The best way to learn about how to do something is to just do
it. And nothing motivates a person to do
something themselves more than poverty.
I’ve been very fortunate in my life to have spent a large part of it
being very poor. This might sound like
an oxymoron, but it isn’t. Thanks to
poverty, I was forced to learn basic car mechanics, and can fix or replace
simple things like brakes. I moved into
a rundown apartment in a spectacular location and spent the better part of 2
years renovating it. You could look at
the place and clearly tell a professional did not do the spackling, but it was
still 1000% better then when I originally moved in and it only cost me a couple
hundred dollars. It’s important to have knowledge
in a variety of areas. Career wise, you
probably want to focus your skills and specialize in one area but good luck
getting through life knowing nothing other than accounting. Considering everything that is going on, this
is a great time to learn a skill or study a subject that you have always been
interested in, separate from a hobby or from your career. With the way the financial markets have been,
this is a great time to study how to read and interpret a balance sheet and how
to invest money for your future. So many
people have told me in the past that they do not understand finance or markets
in the least, then follow that up by asking me “what stock should I buy?”
without the slightest understanding of what a share of stock even is. There are some great resources that can help
you, from YouTube lessons to pdfs of books you can google like “Finance for
Dummies”. This is of course the case
with any subject, so whatever you are interested in, take this opportunity of
isolation to learn something new.
Knowledge is power, but knowing when to use your power is
wisdom, and knowledge is useless without wisdom. The worlds most powerful weapon is useless if
you can’t aim it. Knowledge is like learning
how to fix a car’s transmission by watching video tutorials, reading about it,
and seeking advice from professionals.
Wisdom is knowing that you probably shouldn’t attempt it yourself for
the first time on a $40,000 Mercedes.
The Dunning-Kruger effect is cognitive bias, that essentially, accounts
for the overconfidence that a beginner has when they begin learning something
new, and the doubt that professionals in their field face as well. You will never hear me confidently declare
that the market “will” or “will not” do this or that, because after years in
this industry, I am fully aware of what I don’t know. As is the case in most professions. The more you know about a subject, the more you
realize the depth of knowledge that is available on a subject and the
relatively small amount you know in comparison.
This leads the most knowledgeable people on a subject to seem perhaps,
less confident on what they say, while amateurs “know” what they spout out to
be true beyond any doubt. (I am reminded
of Dennis Gartman a few years back, confidently declaring we will not see oil
back above $44/ barrel in his lifetime. It
was back above that level 4 months after his confident call. I believe he has retired now, but is still
alive and kicking, despite oil staying above $44/ barrel for the entirety of
the past 4 years, up until just recently.)
So, while it is important to learn a little bit in a large
variety of subjects, it is equally important to understand what you don’t know. The knowledge of how to fix your roof is
great to have, but the wisdom to know when it’s best to hire a professional is more
important. Which brings me to the subject
of this post. I am becoming more and
more terrified by people and their actions, and their “knowledge” on a subject. This is nothing new, we’ve been seeing this
with the Anti-Vax crowd over the last few years, and consequently witnessed a resurgence
in things like measles shortly later. (Just
a side note here, the infection rate of COVID-19 is about 2.5, meaning for each
person infected, they on average will infect about 2.5 more people. The infection rate for measles is 18.) People began listening to a washed-up porn
star talk about her son’s autism and 1 study -since proven entirely false- backing
up that vaccines could be the cause. Next
thing you know, a few hours of YouTube videos have rendered years of medical
study by doctors entirely useless. The
Dunn-Kruger effect at work. Start from
somewhere in the middle, learn a basic amount about a subject, inject incorrect
information into your correct information because you are not knowledgeable enough
on the subject to tell the difference, apply your own biased hypothesis to it,
not test that hypothesis yourself, then declare confidently that you “know” the
conclusion. You can apply the same
basic, “lack of scientific method” to a lot of things people think they know about. For years and years gold bugs have been screaming about bank manipulation whenever gold is down (but never
when it’s up). That JP Morgan's short position is gonna "blow up" any minute now. They've never been right because they don't understand the basics of the function they talk about. Be VERY
fearful of information from anyone who is shouting what “will” happen with such
certainty.
