May 2020 Video Call

Good afternoon. So welcome back to, I guess, my home office for the third or fourth month now. A lot of folks have asked where the heck I am, what is my home office? They see this big thick wall over here, and I'm into my old farmhouse. This farmhouse was restored two or three years ago. It was built in the 1800s, about 1859, I believe. The interesting thing is, the Confederates marched right out in front of this house and supposedly they took some whiskey and some grain from the local mills. And we have one of the local mills right here on our property, so it has some pretty neat history. And I think if the property could talk, it could probably tell us a thing or two about really what's happening in the world. And I'd like to think it would tell us to kind of stop the hyperbole, don't believe the headlines, that sort of thing.

But it also would tell us, there's lots of bubbles, lots of comings and goings in the economy and I think we're on the cusp of something like that. As I look at the stock market now, I can't help but look at all the stimulus, all the government intervention that's happening right now and think it will lead to something bigger, something ultimately not great, but in the short run, I'm calling this the "long short," the period that we're in right now. In the long run, it's a great time to short the US economy, all the debt, the global economy really, and all the debt, and we'll get into some of those numbers. But in the short term, I see tremendous opportunity. Everybody's talking about the disconnect between the economic data and the stock market. How can the stock market be having weeks like we've seen in the last two, three weeks really since March.

How could it be having these weeks and yet unemployment is close to record levels, if not at record levels. We're dumping stimulus in, across the world, interest rates are basically zero, virtually gone. How can the stock market, which is supposed to be a great indicator of the economy, be marching so differently from the economy. And there's a lot of different ways, a lot of good ways of answering that. You can say the economy is looking forward, you can say what I say, is that stimulus is really propelling things, really putting in the inflation that so many folks have looked for over the last few years. The textbooks tell us to look in consumer prices, the price of food, that sort of thing. But there's been some interesting shifts; blame the internet, blame other pricing factors, but really the inflation that we've been looking for has been right under our noses the whole time.

As investors, all we need to do is look at the S&P 500 and some of the interesting charts related to that to really see where that inflation is heading, where those fake dollars are going. So as I look at the headlines, look around the world, I'm checking my notes over here. I'm not looking away from the camera, but I have notes, about $15 trillion in stimulus so far across the globe. Here in the United States, we've done, it depends on how you look at it, about six, $7 trillion. We spent more in March, by the way, on coronavirus stimulus and trying to keep things going. Then we did it during all of World War II, and that's using today's dollars. It's not 1940s dollars versus today, it's the same dollar, same comparison. So we're just blasting money out there trying to keep things going. But the thing that I really want to hit on is a lot of the stimulus, a lot of what the Fed has done, the easing that it's done started before the coronavirus outbreak.

We saw it last year, December, November, where the Fed was pumping liquidity into the short term market. They did $400 billion last year. They expanded their balance sheet by $400 billion last year in one of the greatest economies we've seen in a long time. Unemployment at record low levels and the Fed was still pushing money in because the economy doesn't seem to want to move forward on its own. And so if we look at the S&P 500 since the March lows in 2009, we see we never really got above on an annual basis. We never got above 3% GDP, but yet the market tripled in value over that time. Again, that's because we're pumping so much money, it's that inflation we're looking at. But right now, I mean, we've pumped more money than we could have dreamed of in 2008 and 2009 into the economy, that's why stock prices are coming up.

Really, that's why I'm excited to have a technical-based trading service or to technical trading services because fundamentals are, I don't want to say fundamentals don't matter, but they don't matter like they used to. Right now, algorithms are pushing things forward. The markets are moving in lock step and like I wrote about to Manward Letter subscribers, I think in February or March, right before kind of all this melted down, that the diversification models that we've traditionally used, they blow up in times like this. So that's why having a technical formula, looking at volume, looking at KI indicators, looking at money flow, that sort of thing really is important in times like this, because we can succinctly look at where money's going, what it's doing, and really we can track the money that's coming from over here at the Fed and seeing how it's going through into the stock market.

