One black swan is bad enough, but two at once is a very bad day on
Wall St, and a panic reaction. The important thing is to stick to your goal for
investing. If you are invested for the long term, for retirement, or whatever
is the long term goal, stick to it. Then make your own assessment of where the
economy and the market will be in 9 months. Selling now would be a mistake. As
I have noted several times, the underlying US economy remains in basically
solid shape. There is no risk of a financial crisis, and that is key to how we
get through this without a deep recession. The banks have more than adequate
capital, which is critical. The Fed is pouring liquidity into the capital
markets to make sure there is no shut down of credit facilities as we saw in 2008-9
and other past recessions. The banks publicly agreed to extend credit, modify
loans, forbear, extend maturity dates, and to do whatever is needed to help
small and mid-sized companies get through the slowdown. The exact opposite of
2008-9. Add on the extra unemployment payments and other things the government
is going to do to help workers get through this period, and the slowdown will
not be a major recession, and possibly not even a minor one. There will be a
substantial slowdown in Q2, and it may be negative growth, but by Q3 things
should be starting to get normalized. Unemployment so far is still near record
low, and wages continue to rise at 3%. Layoffs are at normal levels because
nobody wants to lose staff then may not be able to replace, even unskilled
staff. However that is likely to change now as the orders to stay home and away
from crowds has begun to have a major impact. A restaurant I was at last night
in Longboat had notable fewer guests, and the waitress said it began a week
ago. It was still crowded, but not like it normally is.
Once the virus is stopped in spring, things will slowly get back to
normal in Q3. A lot depends on if Congress can act like grown ups and pass good
stimulus immediately, and not pack it with all sorts of special gifts like they
just did with the $8 billion virus bill. So far they want to increase
government spend and not do the things in partnership with the private sector
that would make a real difference. Now the Dems put forward a bill to prevent
Trump from enforcing travel bans, while the experts say that is critical to
have saved lived in the US. The Dems blasted Trump for the China ban saying it
was racist and nationalist, the medical experts said it was critical to save
American lives. You have wonder what planet the Dems are on. Trump’s plan to
subsidize workers laid off due to the virus is critical to help stop the spread
by encouraging people to stay home if sick. I fear the Dems will try to load a
critical bill with all sorts of pet policies of theirs which have nothing to
do with the virus and nothing will get done. Then they will say Trump and
the Republicans refused to do what was needed to stop the virus. You can
write the script.
Treasury rates are essentially zero on an after tax basis. Credit
spreads have only widened a little for most, so borrowing costs and good
availability of funding continues. This is key to avoid a real recession.
Savings for consumers is very high, and home values remain headed up for now.
Mortgage rates are historically low, so with a refi consumers are materially
improving their ability to service debt, and save the extra cash flow. It will
help many get through this period with no real pressure. Refis are up 75% this
last week. That is a huge good thing for consumers to improve their cash flow.
With energy prices so ultra-low, gas prices and energy prices generally will
save a considerable amount for low income workers. This will help subsidize
potential lower hours worked during this period. Low rates and low energy prices
are likely to continue for an extended period, although oil prices will likely
rise quite a bit as the year goes on and either the Saudis or Putin blink. Now
with the White House promising various fiscal support measures, there should be
no pressure on most consumers unless the Dems just torpedo what Trump is trying
to do. . The banks around the world are essentially carrying weak borrowers
until things settle down. Online meetings are now common, as are all sorts of
other things like classes, interviews, and discussion matters with your doctor,
etc. This will never go back to the old face to face in many cases. In
summary, other than equity prices, there are a lot of very good basics in the
economy, and there will be government and bank assistance to get struggling
industries through this. Q2 is the test, and by then it seems the virus will be
subsiding, and a vaccine will be in testing. S Korea and China seem to be in a
declining mode for the virus, as is Singapore. There seems to be some preliminary
evidence that warm weather does eliminate the problem. The worldwide efforts to
contain and control the spread seems to be working in most places. Ignore
DeBozo who is now running around claiming there are so many new cases in NYC
they cannot cope. That is nonsense and exactly the wrong message for a
political leader to send. It is politics at its worst. Even Newsome said the
administration has done a very good job and has done everything he has
requested. Clearly Q2 will be poor GDP numbers, and maybe a negative, but then
in Q3 the recovery will be underway. It may be a V shape, or the impact
of Q3 may be such that the recovery is a U. . So if you are invested for the
long term, sit still or selectively buy some names like APPL, or MSFT, and get
in where you missed out before. I do not see a recession, and even my economist
friends who have been forecasting one for months, are not fully convinced we
will have one. This too will pass and your portfolio will recover. It will just
be volatile until possibly July. You need to pay attention to your long term
goal and wait for the upturn which is certain to happen before year end. The
recovery will be like almost all other. When the panic subsides, the
buyers appear and then the market takes off as the cash hiding on no return
bonds comes back into the stock market. After the market tanked in Dec 2018, it
then roared ahead by over 30%.
The former president of Shell says most oil companies are well hedged.
