04-21-2020: Do I Love Cash? INDEED I DO!

I have a lot to share with you this evening, but will try to keep it under my 3 minute read goal. I think I'll start out with the bottom-line: With regard to the economic pandemic, hell is coming and Trump doesn't have enough enough money to stop it.

This morning, the stocks that had been booming higher for the past several weeks (months, in some cases) in my Tactical Growth strategy began crumbling. The first big signal that something was changing... something more than the normal every-other-day sell-off... was when MSFT dropped $2 below my stop. Then, my stalwart, ABT triggered its stop. And, then two more. Every holding in all 5 strategies was dropping. Most were still well above their respective stops, but the sell-off, coupled with some additional information I'm about to share with you, was enough for me to pull the plug. I moved all portfolios to cash and put an end (for now) in looking for a way to get back in on the long side. By the way... My Tactical Growth clients booked a ton of profits today!

Today did not produce a huge sell-off in the market; not by recent standards, anyway. But, it was enough to tip my investment bias from mildly bullish to bearish; and it will take a lot of up-trend to change my mind. The 200-dma of my "Total Market Index" is in a bear trend, having triggered a "Trend Inflection Point" a little over 3 weeks ago. The market, in that same time has been in a rip-your-face-off bull-market run... and it might not be over... but it is over for me and my mildly bullish investment bias.

So... why did I move to cash today? I will summarize, below:

  1. The 200-dma of the Total Market Index has not changed the slope of its bearish trend in over a month, despite the huge recovery of the market from its low. This is one my biggest market trend indicators and it is rarely wrong.

  2. I have several clients that are CPAs who are working with hundreds of small businesses to help them get whatever assistance they can get from the government. But, here's the catch... and it is a big one... I am being told (of course this is anecdotal) that 80% of these small businesses could not afford a loan to keep them afloat, even if the interest rate was 0%. Most small businesses are hand-to-mouth. They couldn't justify a loan and associated debt service when the economy was booming and that means they cannot afford a loan now because they could never handle the debt service... again, even if the interest rate is 0%. And, most small businesses do not have a banking relationship, so banks won't even consider them for any loan. The vast majority of these small companies (according to my sources) will not make it and will never come back. The government has no strategy and no plan to handle this situation, short of just granting multiple trillions of dollars to small businesses. If this anecdotal information is even partially true and if you assume that 60%+ of all gainfully employed workers work for small businesses, the number of unemployed will skyrocket higher and there won't be a light at the end of the tunnel for a long time... perhaps years.

  3. The complete demand destruction of the oil industry is staggering. When the Saudi's agreed to cut production by 10 million barrels of oil a day, that dropped world-wide production from 30 million to 20 million and right now (and for the foreseeable future) that is still 20 million barrels per day of too much supply. There is, literally, no place to store oil. This mean production has come to a screeching halt; pipelines are not flowing; and perhaps worst of all, the royalty-based leases are looking at potential defaults because their leasing contracts demand production or else face termination. Trillions of dollars in loans/investments in royalty-based oil leases are facing total annihilation.

  4. Airlines are having to continue flying empty planes or lose their grant money from the government to stay alive.

  5. Every major venue that hosts thousands of attendees is gone until there is a vaccine. The ripple effect of all the millions of workers, now out of work who are associated with these events, in incalculable.

As you know, I do not invest client money based on anyone's (including my) speculations. All of the above may not be a big deal if Uncle Sugar can throw enough money at the economy to keep it afloat and get it back on its feet. I hope and pray that is what happens. But, count me highly skeptical. And, let's say that Uncle Sugar says it will grant multiplied trillions of dollars to small businesses so that they never have to pay it back... well... 'someone' is going to have to pay that money back at some point down the road and that could well result in runaway inflation and a massive recession... maybe not this year or next... but likely at some point.

My conclusion: This economy is in deep, deep trouble and it will not be back on its feet for another two or more years. The market will see this at some point soon and that is when there will be no bottom in sight. Again... I hope to be proven wrong. I hope the market booms higher and if it does, I'll on board with long/strong stocks and ETFs. But, for right now, I am looking for opportunities to sell into any move up in the market in my higher-risk strategies and in my Tactical Growth strategy... well... I'll stay in cash for awhile. Let's see how this all unfolds.

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