Morning all.
I could not believe what I was hearing from Trump last night during the daily Task Force Briefing. After the various COVID-19 stats released yesterday, and following updates from various state Governors I really thought he would start altering his tone to reflect to gravity of the situation.
This was no where to be seen really, apart perhaps is some concern regarding ventilators. A journalist asked a question related to extending the current initiative that is place with ’15 Days To Slow The Spread’, asking if it would be extended. Incredibly Trump still raised the possibility that some areas possibly start reopening. He acknowledged that places with serious outbreaks, such as New York, would be unlikely to reopen soon. But he said he would be discussing “possibly other parts of the country that really aren’t affected.”
This is pure fantasy and he’s maintained this line for the last few weeks, boosting markets and no doubt creating some complacency in the American public as to the seriousness of this outbreak.
Below is the latest update on restrictions across the US states. It should be remember that President Trump has not ordered anything closed, leaving it to state Governors to make such decisions.
Compared to yesterdays data, Colorado (CO), Montana (MT), Minnesota (MN), North Carolina (NC) and New Hampshire (NH) have all moved to Stay-At-Home lock downs with Non-Essential Businesses closed bringing the total to 23. Additionally, Alibaba (AL) has closed Non-Essential Businesses but not restricted the movement of people.
I’m totally bewildered why Trump’s medical experts keep letting him get away with reopening talk in the face of more states locking down each day. This still leaves 20 states that have not announced restrictions and are only requested to follow the ’15 Days To Slow The Spread’ campaign.
The reason I’m focused on this as opposed to some ‘market’ news is that I believe this the rhetoric from Trump has played a big part in the market rally this past week. The combination of the FED, the Senate Stimulus Bill and Trump’s we’ll be back in business soon propaganda has really goosed the markets in a huge relief rally that was up about 20% at one point despite a 3.2m print on jobless claims.
In the next few days markets have the following to deal with:
- Trump trying to say things are going great while admitting nothing can open back up.
- The number of states locking down increasing further, probably with added ‘state of emergency’ declarations.
- Global infection numbers heading towards 1 million.
- No stimulus announcements that can match what’s already out there.
This deteriorating picture will extend the expected time it will take for the world’s No.1 economy to return to normal and the implications of that are huge. I heard a stat on a podcast that most businesses only have cashflow for about 4 weeks of closed operations, and that’s just one aspect of how this situation extending is going to cause a huge cash crunch.
The markets became detached from reality this week with the rally but some kind of bounce was always going to come on optimism around stimulus and free money. I just think it was overdone which is why I took some profits to lock-in a few gains despite it being a painful time for any long-equities investor at the moment.
As I wrote yesterday morning, I used some of the cash freed-up to go short on the indexes Thursday night because I just could not reconcile this rally, and Trumps tone, with what is coming. I’m not sure if these markets can make news lows because now we have the FED and their unlimited QE program. This does change the game because while they are not buying currently buying equities (apparently) they can keep liquidity flowing and bond/credit markets functioning smoothly which should reduce volatility and lead to less irrational market flows.
The airline industry is one of those sectors getting a big bailout and above you can see how their share prices reacted. These are huge moves for an industry experiencing something like a 80-90% fall in business. The bailout support may mean these stocks cannot fall to new lows that that will have an effect on giving the overall indexes price level support.
So we could see a scenario where many sectors can make new lows, especially if not lined up for bailouts, whereas the overall indexes like the SP500 and Dow appear to be successful in holding the recent lows. Banks could be another sector is this situation as they now stand to benefit from all the stimulus cheques being paid into accounts plus they have the FED backstopping credit markets.
Some interesting dynamics will be at play because of the $2+ trillion package combined with FED action, so overall new lows are not guaranteed in my mind but we should watch for sector lows if the bear market situation does reassert itself.
This could mean the SP500 doesn’t test the level I was most interested in at 2,130 and I might have to adjust the plan to account for the above. My plan was to use current account capital until the index got down to that area, and then if I thought it could represent the low of this ‘event’ I was going to inject some new capital to buy a basket of my favourite stocks. So far I’ve mostly been using ETF’s since the correction started to avoid some single stock picking risk.
I might have to revise the list from last week when I start to review the market picture later next week. Initial buying can still be done from account funds as I have capital tied up in index shorts and 10/20 year bonds that can be cashed in when needed to acquire anything that hits a buy target area.
One last point I want to make before I finish rambling is that I get more willing to find spare money to invest the lower these markets go. Investors were buying Apple at $300 a month ago ready for it to go to $350, but when it came down to $250 there was just more and more selling. I missed that it dipped to $225 but I’d have bought some if I’d seen it and now have a price alert ready for that if it happens again. I want to buy things much more now that they are cheaper and this is the way to play the market game over the long-term.
We are in a global disaster and it’s not been good for equity portfolio’s like mine. There’s no hiding from that. But with no leverage and ensuring there was some free cash to scale in, it’s meant I could buy into the weakness. If this market now enters a capitulation phase as the perfect storm comes together then it’s an opportunity to get money into the markets at these prices and not the prices from a month ago.
That is my mindset right now and if I can free up money elsewhere I will put into more equity assets ready for when we beat this dreadful virus and the world breaths a sigh of relief. A sigh that will see markets rocket on the combination of real economic activity recovering along with trillions in stimulus floating around looking for places to go.
Get prepared for what what I think could be a rough week, thanks for your time.
