Kelly Letter Excerpts

As many of you know, I am a follower of the Kelly Letter @JasonKelly.com in relation to long term ETF investing. While my T3 strategy can be applied to the long term investor or intraday trader, the fundamental re-balancing based on a 3% quarterly performance, is a sound strategy for any investor; from the seasoned to the laid back.

Jason sends out a weekly newsletter that gives an overview of the market and gives comfort and guidance to the reader to stick by a plan and not be waived by the naysayers as he calls it Z-Vals. With the range of emotions that are being thrown around these days, Jason’s newsletter and conference call have laid it out with no sugar coating and simply looks at the facts and not social media posts with a dash of CNBC hysteria.

In this weeks exceptional 22 page newsletter by Jason, I wanted to share some of his comments that could possibly move you to a place of calm and opportunity. Then again, there are those running all around yelling that the forest is on fire.

You choose who you want to be. I choose calmness and opportunity.  

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The Kelly Letter
Year 2020 | Note 12
Data as of March 20, 2020

I still advocate total economic shutdown, including markets, for the duration. No payments, thus no bankruptcies. Utilities and food would be backstopped by government. Everybody gets a span of damage-free rest and relaxation. When it’s over, back to work and school, with markets opening a month later. This would put a gap in the chart rather than a V-shaped crash and recovery that is so hard on people. This is too sensible, though. It will never happen.

THE VIRUS
As always, demographic perspective must stay front and center.

Dr. Tom Inglesby, an expert on pandemics at the Johns Hopkins Bloomberg School of Public Health, said, “The fact that Singapore, Hong Kong, Taiwan, South Korea and China—and to some extent Japan—have all flattened their curves despite having the initial onslaught of cases should give us some hope that we can sort out what they’re doing well and emulate it.”

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Life here in Japan is almost back to normal. The kids are still out of school, but cars are driving around, people are going to restaurants, shopping centers are busy, and springtime happiness is abundant. Grocery stores exhibit no shortages. The cherry blossoms might be more popular this year than usual, and that’s saying something.

Nobody foresaw the virus. In the decade of bull-market warnings from permabears, not one of them mentioned a pandemic. Any talk of a pandemic was in the most offhanded, general way that everybody knows random bad things happen, like warning that an asteroid might strike the planet someday. Nobody warned in an actionable way that, by the pricking of their thumbs, something viral this way comes.

Bears are no better in the descent of a bear market than they are in the rise of a bull. They are just as unreliable when saying things will get worse as they are when saying things will get bad. The best they ever achieve is correctness by coincidence.

Down here at this compressed price level that permabears did not include in their warnings, what are they doing to maintain permanent bearishness? Willfully ignoring the word “temporary” and its derivatives, and trafficking in unknowns that cannot be refuted. This is necessary for their side because the bearish case loses luster the moment “temporary” or “temporarily” is added.

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Understanding the big disruption is important in order for Congress to provide support, but investors and economists should not revalue the economy based on a passing condition.

Right now, entire shopping centers are shut down temporarily, so technically their current unemployment rate is 100%. However, the “next morning”—in this case, the moment word is given and the doors open again—they will return to work and the shopping center will revert to its previous unemployment rate or something close to it.

Beware warnings that we are entering the next great depression. We are not. We are shutting down temporarily. This dampens economic data, by definition, but only in the short term until normal life resumes and data return to their former levels.

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In the early stages of a descent, there are natural feelings of regret, of kicking oneself with hindsight bias at the feelings we supposedly had back at the peak, that “now would be a good time to take profits.” We ignore the many previous times that such feelings were wrong and obsess over that one last grand time that we could have stepped off at the top floor.

Eventually, we get to where we are now. A numbness sets in. You’re too far down to think of selling anymore, but you can’t imagine tying up any more of your financial life in this flushing toilet of a financial system. Following pain, numbness comes as relief. You might finally find yourself able to stop looking at your shrinking accounts. Every American has by now heard the snark that reappears in every downturn: “My 401k is a 201k,” to which somebody determined to show they’re even more clever is bound to add, “Mine is a four point oh one kay.”

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Enter our Sig systems. 

Followed by the book, they should in theory shield you from all the stress you have experienced so far. In reality, they can’t shield you from all of it simply because bear markets take over the news and daily conversation. Spouses make account balance inquiries. The situation comes up and you look and the stress of a declining line creeps in.

They still provide comfort, however, and here’s how:

1. They are index-based. You know they cannot go bankrupt.

2. They will recover. The market always has.

3. They will tell you what to do. During catalepsy, this is handy.

Not only will you be richer, you will be as battle-tested as any Sig system investor can get. This crash is a biggie, already historic, up there with the legendary crap-outs of dot com and subprime. After you pilot your Sig plans through this, nothing the market serves up will shake you. 

You will have seen it all, and the burbling of bears will come as meaningless chatter. You’re earning your stripes. You will wear them proudly the rest of your days.

This is potentially the biggest buy signal you will ever see in our Sig plans. When you look back on it later in life, be sure you fill with pride at having done the right thing. You are part of a singular group of investors, people who think differently, proceed confidently, and profit in the end. You run plans that are automatically greedy when others are fearful, and fearful when others are greedy. 

This is your moment. Reach for it, my friend, and feel the hands of other people who read this letter reaching for it with you. Some of them you know by name, like Roger and me and others participating on the subscriber site. Most of them you don’t, but they are in it with you and aligned with your same purpose here at the bottom of the quarter.

You have reached a milestone in your investing life, and you know what to do.

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As a follower of the Kelly Letter now for some time now (been that long, I can’t even remember when I signed up), you may follow Jason on Twitter @thekellyletter. While he may not spend vasts amount of time on social media, his effort is well placed into his 52 week newsletter delivered to your inbox when you wake up Sunday morning. His 3SIG book including his former valuable books are an easy read and simple investing tool for anyone willing to learn how to keep it simple over the long term.

 

 

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