Dear Subscriber,

As John Maynard Keynes famously said "When the facts change, I change my mind. What do you do, sir?” 

Over the weekend we got the latest data in on the negative effect of the now COVAD-19 epidemic looking more and more like a pandemic. On Friday we got the latest MARKIT economic data that goes into our Transformity Research MacroMarket Recession Index and the cumulative lagging and future indicators were undeniably bad. 

TR MacroMarket Recession Indicator: 15.3 --four tenths away from a recession in 4-6 months and bear market alert (20% correction) coming soon.  

Why? Look at the lagging and leading The Markit PMI data on the US economy so far:  (Markit is a newer data set than the 50 year ISM data and we use Market because it is more granular) is now showing trouble in the all-important services sectors (72%) of the US economy: A reading under 50 shows contraction: 

• Flash U.S. Composite Output Index at 49.6 (53.3 in January). 76-month low.

• Flash U.S. Services Business Activity Index at 49.4 (53.4 in January). 76-month low.

• Flash U.S. Manufacturing PMI at 50.8 (51.9 in January). 6-month low.

• Flash U.S. Manufacturing Output Index at 50.6 (52.4 in January). 7-month low

In short, everything of economic importance is down, with the services sector leading the composite PMI to a below-50 reading, a level not seen since 2013. Even more worrisome is the new orders component, where "new orders received by private sector firms fell for the first time since data collection began in October 2009."

On a relative basis--relative to how stocks have priced in 10% earnings growth in 2020 over 2019 flat earnings, these indicators cumalatively are shockingly bad. 

Quick Analysis: The 1-2 punch of 2 years of tariff wars combined with the world's first major global supply chain disruption has never been seen or modeled--forecasting here is like the parable of the blind men and the elephant where six blind men meet an elephant for the first time and and each man touches a different part of the elephant and makes predictions about what the elephant is like.

With so many variables at hand, all we can do at this point is
1) make a base case
2) Prepare for worst case

The base case is the virus peaks in China in the next few months and while the first quarter GDP is down 30-40% year-over-year, as spring warmth comes in March and April the heat adverse virus is killed off and there is a massive snap back in Q2-Q3 in China. I am NOT an epidemiologist and either are you--but I can read US data sets and they are alarming. 

The worst case is this coronavirus strain is the kind of mutation that the World Health Organization cautioned years ago that is a mysterious “disease X” that could spark an international contagion.

The WHO is telling us that the new coronavirus illness, with its ability to quickly morph from mild to deadly, is emerging as a disease Xcontender. From recent reports about the stealthy ways the so-called Covid-19 virus spreads and maims, a picture is emerging of an enigmatic pathogen whose effects are mainly mild, but which occasionally -- and unpredictably -- turns deadly in the second week. In less than three months, it’s infected almost 90,000 people, mostly in China, and killed more than 2,300. Emerging hot spots in South Korea, Iran and Italy have stoked further alarm.

“Whether it will be contained or not, this outbreak is rapidly becoming the first true pandemic challenge that fits the disease X category,” Marion Koopmans, head of viroscience at Erasmus University Medical Center in Rotterdam, and a member of the WHO’s emergency committee, wrote Wednesday in the journal Cell.

Action to Take: 1) KEEP YOUR HEDGES. We own the two best performing stocks in the world over the last 3 years NVDA and AMD and hold life-changing profits. My best guess here is the black box algorithms that are the marginal buyer and seller in the markets today will sell their winning QQQ stocks if key 50-day support is broken and take them down to 200-day.

The markets are going to open up down 1% ish in the morning and at key support levels--let's see how the market closes tomorrow. If the 9-day trading averages crashes through the 4-day on the QQQ, the algo momentum trade will be triggered in many of these black box trading systems. WE will use put options at key support for NVDA AMD and hard profit protecting sell stops if the momentum devolves into panic selling

AMZA: AMZA broke it's 3.86 double bottom on Friday with oil prices up--very strange. My strong guess is since many MLPs are owned by retail investors there was panic selling (based on trading volumes). I am back testing a rather sophisticated hedge using options on leveraged energy ETFS that I will share with our All-Access members (they are paying for more advanced advice and strategies ok?)

AMZA will pay an 8-cent dividend on Feb 28th (which is why it traded down 8 cents after ex-dividend date). There is a $4 AMZA put option available if you are afraid of $25 oil (which I will advise all on if we down don't see a bounce here). Personally, I will be a buyer into this forced selling (disclosure: I will own 100,000 shares in AMZA into this panic selling WITH a $4 hedge--$8,000 grand a month is fine way to ride out this panic).

BUT if you can't take the brain damage ahead, BUY AS MUCH PFFA AS IT TAKES TO SLEEP WELL AT NIGHT (paying 10% ish) as preferred stocks are a safe haven into the eye of this storm.  Here is my advice from last update:
 
My AMZA + PFFA System= A SERIOUS Monthly Paycheck!

