March 16, 2020
Things you need to know:
- Global markets collapse as the virus spreads
- Oil under pressure as the Saudis ramp up production
- Jay Powell – suggests that both 1st and 2nd quarter growth will be negative.
- Remember – people sell what they can in times of panic and stocks are easy to sell
- Try the Sweet Sausage Risotto
KENNY POLCARI, Editor, Chief Market Strategist, and Consultant
Circuit breaker limits today
Level 1 – S&P must fall 7% – 189.77 pts
Level 2 – S&P must fall 13% – 352.43 pts
Level 3 – S&P must fall 20% –542.20 pts.
On Friday morning the headlines read:
“Stocks Plunge 10% in Dow’s Worst Day Since 1987”
On Saturday morning the headlines read:
“Stocks Make a Stunning Reversal – Wrapping up Haywire Week with a Rally”
And this morning – guess what? Markets around the world collapsing
“Stock Futures Drop, Hit ‘Limit Down’ Even as the FED Slashes Rates”
If you haven’t heard – the FED made a surprise emergency rate cut while also announcing a new $700 billion QE program, in what is being seen as a “move of desperation.” I mean – think about this, the FED makes an emergency cut on a Sunday afternoon at 5 pm and announces a massive QE program. THAT is supposed to calm the markets? Come on!
And over the weekend – we had a repeat performance. The Saudis once again re-iterate the fact that they are increasing production to punish the Russians and bring more pain to the US as the price of oil collapses. Recall that all of this began when the Saudis appealed to Putin to cut production to stabilize oil prices in the $50/barrel range. The Russians politely declined – and this lit the fuse of an oil price collapse last week, triggering all kinds of talk of defaults in the High Yield bond market. That is NOT a positive.
On top of that, the coronavirus continues to spiral out of control around the globe. Italy is in complete lockdown, France and Spain follow suit – as Europe is now the epicenter of this crisis. Here in the US – the map showing new cases and the spread continues to get RED, triggering another round of closures of businesses and whole cities, school closings around the nation, canceled sporting events, canceled conferences, canceled weddings, (are you getting the picture?) Nike, Apple, Urban Outfitters, Warby Parker, LuLuLemon, etc. all announcing that they are closing ALL their stores in the US, leaving us to wonder how many more are preparing their announcement.
Interestingly enough – cases in China appear to be slowing – so if there is a positive at all – that’s it. (Although – no one is apparently noticing). Expectations are that the epicenter is about to move from Europe to the US/North America, and that appears to last for 5 or 6 weeks. So get ready, this is going to get worse before it gets better. I guess we should expect complete closures of businesses around the country.
And in another stealth move, our friends at Goldman Sachs – sponsored a “secret” conference call for key investors on Saturday evening. In the call, they suggested that they expect the S&P to fall another 26%, which takes us to S&P 2000. They expect a complete collapse of the US health care system and the financial system. On top of that – they are expecting that 150 million Americans (50% of the pop) will contract the virus and 2% will die. Do the math – that’s 3 million people. Which leaves me to ask? How do you possibly extrapolate these numbers? I mean – China is an “emerging country” with what some suggest has a subpar health care system never mind air pollution. That leaves you to wonder how they even breathe and has over a billion people. That country only saw 87k infections and 5k deaths.
In Europe, the infections total some 80k cases and in the US we are reporting 3,000 cases – total global cases are now 170,000 while global deaths are 6,526. So why exactly is the US going to see a massive spike in cases and deaths? I’m having trouble connecting the dots. Yes – more tests may reveal more infections. But, China and Europe also tested millions of people and only came up with 170k cases. And by the way, infections do not mean death. Now I applaud all the efforts to control the spread – and support them as I am holed up in an apt in Manhattan. The latest report from the NY Post – says that every New Yorker (meaning the city) can assume that they have been exposed. So maybe GS is right because that alone is 8 million people!
So at 6 pm last night – futures started to trade and they collapsed (as expected). Think an act of desperation. They immediately hit limit down – suggesting that we are in for much more volatility. Many internet stories – not associated with a verified news source have zero credibility only fueling the flames of angst. If you want the latest updates – go to CDC.gov
Global markets all under pressure as the week gets started.
Australia is down 10%, China and Hong Kong both down 4.5% and Japan is off by 3%.
European markets are getting slammed – as the panic washes across the globe. Remember – this is not a financial problem like 2008! The banks are not collapsing. This is a massive health care problem that is creating an economic slowdown. This is not the GFC (Great Financial Crisis)
As of 6 am – the FTSE -6.3%, CAC 40 -8.6%, DAX -7.7%, EUROSTOXX -7.82%, SPAIN -9.6% and ITALY -8.02%.
US futures are limit down, at 5%. But the Dow ETF, DIA and the Nasdaq ETF – QQQ show losses of 9% and 8% respectively. That means that we will hit the first trading halt within the first 5 minutes, and that will allow stocks to regroup when they open again. The question today is will they continue to fall another 6% triggering the next level. Or will they settle in at down 10% like other global markets?
Oil is down 4.8% at $30.29. Earlier today – oil did breach $30 to trade as low as $29.78. Now while it is weaker – it does appear to be holding onto that $30 level.
Gold is up $9 at $1525/oz. and US Treasuries are soaring sending yields lower. Currently, 10-year yields are 0.775.
Take good care.
Kenneth Polcari
Chief Market Strategist, Consultant
Sweet Sausage Risotto
This dish can be a first or main course depending on how hungry you are.
You will need: olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese.
In a sauce pan – heat up about 6 cups of chicken broth.
In a heavy pan – heat the oil and 1/4 stick of butter over med heat. Add chopped onion and sauté until soft and translucent. Next add the sausage meat and brown. When ready add minced garlic – no more than a tbsp., and some thyme. Do not overdo… about 3/4 tsp. You can always add less and then taste. Sauté for another couple of minute to blend the flavors. Now add 1 1/4 cup of Arborio Rice and about 1 cup of dry white wine… mix well and stir until the wine is absorbed. Season with a bit of pepper. NO SALT needed.
Now – one ladle at a time… add the hot stock to the rice and stir… you must stay at the stove – this is key. You need to stir the rice and not allow it to stick. As the stock is absorbed – add another cup and stir… continue this until the rice is tender and creamy… maybe like 20 mins… but taste as you go to determine. (You will not need all of the stock – but just in case you did it wrong you can always try to save by adding a bit more stock.) Now add 1 cup + of frozen peas… you can always add more if you like peas… and a handful of grated Parmegiana Cheese. Stir well for about another 5 mins so that the peas have time to warm up……taste. Taste good? then you are ready to serve… If not – keep stirring. Do not let the rice dry out… This meal should take you about 30 mins – (40 max).
Serve in warmed bowls and garnish with a bit of chopped Parsley… always have extra cheese on the
table for your guests.
Buon Appetito