But in this instance there are many things. 5G however stands out as a big one. At least 2 people I know have been talking
about how 5G towers are what’s causing COVID-19. There is a Youtube video about a cell tower installation
engineer who quit his job over his 5G/COVID concerns. You can probably find the 10 min video
easily, in which he offers very little scientific or medical evidence to back
up his claim. Mostly, this conspiracy
theory seems to be centering around a map of a 5G tower installation areas and
the correlation between after these towers appeared, and the rise of COVID-19. Magically it seems, that
5G towers were put in the same areas that are seeing the worst outbreaks in
COVID-19. Therefore, without any prior
knowledge of either of these subjects, we can conclude that 5G cellphone towers
cause COVID-19, right? Correlation does
not necessarily equal causation. Here is
an example of this. Below is a chart. You might say these two lines are correlated
very closely, so perhaps, they affect each other. The lines are plotting 2 things, Divorce
rates in the state of Maine, and the per capita consumption of margarine. Clearly these two things have nothing to do
with each other, and no sane individual would think that divorce rates decrease
BECAUSE people are eating less margarine, nor would you conclude that margarine
consumption decreases because of divorce rates falling in Maine. The fact of the matter is, you could overlay
a map of 5G cell phone towers, with COVID-19 cases and they will look
similar. You could do the same with “Subway
restaurants” across America, or with members of hair restoration clubs across America,
or even “dogs with heartworm” or factions of the KKK across America. The moral here is, there is no correlation
between any of these things other than this: COVID 19 infections, hair
restoration club members, dogs with heartworm, Subway sandwich shops, and KKK
factions all exist in places were PEOPLE exist.
The denser the population, the more of all of these things you will
find. The correlation here is simply
population density.
This certainly isn’t the only ridiculous notion I have heard
regarding the virus or what we should be doing about it/who is to blame,
etc. Many people are very pissed off
that the economy has effectively come grinding to a halt due to a virus that
kills less people then the flu. And many
of those people are defiantly carrying on with business as usual. A lot of states do not have the orders to
stay home that we have in the NYC area.
I am sure in many of these places, people attended Easter Sunday church services,
or have generally been not caring about the stay at home orders. I think it is worth noting, that the death
rate is not what worries most, it is the infection rate, which is twice that of
the flu. As a Doctor explained to me,
the paradox for why COVID-19 is more dangerous than SARS is that it is actually
less dangerous. SARS was a very serious respiratory
disease and once you got it, you were likely in a hospital ICU with severe
symptoms. From this standpoint it made it
easier to isolate and diagnose. Also,
infected patients did not typically live, which quelled the spread. COVID-19 they expect that up to 25% of all
people who have it show no symptoms at all.
They are just walking around infecting others and are none the wiser
about it. While the symptoms might be
nothing for them, they could be deadly to the elderly or to sick people whose
immune systems are already compromised. Also, the time from infection to the time symptoms
begin to show can be much longer, so even those who realize they have it and
isolate immediately, could have been infecting people for quite some time prior
to that, furthering the spread even more.
Complicated problems rarely have simple solutions, and
anyone advising a simple solution to a problem like this, is likely
experiencing the Dunn-Kruger effect, where their minimal knowledge leads them
to believe they “know” the answer clearly.