Here is what I do with PFFA and AMZA and recommend you do, too. 1) I load up on PFFA with any profits I take in our TR Pro ultra growth positions up 1500-2500% (like some AMD and I sold a little NVDA in my account at the surge open this morning) or my options trading account and then I buy AMZA under $4 with those proceeds. I did the same with some NEWT profits I took--proceeds going into PFFA paying almost an 11% yield and I wait for AMZA to get down under $4 or better (the bottom has been $3.86 hit twice in last 90 days BTW) and MAN that monthly dividend check is getting sweeter and sweeter!

I'll get into our oil price forecasts in next NL...but $50 is the line in the sand for the lenders that finance US oil production. Since the US has become THE marginal seller of oil and natural gas to the world, when lenders stop lending to rapidly depleting fracked hydrocarbon drillers, supply comes OFF the market. When China returns to normal, oil and nat gas imports return to the world's largest importer of oil and natural gas, ok? 

Main Advice--TAKE A DEEP BREATH and take ADVANTAGE of the people who are freaking out. Investing sometimes is just the law of the jungle.  

Here's my suggestion--take advantage of our NEVER AGAIN 5-Year $495 All Access subscription deal--it will only be available to first 50 subscribers who jump on it first--that's it.

We have almost 40 members in -- there are 10 spots left.

Our All Access membership was MADE for weeks like this--strategic and tactical analysis advice in real time related to the very REAL money you have made and hold in Transformity Investing positions. 

We will hold our first ALL ACCESS conference call and Q&A later this week--IF you are a new member you will be contacted with instructions and details for the call.  

Why become a Transformity Research All Access Member (besides saving 50% off the annual renewal rates?).

7 BIG VALUABLE HIGH ROI Reasons Why You Should Become a 
Transformity Research ALL ACCESS (TRAA) Member TODAY:

1) TR PRO All-Access is a ONE-TIME NEVER AGAIN 5-Year Subscription Offer to BOTH our #1 rated Transformity Investor PRO + $10,000-a-Month Income Investor Club. At $495 that's a 50% Discount. I guarantee that when we move our two services to a large financial publisher (active discussions with multiple parties on-going) that deal with be $2,000 a year I promise. 
2) Because most of you asked for it, TRAA members will get exclusive 24/7 access to TR staff via our new private Slack Channel! On our exclusive members-only Slack channel, you will have access to the research we spend $30,000+ per year to subscribe to plus have access to our SME (subject matter experts) network (now over 8,000 on Linked-In) 
3) Because most you asked, TRAA members will also get direct personal E-mail/Text Access to Tobin Smith to answer your most urgent or important questions (that is why we limit TRAA to 50 members capiche?)   
4) Because you asked for it, TRAA members will exclusively get Monthly & Market Emergency Conference Call access where every one of your most burning questions will be answered (and transcribed into text and emailed)
5) You will generate 30-50% MORE INCOME per Year from $10k-a-Month Club Monthly Dividends from our Unpublished Covered Call Option trading alerts. These are trades that I do in my personal portfolio to generate insane amounts of free money from selling call and put options against existing positions at the most profitable times.  Just like the InfraCap portfolio managers do in AMZA and PFFA, we have developed an AI-based system for taking advantage of big juicy call option premiums that are just too easy and profitable to miss!
6) As a TRAA member, you get preferred access to our limited attendee Transformity Investing Investor Conference in beautiful and warm Scottsdale   (coming next year in early March)

7) And perhaps the most valuable perk of all: An exclusive invitation to join the Smith Crew on our next World of Wine, Dine and Culture Adventure trips limited to 18-20 people (warning: we DO INTERVIEW applicants before accepting!)  Over the last 20 years, we have been to almost every fabulous wine/gastronomic/cultural regions of the world except for Australia/New Zealand and the Rhine Valley (coming soon!). But the next trip looks like Montevideo, Uraguay/ Buenas Aires and Mendosa Argentina (with an extended repeat visit to Cusco & Machu Pichu for those who missed our last visit) in the Fall of 2020.  

The best part of our trips all over the world is the many lifelong friends we have made with our subscribers (and our guests have made with other guests!!) And that means we don't accept high maintenance whiners ("are we there yet? I hate delayed flights"), inexperienced travelers (stuff happens--you gotta roll with it), no overly-sensitive types (we like to have fun and kid each other mercilessly) but most of all people who ALL believe and practice in our adventure travel motto:

We are NOT HERE to save money, lose weight or be sober all day!
Here is the call-to-action: When the 50th member is in and paid,  that's it. And I hear ya; $495 for 5 years?? What's the catch.
I personally invite you to join me and the TR Pro Team in earning even MORE stupid ridiculous profits riding the Industrial Revolution 4.0 wave--and have some great adventures, gastronomy, wine and laughs along the way!

Again, just click here and sign-up EARLY for Transformity Investing's All-Access Membership pass  https://transformityresearch.com/register 

Toby