Tuesday, February 25, 2020

Coronavirus (COVID-19) Takes a Bite Out of Europe and Wall Street

COVID-19 continues to rage, and on Monday, it took a bite out of global markets, especially in Europe and the Americas, with stock indices falling in a range around 3.5% on the day.

For the Dow Jones Industrial Average, it was the biggest decline in two years and the third biggest point drop in the history of the index, closing just short of the #2 all-time drop, −1,032.89 on February 8, 2018 a decline of 4.15%. Monday's rip was a 3.65% decline.

The S&P's 111.89-point loss was the second-worst ever on that index, nearly topping a 113.19 loss, also from February 8, 2018. The NASDAQ's 355.31-point decline was the second biggest on record. The worst day for the NASDAQ was on April 14, 2000, when the index plummeted nine percent, posting a loss of 355.49, kicking off what would be known as the dotcom bust.

There's a general theme around these kinds of outsized losses. Usually, there's follow-up, but it doesn't always come the very next day. It's usually another day later. That's likely because investors have become so accustomed to "buying the dip" that any major loss is seen as a buying opportunity, and this may well be, but it's probably going to be better to sit and watch on Tuesday and be ready to jump in (or out) on Wednesday or Thursday.

Another wave will come, and it's not going to be pretty. as pointed out in our Weekend Wrap, investors aren't concerned with the spread of the coronavirus per se, they're worried about the effect it is going to have on businesses, particularly, in this case, those with supply chains emanating out of mainland China, and there are plenty of them in addition to the airlines and cruise ship companies which have already been hard hit by the tail of the virus.

The after-effects from COVID-19 aren't going to emerge for months. Less than two months into the pandemic, the virus has yet to unleash its most virulent strain upon a host of countries outside China, but the list of countries seeing the number of new infections growing is getting larger. Italy, South Korea, Iran, Hong Kong, and Japan are the current hotspots, with cases doubling every day or two.

It will take some months for this to slow down and eventually be contained, but it's going to be very disruptive to the normal flow of business for some time. This is definitely not a time to be bullish, though the second half of the year may be.

With stocks battered around the world, bonds rallied, with yield on the 10-year note dropping eight basis points, from 1.46% to 1.38%. The 30-year bond hit another all-time low yield at 1.84%.

The yield curve remains inverted at the short to middle, with 1, 2, 3, and 6-month bills all posting yields higher than the 10-year, though the 2s-10s remained constant at a 12 basis point difference, the 2-year ending the day at 1.26. The curve is nearly flat, with 1.60% at one end (1-month) and 1.84% at the other, on the 30-year. A soft underbelly in the middle, with a 1.21% yield on the 3s and 5s, makes the entire trip one of just 63 basis points, or just more than one half of a percent. That's FLAT!

Oil hit the skids, with WTI dropping to 51.43 per barrel, though that's still higher than what is likely coming in months ahead, especially if widespread quarantines become fashionable in developed countries, particularly speaking of Europe and the USA.

Gold and silver were well bid, but smashed down at the end of the day. It's not yet the time for the almighty dollar to suffer. The yen and euro must submit first, along with China's yuan. When these fiat currencies are exposed, when negative interest rates are more an essential element than an experimental one, then the metals will soar. The world isn't there yet and nobody will be adequately prepared when that eventuality occurs, which could be six months from now or six years. It's looking like it may be closer to the latter, as the global machinery of finance isn't as fragile as it may appear on the surface.

Keeping a sharp eye out for emerging hotspots and especially on the US mainland, stocks ripe for shorting may be in the entertainment, hospitality, and dining segments.

At the Close, Monday, February 24, 2020:
Dow Jones Industrial Average: 27,960.80, -1,031.61 (-3.56%)
NASDAQ: 9,221.28, -355.31, (-3.71%)
S&P 500: 3,225.89, -111.86 (-3.35%)
NYSE: 13,534.12, -441.66 (-3.16%)

Monday, February 24, 2020

WEEKEND WRAP: Coronavirus (COVID-19) Providing Effective Cover For Profit Taking In Stocks; Bonds Rallying; Gold, Silver Flying

Making new all-time highs during the week were the NASDAQ and S&P, while the NYSE and Dow lagged, despite having reached a similar pinnacle earlier this year.

Market news is abuzz with coronavirus as the culprit for this week of losses, as stocks turned south mid-week. While the virus has yet to kill or infect significant numbers outside mainland China - less than 20 deaths worldwide, sans the red nation - it's the damage to supply chains and earnings that most bothers the money mavens of lower Manhattan.

Seriously, the people working the computers, phones, tickers, and squawk boxes could care less about 75,000 sick Chinese people or even the 2500 dead from the virus. They're much more concerned that critical parts in a just-in-time (JIT) production process won't be arriving from across the Pacific. The wheels of enterprise and consumerism need to be kept turning, and essential parts not being delivered puts a severe kink in those plans.

While much of China is under quarantine, some segments have gotten back to work, though the timeline continues to shift. Originally, communities under quarantine were supposed to get back to work in early February. As the virus spread and the severity of the situation sank in, those dates continued to be moved back later and later. Presently, many companies in China won't be getting back to full production before the second week of March.

Stocks haven't really suffered amid all the fear, uncertainty, and doubt (FUD), but they are likely to in the immediate future. As of Monday morning of February 24, a global blood-letting is underway. Asian stocks were down in a range of one to two percent, but Europe is taking it harder, with indices in Germany, France, England, and elsewhere down more than three percent, making for one of the biggest one-day drops this century.

The US markets, set to open within the hour, are showing futures off by staggering amounts, indicating a serious decline at the opening bell. Indications are that the Dow could be down nearly 1000 points, while the NASDAQ may shed more than 300. Both would qualify as among the largest declines in history.

If markets panic, which appears to be what they're setting up for, a mixed message is going to be sent. While the money managers are concerned primarily with business disruption, the general population will read the message quite differently, assuming from the massive drops on Wall Street that the virus is a killer and is coming to a neighborhood or household near you, and soon.

This is the height of cognitive dissonance and what anyone with half a wit would like to avoid. Widespread public panic over a virus that has claimed ZERO deaths in the United States and far less infections than the ordinary flu is not a condition conducive to a functioning society. Further fears could be stoked by officials at the WHO and CDC, who readily dropped the ball on the virus from the start and are now becoming the leading cheerleaders for what is likely to be largely unwarranted despair.

What the virus represents is more a threat to sanity than one's physical health. Even taking the total number of cases including those in China, the chances of contracting COVID-19 are not even as good as getting into a traffic accident. People in America are more likely to suffer injury from slipping in a bathtub, falling off a ladder, or cutting themselves with a kitchen knife than catching Wuhan Flu.

So, when stocks crash on Monday, bear in mind that they were wildly overvalued and COVID-19 and its associated panic is providing a friendly cover for profit-taking. A rout is what this market is badly in need of, and, if stocks head into bear territory (a place they're not even close to approaching at this time), it's not likely to last much longer than the time it takes for coronavirus to spread worldwide, inflict disease and death, and finally peter out by June.

First quarter results for China are going to be horrendous, with GDP growth probably plummeting by 35-50 percent. In Europe, a quarter that avoids a negative number would be a surprise, while the US is likely to print something on the order of a onesie, in the range of 0.6 to 1.5 percent gain.

It's far too early to predict how the second quarter shapes up, but there's plenty of evidence that the first quarter is going to come in positive. Feeding that data into the political landscape, it suggests that even if the US does fall into a recession, it's not going to be confirmed until near the end of October, just in time to have an effect on US elections, as GDP would have to decline for two consecutive quarters.

There's a risk that the second quarter will be in the red, but prospects for the third are better if the virus carries along the same pathway as other similar infectious strains such as SARS and MERS. Warm weather and humidity are virus-killers.

It's getting interesting, though the fears of widespread infections are currently oversold.

Bonds have been and continue to take the situation with all due seriousness. The 30-year bond ripped lower on Friday to an all-time low yield of 1.90% and the 10-year is chasing it down, closing out the week at 1.45%, perilously close to its all-time low. The 10-year note yielded 1.37 on 07/05/16, and again on 07/08/16. That level could be tested this week and a sustained drop into the 1.15 to 1.25% range would not be unwarranted during a panic condition.

The curve, however, remains nearly flat for the 2s-10s, which are holding up a 12-basis point difference (2s at 1.34%), but the shortest duration paper, 1, 2, 3, and 6-month bills are all sporting yields higher than 10-year, so concern is evident that the US economy is vulnerable to a major shock.

Gold and silver made significant gains over the course of the week, as the flight to true safety accelerated. Gold ended at a seven-year high, at 1643.00 the ounce. Silver closed out on Friday at 18.45 per ounce. A good start to a real rally, but far away from a breakout point. Both are up sharply early Monday morning.

Crude oil had a relatively good week, though the price for WTI crude in Monday morning's futures are looking rather grim, down more than three percent and approaching the Maginot line of $50 per barrel. It's unlikely to hold that level. Speculators are currently eyeing the $45-48 range and the next support level.

All of this points to a near-term washout in stocks. While there's currently not any markers being set down for a sustained rout, it is possible, though considered unlikely, as is the case for what some call "the great reset" where markets crumble like in 2008 and the entire global financial edifice is blown asunder.

No serious person is calling for anything more than a short-term correction, though markets have a unique way of making everybody look like fools.

Stay informed, stay calm, prepare.

At the Close, Friday, February 21, 2020:
Dow Jones Industrial Average: 28,992.41, -227.59 (-0.78%)
NASDAQ: 9,576.59, -174.37 (-1.79%)
S&P 500: 3,337.75, -35.48 (-1.05%)
NYSE: 13,975.78, -85.72 (-0.61%)

For the Week:
Dow: -405.67 (-1.38%)
NASDAQ: -174.38 (-1.79%)
S&P 500: -42.41 (-1.25%)
NYSE: -121.56 (-0.86%)

Friday, February 21, 2020

JP Morgan Says No Recession This Year; Professional Handicappers Likely To Want Some of That Action

What catches the eye this morning is the headline on Yahoo! Finance, "Recession odds haven't been this low in 15 months."

That's remarkable for any number of reasons, chief among them the idea that somebody actually calculates odds on whether or not the US GDP is going to go negative for two consecutive quarters (the classic definition of a recession) and the idea that these odds are so low.

