The market rallied strongly on the news of the stimulus bill. A counter-trend relief rally was long overdue. After such a rapid decline, the market will usually retest the lows. It is best to wait and see how it will react at the lows.
For the second quarter, the markets will experience a lot of dismal economic data. How the market reacts to this data will give us hints on when to jump back in and buy some stocks. Some stocks have gotten absurdly cheap and have fallen to absurdly low levels. Companies that entered into this crisis with strong balance sheets and cash will be able to make acquisitions at good prices.
I am still long natural gas and oil. I am not opening any new stock positions yet, but wanted to put a few on the radar.
- Six Flags (SIX)
- Darden Restaurants (DRI)
- JPMorgan Chase & Co. (JPM)
- Home Depot (HD)
- Emerson Electric (EMR)
- McDonald’s (MCD)
- International Business Machines ( IBM)
The dividend yield on some of these stocks makes them great for retirees.
The Fed, Money Supply and Credit
The percent change from the previous week in M2 money supply has never been upward sloping for this time of year in the past decade.
This means all of the stimulus and money printing is entering into the economy quickly. I am not dogmatic about the inflation/deflation debate. I like to let the data guide me. If world governments insist on keeping a locked down policy and the money and credit markets continue on this trend we will see stagflation of unprecedented levels. I do not believe this lock down policy will continue past the end of April. There are signs in the US that the federal and state governments are going to ease a bit over the coming weeks.
The federal reserve has pulled out every money printing gimmick it invented over the past decade plus some.
It has established a Term Asset-Backed Securities Loan Facility (TALF) to enable issuance of asset-backed securities backed by student loans, auto loans and credit card loans.
It is now bailing out municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF).
Through its Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF), the fed is buying corporate debt directly and indirectly (think ETF’s).
This has resulted in a balance sheet spike up to about $5.2 trillion dollars.
Whether all this money ends up in the economy bidding up prices or parked back at the federal reserve is yet to be seen.
Bond markets in the US (and across the world) have yawned at all of these events. One day the bond market will discipline these modern day alchemist. But we are a long ways away from such an event.
The best strategy right now is to stay on the sidelines.
For those in the commodity world with a long term view, I have a few thoughts. Platinum, natural gas and oil are cheap. In fact, the investment of the decade will be Platinum. Buy it and go to sleep for 10 years.