be wise to check out John's products and learn from his decades of experience in the precious metals space.
Now, about the coronavirus. It IS spreading, and we're not ignoring it...
So far around 80,000 people around the world have been infected, and more than 2,700 people have died, mostly all in China. Cases have popped up in Brazil, Iran, Italy, Pakistan, and Norway. The U.S. Centers for Disease Control and Prevention ("CDC") has confirmed 60 cases in the United States. Normal business has been disrupted.
Stansberry Research digital media producer Jia Guo, who grew up in China, recently went back home for the Lunar New Year holiday and found she couldn't get back to the U.S. because of a travel ban...
We wouldn't wish that predicament on anyone. But fortunately for us, instead of just sitting around doing nothing, Jia put her video-editing skills to work in a "boots on the ground" video for Stansberry readers, showing what a typical day is like for most people in China.
She went grocery shopping and to the mall, and showed what it's like to get around the country today. Check it out by clicking this link...
Importantly, a lot of headlines today aren't mentioning that in China the number of new cases and deaths is reportedly slowing...
This doesn't mean things are over... not by a long stretch.
As the video above shows, life has changed in the country and in Southeast Asia as a whole– and more people are starting to panic elsewhere.
The question now is, 'How long will coronavirus fears spook the stock market?'...
In search of a possible answer, let's do some simple math and make some assumptions...
Even if you don't believe China's official reporting numbers – and given that spike in cases due to a "methodology change" a few weeks ago – we are all inclined to be skeptical.
But we can use the big picture as a guidepost...
If we were scribbling on a bar napkin...
The first cases started in December. They weren't widely acknowledged until mid-January. Quarantines began. Reported cases and deaths reached their height around mid to late February. The mortality rate in Wuhan, China (ground zero for the outbreak) was 2% to 4%.
Assuming current trends continue (a significant if), the acute impact of the virus in China could be three months, or one quarter...
That means the Chinese economy and companies with big footprints in China could report significantly lower-than-expected growth numbers when they release first-quarter 2020 releases in early April. We pointed out in last Thursday's Digest that many of these companies have already warned investors should expect disappointing results.
At the same time, if we extrapolate the same "three-month acute impact" assumption to the new pockets of the world where the virus has spread, starting from today, that stretches the impact out to late May...
Again, this is rough math here... But in any event, second-quarter 2020 numbers for companies and countries will take at least some hit – and those won't be reported until July.
By then, we're halfway through the year before we can even start thinking about shaking the coronavirus jitters... and gross domestic products ("GDPs") across the world will have taken blows.
'Dr. Doom' was on the radio this morning talking about this idea...
Nouriel Roubini, the head of Roubini Macro Associates and a professor of economics and international business at New York University, is sometimes known as "Dr. Doom" for his bearish calls.
And he's worth listening to. If you were at our annual Stansberry Conference in Las Vegas last fall, you had a chance to hear him in person...
This morning on Bloomberg Radio, Roubini said the market isn't thinking clearly about the "virus crisis"...
The [argument regarding] a peak of the shock to the global economy being at the end of the first quarter doesn't make sense. If you think about supply chain shocks, trade channels, what's going to happen to consumer confidence, the impact is going to be into the second quarter...
Markets are delusional about the impact on Chinese growth and the impact on the global economy.
In short, we're going to hear about the coronavirus for a while...
As this Digest arrives in your inbox, President Donald Trump is supposed to be holding a White House press conference on the topic...
But again, new "news" doesn't mean you should react to every twist and turn of the story with a portfolio update.
Our Doc Eifrig recently warned against this behavior last Wednesday in this Health & Wealth Bulletin essay that has already proven prescient...
Now is not the time to either buy or short companies that have a large exposure to China.
It's best to just stay away and watch what the crowd does.
I do think there will eventually be a buying opportunity... but it's not today. The effects from the virus could get much worse from here. And we don't know how long the quarantine in China will last.
We could easily see these stocks fall another 10% or so. Or we could see them recoup their losses in a short amount of time. It's anyone's guess.
At the same time things may be calming down in China, they're intensifying in South Korea...
Down the line, when things are winding down in South Korea, we might get reports of cases in another new country...
At the same time, the CDC has estimated up to 41,000 people in the U.S. have died from the flu and up to 41 million people have gotten sick this flu season alone. Where's the market sell-off attributed to that?
It will drive you crazy (and possibly lose you money) if you try to time any of these things, make sense of an endless stream of headlines, or predict what might happen next...
Our fundamental advice hasn't changed. Heed our advice on proper portfolio allocations, position sizing, and risk management. And as always, don't speculate with any money you can't afford to lose.
And if you feel like you still must "do something," give this morning's DailyWealth a read... Vic Lederman, a member of Steve's research team, shares some timeless advice on how to manage fear during times like these.
It's good ammunition for going against the crowd.
New 52-week highs (as of 2/25/20): Invesco Value Municipal Income Trust (IIM), Nuveen Municipal Value Fund (NUV), iShares 1-3 Year Treasury Bond Fund (SHY), and ProShares Ultra 20+ Year Treasury Fund (UBT).
In today's mailbag, more feedback about Thomas Carroll's Friday Digest on health care reform... Do you have a question or comment? As always, email us at feedback@stansberryresearch.com.
"You know, we need to have people with a brain like yours start elucidating an actual way forward with our health care system, as you did in this piece. Thank you." – Paid-up subscriber Greg K.
All the best,
Corey McLaughlin
Baltimore, Maryland
February 26, 2020