Economic Recovery…an “L” not a “V”

INVESTOR’S first read.com – Daily edge before the open
DJIA:23,081
S&P 500: 2,736
Nasdaq: 8,263
Russell:1,187
Wednesday,  Apri1 22, 2020     9:18 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)  My blog headline:  “Bear Market…Why?”  Here I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February.
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December 17 (DJIA: 28,235)
I repeated that projection.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. We are already down 30%.
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On March 2009 (DJIA: 6,800) I issued a SPECIAL BULLETIN “BUY” a  day after the Great Bear Market (2007-2009) ended.
Currently, I see an attempt to base out until May then another slide into October with a total bear market decline of 45% to 55%.
A game changer would be a sharp reversal in the growth of COVID cases and the lifting of  measures designed to counter it.  Additionally, the ability of people and businesses to adapt and innovate.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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NOTE: AXIOS.com and especially “AXIOS Markets” by Dion Rabouin is excellent each day.
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TODAY
      Today will start out on the upside probably because  Q1 earnings will hit full stride and the Street will hype good ones and spin bad ones as a temporary COVID-19 blip.
      That’s what the Street does. It gains little from bear markets, since it loses clients and is forced to re-build  books  for a good chunk of the ensuing bull market.
Corporate buybacks have taken a hit which is a surprise since the name of the game seems to be buy low and sell high.
Then too, investment banking relationships must be retained and a research “sell” is at the bottom of  all major firm’s  “to-do” list.
       Institutions own 80% of  the S&P 500  ($18 trillion)  and the Russell 3000 index ($22 trillion).  Basically, they are buyers on balance, selling mostly in order to switch to another stock.
What would cause these behemoths to sell ?  It would have to be the realization that what is happening now will negatively impact the economy for a year or two.  What may accelerate their selling  would be if other institutions suddenly begin to sell.
So far, it looks like the 35%+ Feb./Mar. drop in stocks was enabled by a  deferral in purchase by institutions during this period with  selling by other sources accounting for most of  the damage.
Measures to flatten the COVID curve are showing signs of succeeding, but the economic impact is severe.
Washington keeps cranking out bailouts and assistance for individuals and businesses.   While this will help, the key is,  can it stop the dominos from tumbling ?
         What I have been reading suggests a major-league recession or depression.  There does not appear to be any way out of this – it is going to get uglier than the Great Recession/bear market of 2007-2009 because the recovery will be more like an “L” rather than a “V.”
Bottom Line:
Look for a big open with the DJIA up 700-900 points by noon. This is normal, but a 19% decline in the market averages to-date does not discount what lies ahead. Easy Does IT.
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RECENT POSTS:
Tuesday  April 21, 2020 “S&P 500 is 17% Off All-Time Highs That Does Not Nearly  Discount What Lies Ahead”
Be fearful when others are greedy, and greedy when others are fearful”
– Warren Buffett.
This goes hand-in-hand with the old bromide– “Buy low and Sell high.”
     The problem has always been pinpointing the low and the high.
In February we saw the “high” with all market averages hitting new highs and everyone, including  some of the biggest analysts at the biggest firms on Wall Street ignoring the dire warnings of coronavirus and sticking to  their buys.
There was absolutely no excuse for being bullish in early February prior to a 38.4% plunge in the DJIA, a 35.4% plunge in the S&P 500, and a 32.6% crunch in  the Nasdaq Comp.  The bull market was 11 years old and the S&P 500 more overvalued than at any time  ever, excepting the dot-com bubble 1999-2000.
Obviously, the market averages were not high enough for most pros to be bearish.
After the 21-day flash crash, the market rebounded and the question now is, was that the “low.”
      The DJIA and S&P 500 have recouped one-half of the February-March sell off, the Nasdaq Comp. two-thirds.
Goldman Sachs, Morgan Stanley and JPMorgan are bullish.
But, I’m bearish.   The same thing  troubles me now that caused me to call for a bull market top in January –   excess VALUATION.
If  conventional, time-tested  measures of value are important, the stock market is as overvalued now as it was in February. The Shiller price/earnings ratio for the S&P 500 was 31 times earnings in February, 86% above its mean and is 26.4 now, 58% above its mean.
      But corporate earnings are tanking and no one in this environment knows how far and for how long that will last. All that is certain is that by that measure  of value, the market is getting more and more overvalued.
So, let’s use another metric for value – Warren Buffet’s favorite, the ratio of the stock market capitalization (shares x price) to the U.S. GDP.  It is tracking 138% now  higher than the 133% when the dot-com/Internet bubble burst in 2000 which led to a 58% plunge in the S&P 500 and 78% plunge in the Nasdaq Comp.
Bottom Line:   I concede the market can edge higher with news of people and businesses emerging from seclusion and the usual Fed, Administration and big-name Wall Street hype, but the damage done presently and into the future is immeasurable.
       Why the rush ? Afraid of missing something ?
Granted, the economic news is horrendous, the problem is it will get worse.
This is a presidential election year and  we will be lied to, manipulated, muscled and conned.  If this was a post-election year, less would be done and the stock market would be off 50% by now
        A 17% drop in the S&P 500 does not discount what is happening and its consequences. Dominos will tumble and tumble and tumble.
On March 23 the S&P 500 was down 35% from its all-time high on February 19. At that time, most investors were wishing they had sold and raised cash. This is an opportunity to do that.
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RECENT POSTS:
Monday  April 20, 2020  “The “Greater” Recession 2020-2021 To Be
Worse Than “Great Recession” 2007-2009: 
   Technically, the DJIA and S&P 500 broke out on the upside Friday indicating the market can go higher this week.  The Nasdaq Comp. is on a tear.
Futures point to a decline at the open. If buyers reverse that before 11 a.m. odds favor a rally.
Recent strength in stocks is due to bailout news, “Buys” by major Wall Street analysts, stock buybacks and bargain hunters/ short covering.
The Great Recession/bear market was ugly…BUT did not have the reach this one has.  I believe this stock market strength is a bear market rally, and on track to suck investors back before another plunge, starting  in May.
If  conventional market valuations matter anymore, this market was ridiculously overvalued in February before the flash crash and is even more so nowPrices are going up, earnings are going down.  The Street can conveniently ignore this unless 1) earnings don’t recover for years and bankruptcies across the board surge.  2)  BIG money sees a disaster and sells with institutions following. With no buyers in sight and sellers scrambling to get out, it spells flash crash II.
Short selling has surged which has been bullish in the past.  However, today’s market is dominated by institutions rather than the public investor so the shorts may be more sophisticated today. Also, this may be shorting against the box to protect positions.
According to Axios, both Congress and the Federal Reserve have committed more than $6 trillion to counter the devastating impact of measures needed to prevent widespread infection of COVID-19. More aid on the way.
InvesTech Research  estimates   the U.S. Federal Budget Deficit as a percent of GDP will soar to 18.7% up from 10% in 2009’s Great Recession.
Prior to COVID-19, The U.S. budget deficit has ballooned to $1 trillion and is on track to pass $4 trillion as great relative to the economy as during World War II.
Axios also reports Goldman Sachs is forecasting unemployment will reach 15% this summer, even 30% according to researchers at Columbia University as a worst case.
Bloomberg estimates more that $5 trillion of growth has been wiped out over the next two years.
