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Market Impacting News and Perspectives

‘They Blew It’: Wall Street Reacts to Fed’s Emergency Cut

  • Here's a good run down of the Fed actions over the weekend:
  • Jones Trading: “They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools."
  • Natwest: “The fact is global equities are still getting slammed. It shows markets worried more about infection rates and growth and need to see a large fiscal response."
  •  Creative Planning: “It’s largely inconsequential. The bottom line is this is a health issue.
  • UBS: " ... we expect the market to end the year at much higher levels than today, with China’s economy leading the way to recovery and the U.S. and European economies rebounding in the third quarter.”
  • Pimco: “All said, policy makers including the Fed are in the process of pulling all the stops to mitigate the severe economic and financial disruptions...More will be needed and will likely be forthcoming over the next few weeks and months.”
  • Our Take: Too much too soon?  The 3,000 point turnaround in the Dow Futures after the Fed actions on Sunday was astounding.  Looking ahead, we see a shift/extension in the head line risk to stocks from the real financial impact on employees in industries and businesses being closed. A question we have, is when does the administration of the government begin to start to shutdown, where workers are generally not set-up to work from home. Obviously precarious times, but again just need to get to the other side.  Growing Street consensus is "deep but short" ... hopefully.    

‘One of the Buying Opportunities of a Lifetime’: Here’s why Wharton professor Jeremy Siegel...

Bullets from the article:
  • Jeremy Siegel, professor of finance at the Wharton School, says the coronavirus-induced stock selloff could present a buying opportunity of a lifetime.
  • He notes the strength of the US economy prior to the market plunge, and thinks that if our market follow China's (who he says have completely recovered) a sharp reversal may be in order.
  • Siegel says "fear will continue to drive this" in the short-term.
  • He lays out what's becoming the consensus "recovery" opinion ... we agree.

Saudi Arabia Doubles Down On Threat to Flood the Oil Market

  • A day after Saudi Aramco confirmed it will up oil production by 2.5 million barrels per day on April 1, it also announced that the company will expand sustainable output by another 1 million barrels to 13.0 million. They are digging for a war of attrition.
  • Other OPEC members are piling on with UAE also increasing production by 1 million barrels per day.
  • Based on comments from the Russian oil minister, they are not backing off either and continue to pay "Russian roulette".
  • The energy meltdown threatens to repeat the 2014-2016 crash that bankrupted dozens of oil and gas companies and caused hundreds of thousands of layoffs.
  • Comment from the International Energy Agency, "The only thing I would hope, that in the oil markets, common sense will prevail and all the actors behave responsibly as the world is facing major challenges today,".

Is Coronavirus Airborne? Will It Live In My Bathroom? Is it OK to Fly...

  • Article does a good run down of facts related to how coronavirus is transmitted.
  • Is coronavirus airborne like measles?: No, it is transmitted in droplets.
  • How long can it live in your bathroom?: Coronavirus can live on surfaces for a few hours to a few days.  High temperatures are likely to degrade it.
  • Will recirculated air on a plane make me sick?: In-flight oxygen is probably higher quality than the air in your home.  But the exposure area around a person who has the virus is about six feet. Ventilation systems change over air 20 to 30 times an hour running the air through HEPA filters to tap viruses, funghi, and dust.
  • Are men more affected than women?: Yes, men are more likely to be infected with more severe symptoms.  Woman have oestrogeon which apparently has a protective effect.
  • Do face masks help?: Face masks help prevent patients from spreading the virus, but they don’t protect the healthy. Most face masks do not effectively filter small particles or prevent leakage around the edge of the mask.
  • Human spacing is key.

How Long Might the Bear Market Last?

  • Obviously lots of commentary on the lack of substance and leadership from Trump's speech last night after which futures plummeted.
  • From the article, traders continue to believe the coronavirus impact on the economy will be transitory, and expect a quick rebound when there is visibility of the virus turning.
  • While others say that the reversal of negative sentiment associated with major market down drafts typically does not lead to brief bear markets.
  • From us. Unfortunately the title of this article is misleading as no one knows the extent and timing of the on-going market volatility.  But, we do know that there is a defined tail as the virus will run its course.  For stocks, its a question of companies having balance sheets to weather a paralyzed economy, and importantly, continued liquidity and operation of the banking system and credit markets.

China’s Stocks Have Recouped Most Coronavirus Losses. Key Points to Watch for in the...

