Chaos In The Markets! Market Update March 15th, 2020

Chaos in the markets as we enter bear territory. Oil crashes. Credit markets take a hit. Needless to say, there is a lot going on! What's your process? We have one. It's helped us mitigate risk during this turmoil. In this blog, I will highlight some things that have helped us during this uncertain time.

What we are seeing is unprecedented, the swiftness of this decline. We've never seen I said that when we hit a 10 percent decline. Same thing goes here. We are down 24% year to date, over 30% from our all time high in February. A couple of weeks ago I showed this chart and said okay, the long term trend is still intact. So we were in a correction within a bullish trend. We now have broken that and it's officially a bear market.

So how do you see that on a closer level? Here's your monthly view. 2009 is your low, then you draw your support line . Clearly we broke that support. That is real concerning. Then you have momentum, when momentum crosses over, that's not good. Why? Because it has happened a total of four times! It concerns me on where we are in the level.

Let's take a look at the weekly view

Same thing.... Negative. Looking at the support, the 24/50 area is going to be your support right now for this downturn. An average Bear Market is 26%. We've had over 50/36 etc.. So there is a lot to be determined this week.

Here is your Daily View.

Beyond ugly. There's a couple things I look at , one is we've had massive volume on this downturn. So that affirms, reaffirms what's going on. The other thing is, your volatility index. We hit 75 yesterday. 81 is an all time high. So obviously that's a big concern. Everything else is turned down. Yesterday I did a call with my clients, the first question was, is this a buying opportunity? I'm going to say, not right now. Absolutely not. Why? Because of this volatility index. When you're in a 10 to 15 range, that's a buy signal. When you get above 15 you get a yellow, a pause button when you get above 31 It's a no buy zone. We are way into that No buy buy zone. 31/ 41/ 51/ 61/ 71. So obviously these markets have a lot of volatility. It's still not time to buy.

Let's look at Bonds.

Something's happening here. Not sure yet, we really want to be able to take our time. Obviously, bond prices have gone up, a little surprising. Because of the Fed dumping some money in and some other items. So right now, going into the weekend, Friday, I'm probably looking to trim some of our positions here and just see. Is this a head fake before we go down because it's getting out of our range, and that's my concern. We are really going to continue to watch this. You would think with everything going on, we're going to go to zero interest rates, but that is to be terminated.

Sector spot light!

Not a lot, obviously, because everything's down. Now, we do have and have had a pretty large position in gold. Now, a couple of weeks ago, we had that pullback. That gave us an opportunity to buy on that pullback, and then we went up again, And then when we hit our high end of the range, we trim. Now we're seeing the same thing here. We're having another pullback. But caution for a second..... I talked about the bond market. The bond market and the gold market are very correlated when rates go down. Gold goes up. Now gold goes up Also on fear. But it's been very correlated to bonds right now. So when I look at bonds and gold today, I'm really going to watch it, and it might be one of those days, depending on where the market goes, I might trim some of it going into the weekend.


It has been decimated, crushed this week. Is this a time to buy oil? Oil companies, etc.. Absolutely not‼️ Trust me. Let me show you why. let's take a look at our at our numbers here. We are looking at all time lows. A lot of people are picking below $30 per Barrel , 28 range. So that's one reason. Just like I look at volatility in the S&P. I look at volatility in the oil market. If it's above 35, you don't want to touch too much volatility. How about 124 yesterday! We're talking about unprecedented, not even close. All time high. Ridiculous. I wouldn't touch this market with a 10 foot pole right now. Be patient. Be smart.

I'm sure we could all use a quick reprieve. Obviously, we all need a break right now, and reading is a great escape. For me, when I'm looking for books, I'm looking for tactical books. I like reading about leadership and things like that. My last book review was 100 year marathon about China. Let me tell you how much that's helped me.

This month I've got a book called Boyd. John Boyd, the pilot fighter who Changed the Art of War. This is such an amazing book. He was in the Air Force, worked his way up. He didn't deal with the politics. But he was responsible for so much change in military. For one, he fought for lighter planes. Because of politics and lobbyists, they kept on making his designs heavier and heavier. He was only a captain, he never got above that because they hated him because he was so straight ahead. He created something called the EM Theory and he also created what's called the OODA LOOP, this is where it applies to what I do every day. A short term window is a time to observe, orient, decide, action. I am living that every day.