All this on top of elevated individual, corporate and governmental DEBT.
After 11 years of economic expansion and bull market no one wants the party to end.  I don’t, but it is time to step back and take a hard “politically unbiased” look at what is going on.
It isn’t pretty.  In fact its freaking UGLY.
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Friday April 17, 2020  “The Great Hustle….Lambs Being Lead to the Slaughter Market Manipulated – Strength An Opportunity to Raise Cash”      I think the market has to go a lot lower in order to discount the known damage done to our economy, worse yet, what won’t be known for many months.
When does next leg down start ?
It will spike in response to the most dramatic news on  re-starting the economy, but possibly on news of a medical treatment/vaccine. That can be any time, but generally May – July.
How low ?
     DJIA 14,250 (S&P 500: 1,575)  Worst case ?   DJIA: 12,850 (S&P 500: 1,495)
The Street  is desperately trying to jack up prices after a flash crash  of 35%+ in February/March.
       WHY ?   the November elections ?, corporate  clients ? corporate stock buybacks ?   naivete ?
Why should I go against the opinion of the Street’s powerhouses ?
Because they were clueless in February about the  market’s overvaluation, its vulnerability, and the fact the Fed delayed a recession in January 2019 with promises of a QE type injection of money into the system and promises of rate cuts  which actually  came in August.  It was their rhetoric and actions that created to huge bubble between December 2018 and February 2020.
The impact of COVID-19 and measures necessary to counter it will have lasting consequences far greater than is currently known.
OVERLOOKED
       What is overlooked is the fact all this happened on top of a bull market that was 11 years old (132 months) and an economic recovery several months short of that.    The average of 11 economic expansions since 1945 (excl. 2009 – 2020) is 58.4 months (4.9 years). If COVID didn’t end it, something else would have, just not as fast and severely.
A recession was overdue.  Consumers, corporations and local, state and federal governments  had racked up too much debt, the economy was essentially “tired”  and it was time for a pullback. The U.S. was in the early stages of a recession/bear market in Q4, 2018, but the Fed delayed it.
      While the U.S. and global economies will rebound post-COVID-19, significant longer term damage has been done. No one knows yet how much, but what has happened since February  is unprecedented.
The stock market was vastly overvalued in February before the crash and still is.
It is more overvalued now than it was in February when the Shiller price/earnings ratio spiked above 32, topped only by the dot-com/Internet bubble 1999-2000, more than in 2007, more than 1987, more than 1929.
I don’t think a drop of 20.4% (S&P 500: -17.5%, Nasdaq Comp.: -12.8%) adequately discounts what has happened since February and its consequences going forward.
What has happened will change consumer buying patterns.  Consumer spending accounts for 70% of the nation’s GDP.  The policies employed to counter COVID-19 will convince individuals they can get by on less.  They will become more frugal, they have to since debt (home, auto, student loan, credit card) is too high approaching $14 trillion. That does not include additional debt incurred for survival this year.
BOTTOM LINE
       Investors must decide how much of a cash reserve they need  as a reserve against another decline in prices. The market will spike up in face of  news of  re-starting the economy and hype by the Fed, Administration and powerhouses on the Street.  It will be hard to resist jumping in with both feet.
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Thursday April 16, 2020 “Wall Street Smoking Something….Though It Isn’t Reality”
      The bear market rally that started March 24 and  logged in a 32% run in the DJIA may be over.  The bulls are now faced with the reality that COVID-19 and the shutdown of businesses and normal activity of people  has taken a severe toll on the US economy and may continue for longer than expected..
The stock market HAS NOT DISCOUNTED WHAT LIES AHEAD.  I have experienced 14 bear market bottoms, and in terms of market valuations and outright “fear” all were much gloomier than this one.
      March retail sales plunged 87%, well below  projections and industrial production  at a minus 5.4% was the worst since  the demobilization after World War II.  The Empire State manufacturing Index at 78.2 was the worst ever.
The small company Russell 2000 was off 4.3% yesterday after Wells Fargo downgraded it to “most unfavorable” from unfavorable.
The dominos are tumbling. While the economy should rebound sharply when the country is officially re-opened and the stock market jump, long-term damage has been done, we simply don’t know how much yet.
The Street may have gotten  ahead of the recovery curve with its “all clear” analyses, prodding the market higher after it already had a good run enabling the  bear market rally to recoup 50% of the bear market’s freefall.
What absolutely baffles me is the rush to buy stocks over the last three weeks at levels that were clearly overvalued BEFORE the bear marketWith prices going up and earnings going down, the market is even more overvalued now.
What on earth are they thinking ?
Have these decisionmakers ever experienced a bear market ?   Have they so much as walked around the block to see what is happening today ?
      No one knows where this is going, or when the dominos will stop tumbling.
After this shock, and more to come, individuals, corporations and government at all levels
will cut back on spending. For one, debt at all levels is too high.  For another, willingness to spend has decreased.  People will be more frugal going forward.
They are discovering they DON’T NEED TO SPEND SO MUCH TO BE HAPPY, AND THEREIN LIES THE PROBLEM.  THE BUYING BINGE IS OVER FOR CONSUMERS AND THE PARTY IS OVER FOR Wall Street.
      If you are still reading, you must hate me.  I hate me.  I would rather be screaming “buy” like I did in March 2009.  But, in markets like this I am trying to help readers avoid getting decimated.
YES ! the market will rally when the country is re-opened, but it will be rallying from overvalued levels becoming more and more overvalued.  The Fed, Administration and Wall Street will hype  a new bull market.  Bubble II may be orchestrated before November.
Then reality will sink in…..   What investors don’t want is to be caught without a cash cushion this time around ……fool me once…..
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Wednesday April 15, 2020 : “Market Has Not Begun To Discount The Damage Done.  Still Overvalued – DJIA 14,250 by October”
I don’t think what is happening can be dismissed overnight with a rapid return to life-as-usual when people are allowed to emerge from their homes without masks and mix with friends and family, attend ball games, theaters, etc. and find the necessities of life on store shelves and not have to cleanse all they buy when they get home.
Obviously, managements of corporations are now busy running the price of their company’s stock back up with help from Fed, Administration and Wall Street hype.
This gives individual investors a chance to raise the cash they wished they had when the market was hitting new lows.
The flash crash that took the DJIA down 38% in 21 days  happened after an 11-year economic expansion and an orchestrated bull market bubble that reached a level of overvaluation seen only once  except for the absurd dot-com/Internet fiasco in 1999-2000 that led to the bear market that clipped 50.5% off the S&P 500 and 78% off the Nasdaq Comp.
Dominos are falling, COVID, and its debilitating global impact on economies cannot be dismissed as an aberration to be treated in future analyses with an asterisk, noting it didn’t happen.
Yesterday I questioned whether “Bubble II” was possible.  While it shouldn’t happen, this is a presidential election year and the Fed, Administration and power brokers on Wall Street will stop at absolutely nothing to orchestrate a rebound in the stock market before November.
I have no problem with the market rising. I called for a bear market rally on March 24 with the DJIA at 18,581 and subsequently targeted it  to end at DJIA 24,000. While it hit 24,002 Friday and again Tuesday, hype by the Street (Goldman Sachs, Morgan Stanley) could push it a bit higher to DJIA 24,617, S&P 500: 2,894, and Nasdaq Comp.:8,463 – a stretch.
