Market Briefing for Wednesday, February 19

The 'edge of chaos' - is not what this market is about, at least for now. It is also not correct to simply look-through the epidemic to rising demand in the wake of the crisis, whether pent-up demand 'in' China or for parts for a slew of electronic, automotive and other 'parts' customers and so on. It is also not really about whether or not the 'WuFlu crisis' quickly ends, as I suspect is not going to be the case, though there are hopeful drug trials. 

As a matter of fact, welcomed 'relief' from getting through this crisis, as of course every sane human wishes, would likely merely be a temporary or intervening phenomenon for the market. Why? For the very reasons I've already noted in recent days or weeks about what holds this market up.  

In-part that's the 'seasonal contributions' (IRA and similar 'contributions'), that must be placed before either corporate or individual tax deadlines as required to get such contributions deductible in tax returns being readied now (or done) for the tax year 2019. That's a wall of money coming in. 

Add to that the significant increase in 'flow of funds from foreign sources', largely spooked by the epidemic, and you have a lot of money thrown-at, what arguably already was a very pricey market especially for the primary growth stocks that have had the biggest impacts on the Averages.  

And of course a lot of that money goes into Index Funds (the easy way a lot of managers handle money this time of year) or broad ETF's. That of course also cushions selling pressure in the big-cap issues, like Apple (AAPL), regardless of individual stock news to a degree. It's part of eventually a problem for the S&P (SPY), as relates to this approach to 'passive investing'.  

So the irony might well be that once manufacturing and various retail and other vendor 'supply chains' normalize, with sort of the 'edge' of the abyss (as bears view it) being stepped-back from, what I suspect results (after a possible relief rally on the idea of corralling crisis) is something different.

First that could be a less friendly or at least less-inclined-to-intervene Fed (no short-term pressures on rates if one perceives a crisis behind), and it would be past the point where seasonal reinvestment money props-up at least parts of the market. (The irony there is the story I shared of: in times of risk putting excess funds of clients back in the old money management days, into money-market funds, and waiting for the right entry point rather than 'chasing price', which today's managers tend to do rather than show a bit of patience. To wit: a problem when this eventually does turn.)  

As diminution of a crisis would also likely see some of that foreign money repatriated back to China or other parts of Asia; you'd be looking at a twin source of fuel for the Indexes here that would be rapidly disappearing. So I think that's why I mentioned the 'real risk' might be more like late April or in May, more so than now. If I didn't mention that, I'll point it out now. 

(Incidentally I did NOT emphasize the Apple earnings warning,since that was not only overdone, but what investor did not already know, or gather, that the factory shutdowns in China wouldn't result in low inventory or the hangover for some time from it,depending on duration of the crisis. It is fairly basic: we all knew this, but they had to formerly revise guidance.  

We indicated for weeks that iPhone production, which is entirely Chinese for now at least, might be delayed - so long - that they will have to migrate to the 'next Generation', the iPhone 12 with 5G incidentally. Now that the Apple boys clearly see the Galaxy 20 (too big?) and Galaxy 'folding Z' (I had a chance to try that this weekend and liked it; but not 5G and sadly of course, it's Android rather than the more secure IOS that Apple offers).  

I do suspect that Apple will have to come up with a variation by the way. If they can do so in time (we saw they filed a Patent with a novel flip-style mechanism) and include 5G within a year; I suspect it will be a big hit. I'm also going to suggest Apple would do well to learn from Samsung's (SSNLF) issue with the first folding 'phablet' (then they fixed it); and now the nifty smaller (Razr-like) Flip phone, because surprise... reports that it breaks and also gets easily scratched are surfacing from initial customers. Flip sequel?  

In-sum: the market does not respond to the epidemic in negative ways, as many expected; nor should it 'for now'. Obviously it changes if there's significant breakout or spreading of disease, not just in China. All if would take is one cluster in the USA; and Katie bar the door .. briefly.  

Furthermore I am unconvinced that the virus is really contained; although I concur that China is doing a (somewhat mean-spirited authoritarian-type containment effort) to corral people that try to live lives barely normally. It is a bit hypocritical as they concurrently talk of everyone returning to work and so on. I'm afraid they can't have their cake and eat it too in this case.

Also, besides hearing from a couple of members here about continued or new exposure risks, I have heard both sides. Besides my personal doctor an old friend who's an (NYU-Penn trained) radiation oncologist believes it (the WuFlu as I've dubbed it) is overrated and not about to spread widely, as we discussed it at dinner Sunday evening.

Ironically he also had heard (and not from me) about a suspicious lack of journalistic investigation or implications or backdrop from the 'Chemistry Head' from Harvard having been arrested recently, by the FBI at Boston Logan Airport. That 'briefly' made the news, but no follow-up report. Such as noting that both a relationship existed with his '2 researchers' that then went back to China, following onto a lab linkage, as that Professor having 'personally' assisted China setting-up that bio lab .. in Wuhan.. several years ago, and apparently got paid a substantial sum to do so.  

There is or is not a linkage to the WuFlu, there is or is not conspiracy that might suggest China had a bioweapon and inadvertently unleashed upon itself; but there is no reason for the FBI arrest to be glossed over (unless it is the FBI pressing media not to report much to 'save face' for China). It wasn't 'fake news', as fake news media (right or left if you like) is failing to give us 'actual news' about this (as far as is known and the alternatives), of course with the adjudication of the Professor and so on pending.