A sensational beating. For financial markets. Yet, somehow... it didn't seem so bad. I'm not going to lie, the numbers are awful. There are for me far more important things than numbers. Beat the market on Monday? By a country mile, no make that two country miles, maybe three. Still lost some dough. So what?
Dad, you good down there? How's Mom? She's breathing okay?
You guys got food. You got TP? Need anything at all?
Oh, we're fine. You know we're ready.
You let me or (my sister) know if anything comes up?
The market's down. It should be. The economy has gone from truly robust to dying on the vine in about a month. Confidence in the old man's voice? Priceless.
Zero Dark Thinking
Had to chuckle. Really. Those conditioned to mock the Fed in all that they do, would do so yet again. Heck, I have been one of those who has been quite critical of our central bank, and often they have earned that criticism. When the central bank is on top of their game as they have been of late, credit must go where credit is due. The market pros choosing not to understand that the Fed prevented a Monday morning run on the banks, while allowing markets to function close to normally? Well, that's on them. Perhaps some of our esteemed colleagues just do have the depth of economic cognizance that we somehow grant them.
The actions taken by the FOMC can not save the economy, nor can they save the markets from the economic carnage that the nation has been and will go through. All they can do is grease the wheels, and keep conditions as liquid as possible until the sun shines once again over our great nation. Use an ATM machine yesterday? Buy and or sell any securities within the quote? Thank the Fed.
You know what accelerated the selling into the close? The president's press conference on Monday afternoon, and this is not criticism of that press conference. Folks don't like to hear that gatherings of humans should be limited to 10 individuals. Folks want to hear that life will return to normal in weeks, not in July or August. That said, don't you want honest assessment, even if it hurts a bit. Wouldn't you rather expect to be hunkered down for months, and then maybe, something good happens earlier than the other way around?
I get it. Americans don't suffer well. I see it in my neighborhood. Large groups of children playing together because school has been cancelled. Hanging out on front lawns. Kind of defeats the purpose. You have all seen pictures of crowded bars and crowded beaches on social media over recent days? What gives there? Grandma dies in two weeks because you needed a social life? Nice goin', Slick.
Oh, in case no one else is noticing, this guy Dr. Anthony Fauci is a 79 years old, brutally honest kid from Brooklyn who is putting his own life on the line for his country. The man is simply a national treasure.
Why Such Mayhem?
Equity markets have generally sold off at incredibly rapid speeds over a few week's time, with the chart punctuated here and there by face ripping rallies that have to this point proven better selling opportunities than anything to build on.
There will be that point that large caps (and small caps) are right for purchase. How will we recognize this point? We probably will not in real time. How can we? Now, understand this. I don't know who is buying the cheap stock. Somebody is. There will be a better day. There will be an economic rebound that with the right fiscal package under the conditions created by the Fed will roar like a caged beast unleashed. Those purchasing the cheap stock will control that and their own future.
1) The Economy. Today, we'll see February data for Retail Sales and Industrial Production. The numbers may not look weak yet, but we know they will for March and probably beyond. That's the point. Historical macro-economic data supportive of trend is now useless. There is no telling what trend lines might be reestablished once normal life returns, no telling what trend lines will be altered, and what trend lines will come out of nowhere.
2) Earnings. This same thinking goes for corporate performance. Sure, there is suddenly incredible demand for staples and necessities, and there has been a recent demand to acquire these goods through traditional retail means as well as through e-commerce. The longer folks live under lock-down conditions will impact how they think and act going forward. We all had an Uncle Louie who survived the Depression of the 1930's and never ever put money in a bank for the rest of his life. Who will be "Uncle Louie" in 20 years, and how will that individual's behaviors vary from societal norms?
3) Trading and Execution? That's a problem. Obviously, price discovery is now done overwhelmingly by algorithms and is timed in micro-seconds because milliseconds are pre-historic. The algorithms, for the most part, benefit through being faster than one another as well as from the creation of market overshoot... in either direction. Why do I go to much higher cash levels than I used to when conditions start to get messy? Would you trust these guys when you know that not so long ago price discovery was timed in minutes and implemented by human traders that had to try to explain what they did to their angry clients if they got "picked off"? Don't even get me started on the short sale uptick rule, which should have never have been tinkered with in the first place. Common sense? Oh, but that would put thoughtful humans on a more level playing field, while slowing down those who want to sell something they do not own in the first place. What the heck was I thinking?
