You Can't Argue With Crazy
It’s still pretty crazy out there, huh? After a month of markets crashing, you’ve got to be as burned out as I feel right now. I’m tired of watching this insanity unfold. It might be interesting if it weren’t so serious. I mean, we’re going through something they’re going to put into text books and teach in college courses.
But it is serious — and not for the reason you’re probably thinking. The reason the media and our politicians have been giving us isn’t why this is serious. It’s not just the disease. It’s the reaction.
And I know you’ve been getting tons of emails telling you what to sell and what to buy and what’s going to benefit from this and what’s going to lose less in a recession. So, I’m not going to do that today.
I’m going to try and break down what’s happening in the markets and why it’s happening, why it’s really crazy that it’s happening, and how we’ve been conditioned to fall victim to panic for the past decade or more.
Plus, I’m going to give you some statistics you won’t hear the mainstream media report on… because they’re not so terrifying.
The "Wuhan Flu"
Before we really start, let me make perfectly clear, I'm not making light of the loss of human life. It's devastating to lose a loved one to any cause, especially a formerly unknown disease. Numbers of people infected and people dead are really scary, but necessary to hear in order to take the virus seriously.
I just want to paint a bigger picture for you. The numbers of people not infected and fully recovered can give hope in a time where that's about all you have left.
And I'm also not suggesting you go about your lives as normal. This is most definitly a virus to be taken very seriously. But it didn't deserve a panic, and continuing to panic will only hurt us more.
Crowded grocery stores likely aren't the best thing when we're trying to keep a disease from spreading. Crowding people into airports to get them home before travel bans go into effect doesn't help contain a virus. The virus isn't our only enemy right now. Panic is, too.
Concern is wise. Caution is key. Panic leads to bad decisions and big mistakes.
Now that I've gotten that out of the way, let's talk about the other elephant in the room...
What’s happening is pretty apparent if you look at a chart of the stock market since February 19:
The Nasdaq is down 29%, the S&P 500 is down 30%, and the Dow is 34% in the red. All in a month. Two or three years’ worth of gains wiped out. For some individual stocks (and investors), far more. Poof. Gone, like Keyser Söse.
But why’s it happening? Coronavirus you say? Or the Wuhan flu as others like to say? Well, that's what people would have you believe. But it's not just a virus that's making investors sick with fear.
Why Markets Crashed
It’s the panic the 24-hour news cycle's focus has caused. It's investors reacting to those feelings of dread. Those are the twin straws that really broke the camel's back.
We’re all at fault. We were all reaping the benefits of the free money the Fed had injected into the markets. Many of us were taking advantage of the low rates to pile on debt, too. I've heard people say that this time it's different. In 2008, there were people to blame and this time nobody did anything wrong. But that's not true; we all let this happen, and we all share the blame.
But it's not just the historic rise over the past decade that we all share the blame for. It's the sell-off the past four weeks that's wiped over $11.5 TRILLION in capitalization from the markets.
Pension funds are major holders of public stock. And they’ve got to make monthly payments to the pensioners they support. When they see the values in their accounts dropping by double digits, they sell to ensure they’ll have the cash to make the next payments. And that floods the market with shares when there aren’t many buyers to prop up the price.
Then you’ve got companies that were running on super-high debt levels. They took out loans and sold debt and used some of that money to invest in their own stock and that of other companies. Now, they’re facing an unknown length of time with drastically reduced sales and wondering how to pay the principal back or even make interest payments on the loans and bonds. So, they’re selling that stock back into the market to get the cash and adding even more downward pressure.
And you're getting margin calls hitting accounts that have cratered in value. That's when the broker calls and tells you you need to deposit more money to bring the account up to a minimum value. If you don't have the cash, you've got to sell some stock. And when your stocks have already fallen by 30% or more, you've got to sell a bunch more stock. That adds more selling pressure to an already weak market.
Then there are the high-frequency traders (HFTs), or algorithms. They’re machines, computer programs, that are designed to follow a set of rules. They react to technical indicators and chart patterns and they analyze headlines to detect positive or negative overtones. Then they make trades based on that analysis. But right now, the technical indicators are broken and the charts have fallen through all the patterns the machines knew. So, all they’ve got to go on is headlines. And those are designed to get you to click, so they’re not rational at all.