For the record, my April 24 “buy” to take advantage of a bear market rally is off. Yes, “they” can   run it higher but risks have increased dramatically as stock prices have soared.
Have these institutions no shame ?
Investors were decimated in February and March, do they deserve a “repeat.  In a February 3 CNBC article, “Street strategists stick by their bullish 2020 market forecasts despite coronavirus fears,” analysts from Morgan Stanley,  JPMorgan, UBS and Credit Suisse failed to see the risk of impact of a rogue virus on an vastly overpriced stock market.
I called a bull market top for January, not based on Coronavirus  but overvaluation and the fact an 11-year old economic expansion and bull market were overdue for a setback.
A return to February’s levels would only set up another plunge with a lot of investors getting hurt all over again.
       How much denial of reality can the system take ?
All of what  we are seeing now is about the November elections. If this was a post-election year, the market would be down another 25%-35% with no hope of recovery.
Will the big houses/money managers panic again ?  Under most circumstances – NO !
But if  several big hitters break ranks and sell aggressively, the stampede begins.
Again, the stock market is overvalued by historic standards and valuation metrics under these circumstances defy analysis.
        I continue to see a decline to DJIA 14,250 (1,875) starting in May and ending in October
At these levels, investors are getting a chance to raise cash they were wishing they had when the market was hitting new lows in March.

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 Monday April 13, 2020  “Opportunity to Raise Some Cash”
Bubble II ?
      Could happen, it’s  a presidential election year.  We saw what happened in 2019 when the economy was on the threshold of a recession and the stock market down 20%.
The Fed did an about face on policy, goosing the market relentlessly throughout the year, thus  inflating a stock market bubble that had to be burst by something, and  COVID-19 did the job in mid-February.
I am sure corporate buybacks are humming after managements of all public companies took a nasty hit to their net  worth.  Add to that, hype by  the Fed, the Administration, and big houses on Wall Street and odds of an orchestrated rebound before November improve.
However, after such a sudden brutal hit, investors are only too happy to see a bear market rally erase some of these losses.
      At the depth of the 35% + plunge in late March, investors were wishing they sold at higher levels.
But a bear market rally recouping half of the bear market loss has given battered  investors a chance to sell at least to the sleeping level.
      While, it’s only human to want to hang in there to recoup all of one’s losses, a lot of damage has been done to the economy much of which is not easily assessed at this time.
Worse yet, the market is still historically very overvalued. The Fed, Street and Administration will attempt to treat this bear market, and devastating economic debacle as an aberration, something to be ignored and referred to with an asterisk  in future descriptions of this era.
Prior to the plunge, the S&P 500 sold at a P/E only surpassed by the dot-com/Internet bubble in 1999-2000.
In mid-February, it sold at 31 times earnings, 82% above its mean. It now sells 26 times earnings, 53% above its mean and we do not know what the earnings will be in any quarter over the next year.
Can that be ignored ?
I don’t think the risk justifies  it, besides, selling down to the sleeping level makes a lot of sense. It will make more sense if we have a test of the March lows (DJIA: 18,213 (S&P 500: 2,993).
        In it for the long-term ?  Most investors didn’t think that when the market hit its low March 23.
BOTTOM LINE:  It’s a presidential election year, everything is on the line, every effort will be employed to get stock prices up before November.  The DJIA can be bumped up to 24,617, the S&P 500 to 2,894 and Nasdaq Comp. to 8,463 with enough hype.
I see a test of the March lows at a minimum and risk for new lows to DJIA 14,250.
If new negatives hit, prices will go lower.

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Thursday  April 9, 2020  “Opportunity to Sell to the SLEEPING LEVEL”
This is a bear market rally and an opportunity to sell to the sleeping level. Two weeks ago the market was in freefall and every investor would have been thrilled to be able to have this opportunity.
But, people being human, the tendency now is to get back to the February peak, then sell.
Currently the market has recouped 50% of its 35% – 39%, three-week flash crash.
On Tuesday I headlined, “Bear Market Rally to Launch an Attack on DJIA 24,000, A chance to Sell to the Sleeping Level.”
While the DJIA could press a bit higher, that suggestion is well worth heeding.
I can see another leg down to the DJIA 1,400 (S&P 500: 1,575) level, lower if new negatives surface.
       After an 11-year economic expansion, and what is happening now, I cannot understand why there is a question about a recession  – it’s a no-brainer.  We’re in  it !
If anyone thinks the Feb./Mar. plunge was scary, the next one will worse yet.
This is a presidential election year, the Fed, Administration and Street will do anything to juice the market up before November and give the appearance the economy is not in recession.
The Stock market may be rebounding from a bear market low in October, but it will be from a much, much  lower level.
BOTTOM LINE:
      The bear market rally may already be over and the market either headed down to new lows or  bumping along in a sideways consolidation before beginning another leg down in May.
I do not expect a “V” recovery in the economy. Initially the stock market will trace out a “V”, but stall and trend sideways for many months.
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Wednesday April 8, 2020 “Calling  Bear Bottom – What It Takes”
In order to take advantage of a bottom in a bear market, investors need three things
1)“CASH;”  2) Timing;  3) The willingness to ignore fear and step in when buying a stock is the last thing anyone in their right mind wants to do.
1) “CASH” – This is why I have repeatedly urged readers to maintain a cash reserve ranging depending on risk, between 30% to 90%.  With the stock market, there are always several balls up in the air, any one of which can come down without warning and change everything. COVID-19 is an example.
Being bearish is one of the hazards of my business.  People hate bears and especially if they turn out to be right.  No one wants the party to end when the market is rising and they are making money.
But “cash” is an investment. It is a cushion against a downturn; a reserve for emergencies, and a reservoir to tap for buying at lower prices, especially after corrections and bear market bottoms.
2) Timing: Getting close helps, catching the exact bottom rare. There are so many false starts, bear market rallies that look like the big turn, but are followed by another painful leg down.
Here patience and the willingness to miss the exact bottom are key. Buying because one is afraid of missing a stock’s or market’s move up is one of the biggest contributors to poor timing.
     3) Willingness to step in:  Bottoms are fraught with outright terror.  The bear market’s plunge has long past the “ouch” point and is now at the “I can’t stand it anymore” point where all one wants to do is stop the bloodletting.  The urge is to sell out, and that urge is close to the bottom.
Here’s is where having a modest amount of cash  makes catching the bottom so difficult. There is no room for poor timing.  One tactic would be to take partial positions to reduce the damage if buying is premature. Going all-in is foolish.
I HOPE ENOUGH READERS RAISED CASH AS A RESULT OF MY ANALYSIS. THERE IS A CRUEL DUAL PAIN THIS TIME – COVID-19 IS RAVAGING OUR LIVES, LITERALLY AND ECONOMICALLY, AND  AT THE SAME TIME DESTROYING PORTFOLIOS AND FUTURES.
BUT I MUST CALL IT AS I SEE IT AND THAT MEANS WARNING READERS OF FURTHER RISK YET ALERTING THEM OF OPPORTUNITY WHEN I SEE IT.
There will be opportunities for traders, those savvy and nimble enough to buy and sell quickly while knowing the risks of being wrong.  For that, I will note “traders only”
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With the DJIA at 6,800, I published a Special Bulletin “BUY”  on March 10, 2009, within a day of the bottom of the Great Bear Market (2007-2009).  I want to get that close this time.

