It's Over

Still nervous? The market fell (panicked), rallied (regained sanity) and then peaked again last week. In response to the latest 'top' we ran our cash up again, to 40%, and  ‘hid like chickens’ in bigger market stocks.

We are now redeploying again with cash down to 20% and going lower as we buy 'recovery stocks'. Why? Because we are over the worst...see this from the excellent Financial Times website:

The nervous Nellies will be telling you about how terrible it all is, how the coronavirus continues to hold society in its grip, but the stock market doesn't price stocks on what they are worth today, it prices stocks on what they will be worth in a month, a year or sometimes even further ahead. Investors have to get ahead of the headlines not wallow in them.

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THE NEXT HEADLINES: "ECONOMIC RESTART"

The next headlines are going to be about every economy restarting, lockdowns ending, getting back to work and before long sports, bars and restaurants getting back to business. Next you will find yourself at the airport flying to that international holiday resort for that holiday you deserve (with 23m of your closest mates) and those roving retirees are going to be  rushing to book cruises at huge discounts that will not last.

The moment you start allowing groups of 10 the lid is off, you can't police social-distancing and the economy gets going.

Even if it is too early (a "Second Wave" would see the market tank), the immediate stock market theme is going to include the economic restart and it will happen despite a tail of now dated, prudently cautious medical advice and overly-concerned social commentary that will soon sound "so last month".

An example of getting ahead of the headlines - there is horror in the headlines about 4.4m people losing their jobs in the US in a week and 26.5m unemployed in five weeks, but you have to understand that the next headline is going to be 4.4m people getting back to work in a week. (Well...maybe the headline after next).

An Ernst & Young analysis says that if we come out of lockdowns in 1-3 months the economic recovery is V-Shaped. Six months later it is a different matter. For the economic damage to be contained, the economy has to re-open sooner not later. In which case every politician is sitting at home knowing that if they don’t let/get everyone back to work and soon they are never going to get re-elected. No politician wants to be the last President, Prime Minister, Monarch, Premier, Governor, Senator, Congressman, MP or Councillor holding out on their electorate's right to make a living again. At some point political necessity will overwhelm the medical directions. It's already happening.

Hence...an interesting week. Will the market take this message on board and have a rapid sentiment recovery (its seems to be) or will this recent ‘peak’ develop and the negativity take grip once more (looks unlikely). This week may be the turning point. We are in the process of diving back into the market through a list of recovery stocks. The Coronavirus was very swiftly factored into the markets. The recovery will be as well.

WHICH STOCKS

There are a host of stocks at the pointy/risky end of the COVID-19 sell-off. Stocks that are still flat on their sentimental backs, trading at prices we will look back on and cringe that we didn’t have the presence of mind to buy at the bottom. It's risky stuff, but we are now putting some of the fund into ‘recovery stocks’. If the market gets the “COVID-19 is over” bit between the teeth these are some of the stocks that will respond, some of the stocks that have been directly hurt by COVID-19.

Let me know any stocks I have missed in the comments below 

OTHER RECOVERY PHASE STOCKS

There are plenty of other less risky stocks, I see a Livewire article talking about 5 pandemic-resistant stocks, but maybe you want to buy the stocks that got hurt the most instead, and have the most to gain from it going away. Not the most resistant, but the most affected. Come the resurrection all the stocks that have served you well in the downturn, because of their resistance to the virus, will under-perform those that have done it hard. So here are some stocks you could buy for when the market gets going again after the coronavirus wears off, the more geared plays. Here are a few groups of stocks that have been damaged by COVID-19 and might provide a more geared play to the virus getting behind us, if it does:

• Banks. Finally bottoming after the NAB killed the mood and created the low point with its $3.5bn capital raise and its cut dividend. The sector is now showing signs of bottoming.
  

• Motor Industry.

• Media (Advertising dropped off a cliff).

• The sentiment driven growth stocks in the ALL TECH sector  - in hindsight there are always some events that 'mark the top', like three stock brokers listing in 2007 ahead of the GFC. The ETF market is a good counter indicator as well, the moment they create an ETF to address a fad, it'll end. And the day they created the All Technology Sector the sector disastrously peaked on the cornoavirus. It will resurrect.
  

• Highly indebted stocks that ran scared of a credit crisis - Infrastructure, Utilities.
  

• REITs - also upset by the risk of a credit crisis.

• Stock market stocks - Anything geared to the stock market, fund managers, Macquarie, Computershare, HUB, NWL, IRE, PTM, PPT, MFG, ASX.

• Retailers

We are now buying for the recovery on the assumption that in a couple of months COVID-19 will be a passé market theme and we will be looking forward not back. Yes it could be wrong, yes we could come out of lockdowns too early and see a relapse (it would be disastrous for the markets), yes there are some dire economic headlines ahead (but we already know that - its reporting on history) and yes there are some significant company earnings updates ahead of us, none of which will be good. But all these will be marking the bottom, not heralding the future.

They say "Buy the dips". We are in the middle of one. And for those that remain Super-Bearish let me ask you, what terrible development are you imagining that is going to match the full-blown headless panic that created the low on March 23....and before you tell me, let me ask you, is it low odds? If so the market won't believe it until it happens and the odds are, it won't.

TIMING

Behind me on the Sky News, Australian politicians are being openly attacked for being too cautious and killing the economy. The COVID-19 sentiment lows are in. The stock market's sentimental COVID-19 low point is behind us. Stock market sentiment will recover. We all just have to time that and decide where on the risk curve we want to be, and whether we play the recovery through bland safe predictable big boring ‘market’ exposures or aggressive stock selection. We’re doing a bit of both. They say you can't time the market. You have to.

We are discussing timing and stocks on a daily basis in the newsletter.

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