Tips for surviving a correction

[EricL]

(02-27-2020, 01:58 PM)Otter Wrote: Still not buying anything, dividends to cash, and watching my puts.

I am concerned that, if analogizing to prior downturn charts, we are closer to the Q1/Q2 2008 initial dip than the March 2009 lows.

Pandemic all but certain at this point. Highly infectious virus (R0 values as high as 6 estimated by a recent Los Alamos National Laboratory study funded by DARPA). Unchecked spread in South Korea and Italy, Germany's health minister saying an epidemic there is underway. Evidence of community spread in the U.S. (California case announced yesterday went untested for 1 week after being hospitalized, is on a ventilator, and patient had no known travel history or ties to other infected persons). With epidemiologists estimating 60-80% of global population becoming infected in a pandemic scenario (now highly likely), 15-20% of all infected developing pneumonia, 3-5% requiring ICU care, and ~2% mortality rate, those statistics don't augur well for global economic performance (it's around 100,000,000 dead globally, and so many people needing hospital/ICU care that most countries' health services will be overwhelmed).

By the infection numbers, South Korea and Italy are where China's Hubei province was in early/mid January, before things got really bad there and the Chinese government quarantined over 700 million people. Iran's reported death numbers are so high, and so many infected travelers have been detected after leaving Iran, that unless they just happen to have a far deadlier strain of the virus, it is likely that they have thousands (if not tens of thousands) of unreported infections.

I just can't see buying into this market at these levels. This is not your typical business-cycle downturn, but a serious external risk that was not accounted for well in advance by business. Current revenue/earnings warnings and suspension of guidance are probably just the tip of the iceberg. Economic models don't have a good past event to use as a baseline. The pathogenic characteristics of prior outbreaks (MERS, Ebola, H1N1, SARS) were markedly different. SARS and MERS are far deadlier than the new SARS-CoV-2 virus, but are far less contagious, and those outbreaks have been easy to contain and did not pose a serious risk of global pandemic (SARS killed a grand total of 774 people). H1N1 (Swine Flu), while somewhat contagious (R0 value of 1.4-1.6, so less than even the lowest estimates for SARS-CoV-2), was only marginally more deadly than seasonal influenza. Mortality rate of SARS-CoV-2 is estimated 10x-20x higher than seasonal influenza, per epidemiologists (who have accounted for the fact that a substantial number of mild cases have likely not been detected). Ebola was a non-event outside of Africa, and it is fairly straightforward to put controls in place to stop the spread (it is transmitted almost exclusively through infected bodily fluids, and not via aerosolized transmission like SARS-CoV-2).

If you think the market has been panicky since Friday, imagine what it will be like if millions suddenly have pneumonia and require ICU-level care, in a country that has a grand total of ~930,000 hospital beds and 20,000 ICU beds. Nowhere close to that number of beds is actually available on any given day, and patients with COVID19 infections have to be isolated from all other patients in a facility, otherwise the other patients get infected. Italy had this problem with a case going undetected in a Hospital, spreading the infection to numerous other patients and healthcare providers, and that is how they initially detected the outbreak there. There is no vaccine, and there won't be one, at the earliest, for roughly a year. Some early attempts at a SARS vaccine ran into huge problems, as the trial vaccines caused test animals' immune systems to overreact, killing them. There is still no SARS vaccine for that coronavirus 17 years later, despite a fair amount of effort. Humans have no inbuilt immunity to this new infection, as they do to seasonal influenza (mortality rate of 0.1%).

I'm content to sit on the sidelines and see how this plays out. If I am wrong, I can close out my put options and put dividends/cash back to work in the market. If I'm right, I think a 2008-2009 scenario is not out of the question. The objective indicators should be pretty clear in the coming weeks. It's not like I'm statistically likely to miss out on a sudden doubling of the market from close to all-time-highs in the same time period.

I agree with your thoughts, I think this is the start of a fairly big correction.

The worldwide economy is going to slow significantly for at least the first half of the year. Auto stocks, airlines, travel companies, oil & gas, and others are going to be impacted bigly.

I keep seeing people buying Ford, but I think it's in a world of hurt in the coming weeks/months.

[divmenow]

(02-27-2020, 02:09 PM)EricL Wrote:

(02-27-2020, 01:58 PM)Otter Wrote: Still not buying anything, dividends to cash, and watching my puts.

I am concerned that, if analogizing to prior downturn charts, we are closer to the Q1/Q2 2008 initial dip than the March 2009 lows.

Pandemic all but certain at this point. Highly infectious virus (R0 values as high as 6 estimated by a recent Los Alamos National Laboratory study funded by DARPA). Unchecked spread in South Korea and Italy, Germany's health minister saying an epidemic there is underway. Evidence of community spread in the U.S. (California case announced yesterday went untested for 1 week after being hospitalized, is on a ventilator, and patient had no known travel history or ties to other infected persons). With epidemiologists estimating 60-80% of global population becoming infected in a pandemic scenario (now highly likely), 15-20% of all infected developing pneumonia, 3-5% requiring ICU care, and ~2% mortality rate, those statistics don't augur well for global economic performance (it's around 100,000,000 dead globally, and so many people needing hospital/ICU care that most countries' health services will be overwhelmed).

