Sunday, March 01, 2020

Next week: a nice time to join the stock market

OK, millions of people have sold their stocks, often with a loss, turning the week that is ending today to the worst stock-market week in the human history, at least in the absolute numbers. The reason is the end of the world that is coming because out of the 7.8 billion people, a somewhat new kind of "a really bad cold" (20% of cases of common cold are caused by coronaviruses) has already killed 2870 people in China and 124 people outside China (I won't update these numbers; it's almost certain that they will grow at least by tens of percent but whether they will ever double or triple isn't quite certain, I think).

To compare, 150,000 people are dying every day for other reasons. Three folks in Czechia who returned from Northern Italy – a skier *1976, an American female student *1999 in Milan who went for a Prague trip but too late, and a guy *1952 from an Udine conference – were diagnosed with this "pompous flu" (every pompous fool is its natural ally) today. They feel fine, internal policies won't be changed because community spread hasn't shown up.

The sky is clearly falling. Well, it's been falling permanently for many years but it's "falling even more" now. The greatest global victim of the Covid-19 hysteria is the climate alarmist church currently led by Greta Thunberg, a psychiatrically broken Scandinavian teenager (the church has just destroyed its second majestic green lawn, one in Bristol), because the Covid-19 hysteria is clearly much more catchy than the implausible climate change hysteria. It's not surprising: infectious diseases like that have the potential to decimate mankind and they have done so in the past. The potential doesn't mean that they will and this "bad flu" probably won't. If this virus is very successful and spreads truly globally, it may become responsible for up to "dozens of percent" of deaths of humans on Earth although this situation probably wouldn't last for too long.

OK, should you be buying stocks from the brainwashed weak hands that are selling now? The well-known climate skeptic Steve Milloy (do you remember Junk Science?) has a clear answer backed by some tangible acts:

You may find a significant number of people like that in your real life and on the Internet.

You know, there is a difference between followers, parasites, and short-term speculators who want to quickly devour something from the world around them; and the real owners of the civilization who take the responsibility for its evolution. A decade ago, a few years after the 2008-2009 downturn, I went to some of the first "investment seminars" for some better-off clients of a bank. These seminars generally say "it's a good idea to buy the stock" and I generally agree.

After the banker has presented arguments that the stocks would recover from various scenarios, a rich pensioner – who has otherwise spent his life by being totally dependent on the communist leaders' feeding troughs, I concluded, sorry if I am wrong – asked the natural question:
What if everything collapses? You know, all the companies will lose their stock price and profits cataclysmically and the trade and the production will approach zero.
And the bankers gave an answer whose depth wasn't "quite obvious" to me. Or I just didn't care about cataclysmic scenarios because I was much more certain that they were unrealistic than I am now (and I am still almost certain).

Obviously, there is a nonzero probability that some arbitrarily bad things may happen. The banker said something like this:
Maybe it will happen. But there will be a question whether the life is worth living in such a dystopian world.
I understood his point, was sort of persuaded by it, but I wasn't at the same frequency emotionally. Today, I am. Well, I am totally persuaded by this comment, even at the existential and emotional levels, and I am likely to present such an argument in similar contexts.

The probability is nonzero that in the foreseeable future, mankind will really start to experience catastrophic events that are close to extinction or preparations for extinction. The hysteria about Covid-19 almost certainly does vastly more harm than the virus itself but the justification for concerns and precautions is nonzero. At the qualitative level, even extreme changes in the individuals' and nations' behavior may be understood – although they are irrational according to the cost-and-benefit analysis i.e. at the quantitative level.

But the point is that the possible future in which things are "really messed up" and mankind may be "preparing for some death" shouldn't be given a terribly high weight in your considerations because the value of life (and especially the value of the conventional assets that don't guarantee the survival directly, without the working civilization) in a dystopian world would be rather low, indeed. If the world got really bad, many people will think about suicide much of the time, anyway, and those who will not may be doing a huge mistake ;-) because the costs of life may exceed the benefits. But even if lives were worth living, lots of assets (including cash) could become nearly worthless in a world in which the financial system has largely broken.

It means that you should mostly assume that the world will recover, just like it recovered in the previous 13.8 billion years (Hubble's constant may add a greater error than we used to think), and mankind will recover as well, just like it did in recent 4 millions of years or so (the beginning depends which Homo Australopitheci are considered human enough). In recent years, mankind has recovered from the Y2K cataclysm (a complete non-event), tons of claims about the ice ige and global warming-related catastrophes, plus Zika, swine flu, bird flue, MERS, SARS, Ebola, and hundreds of similar things.

If the societal structures really collapse, cash, bonds, gold, and Bitcoins will be useless, too. The survivors may start to fight in ways that resemble less intelligent animals. In fact, in the recent week or so, Bitcoin has dropped by the same 13% as the stocks, Tesla – the otherwise worthless stock pumped by a cult overlapping with the global warming cult – has dropped by 25% from the peak, and gold has actually dropped a lot in the week as well (from a $1670 peak below $1590), including a 5% drop on Friday.

Safe heavens are not so safe.

