Stock market: A retest of lows or..... highs?

The businesses that I'm involved with are all planning for an extremely painful downturn. CEOs forgoing salary, job cuts, halting all unnecessary spending, that sort of thing. It will be a W shaped recovery as the jubilation of being done with the virus yields to the pain of the large scale white collar job cuts currently being planned.

On the plus side, interest rates will also fall. We could see 30 year mortgages starting with a 2 by the end of the year.

There's a small part of me that wonders if the Fed is ignoring its usual worries about inflanationary pressures because it actually looks forward to them to allay deflation.

Fed and politicians would welcome a little inflation which typically results from increased utilization of resources and upward wage pressure as most likely it signals better economic growth and average worker making a little more money. And we will soon have 10 percent plus reported unemployment driven in large part by service industry workers.

And once the mortgage spreads come down, which will happen in a couple of months if you are putting 20-25 percent down with a good credit score (most Manhattan), we may indeed have 30y mortgage below 3 percent and 10/1 ARM in low 2 percent range.

Keith, I think retesting the lows is very small probability due to almost interest free money by Fed, asset purchases, significant fiscal support, and parts of economy which are suffering the most (service industry) not being a big part of SPX. While I am not usually good at forecasting stock market levels, I do feel that we are topping out till the time we find a reasonable cure.

March 20/23 (fri/mon) were pretty bad. The muni /bond/credit markets were literally collapsing. I thought that was the washout. Margin calls were hammering accounts who in turn started dumping safe collateral like AAA bonds and gold. Fed latter stepped in and put a net under
the credit mkts.

I dont know why some punds insist that was not bad enough. Instead looking for an even worse day as "new lows" will be tested. I dont agree. It may get wobbly but a bottom is in. Fed is in stim mode and their is more to come.
They will support credit markets with a literal blank ck. Unless fed pulls out, I doubt we will see the type of panic we saw those two days. As for now, I am staying long.

Agree

Agree

Knewbie, More and more people have changed the view - we may retest the bottom. Kostin being a notable one. Selective reopening plan is a big deal as for many states the opening is near. Germany and Spain have started to reopen selectively.

This disaster is not an event. There is no September 12th when normalcy begins to return. This virus is a long-running problem that may never be fully defeated, only controlled. The people who think the stock market, economy, real estate market, and life will bounce back will be sorely disappointed. Especially in NY, which is the most exposed city on the country due to density, poverty, and being a global travel hub.

People need to take the attitude of Admiral James Bond Stockdale during his 7 years as a POW in Vietnam. Stockdale beat his own face with a stool, slit his scalp, cut his wrists, all so that the Vietnamese couldn't display him publicly. He said who died in captivity and why:

"Oh, that's easy, the optimists. Oh, they were the ones who said, 'We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say, 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart."

"This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be."

There is an extraordinary amount of hope in global asset prices. The optimists will die first. Better to beat your own face, get out of bad deals, cut losses, and wait for events over which you have no control to resolve themselves. Then buy from the wreckage.

George, What do you expect to be the low range in spx in 2020?

I don't totally disagree with your assessment of the global economy George, it's been brought to its knees. However I don't think your analogy necessarily applies here. Science will lead us out of this, I trust in science, more so than I would my Vietcong captors.

So I'm optimistic that science opens the door that we can all walk through again. And then we can all get to work rebuilding what's been destroyed one brick at a time. And I say without any ego, I hope I'm right and you're wrong ; )

Keith
TBG

No idea. I don't even know if the low will be this year. In the spring of 2007, we wondered if subprime contagion would affect the broader housing market. In July 2007, leveraged credit markets faltered. Bear failed in March 2008, and Lehman not till Sept 2008. The equity bottom was March 2009. NYC real estate bottomed somewhere between 2009 and early 2013.

This is not a one-time event like 9/11. It is a series of shock waves that are rippling through the world in a way that has never been seen before. Some boats will ride the waves up and others will be sunk. The waves will ripple in unpredictable ways for years to come.

