We are all going through something we have never gone through before, but that doesn’t mean that history does not repeat itself. During financial crisis…when the markets were falling out of bed and on the verge of melting down…Congress played politics and decided not to pass the TARP bill on the first vote. The same thing is going on as we speak…with the Democrats playing politics at a time that a virus rescue package needs to be passed immediately. It’s great that so many people in this country are coming together to help one another in this time off crisis. However it would be much better if our elected officials in Congress would do the same.
BTW, kudos to the team at “Face the Nation” yesterday morning for reporting on the crisis and giving people more information on how to act…and how to cope with it. Another show spent the vast majority of their hour just criticizing the Trump administration. In fact, they did not interview anybody who had anything to do with the healthcare community until the show was half over! In other words, some in the press were being responsible…while others were doing what some of the leaders in Congress are doing…and playing politics.
Okay, enough ranting for one morning. Anyway, we’ve been saying for two months, the real problems (on the financial side of things) lie in the credit markets. So even though we will continue to watch the stock market very closely, the area that should give us a signal that things are going to calm down…at least for a while…is the credit market. Therefore, we’ll be looking for indications that things are calming down in that market.
Oh boy…just as we finished writing this morning’s piece, the Fed announced new emergency stops. (So we had to re-write everything that follows.)
The Fed announced it will buy Treasuries & mortgage backed securities “in the amount needed.” It sounds like they’ll need the virus rescue package to have the authority to engage in these new emergency plans, so this makes it ever MORE VITAL that Congress gets off their butts and get the virus rescue package passed. If some members want more…they can get it later. The credit markets need this kind of relief right NOW!!!!
Investors also need to realize that there are seven trading days left in the quarter. With the huge drop in the stock market, certain investors…who run A LOT of money…are going to have to re-weight their portfolios TOWARDS stocks before the quarter ends! They are going to have to buy stocks to make sure they’re portfolios are weighted the way they required to have them weighted. If the Fed’s actions…which are basically saying that they’ll do “whatever it takes” (in the shades of Mario Draghi)…are enough to stop a lot of the “forced selling” that has been taking place in the credit markets, it’s going to create a strong short-term rally. (And when we say, “short-term,” we don’t mean just 2 or 3 days.)
As we said over the weekend, we needed some significant relief form the issue of “forced selling”…and we needed it in all of the markets, not just the stock market. Of course, a lot of “forced selling” has already taken place, so there was already going to be less of it taking place this week. It was still going to be large, but if this new-news is enough to erase most of the forced selling that was going to take place, it could create a vacuum that will cause the kind of rally that will rip the faces off of the short sellers between now and the end of the quarter.
Don’t get us wrong, there is still going to be A LOT of volatility in both directions in the markets over the coming days and weeks. So we’re certainly not saying that we’re about to get a strong rally (straight line) rally between now and the end of March. More importantly, we are CERTAINLY NOT saying that this crisis is over…and or that this bear market is over. Heck, if the Democrats continue to play politics, the recent crash could re-establish itself TODAY!
However, whenever ANY market sees an extended bout of “forced selling,” it almost always sees an extended (and very strong) bounce after that “forced selling” subsides in a substantial way. This is true…even if the bear market in those asset classes has not ended…and/or if more bouts of “forced selling” take place in later months.
In our weekend piece, we said that we thought a bottom of some substance should take place this week. We just weren’t sure if it would start immediately…or if it would begin later in the week and after another huge decline. Based on what we’ve heard this morning, it looks like it’s going to come sooner in the week rather than later….assuming Congress does their job.
Hold on to your hats, the wild ride has not come to an end…by any stretch of the imagination.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.