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Morning Commentary

DC Fumbles as Clock Ticks and Stocks Tumble

By Charles Payne, CEO & Principal Analyst
3/24/2020 9:55 AM

Most Important to Americans

Emmerson Poll

March
2020

Coronavirus/COVID-19

57%

Job security, unemployment

7%

Everyday bills, groceries, etc.

6%

The economy

5%

Health care costs

5%

Family illness, health

3%

Climate change, environment

1%

Education policy

1%

Housing, mortgage, rent

1%

Safety, crime

1%

Taxes

1%

Trump as president

1%

Yes, the headline to today’s report is sadly like Monday’s headline, both pointing to Washington, D.C., and the inability to mitigate the damage of shutting down the entire nation.

I have to say this is reminding me of a hot summer day in 1977 when I was sitting in our apartment listening to Marvin Gaye “Got to Give it Up” when all of a sudden the song sounded warped and all the light shut off. 

Almost immediately I heard “blackout” echoing through the allies outside the window. 

And just like that, the great power outage in 1977 became an opportunity for lawlessness and looting, but also unique cooperation.

Our apartment was in the back of the building, so we ran upstairs to our friend’s apartment, which faced the street.  By the time we got reached the window, people were already racing up the street with all kinds of goodies.  

On the corner, a group of men all pulled a metal gate in unison, as one implored them “if everybody pull everybody will get something.”  In minutes, the gate rolled up into its cradle and the free-for-all began.

My old neighborhood was the hardest hit during the NYC Blackout of 1977, and we got nothing, as my mother demanded we stay inside, even as I watched so people get many things I dreamed about.  Some dude ran up the street with the boombox of my dreams and a group of guys dropped a giant Timex watch display right in front or our building.

I’m reminded of this as Congress now sees the coronavirus crisis much like all the poor folks in my neighborhood – a once in a lifetime chance to get stuff on a wish list.

Nancy Pelosi and her colleagues are putting the concerns, including sense of urgency, ahead of a chance to take political goodies they haven’t earned at the ballot box.  Do you think they end their meetings with “everybody pull everybody will get something?”

I suspect the Senate will get it done today, as even the friendly mass media complex is putting out the unvarnished account of what’s happening.  Check this out from Bloomberg last night:

The IMF now says it expects a global recession this year at least as bad as the one in 2008-09.  For the second time in two days, Senate Democrats blocked a $2 trillion stimulus this afternoon. According to Bloomberg News:

“To attract Democrats, McConnell had agreed to many of their demands, adding hundreds of billions of dollars in fresh spending, including a $600 per week increase per worker in unemployment benefits, a $75 billion public health package, and tens of billions more for transit, education, nutrition and assorted other programs.

This is a green light for Congress to spend as much as they want, and like the last two budgets from Washington, I suspect full exploitation.  Som of the demands that are steeped in ideology more than reality of urgency should be jettisoned immediately.  Even with that, an honest package could climb toward $3.0 trillion.

Dry Powder

There is no doubt many investors have had to sell positions (which means selling winners) to meet margin calls, leaving the overall level at $545.2 billion, down $125.0 billion from the April 2018 peak.

The good news

In addition to higher cash levels, there was a surge into money market funds last year bringing the total to $3.63 trillion coming into 2020 and the highest level since 4Q 2008.

Image

Individual investors have cash and have not been the panicky part of this monumental selloff.  

Now it’s a matter of buy signals, which include progress in Italy, which some say is a guide for the potential path of the US coronavirus curve.  For the second consecutive day, new confirmed cases have declined, and the Lombardy region is improving even faster than the nation.

South Korea

In addition to hopes new confirmed cases have peaked in Italy, we continue to see a sharp decline in new confirmed cases in South Korea.

New confirmed cases are lowest since February 20th and down considerably since February 29th.

China

China announced it will allow transportation to return to Wuhan on April 8, which effectively lifts the quarantine and tells the world the epicenter for coronavirus is open for business.

United States

“The U.S. not built to be shut down.”

President Trump

Yesterday, in what was perhaps the best White House coronavirus update, President Trump signaled his desire to get American back to work, and not in months, but weeks.  While this doesn’t mean the nation will get the all clear next Monday, it suggests the administration understands economic sacrifices being made right now were the smart move under the circumstances, but there must be a smarter approach that saves emotional health, economic health and even physical health.

Today’s Session

Equity futures hit limit up, which means the big indices could open 5% higher or more.  Then the shorts will pounce, as buyers are still a fragile bunch, and the new conventional wisdom is selling rallies.

Big moves in Boeing (BA) and airlines (UAL) ahead of the bell underscore the likelihood of bailouts for aerospace. 

I’m still loving semiconductor names, and I think long term investors should start considering owning blue chip names that are part of their everyday lives. 

I suspect rallies to be challenged, although I’m not sure the eventual bottom will be a double bottom.   There is more light at the end of this tunnel than there was a few days ago, including the surge of confirmed cases in the United States, which is heartbreaking, but it’s part of the process to address the crisis.


Comments
Did you see the cover of the NY POST, that says it best I think. You and your family stay healthy Charles

christopher voccola on 3/24/2020 9:59:04 AM
Great work Charles! Love your knowledge, experience, and most of all, your levelheaded approach to this severe, yet temporary situation. Thanks again! Mark Hanna

Mark Hanna on 3/24/2020 10:06:34 AM
The world is going to be changed by this virus. What were good sound fundamental stocks yesterday will be replaced by my children's companies of tomorrow. Perhaps we should realign our portfolios with "new age" fundamental companies; networking, video conferencing, etc.?

VICTOR A DEMAREST on 3/24/2020 10:25:19 AM
Your opening comments should be in the Wall Street Journal or the NYT. Great comparison to 1977 and today's congress!! You couldn't be more right. Discernment and wisdom is not so common in our Democrat side of the aisle.

Paul Pipher on 3/24/2020 10:29:10 AM
I just read the Houses version of the aid package; all 63 pages of it in summary form. It has everything but the kitchen sink in it. It is a Democratic dream wishlist and without real focus on the things our people and economy will need to rebound and recover. A LOT OF PORK FOR GOVERNMENT TOO!

garro on 3/24/2020 11:44:15 AM
Well, when I hear you state "some had to sell winners to cover margin callsl" I want to choke and puke! This is not investing it is speculating. These people should just go to Las Vegas have fun and throw it away. They deserve to take a big hit. These same people screw the market up for we small investors - who learned from Benjamin Graham and his The Intelligent Investor. They should read the book and stop screwing the market up. No one can time the market except God.

Jim Gill on 3/24/2020 5:23:03 PM
 

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