As someone who's essentially out of a job, I'm still glad I decided to go all cash, sleep index is good. Seems like an opportunistic time for a good trader, I'm not that guy. But I'm still taking a hard look at REITs, oil, travel, banks. The last few months I've been really studying REITs, trying to understand the risk relative to the incredible yields. Now I understand the risks...

We've had very limited activity with new business, but we do have three offers outstanding. 1 is completely new, the other two were active pre-Coronavirus.

As of yesterday we have two remote closings under our belt, now that's an adventure. Another one scheduled for Tuesday. At minimum it involves various FedEx's, notary public, Bank wires, FaceTime with attorney throughout the closing process. yesterday the closing agent met our client at The brownstone they purchased to finalize the deal. These clients were very excited and very grateful have gotten the closing done and get into their new home.

Keith
TBG

George, Your reminder of 2007-9 financial crisis is good one and I respect that. Critical difference with Covid crisis is that every thing has happened at 5-10 times the pace including the speed of market decline. Fed has acted at 5-10 times the speed and even 5 times in magnitude. How about we say that I lived through the financial crisis more closely that most other people. This crisis is very different in flavor. 80-90 percent comeback can be quick but we may not achieve full speed within 24 months even with a therapeutic and vaccine. In the meantime, Fed policies will keep on inflating asset prices. Keeping all that in mind, SPX does seem toppy in short term at 2875. 1 year from now perhaps will depend on elections more than Corona virus.

Goldman downgraded Apple to a sell on Friday stating that it could decline 20%. That doesn’t seem like good news for the market.
Berkshire has not bought the dip. Neither have I.

It seems that the present administration is attempting to wish the virus away by attempting to open the economy, which can only precipitate a second wave. We need aggressive testing.

I think wiser governors as in Gavin Newsom will figure out how to get testing to an adequate level (with better administration at local level, private and Federal help) in a 2-3 weeks and start phase 1 of re-opening. NY will take a little longer due to number of cases, population density and infections in orthodox religious communities. I remember the political propaganda / perhaps panic by Cuomo asking for 30-40k ventilators without any public release of data backing it. People who are scared can stay home.

Second wave is inevitable but we can only control the size of the wave. Eventually, corona virus will be just like Flu after vaccine discovery 12-18 months away and we may not be shaking hands.

The problem is that states can’t print money. We need Federal help.

Trump to City: Drop Dead.

I think states/cities will run out of money before they will be able to do enough. I don't even want to predict what will happen then.

DeBlasio recognizes $14 billion decrease in collections, which I think is a huge underestimate if tenants stop paying rent. His response is to cut spending by ?$2 billion?

I think second nova wave next fall will see another market decline.

30,

There is a $500bn lending program from Federal reserve which will avoid short term revenue issue.

For revenue, Cuomo, and NY residents will have to make peace with faster re-opening rather than criticizing Federal Govt reopening plan. Cuomo needs to focus on getting local administration issues with testing resolved and publish what exactly is needed from who (including Federal govt) at what location to ramp up testing rather than say Federal Govt should come do the testing while fighting with Trump.

And Schumer and Pelosi need to stand up for NY and get a clean bill to help states with grants (without environmental and other such items).

Didn't the lending program run out of cash in 5 minutes?

So the pandemic won't affect Wall St jobs?
https://therealdeal.com/2020/04/17/cantor-fitzgerald-to-lay-off-hundreds-of-staff/

Are you talking above SBA or Fed lending program to Local govt? Naturally this does not help revenue - just liquidity.

https://www.federalreserve.gov/monetarypolicy/muni.htm

Seems that layoffs are coming from their commercial real estate division. 12000 employees worldwide, laying off 100's.

I am guessing we are digressing from Stock Market discussion more and more.

There is no New Yorker that can make peace with Trump.
I am not going to risk my life so we can reopen sooner to please this dysfunctional.

