Posts published in “Money and Health”

Now That the Market Has Suffered an Historic Collapse, Should You Start Buying Stocks Again?

Now That the Market Has Suffered an Historic Collapse, Should You Start Buying Stocks Again?

By John R Guardiano on March 19, 2020

On Feb. 29, 2020, I argued that “the stock market correction was overdue irrespective of the coronavirus and is nothing to fear.” At the time, U.S. equities had lost more than $3.18 trillion in the worst weekly sell-off since the 2008 financial crisis.

“Should you divest yourself of all stocks and hide your money under the mattress until the panic subsides? No, of course not,” I wrote. “Stock market corrections occur with some regularity and are to be expected.”

Since then, of course, the market has continued to crater. Why? Because the U.S. economy is shutting down as a result of the coronavirus. Thus a healthy and inevitable market pullback has now been exacerbated in the extreme by a “black swan” event that traders did not foresee.

It happens, or at least it happened. The question now is: what should you do?

History Lesson. Well, first off, let’s learn from history, so that we don’t repeat the same mistake next time the market skyrockets.

A sage bit of investing advice says: “Bulls make money; bears make money; but pigs get slaughtered.” For this reason, it is always a good idea to take some of money off of the table, or out of the market, after a big bull run.

We noted here at ResCon1 that, just before late Feb. sell-off,

the major stock indexes—the SPY, QQQ, and DIA, for instance—had all hit 52-week highs.

The market had been climbing higher and higher almost without interruption for some time. We were due for a pullback. It was inevitable.

For this reason, cashing in at least in part after the market indexes hit 52-week highs on the strength of a long and sustained bull run would have been the wise and prudent thing to do.

That’s Investing 101. But if you failed to do that, don’t fret or worry. You are where you are and time can heal all financial wounds.

In truth, it is exceedingly difficult to predict a market bottom. However, the market has dropped so far so fast that there is good reason to think we may have hit a bottom, if not the bottom. So now may be a good time to begin buying stocks again.

Investor Bill Miller, for instance, told CNBC that “this is an exceptional buying opportunity.

“There have been four great buying opportunities in my adult lifetime,” he said.

“The first was in 1973 and ’74, the second was in 1982, the third was in 1987 and the fourth was in 2008 and 2009. And this is the fifth one.”

Miller said these historic opportunities were mainly event-driven.

In 1973, there was the Yom Kippur War in the Middle East. A severe recession crashed the U.S. economy in 1982. There was a dramatic, albeit short-lived, stock market crash in 1987. And of course, in 2008 and 2009 there was the Great Recession.

“Those are the sorts of events that you see when markets are making historic lows. The news is just bleak all around,” Miller added.

Miller, CNBC’s Maggie Fitzgerald reports, is

chairman and chief investment officer of Miller Value Partners… [He] beat the market for 15 straight years while working at Legg Mason…

[His] firm posted a return of 119.5% last year net of fees… Those gains more than made up for the firm’s 33.8% loss in 2018.”

Moreover, CNBC’s Brian Sullivan observes that, according to InsiderScore.com, corporate executives have “started buying their own company’s stock either at, or nearly at, record levels.” Last week, for instance,

more than 1,300 top executives got into the market. Small caps, energy, financial company executives—they [all] had more buyers than at any time in their history, even more than at the depths of the [2008] financial crisis.

And insider buying across the entire market is getting close to that level as well. it is now at its highest level since November 2008…

InsiderScore.com notes that they’re not calling a market bottom. CEOs aren’t perfect market timers. But they do note CEO buying peaked in late 2008. Maybe a little good news on the market front.

Indeed, CNBC’s Jim Cramer thinks the doom and gloom about the U.S. economy and the markets is excessive and overwrought.

“Given the beating the market’s taken over the last couple of months, I think this it the wrong time to go full doom and gloom,” he said tonight on Mad Money.

I know the situation [with the U.S. economy] will get worse, probably a lot worse, before it gets better; but it will get better. And sometimes the stocks reflect that before we get to where it gets better.