I wrote some numbers earlier this week. I don't have them written down here, but it's like 0.08%, not even 1%, not even a 10th of a percent of companies are publicly traded, but 40% of all sales go to publicly traded companies, and 80%, don't quote me on that, it's close to that. 80% of all profits go to publicly traded companies. So you think about the trillions of dollars the Fed is spending, where's that going to go? And right now we just keep seeing the bigger getting bigger. I can show you a chart kind of related to that. I'll do that in a second. But all the mom and pop stores, a lot of them are closed and the big box stores are open. So really, we're seeing the big get bigger. And really that means publicly traded companies; Apple, Facebook, all those guys, Home Depot, Lowes, are doing really well.

Of course, Walmart, Amazon, they're just getting bucket loads of money. A lot of it is this freshly printed money coming from the Fed. So as just my big kind of introductory macro look, that's really what I'm looking at. I'm not traditionally a super bullish guy, I'm not a bearish guy, either. I'm pretty pragmatic, but looking at the markets right now, it's hard not to be bullish. And really that scares me because the reason I'm bullish isn't because great technology is pushing the economy forward, or we have a robust workforce. Now, we've got overregulation, we got big government, we got a pandemic. Things are bad out there, but for right now, there's a boatload of money flowing into the market. So that's what really has me bullish and telling all of my readers from Manward Letter, Codebreaker, Alpha Money Flow, that it's time to invest like hell. It's now or never.

If you missed out on the bull run in the last 11 years, you haven't seen anything yet. The opportunity in front of us, short term trading, we're going to buy until we're wrong. Go long until we're wrong is the phrase we're going to use by the whole way up here, and I think there's some tremendous opportunity. We've seen it. Codebreaker subscribers, we've been beta testing a new volume-based options strategy, buying front month contracts essentially right before they become front month contracts, and we've been killing it with it. Last month, two out of three were triple digit wins. This month, we just took a, I think it was a 250% gain yesterday, 140% gain yesterday. So the system is really working, options investors are killing it. Codebreaker folks, you're going to hear a lot more about that. That's absolutely going to be a part of our service.

And Alpha Money Flow subscribers, you're going to have an opportunity to get into that too soon, I hope. It definitely looks like it's working very well. I'll share my computer screen, we'll get into some charts. I'll show you kind of what I'm looking at from the macro level down more succinctly to the data levels. So let me get to that, and we'll go to my computer screen. All right, so here's my screen. Hopefully, you can see it. And I just wanted to show this chart to you fairly quickly. It shows the size of the global stimulus efforts so far. So this is as of May 20th, basically through today, but I don't believe it includes the EU's $800 billion deal that it announced yesterday. I don't think it includes China's latest numbers, but you can see the scale of things here in relation to GDP.

Again, so far, Japan is in the lead. 20% of its GDP has been spent, or the equivalent of 20% of its GDP has been spent in stimulus so far. And United States is at 11%, that's crazy and it's going to get bigger. By the time this has done, this could be at least 15%. We're talking about two or $3 trillion more, and that's just the next round. If you add in any extra unemployment that the government of Washington could be putting out, any of the liquidity injections the Fed's doing, it's going to keep getting bigger and bigger. So this is just an interesting way of looking at things and just gives us some scale on who's done what so far. And there's a lot of countries, Mexico just announced they're looking at some big issues. Combine the route and will with what's happening with the virus. Brazil is just in the midst of all this.

So these numbers are going to get bigger. And again, all that, basically, free money floating around out there is going to travel into the stock markets. And really a word you're going to hear a lot from me is opportunity. There can be some opportunity there. Another interesting chart, TMC here stands for Total Market Capitalization. Think of it as the S&P 500 versus America's GDP, United States GDP. Going up the tech bubble, the stock market soared in relation to GDP, came back down to reality. Again, going into 2008, soared, came back down to reality, and guess what? It soared, came back down to reality. But I'm really, really interested to see what this chart looks like by the end of this year. GDP, we know has taken a hit. It could be down quite big, maybe even double digits for the entire year. But the stock market is climbing back.