P.S. Before Trump sees anyone, that person has to be tested.

https://www.barrons.com/articles/real-estate-company-compass-struggles-to-deliver-on-big-technology-promise-51587171194?mod=hp_DAY_1

Streetsmart, It is very sad that people do not realize that that re-opening is not to please any one. It is for people to make a living. Anyone who is too scared can continue to observe lock down.

streetsmart,
There's an entire thread on my forum asking "Is Compass the next WeWork?"

@300, the fact is that going back to work is to benefit the people who make money off of workers, corporate executives, business owners and stockholders, these corporate executives will be safe in their huge offices or huge homes.
I’ll go back to work when Trump starts seeing people who have not been tested., and starts showing up at his rallies with his wife and kids. I’ll go back to work when elected politicians and their staff go back to work. I’ll go back to work when the scientists and doctors who specialize in the field of pandemics say it is okay to go back to work, but certainly not listen to the fake doctors on Fox News. These scientists and doctors are all advocating widespread testing. The fact is going back to work too soon will be counterproductive.
What scares the rich and Trump, the GOP is that workers will come to realize just how much they are needed. This virus has laid bear the egregious inequalities in our society and many rich are nervous when they see numerous legitimate people advocating help for the people struggling and are out of work.
The fact is I can’t understand why so many people identify with the rich. I believe recently Keith B talked about how humanitarian it is to give people mortgage forbearance, something like that. What about all the so called forbearance that the rich keep getting. This egregious inequality is taking this country down. That’s why we are unable to roll up our sleeves and do the work required to beat this thing. That’s why there was such a belated response to the virus. We can’t cope. Our democracy is being dismantled, and it didn’t start with Trump..
I will not return to work and play Russian Roulette with my life, it is just as important as a rich person’s life.

streetsmart,
On the odd chance you haven't seen this yet I think you'll enjoy it.
https://www.rawstory.com/2020/04/who-cares-let-em-get-wiped-out-stunning-cnbc-anchor-venture-capitalist-says-let-hedge-funds-fail-and-save-main-street/

Streetsmart, What happens to service industry or construction worker who were being paid in cash? Or a real estate agent who was making 50k per year. Rich are the one who have no need to reopen quickly as they have enough money.

And most of these are not in the country illegally. Then there is the question of how cities and states will pay their bills? As I said my previous post, individuals are free to observe lock-down as long as they like or retire to Montana or a farm.

@300_mercer, you are arguing a binary of "rich" and "poor." But I suspect most of the people on this board are in that middle layer that Barbara Ehrenreich would call PMC -- the "professional-managerial class" -- whose status derives strongly from their education. As income inequality ramps up, it's a question whether the PMC will identify with the rich (since people in the PMC generally amass some capital, and we're in a, umm, rather pro-capitalist phase) or with the workers (since people in the PMC are generally finding that even whatever capital they amass doesn't give them as much power over their working conditions as they would like.)

To @streetsmart's point, I think that one of the outcomes of this pandemic is that doctors, who may formerly have identified with the rich ("hey, we have steady jobs, good incomes and second homes") now feel that are at the mercy of capitalist masters ("we're in the middle of the biggest health-care emergency of our working lives; why are we dealing with salary cuts and begging for adequate PPE?"). Since I'm in NY, most of the doctors I know were Democrats already, but I'll be curious to see if doctors in red states start to shift politically.

ali r.

Ali, Doctors in NYC I know already are mostly democrats. The talk of salary cuts for medical professionals is a shame. I would think they should get hazard pay if they were working in hospitals. Personally I am in favor of people working and Earned Income Credit but very much against expanding welfare.

As we know from most of previous election results, it is a close race between democrats and republicans. There are crazies on both sides. Presidential candidate is what matters the most.

Linking it to topic of the thread, if Biden comes out of hiding without making any senile comments, picks a good centrist VP candidate, you can see SPX starting to down as corporate taxes will certainly go up perhaps in a tiered manner and hopefully SALT deduction will increase.

And perhaps there will be a talk of one time corona virus tax on companies with percentage depending on the average market cap over a period of time. Say 2 percent one time for market cap >$100bn.

