We are limit down – again.
Since Europe is down about 7.5%, it's very likely we have further to fall at the open since Europe did not partake in Friday's "rally" and is now 5% below Thursday's lows so we could be looking at 20,000 for the Dow (down another 1,800 points from the Futures and down 3,000 points (13%) from Friday's close), S&P 2,300, Nasdaq 6,300 and Russell 1,050 – horrifying numbers.
Of course, things got much worse in 2008, when the Dow fell from 14,000 to 6,000 – that was down 57% and, so far, we're only down from 29,500 to 20,000 (expected) – that's "only" 32% so whoa, whoa, we're halfway there – maybe…
This is happening DESPITE the fact that the Fed cut their base rate to 0-0.25% over the weekend but they also cancelled their scheduled meeting this week and that bothered people as well as the Trump Administration's continuing inept response and lack of leadership. THIS is why I have been anti-Trump since the 2016 election – what did you really think was going to happen in a crisis with this President? Did you really think he was going to step up and provide the clear leadership and vision this country needs in a time of crisis?
So we have a complete crisis of confidence and that's why EVERYTHING is liquidating, including gold ($1,475), silver ($12.00 – a buy at this price!), copper, oil ($29.50 – a buy at this price), cattle (yes, cattle is down 45%), corn, soybeans, wheat – no asset is safe as people go to cash but the Fed Funds rates are now so low that you will soon have to PAY the banks to hold your money – yet another stealthy way Trump is going to tax the American people (and the tariffs are still on too).
The Dollar, as you can see, is down 1% today but up 3% in the past week, that's making it very expensive to convert your assets into CASH!!! but that's what people are doing at an alarming rate. Why, because they have NO CONFIDENCE that the Government can fix the virus problem and, as I said to our Members over the weekend:
I’m just keeping an eye on progression but more importantly looking at the reaction in other countries who are willing to tank their economies to stop this virus indicates to me that this is much worse than our government is letting on. Our government does not get it, they only care about saving the economy when it is the people who need to be saved.
People in the bottom 99% don't care about the Fed Funds rate and they don't care about cutting their payroll taxes when their jobs are being cut (there are MASSIVE lay-offs going on everywhere) – they care about STOPPING the virus and, so far, that's seemed to be pretty low on the Trump Administration's Agenda and meeting with "Tech Executives" and announcing they have a web site (Friday's idiocy) isn't quite the same as meeting with DOCTORS and HEALTH EXPERTS and coming up with a plan.
Remember 9/11 – there was a plan. We formed a Department of Homeland Security who put out a color-coded threat level indicator which we did make fun of at the time but it was actually reassuring when it wasn't orange or red. The response to 9/11 was immediate and MASSIVE – people volunteered to help out as firefighters, charities raised hundreds of millions of Dollars for relief efforts, the National Guard was mobilized. In short, America did what it had to do to deal with a threat.
NYC Mayor Rudy Giuliani urged people to try to get back to their normal lives, but with new precautions. He even appeared on Saturday Night Live on Sept 29th, just over 2 weeks after the attacks – to let people know it was still OK to have a little fun. When, Lorne Michaels asked if it was okay for the show to be funny at such a sad time; Giuliani replied, “Why start now?”. That's why we USED to love Rudi.
Meanwhile, back in Washington, President George W. Bush was able to win a broad mandate to act in the nation’s defense. In a speech on September 20th, he asked citizens to be “calm and resolute, even in the face of a continuing threat,” and promised that the United States would triumph over terrorism–“stop it, eliminate it, destroy it where it grows.” Bush spoke to Congress for a full hour 9 days after the attack and helped to calm the nation – and the markets.
Now Bush Jr was no great President and no great communicator but he certainly pulled it together in a time of crisis as many Presidents have done before – until now. ?
Leadership matters! Elections matter! And if you elect a Democrat to replace Trump in 2020 but then re-elect a Republican Senate to block him every step of the way, what have we changed? That was Trump speaking two weeks ago, when the US had 15 cases and he was calling the virus that had already infected 100,000 people around the World "a hoax" perpetrated by his enemies. Two weeks later, the US has 3,774 confirmed cases yet we have no idea how many actual cases because the Government still hasn't been able to provide testing kits.
Meanwhile, cases outside of are now exceeding those in China for the first time and we are still rapidly accelerating while still less than half the people infected have recovered at all and, of the people with outcomes to date, 77,257 people have recovered and 6,513 have died – that's a 7.7% mortality rate on the outcomes and that's what it's been since the beginning yet Trump FAILED to take it seriously and now 3,774 Americans are infected, which means hundreds are likely to die due to his ineptitude – hopefuly not thousands – which would be worse than 9/11 in a self-inflicted wound.
This virus will get worse but it will also get better at some point but we need leadership that is able to address the reality of the situation as well as show us the light at the end of the tunnel. As Peter Coy noted over the weekend, "you can't fight the virus without harming the economy" and, so far, the Trump Administration has been more worried about the economy than the virus and that is NOT the right message to send to investors, who KNOW the economy can recover over time – but they don't know if there will be a future with a virus running rampant and no actual plan to deal with it.
While it won't stop the market from going lower, I will point out that China, after two terrible months, is starting to get back to "normal" with very few new cases of the virus and, in January and February, retail sales were down 20.5% but invesments were down 25% – expectations exceeded reality to the downside. Unemployment in China rose 1%, from 5.2% to 6.2% and home prices were flat. In retrospect – it's nothing that should have caused a 40% market sell-off, was it?
Of course, the problem is that our market was a good 20% overpriced before we started so the first 20% of the drop, from S&P 3,350 to 2,680 was simply a re-pricing to the correct levels. Dropping another 20% to 2,144 would be the actual crisis and, as I said last week, I really don't expect us to normalize much over 2,850 for the rest of the year – that's the CORRECT level for the S&P 500 and 10% down from Friday's close takes us down to 2,400 and that means we're pretty close to a dead bottom – but that won't stop people from panicking if our "leaders" continue to fail to step up and LEAD.
As we did on Thursday, we will take advantage of the dip and roll down our long options contracts when it's worth it (generally 50% or less cost vs the strike positions we gain) and maybe a bit of put selling if we have another high VIX day – those are rare – even in a nice sell-off.
The higher VIX means it's a great time to SELL premium and a terrible time to buy it – so don't buy it!
Also, Trump can get started on fixing things using my ideas from the weekend Chat Room:
In 2008, they were too late with TARP and it was misdirected because, rather than aid the companies who couldn't afford the rent or the landlords, they bailed out the banks to make them whole while everyone down the chain just kept suffering.
- Declare a one-month mortgage and CC payment holiday. 100M homes x 3,000/month is $300Bn – even if we just paid it but a skip is like 1/10th of that and skipping CC payments is only an interest issue so not much impact either.
- Set up hotels as quarantine areas for virus patients – I'm sure there are plenty of hotels that aren't very busy and would love the revenues. Set up a "Virus task force" and hire 100,000 people to staff the quarantine hotels and maybe another 200,000 people to take care of shut-in elderly needs like shopping, etc.
- Put Purell sanitizer stations on every block where commerce is done and inside every store so people wash their hands before and after using every door. There are 1M retail stores in the US and less than that many restaurants (660,000) so even if the sanitizers cost $500 (they are $100-$300), that's not even $1Bn.
There's 3 things I would do tomorrow if I were President and then I'd make sure we had our industry making masks, disposable clothing and respirators (as we're going to need a lot of those!) by the end of the week.