And it wouldn't surprise me at all to end the year higher than where we started. The NASDAQ already has hit that level, so we'll see. If we can get back to those February highs, that's going to be the ultimate indicator. And again, I don't think it would be a stretch of the imagination to get back up there. And if that happens with lower GDP, of course math tells us this green line is going to be a lot higher. And so there's a few ways of looking at this. Some guys say, well, this just shows that there's more international money coming in and that's not reflected in America's GDP. That's true. But what I look at it as, this is the S&P 500 as a share of GDP, and a great way of thinking about that and kind of the contrarian look is this is showing that those S&P 500, the biggest companies in the country are getting more and more of the share of the GDP.

So if we're sticking with the textbooks and say that the stock market is looking forward in the economy, that showed us these 500 companies, the biggest companies are getting more than the lion's share of GDP. And I think that's 100% true, and why I'm looking at larger stocks going forward. I think that's something to look at here that not a lot of folks are talking about. We look at the quarantine and everything that was shut down, again, there's some good, using the O word there, some good opportunity. And this is going to be an interesting chart to watch as it's a real good indicator of bubbles and where all that liquidity is going. And right now, I think this green line is going to surge higher and short term, long until we're wrong. The short term, that's some good opportunity, long term, we tend to see these straight lines down. So we'll see where that goes.

Some good news, I think, comes from this chart, phases of disaster. You've seen it before, or hopefully you've seen it before. I believe I've shown it in one of these videos. But it just shows kind of the psychological response to disasters. It can be anything from an earthquake, a hurricane, to a pandemic. And so this is the warning, the threat phase. We saw COVID, the coronavirus going through China, spread across the world, get into California. Then we saw the heroic phase, everybody's coming together, communities are pulling together. We saw neighborhoods doing things, singing out windows, making mass, that sort of thing. That's the honeymoon phase. And then politics get involved, and any time politics are involved, it's a straight line down. Again, disillusion, and this week, I think we're down in here. We literally have riots in the streets.

We've got protesters telling people to tell the government to reopened things, fighting for their rights, the riots the streets, aren't a direct offshoot of the pandemic, but there is no doubt the frustration with big government and just oppression in general is a big part of that. Of course, race and police issues are the driving force to some of these riots, but that's going to be something to watch and hopefully they get better and we start to see this climb up. But then we're going to get these trigger events and I think we're going to have a lot of trigger events and probably within the next two or three weeks, we'll see them. Whether it's just the headlines blowing something up, whether small town USA has a small outbreak and the media makes it into a big thing.

We can see some disillusionment there and new emotional highs and lows, just minor on the left here you see, this scale is basically just emotional highs versus lows and we get these triggered events, new outbreaks. Hopefully, if there's any further closures, they're small. Maybe neighborhood-wide, city-wide, something like that. But then we start to climb out of that. And so I think this is August going into September. Then we get into flu season and again, whether it's reality, whether people really are getting sick in large numbers and filling up hospitals, or if it's headline driven, I think we'll see this cause an adverse reaction. I don't think it will be February, I think it will be going into Thanksgiving. We'll see this return of negative headlines and some volatility, and then we'll get back into it within a year. No doubt, we'll be looking backwards.

So whether the stock market follows this pattern, I don't think so. I think we're getting back to the idea that we've seen for the last decade or so, where bad news is good news for the stock market. So a trigger event, if it looks like the economy's going to slow down again, that's bad news for the economy, but it means that the Federal Reserve is going to keep pumping and print that funny money. And it means Congress is going to, for example, go from $2 trillion to $3 trillion, lowering taxes $3 trillion stimulus, whatever. At this point, the Fed is just printing the money so what's another trillion dollars on top of it. I'm being sarcastic there, but that's, I think the way they're thinking. So in that case, bad news will be good news for the stock market. Going to a chart that I've showed a lot in these videos over the last year or so. Again, I don't rely on CNN for a whole lot of anything, but I do enjoy their fear and greed index, it's a good compilation of ideas.

And so you can see, it starts here with bond returns. Right now, anything related to the bond market, there's some good profit opportunities in bonds, for sure, but they're just with the Federal Reserve, literally buying bond ETFs and buying bonds. I don't put any weight in any metrics regarding bonds versus equities or anything like that, there's just too much manipulation. But puts versus calls, I'm a big options guy, big volume guy. This is a really interesting chart to watch. And for all you technical traders, what is this? A devil horn pattern going into late winter. But you can see, we had a longterm trend here of put selling or put buying being much less than calls, and we got away from that. Puts were outselling calls for a while. Hope we're going back to that trend and they were coming lower again. So that means folks are bullish.

