Bargain buys? Federal Reserve just cut interest rates, restart QE! Big News! Update March 15 2020

Greetings,

So please read the attached I just penned for submission on noon Sunday March 15th. It is the first article right below:

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May you live in interesting times. With the last week seeing the markets bouncing around like the proverbial ping pong ball, investors have to be wondering which way is up, or down as the case may be. With the Corona (Covid-19) virus causing somewhat of a global hysteria, companies are sure to suffer and investors are doing the math and selling stocks.

Earnings no doubt will fall for many companies, and some by a lot. Because of the hit to earnings some bankruptcies surely loom, and possibly some big ones.

The actions being taken by companies, governments and citizens in response to the outbreak run the gamut. Social isolation or distancing as the case may be is being demonstrated by some unprecedented moves. Stores closing, events cancelled, state of emergencies being initiated and more. Who would have thought a month ago the world would become such a hazardous place that required such measures? Many companies are cancelling group meetings, seminars and conferences because of fear of contagion but many are doing so just to avoid the liability exposure should they not cancel. Lord forbid someone contracts the virus and dies from attending a company function the VP’s let continue.

No doubt this will have serious ramifications on global economies and their stock markets.  It is not so much as the number of people that will die or get infected that is doing most of the damage but more the fear of the unknown. Pandemic is a scary word and the very thought of the defenselessness of human beings from such a pathogen as is Corona causes the onset of a panicky public.

Frankly I am surprised it has gone this far. Three and a half weeks ago and well publicized through newscasts articles and shows, I said the markets, then at an all-time high, were not pricing in the possible effects of Corona.

Fast forward to today and now I am saying the pendulum has swung the other way and is way over reacting. My opinion of course.

My sounding of the alarm three weeks or so back has now given way to this week’s opinion.

I am thinking perhaps the 30% correction in the Dow means it might be time to make a shopping list, or even nibble a bit for those out there bold enough. As Warren Buffett said “Be fearful when others are greedy, be greedy when others are fearful”. I will let the reader decide whether were seeing fear or greed.

Look at it this way. People were buying stocks when the Dow was at 29,000 and now people are selling with the Dow at 21,000.

So the stocks people loved a month ago when they were 30% higher are now hated 30% lower?

It is difficult to determine what is a good price for a company’s stock. However, comparing what a stock did sell for and what it now sells for might be a good start.

If company fundamentals have not changed but the market around it has or investors overall sentiment has soured due to an extraneous and unrelated event, then nothing really has changed but the price of the stock. It is just cheaper.

That is not say it can’t get cheaper still. It can. But although a better buy might not be the BEST buy, it’s only a matter of degrees. 30% cheaper is significant in my opinion. Sure, 40% would be better, but I’ll nibble at 30 and maybe buy more at 40. My opinion of course. My reasoning is a 30% off sale does not come along very often.

NOTE: added Sunday 2:45 pm:

“Add to that the recent announcement that the Federal Reserve just dropped interest rates to zero and restarted Quantitative Easing (QE) again, and investors should at least consider finishing up that batch of “frownies” and consider instead the possible opportunities”.

This recent stock fall set many records and ranks very high among many others. 2008/9 was brutal for sure but those that bought right in the thick of things reaped larger profits than those that waited until the all clear was given by mass investor sentiment. Fortunes go to the brave. Keep in mind investing in the market entails risk. Those that can’t tolerate risks should buy CDs or use savings accounts or other guaranteed products. There are many. But for those looking for possible bargains, one thing is certain. Stocks are cheaper that they were a month ago. Some a lot cheaper.

Those that accept the risk portion of the investing equation should then look for the best entry points when an opportunity presents itself, and a massive sell-off like the one we just saw could be regarded as that opportunity. 

Those that utilized my preferred method of investing which includes having exit points as markets fall will likely now have dry powder to utilize and if markets rise, they may see immediate results. 

Those that just “held for the long term” however now may be wishing the market just comes back to even which seems a long ways away.

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I had developed a shopping list to nibble more tomorrow after our first nibble Friday,  (See previous email sent Friday to clients)

So NOW in an unprecedented move by the Federal Reserve and just announced, they cut interest rates to ZERO! That is a one percent cut up to  one and quarter percent hack job IN ONE SWIFT MOVE! 

On TOP of the half percent cut just last week!  And on TOP OF THAT they are restarting QE to the tune of 700 billion (just to start!)   QE is what is called "asset purchases" which is buying (taking off "their" hands) IOU's like mortgages and government IOU's and who knows what else. "They" is the banking and financial industries.   WOW  Talk about a bazooka. Those not knowing exactly how all this works, just know this is HUGE Stuff. In my opinion not GOOD stuff as its just more debt, but it should have a market reaction MONDAY TOMORROW MARCH 16 in a big way. Could be UP or DOWN. who knows how the markets react to this.

So our "nibble" might turn into a bigger bite or no bite depending on what I see. If I add, it will be companies with boots on the ground in the midst of the virus will be added to the larger more stable accounts while some "higher" flyers will be added to the Roths and smaller accounts.

With lots of dry powder from our sells early on, we may be in a great place to begin our journey again. Remember the DOW was at  29,000 . So like we went out maybe weeks ago, (Slowly) we go in just as slowly.

Incredible turn of events. I guess all the news about Corona scared the heck out of them. 

Special note: No one is talking about it but I cover the virus for the daily news and cases in CHINA and S. Korea have flatlined to fallen. Apple is OPENING its stores in CHINA while closing the rest. This may be what is in store for us. Like I said in the attached article which is not distributed yet: Like the market three weeks ago did not account or price in the virus back then, NOW it is way overblown in my opinion. With decreasing growth rates in China and S Korea, the writing could be on the proverbial wall.

That's it for now!

Watch for a wild market tomorrow!

Marc

"Watching the markets so you don't have to"