1.07% vs. 1.4%. That's pretty much all you need to know about this market. It's all about the 10 year Treasury that keeps powering higher, leaving lower yields in its wake versus the rate of lethality of the coronavirus.
I don't want to be too simplistic about what's causing the unheard of volatility but it's physical fear that's driving the markets, a fear of a commerce slowdown because of the reluctance to go out to work or play, and the impact of fear which is a flight to quality in Treasurys driving them up and rates going down.
The most minute levels of change in Treasurys produced wild swings. We literally had an overnight bull market as the futures were down about 40 ticks when I went to bed and up 60 ticks when I got up at 3 am. That kind of insanity is more of a comment about how thin the futures are - the market's unhealthy - than about the events driving these two directions, down first from corona deaths and then up from talk of an emergency Fed meeting. One that didn't occur.
What do you do in times of this volatility? I think you show some gumption and stick in some stocks with levels that you want to buy them because of the unnatural way that things are going down and then put in some levels and sell them, again because the futures are distorting everything and I am indifferent to their swings other than to know that you are getting better prices than you should as traders get out of the way of the stampede leaving giant gaps between prices.
You have to believe in yourself and be willing to course correct if necessary but that belief is your strength in times like this. I think that's in my head because of the interactions I had with the legendary Jack Welch, the man who took General Electric (GE) from a $20 billion company to a $400 billion company with the power of conviction. Too many of us don't believe in ourselves and that makes for some very bad judgments. Jack loved that I believed in my views and when I was kicked of the Squawk Box rotation in 1998 for being too rough around the edges he sent me a fax saying I was the most entertaining guy he has seen on CNBC and applauded me. I showed the fax to management - all of whom are gone by the way - and I was saved.
What else do you need in what is clearly a perilous moment? You need some facts, first about the disease than about its outcome.
There are very few people I trust on this coronavirus, and the most important person is Dr. Tony Fauci who did breakthrough work with AIDS and is part of the government apparatus that has been allegedly silenced by Vice President Pence. If he is being silenced it's odd to see his byline in the most distinguished publication of healthcare: The New England Journal of Medicine. In the single best article I have read, entitled Covid 19: Navigating the Uncharted, Fauci notes that a study of 1099 laboratory confirmed patients showed a mortality rate of 1.4% That's the bogey and, perhaps the bogey man in the closet because Fauci goes on to write: "If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as reported cases, the case fatality may be considerably less than 1%." And here's the statement that I think gives credence to a rally and that I am adopting because Fauci knows more than I do: "This suggests that the overall clinical consequences of covid 19 may ultimately be more akin to those of a severe seasonal influenza." He goes on to note that it's possible we could be as low as .1%, or like the 1968 flu season which killed 33,800, or the 1957 season which killed the equivalent of 107,000 in today's terms. The rates were much worse overseas for those pandemics, too.
Much ado about nothing? Hardly, it is so easily transmitted that you could see people wanting to stay home and wait it out hence why I have been recommending my list, here, of the stay at home economy stocks. It's prudent for businesses that can have their employees work at home do so and it's potentially economically catastrophic for those who work at companies that close because of the virus and are thrown out of work.
Which is why I still believe that even as these prices it is worth it to reevaluate your portfolio and trim travel and leisure stocks because, while the death rate may be much lower as Fauci says, the ease with which it can strike you makes it more than likely that you will not want to travel or even go out to dinner.
I saw today research recommending Cheesecake Factory (CAKE) to complement Friday's recommendation of Darden (DRI) , also known as Olive Garden et al., and I can tell you that I do not want to own either stock because I can see patrons choosing to stay at home and I do not think home delivery will make up for the absentee guests.
I also think that if there is any way to cancel a trip it will be cancelled and any way to stay away from a cruise after the fiasco that was the Diamond Princess - something that makes me so mad I could scream - it will take at least 18 months before the cruise ships can count on their reservation list. That's how long it took people to get over Chipotle's (CMG) woes. It's how long it took to get over previous accidents - far more serious than those of Chipotle's to the point I regret comparing them, but they are certainly more like the disaster befalling Carnival (CCL) .
Now I am always conscious that because we are talking financial markets there will be an endless drumbeat that the Fed can solve this with lower rates. We should have lower rates but the question is who benefits from them. I am in the process of getting a mortgage. I have a very good credit rating and the mortgage is a half point higher than when 10 year rates were more than twice as high. I like the liquidity concept but lets face it, anything that can take up the interest rates is, right now, better for the market than decisions that can lower the rates, It's just an oddity but the flight to safety is more economic disaster stemming from biological issues, not liquidity issues.
Or to put it this way, if I were president I would offer $100 million to whoever came up with something that gets people out of the hospital or is a real vaccine, and if I were Treasury secretary I would make sure that small businesses got credit lines to stay in business during the plague that may not be the plague we thought.
So mull over your theory about why we reversed so importantly today. Maybe you think it's the resurgent Joe Biden, who needs another candidate to drop out by tomorrow night to get the moderate vote but can eliminate the horror that Bernie Sanders would be for the market. Maybe you think it's imminent Fed intervention. Or maybe you think, as I do, that Fauci's right and we might just be involved in a severe flu season. Whatever. It's a nice sign that the world didn't end over the weekend, and maybe that's what really mattered.
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