The U.S. Treasuries went up but they will clearly go down when the situation improves. If you own those treasuries – or any currently overpriced government bonds – I must tell you that they went up exactly because the beliefs of the trading people about the future are so grim. A bond is issued to have a fixed nominal price at time T0, the beginning, and a (higher) fixed nominal price at time T9, the maturity. When the price of the bond at some intermediate moment T4 goes up a lot (like now), it really means that the nice interests (and the desire to live) has already been realized in the past, between T0 and T4. Equivalently, the future between T4 and T9 is expected to be grim, accompanied by low market interest rates which are left and which really mean that people don't want to borrow because they don't believe in any future in which the borrowed money could help them (the extremal scenario is that you or everyone will die soon so there's no point at borrowing for the short period that is left).

Fine. You are a person who thinks somewhat like me – but not quite – and who owns some U.S. Treasuries that went up because of the Covid-19 hysteria in the recent week. Do you really believe that this growth will continue for a long time? And where is the world going? If you think far enough, a continued growth may only lead to a world that will cease to be worth living at some moment, and that's why this possible (very unlikely) future shouldn't play a big role in your planning.

It's obvious that the hysteria will calm down in a world that keeps its basic functions. Even if some events with many people are going to be cancelled (Trump banned flights with China, Iran, South Korea, and parts of Italy) and meetings with many people will be often abolished (like the Geneva Auto Show was), well, much of the economy may continue just like before. The effects of the ban on most companies may be minimized. Prices of products and services are determined by supply and demand and if it gets harder for companies to produce the same supply (or if there are shortages, and some shortages appeared because of the de facto preppers), the demand will drive the prices up. Companies will simply demand prices that give them nearly unchanging profits. With a higher inflation, bonds and saving accounts with the same annual yields won't look so nice while the profits and stock prices may easily go up by the extra inflation.

You may have bonds or saving accounts but you've been thinking about joining the stock market in the past. You never did. Periods of this artificially created, mostly irrational hysteria are obviously great starting points for your investments into the real, stock markets. I can't guarantee that the stock market won't keep on going down, perhaps by another 10% or another 20%. And there's no universal law of physics that totally rules out a 80% drop, of course. But there are lots of wealthier people who lost a lot during the recent week. Among people with over $1 million in the investments, about 50% is stored in the stocks. The U.S. citizens prepare their pensions in 401k with lots of stocks.

So if stocks keep on going down, you will be far from being the only one. You probably can afford to lose something and the loss really makes us a part of the community of capitalists, the people who aren't losers, dependents, or appendices of governments or questionable sponsors. The stock market nominally produces some 3% in the dividends (the percentage depends on the sector) plus 5% in the yields (some stocks are growth stocks, the others are more "defensive" ones). Some 2% is subtracted by the average inflation but there's still a big statistical advantage relatively to the bonds or saving accounts. The downside are the much higher fluctuations. But if you buy the stocks at a lucky moment, the potential for a loss is smaller. The stocks are more than 10% more attractive than during the peak a week or a few weeks ago. People were buying stock a week ago, you can do better than them by 10%. You may be getting the same opportunity to jump into stocks as in mid 2019 etc.

If you can withstand the risks, i.e. if the fluctuating value of your portfolio only affects you through the psychological channels, not "truly existentially", you should sell your bonds (or exploit your saving accounts) and finally go to the stocks as long as this opportunity lasts. Choose your favorite stocks. Aside from the U.S., Western Europe, or the typical emerging markets, I can recommend you every single Czech stock in the Prague Stock Market. In average, they are undervalued by a factor of 1.3 now and those 8% a year of the expected yields are on top of that. I told Edwin to sell his Kofola stocks (where he got due to my promotion) at infinitesimal overall profits, now this Coke-killer stock and many others are vastly more attractive for buyers.

Again, I can't guarantee any profits or lack of losses, as you understand, and I don't have any academic degrees related to finances (which I have studied in depth, however). Unless you have been banned, you will have the freedom to share your sorrow if things go wrong. ;-) But it's right for the good people to take some risk and a part of the responsibility for the fate of the world economy and the civilization in general. They will be rewarded.

Also, I think that this extreme Covid-19 hysteria – that could have very well been bought by George Soros who was (maybe even in the recent week) shorting the stock market and who is openly spending billions of dollars to buy cheap sluts in the media etc. (just try to estimate how many screaming lying leftists you can buy for billions of dollars!) – will clearly change the composition of the stockholders. It seems to me that the people who trust the extreme, manipulative, left-wing media have sold lots of their stocks. I think that the percentage of institutional owners has gone up. It's natural for the other individual people who realize that the left-wing media are untrustworthy to increase their exposure to stocks. This could very well be a natural process that will give the responsible people a 5% annual edge relatively to the snowflakes so that the snowflakes may ultimately regain their status of employees and followers who have no reasons to display much self-confidence – the SJWs may regain their status of dirty proletarians who have nothing to lose, except for their chains.

This decline is a good opportunity to make the world a better place. Let's not waste the opportunity. There is a tiny but nonzero probability that millions of deaths due to Covid-19 will become reality, too. Maybe that tragic development ordered by Mother Nature may turn into an opportunity, too. If you lost something but you still have lots of resources outside stocks, and if you look at the recent week through purely pessimistic eyeglasses, you are doing things incorrectly. Such swings have a lot of positive content, too. Just look carefully and don't be afraid to assume that mankind will recover.

Whether you are a Democrat or a Republican, as long as you realize that the forces that want to destroy America's or the world's prosperity are undesirable, your investment will have the added positive effect of supporting the politicians who don't want things and the economy to collapse and weakening those who have aligned their careers with the general misery.

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