This Indicator Will Determine If You Make Money In 2020
“Warren Buffett Indicator Signals a Stock Market Crash Is Coming”
Dear Retail Investor,
That’s what a Motley Fool headline blared this week as the markets ticked up to new highs.
It’s typical of the mainstream financial media and it couldn’t be more worthless.
Fundamentally, it’s just wrong. Crashes don’t come because stocks are overvalued. Bubbles and busts always run far higher and deeper than most ever expect. This time will not be any different.
Worse yet, it’s distracting you from the real indicator that will signal a crash is coming and to get out of everything.
That’s where we’re going to look at today. Because it will really determine how your portfolio performs for the rest of the year and how well your set up for 2021.
Here it is.
How To Know If This Rally Is About To Collapse
The collapse scenario of 2020 could be a catastrophe, but you won’t have to be a part of it if you watch this single indicator.
A few weeks ago in Here’s How Top Investors Are Targeting The Top Stocks Of Tomorrow, we noted how parts of the economy are still active and a few companies are capitalizing on them.
Those companies have been the big winners in all this and, since they’re the largest companies in the world, have driven the overall market indices higher.
That’s why stocks appear to be hitting highs while the current economic slide is almost three times worse than the 2008 credit crisis.
And that brings us to today and the entire market rally rests on the economy.
If it rebounds fast, it can catch up fast enough to support the rally.
If not, watch out below. The March lows are going to come back and possibly fall even lower.
That’s why we’re watching this one indicator to see if the recovery will be stopped in its tracks.
The number one factor in determining the direction of the market for the rest of the year is the pandemic.
The indicator is the infection data from New York state, the former center of the crisis in the United States.
New York isn’t in the news much these days because the virus has hit and largely left the state.
This chart from the Covid Tracking Project features the current new case count in New York state:
The chart shows after the initial spike and a few months of steady declines.
New York is now regularly posting a few hundred new cases each day and the panic and overloaded hospitals of April and May is long gone.
Of course, the total case count isn’t the only variable. With more testing, there will be more cases. So to discount the increased testing variable, we use the average percentage positive rate of the tests.
Johns Hopkins says, “Before reopening, rates of positivity in testing should remain at 5% or lower for at least 14 days.”
Using the percent positivity rate, New York looks even better.
The chart below from Johns Hopkins Coronavirus Research Center shows how the percent positivity rate in the state has collapsed.
The chart shows the state has increased testing, but new cases have dropped, and now the positivity rate is hovering around 0.7% and 0.9%.
That is an extremely low number.
That’s also well under the 5% line that the top health researchers say is needed for economic reopening.
This information is not to show you that New York is in a great spot. If you look at the overall New York deaths per capita is near the highest in the United States.
It goes to show you New York walked into the first wave and has been relatively immune ever since.
This is the important part.
New York was at the heart of the first stage of the pandemic wave.
It was so bad in March and April that it’s now extremely good.
And that’s why New York’s case count is the best indicator of whether a “second wave” of the virus is hitting.
Because if there’s a significant uptick in the number of cases in New York, the whole country will be entering longer lockdowns and any recovery will be severely curtailed by government policies.
Don’t Worry, Be Alert
We’re not here to say whether there will or will not be a second wave of deaths from the pandemic.
Any side that states which way is the right way with complete confidence is wrong.
Only in time will we be able to tell what was the right reaction with a high degree of certainty.
If I had to bet, I’d wager that the right path will likely prove to be somewhere in between the two extremes.
But anyways, we’re not worried about the right path — we’re focused on the reaction of governors and political leaders around the world to what they see.
That’s why if we see a second wave in New York, we’re going to see quick and severe shutdowns of major parts of the U.S. and world economy.
Few will agree on whether that’s the right move, but we can all agree it will stop any recovery, sending economic transactions back into the tank.
If the first wave wiped away 10% of GDP in three months, another 10% hit could mean an even bigger catastrophe.
That’s why it’s critical to watch New York.
If there’s a second wave coming, it will appear obvious against New York’s completely flattened infection curve and positive rate.
If it happens in New York, expect another round of shutdowns, followed by another 10% drop in GDP.
Stocks, like they did in March, will quickly follow.
So if you watch this data point, you should be well ahead of the rest of the pack.
Stay alert and you’ll be well-positioned for a strong close of the year and a big year in 2021.
Editor, Dear Retail Investors
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