Going into 2020, I was quite bullish commodities, but not bullish stocks at all. I was excited about commodities because the Trump trade war with China had been underway since March 2018 and it seemed as if it was about to end.
As for stocks, they did quite well in 2019, thanks to the U.S jobs force being the largest in 50 years, but it also seemed the market was ahead of itself and poised to turn lower.
Commodities was the place to be in the New Year, all my work suggested. But that turned out to be an erroneous assumption on my part.
In early January, China and the United States did sign a treaty to end the trade war. But a few days later, coronavirus began to sweep the globe, bringing every economy to its knees.
The bearish icing on the cake was when Saudi Arabia and Russia got into a price war over crude oil and petroleum prices evaporated, eventually falling to less than zero a barrel — yes, crude oil prices fell to less than zero a barrel.
By March, the market psychology for stocks and commodities turned to despair with values and prices everywhere falling like the proverbial stone. And now, the United States is facing the most severe economic crisis in the past 90 to 100 years.
Stocks and commodities have gone from the penthouse to the outhouse in six tumultuous months. And in my view, there is no end in sight to the historic mess that began in earnest in January.
On April 24, I penned a column entitled “Dominated by Deflation.” I wrote, “What has already been experienced from January through this week may be just the tip of the iceberg for what lies ahead. The year is young and the markets dominated by deflation.”
However, that, too, was an erroneous assumption on my part. Since I wrote that column, a host of markets have improved dramatically in value, shooting a big hole in my argument that deflation is the dominating force in the marketplace.
For instance, stocks as measured by the S&P have rallied 37% in the past 50 days, the largest rally in history. The Nasdaq 100 hit a new all-time high.
In May, crude oil prices enjoyed their best monthly gain in history, picking up 70%. Gold and silver prices recently rose to multi-year highs.
Rice hit all-time record highs, hitting levels not seen since 2008. The oat market bounced up to levels not seen since 2016. Multi-month highs have also been seen for cotton and milk.
The lesson here is not to assume anything where markets are concerned, or in many other situations, as well. And that, of course, reminds me of a story about erroneous assumptions.
Here it is: One day, a grasshopper strolls into a bar, looks around and quickly hops up on a bar stool. Suddenly, the bartender walks over and says with a big smile on his face, “Hey, we have a drink named after you!” The grasshopper, somewhat surprised, says, “You have a drink named Ralph?”
When it comes to markets, never assume anything. And that leads me to tout my two top rules when it comes to investing and trading.
Rule No. 1, “no one knows for sure what will happen.” Certainly, some folks are more accurate and intuitive when it comes to forecasts and predictions than others.
But the bottom line is not even they “know for sure.” And because of Rule No. 1, Rule No. 2, should be followed at all times.
Rule No. 2 simply suggests “using a stop at all times.” Draw a line in the sand where you call it quits if an investment or trade starts causing pain. Always attempt to keep losses at a minimum.
The June Employment Report released by the Labor Department this morning was assumed by virtually all the “experts” to show millions of new job losses that would push the U.S. unemployment rate up to 19% to 20%, a level not seen since the 1930s. Instead, the rate came in at 13.3%, actually disclosing that 2.5 million more jobs were created last month than were lost.
The unemployment rate was pegged at 13.3% and not in the 19% to 20% range. And the job gain was by far the biggest one-month rise in the United States since 1939.
I cannot recall a time when so many “experts” were so embarrassingly wrong about a jobs report. However, immediately following the June jobs report the same experts are now assuming for the U.S. economy the worst is behind us and better times coming in terms of job creation.
And let’s all hope those assumptions are not erroneous.