The algos see the bad headlines and have no other rules left to follow, so they sell and they sell big and they sell faster than you can even think to react. And that’s causing massive swings. One day they love the market and drive it up 7%. Then, within a few hours, they’ve done an about face and sent it back down double digits.
But don’t think retail investors aren’t holding some share of the blame, too. We’re in this just as much as everyone else.
In 2019, Charles Schwab surveyed its investors. And it turns out that 79% of the people responded that ETFs (electronically traded funds) were their investment vehicle of choice. What’s more concerning is that 63% of them said they’d put their whole account into ETFs.
And they backed up their words with their money. As of last year, there was more than $4 trillion invested in ETFs around the world — over half of which was in U.S.-market funds.
Now, those investors are panicking and selling their ETFs lock, stock, and smoking barrel. Never mind the fact that those ETFs are baskets of stocks and some of those stocks are from quality companies.
So, the fund managers have to sell shares of all the companies in the fund to balance it out. And that means the good are getting sold with the bad. The companies that deserved lofty valuations are tanking along with those that never should have been priced so high.
It’s like throwing away the picnic basket, lunch and all, because there were ants on the handle. But it’s happening.
And all that stuff combined is tanking the markets and leading us into a recession.
Why It’s Crazy
This is a type of virus. It's formerly unknown, and it's deadly and dangerous. The "flu" or influenza is also a virus. It's deadly and dangerous as well. But, unlike influenza, this virus can be contained.
It's something to be concerned about, but if we take the proper precautions and don't panic, it's something we can get ahead of. But we’re panicking nonetheless. That’s crazy for so many reasons.
As I keep saying, this is very serious, and we need to take the proper precautions to stop its spread.
Social distancing and hand washing are the two best things we've got at this point. But that, if we actually do it, can slow the spread. The next week will tell if we're heading up the vertical of an S-shaped curve or if we've been able to slow things down for the virus.
But it's still crazy to panic. And not just because panic doesn't help make anything better, but because there's some good news about this pandemic that's going un- or at least under-reported...
As I already told you, influenza, the seasonal flu, is uncontrollable. This virus is different. It can be contained. And it is being contained when people follow the proper precautions (and don't panic).
99.997% of the global population is virus-free. Even in China, where the disease came from, 99.9944% of the population has managed to stay clear of infection.
In the U.S., 99.9966% of the population is still virus-free.
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On a global scale, 95.8584% of the people who’ve gotten it have fully recovered.
Also on a global scale, 0.003% of the population has gotten sick from the virus. In China, where it all started, 0.00564% of the population has caught the virus (that we know of; it may be more since the government there has been known to hide things).
But here’s some data from Johns Hopkins to back that up. It was accurate at the timestamp in the source, but the official numbers have no doubt changed by now.
It’s data you won’t see on TV, though. It’s data that shows we’re panicking over something that didn't deserve a panic.
Nobody is talking about the 99.997% of the population that doesn’t have it. And nobody is talking about the 96% of people who got it and fully recovered already.
That's not to say we shouldn't think about those infected and those we've lost. We need to remember how serious this is. And we should care about those lost lives and mourn their passing. But we shouldn't let it make us panic.
Then there's the testing. As we step up testing here in the States, the confirmed case number is going to go up. Not just because the virus is spreading but because we're getting 5 million tests out there next week. So, we're testing a lot more people. Like I said, next week will tell. We'll have a lot more tests on record and we'll be able to see if the graph goes vertical or the increase in cases keeps reducing in magnitude.
So, in the U.S., we’re just starting testing at scale, but nurses in my network are reporting a 99% negative rate. So far, about 1% of the people we’re testing in the United States have the virus. The rest have a seasonal flu or are hypochondriacs that got themselves tested just to be safe.
In Korea, where testing was extremely well-orchestrated, they’ve gotten tests to 5,000 people for every one million residents (by far the best performance of any country thus far). 96.828% of their results have come back negative.