We’re not some pitiless, helpless giant that’s powerless in the face of this pandemic…

The 1987 crash turned out to be a fabulous buying opportunity, not a selling opportunity. It could happen again.”

Williams Indicators. Cramer observes that, according to the legendary market technician, Larry Williams, the market has hit an extreme panic level. This is “the single most reliable indicator of a trend shift from bearish to bullish that there is.”

Cramer quotes Williams:

None of the tools of the trade that I have in my arsenal have done this good a job of calling major stock market lows. For almost 90 years we have seen bull markets begin at these times of extreme panic.

According to Williams, there have been 24 “extreme panic” signals in the last 87 years, and 18 of these 24 times the market has bottomed within three weeks. In 16 of these 24 times the market has bottomed within one week.

Cramer finds Williams’ analysis convincing and says that he likes these odds.

On the other hand, as Fast Money analyst Dan Nathan points out, there typically are “fierce bear market rallies off of lows.”

In 2001, he says, there were two 20 percent rallies that failed before we made new lows. In 2002 there was a failed 20 percent rally that gave way to a new low. And, in 2008, there was similar price action.

“It took two years,” Nathan says, “for the market to bottom.”

Nathan acknowledges that this latest downturn is notable for its speed and velocity. Still, he says, it will take some time for the market to bottom.

So, if you’re buying now, understand that there likely will be lower lows, and be “comfortable with further losses,” he says.

The bottom line: know yourself. Know your appetite and tolerance for risk and act accordingly.

Realize that while no one can foresee the future, our investment decisions should, nonetheless, be guided by historical experience: because there are clear and discernible patterns that repeat themselves in the market each and every day, week, month, year, and decade.

Thus it is OK to take money out of the market when new highs are reached, and it is OK to reinvest when new lows are plumbed. It also is OK to make short-term trades rather than long-term investments.

You do not, after all, want to be the passive victim of financial conditions, market downturns, and “black swan” events.

Instead, you want to take (financial) advantage of market conditions and market-moving events, and now may be an especially good time to begin doing so.

Feature photo credit: Jim Cramer in Rocket News.

The Stock Market Correction Was Overdue Irrespective of the Coronavirus and Is Nothing to Fear

The Stock Market Correction Was Overdue Irrespective of the Coronavirus and Is Nothing to Fear

By John R Guardiano on February 28, 2020

Market corrections are regular and healthy occurrences, and the rebound to new highs may already be underway.

CNBC reports that U.S. equities markets lost more than $3.18 trillion this week as they suffered their worst weekly sell-off since the 2008 financial crisis. So, should you should divest yourself of all stocks and hide your money under the mattress until the panic subsides?

No, of course not. Stock market corrections occur with some regularity and are to be expected. They actually are healthy and beneficial because they help to check and rein in what Alan Greenspan famously called “irrational exuberance.”

Market corrections don’t mean the market is collapsing; they mean the market is consolidating and correcting equities valuations that got ahead of themselves and were artificially inflated by the bull run. This is a good thing because it sets the stage for further gains based on a more accurate assessment of market and corporate fundamentals.

Historical Context. “There have been 26 market corrections since World War II, with an average decline of 13.7% over an average of four months,” reports CNBC’s Thomas Franck. “Recoveries have taken four months on average,” and the upward trajectory of the market has remained intact.

There is “one big caveat”: if we fall into bear market territory, then “the losses stretch to 20 percent [and] there’s more pain ahead and a longer recovery time,” Franck notes.

But for a bear market to occur, we’d almost certainly have to suffer a recession, which is exceedingly unlikely, given the underlying strength of the U.S. economy and the U.S. consumer.

Right now, the equities markets are overreacting to fears of the coronavirus and how it might adversely affect Chinese economic growth and world economic growth more generally. CNBC’s Fred Imbert reports:

“What we’ve seen the last couple of days is pure liquidation,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “Investors are saying ‘get me out at any cost.’”