BOTTOM LINE: The stock market is NOT going back to new highs where the S&P 500 was vastly overvalued, in fact, more overvalued than at any time over the last 100 years excepting the dot-com  Internet bubble 1999-2000.
This is a bear market rally that will yield to another plunge when reality sets in that enormous economic damage has been done by the necessary response to COVID-19.
Beware of election year hype. It’ll come from the Fed, the Administration and Street.
It will suck investors in for another round of devastation starting within a month or maybe not until fall.
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Tuesday April 7, 2020  “Bear Market Rally to Launch Attack on DJIA 24,000, A Chance to Sell To the Sleeping Level”    “The worst is behind us,” says Mike Wilson, chief U.S. equity strategist for Morgan Stanley, referring to the nation’s massive monetary and fiscal stimulus and the most attractive valuations since 2011.
It would be nice
if both COVID-19 and the bear market/recession were on their way out of our lives, but I think Mr. Wilson needs to walk around the block and take a hard look at what has happened and especially  the fact long-lasting damage has been done to people’s lives, the economy and CONFIDENCE in stocks as an investment.
With the DJIA at 19,173 on March 23, I headlined, Bear Market Rally to Precede Spike Down to DJIA 14,000 (S&P 500: 1,575). As I have often noted, that can happen shortly or in the fall.
That conclusion was and still is, based on the fact that the market has only given up the final surge of the 2009-2020 bull market, December 26 2018 – February 8, 2020, a bubble created by Federal Reserve hype and the Street’s assurance that it was safe to buy aggressively since the Fed had its back with rate cuts and its pumping money into the system.
With economic and humanitarian conditions as horrendous and uncertain as they are now, I expect a bear market to do more damage like retracing two-thirds of the 2009-2020 bull market which would take the DJIA back to 14,209 (S&P 500:1,575).
     The DJIA is now up 18.3% since my March bear market rally call, has reached yesterday’s generous upside projections and will add another 5% -7%  as investors scramble to jump on board afraid of missing a new bull market.
Hopefully, this rally can ease the pain of the February/March crunch, but I expect it to peak close to DJIA 23,900 (S&P 500: 2,790) late this month or in May and slide into the fall dropping to DJIA 14,250 (S&P 500: 1,575) as the reality of the damage COVID-19 has done surfaces………and the realization that monetary and fiscal assistance in the future will not be available again, i.e. no more safety valves, bail outs, assistance – this was an 8-count, the next time, it’s a 10-count.
      The impact of COVID-19 will take a huge toll on how we live our lives and do business, in fact, it already has.
THAT CANNOT BE DISMISSED CASUALLY BY WALL STREET ANALYSTS AND POLITICIANS.
We know the Administration will hype the market rebound, but DO NOT BE SURPRISED
IF FED CHIEF POWELL JUMPS IN NOW IN AN ATTEMPT TO RE-INFLATE THE ILL-FATED BUBBLE HE NURTURED BETWEEN DECEMBER 2018 AND FEBRUARY 2020, THE ONE THAT SUCKED UNSUSPECTING INVESTORS IN BEFORE COVID-19  BURST IT LEADING TO A 35%, 11-DAY FREEFALL IN STOCKS.
I am not alone on my projections for another leg down. Last Sunday, Scott Minerd, global chief investment officer for Guggenheim Partners told MarketWatch  the worst may be far from over, projecting a drop to 1,500 by the S&P 500 as a harsh new reality framed by the global economic slowdown of COVID-19’s impact  sets is.
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 Monday  April 6, 2020  (DJIA: 22,079)  “The Stock Market Was Grossly Overvalued in February Before the Crash, And is Still Overvalued -Dell the Rally Risk of 35% Plunge”   Bloomberg Markets headlines “Stocks Jump… on Easing Virus Tolls.” It reported, Lindsey Piegza, chief economist at Stifel Nicolaus & Co told Bloomberg TV, that if the virus is brought under control the economy can reopened by the end of April, early May. If that does occur, she said, it’s likely the downturn can be reduced from a depressionary scenario into a recessionary scenario.
OK, everyone wants COVID-19 and the bear market to go away, but that is not going to happen soon.
      For one, COVID-19 is still spreading and the impact of countering it is going to have a devastating impact on our economy forever changing how we live our lives and do business.
THE STOCK MARKET WAS INSANELY OVERVALUED BY HISTORICAL STANDARDS IN FEBRUARY WHEN COVID PRICKED THE FED-INDUCED BUBBLE,  BUT IS NO LOWER NOW WHEN THAT BUBBLE BEGAN TO INFLATE. IT IS STILL OVERVALUED AND ALL THE FED, ADMINISTRATION AND WALL STREET HYPE CANNOT TAKE IT BACK UP TO THOSE INSANE LEVELS.
        Three strikes and Wall Street is out !   Three big bull markets – 1998-2000; 2002-2007; and 2009-2020 all followed by crippling bear markets of 50% +for 2000-2002; m2007-2009 and this one that has been down 35% on its way to down 54% before it’s over.
It is back to the basics, Graham & Dodd mentality –   no more partying on Wall Street at the expense of investment portfolios for a long time.
BOTTOM LINE:
A rally here can get to DJIA:22,617 (S&P 500:2,637) with enough hype from the Administration, Street and Fed.  It would be an opportunity to recoup losses and raise cash before another leg down.
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Friday April 3, 20020  “  Crash Only Erased the Bubble, Did Not Discount Economic Consequences”  Bear markets drop to levels where enough buyers show up to offset the selling, which often is frenzied and overdone in face of fear and confusion.
The problem I have with this bear market is  it started at the top of the bubble where the market was absurdly overvalued only bringing the market down to the level where the bubble started to inflate.
The bubble, a 13-month, 45% surge in the S&P 500 starting in December 2018 was not based on fundamentals, but on expectations by the Street that the “Fed” had its back, that it would (and did) pour money into the system and slash interest rates.  Why not run the table ?
Assuming the 13-month bubble had no justification, why then shouldn’t the discounting process for COVID-19 and its economic consequences start at current levels where the bubble started to inflate ?
This is why I think another leg down to at least Dow 14,250 (S&P 500 1,575) will happen shortly of in the fall.
Everyone now knows the Fed and governments at all levels will be stepping in to prevent a deep recession/depression, why isn’t the market moving higher ?
Because it is even more overvalued now than it was in February before the bubble burst, AND we are on an economic turf we haven’t been on since the 1929 crash.
       In order to adequately discount what is happening, the market MUST go lower, a lot lower.
Hard as it is to sell at these levels, one has to assess their tolerance for further losses.
       There will be a bump in the economy when news that COVID has topped out and people are emerging from their homes, businesses opening their doors and the beginning of a return to normalcy. If that bump comes before another crunch in prices, it will give investors a chance to recoup some losses, but a return to the bubble highs – not going to happen.
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Thursday April 2, 2020 “Market Has Not Yet Discounted the Flow of Bad Economic News”
The accompanying chart tells a sad story.  For one, investment portfolios were crushed in a matter of weeks.  For another,  a bubble was created by mostly  hype in 2019 by the Fed, the Administration and Street, sucking unsuspecting investors into the market  at higher and higher prices – lambs led to slaughter.
