Wall Street has gone positive and I have numerous people wanting to dip their toe back in the water, so they want my best tips on the stocks to buy. That’s a bit of pressure.
However, I’m telling them that it’s too early unless you want to be a speculator/punter, rather than an investor.
That damn Dow Jones Index went under 20,000 overnight but it ended up 1,048 points or 5.2%.
Volatility is still mad, bad and dangerous and we need some important things to happen before I will be buying stocks with confidence.
Of course, if you want to take a three-year view and you promise me you won’t whinge over the next year if your early buying has not produced the results you hoped for, then buying well-priced stocks would be OK.
However, I have no certainty that we’ve seen the last of the big one-day sell-offs. For that to happen, we need to see three important circuit-breakers — the “things” I was referring to — that will KO the simmering fear that makes share market players press the sell button.
The first and most important is that infection and death rates in the USA and Europe head in the same downward direction as China and South Korea.
Second, the central banks do what has to be done to kill fears in financial markets so that the normal operation of the key suppliers of funding to the economy remains reliable. Liquidity is crucial and central banks are vital to beating this simmering stock market panic.
Third, the stimulus packages are ramped up to make up for this enormous jolt to global demand created by the Coronavirus containment policies, so they don’t deliver a too deep and too long a recession.
In helping the health outcomes by rigid containment policies, they are hurting the health of the global and local economy and that’s why stock prices are heading south.
The PM and Treasurer Frydenberg are calling for an emergency meeting of G20 finance ministers, which is a well-timed idea. This makes sense, given the implications of the virus containment policies are greater in their negative implications on individual businesses than anyone would’ve expected.
Overnight we learnt that New York’ mayor, Bill de Blasio, is suggesting the “town that never sleeps” could be shut down by a ‘shelter in place’ order, that basically stops you from going out of your home, except for essential reasons!
San Francisco already has this in place and of course Italy had to do it, but you have to hope it’s not needed here.
Undoubtedly, these excessive precautions are going to force us into a recession and that’s why the stimulus packages here and around the world need to be like a tsunami of demand that offsets a month or two of negative economic growth because of the containment policies.
This would mean, over time, the negatives for the economy will be swamped by the positives and the second half of 2020 will be much better than the second half for businesses and the stock market.
Confidence has been creamed by the Coronavirus and it’s up to Governments and central banks to stimulate us and our belief in the economy, our businesses and our consumers going forward.
And if that can be achieved, the stock market will rocket higher.
The history of Australian stock market crashes says that a year after a crash the shares indices rebound between 30-80%! I suggest you hold that thought and hope Josh and his fellow finance ministers get it right.
I will tell you when I’m buying in a broader sense, but if I get tempted earlier it will be on the basis that the stock I buy will be considerably higher in three-years-time. It doesn’t mean the stock won’t be nicely higher in six months or less but I’m a long-term investor and so I look for value that will come back to me over time not instantly.