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.
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• 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.”
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• 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%)

Stocks Unimpressed With FOMC Decision; Dollar Dashed

The Fomc wrapped up a relatively uneventful meeting Wednesday, keeping rates unchanged and saying little to nothing about winding down the Fed's bloated balance sheet.

After two hikes already this year, rates will almost surely remain on hold until December and an announcement that the Federal Reserve is ready to shed assets may come at the September meeting, according to knowledgeable experts on the subject. Having been sufficiently prepped and prodded, the Fed can feel some confidence that a beginning of an asset unloading program won't upset the status quo too awfully much.

The one kicker is that the wildly out-of-control federal government faces a potentially debilitating debt ceiling debate and a testy budget process in September, but that will come only after congress has taken a month's vacation, pending Obamacare replace and/or repeal legislation currently under consideration in the Senate.

Nothing the Fed does can accurately predict what the paid lackeys... er, prostitutes, er, politicians will do when the rubber meets the road in terms of the soon-to-be $20 trillion national debt. Chances are good that they'll punt, laying one deep and long, giving themselves room to survive the midterm elections in 2018. One person who does not have to suffer any kind of electoral fate in that year is President Trump, who is almost certain to have boisterous opinions on the matter of the debt ceiling and federal government budget.

There are wild card outcomes which the Fed is unable to predict no matter how deep or thorough their modeling, which raises the possibility for abrupt changes in policy, and the jokers dealt by the government are not the only potential surprises. Geopolitics - specifically, North Korea, Ukraine, Iran, or Syria - may play a role in future policies, as could any number of scenarios, from ECB jump-starting their own tapering, Japan failing to follow through with continued buying of equities, or, perhaps a war between China and India stemming from border disputes in and near the Himalaya mountains. Go figure.

As far as stock movements and reactions to the FOMC nothing-burger issued today, the markets basically were held in suspended animation afterwards with a slight bias to the downside.

The outsize gains on the DJIA were largely the result of Boeing's (BA) monstrous 9.2% spike today (biggest day for BA since 10/28/08), responsible for 132 Dow points. So, essentially, the remainder of the Dow was lower, only lifted higher by the flighty airline manufacturer. Only 13 Dow components were higher, 17 lower, led down by Nike and McDonald's, the latter having made new all-time highs just yesterday, which is alarming, since what the company passes off for food has recently reached new lows. Must be their outstanding customer service or something else casual consumers just don't see or understand. Share of MCD are massively overpriced, with earnings per share of 6.25 and a stock price of roughly 156 translating to a P/E of 25. Shareholders and executives (neither of which actually eat at any of their own restaurants) are "loving' it."

The dollar got whiplashed lower, sending (alarm bells) gold and silver higher. Also on the run is the price of crude oil, as the latest reports showed a massive draw, though gasoline inventories were built. Once more, the people actually using the stuff - drivers - just don't get it, apparently.

At the Close, 7/26/17:
Dow: 21,711.01, +97.58 (0.45%)
NASDAQ: 6,422.75, +10.57 (0.16%)
S&P 500 2,477.83: 0.70 (0.03%)
NYSE Composite: 11,964.92, -0.80 (-0.01%)

Jobs Number Baffles Market, But, The Market Is Saying SELL, SELL, SELL

With a January jobs number that was well short of expectations, at 151,000, the reaction from Wall Street was truly a puzzler. One could have easily gone with the "bad news is good news" meme, because if the economy is deteriorating (hint: it is) and layoffs are rampant (they are), then the Fed may not be able to justify any more increases in the federal funds rate this year.

That would be undeniably good for stocks.

It wasn't.

All the major indices took a nosedive right out of the gate, correctly predicted by the futures trading, which collapsed as soon as the number came out, an hour prior to the open.

So, what were the market mavens reading into the garbled mess that was the January Non-farm payrolls report?

Perhaps they looked at the wage growth, which was impressive, up a solid 1/2 percent, an unusually large jump, but probably the result of new legislation in a number of states which mandated higher minimum wages, which were where all the new jobs are - at the low end.

Or, the market might have reacted to the 4.9% unemployment rate, an unbelievable number, and again, a sign of a strengthening economy, which gives the Fed some latitude in raising rates. In any case, the odds of a rate increase later this year jumped on the news, sending stocks down the drain.

What traders see in the numbers may be far removed from what the numbers actually revealed, and the numbers themselves may not be very believable. After all, who actually believes that of those 151,000 jobs created, 58,000 of them were in retail? Remember, this was January, when retailers are normally laying people off after the holiday season. And this was no normal January either. Big chains, from Wal-Mart to Macy's to Sears were closing stores and letting people go. So, just who was hiring all these retail employees?