Why, after 10 years of bull market and a gain in the market averages 240%, was it necessary to orchestrate one more surge when stocks were seriously overvalued in the first place and ridiculously overvalued when the bubble  burst in mid-February ?  Politics ? Greed ?  Naivete ?
At some point, news of the spread of COVID-19 will indicate its bubble too has been pricked.  People will emerge from their homes, businesses will return to pick up the pieces, and the stock market will rally.  Hype by these same sources will return.
The question will be, if the market was overvalued in December 2018 when the bubble began to inflate in December 2018  and more so in February 2020, why would the market return to those levels after so much damage has been done to the economy and investor confidence ?
I expect another leg down  shortly or in the fall to DJIA 14,250 (S&P 500: 1,575). I hope it doesn’t happen, but this simply looks like a way station for lower prices.
Bear market rallies are part of the downtrend of stock prices. Their danger lies in the fact they suck investors in well before the bottom.
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Wednesday April 1  (DJIA:21,917)  “When ‘Ouch’ Becomes Excruciating Pain”
A rally in early trading yesterday failed, indicating the bear market rally that started  six days ago was tiring…..we’ll see.
Obviously, investors want something to happen to jack the market up, so they can sell…. or sleep.
Expect the Fed, Administration and Street to try all means possible to hype the market when the economy shows signs of a tiny bounce.  As welcome as the success of their hype would be, it would only set up another decline.
If you get it, lighten up.
The problem is not Americans willing to step up to the plate as our healthcare providers are doing or continue to provide vital  services to our economy, but the problem is in the pricing of the stock market – it was extremely overvalued in February before the crash and is still overvalued, and will be more overvalued at higher prices.
I just don’t see our economy recovering from this severe setback anytime soon. Dominos will tumble for many months. FactSet reported the Street sees a strong rebound in corporate earnings next year. But, compared with what is happening now, any company’s earnings will be easy to beat   – big deal
Everyone wants the market to rebound further, however,  experience is when you find yourself hoping for the market to do something, rise/decline, you are on the wrong side of it.
Bottom Line:
A bear market rally started on March 24 after posting lows of DJIA: 18,213 (S&P 500: 2,291) and rose  24% and 20% respectively before trading sideways.
The futures indicate lower prices at the open. The bulls must move the DJIA above 22,600, the bears below 21,400 to set up the next meaningful move.
Investment opportunities of a lifetime don’t just sit there waiting for everyone to jump on board, they come when there is little if any hope, when “ouch” becomes excruciating pain.
Stock prices are still at the December 2018 level when the Fed started to inflate the fateful bubble that set investors up for the February/March crash.

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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

That Does Not Nearly  Discount What Lies Ahead”

 

 

Monday  April 20, 2020  “The “Greater” Recession 2020-2021 To Be
Worse Than “Great Recession” 2007-2009: 
   Technically, the DJIA and S&P 500 broke out on the upside Friday indicating the market can go higher this week.  The Nasdaq Comp. is on a tear.
Futures point to a decline at the open. If buyers reverse that before 11 a.m. odds favor a rally.
Recent strength in stocks is due to bailout news, “Buys” by major Wall Street analysts, stock buybacks and bargain hunters/ short covering.
The Great Recession/bear market was ugly…BUT did not have the reach this one has.  I believe this stock market strength is a bear market rally, and on track to suck investors back before another plunge, starting  in May.
If  conventional market valuations matter anymore, this market was ridiculously overvalued in February before the flash crash and is even more so nowPrices are going up, earnings are going down.  The Street can conveniently ignore this unless 1) earnings don’t recover for years and bankruptcies across the board surge.  2)  BIG money sees a disaster and sells with institutions following. With no buyers in sight and sellers scrambling to get out, it spells flash crash II.
Short selling has surged which has been bullish in the past.  However, today’s market is dominated by institutions rather than the public investor so the shorts may be more sophisticated today. Also, this may be shorting against the box to protect positions.
According to Axios, both Congress and the Federal Reserve have committed more than $6 trillion to counter the devastating impact of measures needed to prevent widespread infection of COVID-19. More aid on the way.
InvesTech Research  estimates   the U.S. Federal Budget Deficit as a percent of GDP will soar to 18.7% up from 10% in 2009’s Great Recession.
Prior to COVID-19, The U.S. budget deficit has ballooned to $1 trillion and is on track to pass $4 trillion as great relative to the economy as during World War II.
Axios also reports Goldman Sachs is forecasting unemployment will reach 15% this summer, even 30% according to researchers at Columbia University as a worst case.
Bloomberg estimates more that $5 trillion of growth has been wiped out over the next two years.
All this on top of elevated individual, corporate and governmental DEBT.
After 11 years of economic expansion and bull market no one wants the party to end.  I don’t, but it is time to step back and take a hard “politically unbiased” look at what is going on.
It isn’t pretty.  In fact its freaking UGLY.
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Friday April 17, 2020  “The Great Hustle….Lambs Being Lead to the Slaughter Market Manipulated – Strength An Opportunity to Raise Cash”      I think the market has to go a lot lower in order to discount the known damage done to our economy, worse yet, what won’t be known for many months.
When does next leg down start ?
It will spike in response to the most dramatic news on  re-starting the economy, but possibly on news of a medical treatment/vaccine. That can be any time, but generally May – July.
How low ?
     DJIA 14,250 (S&P 500: 1,575)  Worst case ?   DJIA: 12,850 (S&P 500: 1,495)
The Street  is desperately trying to jack up prices after a flash crash  of 35%+ in February/March.
       WHY ?   the November elections ?, corporate  clients ? corporate stock buybacks ?   naivete ?
Why should I go against the opinion of the Street’s powerhouses ?
Because they were clueless in February about the  market’s overvaluation, its vulnerability, and the fact the Fed delayed a recession in January 2019 with promises of a QE type injection of money into the system and promises of rate cuts  which actually  came in August.  It was their rhetoric and actions that created to huge bubble between December 2018 and February 2020.
The impact of COVID-19 and measures necessary to counter it will have lasting consequences far greater than is currently known.
OVERLOOKED
       What is overlooked is the fact all this happened on top of a bull market that was 11 years old (132 months) and an economic recovery several months short of that.    The average of 11 economic expansions since 1945 (excl. 2009 – 2020) is 58.4 months (4.9 years). If COVID didn’t end it, something else would have, just not as fast and severely.
A recession was overdue.  Consumers, corporations and local, state and federal governments  had racked up too much debt, the economy was essentially “tired”  and it was time for a pullback. The U.S. was in the early stages of a recession/bear market in Q4, 2018, but the Fed delayed it.
      While the U.S. and global economies will rebound post-COVID-19, significant longer term damage has been done. No one knows yet how much, but what has happened since February  is unprecedented.
The stock market was vastly overvalued in February before the crash and still is.
It is more overvalued now than it was in February when the Shiller price/earnings ratio spiked above 32, topped only by the dot-com/Internet bubble 1999-2000, more than in 2007, more than 1987, more than 1929.
I don’t think a drop of 20.4% (S&P 500: -17.5%, Nasdaq Comp.: -12.8%) adequately discounts what has happened since February and its consequences going forward.
