Be careful out there friends. The volatility has been wicked. Don’t let it whipsaw you to death. Sometimes the best play is no play. Good luck.
Hi all, welcome to a relatively short letter by my standards. I am traveling this weekend, and simply cannot devote the amount of time I generally do, to writing.
My wife’s mom passed away a few years back, and with her dad selling the house for something smaller, I have to run to NJ and pick up some of the things that she left for us. There’s a couple boxes of sentimental items, and some handmade Christmas items that her mom had made, and some other things, that have to make it back to Florida.
But I do want to make a few comments about this Virus, and the market. There are a couple dozen theories as to where this thing came from, how it escaped or who let it loose, and if it was on purpose, why?
Some believe that the globalist elites are behind this virus. That line of thinking says that this is their final hurrah push. They created and then let loose a weaponized Virus, to create a pandemic that rattles the world so much, that they can declare global martial law under the direction of the UN, and usher in a new digital currency and one world government. Is that what’s happened here?
I don’t think so. THAT SAID, they WILL USE it to their advantage. “You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.” - Rahm Emanuel
Some feel the Chinese let this thing loose so they could use it as “Cover” while they go in and murder a few hundred thousand dissidents and protestors. It would certainly be easy to wipe out your Government’s protestors, by just rounding them up and killing them. Then just say “they had the virus and they died.”
Look, don’t get me wrong. There are certainly enough psychopaths around the world that would think nothing of releasing a weaponized virus that wipes out a significant portion of the global population, and then when things are so dire that people would do anything just to eat, they rush in with their new systems and what have you. It’s been done before in History. Think Mao, think Stalin, think Pot Pal, etc.
I just don’t think that’s what happened.
Then there’s the line of thinking, that this was released in this election year, to cripple Trumps chances of winning again. This has some merit to it. I truly believe that some of the deep state mutants are evil enough to kill a few million people, if it crashes the US markets and helps get Trump out of office. Sad, yeah, I know.
So, we’ve got a couple problems. First of course is that people are getting sick, and some amount of them are indeed dying. That right there is obviously horrible. But the knock on effect of course has been that supply chains around the world are being crippled and that is a big deal.
I mentioned a couple weeks back that a LOT of our prescription medicines originate in China. Supply is down. But it’s not just pharmaceuticals, all manner of “stuff” is becoming harder to source. For instance, the battery in our 2017 Mazda crapped out on me Tuesday. With no warning what so ever, it went from perfect, to dead. Okay, no biggie, I’ll go get one.
TWO suppliers of that particular sized battery were out. When I asked if they’re getting more they said the magic words, “we don’t know, they’re made in China, and we haven’t gotten any in two weeks.” Exactly.
I did find one at the Mazda Dealership, but of course I had to pay a premium for that.
I truly believe that the market’s reaction over the past week has several components to it. First off, people fear easily, and then they panic. It’s as old as history itself. So, some of the wicked selling we’ve seen is a mild panic. But I think the bulk of the selling isn’t from panic, it’s from understanding that for every drug that doesn’t get shipped, for every battery that can’t be sourced, for every widget that can’t get made, the velocity of money decreases. This, in a word, is bad.
The velocity of money has been falling for several years. What is that? It is literally the amount of times that “money” changes hands. The faster that happens, the better the health of the underlying economy. The slower the exchanges, signals that people are holding onto money, instead of spending it. That’s obviously not what the Feds want.
Well nothing whacks the velocity of money more than having some on hand, but no product to buy. I hearken back to my college days when a self proclaimed “pot head” told me that “ Pot will get you through times of no money, but money will not get you through times of no pot available.” How very true.
So, the market isn’t falling because it’s afraid that a zillion people are going to die, and like some Zombie sci-fi flick we all end up in caves eating each other. Listen closely friends, the market couldn’t give a rats hiney about you. The Central bankers couldn’t care less if you all foamed from the mouth and dropped dead. No, what they care about is commerce and profits.
Well right now, commerce and profits are down. MSFT has warned, AAPL has said that production troubles will hurt them. So, imagine if this virus sweeps across Europe and the US. No one will be going to work, and no one will be shopping, even if they have money. On top of that, even if they have money, there will be very few things to buy. That my friends is why the market’s been puking.
Which brings up the Fed. In the past two days, several Fed heads have hinted that they wouldn’t be against making a move. Former Fed officials have actually come out and suggested an aggressive rate cut. So now the common thinking is that just ahead of the Asian market open on Sunday, the global Central banks will announce a coordinated policy response.
That fits PERFECTLY with what I had predicted. I have said for 2 weeks that I thought the Feds would enjoy the market fading, and that they’d let it fade 10 – 12% before doing anything. Well, we’re there. I think that we’re down about 13% right now.
So everyone is on board with the Feds announcing something Sunday evening. I have a hunch it might actually be Monday morning if it comes. Now, what happens if it comes? What happens if they announce a rate cut, and jawbone the market? I believe we will spurt higher.
BUT IT WON’T LAST. The Virus will not have gone away and the next big announcement of an outbreak in a major city, will have people rushing to the exits again. Monetary policy, such as cutting rates, is NOT going to have Mr. and Mrs. Joey Blow, going to large gatherings of people. They’re not going to concerts or ball games. No, they’re staying home watching Disney and Netflix.
So a Fed cut will pop the market, but I believe it will roll over anyway and go lower. What if they do NOTHING on Sunday or Monday? I have to think that unless there’s been some new “good” development, we’re going even lower. Don’t forget, the Feds have been lessening the amount of Repo they’ve been doing. Instead of 90 and 100 billion, they’ve been doing 58 – 75. If they keep lowering Repo’s and don’t cut rates? Panic selling will commence.
The ONLY way this market recovers, is if we have solid proof that it’s not spreading, and/or we find that the death rate is overstated and normally healthy people only tend to have a “bad cold.” Until then, the risks are still to the downside.
At some point all of this will be buyable again. But, what’s that point? DOW 25K? 20K? 15K? That’s the question. Some will buy on a rate cut, but that’s not going to solve anything. No, we need proofs that this thing isnt’ as bad as we feared, and until we have that proof, the path of least resistance is down.
Be careful out there friends. The volatility has been wicked. Don’t let it whipsaw you to death. Sometimes the best play is no play. Good luck.