The article goes on to tell that it's JP Morgan making the odds, as their quantitative model of the US economy is in a very positive state. The firm makes odds at 3:1 that the US economy will enter a recession this year. So, anyone wishing to plunk down a shekel, drachma, euro, or yen on JP Morgan's table would get three back if the economy tanks. It would not be too much of an assumption to think that Morgan would hold the bet, put it in an interest-bearing account and make a few bucks in the interim as the earliest this could possibly pay out would be well after the end of the second quarter, like August, or, in the event that a recession occurred in the thrid and fourth quarter, the firm could be holding the dough until well into 2021.

Anyone of the belief that the US economy will not turn down, gets short-ended to the tune of 1:3, putting up three units to make one. Morgan would surely like that wager, being that they'd be holding - and investing - three times the amount of the potential payout. It's always good for the house that punters like favorites. It's also well known amongst the brotherhood of gamblers that favorites only pay out 1/3 of the time at race tracks and less than half the time on flat wagers on say, sporting events.

Unless one has a doom and gloom attitude toward investing, the favored play would be the short side, even though the payout will be minimal. According to the boys at Morgan, this is about as sure a thing as Muhammad Ali in a 15-rounder against a 120-pond nun.

We'll pass. Oddsmakers are notorious for being wrong. Just ask Joe Namath, quarterback of the 1969 Jets, who went into Super Bowl III as a 15-point underdog, guaranteed a victory and managed to beat the heavily favored Baltimore Colts, 16-7. It's almost a sure thing that the analysts at JP Morgan are equally clueless about putting up ridiculous numbers on the chance of recession when the real issue is how long the continued depression will carry forward.

According to James Rickards, famous gold investor, the US economy has been in a depression at least since 2008, when the entire global economic structure came within 23 trillion dollars of complete meltdown. Those 23 trill were supplied after the fact by our friends at the Federal Reserve and their friends at other central banks. Rickards' assertion is that the US economy suffered a near-death experience in 2008 and economic activity, though not negative for long, has been sub-par, which qualifies, in his mind, as a depression.

He's got plenty of evidence to back up his claim, notably the Great Depression of the 1930s, in which GDP mostly grew year-over-year, but at a snails pace, not keeping up with population growth or inflation. Today's situation is different, in that population growth in the US is pretty much stagnant, but GDP growth since then has been bolstered by changes in definition and plenty of funny money printed up by the Fed. The 2-2.5 percent growth that has been the hallmark of the past 12 years has not kept pace with inflation, the official numbers be damned.

With evidence piling up that coronavirus will continue to spread and that industrial production and unemployment may have peaked, there's at least a distinct possibility that US GDP will slow to about 1.5 to 1.7 percent for 2020. While there may not be a recession, the economy is almost certain to struggle with slack demand caused by fear of catching something worse than the flu. People can't be blamed for not wanting to get sick or dying, but they will be, with certain segments of the population eschewing the occasional night out on the town, attending a sporting event or generally avoiding close human contact.

When the coronavirus (COVID-19) claims a few lives in the US, watch the panic. It's already well underway in China, with Japan, South Korea and Hong Kong about to be sharing the sentiment. The virus will plague the US and many other nations, particularly those in Europe, already on the brink of an actual recession, because quarantines have not been sufficiently enforced on most travel, particularly by air.

The virus has shown to have an incubation period of anywhere from five to 24 days, so there are likely multiple carriers everywhere. In a few weeks time, the number of reported cases will begin to spike in non-Asian countries and then it will be too late. The big hope is that warmer weather will slow the spread, as it usually does with these kinds of infectious diseases.

We'll see. But, if you're looking for better odds, better head to the race track. Long shots often arrive at the wire in time.

At the Close, Thursday, February 20, 2020:
Dow Jones Industrial Average: 29,219.98, -128.05 (-0.44%)
NASDAQ: 9,750.96, -66.21 (-0.67%)
S&P 500: 3,373.23, -12.92 (-0.38%)
NYSE: 14,061.48, -25.65 (-0.18%)

Thursday, February 20, 2020

Europe Is Sick and Dying

Coronavirus notwithstanding, investors appear confident about the US economy going forward, approaching record highs on a near-daily basis.

Over in Europe, however, the attitude is not the same. Following the nearly three-year Brexit disaster, the euro has fallen in value against the mighty US dollar, which, despite protestations from the Middle and Far East, continues to be the dominant currency of the planet.

Now featuring a 1.07+ handle in relation to the dollar, the euro has lost ground since the start of 2020, especially after Great Britain formally left the EU on January 31. The currency is at a 34 month low, ad is approaching its five-year low from December 2016 of 1.04. Dollar strength combined with euro weakness is making the two currencies approach parity, an unwelcome condition for millions within the EU, as the buying power of their currency declines.

This is a condition that was probably inevitable, and one that doesn't necessarily halt at an even exchange of euros for dollars. It's very likely that the euro could continue to decline in value against the dollar and other currencies, to a point at which the populations of the various countries in the EU will demand a better representation from their self-appointed overlords in Brussels.

As a political body, the European Commission is a poor representation of the will of the people of Europe. Armed with vast powers to legislate any manner of outrageous, capital-destroying laws, rules, and regulations, the Commission oversees a union that is disintegrating right before their jaded eyes.

Ruling over countries that have been battered by negative interest rates, migrant immigration that has overturned the values of the native countries, and a restive population that is ready for change and actively seeking a better way forward.

Europe is failing in many ways, but it will continue to fail so long as nameless, faceless, unaccountable bureaucrats rule over once-free populations.

At the Close, Wednesday, February 19, 2020:
Dow Jones Industrial Average: 29,348.03, +115.84 (+0.40%)
NASDAQ: 9,817.18, +84.44 (+0.87%)
S&P 500: 3,386.15, +15.86 (+0.47%)
NYSE: 14,087.13, +48.11 (+0.34%)

Wednesday, February 19, 2020

Current Predictions On COVID-19's Market Effects Are Probably Unreliable

Predicting the future is a fool's errand.

There are some things about the future - depending upon the time span we're using - that are likely, probable, and some, almost certain to happen. The sun will rise and set, your car will start in the morning, sporting events will be played as scheduled, trains, boats, and planes will arrive and depart more or less on time, and so on with the more mundane, routine activities of day-to-day living.

What we're talking about are the more obtuse and difficult expectations and predictions about stocks rising or falling, which teams are going to make the playoffs, who's going to win certain political contests. Those kinds of events and occurrences are subject to more variables, some known, more unknown.

Six months ago, nobody was predicting that China would quarantine half of its population due to an outbreak of an infectious virus, such as COVID-19. Without factoring in the knock-on effects due to sickness, disease, and the Chinese government's efforts to contain it, prognostications concerning what is happening or will happen in coming days, weeks, and months will almost certainly be far off the mark.

Even today, with advanced predictive tools and advancements in medical understanding, extrapolation from the known has been made more difficult by questioning the veracity of data, the intentions of the people keeping score, and other factors that haven't even emerged as of yet.

Adding to the confusion is the quickened flow of information, much of which is nothing more than idle hyperbole or nothing less than outright lies. even less is known about where the virus started (still under investigation and likely to be never verified 100%), how fast and haw far it will spread and to what degree it will affect people's lives in countries and cultures as distinct as night and day. Information from various scientific sources still range across the spectrum in terms of the transmission rate, mortality rate, makeup of the virus, and potential for vaccines or cures.

All of this is making it difficult for investors and fund managers to gauge the downstream. Variables, upon which predictions could be made, aren't even in place, so most of what's being bantered about is just so much hot air and steam. Some people are scared to death of the virus; others believe that it's only about as harmful as the ordinary flu.

Enter the human condition. Rationality and emotion are playing tug-of-war in the macro as well as the micro sense. Nobody can be much more than 50% certain about anything a month, two months, six months or a year out.

What we've been able to discern already is a sense that the virus is not going to cause widespread disease and death of the magnitude of a Spanish Flu, Bubonic Plague or any other major pandemic. While there's widespread consensus that COVID-19 is unlikely to bloom into a massive killer, that does not mean that it won't, nor does it factor in other outside influences which are presently not apparent.

Thus far, merely a month into the coronavirus event, stocks have shown an incredible ability to withstand downside pressure while bonds have catalyzed into the safety play. The 10-year-note has rallied. From January 17 to February 18, the yield has fallen from 1.84% to 1.55%, a decline of 15.76 percent, a pretty good move under any circumstances.

Gold and silver had been less uniform in their price movement, with notable ups and downs. Spot gold has increased from 1557.60 on 1/17 to 15.89.85 on the 2/18. Silver, on the same span of time, began at 18.06 and finished at 17.89. Those are spot prices; action on the paper exchanges has been more volatile, though not significantly aroused.

On the surface, the market effect from COVID-19 appears to be not very eventful, but there are sure to be other variables coming into play which may make for an uneven ride into and through the future.

At the Close, Tuesday, February 18, 2020:
Dow Jones Industrial Average: 29,232.19, -165.91 (-0.56%)
NASDAQ: 9,732.74, +1.56 (+0.02%)
S&P 500: 3,370.29, -9.87 (-0.29%)
NYSE: 14,039.01, -58.29 (-0.41%)

Tuesday, February 18, 2020

WEEKEND WRAP: No Panic in Markets As COVID-19 Story Unfolds

In the US, a long weekend offered the opportunity to assess and reassess positions, but, from Friday afternoon through Tuesday morning, nothing substantially changed in the macro picture of global markets.

COVID-19 continues to dominate headlines, though attention has begun to focus on the spread of the virus outside of mainland China. Johns Hopkins, which provides the most unbiased numbers available, shows 898 reported cases worldwide. For perspective, that number compares to 343 reported on February 8, just 10 days prior.

While there are plenty of alarmists touting this infectious variant as the second coming of the Spanish flu, the available evidence purports to something less deadly. While the mortality rate has remained in the neighborhood of 2-3 percent in China, only a handful of deaths (four) have been directly attributable to infection from the coronavirus.

Wall Street appears to share the view that the virus is not a deadly killing machine, having put together a solid week, however, realization of knock-on effects from the mass quarantines in China are beginning to strike home.

It's been about a month now since the outbreak became apparent in China and efforts to stop the spread of information about it turned to efforts to actually contain the virus itself. Mainland factories have been shuttered and many are not soon to open to full capacity just yet. That's causing disruptions in various supply chains, the effects being noted throughout the global marketplace.