Now, before you go calling me a callous jerk, let me make it perfectly clear one more time that I'm not trying to trivialize human lives lost. Each person is a fraction of a fraction of a fraction of a percent of the global population, but when someone you care for gets sick or, God forbid, dies, it matters 1,000% more to you.
I'm just saying that on the whole, when you've got the whole story and a complete picture of what's going on, this really isn't something to panic over. It's bad. It needs to be taken seriously or it will become something to panic about. But it shouldn't be causing a panic now.
We're letting ourselves be whipped into a panic by the 24-hour news cycle and the constant coverage on all our social media platforms. And when the world goes into a recession, we’ll have nobody to blame but ourselves this time.
How We Were Conditioned for Panic
Someone goes off the deep end over something and the whole social media world follows blindly behind. Someone shares a fake news story and that post gets shared thousands of times. A misleading headline that doesn't really tell the story gets the internet in an uproar. Every few weeks it's a new scandal, a new outrage. But it's usually overblown and over something everyone completely misunderstood. It's gotten so bad that major news networks have been caught reporting blatantly false information.
But who cares about facts? Those just complicate things. And you’ve got to make an effort to find them. Headlines are easy to read. Articles take work. Why read the article to get the facts when you can just get all upset over the headline or the tweet?
And with all of our politicians and news anchors trying to be Twitter stars, news really has been reduced to tweets. And it's tough to tell the whole story in a tweet, but that's all people have time or gumption to read.
And when folks do read the articles, if they're reading them on social media (where most of the country gets its news), they can't even be sure it's "real" news.
But for years, we’ve done this. And we keep flying off the handle without fully understanding what was going on. And every time, the reaction gets bigger and bigger, worse and worse.
And now, here we are. The media is running 24 hours a day, seven days a week and needs eyeballs on screens. And it’s taking advantage of a population that’s been groomed to panic without knowing what it’s panicking over.
Smart people are out there talking about martial law in the United States like it’s an acceptable option.
Pardon my language, but that is nothing less than bat-shit, wing-nut, CRAZY!
There's Going to Be a Next Week
That’s my rant for today.
This may be crazy, but you can’t argue with crazy. So, you’ve just got to play the crazy game.
Right now, investing in stocks is a bet that everyone takes the virus seriously while not panicking and stems the spread. It's a bet that the other shoe won't drop when accelerating layoffs, rising unemployment, cratering GDP, extremely low earnings, credit downgrades, or even a second wave of infections hits. And it's a bet that investors won't panic again when that other shoe drops.
I'm not ready to make those bets, yet.
But I will be soon. This is a generational opportunity (no matter how crazy the cause). And it’s when the next round of family fortunes will be made. I’ll be back next week and I’ll give you some more actionable advice on how to take advantage of this mass hysteria.
And my colleagues here at Wealth Daily will be back tomorrow with their take on the situation and some more good advice on how best to protect yourselves, your families, and your portfolios.
I’m keeping an eye on some companies that are going to make me millions in the next decade. I've got a list that I'm checking way more often than Santa does. And once they fall enough, once the other shoe drops (or shoes as the case is likely to be), I’m going to share those companies with you.
Also, this seems like a good time to plug my new book, Endless Income since I wrote it to help people make money in any market, especially ones like these.
It’s a combination of some of the best secrets and tricks my super-wealthy clients at Morgan Stanley used to ensure they kept their status as part of the billionaire-elite. Anyone still working for a bank like that who shares that kind of information is likely to get blacklisted for life.
But I’ve been done with Wall Street for a while and I never want to work for Morgan or Stanley ever again. If anything, this past month made my resolve to never return even stronger.
So, I put the best of those strategies into a book and I want to share a free copy with you, my loyal Wealth Daily readers.
Just click here to learn how to claim your 100% FREE copy of Endless Income.
To your wealth,
After graduating Cum Laude in finance and economics, Jason analyzed complex projects and budgets for the U.S. Army. Then, at Morgan Stanley, he led the assistants' team for the North American repo sales desk, responsible for hundreds of multibillion-dollar trades every day. Jason is an editor for The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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