Equities Bloodied Gold and Bonds Shine
We were hoping that Miles Kwok wasn’t right when he posted his video on February 9thwhich outlined his concerns for the numbers coming out of China. In fact, Zerohedge included the video in one of their posts and its what most likely got them banned from Twitter as the final straw to silence outlet’s like Zerohedge not for lying, but actually bringing to light alternative viewpoints. Yeah, quite often we do take their posts with a bit of trepidation but we always do our own research as well and you know what, the majority of the time, their sources seem correct. Anyway the link to Miles talk about China and the virus is Here I posted the link on my LinkedIn and here is what I said:
Fast forward to today as the rest of the world is now coping with the spreading pandemic. The amount of negative impact upon our very fragile globally connected society is going to be far greater than many are predicting at this point. There are so many facets that need to be considered when measuring the impact not only on mankind itself, but global supply chains which are wound so efficiently that production and distribution is essentially run on a low supply “On Demand” schedule which may just end up making this whole situation that much worse. Not only that, imagine the psychological effects upon humans given millions are virtually locked down and out and not allowed any mobility what so ever. How does one quantify those long-lasting effects? We quite so often want to put numbers to variables in order to better organize and quantify the total systemic effect, when in reality, perhaps things are just a bit more complicated than we mere mortals can wrap our feeble minds around. Maybe we should consult the AI and all the data mining bots out there for advice. Anyway, with around 700 million in China reeling directly from lack of mobility, we here stateside can only imagine the chaos if the city the size of NY went into full lock down. How long would social civility truly last? We figure not to long and my military associates give mankind less than 48 hours before nervousness truly sets in. When we look at the US equity markets, this chart might just sum things up as to today’s action:
The largest drop in over two years for the Dow Jones. We can’t say that this wasn't long overdue, nor can we say we weren’t surprised. Rather we have been noting lately the central banks propensity to fuel this risk taking via their reversal of their QT policies in early 2019 and later on in the year enacting massive Open Market Operations and basically offering Repo participants unlimited liquidity. We have been tracking this unprecedented liquidity and this post I did should highlight things:
This is just one way to look at it, we have had some really insightful dialogue comments back and forth about this and we duly noted the thought process that this Repo will be unwound at some point, which it might, but for now, it continues to be re-rolled in the form of daily operations and ongoing 2-week operations which are now being reduced down to around $25 billion only. So, we will see if this reduction in Repo will have an impact on supporting markets. Not that the equity markets need it with this Covid-19 running rampant.
With all the liquidity the FED and the PBOC have provided, it didn’t surprise us one bit to see charts like this, where we highlight the dollar value of owning 1 Nasdaq futures contract vs 1 SP futures contract. What should stand out very clearly to you is the 4x outperformance in 2020 alone! Although now, we are starting to see a pullback:
Obviously the two biggest beneficiaries of this negative news for equities are Gold and Bonds. Gold has made a huge move up here the last week and we feel $1700 is a logical target and resistance level perhaps:
As far as the bond market we can see here U.S. Gov’t 30-year and 10-year yields have plummeted:
So in order to put heavy down days like today into perspective I would like to present a global total stock market chart and demonstrate that even if we pull back and lose $5 or $6 trillion dollars in total market cap, we are still in a bull equity market as the up move has been so stalwart that I view any pull backs like this to be very much welcomed from both a healthy technical stand point as well as from a fundamental valuation stand point:
So, keep your mind, body and spirit in tune and react not in desperation in regards to what is transpiring, but look at things from an opportunistic standpoint. We all have varying degrees of risk, risk adversity and expectations, no two investors are the same and that is why I always stress that you don’t mimic anyone else’s strategy but rather do what’s best for you at any one given point in time. The fickle and folly type panic, the true race horses are patient and wait for opportunity. Stay tuned for more and thank you for reading today.
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