By the infection numbers, South Korea and Italy are where China's Hubei province was in early/mid January, before things got really bad there and the Chinese government quarantined over 700 million people. Iran's reported death numbers are so high, and so many infected travelers have been detected after leaving Iran, that unless they just happen to have a far deadlier strain of the virus, it is likely that they have thousands (if not tens of thousands) of unreported infections.

I just can't see buying into this market at these levels. This is not your typical business-cycle downturn, but a serious external risk that was not accounted for well in advance by business. Current revenue/earnings warnings and suspension of guidance are probably just the tip of the iceberg. Economic models don't have a good past event to use as a baseline. The pathogenic characteristics of prior outbreaks (MERS, Ebola, H1N1, SARS) were markedly different. SARS and MERS are far deadlier than the new SARS-CoV-2 virus, but are far less contagious, and those outbreaks have been easy to contain and did not pose a serious risk of global pandemic (SARS killed a grand total of 774 people). H1N1 (Swine Flu), while somewhat contagious (R0 value of 1.4-1.6, so less than even the lowest estimates for SARS-CoV-2), was only marginally more deadly than seasonal influenza. Mortality rate of SARS-CoV-2 is estimated 10x-20x higher than seasonal influenza, per epidemiologists (who have accounted for the fact that a substantial number of mild cases have likely not been detected). Ebola was a non-event outside of Africa, and it is fairly straightforward to put controls in place to stop the spread (it is transmitted almost exclusively through infected bodily fluids, and not via aerosolized transmission like SARS-CoV-2).

If you think the market has been panicky since Friday, imagine what it will be like if millions suddenly have pneumonia and require ICU-level care, in a country that has a grand total of ~930,000 hospital beds and 20,000 ICU beds. Nowhere close to that number of beds is actually available on any given day, and patients with COVID19 infections have to be isolated from all other patients in a facility, otherwise the other patients get infected.  Italy had this problem with a case going undetected in a Hospital, spreading the infection to numerous other patients and healthcare providers, and that is how they initially detected the outbreak there. There is no vaccine, and there won't be one, at the earliest, for roughly a year. Some early attempts at a SARS vaccine ran into huge problems, as the trial vaccines caused test animals' immune systems to overreact, killing them. There is still no SARS vaccine for that coronavirus 17 years later, despite a fair amount of effort. Humans have no inbuilt immunity to this new infection, as they do to seasonal influenza (mortality rate of 0.1%).

I'm content to sit on the sidelines and see how this plays out. If I am wrong, I can close out my put options and put dividends/cash back to work in the market. If I'm right, I think a 2008-2009 scenario is not out of the question. The objective indicators should be pretty clear in the coming weeks. It's not like I'm statistically likely to miss out on a sudden doubling of the market from close to all-time-highs in the same time period.

I agree with your thoughts, I think this is the start of a fairly big correction.

The worldwide economy is going to slow significantly for at least the first half of the year. Auto stocks, airlines, travel companies, oil & gas, and others are going to be impacted bigly.

I keep seeing people buying Ford, but I think it's in a world of hurt in the coming weeks/months.

Here's the thing Eric. We dont know where the market is headed. It's anyone's guess. There is blood on the streets right now which is just where I like to see it. Better buying opportunities. We have been saying for months this market is over valued. Now you have over 250 stocks hitting all time lows. And that was just because of the last 3 days. These money managers need to buy stocks. They have no choice. We don't get buying opportunities that often. Sometime you have to take it when you have them.  I know a lot of people bought XOM in the 70's. Now you get a chance under $51 to buy. Its sitting at a 15 year low. Its not going back to $70 but $60 could happen. You know with the the best of them. You cant time your buy's. Buy quality over quantity. Take what you think are the best stocks to own for now and the future and add to them in small amounts. They ones who have had a great history of raising its dividend and have outperformed the market. And I don't mean Ford     I will add to my core holdings.
 
Don't forget interest rates are still low and no one is keeping money in the banks these days. So you have to put your money somewhere right lol. Gold, bitcoin and utilities have all been doing well of late. There's always a bull market somewhere lol

[fenders53]

Maybe, maybe not. I disagree, but of course I don't know. Revenue and earnings growth for much of my port was about zero for 2019. Yet most of them ran 20-40% higher. Anyone have a rational explanation for that? So flat last year and maybe we pull back growth 2% this year? (I'm making numbers up BTW). So does the market pull back 30% this time, or just give any quality a company a pass as they quietly guide their analysts down so earning are OK enough? Which is exactly what they did last year. I don't discount the human element of the coronavirus, but it's about my third epidemic and the financial result was not so terrible that I can even remember what year they occurred.

[vbin]

8400 cases in Cali being monitored, even if 2.5% of that is positive, that's 200 people in 1 state, that is going to scare people . Market is going to test 2800

[fenders53]

(02-27-2020, 03:19 PM)vbin Wrote: 8400 cases in Cali being monitored, even if 2.5% of that is positive, that's 200 people in 1 state, that is going to scare people . Market is going to test 2800

Bring it, I plan for these days. What's 2800? 200 DMA?

