April 24, 2020

Is It Ever Different This Time

“If you walk around with an umbrella all the time, sooner or later it’s gonna rain”
- Me in response to economists who are perpetually negative

There is a common notion among the pundits and financial elite, that they know better. Whether from experience or education the passion for the truth is frequently hindered by the conclusion on what the truth is, or at least is supposed to look like. This has been the status quo since the beginning of the capital market exchanges and it has conditioned the environment for one outcome, people are either bullish or bearish. And just like politics, many have come to simply rest on their choice based on past successes. And that is how the narrative is spreading now, because the markets have recovered from every major financial and economic calamity since the depression, is why many investors never veer from perpetual optimism. And it is worth noting the saying, it is never different this time around. Maybe not yet.

The week began with a collapse in oil. Oil is a commodity, just as copper and other metals, and everything in between from textiles to food products. They all have been adapted to the futures market. The futures market is an exchange located in Chicago designed around contracts that represent an agreement to buy a specified amount of a commodity or financial product at a specified point in the future. The primary purpose was intended to hedge risk in rapidly expanding industrializing world. Today, it is the playground of international speculators with no intent of taking delivery (where would you put a barrel of oil?) but to ring the cash register, reckless of the outcome to neither an industry nor an economy. So, as the broad indexes finished the week continuing their primary recovery from the March lows nearly half of the entire move, oil presented an extra push after opening the week in negative territory. In my opinion, price activity appears hesitant, with only each day’s earnings results providing coverage. For now, the strategy of participation and patience is keeping accounts involved without hindrance of the ample cash available for opportunity.

Unemployment Claims increased by 4.4million, Existing Home and Single Family Home Sales dropped -8.5% and -15.4% respectively, Orders For Durable Goods declined -14.4%, Retail Sales declined -8.7% in March alone and it goes on and on. The reason I bring this up is because with each passing week the economic damage wrought by the virus becomes more evident with each published set of data. And with nearly $4 Trillion dollars of stimulus signed off as recently as today it’s important to remember that in addition to the unemployed and underemployed in the country, large companies, small companies, schools, hospitals, religious and non-profit organizations and even state and municipal governments are struggling to remain financially viable. To top it off today the NY Fed released a statement projecting a -.40% contraction to first quarter GDP and an updated projected contraction of -7.79% GDP for the second quarter. That it feels like a surreal recession that easily can make one anxious blurs as to how we are going to get out from under its weighty uncertainty. Well, the markets are telling us we will.

External Events
Well if I did not say it, but the price of oil should stay low. Consider that the level of demand grows into tangible energy renewables, such as electric automobiles, and the increasing use of solar, wind, nuclear and geothermal technologies, all focused on reinventing the existing electric grid. And what about the companies that will see value in offsite employment. New York City which boasts per sq. prices in Midtown Manhattan listed on Zillow (ZG) at nearly $4,000 might very well see a contributor in preserving the long term management of a company’s balance sheet. Entertainment, Sports, and other industries that consume enormous costs on behalf of the spectator, who may or may not come back in droves is a potential dilemma. Personally, I am looking forward to watching baseball even when it begins its season in empty stadiums. I can understand the optimism that is driving the markets right now, even as I’m a little skeptical of it at the same time. It all points to a world in change, a lot to get through, but change does not care. It never has.

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