“The most important dynamic in the market is uncertainty,” Lerner added. “People are selling first and asking questions later.”

When traders and investors are selling first and asking questions later, that’s a surefire sign of an overreaction and an overshoot to the downside.

Moreover, just before this correction occurred, the major stock indexes—the SPY, QQQ, and DIA, for instance—had all hit 52-week highs. The market had been climbing higher and higher almost without interruption for some time. Thus we were due for a pullback. It was inevitable.

Inevitable Correction. The coronavirus, in fact, may have been the occasion or pretext for traders and investors to do that which they had been angling to do for weeks, but never did because of irrational exuberance and the fear of missing out on even greater highs. As Stephen Auth, CIO of Global Equities for Federated Hermes, told Fox Business:

This correction was overdue. We had a 17% run without a pullback. The last 16 times we’ve had something like that, we’ve had a 10% correction…

The coronavirus is a good excuse for one [a correction]. It is scary. We don’t know, really, how it’s going to play out. But at the end of the day, the global economy will bounce back from this. It’s at worse a short-term hit.

The “fact is,” writes Luke Burgess at Energy and Capital, “last week the Dow was trading 11% over it’s 200-day moving average. So, again, a market correction was inevitable with or without coronavirus.”

And a rebound off of our current lows is just as inevitable, and sooner than you might think.

In the three weeks before Christmas 2018, for instance, “so-called ‘U.S. equity style boxes’ made popular by Morningstar all fell by between 15-19 percent,” writes Rob Isbitts in Forbes. Lower-volatility stocks, meanwhile, suffered declines of 10-20 percent, he adds.

“The impact was so severe across the board, it wiped out all, nearly all, or more than all the gains of the prior year and a half in all nine [major] stock market segments…” Yet, “the stock market rebounded quickly after Christmas [2018], and that rally has stretched into the start of 2019,” Isbitts explains.

In fact, the rally extended throughout 2019 and into 2020 almost without interruption, as Annekan Tappe observed in a Dec.29, 2019, year-end analysis of the equities markets for CNN Business.

US stocks had a fantastic year in 2019, with all three major indexes climbing more than 20 percent. But that performance came at the price of volatility and uncertainty.

Last year ended on a sour note, with the worst December since the Great Recession leading to the first annual stock market losses in three years. This year was a rebound—and then some—but it wasn’t easy.

Trade and the Fed, the two big themes of 2019, pushed and pulled on equities. The Fed won out, and stocks soared. Investors got quite a bit of whiplash along the way.

The whiplash continues; but so, too, do the market’s gains. Stay invested and prepare for the next leg-up: because, as sure as the sun rises, it’s coming—in spite of the coronavirus.

Feature photo credit: Investor Junkie.

Critics Rely on Bad and Dated Nutritional Science to Lambaste Trump’s School Meals Reform

Critics Rely on Bad and Dated Nutritional Science to Lambaste Trump’s School Meals Reform

By John R Guardiano on January 19, 2020

Self-anointed nutritionists and “children’s health advocates” have lambasted the Trump administration for giving local schools greater latitude and flexibility in the choice of food that they offer students.

In a separate post, I explain why these critics have it wrong. They adhere to bad and dated nutritional science that says fat and sodium are bad, but fruit and whole-grains are an unalloyed good.

In this post, I report in greater detail what the best and most recent science actually says about fat, carbohydrates, sodium, fruits, and vegetables. In truth, much of what we think we know about nutrition simply ain’t so.

Fat. Take, for instance, the longstanding proscription on fatty foods. Fat, we are told, is bad. However, there is absolutely no scientific evidence for this proscription. To the contrary: fat is highly beneficial and a much-needed macronutrient.

Fat is “a major source of energy,” notes the Harvard Medical School:

It helps you absorb some vitamins and minerals. Fat is needed to build cell membranes, the vital exterior of each cell, and the sheaths surrounding nerves. It is essential for blood clotting, muscle movement, and inflammation.

