Dear Subscriber,

Ladies and Gents--yes the Bank of Uncle Sam and faith and credit of the US Treasury is open wide, and yes they combined can print (and the Fed monetize on its balance sheet) all the $trillions of money we need to plug the $6 trillion dollar hole in our economy with literally a keystroke at the NY Fed and the Treasury.

But that is just not enough to stop the US and global demand and supply destruction.

I have delayed beginning to rebuild our growth stock portfolio and $10k-a-Month Investment income portfolios (with a few exceptions) for at least 60-days (with some exceptions) for one reason: because our updated comprehension and understanding of the latest macroeconomic data of the "Known Macro and Micro Economic Knowns" and the "Known Unknowns" has so dramatically negatively changed in the last 7 days.

Why?

Well first, when we updated the new data into the 45 factors of our Transformity Research MacroMarket Timing Index on Thursday, our "Macro Market 14.1 Reading: RECESSION AHEAD--Go to Cash with Risk Assets" call on Feb 25 is now a historically low 12.3

That reading is already below our "Go to Cash in early 2008" call and our "Stay in Cash" late 2008 reading of 13.5. It's the lowest reading.

Furthermore, when we update our Transformity Research MacroMarket Timing Index with this coming week's unemployment, sales tax's collected figures for March, I expect our index to drop near or below 10. That score will be 30% lower than ANY score since 1988. That reading is literally 7 standard deviations away from the standard range deviation (which is called a "black swan" unplanned and highly destructive economic event.

When we plugged in the massively record-breaking Q2/Q3 recession data from my friend and super-on-target macroeconomist Michelle Myers at BofA numbers into our 45 pieces MacroMarket Index on Thursday, it was shocking. Our forward-looking index now indicates the worst recession in US history (ex-the Great Depression).

Our New American Macroeconomic Base Case is 3 QUARTERS of Decline

Here is Ms. Myers's macro-update that she sent to us and others last Thursday.

The deepest recession on record': Bank of America slashes forecasts, now sees up to 20 million jobs lost, 15.6% unemployment, and a shrinking economy for 3 straight quarters

Bank of America now expects US gross domestic product to contract for three quarters, with a cumulative decline of 10.4%, it said in a Thursday note.
The bank also said as many as 20 million jobs could be lost because of the coronavirus crisis, sending the unemployment rate to a high of 15.6%.
"This will be the deepest recession on record, nearly five times more severe than the post-war average," the Bank of America economist Michelle Meyer wrote.

After assessing consumer and other data over the past two weeks, Bank of America said it now sees the first-quarter GDP sinking 7% and continuing that decline with a 30% drop in the second quarter. It will rebound slightly in the third quarter but still end up at -1-2%, according to the bank.

"While consumer spending will likely turn positive in 3Q as the economy slowly opens, we expect a further contraction in business and residential investment," Meyer wrote. "We also think there will be additional inventory contraction given impaired supply chains and frictions in production."

Bank of America is also expecting deep losses in the job market that would send the unemployment rate rocketing higher. Two weeks ago, 3.3 million Americans filed for unemployment insurance, and last week an additional 6.6 million filed.

Over about two months, total job losses could be between 16 million and 20 million, according to Bank of America. "The pain is unlikely to subside quickly as many states have reported major backlogs of applications," Meyer wrote. The staggering job losses could send the unemployment rate as high as 15.6%, much higher than in previous downturns, she said.

"We think there is more to come," Meyer said. "Given the severity of the downturn, we think more fiscal stimulus will be needed." More tax rebates, further expansion of unemployment benefits, and more funding for small businesses are "potential possibilities if the depression-like slowdown persists through the summer," she said.

Bank of America thinks the fiscal response from Washington could total $3 trillion to $5 trillion, or 15% to 25% of GDP, pushing the deficit to unprecedented levels. She continued: "Beyond that, other stimulative measures such as a payroll tax cut or a major infrastructure bill could be needed to resuscitate the economy."

Reality Check: I agree with the PPP 2.0, Unemployment Extension 2.0 and Infrastructure 1.0. This is a POTUS and Congressional election year. I lived in DC for 23 years and have a contact list FULL of the right and left-wing political apparatchiks and Federal Government and military. The one thing otherwise tribalized partisan Dems and GOP'ers all agree on is this: We will sell $2+ trillion of 30-50 and maybe 100-year bonds to fund the MOTHER of all infrastructure projects second only to the New Deal's CCA, CWA and DRS agencies the during the real depression.

What's the good news here? The odds of another Great Depression 2.0 are virtually ZERO with the ultimate creation of a COVID-19 vaccine early next year and an effective therapeutic in Fall 2020.

Why? Because a full-on 1930's 25% unemployment 30% lower GDP Depression is HIGHLY unlikely (and really impossible in 2020) since after the stock market crash of 1929:
a) the Fed RAISED short term interest rates into 1931-32 and tightened monetary conditions
b) the new POTUS Herbert Hoover RAISED import tariffs on Europe 40-80% (Smoot Hawley law)
c) Europe retaliated with even higher tariffs and US exports to the world dropped about 60%
d) Before FDIC deposit insurance was created, during the first 10 months of 1930, 744 banks failed and ultimately more than 9,000 banks failed during the decade of the 30s. It's estimated that 4,000 banks failed during the one year of 1933 alone.
e) By 1933, depositors saw $140 billion disappear through bank failures and another $200 billion in stocks and bonds value go to money-heaven.
f) Unlike the 30's, we are not experiencing a deadly drought in the Midwest and Southeast that crushed farming and livestock industries (and caused the Great Migration to the West and East Coasts).

