No Way To Sugarcoat This
The president was blunt. This is not criticism. I think we would rather hear whatever it is that we must hear. Dr. Tony Fauci? Dr. Deborah Birx? New York Governor Andrew Cuomo? Pretty much the same. I was preparing my family's evening meal. I had the president's task force briefing on the radio. "This could be a hell of a bad two weeks."
President Trump did not hold back. He told the nation to prepare for a "very, very painful two weeks." Dr. Fauci said, "We've got to brace ourselves." He spoke of not becoming discouraged. Dr. Birx has discussed modelling that shows U.S. deaths related to Covid-19 that land the nation at numbers that begin at 100,000.
There is no need to discuss how broad this projected range might be. My state's governor, Andrew Cuomo has stated, "We underestimated this virus." I don't know how closely you follow my governor, but he has been pretty straight on this threat from the start. That admission startled just a bit.
Being a "markets guy," my second or third thought (because first I prayed for my family, friends and the growing number of folks among my circles now in area hospitals), was that such talk would certainly ding futures markets. Equities had sold off late on Tuesday, even with some positive, if unpredictable, impact expected from any pension funds that had chosen to move forward with their monthly or quarterly rebalancing. Then, I thought, the people who said these things knew that markets would react, and they still said them. They are clearly more concerned with more important issues.
For me, Tuesday was the day of living dangerously. I had no choice. Woke up with no heat. Had to call a repairman for my oil burner. He seemed both very nice, and very healthy. He was older than I and I worried for him working in people's homes at a time like this. A short while later, my wife informs me that somebody has got to make a pharmacy run. I don't want her going, I am the healthier of the two of us to begin with. We also needed to make a grocery run. On go the rubber gloves. I tied a bandana around my face. Off I went.
The pharmacy was empty. A man still managed to invade my six feet and cough on me. He was wearing a mask. He did not cough again after I told him to back the flux up. The grocery was different. Still nothing on many shelves a month into this. No paper products since late February. Canned goods are still in scant supply, as remain both pasta and dry cereal.
Social distancing seemed easy enough until the poor guy who stocks the frozen aisle with vegetables tried to do so. At that point nobody cared about six feet. There was corn, there were peas, there were string beans. The man could not even get the stuff on the shelf. Overall, I did come home with enough supplies for a family of four, even if I never heard of some of the items I found myself willing to purchase. The risk? You go nowhere without thinking about it. I would say that at least 75% of the folks at the grocery or pharmacy wore some kind of mask, even if makeshift like myself. I did not see a single soul in my travels who was not wearing gloves.
"We must never despair; our situation has been compromising before, and it changed for the better; so I trust it will again. If difficulties arise, we must put forth new exertion and proportion our efforts to the exigencies of the times" .--George Washington
About the Markets
You saw it. I saw it. We all saw it. Trading volumes were higher at both of New York's primary equity exchanges. Trading volumes were higher across the Nasdaq Composite and especially across the S&P 500. On a down day. Not only that, but on a day where markets had to price in an expected net positive order flow. This came ahead of what we already know will be a series of tough-looking macroeconomic events scheduled over the second half of this week.
We know that autos aren't selling. We know that a whole lot of folks have lost their incomes. We know that the Federal Reserve and the Treasury Department have been doing, and will continue to do all that they can -- in real-time. Still, there is will only remain just the narrowest of economies for the time being, and it becomes very difficult to predict just how long this reality remains fact.
Do markets retest the market lows of last Monday (March 23)? The truth would be that none of us truly know, but if I were a betting man, this is something that I would not be willing to bet against. Basically, all of us who play this sport were "the math kid" growing up. We have been told to brace ourselves for some awful-looking statistics regarding the state of public health. Understand then, that except for a few, select industries, there is no natural broad, market support. There will still be some technical support, and there will be some artificial support through the intervention of policy. The fundamentals, as we like to call them, are on hiatus until there is a return of velocity in transaction, and preferably a velocity exclusive of government spending.