Let's move into what keeps me up at night

No one could have predicted this......YEA RIGHT ! Our friends at Hedgeye. Yield‼️ Danger‼️ We've been talking about this for months. We've been positioned accordingly. It's just crazy.

Now, part of it was we've talked about our cycles

It has displayed all of this chaos right now. Don't forget that we're in a cycle 4. We peaked in January, we got our number this week, And that's exactly what happened. So that's another problem the Fed has to deal with. The Fed is dovish. I mean, they can't throw enough on this‼️ Markets in deflation. So we utilize this. This source also tells us earnings are bad. We'll wait going forward. They're going to be even worse.

What got us here? What are the catalyst that got us here? Number one.... our chairman.

Fed to pump more than 1 trillion dollars into this market. Stupid, right? 50 basis point cut last week. Nothing. Ding, ding, ding. Waste of money. Yesterday they announce a trillion dollars. The market goes down even more. It's stupid. They just don't get it. look at the impact.

I updated this just this morning. This is the last two days. Two hundred billion dollars in the last two days.

The long Term View is not pretty!

Remember when we were selling off these assets and everything was good? We're going to add and we're going to be going to all time highs, which was four and a half trillion. Based on the fact that we're 4.2 trillion, we're going to have end up over five trillion dollars. Stupid, irresponsible. The Fed has just lost their mind. They are ineffective and it's a shame.

What else has effected us?

The Fed has dumped all this money in the market. Free money, low interest rates. Right⁉️ So what did they do with that? They went out and we've had record buybacks.

Those buybacks have pushed the market higher. So they took the cash, bought back. But then they still need money. So they created debt. We went from 2 trillion to 7 trillion dollars in debt since our crisis. That's what we've done. Well, what's happening this week? The credit markets are freezing up. One is you can't get bids. I have a client had a bunch of individual bonds. I couldn't even sell them yesterday. That's how bad this market is, especially when you look at the high yield market....

Our spreads were real close between a 10 year and a high yield. High yield mean it's a higher yield because it's lower credit quality. Well, 15 percent of the high yield market is oil. I have been talking about this, and unfortunately its coming true. When you go back and look at the bubble of 2000, the catalyst.

Markets go up. You get above PE'S, And then you had 9/11. That was the catalyst. Came back down, went back up. Then we had the real estate issue. That was the catalyst this time. You see here in 2000 how far you are above to a 20 P E. We have never been this stretched in history. I've talked about this, and here we are. To get back to 20% 18.... We're already there, to get back to fair value, 15 price earnings, that's 30%..39%. I'm going to stop there. Im not saying it's going to happen, but we're real close to it at 32% But this is it. Dot com, real estate, and the Fed bubble, folks‼️ That's it. There's always a catalyst. We've been talking about it, and that's why we're prepared.


This is very reminiscent of 2000 where earnings peaked and then they started declining. For us, we've been talking about this since Q3 through 18. We peaked...Then guess what? We go negative. Already we're looking at negative forecasts for the next two quarters. So this thing is far from over.

let's talk about our game plan. When will this end? Nobody knows. Yesterday my wife went to pick up my son from Villanova. They told him to clear his dorm room. At best You're going to come back April 14th. At that point, it doesn't make sense. They're going to be doing learning on line. The reason is because we're two to three weeks behind Italy. That puts us in the first week, can't make any decisions. So I don't think we're going to do anything until mid-April.

What's your number? What can you handle? Not percentage is how much money can you stomach losing? You need to know that number. Talk to your adviser and talk to us. So through last night were minus 24%. 60/40 portfolio would put you about 14.4%. Now, for us, we were fortunate we mitigated risk. We've been able to reduce these numbers by 70/80 %. Yesterday, the worst day in history our 60/40 models. I was able to mitigate over 95% of that risk. That is risk management, folks. That's what you need today.

Lastly, watch the Volatility Index, that's when we look at buying again. You have to be able to understand that. Find opportunities, downside and upside. Look, for now, I have the largest cash position in history. I'm hedged. I've got my bond position, and my longs right now, 12% of it is goal, which I might trend today. So you have be tactical. That's what we've been doing to help us mitigate that risk. If you're not getting the advice you think you need. Give us a call. Stay calm. Stay focused, and we'll talk to you soon.

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