Summary

• We should not be surprised at the stunning market decline that we have seen in the past two weeks.
• Market seers, Jeffrey Gundlach and the president, are pointing toward Senator Sander’s primary and caucus success as the reason for market skittishness.
• I say “give me a break!”
• The president‘s press conference on COVID19 may have provided a crescendo to the panic.
• Things are feeling very bottomly (newly created Bill Kort word)

I find my self incredulous

(comments on the “Bern” and press conference to follow below)

I find myself incredulous about the severity of the declines the past three days. I really shouldn’t be. The S&P had a terrific run last year … S&P 500 total return 31.48%. It is the damage being done on second and third tier stocks (small cap and value) that is stunning. This has been breathtaking. Essentially, the second and third tier stocks really did not participate in the bounteous market returns of 2019. Oh well, according to that old Wall Street adage, “when they raid the brothel, they even arrest the piano player.” Other versions of this saying end, ‘they take the good(?) girls too.’ Pray for all those piano players and good girls out there.

Although it does not take much to set off one of these precipitous(?) declines off (S&P-6.1%, DJII-10.96% year-to-date), COVID-19 seems to me to be a mole hill that has been built into a Mt. Everest by a 24/7 media complex hungry for any type of bad news that it can use to attract eyeballs and ears. It is a really bad flu and it is really contagious. This flu season in the United States the CDC estimates 29 to 40 million of our citizenry have had the flu with as many as 16,000 deaths (the CDC low-end of estimate of mortality = .0055%). COVID-2019 is more deadly (2% mortality) but right now (if we can trust the Chinese numbers) there have been only about 85,000 cases reported worldwide. The epidemic seems to be leveling off in the second largest economy in the world and people in some sections of the China are returning to work. For those of you with short memories the virus was supposed to cause huge disruption in China. It has but, at the moment, this hardly looks like an economic catastrophe.

Now the market’s focus turns to the rest of the world including clusters of disease in Korea, Iran and Italy and fear of a pandemic a la the Spanish Influenza (1918 – 1919) These are being stoked by statements out of our own CDC (we should prepare for the pandemic) and every Tom, Dick and Harry expert the media can fish up. I might point out that we are much better prepared to handle a COVID-19 epidemic today than in 1918 because of considerable advances in treatment and detection, as well as the blessing/curse of almost instantaneous worldwide communications.

If you are interested in keeping tabs on COVID-19, here is an interesting website: worldometers.info. The numbers present herein give real perspective.

Blame it on the “Bern”?

I never cease to be amazed at the crap that emanates from the mouth of the “Bond King” Jeffrey Gundlach. What’s even worse is that CNBC even gives airtime to this guy who’s predictive credentials are worse than Punxutawney Phil. At least Phil is right once in a while. “Gundlach blames Bernie Sanders for sell-off, ….” Yup, it’s all about Sander’s rise in the national polls. He’s a scary guy if you are a capitalist, rich and are of the opinion that if he attains the White House all of his campaign promises will be kept. On top of that he is a Socialist, even worse a Democratic Socialist!

I am certain if Mr. Sanders continues to build his delegate count the Gundlach gambit will become a popular cause on the pundit trail, a great reason why the market should collapse. Let me share a few thoughts to calm your jangled nerves.

1) The United States already is a social democracy, maybe not like the Scandinavian countries, but with programs like Social Security and Medicare we are already deep in that philosophy. The problem is most people don’t get this construct. However, millions (including me) love the programs and would never want to see them ended.

They do need to be shored up but that is a discussion for another day.

2) Although the “Bern” is the current frontrunner, his frontrunner status can change. His current delegate count is 43 with the combined total of his opponents at 54. As we go through the primary season these totals will change, possibly to the detriment of Bernie. A lot depends on where those delegates land who are freed up by candidates dropping out of the race. His nomination is by no means a fait accompli.

3) Finally, if Senator Sanders should get the nomination it will probably help Republican incumbents as they may gain more support as a check on the potential of a Democratic (Socialist) president. This would be akin to the anti-trump backlash seen in the 2018 midterm elections.

The president came to the same conclusion in his coronavirus press conference but he did not name names. He just stated that he felt most of the recent sharp declines in the market were caused by fears that a Democrat would take the White House, not a COVID-2019 pandemic. I guess these two great minds (Gundlach and the president) think alike.

The dreaded press conference (2/26/2020)

I say ‘dreaded’ because there is nothing that inspires confidence like Donald J. Trump getting in front of the microphones and cameras and espousing his view on any subject … generally subjects that he knows little or nothing about. I prayed he would cancel but he didn’t. As usual he made a bunch of claims about COVID-19 that were not born out by fact or the infectious disease experts that spoke afterword. They contradicted everything he said. He then appointed infectious disease pro, Mike Pence, COVID Czar, and Pence promptly made himself the clearing house for all government comment about the virus and its spread, effectively muzzling the pros. This really inspires confidence!

The market in a show of confidence promptly shaved off another 2200 Dow points at its nadir on Friday before closing the week at 25,409.36, down 1541 points post press conference (down 3583 points on the week). This speaks volumes about the “black swan” event that a potential real crisis (not crisis of his own making a la the trade war) could create a crisis where lack of expertise (political appointees in jobs that they are not qualified for) and lack of real (believable) leadership at the top blows up into a total crisis of confidence.

Bottom Line: whether it is the “Bern,” the “Dems,” COVID-19 (approx. 85,000 cases so far) or plain old irrational fear, the press conference and the ensuing market collapse may have marked the worst of this correction. Although I hate to try to predict the unpredictable, the panic we have experienced seems bottom-worthy based on the actual facts apparent as of this post.

What do you think?