Then there were the 47,000 jobs created in the food service industry. Really? McDonald's, Applebee's, et. al., were hiring in January? The report also included a manufacturing sector increase of 29,000 jobs, which runs contrary to the recent ISM and PMI manufacturing jobs outlooks.

Money Daily warned yesterday that the BLS is famous for convoluted schemes to concoct bad figures and massive revisions, making the initial releases almost comical, and this one certainly fit the bill.

November and December were revised in opposite directions. The change in total nonfarm payroll employment for November was revised from +252,000 to +280,000, and the change for December was revised from +292,000 to
+262,000, for a net loss of 2,000.

We also noted that the number would not be influential to markets unless it was a big overshoot or a big miss. It was a big miss, with the consensus estimate at 190,000. Besides being down more than 100,000 from December - even after the revision - it's a massive miss, and one that the market apparently could not readily overlook.

Overall, the damage to equity markets was pretty severe. The NASDAQ closed at its lowest level since October, 2014, some 17 months hence.

For the week:
S&P 500: -60.19 (-3.10%)
Dow: -261.33 (-1.59%)
NASDAQ: -250.81 (-5.44%)

The day's rout:
S&P 500: 1,880.05, -35.40 (1.85%)
Dow: 16,204.97, -211.61 (1.29%)
NASDAQ: 4,363.14, -146.42 (3.25%)

Crude Oil 31.02 -2.21% Gold 1,173.70 +1.40% EUR/USD 1.1162 -0.34% 10-Yr Bond 1.85 -0.86% Corn 366.50 -0.54% Copper 2.09 -1.88% Silver 15.02 +1.14% Natural Gas 2.07 +4.72% Russell 2000 985.62 -2.87% VIX 23.38 +7.05% BATS 1000 20,306.40 -1.64% GBP/USD 1.4503 -0.50% USD/JPY 116.8300 -0.05%

Confused? Don't Worry. Everybody Else Is, Too

Ours is a complex world, and there's probably nothing more complex than the intricate workings of today's financial markets.

The news flow of the day involved nothing much of note moving forward on the Syrian issue, a second reading of second quarter GDP (the new, vastly inflated version) of 2.5%, lower initial unemployment claims and the laughable nationwide "strike" by fast food workers demanding a doubling of their wages, from roughly the minimum wage of $7.25 to about $15 per hour.

Here's a few clues for the burger flippers of the world: a) you'd be better off on welfare; b) McDonald's, Burger King and Wendy's aren't going to double your pay; c) your new status as part-time employees is thanks to your hero, president Obama and his health care reform package; d)moving out of your parents' home and having a kid out of wedlock were probably bad ideas.

While we're on the advice meme for today, for the President: don't do it.
For congress: impeachment is still an option.
For Vlad Putin: Keep doing what you're doing.
For gold and silver bugs: buy or hold.
For stock holders: SELL!
and, for Miley Cyrus haters: Get a life. Stuff happens.

Meanwhile, stocks rallied hard in the morning and sold off hard in the final hour, similar to yesterday's action and a clearly bearish trading pattern. Bonds sold off, early, then rallied, sending yields up, then down.

Oil fell sharply.

If none of this makes any sense in a macro kind of way, that's probably the way it's supposed to be. As somebody very wise once said, "if it were easy, we'd all be rich." Ain't that the truth.

Friday is the final day of trading for the month, which really doesn't mean much of anything, except that, being August, expect some volume to return to the stock market the first week of September. Overall, it looks like a sure down month for the Dow and S&P, though the NASDAQ has bucked the trend somewhat, falling only 0.1% - basically dead even - for the month.

Since labor Day is fast upon us, here's a quote to ponder: "From Each According to His Ability, To Each According to His Need" -- The Tramp's Speech from Ayn Rand's "Atlas Shrugged."

We may or may not be back tomorrow, depending largely upon global events, whether the market moves are large or small and whether the fish are biting.

Dow 14,840.95, +16.44 (0.11%)
NASDAQ 3,620.30, +26.95 (0.75%)
S&P 500 1,638.17, +3.21 (0.20%)
NYSE Composite 9,315.83, +6.75 (0.07%)
NASDAQ Volume 1,288,533,125
NYSE Volume 2,802,161,750
Combined NYSE & NASDAQ Advance - Decline: 4291-2233
Combined NYSE & NASDAQ New highs - New lows: 88-53
WTI crude oil: 108.80, -1.30
Gold: 1,412.90, -5.90
Silver: 24.09, -0.301

No Happy Meals For McDonald's Shareholders; Gold, Silver Rise

The signs of collapse are everywhere. You just have to know where to look.

