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Thrilling Thursday – 3,350 and Bust (again)!

Posted on the 06 February 2020 by Phil's Stock World @philstockworld

Thrilling Thursday – 3,350 and Bust (again)!Only 28,344 infected

That's 3,737 (15%) more than yesterday but "only" 565 dead, which is 14% more than yesterday so we're pretty stable in growth and that's a good thing though not a great thing.  Great is when it's going lower.   As I noted yesterday, you have to keep a close eye on infections OUTSIDE of China and that's now 259, up 43 (20%) since yesterday – that's the number that we will panic over if it keeps climbing but, otherwise, I guess we can try to ignore it like the rest of the market.  

There was a great article in Bloomber yesterday, headlined: "China Sacrifices a Province to Save the World from Coronavirus" and that's true.  The World is very lucky this virus started in China as it's doubtful any other country would have been able to lock down its citizenry the way China did, as fast as China did.  We're not out of the woods yet but, if we are – it's because China has a strong, authoritarian Government that controls almost every aspect of the lives of its citizens.  Think about that…

It's not just virus control China has been concerned about.  China has also thrown MASSIVE amounts of stimulus into the economy, into the banking system and into the markets and has ordered lenders not to put loans in default AND to keep making new loans – despite the chaos and uncertainty – another thing that is very unlikely to happen if one of the Western Nations is similarly affected.  

Thrilling Thursday – 3,350 and Bust (again)!

Thrilling Thursday 3,350 Bust (again)!
Yet our markets are marching along as if the virus is a one-time thing, even though it's the 4th big one of this century.  There was SARS in 2003, H1N1 in 2009 and MERS in 2012.  I think that merits at least considering the potential risks going forward, don't you?  A 2.5% pullback is all this outbreak warranted on the S&P, not to mention the Impeachment of Donald Trump and the ongoing Boeing Debacle, that's certainly going to put a dent in the US economy, which is only expected to grow 1.5% in Q1, except by the Atlanta Fed, who somehow sees 2.5% suddenly.

Maybe the Fed knows something we don't and maybe what they know is that the old rules simply don't apply anymore as the World's Central Banks and ratings agencies have all lined up to keep all the plates spinning in the Equity and Debt Markets at all costs – ignoring all costs, in fact.  We are now $23,260,350,000,000 in debt in the US alone and our GDP is $21.8Tn so 107% of our GDP in debt, adding $1.3Tn in the current budget (ends in June) during what Trump just called the Greatest Economy of all time.  What's going to happen when it isn't great? 

That seems to be a moot point as the economy isn't allowed not to be great.  Every stumble everywhere is lifted by the Central Banks and the whole World is borrowing more and more each day and the same banks that are borrowing are also lending to the other banks because the money is all just paper now – backed by nothing at all and worth even less if it all hits the fan – so hopefully it won't.

2018 Cost of Unfunded State Government Employee Pension Liabilities Per State Resident
36.5M Americans are still living in poverty (less than $12,140 in income) and we ignore that and 29M Americans still don't have health insurance (up from 18M in Jan, 2017) and we ignore that and our Central Bank (Fed) is $4.2Tn in debt and that's not even considered part of our National Debt (because we ignore it), nor is the $20Tn shortfall in expected Social Security payouts (which will double if they cure cancer) or the $31Tn shortfall in Medicare (which would hopefully go a bit lower if they cure cancer – unless the cure is expensive!). 

And then, of course, there are Unfunded Pensions and that's another $7Tn from the Government alone and another $1.6Tn in Corporate Pensions – these are serious issues for a country with 5M more people retiring each year for the next decade.  

Anyway, I am just saying that there are broad issues out there and, as I said on BNN's Money Talk last night, I don't think it's wise to chase there high-flying stocks – reality could strike at any moment.  That does not, of course, mean there are not still great bargains out there – we just have to look more carefully for them. 

At the moment, I'm for shorting the S&P (/ES) Futures as they test 3,350, with tight stops above that line and 1,700 has been a point of failure on the Russell (/RTY) Futures and, if the Nasdaq (/NQ) breaks back below 9,400, we can short them too but with very tight stops above that line.

I would certainly feel better going into the weekend with some good short positions for hedges as we still don't know that this virus is under control yet the markets have completely shaken off a 2.5% drop based on what seem like very unrealistic promises that there is a "cure" (viruses don't really have cures, only treatments for conditions) AND a vaccine (usually takes 3-6 months to get ready and distribute), so we have to take it all with a huge grain of salt.

Be careful out there!  

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