Buy When There’s Blood in the Streets

And follow the money.  Every good crisis has an underlying economic justification.

We are living through a strange time – unprecedented even – for never has war, pestilence or prognosticated apocalypse had such a dramatic and loosely coordinated global effort to shut the world down.  So while about 99% of news and peoples focus and fears are about Coronavirus, is it warranted?

Or is Coronavirus just the current head fake that allows financial markets to reset and return to the business of making money?

I’m not a conspiracy theorist.  Not that conspiracies don’t exist and haven’t been tried – its just that conspiracies – especially global – are too hard to pull off.  Too many moving parts (and moving people).  But I am a believer in economic and financial models, and I am a student of history and data.  And both history and data tell me that the Coronavirus offered a very convenient means for a global sell off, resetting a very tired, decade-old bull market.  The bulls were pretty sure there’d be a lot more downside than opportunity for more growth, but what is the catalyst for the sell off, and how do I know when that is so I can get out?

Before talking about the current financial crisis, just a bit of recent history.

• 1987: a drop in the Dow of nearly 23% - biggest single drop in history.  What preceded that?  A five-year bull market.  What caused the drop?  A series of actions taken in Washington (some anti-business legislation, a Treasury-backed devaluation of the dollar, etc.) caused the initial drop, which led to panic as the press fueled the hysteria and more selling led to more losses.

• After a recovery that took a couple of years, the market ran hot through the 90s, and then got the double whammy of the Internet bubble burst and 9/11.

• And 2008, when bank failures spawned by sub-prime mortgage loans resulted in the crash that ended the post-9/11 bull run.

All very different circumstances, but all with common elements:

 • A long period of economic prosperity preceding them, as measured in the value of the Dow 30 and other indices.  To points where there is ample evidence that continued gains would not materialize.

• A external trigger that caused a radical, not gradual, decline.  One can argue whether these catalysts were “natural” or manufactured; it doesn’t matter – the key is recognizing the signals and acting.

• The reaction from pundits and experts for each:  “This time it is different.  The world will never be the same.”  Which of course scares people from re-investing.

• And finally and most importantly, in each of these times of turmoil and fear, and lost of people ignored the conventional wisdom and bought when the rest of the world was selling.  Because if you follow the masses, you are the mass, and the masses aren’t billionaires.

So is Coronavirus just a convenient excuse to divert attention, crash the markets, and provide buying opportunities for the Smart Money?  Well, that’s another blog, but if you compare the facts of Coronavirus to the impact of the drastic actions being taken on the economy, I’d place my money on this being a “manufactured” crisis.  Take some facts, get the attention of a not-to-well-educated media, and sit back and watch the panic.  In the early days of the virus, some may have anticipated the potential impacts on the markets, and wisely sold.  Others, like the four US senators who sold prior to the announcements of broad government actions to shut down the economy, had inside information.  

But that doesn’t matter now; now is the time to buy – there is enough blood on the streets.  And no, it won’t be different this time, either.  It’s how the world works – buy low, sell high.  The world will not end, and the smart money will get richer.

At Wisdom, we’re open for business.