What Investors Should Do as "Something Wicked This Way Comes"
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What Investors Should Do as “Something Wicked This Way Comes”

by | published March 25th, 2020

Apologies to Ray Bradbury, but the title of his 1962 novel seems quite apt these days.

Yesterday, markets posted the largest single rise since 1933 on the expectation of a massive Federal package of financial assistance. Of course, you’ve got to remember what was happening before and after 1933 in the United States.

Putting yesterday in perspective, after the huge 9.4% single day rally – albeit from a lower base figure, the S&P remains down 21.8% for the “rolling month,” adding the latest daily close, subtracting the earliest.

The rally took place as beleaguered investors eyed some $2 trillion in government largesse coming in a hodgepodge of payouts designed to have something for just about everybody.

Yet despite what some commentators have labeled it, one thing this package is not is stimulus.

A stimulus provides a kick-start, a primer for the pump, with the system than taking over. There is no prospect that the economy will be moving forward after this aid. Rather, what the payments will do is provide necessary lifelines to elements throughout the economy, avoiding further collapse.

As a government responsibility, it is an appropriate response.

But let’s not fool ourselves into thinking it is something it isn’t.

The Way Out Is Through

The only way this economy comes back is for there to be a leveling-off and then a noticeable decline in the national COVID-19 (coronavirus) incidence curve. No pleadings that we all get back into the swing of things by Easter make any difference to the virus. This is going to require a longer haul than people running for reelection from both sides of the aisle are finding politically comfortable.

Populations go back to work, begin making, selling, and purchasing goods only when a cloud like this is lifted. On that note, it is not encouraging.

Matters will be getting worse with “something wicked” – the crest of the curve – barely on the horizon. Most epidemiologists are of the opinion that the national apex won’t even be here until well after Easter, let alone an “all clear signal.”

With the World Health Organization (WHO) labeling the U.S. as the new COVID-19 global epicenter, we’re likely we have a ways to go with hunkering down.

And yet, it’s true that we are still looking at 80% or more of those contracting the virus recovering without complications; some asymptomatic folks will not even realize it has passed through their lives.

It is the uncertainty factor that creates all the market misgivings.

After the “sugar rush” of government money injections leading to workers covering family bills for a bit while small business owners meet one last round of payments to vendors, the reality will once again hit.

Government checks do nothing beyond delaying a further economic cratering. Artificial injections do not generate forward economic activity, subsidize supply chains, or lead to improvement of any prospects. At best, they allow people to mark time.

Already, indications are surfacing that the government aid package, while helping folks make it a little longer, will do little to right the economic ship.

It is the paradox of our times that casino resort stocks are rising even though the doors are closed, or that airlines are grounding fleets as their shares improve. No revenue coming in but “tappable” cash reserves for the former; multibillion-dollar loan packages are awaited by the latter.

We need to understand that this is not a partisan battle. We must face this threat, head-on, as a nation.

And we will ride it out; we will emerge stronger on the other side. But this crisis is not going to succumb to a quick fix.

Here’s What to Do Now

The market will again start a trek south after the forced euphoria of the Congressional aid package dissipates. The energy sector will continue to figure prominently as its connection to projected economic demand remains a central concern.

You need to keep your powder dry. We will again saunter back into the fray. Once the terrain stabilizes, we will be looking at a greater oversold market than anything I have seen in my lifetime. But the difficulty, at the moment, is having to wait and timing the moves.

In my days in the intelligence service, I would often run maximin analyses and exercises. How to obtain the maximum result while facing the minimum of risk? In the next Oil and Energy Investor I will begin outlining an approach to doing just that as the energy investment picture comes into focus.

Sincerely,

Kent

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