Looking forward, stocks, still at or near record prices, are almost certain to come under some pressure in the coming short week.

Oil has rebounded slightly as the world comes to grips with a glut of crude on the market. WTI continues to trade just above $50 per barrel.

The US treasury bond curve remains flat, with the 10-year note closing out the week at 1.59 percent.

There's unlikely to be any more clarity within the next few days or even weeks as the situation involving the virus is still evolving. Investors looking for a reason to exit have a reasonable excuse to do so.

At the Close, Friday, February 14, 2020:
Dow Jones Industrial Average: 29,398.08, -25.22 (-0.09%)
NASDAQ: 9,731.18, +19.21 (+0.20%)
S&P 500: 3,380.16, +6.22 (+0.18%)
NYSE: 14,097.34, -1.66 (-0.01%)

For the Week:
Dow: +295.57 (+1.02%)
NASDAQ: +210.66 (+2.21%)
S&P 500: +52.45 (+1.58%)
NYSE: +165.41 (+1.19%)

Correction: In earlier posts this January, Money Daily had mentioned that Yum Brands owned KFC and Pizza Hut locations through out China. That is incorrect. Yum's China properties were spun off in 2016. We regret being in error.

Friday, February 14, 2020

China Raises 108 Coronavirus (COVID-19) Victims From the Dead

Roughly five weeks into the coronavirus (COVID-19) story and really nothing much has materialized. Stocks are making new all-time highs, gold and silver have barely budged, though bonds have rallied in recent days.

Much of the stagnation or up-and-down noise from the equity markets is probably tied to China's somewhat opaque rendering of figures relating to the virus. While the death rate to the number of reported cases has remained fairly constant around 2.1-2.5%, there are no footnotes on the data, nor is there any means by which to verify their accounting.

Additionally, after upping the total number of cases and deaths dramatically on Wednesday, China took some back on Thursday, essentially raising 108 people from the dead by what they dubbed "double counting."

This fumbling, feeble excuse and the fact that the Chinese government won't allow teams from the US CDC into the country to help, the obvious takeaway is that their numbers are wholly unreliable, most likely under-reported.

The media, along with the experts at WHO are about as in the dark as they can be, and are reporting from their backsides with information that is either inaccurate, misleading, or just plain lies.

With each passing day it becomes more and more apparent that ordinary people in this world are on their own when it comes to determining how to react and respond to this supposedly pandemic, deadly threat.

At the Close, Thursday, February 13, 2020:
Dow Jones Industrial Average: 29,423.31, -128.11 (-0.43%)
NASDAQ: 9,711.97, -13.99 (-0.14%)
S&P 500: 3,373.94, -5.51 (-0.16%)
NYSE: 14,099.04, -37.94 (-0.27%)

Thursday, February 13, 2020

China Announces Massive Increase In Number of New Cases of COVID-19 (coronavirus, Wuhan Flu, WuFlu)

Money Daily claims no special powers, but, just by coincidence, after yesterday's post cried out to the Chinese for transparency, some actually was delivered.

Coming too late to affect the meteoric rise in US stocks on Wednesday, China's official propaganda wing may be coming to its senses, albeit quite late in the game.

Late Wednesday, instead of the usual 2500-3000 new reported cases and 90-100 fresh deaths from the newly-named COVID-19, China's Ministry of Truth instead announced 14,840 new cases and 242 deaths.

The new totals are being reported with some differences, but John Hopkins' usually-reliable counts have mainland China at 59,822, with worldwide reported cases at 60,349. There are 527 confirmed cases outside of China and a total of 1,370 deaths, all but two occurring in China.

These are alarming numbers, only now shedding some light on just how widespread the viral infection has gone on mainland China, and just how deeply Chinese officials have been trying to cover up the carnage. It's one thing to fudge economic numbers, which China does regularly and gratuitously, but quite another when human lives are at stake.

Revelation of the virus spreading faster, affecting more people by orders of magnitude and killing more than double the numbers previously reported raised eyebrows around the world, sending markets into reverse, though not to any alarming degree. Asian and European markets staged orderly retreats of less than one percent.

Hoping to avoid complete panic, international indices are being buoyed by central banks, no doubt furiously buying behind the scenes as the severity of the condition in China becomes more apparent. Supply chains already have broken down and this is only the beginning. With China looking to be out of commission for the better part of this and next month - possibly longer - the disruption to global trade and manufacturing cannot and should not be understated.

Being the global hub for manufacturing, China, by being late in its attempts to contain the spread of COVID-19 and then attempting to downplay the severity of the crisis it faces has put its own economy and that of the globalized world in jeopardy.

This story continues to evolve and the implications just became much more serious than the Chinese government, the WHO and health officials in other countries are admitting.

Money Daily will attempt to stay atop current developments on a daily, if not more frequent, basis.

At the Close, Wednesday, February 12, 2020:
Dow Jones Industrial Average: 29,551.42, +275.12 (+0.94%)
NASDAQ: 9,725.96, +87.02 (+0.90%)
S&P 500: 3,379.45, +21.70 (+0.65%)
NYSE: 14,136.98, +82.88 (+0.59%)

Wednesday, February 12, 2020

Wall Street Plays Wait-and-See On Coronavirus (WuHan Flu)

Without a source more trustworthy than the Communist Party of China (CPC) for accurate data on the coronavirus (Wuhan Flu), it's difficult to make an assessment of the threat from the disease which has spread to 25 countries and two cruise ships, but has so far resulted in only 517 confirmed cases and two deaths, one in Hong Kong and another in the Philippines.

Inside mainland China, it's apparently a different story, what with 44,685 confirmed cases and 1114 deaths, the government is trying to maintain the people's spirit, but, with something on the order of 400 million people under quarantine orders, theres little doubt that patience is wearing thin.

Wall Street has, for the most part, faded the fallout from the virus's effect on China's economy and its part in the global supply chain until yesterday, when stocks slumped after an initial upside burst, leaving the Dow on the downside and the other indices hanging onto marginal gains. Notable was the NYSE, which led all the averages percentage-wise, an outlier occurrence, and possibly the beginning of a shift into small cap stocks.

Commodities were flat, with gold and silver barely budging from unchanged and oil settling around the $50 mark for WTI crude.

US treasuries escaped from inversion, with the 10-year note finishing at 1.59% yield and bills with maturities of less than a year all lower than that, albeit by only a few basis points. The 30-year bond is sitting precariously on a yield of just 2.05%.

China, notorious for supplying information that is either corrupted, massaged, or goal-sought to the pleasure of the Party, is difficult to gauge in terms of what it's telling the rest of the world. Are there 1100 dead from the virus or 11,000? Have over 4000 recovered, or more, or less? And what were the treatments involved?

None of this information is readily available as China is keeping a tight lid on the details. One thing is for sure: plants that were closed first because of the Lunar New Year holiday and had their closures extended by the threat of the virus are still closed, even though many were supposed to reopen on Monday, February 10. That's a worry Wall Street cannot overlook for long. With companies supplying component parts from everything from automobiles to washing machines, the effect of their closure will be felt up the chain. Car-makers outside of China, Nissan, Tesla, Kia, and others have already announced plant closures due to supply disruption. The longer the Chinese factories remain shuttered, the worse it is not only for the Chinese economy, but the global condition as well.

The overarching theme from the public start of the virus in early January to today has been one of questions about the virulence of the virus, the length of its incubation, the mortality rates. These questions have been answered in roundabout manners, but the big one, where does this all end? remains a mystery. China says the spread of the virus is slowing; the WHO says a global heightening of risk is on the horizon.

For the time being, everybody is playing a wait-and-see game.

At the Close, Tuesday, February 11, 2020:
Dow Jones Industrial Average: 29,276.34, -0.48 (-0.00%)
NASDAQ: 9,638.94, +10.55 (+0.11%)
S&P 500: 3,357.75, +5.66 (+0.17%)
NYSE: 14,054.08, +69.60 (+0.50%)

Tuesday, February 11, 2020

Bridgewater's Ray Dalio Thinks Coronavirus Fears Exaggerated; China Likely To Suffer Recession

Led by the NASDAQ's 1.13% rise, stocks on US indices ramped higher to open the week as fears of the spreading Wuhan Flu seemed diminished, at least in the Western Hemisphere.

Ray Dalio, founder of the world's biggest hedge fund, Bridgewater Associates, told an audience at a conference in Abu Dhabi on Monday that the impact from coronavirus (aka Wuhan Flu, WuFlu) is likely to be short-lived and won't have a lasting impact on the global economy.

Sorry, but Mr. Dalio sounds a little retarded here, telling people to be more concerned about wealth gaps and political gaps when most of China - the world's second-largest economy - has been shut down now for almost a month and will be for even longer. China is taking a huge gamble if they're going to send people back to work under these conditions, as the virus has yet to peak. All they'd need is an outbreak at an active factory and that would shut everything down for another month at least. Dalio is right to be concerned about gaps, like the ones in his thought process and the one between his ears. He's way off base here, probably talking this way to discourage a mass exodus out of his fund.

Dalio's fund lost money for the first time since 2000 last year, ironic, since US markets were up broadly, with the S&P sporting a 29% gain.

Let's try some math on Mr. Dalio's thesis. China is currently - how shall we put it - "screwed," which is probably the least-offensive descriptor. Consider that their GDP is probably going to come in at a zero at best for the first quarter of 2020, and probably come in as a negative number.

A third of the country is shut down and has been for more than two weeks, including all of Hubei province, a manufacturing hub. It's likely to remain that way for another month, with other cities and provinces falling under quarantine orders from now until April. That's going to put a severe dent in first quarter GDP. For instructional purposes, let's just say China's GDP for the first quarter of 2020 is going to be cut by a quarter, and that may be a generous assessment. That's a growth rate of -25%. Yes, that's right, minus twenty-five percent.

Let's assume they produce a miracle of some kind and get back to business in the second quarter. Will it be positive, compared to 2019. Unlikely, unless, as the Chinese are wont to do, they double and triple up production and totally kick butt. Let's give them a zero for the second quarter and an optimistic 5% gain in the third and 8% in the fourth, as they recover.