Even so there will be heavy financial strain on the oil patch. A number of
producers and service companies were already under pressure from excess
leverage, and poor management, and will need to merge of go through a
prepackaged bankruptcy, with a PE firm, or a strong oil company buying them out
of BK. I do not expect Exxon to cut its dividend, as that would send a bad
signal. Rig counts will be down, so US capex spend will be down. Depending on
the Prince, there is no way to know how long this might continue. Putin
will not win this effort to harm the US industry. Russia cannot afford to play
this game for long. Their entire economy is dependent on oil revenue. Russia
needs $54 oil to break even. Some US frackers say they can do it at $30, and
some need over $40. Clearly the US producers can withstand this a lot better
than Russia. Putin can withstand a lot of anger from his people, but at some
point he needs the cash to run the military and sustain Syria. The White House
will provide some help to oil companies, but not a lot because it looks bad in
an election year to help oil companies. The banks will likely step in to
subsidize them with forbearance and forced mergers.
So 2,000 down 1,000 up, 1,400 down, just another day on the irrational
roller coaster. Whatever the futures register in the pre-market seems to have
no connection to where the market closes. Algo programs are set to read
positive news, the stimulus plan, and then react. There is no human analysis of
-is this realistic to be passed, or what is the impact on the deficit, or other
issues that are unclear. The AI program just says-this is good-buy. Then they
all buy. Oil price war-bad- we sell. It is not quite that simplistic, but
essentially that is what happens. There is no way to predict much
of anything right now since there is no way anyone can predict how bad it might
get. Given all the efforts to contain, it is very likely to be much
better than it might have been , so best to just ride it out. The ten year has
spiked back up from a low of .31% to .77%, and wherever from here. You could
lose a lot if you buy Treasuries now. China is coming back online, and supply
chains are getting sorted out slowly. Delayed orders at US factories will just
be delayed, not cancelled. Consumers will order online instead of in person.
Meetings will happen online and conferences and trade shows will just be
delayed by a few months. Companies and consumers adapt quickly. There will be
issues for sure, but it is not the end of the economy. Life goes on. At the end
of WWII when the whole of Europe was in total ruins, people figured it out, and
life went on. That is the nature of humans. This is not disastrous by
comparison to 9-11, Katrina, Sandy, the Lehman crash, and lots of other mass
crisis happening, and we moved on. If everyone does what they recommend, there
will be much less flu and other sickness going forward than there would have
otherwise been. Relatively few have died in the US if you eliminate the 19 from
the nursing home. So many people and companies are self- isolating that
the potential for major problem is being dramatically reduced.
It seems ironic that net of the nursing home there are still only 10
deaths. If the government for the past ten years had spent the same effort on
opioids, and stopping that scourge, it would have saved tens of thousands of
young lives. The opioid problem is a national security issue and an economic
issue as it leaves tens of thousands unable to work and in poverty. Maybe I
just do not get it, but if old and sick people did what they say, and lots of
meetings and conferences are moved online, and if workers work from home now
where they can, then the spread of the virus will be contained and deaths will
be minimal. This is all about self -reliance. The whole press to-do about test
kits was slammed down by Fauchi yesterday as a false premise, and right after
the news on NBC was that the country is in an uproar over the lack of test
kits. The exact thing Fauchi said was false. The press and Dems are doing more
damage to panic people than the reality of the virus.
Biden will be the nominee. It came out today that Joe is limited to 7
minute speeches by his campaign. Even that is too much for him to get through.
Everyone knows and says publicly he is not mentally competent to serve, but
they vote for him anyway, and the DNC pushes him out there. Bernie’s people
will not support him in a big way, his mental deficiency will become more
apparent in debates with Trump, and the whole thing will be embarrassing. If
Trump would just act properly he could get back votes he has blown with his
personality. He just cannot help himself. Joe’s brother has been indicted for
fraud. His son is in contempt in his paternity suit for claiming he can’t
appear nor produce his records until November. The judge ruled and denied his motion
for extension. She could throw him in jail, but, magically Hunter proposed a
big settlement to try to avoid disclosing where his money came from. The judge
said she may want the records anyway to assess the settlement. And you
think Joe did not know all of this and is not corrupt. Corrupt and senile-nice.
Then we have Durham coming in 2 -3 moths.
Many people worried Bernie would actually have a chance to get elected
and that the bartender from the Bronx will be a serious candidate in 10 years.
Utter nonsense. Once the primaries got out into real America, and away from the
northeast college areas, Bernie got crushed by a mentally incompetent old white
guy. There was never a movement to be socialist, and there never will be. That
is not who we are, and there remains a vast majority of Americans in the middle
and capitalist. Millennials are growing up. They will eventually realize they
have successful lives because of capitalism and that the library, or gym, or
food bank or many other things in their city are the result of rich guys
donating the funding. They will realize their job is dependent on their
employer making a lot of money. Polls of Dem voters show they are for
reparations, free health care, loose immigration, and many other things the far
left and university professors teach. But age and kids, and bills to pay, will
help them get to reality. The bartender will get buried after Bernie gets blown
away. She has defied the party and worked to unseat Dems. They will retaliate.
For my part, I went fishing today and ignored the market. Great day
fishing, caught a 500 pound Jewfish, two 50 pound amberjacks, and a 40
pound Bonita. Beats watching the market.
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Clint added this FYI https://noqreport.com/2020/03/13/3-ways-the-coronavirus-is-being-exploited-by-bad-actors/
