Monday, March 9, 2020

Whatever will I write about on a no-data Monday? I won- WTF?????

 - by New Deal democrat

Yesterday I was wondering what I might write about today, as there is absolutely *no* data being released. And then I woke up and turned on the intertoobs . . . .

OK. Deep breaths. For those of you who wonder what the h#/! Is going on, here’s my take.

1. Until resolute government action is taken, the coronavirus situation is going to continue to worsen. As of yesterday, we passed 500 known cases. There were probably about 5000 other people walking around the US last week infecting others. As I wrote yesterday, as a working model I expect all metrics to double roughly each week - or, add a digit before the decimal point about once every 25 days. 

China and now South Korea have shown that intensive testing, treatment, and mandatory social distancing can beat back the virus. We have Trump. Based on that, if you were trying to measure what might happen to business sales and profits over the next 3 months, how would you act as every day passes without the necessary action?

2. Putin - ever cold-bloodedly shrewd - has chosen this moment when he senses his adversaries have enhanced vulnerability to make a power play in the oil market. His targets are (1) the Saudis, who he wants to see invest $$$ in Russia, and bend to Russia’s Middle East ambitions, and (2) the US fracking industry, that he would like to weaken and maybe have his oligarchs take a big stake in.

As in 2016, this will benefit US consumers in the aggregate even as it delivers pain to the Oil Patch. If it continues, paradoxically it will help defeat Trump, for the same reason that the weak economy helped him in 2016.

Because the oil move is a contest between two actors - Putin and Muhammad bin Salman - its outcome, and the timing of that outcome, depends on how they behave. They could make peace tomorrow. Or next week. Or next month. Or next year. Or not at all.

3. Even in the worst case scenarios, both of the two issues above are temporary moves. How temporary, and how bad it gets in the meantime, it is impossible to say.  As I’ve been writing for the past few weeks, I expect the news to outrun the data. Every rational scenario strongly indicates we are probably heading into a recession right now. But the data does not show that yet.

That being said, the move in stocks and bonds is obviously very emotional, and could reverse at any time. Emotional moves like this tend to be close to a bottom. It is driven by short term traders rather than long term investors. People whose investment horizons are longer than a couple of years should not panic.