WE ARE LIVING IN UNPRECEDENTED TIMES

At the time of this writing, S & P 500 futures hit limit down for the second time in a week.  Last night’s mega sized neutron Federal Reserve bombing of the markets had little impact. All are attempting to digest the ceaseless news flow of companies shutting operations, countries sealing borders and central bankers responding with extraordinary moves.

In typical times such dramatic fed action would perhaps put a floor under the markets but by judging by the news flow this is not typical times.   Panic and hysteria are intense, with some stating many governmental and corporate entities are fueling this over reaction, a possible overreaction massively amplified by an apocalyptic media and blogosphere.

To write the obvious, the volatility in both the equity and treasury markets is also unprecedented.

What is also unprecedented is the US government declaring a national emergency.

I would like to regress for a moment.

My next comments are an attempt to put the environment into some type of perspective, stating that I am not Pollyannaish, not throwing caution to the wind as I too have become conscious about washing my hands, not touching my face and attempting “social distancing.”

The collection of reliable data only commenced about 3 weeks ago as anything coming out of China was/is suspect at best thus suggesting there are more questions than answers.

Unfortunately, because there is a lack of qualified answers, human nature assumes the worst under the most basic human instinct; survivalism.

According to newswires, there are 171,000 confirmed cases and 6,100 deaths.  105,000 of confirmed cases are in China and Iran.  (Note:  I rhetorically believe China and Iran are undercounting)

A total of 65,000 cases have been reported outside of Iran and China.  The global population ex China and Iran is about 6.2 billion.  (Note:  China’s population is about 1.5 billion).  Statistically speaking the odds of contracting the virus are resoundingly low

I do believe the number of cases will rise because of increased testing but accordingly the percentage of deaths will drop.

My next comment is rhetorical and conjecture, defined as it is not based on fact but rather emotion and has about the same credibility of many of the apocalyptic comments found on the Internet.

If the virus is as bad suggested people would be dying on street corners.  All would know someone who has been affected.  All data to date suggests the ones who are at risk are the ones that are typically most at risk.

I recognized that this virus is “novel” defined as it is the first-time mankind has been exposed to it.

Hollywood has produced a gazillion movies about epidemics that have destroyed mankind.  I will argue this fits in with this popular movie genre.

Like all health crisis, it has morphed into a political issue.

The economy was very strong going into this hysteria with data suggesting an economy expanding at 3.5% rate.   In 2008 the economy was already struggling.  At this juncture it is a psychological crisis not an economic crisis.

In the immediacy the economy will take a hit but I will argue if the hysteria passes within 30-45 days the recovery will not be V shaped but straight up given the unprecedented amount of liquidity injected.

I think it is significant that it has been reported all Starbucks, KFCs and Apple stores have reopened in China, approximately 30-45 days after they were closed.  South Korea is returning to some type of normalcy within 30-45 days after their drastic measures.

Today too will pass.  This crisis only appears more intense because it is the here and now and it is the first health crisis in at least a generation.

Last night the foreign markets were down.   London was down 6.63%, Paris down 9.08% and Frankfurt down 7.96%.  China was down 4.83%Japan down 2.46% and Hang Sang down 4.03%.

At this juncture the Dow should open down 5% triggering an automatic pause.  The 10-year is up 1 ¼ points to yield 0.78%.  The 30 year is up 3 ½ points to yield 1.40%.

 

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.