It is true that not all fats are created equal. Monounsaturated and polyunsaturated fats are found naturally in nuts, cheese, olive oil, eggs, and fish. These are the healthiest types of fats.

Artificial fats, otherwise known as industrial-made trans fats, are found in sugar-laden snacks and processed foods and are unhealthy. Saturated fats, meanwhile, are found in meat and cheese and “fall somewhere in the middle” of the health continuum, notes Harvard.

Fat consumed, moreover, does not ipso facto become fat on our body. That is not at all how human biochemistry works. Excess calories consumed become fat. And, for most people, excess calories come not from consuming too much fat, but from consuming too many carbohydrates.

“The reality is that fat doesn’t make you fat or diabetic. Scientific investigations going back to the 1950s suggest that actually, carbs do,” writes Nina Teicholz, author of The Big Fast Surprise: Why Butter, Meat and Cheese Belong in a Healthy Diet.

Carbohydrates. Unfortunately, it is all too easy to consume too many carbohydrates. They dominate our food choices and need to be strictly limited. Yet, critics complain that Trump’s regulatory rollback will allow schools to offer more pizza, burgers and other fatty foods.

But pizza and burgers are high in protein and fat, which are not the cause of poor healthy and obesity. Just about all of us, in fact—our children included—would benefit from more protein, more fat and fewer carbs.

These same critics also complain that, because schools have greater flexibility in choosing food, students will consume less whole-grain bread and cereal, and starchy foods like potatoes [will] replace green vegetables.” But as Teicholz points out,

according to the best science to date, people put themselves at higher risk for these conditions [Type 2 diabetes and heart disease] no matter what kind of carbohydrates they eat.

Yes, even unrefined carbs. Too much whole-grain oatmeal for breakfast and whole-grain pasta for dinner, with fruit snacks in between, add up to a less healthy diet than one of eggs and bacon, followed by fish.

Sodium. Likewise with sodium: The critics complain that greater flexibility will result in more more high-sodium foods, even as the Trump administration rolls back regulatory limits on the amount of sodium allowed in school meals.

But it is far from clear that sodium is a real problem, especially for our youth. (High blood becomes more prevalent as people age and is less common in children.) “Dietary guidelines often change, but ‘restrict your salt intake’ has resisted the advances of science,” write Drs. Michael H. Alderman and David A. McCarron. “Adequate sodium,” they note,

is crucial for biological processes including nerve conduction, muscle contraction, and sustaining the fluid balance necessary to assure blood flow and deliver nutrients and oxygen to every cell in the body.

As recently reviewed in the New England Journal of Medicine, human physiology has evolved a complex process, mediated by the brain, to maintain sodium balance precisely.

If we consume too little sodium, our kidneys will go to extremes to conserve it. If we consume too much, it is eliminated through our skin, intestines, and kidneys.

You’re far likelier to die from failure to maintain this precise control than from the modest impact salt may have on your blood pressure.

Fruits and Vegetables. What about fruits and vegetables? The critics say that, because of the Trump regulatory rollback, students will consume fewer fruits and vegetables, which are a great source of vitamins, minerals, and antioxidants. Again: untrue.

While the benefits of fruits and vegetables are undeniable, they are not an unalloyed good, and too much of anything can be a bad thing.

The problem with fruit is that has lots of sugar (fructose), “which causes the liver to generate triglycerides and other lipids in the blood that are altogether bad news,” Teicholz writes.

Vegetables don’t have any such complicating factor. They absolutely are nutritious and should be an integral part of every person’s diet. Still, they are incapable of satiating a person’s appetite and cannot fulfill our natural, innate need for fat, protein, and basic food variety.

In truth, by giving local schools greater latitude and flexibility in the choice of food that they offer students, the Trump administration is acting upon the basis of the best and most recent science.

The administration’s critics, by contrast, are relying on antiquated and discredited ideas that serious nutritionists and health experts increasingly reject, and for good reason.