Add those up - -25, 0, +5, +8 - and you're still at -12, divided by four gives China a 2020 GDP growth rate of minus three percent (-3.0%). Again, that's just an example. Reality is likely to be worse than that. China will have a recession and a disruption of anywhere from two weeks to three months (maybe longer) in the global supply chain is going to produce adverse effects elsewhere. Some countries will be crushed, others just bruised, but, the overall picture is one with significant downside, not the roses and champagne scenario outlined by Ray Dalio.

Tracking other markets, crude oil futures continue their long descent as an outgrowth from reduced demand due to coronavirus in China. WTI crude fell below $50 per barrel on Monday. Despite renewed calls for production cuts from the OPEC+ nations, there seems to be little to stem the tide unless China gets a handle on their problem within days or weeks, a scenario that seems unlikely. If the virus spread in China is replicated elsewhere, oil, along with stocks and every other asset class, is likely to crater. Oil at anywhere from $45 to $35 a barrel is not out of the question.

Interest rates are also sounding an alarm, in deference to the sustained giddiness in stocks. The 10-year note dropped to 1.56% yield on Monday, just five basis points from its 2020 low of 1.51% (January 31), while the shortest-maturing bills all were higher, inverting the 1, 2, 3, and 6-month bills against the 10-year note. The 30-year bond is yielding 2.03%. Generally speaking, the yield curve is flat to inverted and looks like a complete, untamed disaster waiting to happen.

What looks to be a panacea for precious metals investors could be developing. Fear is rising, traders at JP Morgan Chase have been charged with rigging the gold and silver markets, and the effect from coronavirus is still unknown.

According to an article on FXStreet, not only have JP Morgan's traders been indicted, but the company itself is being probed, and the Justice Department is treating it as a criminal investigation, using RICO laws to investigate the bank as a criminal enterprise.

Coming days, weeks, and months appear to be headed toward more confusion, consternation, and discontent. The Democrat primary season is just heating up, and despite President Trump having just been cleared from impeachment by the Senate, there's little doubt Democrats in congress and even inside Trump's White House are still scheming against him.

Fed Chairman Powell is slated for a pair of engagements on Capitol Hill. On Tuesday, he will face the House Financial Services Committee and the Senate Banking Committees on Wednesday.

And, BTW, the words "retard" and "retarded" have been flagged in Yahoo Finance as unacceptable, despite one definition of the word retard is "to slow, delay." Peak Stupid has been achieved, again.

At the Close, Monday, February 10, 2020:
Dow Jones Industrial Average: 29,276.82, +174.31 (+0.60%)
NASDAQ: 9,628.39, +107.88 (+1.13%)
S&P 500: 3,352.09, +24.38 (+0.73%)
NYSE: 13,984.48, +52.56 (+0.38%)

Monday, February 10, 2020

WEEKEND WRAP: Wuhan Flu Shunting Manufacturing Activity; Credit Woes Overflow

With coronavirus sweeping through mainland China, the country's leaders have imposed draconian quarantines on nearly a third of their entire population of 1.2 billion citizens, and, while factories in Hubei province and elsewhere were supposed to resume normal operations on Monday, February 10, this now seems to be not the case.

The Wuhan Flu is simply not cooperating. With the global hub of international manufacturing and commerce at a standstill, the ripple effects are being felt across the worldwide spectrum.

Apple computer's main assembly operations, FoxConn, has been shuttered for a month, while companies such as McDonald's (MCD), Starbucks (SBUX) and Yum Brands (YUM), owners of the wildly popular Kentucky Fried Chicken franchise, have had many of their stores closed for as long as two weeks presently.

Beyond the human toll the virus is taking in China, where more alarmist estimates range as high as 25,000 dead, the economic toll is just beginning to be felt. China may not be as concerned about taking a hit to their GDP as the rest of the world, which may exacerbate the financial carnage down the supply chain. The Chinese are more concerned about catching up to a virus that they unfortunately were late in detecting and even later in trying to control. Official numbers have the number of infected at 40,573, and deaths at 910, the numbers still climbing.

Stocks, noting that the virus hasn't spread much beyond China's borders (fewer than 400 total cases reported worldwide), took their cues from economic data, especially in the United States, where the major indices marked their best showing since last June. The NASDAQ registered a four percent gain, the Dow and S&P, three percent, and even the laggard NYSE picked up two-and-a-third.

The enjoyment of good economic news, including Friday's January non-farm payroll data which smashed expectations of 160,000 jobs created by totaling 225,000, may turn out to be near the peak for markets as China's economy implodes.

Bond markets, which dwarf stock markets in size by orders of magnitude, are taking the condition more seriously, as the following clips from Doug Noland's Credit Bubble Bulletin present a gloomier outlook:

  • January 27 – Bloomberg (Sam Potter and John Ainger): “The global rush for safer assets has fueled a huge jump in the world’s stockpile of negative-yielding bonds, snapping months of decline in the value of subzero debt. The pool of securities with a yield below zero surged by $1.16 trillion last week, the largest weekly increase since at least 2016 when Bloomberg began tracking the data daily. Another injection looked certain on Monday, as investors worldwide ditched riskier assets and piled into bonds amid mounting fears over a deadly virus spreading from China.

  • January 30 – Bloomberg (James Hirai and Hannah Benjamin): “It sounds like a tough sales pitch: buy this debt to lose money for the next decade. Yet for bankers helping Austria raise money this week, it proved smart business -- investors threw more than 30 billion euros ($33bn) at the country as they vied for a chunk of the world’s first syndicated 10-year government bond to carry a negative yield. The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds.”

  • February 3 – Bloomberg (Liz McCormick): “It’s been more than six years since the U.S. bond market’s purest read on the global growth outlook was signaling this much concern. The so-called real yield on 10-year inflation-linked Treasuries fell on Friday to negative 0.147%, its lowest since 2013, when Europe’s sovereign debt crisis was raging. Now it’s the spread of the Wuhan coronavirus that’s fueling worries about the potential hit to the world economy.”

At the Close, Friday, February 7, 2020:
Dow Jones Industrial Average: 29,102.51, -277.29 (-0.94%)
NASDAQ: 9,520.51, -51.64 (-0.54%)
S&P 500: 3,327.71, -18.07 (-0.54%)
NYSE: 13,931.93, -103.07 (-0.73%)

For the Week:
Dow: +846.48 (+3.00%)
NASDAQ: +369.58 (+4.04%)
S&P 500: +102.19 (+3.17%)
NYSE: +317.83 (+2.33%)

Friday, February 7, 2020

Wuhan Flu Can't Stop Stocks; January Added 225,000 Jobs

Stocks made reasonable gains on Thursday in advance of the monthly non-farm payroll data released Friday prior to the market open.

The news was solid for US employment, as the Bureau of Labor Statistics (BLS) reported 225,000 new jobs in the month of January, far outpacing expectations of 165,000.

Entering into the job market in January were 500,000 looking for work, though not all of them found it. The influx of new job seekers boosted the jobless rate to 3.6 percent, from a 50-year low of 3.5 percent in December.

On mainland China, both the death count and number of new cases of coronavirus, or Wuhan Flu, as it is now becoming known more colloquially, continued to rise, but the Chinese government announced that the number of people under observation was declining. This, according to Chinese officials, is an important turning point in efforts to control the spread of the virus. How well that prediction works out for the country of 1.2 billion people remains to be seen.

The roller coaster ride that has recently been Tesla stock abated, at least for a day, with shares of the electric car company settling around a price of $750 per unit. Whether that level proves to be support or resistance is another guessing game. Many are still short the stock, believing that the company is built largely on sand and promises, while rumors of a secondary offering continue to swirl.

President Trump lambasted his foes and praised his friends in a pair of very pubic appearances on Thursday, the day after the Senate voted overwhelmingly (2/3rds vote needed) in favor of acquittal from the charges of impeachment leveled against him by a partisan, Democrat-led House of Representatives. At a prayer breakfast, Trump had no kind words for Speaker of the House, Nancy Pelosi, nor Mitt Romney, the only Republican to cast a vote of guilty against him.

Later in the day, Trump assembled members of the House, Senate, his legal team and others, in a round of congratulations and thanks that lasted well over an hour. Singling out many of his political allies with stories and minutia, Trump laid the groundwork for what is likely to be a counter-attack against the Democrats who tried to have him removed from office and public life, setting the stage for a wide open election campaign that will hold nothing back.

Politics, like money, is a hardball business and the Trump team intends to use the best equipment and the best players to take it to the opposition in the fall.

At the Close, Thursday, February 6, 2020:
Dow Jones Industrial Average: 29,379.77, +88.92 (+0.30%)
NASDAQ: 9,572.15, +63.47 (+0.67%)
S&P 500: 3,345.78, +11.09 (+0.33%)
NYSE: 14,034.95, +10.09 (+0.07%)

Thursday, February 6, 2020

Stocks Continue to Soar as Threat of Global Pandemic from Coronavirus Fades

US stocks are so hot right now it's difficult to keep up with all the records and new all-time highs. Suffice to say that the Fed continues to pump billions of dollars into the hands of primary dealers, hedge funds, used car dealers, slot machines, you name it.

This market, because of the continuous flow of funny money from the central bank, is as phony as an Iowa caucus, but, if you're long, it's infinitely more enjoyable.

With the Dow up more than 1000 points in three days, most analysts and reporters have run out of superlatives.

Apparently, the threat of a global pandemic from the novel coronavirus has been discounted. Almost all of the reported infections and deaths have been centered in China. Only two deaths outside of China have been reported as having been due to the virus.

On Wednesday, President Trump was acquitted on both impeachment charges. Next time (probably in a few months or so) the Democrats might want to try accusing him of something more concrete than Abuse of Power or Obstruction of Congress, neither of which are crimes, much less high crimes. The only things high were the Democrat deep operatives who dreamt up their poor attempt at a coup d'etat.

In what has to be one of the more amusing stories of the past few days is the unprecedented rise and fall of Elon Musk's Tesla (TSLA) stock, which ran up from a close of 650.57 per share on Friday, January 30, to 887.06 at the close on Tuesday, February 4, and finished the session at 734.70 on Wednesday, the 5th, a loss of 152.36 points (-17.18%), and continues to fall in pre-market trading. One of the most widely-held and most-shorted stocks listed, everybody's a winner with the exploding electric car company.