What has happened will change consumer buying patterns.  Consumer spending accounts for 70% of the nation’s GDP.  The policies employed to counter COVID-19 will convince individuals they can get by on less.  They will become more frugal, they have to since debt (home, auto, student loan, credit card) is too high approaching $14 trillion. That does not include additional debt incurred for survival this year.
BOTTOM LINE
       Investors must decide how much of a cash reserve they need  as a reserve against another decline in prices. The market will spike up in face of  news of  re-starting the economy and hype by the Fed, Administration and powerhouses on the Street.  It will be hard to resist jumping in with both feet.
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Thursday April 16, 2020 “Wall Street Smoking Something….Though It Isn’t Reality”
      The bear market rally that started March 24 and  logged in a 32% run in the DJIA may be over.  The bulls are now faced with the reality that COVID-19 and the shutdown of businesses and normal activity of people  has taken a severe toll on the US economy and may continue for longer than expected..
The stock market HAS NOT DISCOUNTED WHAT LIES AHEAD.  I have experienced 14 bear market bottoms, and in terms of market valuations and outright “fear” all were much gloomier than this one.
      March retail sales plunged 87%, well below  projections and industrial production  at a minus 5.4% was the worst since  the demobilization after World War II.  The Empire State manufacturing Index at 78.2 was the worst ever.
The small company Russell 2000 was off 4.3% yesterday after Wells Fargo downgraded it to “most unfavorable” from unfavorable.
The dominos are tumbling. While the economy should rebound sharply when the country is officially re-opened and the stock market jump, long-term damage has been done, we simply don’t know how much yet.
The Street may have gotten  ahead of the recovery curve with its “all clear” analyses, prodding the market higher after it already had a good run enabling the  bear market rally to recoup 50% of the bear market’s freefall.
What absolutely baffles me is the rush to buy stocks over the last three weeks at levels that were clearly overvalued BEFORE the bear marketWith prices going up and earnings going down, the market is even more overvalued now.
What on earth are they thinking ?
Have these decisionmakers ever experienced a bear market ?   Have they so much as walked around the block to see what is happening today ?
      No one knows where this is going, or when the dominos will stop tumbling.
After this shock, and more to come, individuals, corporations and government at all levels
will cut back on spending. For one, debt at all levels is too high.  For another, willingness to spend has decreased.  People will be more frugal going forward.
They are discovering they DON’T NEED TO SPEND SO MUCH TO BE HAPPY, AND THEREIN LIES THE PROBLEM.  THE BUYING BINGE IS OVER FOR CONSUMERS AND THE PARTY IS OVER FOR Wall Street.
      If you are still reading, you must hate me.  I hate me.  I would rather be screaming “buy” like I did in March 2009.  But, in markets like this I am trying to help readers avoid getting decimated.
YES ! the market will rally when the country is re-opened, but it will be rallying from overvalued levels becoming more and more overvalued.  The Fed, Administration and Wall Street will hype  a new bull market.  Bubble II may be orchestrated before November.
Then reality will sink in…..   What investors don’t want is to be caught without a cash cushion this time around ……fool me once…..
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Wednesday April 15, 2020 : “Market Has Not Begun To Discount The Damage Done.  Still Overvalued – DJIA 14,250 by October”
I don’t think what is happening can be dismissed overnight with a rapid return to life-as-usual when people are allowed to emerge from their homes without masks and mix with friends and family, attend ball games, theaters, etc. and find the necessities of life on store shelves and not have to cleanse all they buy when they get home.
Obviously, managements of corporations are now busy running the price of their company’s stock back up with help from Fed, Administration and Wall Street hype.
This gives individual investors a chance to raise the cash they wished they had when the market was hitting new lows.
The flash crash that took the DJIA down 38% in 21 days  happened after an 11-year economic expansion and an orchestrated bull market bubble that reached a level of overvaluation seen only once  except for the absurd dot-com/Internet fiasco in 1999-2000 that led to the bear market that clipped 50.5% off the S&P 500 and 78% off the Nasdaq Comp.
Dominos are falling, COVID, and its debilitating global impact on economies cannot be dismissed as an aberration to be treated in future analyses with an asterisk, noting it didn’t happen.
Yesterday I questioned whether “Bubble II” was possible.  While it shouldn’t happen, this is a presidential election year and the Fed, Administration and power brokers on Wall Street will stop at absolutely nothing to orchestrate a rebound in the stock market before November.
I have no problem with the market rising. I called for a bear market rally on March 24 with the DJIA at 18,581 and subsequently targeted it  to end at DJIA 24,000. While it hit 24,002 Friday and again Tuesday, hype by the Street (Goldman Sachs, Morgan Stanley) could push it a bit higher to DJIA 24,617, S&P 500: 2,894, and Nasdaq Comp.:8,463 – a stretch.
For the record, my April 24 “buy” to take advantage of a bear market rally is off. Yes, “they” can   run it higher but risks have increased dramatically as stock prices have soared.
Have these institutions no shame ?
Investors were decimated in February and March, do they deserve a “repeat.  In a February 3 CNBC article, “Street strategists stick by their bullish 2020 market forecasts despite coronavirus fears,” analysts from Morgan Stanley,  JPMorgan, UBS and Credit Suisse failed to see the risk of impact of a rogue virus on an vastly overpriced stock market.
I called a bull market top for January, not based on Coronavirus  but overvaluation and the fact an 11-year old economic expansion and bull market were overdue for a setback.
A return to February’s levels would only set up another plunge with a lot of investors getting hurt all over again.
       How much denial of reality can the system take ?
All of what  we are seeing now is about the November elections. If this was a post-election year, the market would be down another 25%-35% with no hope of recovery.
Will the big houses/money managers panic again ?  Under most circumstances – NO !
But if  several big hitters break ranks and sell aggressively, the stampede begins.
Again, the stock market is overvalued by historic standards and valuation metrics under these circumstances defy analysis.
        I continue to see a decline to DJIA 14,250 (1,875) starting in May and ending in October
At these levels, investors are getting a chance to raise cash they were wishing they had when the market was hitting new lows in March.

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 Monday April 13, 2020  “Opportunity to Raise Some Cash”
Bubble II ?
      Could happen, it’s  a presidential election year.  We saw what happened in 2019 when the economy was on the threshold of a recession and the stock market down 20%.
The Fed did an about face on policy, goosing the market relentlessly throughout the year, thus  inflating a stock market bubble that had to be burst by something, and  COVID-19 did the job in mid-February.
I am sure corporate buybacks are humming after managements of all public companies took a nasty hit to their net  worth.  Add to that, hype by  the Fed, the Administration, and big houses on Wall Street and odds of an orchestrated rebound before November improve.
However, after such a sudden brutal hit, investors are only too happy to see a bear market rally erase some of these losses.
      At the depth of the 35% + plunge in late March, investors were wishing they sold at higher levels.
But a bear market rally recouping half of the bear market loss has given battered  investors a chance to sell at least to the sleeping level.
      While, it’s only human to want to hang in there to recoup all of one’s losses, a lot of damage has been done to the economy much of which is not easily assessed at this time.
Worse yet, the market is still historically very overvalued. The Fed, Street and Administration will attempt to treat this bear market, and devastating economic debacle as an aberration, something to be ignored and referred to with an asterisk  in future descriptions of this era.
