Sunday, March 8, 2020

Main Street Sentiment -- And -- This Evening's Rout In Futures Markets

Sunday 3/8/2020

Keeping you up to date as events unfold, and offering perspective where I can, as Nick and I are presently away from the office.

Here are essentially three brief blog posts in one.

5pm MST

A young man on the ski lift yesterday heard Nick and I talking about -- what else -- and chimed in and gave us a stock tip; "buy Tesla".

This evening Nick met a gentleman at the spa whose firm was instrumental in the origination of 4G technology. Nick of course bombarded the poor gent with questions on everything 5G; apparently Verizon is indeed the U.S. leader in the space. But, more importantly, on the topic of stocks, the telecom guru told Nick "buy anything, everything's cheap."

The bad news is that such sentiment is precisely the opposite of what you want to hear if you're looking for a correction or bear market bottom. Bottoms typically happen amid sheer panic and individual investors abandoning their stock holdings in droves.

Lots of volatility yet to come...

8:15 pm MST

In my earlier note I suggested that major bottoms typically don't occur amid everyday folks thinking it's buy-the-dip time; that we need to see all out panicky capitulation before we can call an end to any correction or bear market.

Well, judging by where currency, commodity, fixed income and equity futures are trading as I type, "panicky" aptly describes what I'm seeing: The yen (safe haven currency) is up 2.4% against the US dollar and 3.6% against the Aussie; gold's trading up 1.3% while oil's getting crushed -27% and copper's off -2.3%; the 10-year treasury bond is printing an unheard of 0.51% yield; S&P 500 Index futures are trading down a whopping 5.10%. Whether or not the next few hours, days, weeks, etc., shake loose 11 years of bull market conditioning among rank and file investors, not to mention Wall Street (as I suggested this morning) -- and we get that capitulation -- remains to be seen. I suspect many a pundit will be making that call this coming week.

As for yours truly, no, having experienced far worse in terms of degree than the present correction over the past 35 years -- and being fully aware of the corporate credit bubble that I suspect is about to become all too real to those who were either completely oblivious, or simply complacent -- while I remain open to all possibilities, it would not surprise in the least if before this experience is over the market plumbs yet lower lows -- with numerous counter-trend rallies along the way.

As for the perceived catalyst for tonight's selloff in futures -- plunging oil based on Saudi Arabia's announced production increase -- look for commentary from some in the economics community to tout the rout as ultimately good for the consumer, as lower oil means lower gasoline prices, etc. While that is indeed intuitive, under present circumstances it amounts to what is essentially wishful thinking. The leverage in the U.S. oil patch is so great, and so low quality, that the wave of defaults that lower oil prices are virtually destined to set off will I highly suspect hit the economy to a greater degree than lower oil prices will help it.

9:00pm MST

The following headline hit a few minutes ago:
"Trump's Aides Drafting Economic Measures to Combat Virus Fallout" 
Which of course jibes with this morning's post.

The only positive move I'm seeing -- compared to my note 45 minutes ago -- in the futures markets is in gold, which, for the moment, has given up the bulk of its earlier rally, now up just .53%. Copper's roughly the same, oil is trading even lower, and bonds haven't budged. Currencies have actually gotten uglier, while stock futures are still off 5% (which, by the way, is "limit down" [meaning no futures trades can occur below that level]).

We'll keep you posted...

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