  • Great article that seems to support what we've been saying ... look at where the coronavirus has been, not where its going (cause its going everywhere). In this case China where stocks are essentially back to 52 week highs, even after oil shock Monday.
  • Chinese stocks began to turn around as the number of new cases began to go sideways (in early February).
  • On Tuesday, China’s leader, Xi Jinping, visited Wuhan, and people are going back to work in re-opened factories, as Bejing lowers restrictions.
  • While it isn't clear how the virus will unfold in the US and Europe, where health care infrastructure is much more robust, and there is the benefit of lead times.
  • Industrial companies that will benefit from the economic stimulus have done well, as have e-commerce stocks as people have been forced to go on line more.
  • The ultimate economic recovery in the US will be determined by a combination of the public health care actions and monetary, fiscal and other federal support (from us, all of which Trump seems primed to roll out during this election year).

How Putin Spurned the Saudis to Start a War on America’s Shale Oil Industry

  • Interesting article that goes through the chain of events and reasons that led to Putin pushing back from agreeing to cut oil production and the resulting fallout the past week.
  • Putin made a decision that propping up prices through the corornavirus impact on energy demand was a gift to the U.S. shale industry. To quote the article, "Now it was time to squeeze the Americans".
  • After aligning with OPEC+ for more than three years and benefiting Russia's largest export and revenue source, Putin was apparently increasingly angry that Trump had weaponized energy as a political and economic tool.  He was also irked that the US had put in-place sanctions that effectively blocked the construction of the pipeline from Siberia to Germany last year.
  • In the face of declining oil demand this year, the Saudi's pushed on Russia to cut production to protect pricing.  Putin was open, but wanted the US shale operators to also cut.
  • The past weekend, the Saudi's made one last effort.  The core OPEC members agreed to cut production by 1.5 billion barrels, but ultimately Putin didn't budge and the agreement blew up.
  • But, the article suggests that Putin's strategy may back fire that while many smaller shale producers are over leverage and susceptible to low oil prices, US shale production has been in large part taken over by the large oil companies like Exxon and Chevron with deep pockets.

Markets are Betting the Dow Crash Will Lead the White House to Reverse Its...

  • On Monday, Trump said discussions will take place with Senate Republicans on a possible payroll tax cut, relief to hourly workers, loans to small businesses and help for the travel industry.
  • The market is in part reacting to the potential of the Feds to support individuals and and industries hard hit by coronavirus.
  • After broad criticism of the Trump/Federal reaction managing the coronavirus health threat, the article cites experts who are critical of Trumps economic/financial response.  Also, CNBC cited unamed officials saying the plan "is not there yet".
  • Rightfully, the article cites the positive impact on the economy from lower mortgage rates and lower gas prices (thank you).
  • Our view, in an election year in which Trump places so much evidence on the stock market, we would expect him to ultimately hit the accelerator hard to put in place support/stimulus to keep the economy and stock market moving.
  • Separately and important, Russia also signaled that talks with OPEC remained possible and Russian oil minister Alexander Novak said he did not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June.

The S&P 500 Just Lost A Stunning 7.6%—Here’s How the Stock Market Tends to...

  • As we touched upon earlier, in times when fundamental analyses becomes largely useless, we are forced to look at technical type analyses. Here's one that suggests the market will be up tomorrow and the coming months after today's sell off.
  • The article shows that after the 10 times the S&P was down more than 5% on a Monday, the market was up on average 4.2% the next day and 12.7% 12 months later.
  • For all days (24 of them) when the S&P is down more than 5%, the market was up 1.6% the next day and up 6.2% 12 months later.
  • Looks like a clear sign to us to load the boat ... kidding, but still hopeful.

Here’s When S&P 500 Circuit Breakers Kick In – and What They Mean

  • Haven't had to remind ourselves of the levels at which market circuit breakers kick in, but here they are.
  • Level One: 7% decline in the S&P (2,784)= 15 minute trading halt.
  • Level 2: 15% decline in the S&P (2,586) = 15 minute trading halt
  • Level 3: 10% drop in the S&P (2,378) = all markets are closed for the day.
  • We admit, we are a bit paralyzed today as its probably too early to buy, and it's fundamentally wrong to sell into a 5% market down draft.
  • Smart guy Kyle Bass said this morning on CNBC that he is also not buying or selling, but there will be big opportunities on the other side of this, which he thinks will take another month to sort as the virus begins to fade from warm weather and prevention actions, which need to be intensified.
  • He also said company's balance sheets really matter, and more broadly while US banks are stressed tested/in good shape, the capitalization of banks in Europe and parts of Asia, have not been modified enough since 2008.