Trust experts, when it’s your health, your car’s transmission, your roof, matters of high importance. Do your own research and get
different opinions so you can understand more about a wide variety of subjects
and handle basic problems in your life with the knowledge you have gained, but
when it’s a matter of importance and seriousness, have the wisdom to trust the
experts. My biggest fear right now, what
keeps me up at night is the defiant group, the 5g conspiracy people, the people
that think this isn’t serious, or is a hoax to gain control politically etc. These are the people that can screw up these efforts for every and we could see this virus popping up and having us need to shut down in
response for a long time to come. If NYC
gets over the curve, and rural areas begin seeing outbreaks pop up, we’re going
right back into shutdown mode and we could see this happen over and over again
as we try to get the economy back to normal. I’m not saying this all isn’t ridiculous. I never thought I’d see the world shut down
and trap me in my house over a virus. I’m
not saying they’re not trying to rob us of our freedoms either, they probably
are in fact. After all, never let a good
crisis go to waste. If there is anything,
we learned from the Patriot act and 9/11, it is that. But everyone wants the same goal; to get life
back to normal. There is already a fear
of a resurgence in the fall that can bring us right back into a shutdown mode
and kill the economy again, assuming it even has a chance to get back up and
running by the summer. There is no
upside to not wearing a mask, not staying at home as much as you can, and taking needless risks while we wait for this to calm down. They are not going to “start” the economy
back up because you or anyone else says so or refuses to stop doing what you’ve
been doing. The faster we kill this, the
faster we all get back to normal. And
the people hell bent on the fact this is all a hoax of some kind, could keep
this going longer then it needs to be. I
fully believe that if we see the voluntary lock downs not stopping the spread enough, they will turn to mandatory lock downs, so
protesting this is literally going to have the opposite effect of what you are trying to accomplish. What terrifies me most is 6.5 million more
weekly jobless claims in August because we still haven’t beaten this. The economic consequences and the financial market consequences
could be catastrophic if we can’t get over this in the next month or two.
This leads me into the markets. There is an extreme risk we are right
back here by fall if this has a second wave, or possibly, we never come out of this to begin with if people who think it’s caused by cell phone towers aren’t
taking necessary precautions. With that
being said, how many people actually believe the current price of stocks has
any basis in reality? It doesn’t. It is a momentum move higher, that gets fed
on by algorithms scalping for quick profits.
And this will keep going higher till it stops, then it will reverse
lower and do the same. Stocks don’t
trade based on how the economy is doing.
And they don’t trade based on their earnings. They trade based on what the PERCEPTION of what
their earnings are GOING to be in the future.
There are more problems out here then we know about. The Fed throws money at the market and it goes down, because the market wants to go down. Now the markets going up while they throw money at it. And it will keep going up until it doesn't want to anymore, regardless of what the fed does. People think they have a handle on what’s
happening now, and they think they can model the fallout and recovery. They couldn’t sleep at night without their
model to assure them its all going to be ok now that they THINK they have a better handle on whats going on and the repercussions.
Goldman thinks they know what GDP is going to be next 4 quarters. Time and time again, models have failed
because they can not accurately predict extreme human behavior in times of
extreme uncertainty, but this time they think they know. Once again, what will break the model will be
unpredictable human behavior, like it always is.
The SPX roared up to 2800 last week which was the upper
range of my original target area for it to go to. I began shorting the SPX and
the Russell 2000 as the SPX neared 2650, and have been adding small amounts to
my short position as it has increased. Monday,
it has pulled back, having a wild swing with a high overnight just about 2800
and a low at just about 2700. Now this will
be the “line in the sand” so to speak for the immediate future.
We could go sideways for a bit around these levels, but momentum to the
one side or the other will likely come as one of these levels is breached. Remember to buy into long positions on big
collapses as you are covering your short positions on the way down. Start small in everything you do.
 |
| We now have nearly a 16 point range, a gain of almost 100% from the low only 3 weeks ago. We are approaching resistance, as the GDX continues to under-perform the metal, after gold reaches highs it hasn't seen in years, miners are being capped at the same highs since 2016, when gold was $400 cheaper. A pullback is logical now. |
Gold has been absolutely relentless. We are pushing up to 1750 now and the GDX is
pushing up just below its high at 31.
There have been virtually no opportunities to buy dips here which has
been greatly disappointing. NEM broke 50
on Thursday and hit 60 today. A 20% move
in 2 days. This has been incredibly frustrating,
but nothing goes up forever. There will
be small pullbacks that come that you can buy small amounts into on the miners
and some junior miners. I think it will
be very difficult however, for gold miners to continue this rip higher if the
market does indeed roll over and start selling off strongly. Stocks are stocks, even if they’re gold
stocks. Liquidity panics effect
everyone. So, wait to buy bigger
positions for when you see massive moves lower in an absolute
panic.
In conclusion, I will leave you with a chart of another
curve flattening, the parabolic curve of the classic investment bubble. Where do you think the markets are in the
grand picture of all of this?
Stay safe and be careful out there, in the world and the
market.
-Jonathan M Mergott
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