Prior to the plunge, the S&P 500 sold at a P/E only surpassed by the dot-com/Internet bubble in 1999-2000.
In mid-February, it sold at 31 times earnings, 82% above its mean. It now sells 26 times earnings, 53% above its mean and we do not know what the earnings will be in any quarter over the next year.
Can that be ignored ?
I don’t think the risk justifies  it, besides, selling down to the sleeping level makes a lot of sense. It will make more sense if we have a test of the March lows (DJIA: 18,213 (S&P 500: 2,993).
        In it for the long-term ?  Most investors didn’t think that when the market hit its low March 23.
BOTTOM LINE:  It’s a presidential election year, everything is on the line, every effort will be employed to get stock prices up before November.  The DJIA can be bumped up to 24,617, the S&P 500 to 2,894 and Nasdaq Comp. to 8,463 with enough hype.
I see a test of the March lows at a minimum and risk for new lows to DJIA 14,250.
If new negatives hit, prices will go lower.

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Thursday  April 9, 2020  “Opportunity to Sell to the SLEEPING LEVEL”
This is a bear market rally and an opportunity to sell to the sleeping level. Two weeks ago the market was in freefall and every investor would have been thrilled to be able to have this opportunity.
But, people being human, the tendency now is to get back to the February peak, then sell.
Currently the market has recouped 50% of its 35% – 39%, three-week flash crash.
On Tuesday I headlined, “Bear Market Rally to Launch an Attack on DJIA 24,000, A chance to Sell to the Sleeping Level.”
While the DJIA could press a bit higher, that suggestion is well worth heeding.
I can see another leg down to the DJIA 1,400 (S&P 500: 1,575) level, lower if new negatives surface.
       After an 11-year economic expansion, and what is happening now, I cannot understand why there is a question about a recession  – it’s a no-brainer.  We’re in  it !
If anyone thinks the Feb./Mar. plunge was scary, the next one will worse yet.
This is a presidential election year, the Fed, Administration and Street will do anything to juice the market up before November and give the appearance the economy is not in recession.
The Stock market may be rebounding from a bear market low in October, but it will be from a much, much  lower level.
BOTTOM LINE:
      The bear market rally may already be over and the market either headed down to new lows or  bumping along in a sideways consolidation before beginning another leg down in May.
I do not expect a “V” recovery in the economy. Initially the stock market will trace out a “V”, but stall and trend sideways for many months.
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Wednesday April 8, 2020 “Calling  Bear Bottom – What It Takes”
In order to take advantage of a bottom in a bear market, investors need three things
1)“CASH;”  2) Timing;  3) The willingness to ignore fear and step in when buying a stock is the last thing anyone in their right mind wants to do.
1) “CASH” – This is why I have repeatedly urged readers to maintain a cash reserve ranging depending on risk, between 30% to 90%.  With the stock market, there are always several balls up in the air, any one of which can come down without warning and change everything. COVID-19 is an example.
Being bearish is one of the hazards of my business.  People hate bears and especially if they turn out to be right.  No one wants the party to end when the market is rising and they are making money.
But “cash” is an investment. It is a cushion against a downturn; a reserve for emergencies, and a reservoir to tap for buying at lower prices, especially after corrections and bear market bottoms.
2) Timing: Getting close helps, catching the exact bottom rare. There are so many false starts, bear market rallies that look like the big turn, but are followed by another painful leg down.
Here patience and the willingness to miss the exact bottom are key. Buying because one is afraid of missing a stock’s or market’s move up is one of the biggest contributors to poor timing.
     3) Willingness to step in:  Bottoms are fraught with outright terror.  The bear market’s plunge has long past the “ouch” point and is now at the “I can’t stand it anymore” point where all one wants to do is stop the bloodletting.  The urge is to sell out, and that urge is close to the bottom.
Here’s is where having a modest amount of cash  makes catching the bottom so difficult. There is no room for poor timing.  One tactic would be to take partial positions to reduce the damage if buying is premature. Going all-in is foolish.
I HOPE ENOUGH READERS RAISED CASH AS A RESULT OF MY ANALYSIS. THERE IS A CRUEL DUAL PAIN THIS TIME – COVID-19 IS RAVAGING OUR LIVES, LITERALLY AND ECONOMICALLY, AND  AT THE SAME TIME DESTROYING PORTFOLIOS AND FUTURES.
BUT I MUST CALL IT AS I SEE IT AND THAT MEANS WARNING READERS OF FURTHER RISK YET ALERTING THEM OF OPPORTUNITY WHEN I SEE IT.
There will be opportunities for traders, those savvy and nimble enough to buy and sell quickly while knowing the risks of being wrong.  For that, I will note “traders only”
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With the DJIA at 6,800, I published a Special Bulletin “BUY”  on March 10, 2009, within a day of the bottom of the Great Bear Market (2007-2009).  I want to get that close this time.

BOTTOM LINE: The stock market is NOT going back to new highs where the S&P 500 was vastly overvalued, in fact, more overvalued than at any time over the last 100 years excepting the dot-com  Internet bubble 1999-2000.
This is a bear market rally that will yield to another plunge when reality sets in that enormous economic damage has been done by the necessary response to COVID-19.
Beware of election year hype. It’ll come from the Fed, the Administration and Street.
It will suck investors in for another round of devastation starting within a month or maybe not until fall.
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Tuesday April 7, 2020  “Bear Market Rally to Launch Attack on DJIA 24,000, A Chance to Sell To the Sleeping Level”    “The worst is behind us,” says Mike Wilson, chief U.S. equity strategist for Morgan Stanley, referring to the nation’s massive monetary and fiscal stimulus and the most attractive valuations since 2011.
It would be nice
if both COVID-19 and the bear market/recession were on their way out of our lives, but I think Mr. Wilson needs to walk around the block and take a hard look at what has happened and especially  the fact long-lasting damage has been done to people’s lives, the economy and CONFIDENCE in stocks as an investment.
With the DJIA at 19,173 on March 23, I headlined, Bear Market Rally to Precede Spike Down to DJIA 14,000 (S&P 500: 1,575). As I have often noted, that can happen shortly or in the fall.
That conclusion was and still is, based on the fact that the market has only given up the final surge of the 2009-2020 bull market, December 26 2018 – February 8, 2020, a bubble created by Federal Reserve hype and the Street’s assurance that it was safe to buy aggressively since the Fed had its back with rate cuts and its pumping money into the system.
With economic and humanitarian conditions as horrendous and uncertain as they are now, I expect a bear market to do more damage like retracing two-thirds of the 2009-2020 bull market which would take the DJIA back to 14,209 (S&P 500:1,575).
     The DJIA is now up 18.3% since my March bear market rally call, has reached yesterday’s generous upside projections and will add another 5% -7%  as investors scramble to jump on board afraid of missing a new bull market.
Hopefully, this rally can ease the pain of the February/March crunch, but I expect it to peak close to DJIA 23,900 (S&P 500: 2,790) late this month or in May and slide into the fall dropping to DJIA 14,250 (S&P 500: 1,575) as the reality of the damage COVID-19 has done surfaces………and the realization that monetary and fiscal assistance in the future will not be available again, i.e. no more safety valves, bail outs, assistance – this was an 8-count, the next time, it’s a 10-count.
      The impact of COVID-19 will take a huge toll on how we live our lives and do business, in fact, it already has.
