China on!
Yep, it doesn't take much. A Chinese government "senior medical adviser" says the outbreak is hitting a peak and may be over by April. The guy, Zhon Nanshan, has street cred: He's an 83-year-old epidemiologist who helped combat the SARS epidemic back in '03. And next thing you know, the market makes a stand, albeit an unsustainable one. More on that later.
There is a China/coronavirus bull case. We're getting our first data that shows more people are recovering than dying, giving hope that we're though the most lethal stage. And perhaps most importantly, at least to investors, legendary hedge fund manager Ray Dalio says the coronavirus is exaggerated.
"It most likely will be something that in another year or two will be well beyond what everyone will be talking about," Dalio said.
Ah, that's what I needed a good old fashioned hedge fund manager telling me my fears are overdone.
So what happens?
We see what will amount to the coiled springs when this thing's beat.
Let's go to the tape.
First, it's the cruise ships. Despite some incredibly unappealing medical steps recommended by the Centers for Disease Control that, I think, make a ship feel like a floating hospital, anything that gives these companies relief is met both with short covering and massive buying. Hope springs so eternal.
The stock of Royal Caribbean Cruises (RCL) jumps almost three points. Norwegian Cruise (NCLH) rolls up a 3% win. Even the beleaguered Carnival (CCL) , with its floating sick bay, rallies a buck. Why not? One day they will beat this and as Dalio says we won't be talking about it in a year or two.
Hotels? Marriott (MAR) , which bought a ton of China when it purchased Starwood four years ago, flies up almost two bucks and is closing in on its 52-week-high. What a win that is.
How about the semiconductors? Yesterday the cloud stocks and their accouterments soared, while the "China" semis and their Apple (AAPL) doppelganger got hammered. Apple wasn't able to lift, but we saw excellent action in Nvidia (NVDA) , NXP Semiconductors (NXPI) , Advanced Micro Devices (AMD) , Skyworks Solutions (SWKS) , Qorvo (QRVO) and Broadcom (AVGO) . Now they aren't just benefiting from China. When a federal judge blessed the union of T-Mobile (TMUS) and Sprint (S) , it unleashed a flood of euphoria that the two companies, once combined, could be a powerhouse of spending for 5G of which all of these have a stake in. But there would be no rally if China weren't in game-on mode. The semiconductor equipment stocks, long hostage to China spend, could erupt, too, a sure sign of coronavirus confidence.
The airlines, pathetic hangers on to the China trade, all rallied. It's United Airline (UAL) that's the cheapest and got the most exposure,. The "Chinese industrials" had a super day with Caterpillar (CAT) , Emerson (EMR) , 3M (MMM) . Honeywell (HON) and Cummins (CMI) taking off. They can always be counted on for dreams of sweet Chinese orders. Same with PPG Industries (PPG) and Illinois Tool Works (ITW) , as abettors of high-end autos. Wynn's roaring, why not, won't the gamblers come right back?
Monday while explaining that oil and gas stocks were uninvestible, I predicted there could be a rally as the stocks are pressed down and anything positive about China and about President Donald Trump's prospects over the putative Democratic nominee will provoke one. With oil making a China-related stand at $50, I am sure the remaining oil cheerleaders will be out in full force Wednesday, touting yields and tremendous longer-term growth prospects, because fossil fuels will be with us forever, blah blah blah.
You know where the big money was made today? Shorting the China off stocks. That means going against the pop at the opening in Microsoft (MSFT) . It meant slamming the cloud kings like Adobe (ADBE) or VMware (VMW) or Workday (WDAY) because they just don't have that much China business.
It means banging down the high-flying Clorox (CLX) because who needs to stockpile bleach if the epidemic is peaking.
Does this strategy work?
It works for a day.
Why not more?
You have to find your true north. You have to learn who to trust.
Because you have to find your true north. You have to learn who to trust.
I got my guy: Tony Fauci, immunologist and director of the National Institute of Allergy and Infectious Diseases at the National Institutes of Health.
If this guy were a hedge fund manager, he would be Ray Dalio. He has been right every single step of the way, and he gave an interview yesterday to the Washington Post that told me you should be buying the China off stocks. I'm going to quote from it and I would describe it as anything but reassuring: First he says the corona virus "is brand new and there 's no real underlying experience with it so the general public is naïve with regard to protection and it has serious potential because it's already spreading rapidly.
Can it be contained?
"The short answer," he says "is we're not past the point of containment, but it really does have the potential to turn into a global pandemic." He goes on to say, "Once you get multiple counties that have sustained transmission from person to person, then it's almost inevitable that it's going to start spreading here."
Travel bans, he says, are simply buying time and probably won't work.
He wants to help, the CDC wants to help, the NIH wants to help, but "thus far we've not been able to make that a reality."
Not reassuring.
That's why I want to take the other side of today's trade, and why I find days like today so instructive. They show you exactly where the coiled springs really are.
Days like today show you exactly where the coiled springs really are.
Remember the world is slowing because of this virus. I suspect that most of the stocks that are up today have estimates on the Street that are too high because of the Corona. Yes, we heard chatter that Fed Chief Jerome Powell has our back if things get out of control, but what we see in China is a country that seems a little out of control for having something contained.
Look, I want very much to throw in my light with the 83-year-old Chinese doctor or with Ray Dalio. My instinct is to say that come April, it will die out like most flu outbreaks. So far you have to be encouraged by the travel ban's effectiveness in this country.
But this one's way beyond the ken of most of the people who opine on it. Plus, it can be episodic. I look at the Johns Hopkins chart that shows the numbers of the recovered. Right now there are a growing amount of recovered vs. the dead. It seems like an improving ratio.
But have you noticed after a flurry of hope, there's no luck with any vaccine? There's no luck with any medicines used before for other kinds of similar viruses. There's nothing that any biotech company's been able to come up with, perhaps because the Chinese have been very effective covering up or destroying the exact cause, so nothing can be pinpointed. I have tremendous faith in our scientists, but I have more faith in Tony Fauci telling it like it is.
My take: Wait until he changes his view, until he has something optimistic to say, until he disavows the notion of a public health nightmare in other countries around the globe. Until then, put me squarely in the China off camp and may I suggest you join me if you are making investments in companies where the numbers -- the ultimate arbiter of stocks -- may not be met.
