IGNORE THIS MONTH’S FORECAST
The statistical stock market forecasting model says:
March, 2020  +5% 
Next 6 Months:  +17%  (Very high.)
Probability of at least breaking even: 95% – 97% (74% is long term average.)
What am I doing? Had been fully invested since spring 2009. Just closed leveraged positions. Still 70% invested, but worried. May sell more?

The novel coronavirus epidemic that has quickly spread to many countries is exactly the sort of Black Swan event that my models cannot predict.  These models are based on long term economic data, but the onset of covid-19 has been so rapid that the real economic impacts have not yet become apparent in the economic data stream. The epidemic is also totally unrelated to the normal business cycle that weighs heavily on how the models are constructed.

Please ignore my forecasts for the next few months.  I have no trust in them for now.

The current prediction coming out of the models sees a classic “buy the dip” opportunity.  The basic economic picture looks rosy (according to the data), hence last week’s selloff presents a wonderful buying opportunity — according to the model. But, I am not buying that story.

I certainly am no expert on viral epidemics, but a couple of things seem clear:

1. We should learn during March and April whether covid-19 contagion will die down during warmer weather like normal annual influenza spread. If not, a pandemic would seem to be certain. If the epidemic does end with warm weather, my optimistic forecasts could well prove to be correct. Totally unknown.
2. I don’t see much chance for any good news until at least the end of March when we will have the first indication of whether the contagion dies off with warm weather. That means at least one more month of raw fear in the market. Obviously that is a bad omen for the next month of market activity.
3. With or without millions of cases developing around the world, there will be a negative economic impact. World tourism has already had a body slam.  It wouldn’t be much of a surprise if quarantines, time off from work, and supply interruptions will stall economic growth enough to put the economy into at least a technical recession.  Even with a minor economic disruption, corporate profits could take a major hit that would continue to show for months after an epidemic ended.
4. There is so much that we do not know leaving us with no means to draw rational limits to our fears. The market might fall into a vicious cycle — market drops lead to more fears that, in turn, lead to further market declines. We just do not know.
5. Once the world feels safe again — whenever that happens — the collective sigh of relief will likely create an incredible buying opportunity. But, we really don’t have any clarity yet on how this will all play out.