January 31, 2020

Predictable Bias

“Facts do not cease to exist because they are ignored.”
― Aldous Huxley,

Disagreement exists in many parts of society and the personal drive for mental pleasure is a likely culprit. But in the age of information the dissemination of bias, otherwise referred to as opinion, has provided nearly all sides to an argument in one place for the first time in human history. Then we embraced the aggregate. In 2002 Google (GOOGL) introduces aggregated news, in short inviting users to let google track their preferred news sources, and the inevitable happened. All undesirable opinion was removed from site and bias became the gold standard.

This is relevant today from issues that have had direct proportionate variations to economic and market impact, whether you prefer politics or interest rate and other economic data. In the case of the outbreak of the coronavirus in China and the impact to companies doing business there is a relevant issue. The use of experts to lend credibility to predictions on how the virus will progress ignores the elusiveness of such endeavors. The current status is that the virus is less lethal than SARS although more contagious. But the view notwithstanding should be taken in stride, many predictive interpretations are predictably misleading. One example is Starbucks (SBUX) whose closure of 2,000 stores can be seen as a problem for business. Sounds like a lot until it’s evident that the company has nearly 32,000 stores worldwide leaving the potential impact at near or less than 10% which is exactly what the company stated in this week’s earnings guidance. Further guidance impacts will be worth keeping track of, not because of obvious expectations, but to see where the street research analysts take them. On the brighter side Tesla (TSLA) released guidance that was filled with more promises than results. But the company is on its way to profitability perhaps as early as later this year, the impact of the virus seems to be irrelevant as the company stock price traded over 10% after the results. Not surprising, but also, not cheap.

On the economic side began with the release this week of fourth quarter 2019 GDP of 2.1%, bringing all of 2019 to 2.3%. Not historically high, but at least 1% higher than most western economies and far less volatile than the larger global contributors. Also, worth noting is the US currently maintains a 23% share of the global economy*. The disappointing aspect of the news came in the declines in business investment and commercial construction. Even with corporate profits good, the future does pose some challenge. Personal consumption increased at a lower rate in the fourth quarter, but the results today from Amazon (AMZN) show the consumer is still active on the internet and with similar global trends. The Federal Reserve statement further suggested patience and stability in making any decisions, suggesting lower probability for any action this year. For now, neither good nor bad for the broad markets.

As far as the markets are concerned, other challenging areas are unknown repercussions from the separation of the UK from the European Union to the growing political rancor. While suggestions have been etched with bias from the start, up to and including endless criticisms and mocking from both sides, the answers still lie in the future and predicating the future is still always easier than it sounds, especially for those biased in their belief that they are correct from the start. So, whether or not the issues influencing public mood are causing selling, or simply the reckless protocols are driving algorithmic selling. Either way, selling is not surprising and if there are end of day recoveries, suggesting speculative short trading is involved in the volatility, it still leaves the markets lower just enough to justify the importance of softening an overbought condition stemming from the range of technical indicators. For now, those indicators are looking better, although not without the potential for further selling, and the case for identifying opportunities continuing.