Detroit declared itself a bankrupt city on Friday and on Monday, McDonald's (MCD) - home of the Happy Meal - reported earnings before the opening bell that were short of estimates. When the world's largest purveyor of cheap, unsubstantial, processed, nutrient-deprived food (though Yum Brands is a close second) can't meet the already-lowered bar of wall Street estimates, you know that something bad this way comes.

McDonald's is all about everything that is wrong with our society. Their main profit center is the dollar menu - cheap, boiled or broiled sandwiches or chunks of deep-fried processed chicken with gobs of unsaturated fats included at no extra charge - an affordable alternative to actual, pesticide-free nutrition, that gets goobed-up by the least of our society in massive numbers daily. The problem - in a very heuristic, superfluous, nebulous kind of way - is that numbers of the wretched poor can't even afford to eat this crap any more, so burdened are they by taxes, lack of meaningful and good-paying employment and general economic malaise. It's a much more serious problem than just not making the numbers. The American poor are being slowly, methodologically, starved into submission and death.

America was once the land of milk and honey and other worldly gifts, but, no more. Now, the country is devoid of morals, an aimless gob of humanity looking for a way off the debt treadmill. And Wall Street isn't giving them an escape route.

Bottom lime is that McDonald's food is junk food and their stock is a junk stock, like so many others, profitable upon the backs of cheap labor and unconscionable practices.

The market is dead. Gold - in backwardation since January - shot through $1300 like an unguided missile, dragging silver along for a gain of better than a dollar on the day. Land, precious metals, fuels, tools, skills. That's survival. The rest will vanish.

You thought last week's market was dull. Wait for Thursday. It will be like being struck with the wrong side of an axe. These aren't gains. They are mirages.

Dow 15,545.55, +1.81 (0.01%)
NASDAQ 3,600.39, +12.77 (0.36%)
S&P 500 1,695.53, +3.44 (0.20%)
NYSE Composite 9,650.61, +32.10 (0.33%)
NASDAQ Volume 1,459,571,875
NYSE Volume 3,047,999,000
Combined NYSE & NASDAQ Advance - Decline: 3911-2541
Combined NYSE & NASDAQ New highs - New lows: 607-74
WTI crude oil: 106.91, -1.14
Gold: 1,336.00, +43.10
Silver: 20.51, +1.049

Dow Continues to Power Higher; Apple Cored After Hours

Editor's Note: Apologies for not posting yesterday. We had a major crash of our main computer on Sunday and have been working off a partially-impaired computer since, making life difficult and blogging an excursion into 1990s computing. A bew computer (due to arrive by Monday) should get everything back to normal within a few days.

Stocks keep climbing on hopes that the congress and the president can resolve their debt ceiling differences by passing a temporary extension (read: kicking can a bit down the road) and promising to get serious long before their May deadline (we will believe that when we see it).

The House passed the bill paving the way for an extension of the debt limit until May 19, when it will be reset to reflect additional borrowing through the interim period, voting overwhelmingly in favor across party lines, 285-144.

On Tuesday, existing haome sales came in below forecast, at 4.94M, on expectations of 5.10M (annualized). Not to worry, stocks put in another day of gains.

The Dow was the big winner today, thanks almost entirely to IBM, even though Big Blue has made the bulk of its profits over the past two years by buying back shares, thus reducing the number of shares available and making the EPS number more palatable.

Only 12 stocks on the Dow were up, compared to 17 closing in the red. Coca-Cola (KO) finished unchanged.

McDonald's reports that profits in the US were highly correlated to sales off its dollar menu, implying that either the American pallet enjoys the cheaper menu items or the American wallet is not very well-filled these days.

Apparently, not everyone is convinced that the only thing that matters is what happens in Washington. The NYSE Composite closed lower on the session.

So far in 2013, Dow Jones Industrials have finished higher on 11 of 16 trading days, including the last four straight. The average is up a whopping 675 points, roughly a five percent gain, which, in more normal times, might be good for a full year.

Caution is advised, though with the Fed pumping liquidity with every last ounce of reserve (no pun intended), the chances are that any pullback will be temporary and short-lived.

After hours, shares of Apple (AAPL) were slashed, as the company reported flat earnings per share on increased revenue (18%) year-over-year. The stock was down nearly five percent, falling below the 500 level once again.

Dow 13,779.17, +66.96(0.49%)
NASDAQ 3,153.67, +10.49(0.33%)
S&P 500 1,494.78, -2.22(0.15%)
NYSE Composite 8,828.35, -4.40 (0.05%)
NASDAQ Volume 1,687,925,130
NYSE Volume 3,764,679,750
Combined NYSE & NASDAQ Advance - Decline: 2909-3504
Combined NYSE & NASDAQ New highs - New lows: 510-10
WTI crude oil: 95.23, -1.45
Gold: 1,686.70, -6.50
Silver: 32.44, +0.262