March 20, 2020

The Virus and Change

In January I watched video presented by the World Economic Council. This specific event was an opportunity for a select group of entrepreneurs and politically connected people to address the future of capitalism. I bring this up because Marc Benioff, the founder of the mega successful company Salesforce (CRM) suggested that “capitalism is dead”. Well, when I read stuff like that, I immediately hit the information highway to figure out what a savvy capitalist like Mr. Benioff really meant. What I found was an idea that capitalism is alive and well, but it’s goal of serving the shareholder over the worker and the community is a change that needs to come if  real global problems, such as the current virus, are to be solved. And I’m bringing this up because in this time of historic global challenges, due to external events driven by the virus, companies are moving in the direction of a new capitalism, suspending stock buybacks, dividends and even CEO salaries. What does that mean for investment?

The Markets
Companies that are participating in the more stable volumes characterized by the muted changes in the broad indexes for the past few days are familiar and include Amazon (AMZN), Facebook (FB) and select healthcare companies such as Thermo Fisher (TMO) singled out for advancing progress regarding the establishment of a scientific solution to the virus. Worth noting is the three companies mentioned have dividend obligations of 0%,0% and .31% respectively. The tech companies mentioned have suggested both an increase in hiring, money injected into the system to aid workers, their community and suspension of most executive pay. In short, this has been going on for a long time and the migration to a system that can protect us as well as enrich us is why, in my opinion, investments will continue to reward those companies that provide answers to global questions. A big order, but with valuations dropping steadily, companies are more and more on equal footing (i.e. all cheap) and what opportunities are invested in will speak volumes to the future.

The Economies
There are indications that China has begun to bring its economy back to life. Bring it back to life is an important distinction as the WSJ pointed out that unlike the US, China owns most of its economy and absorbs the losses, whether or not, in stride. Companies such as Alibaba (BABA) have benefited from the news, but there is still much to determine regarding the credibility of government statements. However, while not necessarily an economic statistic, both Starbucks (SBUX) and Apple (APPL) have resumed business, Starbucks recently announcing the reopening of their store in the Wuhan Province, both are constructive moves by reliable companies. Domestically, most of the economic data has been mixed since whatever came out was reflective of last month, such as Existing Home Sales which increased 6.5%. But more reflective of current issues saw a greater than 30% spike in unemployment claims that does not bode well for the upcoming employment data due Friday April 3rd. In the meantime, while tracking economic changes it’s important to look at statistics from the perspective of a healthy economy that has been shut down, rather then in decline for other more common economic influences. I’m counting on that data to give a better picture of how long the “temporary” economic pause might be.

External Events
It’s interesting how politicians appear to be getting along these days, and in keeping with the notion of the “equality of helplessness”, so is the general public. The media and the administration are still fighting, but, in my opinion, the absurdity of the exchanges isn’t benefiting either side. As the markets bounced around voluminous comments both positive and negative, the markets have made new lows even as this week they were also appearing to find footing. But a fight appears to be brewing, from the standpoint of technical analysis, most momentum indicators are oversold and I’m looking for the kind of fight that bulls and bears tend to have at highs and lows. The longer that continues, the more likely the broad indexes are closer to the bottom of the current range than the top. But future data will define that range and when its out, the fights will heat up, and given what we’ve withstood thus far, the bulls could have an advantage.