On here, you can see it says, excuse me, folks are greedy. We're seeing a lot more calls being bought and sold that puts, which means folks are getting excited for the upside. Market breadth, about getting back to the trend, you can see the recovery flatten off here a little bit. The VIX, VIX is interesting. We're back below. We talked about this in our last call, climbing back below. It's a 50 day moving average, so that's good. The longterm trend or the intermediate trend, I guess, for the VIX has been lower. That seems to be flat-lining a bit, but coming down. I think that's a good trend. We're nowhere near back to where we were going to the end of the year, but I think we're about where we should be. And the key is that we're below that moving average, which in this case, is good news.

This chart's probably the most interesting on this page. So in March, almost 25% of new... The ratio between highs and lows was definitely favoring new 52 week lows. But if you look now, we're back to basically break even. And so this system calls that neutral. I think that's extremely bullish. We're in the middle of a pandemic, GDP is plummeting, 25, 30% unemployment rate, and we have as many companies hitting 52 week highs as we have hitting 52 week lows. That's insane. And so I think it shows the recovery, it shows the liquidity in the markets right now, and the fact that they, again, are some tremendous opportunities as companies are certainly not plunging anymore and are rising quickly. And I've been finding all sorts of companies, and not just the big tech companies, hitting new highs on all this.

So whether they deserve that or not, again, fundamentals really are tossed out the window right now and we're just following the money, from the Fed, from central banks across the world, falling into the stock market. It's got to go somewhere and so much of it is going into the stock market. Again, junk bonds, not putting much weight into the bond market with everything happening, with all the intervention there. But here's another interesting chart, S&P versus 125 day moving average. So you can see all through last year, we talked about this a lot. We're really bullish with this move here, but you can see, every time we hit the 125 day moving average, it bounced off, it kept going higher. And then this mess started. We bounced way below it, we climbed back up and now we've hit it again and we've crossed it.

And so we're going to see some resistance here, some testing of that level, but if we can cross over that 125 day moving average, there's going to be some good opportunities, for sure. That's going to be quite bullish as we get there. So that's one to watch, we'll definitely be keeping an eye on that. And going through a chart we've looked at a bunch, this is just the S&P 500 using the liberty indicator down here and KI channels up here. You can see, I wrote about it a couple of times in the last few weeks for Alpha Money Flow investors or subscribers, we got into the red, which isn't great. We kind of flat-lined for that, but we didn't go too far negative, which was just great. But now we've crossed back over into the green, into the positive, and that's good. That's a good sign, very good sign that we should be breaking out of this.

And then right up here using the KIs, going back to the chart we just looked at, we're hitting this resistance level, the upper KI channel, we're almost certainly going to bounce off it. You can kind of see how that's happened, but if we can make this section of the char look like this section over here, that's really good news. So we're going to test this, there's going to be some resistance, but hopefully turns into support soon and then once that happens, the sky's the limit, or those February highs are within sight, which would be fantastic. So that's my message to you this month. I appreciate you sticking around. I think, again, I hate to use the opportunity word over and over, but there are some great ones out there. We're going to take advantage of them, we're going to keep our eye on the money flow, we're going to keep our eye on those stocks.

Really, with the KI channel, or KI indicator, we're going to look for that mid channel marker things that are bouncing below that. And right now, the bigger companies are looking pretty strong. And there's some great small companies, Novavax is 1000% of the stock. It's a stock that I recommended and reported in January. And since then, it's gone up 1000%. And so if you took advantage of that one, I know some readers wrote in and said they did, congratulations. That's awesome. Hopefully, we get some more of those 1000%. Admittedly, it's pretty rare, but we're doing quite well. And so I think that trend is going to continue. So stick with it, congratulations on the gains, stay positive. We're coming out of this mess. You can see on that recovery chart, the disaster recovery chart. We might have some bad news on the horizon, but ultimately, we can see the light at the end of the tunnel. So stay safe, thanks for watching, and thank you.