This Evening’s Log Entry

Here are my notes to self, and to you, this evening:

Note: To the extent that I express my short-term outlook on markets, a sector or a commodity in my log entries, these are not to be the least bit construed as trade recommendations for the reader. They are, under present conditions in particular, subject to change without notice. What might appear to the reader as a viable trade idea today, could be something I’ll do an about face on — as new information presents itself — tomorrow, with no prior warning. I share excerpts from my notes only when I deem them useful in terms of helping our clients maintain proper perspective.


After hours:

Stocks rallied again today (S&P up 1.2%) on the certainty of the passing of a $2 trillion fiscal stimulus bill. Industrials led the way, up 5.3% (largely on a huge move in Boeing, due the certainty of it receiving billions in aid), followed by energy, reits and utilities.

Gold sold off to the tune of 1.4%, while silver rallied 1.7%. Treasuries (tlt) fell 0.23%. The dollar was down again today, -0.94%. Junk bonds had another good day…

As I type, 7:14pm, S&P futures are trading lower by 1.4%. While the stimulus bill was held up in the 11th hour by B. Sanders (which saw the S&P give back 2% of its intraday gain toward the close), it appears as though all is now good, and that the bill will be signed tomorrow. The fact that the text was released this evening and that futures are off is not a good sign for equities in the near-term.

Quarterly rebalancing is on everyone’s radar; I’m thinking it could be something, given how far stocks have sold off. That said, the coming data will start reflecting COVID-19 in the US, which could be enough to have sellers overwhelming rebalancing buyers. Tomorrow’s jobless claims number is bound to be historically ugly…

In terms of what ultimately the largest stimulus measures ever brought to bear means in the grander scheme of things; $2 trillion, plus the multiple trillions the Fed is pouring in, sounds huge, but we have to consider it within the context of $14 trillion of dollar denominated debt outside the U.S. ($25 trillion when you add in off-balance sheet numbers), unfunded liabilities into the future to the tune of another $100 trillion (i.e., phenomenally huge demand for dollars), and, considering that Goldman and Morgan Stanley predict a hit to Q2 GDP as high as -30%, well, suffice to say that — along with the now wide-open swap lines — there’ll be more stimulus measures coming in the months ahead.

We need to also consider the prospects for, albeit temporary, inflation at the utterly worst possible time: As consumers will be given the cash they need to purchase essential goods — which are precisely what they’ll be purchasing — while the production/supply chains of/for those goods may be hamstrung by the dynamics around the virus itself. I.e., the demand, and the dollars, for essential goods is rising against production capacity possibly falling, potentially leading to the prices of essential goods rising…

In terms of corporate debt, which has been our chief concern: We’re now in a virtually (for too many companies) zero cash flow situation. And while the Fed is stepping in as the investor of last resort for all things investment grade, the huge stressors lie in the junk arena, which was beginning to crack even before the virus outbreak hit. So while spreads have tamed a bit, but are still scarily wide, and indicators such as BIZD have rebounded the past couple of days, we remain very deep in the woods during what is the makings of a devastating forest fire.


In a nutshell, we are in the very early stages of what will be an historically challenging time for the global economy and for global financial markets as well.

This morning we took the opportunity this week’s rally presented to cut our equity exposure a bit, while raising our cash exposure…

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