A not so gentle reminder the world will return to normal

As promised, today’s Exponential Investor looks into signs that the market has bottomed out.

As in, what signs will there be when the market is ready to bottom out?

I gave my key indicators and signals that I’ll be watching on Friday.

I also asked our editors to give me theirs.

Some of their responses were, shall we say light-hearted? Others I’ve added to my own list of signs to look out for in coming weeks.

I hope you find reasons to laugh, as well as a few useful indicators below. We’re all in need of both…

Our tech and crypto analyst Sam Volkering was the first to respond to my email.

One of the things I’m looking at is the plunge relative to prices from the falls in 2008/09.

I try not to look at the indices too much as they’re misleading when it comes to individual stocks. But where I see a number of stocks in my sweet spot (heading under £500M market cap) trading at values not seen since March 2009, then I’m going to be pretty close to pulling a blanket trigger to rip back in to our selected opportunities – but with a focus on profitable and dividend paying stocks that have had the **** fall out of them.

Sam’s Australian, so I’ve done some editing…

He continues:

And even if the market moves lower from there, that’s okay, because I almost become capital-value-agnostic from there. These companies that make money and have done so for years in normal market conditions will still do so out the back of all this, but your yields (while maybe clipped short term) will return to some pretty crazy numbers – whereby even with capital volatility short term, in the next year, the year after, the year after you’re going to get serious payback.

And even if the capital recovery is long that’s okay, and if it’s a real rocketship bounce-back you get the double whammy on the upside.

So, there you have it. Even a crypto and tech analyst can be tempted by dividends, if they’re high enough.

The Fleet Street Letter Wealth Builder’s Charlie Morris, who has experience managing a vast fund during times of financial crisis, reckons the turning point’s give-away will “likely be non-financial. A falling rate of change in death rates in Europe or the US.”

Given this is a real-world crisis that’s hitting financial markets, it stands to reason that real-world changes will precede financial ones.

Exponential Investor’s frequent contributor Kit Winder gave a pragmatically stoic response, if that’s a possible combination:

Making no attempt to even call the bottom. Weekly drip feeding into favourite companies and long term trends.

Only relevant measure is viral spread, but can’t call a peak until a week later, by which time it’s too late.

At this point, Sam Volkering returned to the email chain with another typically Australian point: “Oh, and when sport comes back – all in with William Hill, 888 Holdings, Flutter Entertainment, etc.” That’s not a recommendation, I might add…

Sam also suggested to his UK Twitter followers to watch the Aussie Rules on TV for “a gentle reminder that we used to live in a normal world once… and will again before you know it.”

I’ve played Aussie Rules, without knowing the rules. It wasn’t a gentle reminder of anything…

Energy analyst James Allen has had a torrid week. He was supposed to be launching one of the most exciting events in Southbank Investment Research’s history.

Experts from around the world had flown in over the past few weeks. One American was in the air when President Trump announced his travel ban on the UK!

We’ve had to postpone the event, for now. And James’ response for how he’ll time the bottom of the market reflected his disappointment: “Pubs reopening.”

Former publisher, and my mentor, Dan Denning had this indicator to look out for: “When the stock market report disappears from the evening news. Or lasts about ten seconds.” I’m quite sure Dan doesn’t watch the news on TV though…

His point is that we’ve become an over-financialised society. And the bottom will be in when that’s corrected.

Rashpal Sohan, trend following expert at Dynamic Investment Trends Alert, elaborated on Charlie Morris’ point.

Hi Nick et al.

I second Charlie’s “falling rate of change in death rate in Europe/US” – that famous FT chart by John Murdoch going around (below)

… and maybe when there are actually toilet rolls back on the supermarket shelves!

RS

Here’s the chart Rashpal sent over:

Source: Financial Times

I saw toilet paper on the shelves on Friday for the first time in days. But I’m not so sure about the ability of health systems to measure coronavirus accurately.

Suspected infected people are being told to stay home and self-isolate. Do they show up as infected cases or not in the statistics? What is the false positive and false negative rate of testing for Covid-19? What is the rate of increase in the capacity of testing?

On a related note, I’d like to give a rather depressing message about any Covid-19 vaccines and cures. It comes from US academic Tyler Cowen. Although, I may not have a perfect understanding of what he said, so don’t go complaining to him if I’ve got it wrong.

Regardless, here goes, because it is a fascinating point: Because the death rate of Covid-19 is quite low, the safety hurdle of any vaccine would have to be very high. There’s no point giving a cure that’s worse than the disease and the disease is not likely to be especially bad for a large proportion of healthy people.

This required high margin of safety makes the vaccine very difficult to develop, especially quickly. Safety is a long-term concept. My daughter has an oozing hole in her arm from her BCG vaccine more than a month ago. If I didn’t know it’s supposedly normal…

My miserable message is that it may take a long time to develop any vaccines for Covid-19. So don’t go waiting for that to turn the stockmarket.

Our readers of Exponential Investor chimed in too. With some unique and unexpected suggestions for how they’d time the bottom of the market:

Hi Nickolai

I look at capital flows, the money is the value and where it goes, price goes up or down.  In Europe the panic in bunds [German government bonds] selling suggests the market has smelled something eerily similar to 2008. It’s not the bottom and it’s not the top by a long shot.

But it doesn’t matter because when this system fails it will transpire as the biggest crash in history.

Best wishes

J

This reader recalls what one of the most brilliant minds in finance uncovered about the end of bear markets:

Hi Nickolai,

Liked your article today – less doom and gloom than your normal commentary! 😉

Great idea to generate a list of bear market bottom signals and the return of the bull.

Russell Napier book on bear markets is an interesting read. From memory (I need to re-read it!) the rise in the copper price and the trickling in of good news are two that immediately spring to mind. What about sentiment indicators…

Look forward to seeing your list. Enjoy your work and emails even, if they do paint a bleak picture more often than not (with a strong vain of truth of course).

Cheers N

“Copper price surges over 10% after touching 2009 lows” reported Mining.com on Friday.

Here at the office… the virtual office… one of our behind the scenes movers and shakers pointed out the Covid-19 lockdown has a particular style here in the UK.

Struck me that this is a very English style lockdown.

It’s not official, we’re just being asked to – in the words of Boris Johnson – “please please please stay at home”.

That’s THREE pleases. Blimey, it must be serious.

And so there you have it – a range of views and signals for timing the bottom of the stockmarket and the peak of Covid-19.

I think we’ll have to stay in touch to keep you updated… on some of them.

Of course, some of our editors reckon they can see far enough ahead to know what’s going to happen when the market bottoms, let along when that’ll be.

Until next time,

Nick Hubble
Editor, Southbank Investment Research

Category: Commodities

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