“Don’t buy anything”

Our market down over 400 points on the open (8%) TODAY’S CONCLUSION – Not buying although the “Don’t buy anything” message will become more unsophisticated as every day goes past. We have to be slightly smarter than that because I guarantee you, at some point the tone of this is going to change, improve and stocks will recover. For now “Don’t buy anything” still stands but we have to evolve that message as we get deeper into the trough. You can read our WEEKEND EMAIL for why we can’t buy yet, here is the summary:
  • This could turn into a financial crisis.
  • Case numbers are still going exponential.
  • Market volatility is extreme – no sign of levelling out.
  • The central banks have thrown the kitchen sink at it and the markets are unimpressed.
  • Zero rates are going to be the legacy of this chapter and it is terrible for savers.
  • The social storyline is rapidly deteriorating still.
  • Technically (on charts) we are supposed to buy after the bottom not before the bottom.
  • The economic impact is still a colossal uncertainty.
  • The government Stage 1 measures announced over the weekend create significant unknowns in Australia and that’s before we get to Stage 2, 3 and 4. As I wrote over a week ago in the weekend email about flattening the curve the government has to prioritise the medical problem and the price is economic damage.
  • Dow Futures are down 789 as I write (9am) with Trump speaking at the moment - he is deploying the National Guard to help with the medical response.
So this is not a time to defy the tide and call the bottom, far from it. As we start discussing below, there will be winners and we are now starting to prepare for the bottom and we start distinguishing between the winners and losers below. It’s not all bad for stocks as you’ll see and to get a handle on it we will be looking at the experience of the Italian, UK and US stock market sectors to work out where we should be focussing in our market (identifying good and bad sectors). Some comments on timing the bottom:
  • The virus will certainly peak but the big unknown is whether it is going to cause a financial (credit) crisis before it does. If so the virus will become a sideshow. It’s like the GFC, the markets didn’t bottom when people started paying their mortgages again.
  • Assuming no financial crisis (assumptions are the mother of all @#$% ups) sentiment will bottom, and hopefully the stock market will bottom, well before the virus peaks. It will bottom when we start to see an end in sight, a levelling out of the number of cases on those exponential charts.
  • Cases in Italy are potentially the lead indicator. All they need to do is start to slow. After Italy we will be looking at case numbers in the UK and the US. Australia's COVID-19 experience is a sideshow from the stock market timing point of view - wqe are a lag indicator. You can track cases and their exponential charts on this website the WHO COVID-19 dashboard – if you click on a country and then click on the Cumulative Cases Tab on the left you get these charts. These show the Cumulative Cases in Italy, the US and the UK. They are all still going exponential.
What you want to see is this – This is China’s Cumulative Cases chart: We’ll be checking in on the case numbers every day.
  • We’ll also be keeping tabs on the technical position in overseas markets (the charts). You will not time the market on fundamentals (which are now wildly out of date – all the earnings numbers are in flux and most are too high and wrong) we will time the turn (hopefully) by tracking herd sentiment. We’ll keep an eye on that for you.
Footnote: Do not let our experience on the ground in Australia dictate your stock market thinking. We will be led out of this from abroad, not at home. WILL THE STOCK MARKET CLOSE We have had a couple of emails about whether the stock market can stay open. The ASX can do what they like so who knows, but the stock markets have stayed open in China, Italy, the UK, the US with no signs of closing. Government initiatives to allow people to more easily access their Super are pointless if their money is in Super and invested in shares. They will have to be able to sell shares. The ASX is also no longer a “place” it is a computer. I can’t see why the ASX should close. I am assuming it won’t. GETTING MORE CHOOSEY So far we have done fabulously, though I say so myself, calling the top (you should see our testimonials), aggressively going to 70% cash (which is really aggressive compared to 99% of fund managers – Hamish Douglass is just 15% cash), outperforming 16% in a month (in the Marcus Today Growth SMA) and saying “Don’t buy anything” in the face of all these dead cat spikes. But the “Don’t buy anything” message, is not going to be good enough when the initial frightened “sell everything” reaction has washed through you and you’re sitting with cash wondering when and what to buy. POTENTIAL WINNERS (NOT LOSERS)
  • Staying open for now - Shopping centres, bottle shops, office buildings, supermarkets, banks, petrol stations, post offices, pharmacies, convenience stores, freight and logistics, food delivery, hairdressers, beauticians.
  • Dominos Pizza (DMP) – Dominos in the US are employing another 10,000 people and if you go past you’ll see 50 motorcycles parked outside. New ones.
  • JB Hi-Fi (JBH) – Everyone is setting up office at home.
  • Woolworths, Coles (WOW, COL) – Food retail over the period should see maintained and maybe even improved sales. They are staying open. Essential services will survive. Wal-Mart in the US is employing 150,000 people.
  • Telstra (TLS) – The internet is an essential service. The weaknesses in the NBN are going to be exaggerated by the stay home schooling and leisure streaming. Telstra a potential winner from this.
  • Wesfarmers (WES) – Officeworks – you can’t order a desk – everyone is setting up a home office. Officeworks is going to do a roaring online business. Not sure the implications for the business as a whole, if their physical shops shut down, can’t be good. Also they own Bunnings which, if it stays open, will be busy with stay home gardeners and DIYers. They also own a 10.1% stake in Coles.
  • Amazon, Netflix, food delivery stocks, in the US.
  • Divorce Lawyers - If we end up in lockdown - can you divorce your kids?
PLEASE EMAIL ME your winners and losers ideas. LOSERS
  • Bars, restaurants, gyms, nightclubs, bars, restaurants, cinemas, sports events, places of worship.
  • Casinos – Closed. Devastating impact on their businesses. They were already suffering with the travel restrictions.
  • Travel, cruise ships, airlines, the oil price, energy sector, companies with a lot of debt. Some of them are going to brush with death.
The big losers will also be the big recovery stocks come the bottom. So do not write them off. This might actually be the first feeding ground for trades come the bottom. You might notice some of the REITs have been smashed. In the GFC the issue was not the cost of debt (low-interest rates are good) it was the ability to access debt and roll-over debt. The market is getting worried about that again. Not defensive after all. HYBRIDS Some of the hybrids, even the big bank ones have lost 10-15%. In the GFC some of them went to 25-40c in the dollar, they did not miss a payment and they all came back to par. Assuming the banks don’t go bust (fairly safe assumption) they will come back to par again. This could be the best risk/reward trade in the market, making 15% plus in a hybrid from the bottom. Not yet. No guarantee. But keep an eye on them if they get distressed. If the GFC is anything to go by this could be a fabulous low-risk liquid recovery trade come the bottom. We just have to keep an eye on that financial crsis first. Will write on this in good time. Getting lots of emails about it. THE DAMAGE - after market open this morning down 400 points: Markets: Sectors: Some of these numbers look wrong because the "Month Low" hasn't updated for today. The main column is the FALL TO NOW column. Ignore the rest. TOP 50 NEXT 50

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