Just in case there isn't enough juice in the markets to keep the rally alive, China announced overnight that it will cut by half tariffs on 1,717 goods imported from the United States beginning February 14 as part of its agreement to Phase 1 of the US-China trade deal.

Oil continues to hold steady near $50 per barrel of WTI crude, having fallen into a bear market from $64 just a month ago. The US national average for a gallon of regular unleaded gas is $2.47 a gallon, according to GasBuddy.com.

At the Close, Wednesday, February 5, 2020:
Dow Jones Industrial Average: 29,290.85, +483.22 (+1.68%)
NASDAQ: 9,508.68, +40.71 (+0.43%)
S&P 500: 3,334.69, +37.10 (+1.13%)
NYSE: 14,024.86, +162.02 (+1.17%)

Wednesday, February 5, 2020

Stocks Rock Higher, Look to Extend Rally on Coronavirus Treatments, Upbeat ADP Report

Tuesday's rally was the best since August of last year, as the spread of the coronavirus appeared to be centered in China and has not advanced with great intensity to the rest of the world. While the situation in China is still dire, with 494 deaths cumulative totaled worldwide as of Tuesday night, the number of cases reported outside of its epicenter appears to have been mostly contained. In the United States, confirmed cases is holding at 11, and the global total outside of China is just 216. That compares well to the number of confirmed cases inside China, at 24,391 and still growing.

There is a very good interactive map and graphical overview from John Hopkins, here.

Also encouraging is news on treatments for the disease on various fronts. Chinese researchers have applied for a patent to employ Gilead Science's Remdesivir as a treatment, which was used to treat the first US patient in Washington state in late January. The first known case of coronavirus in the US was treated with the drug and continues to recover.

In the US, the Department of Health and Human Services (HHS) is collaborating with Regeneron Pharmaceuticals on a coronavirus treatment.

These positive developments have driven stocks higher after a sudden collapse on the major indices last Friday.

Elsewhere, Nancy Pelosi, apparently still upset that Donald J. Trump is still president of the United States, tore up her copy of Trump's State of the Union speech, immediately after the president had delivered his positive message to the congress. Despite the hissy fit by Speaker of the House Pelosi, Mr. Trump's presidency appears to be sailing along nicely despite partisan Democrat attempts to derail it. The president is expected to be cleared of any wrongdoing on Wednesday at 4:00 pm ET, when the Senate will likely acquit him on impeachment charges brought by the House Democrats.

There was more good economic news prior to Wednesday's market open, as ADP reported January private sector job gains of 291,000, the largest upswing in four years.

Stock futures point to a positive open in New York.

At the Close, Tuesday, February 4, 2020:
Dow Jones Industrial Average: 28,807.63, +407.82 (+1.44%)
NASDAQ: 9,467.97, +194.57 (+2.10%)
S&P 500: 3,297.59, +48.67 (+1.50%)
NYSE: 13,862.84, +184.91 (+1.35%)

Tuesday, February 4, 2020

Stocks Rebound As Coronavirus Scare Fades

Nothing to see here, move along.

At the Close, Monday, February 3, 2020:
Dow Jones Industrial Average: 28,399.81, +143.78 (+0.51%)
NASDAQ: 9,273.40, +122.47 (+1.34%)
S&P 500: 3,248.92, +23.40 (+0.73%)
NYSE: 13,677.92, +63.82 (+0.47%)

Sunday, February 2, 2020

WEEKEND WRAP: Virus Fears Spark Selling Spree; But Preventive Measures May Be Slowing Advance of 2019-nCoV

It wasn't a particularly positive week for equities. In fact, it was negative, across the board, ending with a massive selloff on Friday, culminating in the worst week for US stocks since October, 2019.

The better part of the decline came on Friday, after the WHO had issued an international alert on the coronavirus (2019-nCoV) and US stocks soared off lows on Thursday. Reality set in Friday and accounted for 75-80% of the total weekly decline.

As the weekend wore on (this is now Sunday noon in the US, Eastern Time), more reports proved encouraging. The official count from China confirmed 14,380 cases total, and 304 deaths. On Saturday, a death in the Philippines was suggested to have been caused by coronavirus but that has yet to be confirmed. Medical professionals are awaiting further testing. The patient died from pneumonia, but it may have come from normal, seasonal flu.

In the US, there's a better chance of dying from the common flu than the coronavirus, according to the CDC.

Preliminary considerations are suggesting that the spread of the virus is being slowed by China's quarantines and travel restrictions and monitoring around the world and that many reports on social media such as Twitter and Facebook have proven false, misleading or negatively hyperbolic.

Patient Zero, i.e., the first case of the disease to have been reported in the United States (Washington state), became quite ill, was treated intravenously with remdesivir (a drug produced by Gilead Sciences (GILD)) and was recovering.

Also on Friday, Great Britain finally extricated itself from the European Union via what's been known as Brexit, the referendum passed by the British public more than three-and-a-half years ago (June 23, 2016), and President Trump appeared on the way to being acquitted on charges of impeachment by the Senate, which voted 51-49 against calling additional witnesses. A final vote on acquittal or guilt will be held at 4:00 pm ET, Wednesday, February 5.

As frightening as the coronavirus and other news may be, people around the world can take heart in the video below: Nigel Farage's final speech at the European Parliament. As of 11:00 pm January 31, 2020, Britain formally withdrew from the European Union.

At the Close, Friday, January 31, 2020:
Dow Jones Industrial Average: 28,256.03, -603.41 (-2.09%)
NASDAQ: 9,150.94, -148.00 (-1.59%)
S&P 500: 3,225.52, -58.14 (-1.77%)
NYSE: 13,614.10, -247.82 (-1.79%)

For the Week:
Dow: -733.70 (-2.53%)
NASDAQ: -163.98 (-1.76%)
S&P 500: -69.95 (-2.12%)
NYSE: -364.37 (-2.61%)

Friday, January 31, 2020

Coronavirus, Now Global, Will Dominate News For Months

The idea that stocks would erase losses and finish strongly positive after the World Health Organization (WHO) announced that it was raising the level of threat to that of an international pandemic is just plain perverse.

It's what happens when 70% of the trading is performed by headline scanning algorithms that saw the WHO headline as essentially, "nothing to worry about, we got this."

Nothing could be further from the truth. The coronavirus has spread now to encompass the entire Northern Hemisphere, with Russia the latest to announce cases of the virus within its borders. Italy has issued a six month state of emergency. Two-thirds of China is under some form of travel restriction, quarantine, or other health-related orders. Person-to-person transmission has been reported in at least five countries, including Japan and the United States.

Within two weeks the most recent numbers (9692 confirmed cases, 213 deaths as of January 30) are going to be dwarfed by the magnitude of the spread of this pathogen, and there's still no reliable data on the ratio of confirmed cases to deaths, which range - according to medical experts - from two percent to as high as 12 percent, but nobody actually knows for sure.

The WHO, at its press conference Thursday announcing a global pandemic went out of its way to praise China's efforts to contain the virus. This statement was made only to avoid causing a panic. China was actually slow to report the initial outbreak, initially punishing people who were issuing warnings, eventually acting with little regard to human life, allowing the virus to spread unchecked for weeks.

Wikipedia has about as accurate and compelling a timeline as could be expected.

If the Chinese did such a bang-up job containing this virus, why is it now to be found in more than 25 other countries? Why are flights in and out of China only being banned now, nearly two months after the initial report of this new, deadly strain (December 1 or December 8)?

There's a very good chance, being that China has shut down most transportation facilities in and out of cities and provinces, that food shortages will occur and that more people may die from starvation or other causes than the actual disease.

This virus has been taken far too lightly and is going to continue to spread, virtually unchecked, for months.

Meanwhile, the Senate looks to wrap up the impeachment trial of President Trump on Friday after a vote to allow more witnesses is taken and will likely fail. The Republicans have 50 votes at least with which to defeat the motion, the only wild card being that the presiding judge, Chief Justice of the Supreme Court, John Roberts, could conceivably take the unprecedented step of deciding the motion should the vote come down as a 50-50 tie.

He is expected to NOT take that step, as a tie would defeat the measure.

In economic news, the first estimate of 2019 fourth quarter GDP came in at 2.1%, making all of 2019, at 2.3%, the worst year under President Trump. GDP grew by 2.9% in 2018, and 2.4% in 2017.

And, in Virginia, the state assembly is wasting no time making sure citizens cannot defend themselves.

At the Close, Thursday, January 30, 2020:
Dow Jones Industrial Average: 28,859.44, +124.99 (+0.43%)
NASDAQ: 9,298.93, +23.77 (+0.26%)
S&P 500: 3,283.66, +10.26 (+0.31%)
NYSE: 13,861.92, +18.11 (+0.13%)

Thursday, January 30, 2020

Coronavirus Spread Now Affecting Markets Globally Along With Individual Stocks, Bonds

As the novel coronavirus continues to spread internationally from its epicenter in Wuhan, the capitol of Hubei province, China, expect markets to respond as they did on Wednesday, where US gains at the opening bell were quickly wiped out. The Dow Industrials, in particular, soared more than 200 points at the open, only to be torn down to nearly unchanged within the first half hour of trading.

All of the major indices experienced similar patterns, and all were goosed higher by a phantom bid as they approached session lows. There was likely intervention behind the scenes which kept stocks from falling off the shelf into the abyss, as was the case on Monday.

With just three days of real data relatable to coronavirus, the infectious virus is undoubtably a market event. As has already been demonstrated, oil was the first casualty as crude prices have cratered since the Chinese government quarantined the entire Wuhan province last week and began issuing travel warnings.

Others are emerging. Starbucks (SBUX), which announced it was shutting down 2000 locations in China on Wednesday - about half of its stores in China - has seen its share price reduced from 93.75 on January 23 to 86.72 as of Wednesday's close. While the losses on Starbucks may be more attributable to the release of their fiscal first quarter (US fourth quarter) results on Tuesday, there are other chains which may be affected soon, Among those that have large presences in China are McDonald's (MCD), YUM Brands (YUM), owners of Pizza Hut and KFC, among other popular brands, and Dairy Queen, which is privately owned. Share of McDonald's and YUM Brands have been spared thus far, but the are definitely on many traders' short lists.

