“These are not normal times!”

I keep hearing and reading comments to this effect, and I have to ask myself, “What’s normal in a pandemic?”

We haven’t had anything quite like this in our lifetimes. Maybe a few of my clients were alive during the 1918 Spanish flu outbreak, which killed millions.

It feels like the stock market crash periods of 2000–2002 and 2007–2009. The S&P 500 is down 27% year to date even after a near 10% rally on Tuesday. That day was the 10th best day in stock market history, but it still left investors in the benchmark index in bear market territory.

It feels the same, but it is very different. First, the market’s descent from a new market high into bear market territory was the fastest ever. That’s right—ever. It was even faster than the onset of the bear markets of 1987 and 1929!

Second, most of the market indicators—those that over the last 20 years of market ups and downs have signaled that financial markets were oversold and ready for at least a snapback rally—have been triggered, but the markets have not responded. This has been more pronounced for the stock market, but bonds and golds have had a different type of disruption that I’ll come back to in a minute.

As the stock market plunged, reliable indicators that would have worked in 2000–2002 were triggered first, but they didn’t stem the tide. Then the measures triggered in the even larger 2007–2009 financial crash took their turn. While some of them were triggered before Tuesday (3/24), and Tuesday was a welcome relief, it is unclear whether the Tuesday rally will have much staying power.

Unless today (Wednesday, March 25) closes higher, we will continue our current 28-day streak without back-to-back positive return days on the S&P 500. This has not happened since the Great Depression. That’s right, we are now seeing market behavior comparisons that go back almost 100 years to a time most of us have either forgotten or would like to forget.

But … if today closes higher, even by this ancient measure, we will have a positive signal that could send stocks higher. And if advancing volume is more than 8% of total volume today, we will have a more modern buy signal that should send stocks up strongly. When this indicator comes two days in a row, it continues year in and year out to successfully suggest higher stock prices in the immediate term.

Third, this is not normal because the cause of the recent precipitous market fall was not financial. You could say that on February 19 the market was overbought and that stocks were overvalued with earnings declining (and we did say all of those things this year). However, given the strong shape of the economy until now, most students of the market would have thought that any decline would have stopped in 15%–20% correction territory, as we’ve seen for the last 11 years.

Enter the black swan—a worldwide pandemic.

It could change everything precisely because nothing like this has occurred in the modern age of financial markets. While we have had virus outbreaks that have caused 10,000 deaths (H1N1) and regular influenza can kill 30,000 to 80,000 in a single year, we have never had a response to a virus like we have had to this one.

The world is shutting down. The most powerful economy in the world has shut down. What are the implications of this? The most intelligent answer is, “We don’t know.”

Fourth, as I said last week, you have to prepare yourself for some horrendous economic reports that are coming. You need to take comfort in the fact that we start from a strong economic position relative to the rest of the world. You also need to always compare these reports to what was estimated before they were released. I believe in most cases the estimates will be worse than the reality. Still …

“These are not normal times!”

If the rally finishes its second day on Wednesday (March 25), statistics from 2008 and the early 1930s suggest a short- to intermediate-term rally. Some comparisons even take that rally out to a year from now.

The problem is that we are essentially in uncharted territory. So no matter how knowledgeable the talking heads sound on TV or how convincing the newsletter writers are, no one knows with any real degree of certainty what is going to happen in these circumstances—not me, not anyone.

But, and here comes the good part, precisely because black swan events are unique by definition and no one can predict what will happen, our money management methods don’t depend on prediction, either of the economy or earnings. We believe that market prices contain all of the information an investor needs to know. They are the sum total, minute by minute, of the collective thoughts of the global investment community.

By watching the market trends, we can participate in the major market moves up and avoid a good share of major market moves down. Yes, we all have seen over the last 11 years how trends can change and reverse quickly in the “baby bear” markets that occurred during that time, and the sideways markets that result are hard to “bear,” but a “grizzly bear” downturn like this one really allows our strategies to shine.

All but two of our Strategic Solutions strategies (through March 24, 2020, after maximum advisory fees and applicable fee credits) have outperformed the S&P 500 since the February 19 high point, year to date, and over the terrible volatility of the last month and last 10 days. More than 90% have outperformed balanced funds. Strategies such as our Fixed Income Tactical and Government Income Tactical (after maximum advisory fees and applicable fee credits) are actually up for the year, while some bond indexes are down!

Bonds and gold have been special cases. Historically, they have been the destination of choice when stocks fall sharply and there is a flight to quality. They have definitely served their purpose again this time, just not quite as effectively.

Bonds got overbought and then there were liquidity problems at the Treasury bond auctions. This sparked chaos not usually seen in the bond markets. The Federal Reserve stepped in and, with a series of moves that involved a lot of creativity and which I believe we have not seen the last of yet, brought stability to government bonds. The Fed has already done more than it did during the entire financial crisis.

Why? Because “These are not normal times!”

At the same time, corporate and municipal bonds were suffering because of the economic slowdown and its negative impact on profits and tax collections. The Fed has helped here as well, bringing liquidity to the table. For now, these markets are behaving, well, normally.

Gold remains profitable for the year, and its inclusion in our strategies has been a real success story. We did have a period, when bonds were unstable and the dollar was soaring, that caused the yellow metal’s price to go sideways to down, but this week gold prices have risen by double digits!

On a more personal level, I wanted to thank all of my staff. They have done such a terrific job keeping all of the systems running here at Flexible Plan. Sometimes I wonder, how can we possibly have almost 90 employees?  And then I see what they can accomplish and how they continue to “make the trains run on time,” as they use to say. I am so pleased that we have been able to continue our operations without laying off a single employee in this time of crisis.

Although the governor of Michigan has shut down businesses throughout the state, I need to point out that we are all working from home and are fully operational. The money we have continued to invest in computers, servers, cybersecurity, and the latest phone systems has been money well spent. Unlike many firms, our disaster recovery systems were not just on paper—they are alive and well!

We are here for you!

I hope that, like our family and our employees’ families, you and yours are doing well during these trying and not at all normal times. Stay safe and healthy. May God bless and keep you so.

All the best,

Jerry

P.S. One of the sources of knowledge I value in these trying times on all things related to the coronavirus is the Medcram.com website. Medcram is a great source of easy-to-understand information on all things medical. I am particularly impressed with their series of short videos on the coronavirus. They have been posting updates almost every day since early January and have provided me (and my physician) with significant information not available in the press or on TV.

Dr. Roger Seheult, the amazing host, uses drawings to help explain medical concepts in a way that anyone can understand. If you get a chance, check out these videos on the website or YouTube. Just search for “Medcram coronavirus.”

Jerry C. Wagner is Founder and President of Flexible Plan Investments, Ltd. Formerly a tax and securities attorney, Mr. Wagner recognized early on that technology and hedge fund techniques could be applied to help individuals successfully invest, while managing their downside risk. After spending time pioneering new techniques in market analysis, designing quantitative methodologies, and managing investment portfolios, Mr. Wagner founded Flexible Plan Investments in February 1981.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.  Inherent in any investment is the potential for loss as well as profit.  A list of all recommendations made within the immediately preceding twelve months is available upon written request.  Please read Flexible Plan Investments’ Brochure Form ADV Part 2A carefully before investing. View full disclosures.