Never Let A Good Crisis Go To Waste

By Dr. Chris Kacher of Hanse Digital Access, KJA Digital Asset Investments and Virtue of Selfish Investing on The Capital

Human Innovation Always Trumps Fear

It goes to show that human intelligence, creativity, and innovation has outdone fear in every case so far. In every crisis, certain industry groups get hammered in hugely oversold fashion so become deep bargains. All crises resolve to the upside. That said, while markets have always recovered, it can take years to breakeven if you bought at a peak. This is yet another reason why buy-and-hold is NOT a safe bet.

Where to Focus

The top 20% of stocks and ETFs leave many clues as to the potential future leaders. Stocks that resist downtrends in markets are a sign of great strength. When the weight of the market comes off, these stocks often act like coiled springs and shoot higher. Eventually, both gold and bitcoin may be such candidates. The blue line in the image below is the S&P 500, while the gold line is gold. You can see how back in 2008, everything including gold was sold off hard. But by November 2008, gold started to trade sideways compared to the S&P 500, which was still in an overall downtrend. Recent signs, as I pointed out in the last webinar, show bitcoin has been the first to bounce. Whether it can sustain its bounce is of course in question as another wave of panic selling which is likely for reasons cited later in this piece would probably push all assets including bitcoin and gold lower.

No One Knows The Future

When the legendary William O’Neil was ever asked in interviews where the market would be in the future, his response was always the same. “How should I know?” The point is that each day brings new information. The wise trader and investor assimilate the data then act accordingly. It is a real-time approach. Predictions are subject to great error. Those who stake their reputations on predictions often find themselves psychologically wedded to such predictions. Therefore should one make a prediction, one should always be ready to change their view on a dime. Price dictates such actions. If your stop is hit, you might be wrong. Move onto the next opportunity or circle back if a second or multiple entry points arise while the risk/reward remains favorable. The trade of a lifetime often comes every few weeks, especially near market lows. Stay nimble and open to all possibilities.

Change is the Only Constant

The only constant when it comes to markets is change. Quantitative easing, or QE, was one of a number of material changes introduced to the markets which destroyed a number of variables that had once carried predictive value. Thus being able to pivot in a timely manner has always been critical to the few successful investors who have remained successful.

Some examples:

2008–2009 — Crash, bounce, retest, new highs

In 2008, markets were rescued by QE, thus 2009 was the start of the decade+ bull and one of the best years for stocks. Gold was the first to reach new highs in a matter of months. It had lost about 1/3 of its value, but this was a sign of strength relative to most all other industry groups, which had lost roughly half or more of their values. Car rental companies came roaring back as their breakup value, ie, the value of their automotive fleets alone, far exceeded their stock price lows. Other groups followed. But try to pinpoint the bottom is a fool’s game. It is best to monitor a range of industry groups, both leading and lagging, to get a sense of when markets make a major bottom. In the case of the NASDAQ-100, it bottomed in Nov-2008 then retested lows in Mar-2009. It was then off to the races. The S&P 500 undercut prior lows, then zoomed higher. A number of stocks in the top and bottom 20% zoomed higher. Pocket pivots and buyable gap ups were numerous as well as undercut & rally formations enabling one to get quick exposure to the nascent bull market.

1962 — Crash, bounce, retest, new highs

This bear was caused first the President John Kennedy’s standoff against the steel companies which began in the spring of 1962 then by the Cuban Missile Crisis in October.

1987 — Crash, bounce, retest, new highs

This crash was brought on by a number of factors including a badly timed interest rate hike. Computer program-driven trading models that followed a portfolio insurance strategy, as well as investor panic, spurred the crash. No trading curbs existing in those days. There was also a takeover-tax bill, sent around several days before the crash to see how the measure would be received. Some believe this was the straw that broke the camel’s back in an environment that was already appearing to be a perfect storm for some kind of tumble.

1998 — Crash, bounce, retest, new highs

This bear was brought on by the “Asian Contagion.” After the bear ended, the top performers in late 1998 were the first to hit new highs. This included YHOO, EBAY, and AMZN. EBAY left an important clue in that it had first-mover advantage, yet came public during the 1998 bear market. It promptly lost over 1/3 of its value but when the weight of the market came off, it created a U-turn pattern. Within a matter of days, it had eclipsed its IPO price by gapping to new highs. I called Bill O’Neil and told him this is your buy point. Of course, I bought a sizable position in the institutional account I was managing.

2011 — Crash, bounce, retest, new highs

This near-miss bear with averages down roughly -20% was brought on by the end of the second iteration of quantitative easing, or QE2. The Federal Reserve had no choice but to reinstate QE as came to be known as Operation Twist.

  • QE2: November 2010 — June 2011.
  • Operation Twist: September 2011.


Roosevelt’s crippling polices via the New Deal from 1933–1939 prolonged the depression, despite the big bounce in the major averages from 1932–1937, turning it into The Great Depression. From October 1929, the Dow Industrials lost 90% from peak to trough, bottoming in June 1932 after which it had its strongest up years on record with a gain of about 100% in 3 months off lows in 1932, then after a pullback, another 100%+ gain in 1933.


The oil embargo of 1973 skyrocketed prices and crippled economies. A deep recession resulted as shown by the wide shaded area below.


President Trump and global central banks have been providing record levels of stimulus, even beyond what was provided in the 1930s. I do not expect to see a prolonged bear market though steep corrections in the major averages beyond 50% would not come as a surprise. That said, easy money has never been easier. Tax cuts, low oil, and numerous economic incentives, as well as helicopter money, all work to potentially minimize the length and depth of any recession. In other words, despite everything going from bad to worse, major averages could find their lows, even if deep, sooner than we think. “Buy when there’s blood in the streets” has always and still applies.

Will We Have A Recession?

It is highly likely. The question remains as to its severity (length and depth). As we can see from the numerous key examples above, easy money policies always rescued then jump started the economy. Most bear markets were short, sharp shocks of the “Crash, bounce, retest, new highs” type. The few prolonged bear markets were due to reasons such as restrictions on bank lending (1930-) and devaluation of the world’s reserve currency at the time (1931) or the oil embargo (1973) or the slew of exogenous events from 9/11 (2001) to accounting scandals (2000–2002) and of course the dot-com bust which took a couple of years to unwind (2001–2002). Still, in all three cases, low interest rates were the key to helping stock markets find major bottoms.



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