E Market Briefing For Sunday, Jan. 27

Preface: I delayed this Daily, wanting to see progression, in efforts to contain the virus, even though I doubted we'd see any signs of that. President Xi described China as being in a 'very grave situation', and has restricted travel on Sunday even more; and that includes intercity movement from Beijing too.

Meanwhile the United States and Russia are chartering planes to fly their diplomats and personnel out; and there is no visibility regarding the severity or duration of this crisis. Of course I don't wish to be alarmist, just realistic and circumspect about this; or the extent to which it impacts markets, beyond already expected time for S&P's corrective phase.

So for sure, the market cannot be the top priority; but it's our area of focus; and we will. I believe it's essential because as the coronavirus spreads through Asia, not just China; it will affect the speed of recovery (can even derail it for now); the excessive price run-ups in certain groups, especially big-cap technology stocks that garnered the lions-share of investments by funds; and aside the alarm it causes, might even setback the Olympics, scheduled for Tokyo this Summer; unless this 'alarm' is met sufficiently quickly to quell the spread of the epidemic, and stop it short of being a pandemic.

This is clear uncertainty, and the market abhors uncertainty. So discretion will remain the better part of valor, irrespective of minor rebounds, and well, let's dig into this. Apologies as I'm certainly no doctor or epidemiologist, but I'll try to assess the core issues a bit, as I appreciate input from members (especially in Asia or recently there) who updated a bit of what's not widely report about the gravity of the situation.

Global pandemic fears - literally have the world holding its breath, while markets hold their breadth (slightly negatively on-balance). We've warned of what I termed a 'China Syndrome' virus for some time now, as likely expediting the S&P's pullback behavior looked for in this time-frame; and clearly the exponential growth of the epidemic gets full attention. For now it matters more than earnings, Impeachment or much else.

I'll touch on stocks of course; but we must recognize this may be what we termed a few days ago as a 'Black Swan' (exogenous event) of concern, beyond a technical 'check-back' for an overly-expensive S&P (many other stocks remain suppressed and are not so exposed as multinationals).  

For now let's go with 'WuFlu' to describe the flu, given origins in Wuhan, as you know. I'd rather not use China Syndrome; although sadly the virus will likely be at that epidemiological level within days, if not checked in an impossibly swift way. It was first identified about 3 weeks ago and China's response, while incredible 'now', was insufficient early-on. That's danger; and they know it. Dr. Read of Lancaster University in the UK provides at least an idea of how this could (but hopefully not) progress over time.  

On Friday a Doctor from John Hopkins made TV rounds in the US and of course that triggered more alarm (he had recent done a test). While we'd not question the multiplying factors; some of those are algorithmic-based, as was the SARS outbreak; and as you know the outcome was milder (of course for those not affected) on a 'global scale'. But we don't know that, yet; so we have to contemplate both optimal and theoretical progression as opposed to presumptions that it goes out of control globally; which it may well. Hence the fairly wide range of potential cases, and responses by authorities, as well as by markets; and certainly human behavior.  

So presuming historically (and hysterically) we are still in the early days of this outbreak; there is much uncertainty in both the outbreak's scale

as well as key epidemiological information regarding transmission. So for sure hope and efforts to deny Europe and the America's having to deal with anything approaching the scale of which China must contend with. At the same time as of now there are a few cases in France, Malaysia, UK and Australia; plus several suspicious beyond generally reported.  

However, the rapidity of the growth of cases (and reports of overwhelmed medical staffs, with videos of hospitals being suppressed or deleted from posts) since formal recognition of the outbreak, is much greater than that observed in outbreaks of either SARS or MERS, according to experts in the field. This is consistent with higher estimates of reproductive numbers for this outbreak compared to other emergent coronaviruses; hence we'll share the data that has been seen; not to be alarmist, but to confront it.

Bits & Bytes: reflects on a bifurcated market, with big-cap leaders mostly holding the Indexes at high levels, while investors exercise a modicum of caution pending not just ascertainment of the epidemic's extent, but also a corrective period we've identified 'anyway'; ideally within context of the overall uptrend (context is in-doubt 'if' the epidemic becomes pandemic).  

So let's just touch on a couple fairly normal issues this weekend; then I'll have some candid observations as well as the 'technical' range of risks.

One is AT&T (T) The technical pattern has been excellent, and bordering on a breakout to highs higher than seen in modern times. While traditionally it is perceived as a dividend play (and that's fine and welcome); clearly a view we've offered since recommending it over a year ago in the high 20s to 30 area; was for a 'total return' including capital appreciation based on being not just able to service huge debt incurred from the Time Warner or (mistake) DirecTV acquisitions; but the possible increase in multiple as or if it becomes perceived as a modern streaming integrated player too. We see it doing that; and also leveraging the power of its wireless network.

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