A Seasick Stock Market Seesaw 

What’s the best way to handle a crazy seesaw stock market that makes you feel seasick?

While it’s tempting to recommend a mix of Dramamine and Johnnie Walker Blue, both of those are only temporary palliatives. The better strategy is to do what Sir Winston Churchill advised, and that is to keep calm and carry on. Of course, that’s easier said than done, especially if you’ve been walking this market high wire without a net. 

Consider that since the Dow Jones Industrial Average hit its all-time high on Feb. 12, the index of 30 of the biggest and most widely followed companies is down nearly 18%.  

The candlestick chart here of the Dow since the beginning of the year really tells the ugly story of a seasick market that’s suffered from some truly spectacular and historic volatility.

Chart courtesy of StockCharts.com

The few rays of hope along the way, such as Tuesday’s 4.9% spike in the index, have been dwarfed by Monday’s bone-crushing 7.8% plunge. And, as of the first three hours of trading Wednesday, the Dow is down nearly 1,170 points, or about 4.7%. 

So, what is it going to take for this market to turn from seasick into smooth sailing? 

The obvious answer here also is the correct answer, and it is a slowing down of coronavirus transmission, particularly here in the United States. 

Encouragingly, we have seen a slowing in the transmission rates in China, where the virus originated. There’s also been a slowdown in transmission in South Korea. Yet discouragingly, in Europe (particularly Italy) and here in the United States, we’ve seen transmission rates increase rapidly. 

Now, with increased transmission rates here in the United States have come all sorts of action taken by corporate America and by state and local authorities that will have a materially negative effect on economic activity. 

The South by Southwest (SXSW) music and technology festival in Austin, TX, was one of the first major events to be scuttled due to coronavirus fears. And on a personal note, I was looking forward to attending and speaking at this great event. But as Chicago Cubs fans know so well, I guess I’ll just have to “wait ’til next year.”

SXSW is just one of many business conferences, festivals, major concerts and high-profile sporting events that have been either canceled or postponed until later in the year. That is not good for the short-term prospects of this economy, and it comes at precisely the worst time, as leading up to this Black Swan coronavirus event the economy was doing very well, and we were poised to have an outstanding year. 

So, before this market can stabilize, we have to see marked improvement in the battle against coronavirus, including widespread testing for the entire country, a reduction in the transmission rates, and most importantly, a return to normalcy in terms of large social gatherings and regular commercial activities. 

Now, today, markets are reacting to not only the negative news about the coronavirus (the World Health Organization just officially declared the coronavirus a pandemic), but also the debate in Washington about what type of action the government can provide that will help ameliorate the economic damage inflicted by the virus. 

President Trump and his economic team want to suspend the payroll tax to boost the economy, but that proposal fell flat on Capitol Hill. In fact, lawmakers of both parties said they preferred targeted measures to assist hourly workers and the most battered industries, particularly the travel industry. Wall Street didn’t like that payroll tax non-starter, hence the big selling today. 

Finally, in terms of what government can do that would help stimulate the economy and markets, I think the options are rather limited. Some of the possibilities are a further easing of interest rates by the Federal Reserve, which we are sure to see later this month. 

Then there’s the aforementioned payroll tax, which doesn’t seem viable politically right now. Moreover, even if we get a complete rollback of the payroll tax, it’s going to take time for that to fully work its way through the economy. And then there are those direct loans to specific industries, which might help somewhat, but how much help it will be will depend on the details. 

I think the best economic stimulus here is a much better, much more coordinated effort by government, the medical community, businesses and individuals to curtail the spread of the coronavirus. Because the fact is that until transmission rates decline, the fear of an infected populace is going to continue to keep a stranglehold on the economy and the markets. 

P.S. Do you know precisely when to sell your stocks? We do, because we have a plan in place to tell us when to buy — and more importantly — when to sell our positions. That plan is the proven, four-decade-plus trend-following plan at the core of my Successful Investing advisory service. 

If you want to make sure you have our proprietary “Safety Switch” in place that tells you when this market should be sold, and when it’s safe to get back into the market after you sell, then you simply must check out my Successful Investing advisory service today. 

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ETF Talk: Gain Inverse Exposure to the S&P 500 with this ETF

The ProShares UltraPro Short S&P500 (SPXU) seeks daily investment results, before fees and expenses, that correspond to three times the inverse (-3x) of the daily performance of the S&P 500. 

SPXU allows investors to bet against the S&P 500, ratcheting up the leverage to provide 3x inverse exposure to the widely followed index. Due to the effects of compounding, the fund is not designed to be held for an extended period of time. These effects may be more pronounced in funds with larger or inverse multiples and in funds with greater volatility.

The fund typically enjoys very strong liquidity, which is paramount for a product of this nature. Investors should monitor their holdings frequently, and consult the prospectus for further details on the calculation of the returns and the risks associated with investing in this product. 

Chart Courtesy of StockCharts.com

The ETF has almost $700 million in assets under management, a 0.05% spread and a 0.91% expense ratio, meaning it is more expensive to hold relative to other exchange-traded funds. It currently trades at just over $28 a share and has a 1.69% yield. Its next distribution date is March 25.

ProShares UltraPro Short S&P500 has an MSCI ESG Fund Rating of A based on a score of 6.58 out of 10. The MSCI ESG Fund Rating measures the resiliency of portfolios to long-term risks and opportunities arising from environmental, social, and governance factors. ESG Fund Ratings range from best (AAA) to worst (CCC).

To sum up, SPXU provides (-3x) exposure to a market-cap weighted index of 500 of the largest and most liquid U.S. companies. However, I urge interested investors to, as with any investment, conduct their own due diligence in deciding whether this fund is right for their individual portfolio needs and goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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A Visit with Our Resident Guru of Happiness

Happiness isn’t easy. In fact, learning how to be happy can be one of the most difficult things a person can do.

In the new episode of the Way of the Renaissance Man podcast, I visit with our resident “guru of happiness,” the great Dr. Joel Wade.

Dr. Wade’s first podcast appearance on the show last year elicited some of the best comments we’ve had on any show, so I knew it was about time for another conversation with this exceptional individual.

Photo Courtesy of Unlock Your Wealth TV

In this episode, Dr. Wade and I discuss the history of the positive psychology movement, how he got started in the field and why this subject resonated with him as a young man.

The conversation then gets into details on how we all can implement practical techniques on how to increase happiness, including how to focus our minds on what actually makes us happy and how to look at a problem from “the outside.” We also discuss why focusing on the negative is not a good problem-solving technique.

I’ve described this episode as another home run podcast for listeners, and I’m pretty sure you’ll agree after listening to this special man’s take on a very serious, yet critical, subject to us all.

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The Challenge to Change 

“When we are no longer able to change a situation, we are challenged to change ourselves.”

— Viktor Frankl

We all know that the coronavirus has prompted global change, both economically and in the way we combat the virus. Yet as the eminent psychiatrist, Holocaust survivor and author of the extremely influential “Man’s Search for Meaning” tells us, real change takes place by changing ourselves. So, if you want to prevail during these times of social, economic and market stress, change your mindset and cultivate your strongest self. Once you do that, you can work on changing the rest of the world. 

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.