From Claude Ohanesian:
Jack is one of the finest professionals I know. He is a contributor to my firm, CGO Wealth Management, LLC as well as to CNBC. He runs a hedge fund and is closely related to a private company UCX. Jack also was president of Commerz bank and helped start the CME. Jack brings a half of a century of experience in trading to CGO Wealth. His insight to the particulars of the market are intriguing and on target. He is one of the best.
You know that feeling when you’re on a roller-coaster that’s clicking higher as it prepares for a drop? That is the feeling with equity traders these days as we witness historic volatility. But make no mistake, caution is still the word until further notice.
The seizure of the economy due to the virus did two very important things:
One would think that this combination would create a tailwind for the markets. But there are certain fundamentals which you can’t ignore. We all want the stock market to go back up to levels we saw earlier this year. But the reality is that it’s impossible to price stocks. Not without knowing what the earnings will be of the listed companies.
The future is cloudy for many of the great companies we own because no one knows how long or deep the damage is. If there was ever a time to be patient and let the dust settle, now is the time.
The equity market, after the vicious move down followed by a 50% bounce, is showing signs of strain. It is top heavy. A handful of stocks are responsible for this bounce. In other words, not all companies are participating, and a few big names are lifting all indexes. The Nasdaq is a great example. The FANG stocks are responsible for a bulk of the move with others being carried along by indexers.
It’s crucial to stay objective. To be as unemotional as possible when facing extreme volatility. Keep in mind, fixed income is telling us a different story. While stocks are bouncing, bonds are concerned about disinflationary pressure. Coupled with headline risk from the virus. Which may continue to make historic low yields along the curve.
There is a good chance the lows will be tested again. We’re entering a historically weak period for the markets. But this would give investors time, if not price, to put capital to work. Also, we need clarity to understand the full effect on earnings. This will allow us to make better judgments on whether the market is too cheap or maybe too expensive. The good news is that great companies are trading at huge discounts! As they say, there’s always a gem of opportunity whenever there’s carnage.
It’s said that you don’t get a hangover from drinking…You get a hangover when you’re done drinking. Well, it appears the party is over for now. And the hangover could last a few months. Fortunately for us all, this too will pass.