TradeSmith Daily

April 2020

Transmission Failures Will Sharply Limit the Impact of the $2.2 Trillion Stimulus

April 8, 2020John Banks

In the halls of Congress in Washington, D.C., there is already talk of another mega-sized rescue package. This one could be heavy on infrastructure, or so the rumors go. Depending on how things play out, this new package could land in another month or two. On a more immediate note, Treasury Secretary Steven Mnuchin wants to add $250 billion to the $350 billion allotted to small-business loans. Senate Majority Leader Mitch McConnell backs the idea. Congress wants to spend more

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How Systemic Breakage and “Flattening the Curve” Helps Explain the Real Economy Crisis

April 3, 2020John Banks

We’ve been trying to find ways to explain, in simple terms, why the market has not bottomed and the economy won’t bounce back quickly. We feel the need to press this point because so many analysts are going the other way — and we feel strongly they are making a mistake. For investors, it could be a very costly error to bet on “the bottom” here with committed capital in a big way, or to make decisions that assume a

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Wall Street Analysts Need to Throw Away Their Models

April 1, 2020John Banks

It almost feels inhumane to be focused on markets right now. After all, the United States is headed into its worst crisis in 75 years (since World War II), if not the Great Depression (1930s) or the Spanish Flu aftermath of World War I (1918). And yet, retirement nest eggs still matter, and savings still matter. So, the stock market still matters, too. Pandemic realities aside, we’re concerned by growing calls for a stock market bottom. The proliferation of Wall

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March 2020

The Odds of a V-Shaped Recovery are Zero

March 31, 2020John Banks

There are multiple economic recovery scenarios, and varying expectations for how long each one could take. These scenarios are often described as letters of the alphabet. A “V-shaped” recovery is the best-case scenario. In a V-shaped recovery, the economy bounces back as quickly as it fell. V-shaped recoveries are fast and vigorous. A “U-shaped” recovery is the middle-of-the-road scenario. There is a flat stretch of time at the bottom of the recovery, and then a near-vertical return to normalcy. The

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Self-Delusion is Not a Valid Coping Mechanism

March 25, 2020TradeSmith Research Team

Self-delusion is not a valid coping mechanism. In order to protect their capital, investors should remember this at all times. In the midst of a national crisis, citizens should remember it, too. Under normal conditions, optimism is a desirable trait. Optimists have a natural ability to enjoy life. Seeing the bright side of things is good for mental health, and it’s a form of motivation to see the glass as half full. But optimism at the wrong time, or in

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The Four Things America Needs to Beat the Pandemic (and Save the Economy, Too)

March 25, 2020TradeSmith Research Team

The coronavirus pandemic is not just one global crisis. It is actually two distinct crises rolled into one. On the one hand, there is a public health crisis. The speed of contagion combined with the severity of symptoms — for about 20% of those who catch the virus — leads to hospitals becoming overrun. At the same time, there is an economic crisis. The work stoppages and severe “social distancing” measures required to slow the contagion rate — and protect

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Why Mental Capital is Just as Important as Financial Capital

March 23, 2020TradeSmith Research Team

Investment success depends on two types of capital, financial and mental. We are all familiar with financial capital. This is what goes in the brokerage account. Financial capital is what we use to buy and sell stocks, options, cryptocurrency, or whatever it is. But mental capital, though less well known, is just as important. Without mental capital, financial capital is useless. The wise investor practices risk management not just with financial capital, but mental capital, too. So, what is mental

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U.S. Treasury Bonds are the Most Important Market in the World Right Now

March 19, 2020TradeSmith Research Team

The most important market to watch right now might be 30-year U.S. Treasury Bonds, known as “long bonds.” Treasury bonds are supposed to rise in value when the stock market falls sharply. There isn’t a rule that requires this. Instead, it is just the normal way things work: When stocks drop heavily and across the board, capital flows out of stocks and into “safe havens.” One of the largest and deepest “safe haven” destinations in the world is U.S. Treasury

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