THAT CANNOT BE DISMISSED CASUALLY BY WALL STREET ANALYSTS AND POLITICIANS.
We know the Administration will hype the market rebound, but DO NOT BE SURPRISED
IF FED CHIEF POWELL JUMPS IN NOW IN AN ATTEMPT TO RE-INFLATE THE ILL-FATED BUBBLE HE NURTURED BETWEEN DECEMBER 2018 AND FEBRUARY 2020, THE ONE THAT SUCKED UNSUSPECTING INVESTORS IN BEFORE COVID-19  BURST IT LEADING TO A 35%, 11-DAY FREEFALL IN STOCKS.
I am not alone on my projections for another leg down. Last Sunday, Scott Minerd, global chief investment officer for Guggenheim Partners told MarketWatch  the worst may be far from over, projecting a drop to 1,500 by the S&P 500 as a harsh new reality framed by the global economic slowdown of COVID-19’s impact  sets is.
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 Monday  April 6, 2020  (DJIA: 22,079)  “The Stock Market Was Grossly Overvalued in February Before the Crash, And is Still Overvalued -Dell the Rally Risk of 35% Plunge”   Bloomberg Markets headlines “Stocks Jump… on Easing Virus Tolls.” It reported, Lindsey Piegza, chief economist at Stifel Nicolaus & Co told Bloomberg TV, that if the virus is brought under control the economy can reopened by the end of April, early May. If that does occur, she said, it’s likely the downturn can be reduced from a depressionary scenario into a recessionary scenario.
OK, everyone wants COVID-19 and the bear market to go away, but that is not going to happen soon.
      For one, COVID-19 is still spreading and the impact of countering it is going to have a devastating impact on our economy forever changing how we live our lives and do business.
THE STOCK MARKET WAS INSANELY OVERVALUED BY HISTORICAL STANDARDS IN FEBRUARY WHEN COVID PRICKED THE FED-INDUCED BUBBLE,  BUT IS NO LOWER NOW WHEN THAT BUBBLE BEGAN TO INFLATE. IT IS STILL OVERVALUED AND ALL THE FED, ADMINISTRATION AND WALL STREET HYPE CANNOT TAKE IT BACK UP TO THOSE INSANE LEVELS.
        Three strikes and Wall Street is out !   Three big bull markets – 1998-2000; 2002-2007; and 2009-2020 all followed by crippling bear markets of 50% +for 2000-2002; m2007-2009 and this one that has been down 35% on its way to down 54% before it’s over.
It is back to the basics, Graham & Dodd mentality –   no more partying on Wall Street at the expense of investment portfolios for a long time.
BOTTOM LINE:
A rally here can get to DJIA:22,617 (S&P 500:2,637) with enough hype from the Administration, Street and Fed.  It would be an opportunity to recoup losses and raise cash before another leg down.
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Friday April 3, 20020  “  Crash Only Erased the Bubble, Did Not Discount Economic Consequences”  Bear markets drop to levels where enough buyers show up to offset the selling, which often is frenzied and overdone in face of fear and confusion.
The problem I have with this bear market is  it started at the top of the bubble where the market was absurdly overvalued only bringing the market down to the level where the bubble started to inflate.
The bubble, a 13-month, 45% surge in the S&P 500 starting in December 2018 was not based on fundamentals, but on expectations by the Street that the “Fed” had its back, that it would (and did) pour money into the system and slash interest rates.  Why not run the table ?
Assuming the 13-month bubble had no justification, why then shouldn’t the discounting process for COVID-19 and its economic consequences start at current levels where the bubble started to inflate ?
This is why I think another leg down to at least Dow 14,250 (S&P 500 1,575) will happen shortly of in the fall.
Everyone now knows the Fed and governments at all levels will be stepping in to prevent a deep recession/depression, why isn’t the market moving higher ?
Because it is even more overvalued now than it was in February before the bubble burst, AND we are on an economic turf we haven’t been on since the 1929 crash.
       In order to adequately discount what is happening, the market MUST go lower, a lot lower.
Hard as it is to sell at these levels, one has to assess their tolerance for further losses.
       There will be a bump in the economy when news that COVID has topped out and people are emerging from their homes, businesses opening their doors and the beginning of a return to normalcy. If that bump comes before another crunch in prices, it will give investors a chance to recoup some losses, but a return to the bubble highs – not going to happen.
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Thursday April 2, 2020 “Market Has Not Yet Discounted the Flow of Bad Economic News”
The accompanying chart tells a sad story.  For one, investment portfolios were crushed in a matter of weeks.  For another,  a bubble was created by mostly  hype in 2019 by the Fed, the Administration and Street, sucking unsuspecting investors into the market  at higher and higher prices – lambs led to slaughter.
Why, after 10 years of bull market and a gain in the market averages 240%, was it necessary to orchestrate one more surge when stocks were seriously overvalued in the first place and ridiculously overvalued when the bubble  burst in mid-February ?  Politics ? Greed ?  Naivete ?
At some point, news of the spread of COVID-19 will indicate its bubble too has been pricked.  People will emerge from their homes, businesses will return to pick up the pieces, and the stock market will rally.  Hype by these same sources will return.
The question will be, if the market was overvalued in December 2018 when the bubble began to inflate in December 2018  and more so in February 2020, why would the market return to those levels after so much damage has been done to the economy and investor confidence ?
I expect another leg down  shortly or in the fall to DJIA 14,250 (S&P 500: 1,575). I hope it doesn’t happen, but this simply looks like a way station for lower prices.
Bear market rallies are part of the downtrend of stock prices. Their danger lies in the fact they suck investors in well before the bottom.
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Wednesday April 1  (DJIA:21,917)  “When ‘Ouch’ Becomes Excruciating Pain”
A rally in early trading yesterday failed, indicating the bear market rally that started  six days ago was tiring…..we’ll see.
Obviously, investors want something to happen to jack the market up, so they can sell…. or sleep.
Expect the Fed, Administration and Street to try all means possible to hype the market when the economy shows signs of a tiny bounce.  As welcome as the success of their hype would be, it would only set up another decline.
If you get it, lighten up.
The problem is not Americans willing to step up to the plate as our healthcare providers are doing or continue to provide vital  services to our economy, but the problem is in the pricing of the stock market – it was extremely overvalued in February before the crash and is still overvalued, and will be more overvalued at higher prices.
I just don’t see our economy recovering from this severe setback anytime soon. Dominos will tumble for many months. FactSet reported the Street sees a strong rebound in corporate earnings next year. But, compared with what is happening now, any company’s earnings will be easy to beat   – big deal
Everyone wants the market to rebound further, however,  experience is when you find yourself hoping for the market to do something, rise/decline, you are on the wrong side of it.
Bottom Line:
A bear market rally started on March 24 after posting lows of DJIA: 18,213 (S&P 500: 2,291) and rose  24% and 20% respectively before trading sideways.
The futures indicate lower prices at the open. The bulls must move the DJIA above 22,600, the bears below 21,400 to set up the next meaningful move.
Investment opportunities of a lifetime don’t just sit there waiting for everyone to jump on board, they come when there is little if any hope, when “ouch” becomes excruciating pain.
Stock prices are still at the December 2018 level when the Fed started to inflate the fateful bubble that set investors up for the February/March crash.

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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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