[divmenow]

Were down over 1,000 points again. Keep going down. I want AAPL again at $100 lol

This market is being controlled by the machines right now. All the humans went home an hour ago lol

[vbin]

(02-27-2020, 03:55 PM)divmenow Wrote: Were down over 1,000 points again. Keep going down. I want AAPL again at $100 lol

This market is being controlled by the machines right now. All the humans went home an hour ago lol

Index funds are controlled by machines. Managed funds by humans.

[kblake]

TRUMP will be tweeting like crazy after this dismal day lol

[Otter]

The only pandemic in the past 120 years with a case fatality rate of 2% or more was the 1918-1920 "Spanish Flu" (estimated case fatality rate of 2-3%).

Almost no one alive has any personal memory of such an event. If the statistics bear out on SARS-CoV-2, that would be the closest analogue. No other outbreak/epidemic (SARS, Ebola, MERS have never escalated to pandemic) has escalated to worldwide spread with a deadlier virus (thank goodness). And no other pandemic (Swine Flu, 1968 Hong Kong Flu, 1957 Asian Flu) comes anywhere close to a case fatality rate of 2% (they were all orders of magnitude lower).

The statistics have been crunched by a lot of reputable epidemiological and infectious disease experts. There are now a growing number of studies regarding R0 (how infectious it is), clinical presentation of the disease/case studies, case fatality rates, etc. from experts and groups such as (Twitter handles and websites below if you would like to build a feed of actual experts who are speaking about the disease):

Imperial College London's MRC Centre for Infectious Disease Analysis (@MRC_Outbreak on Twitter)
Dr. Gabriel Leung, dean of the University of Hong Kong’s Faculty of Medicine (@gmleunghku on Twitter)
Professor Marc Lipsitch, Director of the Center for Communicable Disease Dynamics at Harvard's T.H. Chan School of Public Health (@mlipsitch on Twitter)
Professor Neil Ferguson, Vice-Dean of the Faculty of Medicine, School of Public Health, Imperial College London (@neil_ferguson on Twitter)
Dr. Scott Gottlieb, FDA Commissioner 2017-2019 (@ScottGottliebMD on Twitter)
Dr. Eric Feigl-Ding, epidemiologist, health economist, and nutrition scientist at the Harvard T.H. Chan School of Public Health (@DrEricDing on Twitter)
Ian M. Mackay, PhD, Virologist and Associate Professor at University of Queensland (@MackayIM on Twitter)
The Lancet (https://www.thelancet.com/coronavirus )
New England Journal of Medicine (https://www.nejm.org/coronavirus )
Los Alamos National Laboratory (their referenced R0 Study: https://www.medrxiv.org/content/10.1101/...20021154v1 )
CDC (https://www.cdc.gov/media/dpk/diseases-a...-2020.html )

If you assume that the experts are correct regarding the likelihood of a pandemic, and the statistical likelihood of disease progression through the population (% with pneumonia, % with symptoms requiring ICU care, mortality rate), no economic models based upon prior epidemics or pandemics are likely to be of any meaningful use. If the experts are right, the implied supply chain disruptions and demand shocks are likely to be the biggest seen since the Second World War. Europe and South Korea are just now at the very bottom of a potentially steep exponential curve, if what happened in Hubei Province is any guide.

[Otter]

Also, some decent (if brief) economic analysis from Guggenheim's Scott Minerd in a Bloomberg piece published today:

https://www.bloomberg.com/news/articles/...his-career

[fenders53]

I am not knowledgeable. I am paying close attention to South Korea. I don't have a lot of faith in the stats from China. I do understand it is a large number. Probably larger than then they claim. We were discussing the Spanish flu tonight. We live near a small rural cemetary and there was a clearly high incidence of death in 1918 as marked on the tombstones. My elderly aunt has no memory of course, but she was told a lot of her relative were gone in under a week after symptoms. It doesn't affect my long-term investment thesis yet, but it could certainly stop economic growth in the near future.

[fenders53]

I know I have been preaching "stick to the plan" this week, but yesterday's posts from Otter, Vbin and EricL have caused me to realize my "buy quality on the hard dip" plan is just folly.  I read the links and it's clear this is the end.  I'm one of the elderly here, so I'm gonna die and lose all my money.  The order of those outcomes still to be determined.  I refuse to leave without a fight, so I need a new plan....

I am going to short AAPL,NEE and TSLA today after the market drops another 1000 points or so.  I need to make sure the market is actually scared.  Hopefully I can find a 5X leveraged ETF and do this right.  Failing that, I am selling my real estate I was going to Will to my daughter.  She'll understand.  If I can't sell the properties fast enough I'll just use margin.  I'm gonna need beer and face masks.  We got a big shipment of masks in at HD yesterday.  I bought them all and quit my part-time job last night.  They weren't going to pay me again for two weeks so what good is that?  I'm gonna need beer to get through my final days so I borrowed money from my mother.  She's really old so she isn't going to need the money to buy her meds next month anyway.  

Have a good day everyone.