In 2020 after inflation dollars, the US economic and financial system blew up the equivalent of $5,079 trillion by 1935. The US GDP dropped from $900 billion in 1931 to $570 billion in 1935--nearly 40%!

But you know what they say: When your neighbor loses a job, its a recession. When YOU lose your job, its a depression. To the many households in America in working poverty (earning above poverty level of $28,000 but below the median average of $62,000), they are one paycheck away from defaulting on rent, mortgage or car payment and cannot write a $400 check. If they take cash advances from credit card, that gives them a month or two. The $2400 wire coming April 9th will put a finger in the financial disaster dike.

We are going to roll out a 3-part series of investment newsletter editions to inform you on the most important issues we all need to get right to rebuild portfolios you manage that you did NOT hedge as we advised on Jan 24 or go to cash on Feb 25.

The Most Important Investments Decisions We Have to Get Right

1) When is the market for our #1 performing growth portfolio of SECULAR transformational growth stocks SAFE to start legging into them (because like in ANY low growth/ultra low-risk free bond environment) our 3-5 year secular growth sectors and the enabling IP creators and owners with deep competitive moats will be the winners in the Post-Pandemic global economy
2) This is NOT a normal "buy the dip" type of market or V-shape bounce back. This is an elongated "U" recession that has high odds to have a new Fall bounce back in cases as the Spanish Flu did in 1918 and 1919.
3) We all have to not listen to the Happy Talk from the White House. This is NOT a business cycle recession. This is a biologic crisis, macroeconomic demand destruction and liquidity crisis, and an existential household and small business financial viability crisis.
4) The economic shock waves continue to reverberate as not seen since the Great Depression. The body count of disease victims and small business closings are impossible to forecast.
5) Even AFTER we have the virus stopped, for the 75% of the American households who live paycheck-to-paycheck, 40-60 million will be hoarding CASH and defer major purchases and travel.

We continue to work on the economic and strongest secular "known knowns" that we can use to pick winning stocks and avoid "Dead Man Walking" sectors and stocks with negative GDP for 3 quarters. Other one time opportunities like USAC will undoubtedly present themselves.

What To Do Now: For you who run traditionally balanced portfolios (risk-free bond % according to your age e.g., if you are 60 you hold 60% of your financial assets in a portfolio of bonds or bond ETFs) and 40% in equities, I well understand that the gains in your bond valuation largely hedged your equities--that's the whole idea of portfolio balance--bonds go up in value down in yield heading into and during a recession based bear market.

Your bonds are at record high prices--and the Fed WILL NOT LET the 10-year and 30-Year US Treasury bonds to go to negative rate--that would kill the bank's profitability and add another log onto the US economic bonfire.

Action to Take: Hold your bonds US and Investment Grade (IG) bonds with at least BBB ratings tight--the Fed has put a floor under them EXCEPT for non-investment grade bonds. Get rid of your non-investment grade bonds. Look at the junk-bond ETF HYG. BTW--the ONLY way to look at stocks and bonds and indexes in this chaos is MONTHLY charts--weekly or daily charts don't tell us where valuations in a historical context.

Here is the HYG on a monthly chart; it's about to break it's 100 weeks aka 500-day moving average--amazing.

Market Dislocation Forecast Update: Our new base case for the S&P 500 drop based on our Transformity Research Macro Market Index. Our trading range forecast is now DOWN to 1600-1800 SPY range which is at least another 30% fall in the SP 500. (unless a miracle vaccine is suddenly approvable).

The Nasdaq Composite and Nasdaq 100 will fall less but the Russell 2000 Index (comprised of the smallest 2000 market cap listed companies in the total market Russell 3000 which represents 98% of US stock market capitalization) is going be most negatively affected.

Action to Take: Buy August 2200 S&P Put Option on 5% or more spikes

The Russell 2000 is the important bellwether of the American economy because it measures the performance of smaller, domestically focused businesses. And it is exactly those smaller domestically focused American central enterprises that are most at risk of the serious negative financial and economic waves to come.

Actions to Take: Use ANY melt-up day above $110 to BUY an August $85 PUT Option

SELL the SMHB ETF-- that was the wrong call now that we have 3 quarters of negative GDP ahead.

Part II out next 24-48 hours--A DEEP Dive into WHY This 3-headed global crisis is so much more powerful than past 2008 or 2000 event-based recessions.

We have our entire Tranformity Research Alliance group submitting data and sector information to us like a firehose. There is NO RUSH now to play the V-shaped recovery that is now impossible. As the SP 500 prices in 3 quarters of negative DP into 1600-1800 U narrative is a process.

Keep positive and keep your social distancing!! Don't get me started on the States that have ignored the CDC guidelines.

April Newsletter Part 1: The Known Unknown of the Pandemic Bear Market

Toby