This, in its entirety, will take some time. Velocity returns incrementally only as testing for Covid-19 becomes widespread among the healthy and individuals are cleared to return to various states of productivity.
About that. I hear the stupidest of things in my social circles. About what we are going to do when this is all over. Terrific. We should all dream. But let us not ever lose sight of the fact that fun times in the future are not the mission at hand. The mission at hand is making it there and bringing as many people with us as possible.
Minimize risk. That is your mission. Everyone needs to get to the pharmacy and the grocery. Everyone has to make financial arrangements. Nobody just needs to go out. The people on the front lines of this war are dealing with more than a person ever should. There can be no willingness to make their jobs even more dangerous through personal recklessness. No willingness. You scared? You need to vent? I may not be able to lend a shoulder, but I can sure lend an ear. We are one. As it always was.
Stay with me here. Back in the last "great recession," which has obviously lost that title, equity markets went through a bottoming process that started in late 2007, and really felt around for capitulation in between the six month period that ran from October 2008 and hit rock bottom in March of 2009. Bottoming took three years back in the early 1930s. Yes, this era is different and all things including the news cycle as well as the speed of transactions are certainly much quicker.
It stands to reason that a market bottom might be reached quicker, as well. That said, does mid-February to mid-March really make sense to anyone? I would rather not have this retest, but my friends, we have to be as mentally prepared for such a possibility / probability as we would be for any other market eventuality.
On Tuesday, you may have heard or read DoubleLine Capital founder Jeffrey Gundlach who referred to U.S. equity markets as "dysfunctional", while also saying that markets may put in a more "enduring low" once last week's lows are "taken out." Hmm. Listen, I know.. Gundlach is not always right, but he is always thoughtful and he always presents intelligently, in my opinion.
Simply put, for me, the goal remains what it always is -- beat the market. When the market is up. When the market is down. Need to tamp down volatility? Raise cash. It is that simple. If one cannot stop worrying about the markets, one is in beyond one's tolerance for risk. This is extremely fixable.
Of course, there will have to be provisions made for families without regular incomes as this crisis will grind on. That will be expensive, force borrowing and eventually be referred to by lawmakers as a "Phase Four" fiscal support package. Phase Five will be what happens once enough folks are cleared to work, and there is a need for significant job creation, at great speed.
This is where the president's hopes for broad investment in the nation's infrastructure comes in. This is also one idea where the president and his political opponents have, over three years, found some common ground with any regularity. Jim Cramer has been calling for the issuance of "war bonds" or "Covid bonds", the president cites near 0% interest rates. You know it. I know it. How far away can a 50- or 100-year, $1 trillion-plus offering really be? Months? Just an opinion.
The Fed's balance sheet? The national debt? Actual debasement of the U.S. dollar? All will be secondary concerns to policy makers in that moment. That does not mean all is well. It just means that what we see as our immediate challenge will change. Again.
Did Ya Notice...
--That traffic at large-cap, stand-alone retailers that panicked consumers have relied upon, such as Walmart (WMT) , Target (TGT) , and Costco (COST) , seem to have slumped late in March? Might this be because so many consumers hoarded to the degree that they just do not need to shop? Might this be because consumers are afraid to shop? Probably a little of both. There is data that shows this slowdown in foot traffic to be greater in areas where the viral outbreak is more severe. Data released by Adobe (ADBE) shows that U.S. grocery e-commerce sales grew by 25% by mid-March over early-March. Hence, why maybe you cannot get what you want from Amazon as quickly as you might like.
Economics (All Times Eastern)
08:15 - ADP Employment Report (Mar): Last 183K.
09:45 - Markit Manufacturing PMI (Mar-F): Flashed 49.2.
10:00 - Construction Spending (Feb): Expecting 0.6% m/m, Last 1.8% m/m.
10:00 - ISM Manufacturing Index (Mar): Expecting 45, Last 50.1.
10:30 - Oil Inventories (Weekly): Last -1.537M.
10:30 - Gasoline Stocks (Weekly): Last +1.623M.
The Fed (All Times Eastern)
No scheduled public appearances.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (PVH) (1.81)