Also being affected are bond prices and yields, as the treasury curve has flattened out over the past week and the 10-year note has been knocked to to a yield of 1.58% as of this writing, the lowest since October 8 of last year. All yields on short term bills are currently inverted vis-a-vis the five-year note, with yields on 1, 2, 3, 6-month and one-year bills all higher than the five-year. The scramble to safety seems to be favoring shorter duration, a knock-on effect of a wait-and-see approach to the spread of the deadly virus.

As of Wednesday night (ET), Chinese authorities upped the death toll from the virus to 170, though experts in the field strongly suspect that China's officials are purposely skewing the numbers lower - reporting many deaths as caused by pneumonia or not reporting deaths at all in some cases - in order to not cause a widespread panic. Nevertheless, both the number of cases reported and deaths reported - in China and internationally - continue to rise, and person-to-person transmission of the disease has now been reported in South Korea, Germany, Thailand, and Japan. With an incubation period that can last up to 14 days before symptoms develop, it may take more time for numbers to rise dramatically.

The World Health Organization (WHO) is scheduled to make an announcement Thursday in Geneva, Switzerland at 7.30 pm local time (1830 GMT), which would coincide with the middle of the US market session. Expect fireworks to the downside if the organization deems the coronavirus a global pandemic situation, something it decided not to do when it met a week ago (January 23).

Elsewhere, the impeachment trial of president Trump is winding down quickly and it appears that the Republicans have enough votes to shut down any attempt by the Democrats to extend the process by calling more witnesses. With a 53-47 advantage in the Senate, the Republicans are expected to defeat any measure calling for anything that might extend the trial past Friday, when the vote on witnesses is set to occur.

Once the vote for witnesses is defeated, the Senate can move immediately to decide the trial either in favor of acquittal of the president or guilty, which would carry the penalty of removal from office and bar him from running for any other high office. With a two-thirds vote needed for a finding of guilt, it is widely expected that the president will be acquitted.

The prosecution managers and administration lawyers will field another day of questions from the Senators on Thursday, then proceed to voting on other trial matters Friday.

At the Close, Wednesday, January 29, 2020:
Dow Jones Industrial Average: 28,734.45, +11.60 (+0.04%)
NASDAQ: 9,275.16, +5.48 (+0.06%)
S&P 500: 3,273.40, -2.84 (-0.09%)
NYSE: 13,843.81, -33.80 (-0.24%)

Wednesday, January 29, 2020

One Down, One Up, and Now Comes the Fed

After two days of turmoil, the roller-coaster ride that has been this week's stock market is about to take another twist, or turn, or bump, or dive, or rise...

Nobody knows where it's going with the Federal Reserve's FOMC set to announce its first policy directive of the new year at 2:00 pm ET on Wednesday.

Monday's coronavirus-inspired deflation was followed by a miraculous revival on Tuesday, as if somebody had found a sudden cure for the deadly outbreak that has spread across China and been exported - at last count - to at least 15 other countries, including the United State, Canada, France, Germany, Thailand, Vietnam, Malaysia, Cambodia, Japan and many others. Being mostly unchecked and having an incubation period of up to 14 days, it's probable that the virus will circle the globe within the next month.

The Dow lost some 450 points on Monday and regained less than half of that on Tuesday. With the virus still highly infectious and the death toll rising to 132, the Fed standing pat on interest rates would seem to be about as consequential as a water hose in a rainstorm.

Beyond the spread of the coronavirus, the other big story in play this week is the impeachment trial of president Trump, being played out in the US Senate. Both sides have presented their cases, though the Republican's defense took less than half the time as that of the Democrats and was more focused on law and reason than the House managers' mangled miasma of mistaken misappropriations.

Where the Democrats sought to emotionalize the proceedings, the president's legal team toned it down, making the case, alternatively, that the articles of impeachment were vague and thus void, or that no crime had been committed, emphasized by professor Alan Dershowitz's impassioned, eloquent, well-researched argument on Monday night that the founders intended impeachment to be narrowly focused, rather than nebulous and amorphous as are the Democrat charges of Abuse of Power and Obstruction of Congress, neither of which are criminal.

Despite the apparent readiness of the Republican side, the media spin spent the week twirling around speculation over a piece of manuscript leaked from former advisor John Bolton's upcoming book, spuriously-timed to intercede in the Senate proceedings. Bolton's claim that he had a personal conversation with Mr. Trump, in which the president explicitly tied the delay of aid to Ukraine with the need for that country to dig into the affairs of Joe Biden and his son, Hunter, concerning their dealings with the corrupt natural gas company Burisma, was all-too-conveniently timed to overshadow the defense team's presentation of facts and legalities.

Thus, instead of examining the case for or against the president based on the best arguments from both sides, the media has attempted to shift the attention of the American public from real arguments to a false paradigm over calling additional witnesses, none of whom would be likely to move the needle in either direction very mch at all.

Senate majority leader, Mitch McConnell, who said once that he may not have the votes to stop additional witnesses and evidence, has also said that the votes are there to defeat any such motion on Friday, when the issue will come to a vote of some kind, after two days of questions from senators to either side - or both - on Wednesday and Thursday.

If he Democrats succeed in their desire for additional testimony, it would likely extend the trial for weeks if not months, given that some witnesses, including the testimony of Secretary of State Mike Pompeo and Chief of Staff Mick Mulvaney, would likely be subject to executive privilege, a matter that would end up in the hands of the Supreme Court. Arguments for and against the invocation of privilege would likely take weeks to draw up and more weeks to argue before the court could issue a ruling. It's a real can of worms that the Democrats threaten to open.

Cooler heads may prevail in the Senate. Having heard enough to make a reasoned decision, there may come a vote on Friday - if the vote for additional witnesses fails - up or down on the president's guilt or innocence, which would end the trial and allow Senators Klobuchar, Sanders, and Elizabeth Warren enough headway to get back to campaigning in Iowa, where the first primary caucus is set to wrap up on Monday, February 3.

While the Senate plays paddy-cake with the future of the nation and its precedents, the coronavirus will no doubt spread fear, death and potentially-huge economic ramifications around the world. Whatever happens in the Fed decision or the impeachment matter is likely to take a back seat to the carnage a virulent, unchecked, highly-contagious virus can unleash.

At the Close, Tuesday, January 28, 2020:
Dow Jones Industrial Average: 28,722.85, +187.05 (+0.66%)
NASDAQ: 9,269.68, +130.37 (+1.43%)
S&P 500: 3,276.24, +32.61 (+1.01%)
NYSE: 13,877.61, +108.00 (+0.78%)

Sunday, January 26, 2020

WEEKEND WRAP: Coronavirus Affecting Markets; Turbulent Week Ahead; Oil Already Whacked

Last week, as the the wealthy and infamous gathered for the annual World Economic Forum (WEF) in Davos, Switzerland, markets were focusing on more compelling domestic and international issues, primarily, the impeachment trial of President Donald J. Trump and the outbreak of the deadly coronavirus which has spread outward from its source in mainland China, now reaching around the world, particularly in the Northern Hemisphere, where nearly all the developed nations are anchored.

While the impeachment hearings were less impactful, being that the first few days of the trial consisted of one session for rule-making and three days of Democrat managers from the House of Representatives reiterating their tired claims from months of investigations stemming from a single phone call, the spread of a killer virus caught everybody's attention.

The number of deaths officially reported by the Chinese government grew from 16 on Wednesday to 23 to 41 to 56 by Sunday. As the week progressed, the number of reported cases grew considerably - by Sunday, nearly 2,000 in China alone - along with the number of countries discovering outbreaks. By Sunday morning, instances of reported cases had been registered in France, South Korea, Japan, Nepal, Thailand, Singapore, Vietnam, Taiwan, Australia, and the United States.

Similar to the SARS (severe acute respiratory syndrome) outbreak, which killed more than 750 people in 2002-2003, the threat is that this particular virus is spreading at a much faster rate as transmissibility is increasing.

By Monday morning, the toll will likely exceed 90, but there's widespread speculation that China has been and continues to understate not only the number of cases reported, but also the death toll.

This is the kind of thing some students of the dark science of economics might consider a "black swan," an unusual event or occurrence with a low probability that nobody sees coming. Already, the coronavirus outbreak has affected markets, but none more profoundly than oil. With travel bans in effect already in some Chinese cities and many presumably taking precautions to avoid crowds and people who may be infected, the world's second-largest user of oil and distillates is bound to experience a sharp demand decline that will affect prices globally.

WTI crude fell, over the course of the week, from $58.58 per barrel to $54.19, a decline of 7.5%. Brent dropped from an opening at $65.65 on Monday to $59.85 by week's end, losing nearly nine percent.

Stocks were also hit, as increasingly dire stories continued to mount over the course of the week, limiting upside on all exchanges, and squelching rallies on Tuesday, and especially in the US on Friday, when the Chinese government announced the rising death toll and cancellation of many Lunar New Year festivities, the biggest holiday in the country.

China, already on the brink of an extended financial downturn, saw severe damage to equity markets.

If the coronavirus continues to spread to other countries and becomes a pandemic, declines on the major indices (the Dow was down for the fourth straight day as of Friday) could turn what appeared as a minor fluctuation into an avalanche. Limiting movement, be it out of fear or by government dictates, would seriously hamper economic activity anyway, and, if the contagion becomes global in nature, which it appears to be doing, the effect may be long-lasting.

So, that's how normal operating markets turn into dungeons of doom. There is no silver lining, other than, you guessed it, silver and gold, both of which turned in the opposite direction from stocks, both tumbling on Tuesday but gaining the remainder of the week. Gold finished at $1571.60 per ounce; silver closed out the week at $18.10 per ounce. There is likely to be a further, faster advance in precious metals should the virus continue to spread.

With an FOMC meeting up next week (January 28-29) bonds saw high demand, moving interest rates on treasuries to their lowest levels since October, 2019. The 10-year-note closed out the week at 1.70% yield, with the 30-year bond closing at 2.14%.

Also upcoming in the week ahead, a slew of earnings reports, many of them notable as most will be for the fourth quarter of 2019 and the full year.

On Monday, homebuilder D.R. Horton (DHI) and telecom Sprint (S) get the earnings parade started. A loaded Tuesday has Lockheed Martin (LMT), 3M (MMM), Phizer (PFE), United Technologies (UTX), Nucor (NUE), and PulteGroup (PHM). Apple (APPL) and eBay (EBAY) report after the close.

