Tuesday – February 18, 2020

Market opens lower to start the new week. Apple guided lower, stating the impact of the coronavirus has hurt its ability to manufacture products and has hampered demand in Asia. Apple is the first company to preannounce lower due to corona. Taking it a step further, Wal-Mart missed on its earnings expectations, citing a weakening American Consumer. You would think that the combination of these events would send stocks spiraling lower. They’re not. They’re down. But the decline is not sharp. Europe was largely down overnight. The British are sparring with the Eurozone over trade relations post-Brexit. Debate about Japan’s risk of recession increased in the wake of the much weaker than expected Q4 GDP data. The Democratic Presidential election campaign picks up momentum in Nevada. There’s another debate this week, with Bernie and Buttigieg’s lead being contested with Biden’s last chance and Bloomberg’s emergence. The Market still seems to be pricing in four more years of Trump. Asia was mixed, with a big sell-off in Japan, but losses were erased in China. Many regions in the nation are still largely in lock-down. The global supply chain in been negatively impacted. Apple finally acknowledged it. The impact goes way beyond Apple. Authorities in Beijing are responding aggressively to the coronavirus threat by ramping up the economic stimulus, and said they will accept tariff exemption requests on nearly 700 U.S. imports from March 2. I’m hearing they are preparing to inject more liquidity into the system than they did in response to the Financial Crisis. Think about that for a second. Economic cycles seem no longer normal. Downturns are natural to help address and get rid of excesses. They’re not being allowed as global central banks continue to backstop economic activity. A similar thing occurred here last Fall when the Fed bailed out the Repo Market and took its balance sheet back to Financial Crisis levels. But they were adamant that it wasn’t QE. It’s really becoming a problem for clarity on what’s actually going on and what’s working and what isn’t. It’s like Market manipulation, which is a very dangerous thing. Our concern is this relentless Bull Market in stocks has become reckless. That is not a comfortable setup. Stocks are lower in early trading, though off session lows. Bond yields are lower too, and also off their session lows. The 10-Year Treasury yield is below 1.6% again. The 30-Year yield fell below 2% at the open, but has since jumped back. Money is moving back into the Bond Market. The Dollar is stronger. Gold is catching another bid. Oil is lower. The VIX is higher, but barely. There is just no concern about any of the negatives or threats. It just doesn’t feel right. It’s been this way for a while.

Have a great morning,

Mike Frazier

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