Trump Administration’s School Meals Reform Will Help Reduce Childhood Obesity

By John R Guardiano on January 19, 2020

The Trump administration announced Friday that it is rolling back Obama-era regulations that govern nutritional requirements for school meals and giving local schools greater latitude and flexibility in the choice of food that they offer students.

The media have depicted these changes as a sop to the food industry and a disservice to children nationwide—especially disadvantaged children from lower-income families, since they depend more on school meals. These youngsters supposedly now will be consuming less nutritious and unhealthy food as a result.

I hate to be the bearer of good news, but this is simply untrue. And the reason it is untrue is that much of what we think we know about nutrition simply ain’t so.

The longstanding proscription on fatty food is the most commonly held misconception. In a separate post, I report why this misperception and other conventional ideas about health and nutrition are wrong.

For the purpose of this post, suffice it to say that bad and dated nutritional science helps to explain why school administrators and cafeteria workers welcome the Trump administration’s move to make the school meals program less rigid and more accommodating of ground truth, so to speak.

It is not, obviously, that they are indifferent to children’s health, nor that they are shills for the food industry. Instead, their concerns are very practical. Students, they observe, are too often rejecting the food that is being offered to them.

The U.S. Department of Agriculture (USDA) conducted a “School Nutrition and Meal Cost Study” that found “children are throwing 25 percent of nutrients straight into the trash can. This is not serving children well,” says the USDA.

Science Says. Why are students rejecting the food that is being served them? Because school meal plans too often are based on bad and dated nutritional science that says fat and sodium are bad, but fruit and whole-grains are an unalloyed good.

“Completely eliminating or limiting fat from your diet can actually make you gain weight, often because it leaves you feeling so deprived,” reports CNN. “Conversely, some studies have found that fatty foods can aid in weight loss.”

“The problem with most diets,” writes Mark Hyman, MD, author of the Eat Fat, Get Thin Cookbook, “is that they lack the key ingredient, [fat], that makes food taste good and cuts your hunger.”

It is not hard, then, to discern why students have rejected the ostensibly healthy meals foisted upon them by Michelle Obama and her coterie of self-anointed “children’s health advocates”:

First, these meals are not as healthy as advertised—mainly because they seek to radically reduce fat and sodium in a student’s diet; and second, because of their inflated reliance on carb-laden whole-grains, fruits and vegetables, these meals leave students hungry and longing for greater sustenance.

Local schools and school cafeteria workers know this, which is why they have pushed for greater latitude and flexibility in the choice of food that they offer students.

The Trump administration has wisely responded to their request, with regulations that retain legitimate nutritional standards (i.e., vegetables are still part of every student’s meal), while simultaneously ensuring that these standards are not so rigid and inflexible as to be counterproductive and self-defeating (because students discard the food given to them and procure unhealthy snacks elsewhere.)

Childhood Obesity. To be sure, Michelle Obama identified a real problem. Childhood obesity in America has become an epidemic—so much so that “roughly 31% of American youths [are] disqualified [from military service] because they are overweight.”

This is a national disgrace and a bona fide public health problem, which we ought to address and remedy as a nation. And, to the extent, that we are eliminating empty calories and excess carbohydrates from school meals, this is an indisputably good thing.

Indeed, soda and sugar water have no discernible health benefits whatsoever; they are genuinely harmful. Soda and sugar water induce obesity by replacing, crowding out, or superseding calories with real and requisite health benefits.

But trying to reduce or eliminate fat in a student’s diet is a big and health-debilitating mistake. Ditto the attempt to reduce or eliminate high-sodium food. And fruits and whole-grains are no panacea either because they are laden with sugar and carbohydrates, which are the real culprit in the obesity epidemic.

Even were it otherwise, students, like the rest of us, crave variety in their diet and food that is satisfying, satiating, and savory.

While well-intended, Michelle Obama’s school meal regs lost sight of this reality and were based on bad and dated nutritional science. Consequently, they were rejected by the very students they were designed to help.

The Trump administration, to its credit, recognizes that we can and must do better. Its reform of the school meals program is a promising start.