Yeah the markets have definitely been underestimating the severity of the
outbreak and its impact on the Chinese and global economy, not to mention
lives. I bought some TVIX below 39 today for that exact reason. Doesn't
necessarily mean it's a disastrous scenario, but a lot of institutional
investors are too optimistic and uninformed about epidemiology/China (VIX
below 14). To much to go into, but just throwing a couple of things out
there:
1) There has been a massive under-reporting of cases in Wuhan/Hubei.
Nobody knows the exact number as many are carriers without symptoms, but
the math models of 200k-500k is much more reasonable than the official
figure. Today's spike is just the official figure needing to catch up to
the actual figures.
2) Markets seem assured that this would be a V-shape recovery in China,
partly due to Chinese stimulus. This is hardly guaranteed, they are not
fully discounting the risks.
Now some good news:
3) There has not been rumors of major outbreaks from post-holiday
migration back into the cities. This is the most important element to pay
attention to. Without outbreak outside of Hubei, the situation is
contained. But if this happens, this will get ugly, and stocks will
definitely dive.
4) Though highly infectious, the actual fatality rate is much lower than
2%, maybe around the 2009 H1N1 range. The reported fatality rate is higher
because while there's been a large under-reporting of fatalities, there's
been a far greater under-reporting of infections.
To be clear, this is not advice to sell positions. The probability of
minimized long-term impact is still good. But there are still major risks
that have not been cleared and potential volatility ahead. We probably
won't get a good sense until end of Feb at earliest.
As to why stocks are so high? Simple, all the world's central banks have
been printing money and leveraging like crazy since 2008. Without that, the
economies would crash harder than '08. But it's also hard to bet against
them because their monetary policies essentially inflates away the value of
cash and bonds.
-Charles
On Wed, Feb 12, 2020 at 3:26 PM Chuck Kremer <chuckkremer@xxxxxxxxx> wrote:
Feels like 2000 to me.
-Chuck
On Feb 12, 2020, at 3:23 PM, Bob T <bobtsgt@xxxxxxxxx> wrote:
I agree that we are seeing some weird times right now. Global virus is
attacking and killing more then SARS did but yet markets continue to go
back up. A company can beat earnings and bring in higher then expected
revenues but yet the stock price takes a hit because they are calling for a
slight slow down in the future year. I for one have been slowly taking
some profits on certain positions, waiting for the chance to buy them
cheaper.
Bobby
*From: *cchengbusiness <cchengbusiness@xxxxxxxxx>
*Sent: *Wednesday, February 12, 2020 9:35 AM
*To: *cincysmi@xxxxxxxxxxxxx
*Subject: *[cincysmi] Re: And Now For A Bearish Note
This is not necessarily a commentary on how much irrational exuberance
there is in the market, but I can think of three potential causes of the
lull in shipping:
1) Currently, the corona virus crisis has had significant impact on
shipping both to and from China. This is also evident in the commodities
trade.
2) Previous the trade war situation between US, China, and to a lesser
degree Europe.
3) China was already in something of an economic slowdown even before the
trade war, which had depressed demand for durable goods (cars, etc.) and
industrial goods (Caterpillar, Siemens, German exports, etc.)
Since China accounts for such a significant portion of international
trade, I imagine it's bound to impact shipping. Now how these situations
resolve itself may offer insight into how the shipping indexes recovers.
Best,
Charles
On Wed, Feb 12, 2020 at 6:12 AM Alan Shrock <alan.shrock@xxxxxxxxx> wrote:
Both the Baltic Dry Index and the Cass Freight Index have been in a
downward trend for a while.
The Baltic Dry Index is related to shipping activity, while the Cass
Freight Index is related to land-based transportation of goods.
https://tradingeconomics.com/commodity/baltic
https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/cass-freight-index
The attached graph shows the disparity in to growth of the Wilshire 5000
index versus Gross Domestic Product.. While the fact that GDP does not
include the value of services might explain some of the disparity in growth
rates, it still points to the fact that the markets have gotten ahead of
the value of goods produced.
Factor in that the Federal Reserve has been pumping tens of billions of
dollars per day into the repo market for months and I see an unsustainable
bubble in the making.
I think that we are seeing some irrational exuberance in the markets.
--
Alan W, Shrock
9513 Colegate Way
West Chester, OH 45011-9419
(513) 497-2634 (Mobile)
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Longitude -84.461717800
"Are we being good ancestors?" - Jonas Salk
