Time to Think
Happy Friday,
This week was the first in several where time seemed to slow back down and financial markets began to once again respect their speed limits.
Volatility is down, trading volumes have collapsed & price action has been muted across risk assets with Oil the obvious exception (time will tell if justified).
So here are four areas that would seem worth musing over.
1. Bad economic news seems to be pretty much in risk asset prices. For example, one has to respect the equity/debt price action given a doubling of US jobless claims to well over 6M. Same with PMIs, UER and other data points. It is worth noting that some regions/economies were doing pretty well pre crisis (EU Feb retail sales +3% y/y).
2. If Bad Economic News is the price, what about Good News? Good economic news remains elusive & will likely stay that way for the next month or two. Good news exists on the policy side as Rolling Thunder continues with Japanese stimulus expected next week and the US unveiling its $350B Paycheck Protection Program (PPP), moving closer to the EU labor model. Broad DM Govt backstop is in place.
3. Uncertain economic & earnings data suggests our main focus should be on the coronavirus & the longevity of aggressive social distancing. The good news is that the Italian case curve has clearly bent & NYC’s appears imminent; our NYC mantra: “empty is good, empty is good” is working. The bad news is renewed travel restrictions in Wuhan - a real worry given 2nd wave concerns.
4. Part two of our coronavirus focus should be on the coming out process - what will the economic rebound look like? Currently, China is our only guidepost & there it looks like the economy V-lined back to 80% production levels and then stabilized - for how long and why are things we will learn more about as time passes. Watch S Korea; its economic reopening is expected to begin next week.
From an investment POV, the market’s technicals would seem to be the best NT guidepost. The 20dmav for example seems to be capping many equity assets; suggesting the deleveraging puke was quickly made up by the rally. Breaking out: up or down will likely require some coronavirus clarity. Studies suggest longer term equity upside post a Q like we just had; in addition we continue to consider a leadership change.
One would think we are due some good news on the coronavirus…its Friday afternoon & Spring is coming - rest up & enjoy the photo!
TPW Investment Management Team
