How long will it take before most begin questioning the government’s draconian action of shutting down the economy and society?  Is the economic/societal nuclear carpet bombing worth it?   The headlines this morning is apocalyptic, in my view frightening anyone who is attempting any gauge of rationality.

I must again write that I am not Pollyannaish, nor am I throwing caution to the wind but rather questioning whether or not surgical quarantines would be more effective.  Society has/is panicking.

Yesterday the WSJ reported the government is now estimating between 38,342 and 162,106 deaths will occur over the next four months.  While any loss of life is terrible, estimates are considerably lower than the 2.2 million projected two weeks ago.

According to the WSJ, it took 27 days of strict social distancing in Wuhan before daily deaths peaked. A comparable period was observed in both Italy and South Korea.  The US is in week 3.

Regarding hospital beds in the NYC, late last week it was projected between 55,000 and 110,000 hospital beds and between 18,000 and 37,000 ICU beds were required.  Yesterday it was projected only 35,000 hospital and 7,300 ICU beds were needed, respectively.

Are these reduced estimates the result of social distancing or from the obtaining more accurate information?  I think a combination of the two.

As stated, this morning’s headlines are frightening, focusing on an outcome where odds of such are not discussed.

Many government officials loathe to suffer the political consequences that occurred following Katrina in 2005.  But I again ask is the cost worth it?

I will readily admit the number of cases is considerably higher than reported and the number will increase perhaps dramatically as testing rapidly increases.   As of 500 PM yesterday the US has tested over 1.2 million people.  There are 180,241 confirmed cases and 3,573 deaths.  As more people are diagnosed the death rate will decline.

Radically changing topics, economic data in China is rebounding sharply.  An index measuring its manufacturing sector plunged to an all time low of 35.7 in February. March it surged by a record amount and is now at 52.0.  It is not back at per corona levels but it has shown a massive improvement, an improvement that is suggesting considerable momentum.

Domestically Goldman Sachs estimates the US economy will contract by 34% in the second quarter and the unemployment rate surging to 15%.  The St. Louis Federal Reserve President is projecting a 32% unemployment rate.

Goldman however rose its third quarter projected growth rate to 19% from 15%.  Goldman did not project a nominal growth rate but the Bank did indicate inflationary pressures, the result of strong demand, broken supply channels and massive stimuli.

How will the markets respond if such a forecast comes to fruition?

The world has forever changed.  Autocratic governments have taken the crisis to become more autocratic and authoritative.  Industrialized democracies have taken action that has severely impacted civil liberties.  Will there be a reversal back to yesterday’s world?

I find it frightening the Patriot Act is still valid 19 years after it was passed.

What will happen today?  Some have suggested April will be the cruelest month. I agree with this statement as it relates to the virus as the number of deaths will increase.  However, for the markets, I thought March was the worst month that I have experienced in my 34 years in this industry.

For the quarter the Dow plunged 23% for the worst quarter since 1987.  It is down about 26% form its peak.  Oil lost 65%, the worse quarter in history.  The 10-year was yielding 1.94% on January 20.  It fell to 0.31% by March 9 and is just over 0.60%.

Keep the faith.  And yes, Hope is a strategy.  Rely upon history as a guide.  Speaking of which within 34 days all KFC, Starbucks and Apple stores reopened in China.  We are less than two weeks away following China’s timetable.

Last night the foreign markets were down.  London was down 3.68%, Paris down 4.28% and Frankfurt down 3.88%.  China was down 0.57%, Japan down 4.50% and Hang Sang down 2.19%.

At this juncture, the Dow should open about 3% lower.  Earlier in the morning futures were considerably lower.  The 10-year is up 18/32 to yield 0.62%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.