On Wednesday, Dow components Boeing (BA), AT&T (T), and McDonald's (MCD) present, along with Mastercard (MA), General Electric (GE), and Dow Chemical (DOW). Tesla (TSLA), Microsoft (MSFT), Facebook (F), and PayPal (PYPL) report after the close. Thursday's offerings include some titans. Coca-Cola (K), UPS (UPS), and Verizon (VZ) report prior to the opening bell. Amazon (AMZN) and Visa (V) are up after the close.

Prior to Friday's market open, ExxonMobil (XOM), Chevron (CVX), and Caterpillar (CAT) close out the earnings deluge.

It's going to be a busy week with plenty of engaging, diverging stories. In case that's not enough, the impeachment trial could conceivably wrap up by Friday, possibly sooner, the Super Bowl is Sunday, February 2nd, and the first presidential primary, the Iowa caucus, convenes on Monday, February 3rd.

If the coronavirus continues to spread, it's not likely to slow down, so this coming week could be an opportunity to take profits and/or shed losers before markets get any ideas about tanking. Depending on how severe the virus becomes, how quickly and how far it spreads, appropriate defensive actions may be entertained.

With stocks close to all-time highs, there's hardly a case to be made for buying at this point, which, in itself may provide good enough reason for some spirited selling.

At the Close, Friday, January 24, 2020:
Dow Jones Industrial Average: 28,989.73, -170.36 (-0.58%)
NASDAQ: 9,314.91, -87.57 (-0.93%)
S&P 500: 3,295.47, -30.07 (-0.90%)
NYSE: 13,978.47, -123.57 (-0.88%)

For the Week:
Dow: -358.37 (-1.12%)
NASDAQ: -74.03 (-0.79%)
S&P 500: -343.15 (-1.03%)
NYSE: -123.57 (-0.8*%)

National Networks ABC, CBS, NBC, and FOX Should Be Under FCC Review After Impeachment Bias

Thanks to physics and my choice of living way out in the sticks, I gratefully cannot get cable TV and my antenna doesn't pick up the local ABC affiliate. Sure, I miss a college football game here or there, but I can live with that.

Since I don't know what ABC did on Saturday in their coverage of President Trump's defense team's arguments before the Senate, I can’t comment on it, but here's how NBC, FOX, and CBS handled it. NBC's local affiliate (Knoxville, TN) had NO COVERAGE at all. It was supposedly delegated over to their secondary network, but, despite looking for it, I never saw it. FOX's local affiliate offered NO COVERAGE AT ALL.

CBS covered the trial for the first hour on their primary broadcast channel, but then apparently had given their affiliate (again, Knoxville, TN) the choice to switch to local programming, which they did. I managed to only miss a minute of Jay Sekulow's arguments when they switched the impeachment coverage over to their secondary channel, frantically flipping through channels to find the proceedings.

Those unfamiliar with over-the-air digital broadcasting will note that the major networks offer a number of channels of over-the-air broadcasts. They are designated by numbers, as in 12.1, 12.2, 12.3, where 12.1 would be the primary channel, with the network's complete national lineup plus local affiliate time slots. The other channels are usually delegated to secondary or tertiary offerings, employing programming from programmers such as CW, MeTV, Grit, Bounce, Start, Ion, Court TV, etc.

Some of these programmers, such as CW, offer a variety of in-house productions, but the bulk of them are reruns of time-worn sit-coms, dramas, Westerns, or variety shows. MeTV, for instance, offers up a steady diet of everything from The Beverly Hillbillies to The Flintstones.

The national networks likely have authority to cut into the programming of their secondary offerings whenever they feel it's necessary, during emergencies or when there's a programming conflict. Saturday's airing of the Senate impeachment trial apparently was deemed to be one of those times.

Now, mind you, when the Democrats were presenting the PROSECUTION, they had hours of wall-to-wall coverage on their primary network channels. There was no switching over and cutting into the programming of the secondary channels. But, apparently, in the executive offices of NBC and the other national networks, decisions were made that the defense arguments by the president's legal team were of little to no importance. Thus they were brushed aside in favor of facial cream advertisements, local sports shows, cartoons, or other innocuous programming.

I don't know if anybody else noticed the obvious bias of the networks, but if there was ever an argument to be made for pulling their FCC licenses, this would be it. Along with the obvious bias of CNN and MSNBC, which are cable-only "news" outlets, ABC, CBS, NBC, and FOX are over-the-air networks which serve a large proportion of poor, middle-class, and especially, rural America. These networks are mis-serving the public and should have their licenses pulled, or, at least, reviewed.

The propaganda - including some smarmy legal analyst on CBS lying, after the proceedings, that Obstruction of Congress is a CRIME (it is not), and Major Garrett, prior to the hearing, promoting the notorious "heads on a pike" statement, saying it was his reporting and that he stands by it - is universally leftist, to a degree that broadcasters from the former Soviet Union are no doubt jealous.

-- Fearless Rick

Friday, January 24, 2020

Stocks Flat As Lagarde Offers Inflation Policy Change in Europe

For the second consecutive day, stocks posted mediocre results, most likely a pause in the overall giant run they've been on since late September of 2019, and hardly anything over which to be concerned.

The manners in which these last two trading sessions found the same end were radically different, a chartists' dilemma in which Wednesday started on the upside before relenting late in the day and Thursday found stocks mired deep in the red, finding salvation in the afternoon.

Essentially, the indices produced an elongated "V" pattern, stretching over two sessions.

Being that the market is run by algorithms and influenced heavily by macro momentum, this recent spate of weakness is probably going to be downplayed by the uber-bulls and supported by dovish tones from the Federal Reserve along with more sloshing capital from their burgeoning balance sheet.

The Fed's FOMC convenes on Tuesday and Wednesday of next week, but the market seems uninterested in whatever they might announce, being that they will almost surely keep interest rates precisely at the present level, the federal funds rate in a sweet spot between 1.50 and 1.75 percent, good enough to attract investors to bonds and other fixed income products and not onerous enough to preclude lending to all but the least worthy.

In Europe, newly-installed ECB head, Christine Lagarde quipped about inflation, launching a review of the bank's policies and hinting that the long-standing target of two percent might be few tenths too high under the current environment of negative interest rates and slowing national economies.

Inflation in the Eurozone has been nearly non-existent since the turn of the century, last year checking in at a subdued 1.3 percent. The call for a policy review by Lagarde is a timorous one, since practically anyone with a rudimentary understanding of economics realizes that the "Japanization" of Europe is well underway and that lowering the target for inflation to 1.6 or 1.5% is just more posturing by the central bank which has no control over the forces of mass immigration, low birth rates, and over-juiced financial markets.

Perhaps Ms. Largarde is on to something, however. Could she actually be headed for an Austrian awakening in which an epiphany guides her to understanding that any inflation is unnatural in a world of sound money?

Next thing you know, she'll be calling for a new currency to replace the flawed fiat euro, one backed by gold and silver.

Surely there would be many who scoff at the idea, but, when even negative interest rates fail to produce positive results, isn't it time to stop examining policy and start critiquing the currency itself.

Partially-backed gold and silver backed money - be it digital, paper, or coinage - may not seem such a bad idea, especially to people drowning in debt.

Central bankers have engaged in lunacy for the better part of 50 years (since Nixon's closing of the gold window in 1971). Maybe it's time for sound thinking and sound money.

At the Close, Thursday, January 23, 2020:
Dow Jones Industrial Average: 29,160.09, -26.18 (-0.09%)
NASDAQ: 9,402.48, +18.71 (+0.20%)
S&P 500: 3,325.54, +3.79 (+0.11%)
NYSE: 14,102.04, -8.20 (-0.06%)

Thursday, January 23, 2020

Stocks Slide As IMF Revises Global Growth Projections Lower... Again

In the Senate, the impeachment trial of President Trump is well underway, though some Senators are wondering how the House managers can keep up their opening statement for another 16 hours without being laughed out of the chamber.

Adam Schiff, Gerold Nadler and their associates dithered and danced around the same tired narrative that's been their staple for the past six months and nobody is really buying it. Perhaps that's why stocks slumped late in the day, due to overwhelming boredom.

Impeachment aside, stocks were off to a solid start on Wednesday, but failed to make much progress, with the Dow actually ending in the red after being up 124 points early in the session.

There are be a plethora of reasons to be selling stocks at this juncture, main among them valuation, but the continuing slowdown in global trade and potential for most of Europe to fall into a recession are probably the most "top of mind" as winter winds blow cold across the Northern Hemisphere.

Lowering its 2019 forecast (a little late) for the sixth straight time, the IMF dropped expectations for global growth to 2.9%, down 0.1 from it's previous 3.0% expectation. Most of the data is already in place. The IMF, like everyone else, is monitoring fourth quarter results from corporations around the world.

In what has to be regarded as somewhat on the cheeky side, the IMF also lowered its 2020 forecast, from 3.4% to 3.3%. It's ludicrous to believe that the amalgamated egoistic economists at the IMF can get any prediction right, especially one calling for improvement when the early evidence is clearly favoring decline. Within a few months, these brainiacs will be revising their crystal ball projections and tea leaf readings to something more aligned with reality.

Considering that the US, at least, is at the far end of an 11-year bull market, some slowdown would be expected and it's notable that the brain-dead at the IMF cannot fathom the declining birth rate effects of demographics in developed countries, most of which have fallen below replacement figures.

With cheerleaders like those at the IMF and the relentless money creation by the Fed, there's little wonder the rich get richer as fake predictions are afforded the most credence.

At some point, the Fed will stop printing or the dollar will hyper-inflate. At that point, the IMF can revise upward and still find itself woefully behind the curve.

At the Close, Wednesday, January 22, 2020:
Dow Jones Industrial Average: 29,186.27, -9.77 (-0.03%)
NASDAQ: 9,383.77, +12.96 (+0.14%)
S&P 500: 3,321.75, +0.96 (+0.03%)
NYSE: 14,110.24, +0.26 (+0.00%)

Wednesday, January 22, 2020

Stocks Take Extra Day Off As Impeachment Trial Opens, Virginia Protest Ends Peacefully

Almost everybody got back to work on Tuesday, following the Martin Luther King Jr. holiday, including those who traveled to Richmond, Virginia to rally in support of the second amendment and congress, which eagerly got started on the impeachment trial of President Donald J. Trump.