4) Investment? Passive investment. What a splendid idea. Until it is not. Until funds are programmed to react automatically to signals of momentum or technical levels. Humans did that stuff too, but individually, and one or a few stocks at a time, not in large baskets, or at least in baskets the size of what we now see. What we now see, rewards lousy stocks in the right industry, and punishes good stocks in the wrong industries even in good times. Before the economy ran into this virus, you all had a questionable stock that traded at 65 times forward looking earnings in your portfolio, and another stock with a strong balance sheet that paid maybe eight times... and paid a nice dividend.
"They" are calling this a recession. Jim Cramer is right. That's the wrong word. What the nation/planet is now experiencing is a cessation of economic activity across many industries by necessity. The necessity of trying to save lives.
JP Morgan (JPM) now expects to see an economic contraction of 2% for Q1 followed by a 3% contraction for Q2. Goldman Sachs (GS) envisions a 5% Q2 contraction. My initial thought is that these estimates are conservative. On my block, a lot of cars are no longer leaving the driveway in the morning. Even if paid, which likely complicates cash flow for their employer... My neighbors are not grabbing a coffee and a muffin on the way to work, are not wolfing down two slices and a Coke for lunch, and are not refilling their tanks on the way home. They also did not likely donate to charity this week, even if they normally do, and almost certainly held back on discretionary purchases for their family. If they were going on vacation, they cancelled.
President Trump said "We have to back the airlines. It's not their fault." No it is not, and if you want to still have any domestically headquartered carriers left when this is over, you are indeed going to have to bail out the industry. As Delta Air Lines (DAL) , American Airlines (AAL) , United Airlines (UAL) and others all start to either measure reduced revenue in the billions, or try to reduce expenses through curtailed scheduling and freezes on headcount, the industry in aggregate looks for roughly $25 billion in the way of grants made directly to the businesses, and access to another $25 billion in the form of perhaps interest free loans. In addition, U.S. airports in aggregate are asking for $10 billion in aid separately.
The Sun Will Come Out
1) Amazon (AMZN) needs you. Taken from the firm's own blog... "We are opening 100,000 new full and part-time positions across the US in our fulfillment centers and delivery network to meet the surge inn demand from people relying on Amazon's service during this stressful time, particularly those most vulnerable to being out in public." The firm will also invest more than $350 million globally to increase pay by $2 per hour in the U.S., BP2 per hour in the UK, and EU2 per hour in the Eurozone for many employees and partners who are in fulfillment centers, transportation operations, etc., so that others can stay home.
2) Moderna (MRNA) actually dosed its first patient in a Phase 1 clinical study using the firm's newly created messenger RNA based vaccine against SARS-CoV-2, which is actually the name of the coronavirus that causes the illness that we have been referring to as Covid-19. Phase 1 will involve 45 patients to be does 28 days apart, and then studied for a year after that for efficacy and safety. While that seems slow, this is actually lightning fast as far as vaccines are concerned. Moderna has already started planning for and asked the FDA for permission to begin a Phase 2 study as well. That study, if permitted, will begin in just a few months, running simultaneously with the Phase 1 study, and would be run by the firm itself.
3) Ever hear of BioNTech (BNTX) ? Trading volume in the name soared on Monday more than 600% above its own 50 day SMA. With regulatory approval across the U.S., China and Europe, this firm will begin clinical testing of its own messenger RNA based SARS-CoV-2 vaccine this April. What's more, this firm acknowledges that it is also working on treatment for those already infected with the virus. The firm has already partnered up with Fosun Pharma (SFOSF) in China, while it is known to be in talks with Pfizer (PFE) in regards to development away from China.
Economics (All Times Eastern)
08:30 - Retail Sales (Feb): Expecting 0.2% m/m, Last 0.3% m/m.
08:30 - Core Retail Sales (Feb): Expecting 0.2% m/m, Last 0.3% m/m.
08:55 - Redbook (Weekly): Last 6%.
09:15 - Industrial Production (Feb): Expecting 0.4% m/m, Last -0.3% m/m.
09:15 - Capacity Utilization (Feb): Expecting 77%, Last 76.8%.
10:00 - Business Inventories (Jan): Expecting -0.1% m/m, Last 0.1% m/m.
10:00 - NAHB Housing Market Index (Mar): Expecting 74, Last 74.
10:00 - JOLTs Job Openings (Jan): Last 6.432M.
16:30 - API Oil Inventories (Weekly): Last +6.407M.
The Fed (All Times Eastern)
No Public Appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (HDS) (.56)