The scene in Richmond was inspiring, if not daunting to those who oppose gun rights in the United States and elsewhere. The display of firearms - from shotguns and .22s to ARs, semi-automatic weapons, handguns and even a .50-caliber tank-buster - was impressive to say the least. The massive demonstration of an armed populace acting in a very peaceable manner without incident (only one arrest was made) served as a reminder of what America is all about: a free people willing to defend their rights against tyranny.

In congress, it was another kind of spectacle, with the managers from the House of Representatives sparring over trial rules with the president's legal team. The arguments by the House members who stand as prosecutors fell largely on deaf Republican ears as every one of the eleven proposed amendments brought up by Democrat leader Chuck Schumer was defeated along party lines, 53-47, bar one. Maine Senator, Susan Collins voted with Democrats on the 10th amendment proposed by Schumer, which would have allowed more time for both sides to respond to trial motions, but it still went down in flames, 52-48.

The marathon session lasted well into the night, finally adjourning just before two o'clock am. The defeat of the Democrats was resounding and bodes well for the president as the parties will begin making their cases when the House managers begin three days of opening arguments on Wednesday at 1:00 pm ET.

While the rhetoric was fiery and impassioned by both sides, the issues raised by the president's lawyers seemed more authentic and serious. Most of the Senators seated in the chamber are well aware that the charges levied by the Democratically-controlled House - Abuse of Power and Obstruction of Congress - are neither crimes nor are their arguments particularly well-founded. The president and his team have roundly criticized the entire impeachment process as a "sham" and a political exercise, the charges not even close to rising as impeachable offenses.

Nevertheless, House managers will have three eight-hour sessions over the next three days in which to plead their case, taking the trial through Friday. The president's defense team will also have the same allotment of time - 24 hours - to offer their case, on Saturday, Monday, and Tuesday, also in three eight-hour sessions. It's looking like the president will be acquitted on both charges in a reasonably short manner.

While there is still the possibility of calling new witnesses and adding documents, the Republicans in the Senate are unlikely to move forward on those grounds, considering that the House should have done its job better to make its case against the president without having to conjure up new charges and ddrag the country through a drawn-out, ridiculous process that could stretch into months of useless debate.

Meanwhile, Wall Street wasn't very upbeat about anything, as stocks took a rare nosedive to open the week's trading. Led by the Dow Industrials, losses were not substantial and would likely not lead to any more selling activity. Besides the Fed's nearly-continuous pumping of fresh cash into the hands of hedge funds and primary dealers (big banks and brokerages), the global outlook is a few shades light of gloomy while the rich and not-so-famous convene at Davos, Switzerland this week for the 50th annual World Economic Forum.

Business and political leaders from around the world heard President Trump speak on the glories of his "America First" policies, followed by another round of adult-shaming by eco-warrior princess, Greta Thunberg. The two cancelled each other out to some degree, though Trump's speech was longer and much more compelling than Thunberg's seven-minute screed.

Even with stocks lower, gold and silver took substantial hits at the start of the day and failed to recover to any great degree. WTI Crude oil futures continued to test the upper resistance at $58/barrel and failing, while the 10-year note was bid, finishing below a 1.80% yield for just the second time this year.

All told, it was a good day for non-financial activity, though the trading hardly reflected that. Instead, markets are displaying the kind of activity seen when stocks are overbought, as they currently are. Short-term, there's potential for a more sizable pullback, though it would take a gargantuan effort to offset the machinations of the Fed, which now has wrested nearly complete control of almost all markets.

Until the Federal Reserve takes its foot off the liquidity gas pedal, stocks should continue to outpace all other investments.

At the Close, Tuesday, January 21, 2020:
Dow Jones Industrial Average: 29,196.04, -152.06 (-0.52%)
NASDAQ: 9,370.81, -18.14 (-0.19%)
S&P 500: 3,320.79, -8.83 (-0.27%)
NYSE: 14,109.98, -73.22 (-0.52%)

Monday, January 20, 2020

WEEKEND WRAP: Virginia Lobby Day and Trump Impeachment Trial Take Center Stage

It being Martin Luther King Jr. Day, markets in the US are closed, but that didn't stop what looks to be more than 50,000 (actual number was about 22,000) patriots from heading down to Richmond, Virginia for the state's annual "Lobby Day," usually an opportunity for Virginia citizens to meet with their legislators and discuss various agendas facing the state.

This year, most people won't even get a chance to see a legislator, as Governor Ralph Shearer Northam (he of blackface shame) last week declared a state of emergency for the state capitol from January 17 to January 21, over fears of violence stemming from the gun rights crowds expected.

Northam was wrong to declare the emergency. After all, beyond the extra police presence, there are so many well-armed citizens in attendance, anybody thinking of causing trouble would probably think twice.

It's still early, and very chilly, in Richmond right now, but so far, the crowds have been peaceful. The day should end without incident unless something gets stirred up by anti-gun reactionaries like Antifa or a false flag event staged by one of the three-letter agencies overseeing the ongoings.

With many live streams being broadcast and thousands of people with cell phones, it's unlikely anything underhanded should happen, and if something does happen, it's likely to be recorded. This isn't going to be a rerun of the melee at Charlottesville back in 2017.

If Virginia's Lobby Day doesn't produce any grotesque footage for the fake media, then Tuesday, all eyes will turn to the impeachment trial which opens in the Senate. This is another made-for-TV type event, but Republicans led by Mitch McConnell (R-KY) are doing their level best to blunt the desired effect the Democrats are seeking, which is to drag out a long trial, complete with new witnesses, demands for documents, calls of a cover-up, issues of executive privilege ruled upon by the Supreme Court and other such nonsense.

The impeachment of President Trump was a sham from the start, when Intelligence Committee chairman Adam Schiff launched a plot and counseled a "whistleblower" over a single phone call made by Trump to Ukraine president Zelensky.

Drawing from shades of the Bill Clinton impeachment, there never was, nor never will be any "there" there.

If cooler heads (Republicans) prevail, this sorry escape into stupidity should be all over in less than two weeks. Many Americans wish it could end in two days, if not sooner.

With all the tumultuous political theater taking place it's a wonder that stocks move at all, especially in an upward direction, though the recent buying spree - which began in September 2019 - has been aptly aided by continuous money printing and liquidity being shoved into the REPO market by the Federal Reserve. Until the Fed ceases its now-daily operations, stocks will never suffer losses. It's just a matter of fact. Like Warren Buffett supposedly quipped, "Give me a trillion dollars and I'll show you a good time, too."

Meanwhile, inflation will be ramping up sooner, as per the wishes of the Fed, whose various voices and charts keep telling the American public that the US economy hasn't yet met their target of two percent inflation, as if higher inflation were a good thing (it's not). All along, however, inflation has been raging in health care, education, and housing, but those factors are not apparently part of the Fed's purview. Therefore, they continue to print at a rate faster than previous bouts of QE while Chairman Jerome Powell insists this round of liquidity pumping is "not QE."

Sure, we'll buy that. And that horse over there is actually a rabbit.

Just how hard has the liquidity pump been working?

Since mid-October, on a weekly basis, the Dow has been up 10 weeks, down three; the NASDAQ, since late September, 14 weekly gains, two weeks with losses; S&P: 13 up, two down; NYSE: 13 up, two down.

That's a nice-looking rabbit ya got there. Mind if I ride him?

At the Close, Friday, January 17, 2020:
Dow Jones Industrial Average: 29,348.10, +50.50 (+0.17%)
NASDAQ: 9,388.94, +31.81 (+0.34%)
S&P 500: 3,329.62, +12.81 (+0.39%)
NYSE: 14,183.20, +41.40 (+0.29%)

For the Week:
Dow: +524.33 (+1.82%)
NASDAQ: +210.08 (+2.29%)
S&P 500: +64.27 (+1.97%)
NYSE: +225.23 (+1.61%)

Friday, January 17, 2020

Confluence Of Impeachment, Virginia State Of Emergency, Peter Schweizer Book Could Damage Stocks

With stocks soaring to even higher new record highs again on Thursday, there's little doubt over the levles of irrationality and exuberance being displayed by the hoi poloi investing elite, their magic money spigot at the Fed and their marvelous algorithms which interpret all news as positive for stocks.

It is precisely in conditions such as these (the Dow Jones Industrial Average has vaulted over 29,000 with ease and is up a stunning 3,219 points since October 3rd, a 12.3% gain in just three-and-a-half months. The time period in question coincides neatly with the Federal Reserve's stoking engagement into the repo market, pumping, by some estimates, over $1.5 trillion into the hands of primary dealers and hedge funds, ramping the Fed's own balance sheet by more than $413.7 billion since the end of August.

The Fed's particular brand of irrational exuberance is at a pace reminiscent of prior bouts of QE in 2009, 2010-11, and 2012-14, even though the Fed cutely insists this is "not QE." Balderdash.

Normally, nobody gets alarmed over gigantic gains in stocks, giving their overall pleasant scent (go ahead, you know you want to sniff your currency) and beneficial purchasing power, but this severe repricing of stocks is beginning to look Weimar-like, when stocks in 1920s Weimar Germany rose by obscene percentages, but cashing in hundreds of shares could only purchase a day's worth of food due to the overarching hyperinflation of the currency.

Not to say that the same is or will be happening in the United States, though signs of runaway inflation are prevalent, but something may go wrong at some point that tears the social construct and eventually affects stocks and currency.

Consider that a confluence of events are about to take place between now and Tuesday, January 21. Equity and security markets will be closed over the weekend and on Monday, Martin Luther King Day, a national holiday. In the meantime, there's already a state of emergency declared in Richmond, Virginia with concern over the gun rights rally set up for Lobby Day on Monday.

On Tuesday, the impeachment trial of President Trump begins in the Senate.

Also on Tuesday, Peter Schweizer's new book, Profiles in Corruption drops. On the book's cover are the faces of Elizabeth Warren, Joe Biden, Bernie Sanders and others. Uh, Oh, it's already at #3 on Amazon's Best Sellers list.

Tuesday may be too late to get out of positions, so if there's some quiet pullback on Friday, it could be a tell.

At the Close, Thursday, January 16, 2020:
Dow Jones Industrial Average: 29,297.64, +267.44 (+0.92%)
NASDAQ: 9,357.13, +98.43 (+1.06%)
S&P 500: 3,316.81, +27.52 (+0.84%)
NYSE Composite: 14,141.78, +88.58 (+0.63%)