@30, the rich never have enough money.
And as mentioned the huge corporations that they are a part of need workers.

I think there could be a big fear among the Republicans that one of the effects of Covid-19 could be a populist type of revolt. Could be why they are desperate to open the economy.

@30yrs
Thanks for the article

Fun juxtaposition of a year ago vs now:

- April 17, 2019. SPX at 2900. Unemployment at 3.6%, the lowest in a lifetime. Nothing but blue skies ahead.

- April 17, 2020. SPX at 2875. Unemployment (forecast) at 20%, the highest in a lifetime, and likely rising. No one can say what (economic) life will look like next month, much less next year.

Nada, I tend to agree with you and do believe we are due for a pull back if not a major one.

What do you think of say top 10 tech (AMZN included) companies which on an average are close to all time high as people are thinking that they are feasting on small business decline and stay at home?

BTW this is who (to some extent at least) is in charge of saving homeowners:
https://www.vanityfair.com/news/2017/01/foreclosure-king-steven-mnuchin

@nada in spite of the obvious comparison you point to. Do you see a scenario in which the s&p 500 gets to 3500 fueled by QE to infinity?

Re article 30 posted, Chamath is the bomb. For anyone who has never heard of him, read his back story. My favorite part of where he is now is that he is part of the Warriors owner consortium. What I love about the Silicon Valley crowd is that their Galt’s Gulch despises Ayn Rand. Really interesting. I am a progressive, but am still drawn to Atlas Shrugged.

I suppose AMZN is an exception given the nature of the situation and how it’ll acquire long-term customers through this. For AAPL, say, you would think the economic consequences will ripple through.

Keith, I dare not speculate on the possibilities of where things might go on what perceived justification. Mostly, I find the juxtaposition interesting & wonder about the underlying reasons.

Nada, Looks like Mr Market was reading your comment.

We used to joke when I worked at a big firm, Keith is buying, sell!!!!!!

Read some pretty discouraging reports on antibody testing. including a note on them that a friend of a friend who is a MD at a big pharmaceutical company put out. I thought these were foolproof, doesn't seem to be the case especially with the point-of-care tests.

If we're going to have a pullback (and I think we will), then big tech will be included in it -- if discretionary spending drops by 15%, then the part of AMZN's revenue that comes from discretionary spending will be hit. Uber and Lyft are really stuck right now (even w/ Uber Eats), and if 15% fewer people are taking cars around, then we can expect to see them struggle going forward. Online grocery and food ordering is big business just now but if the full cost of delivery were built into the service charges (how about paid sick leave and healthcare for the people doing all that delivery?), you'd find people masking up and going to their local grocery and bodega. Google sells ads -- if there are fewer companies placing fewer ads, their bottom line will be hit as well. I'm ready for at least 2 quarters of significantly lower earnings estimates from everybody -- I expect dividend cuts are coming soon.

Wonder if those earnings estimates that analyst put out will over-reach on the low end? And we wind up seeing companies beating? Perhaps this is a naive amateurish presumption.

Keith
TBG

I think Cuomo is happy to coordinate administration of tests, what he is saying is we don't have the capacity right now, especially for antibodies. Lots of crappy tests coming out that are not accurate. The Elisa test is the gold standard per NY Times and has been around since at least the mid 1980's, when I took it to check for HIV. I think Trump is afraid of accurate statistics on this subject. Yesterday he was making fun of testing. We're in pathological territory with him at this juncture.

With NYC and NYS tax rolls about to be decimated for what's likely to be several years, there is only one direction for income and property taxes, and that is up.

Articles are just trickling out on the effects of the shutdowns on state and local budgets. NYC is the epicenter not only of the health crisi, but it will be the epicenter of the budgetary crisis as well.

Higher taxes. School cutbacks. Police cutbacks. MTA cutbacks.

This is only just being discussed, and will be devastating for NYC real estate.

The problem with antibody testing is not its accuracy. The problem is that no one knows whether they can even determine who is immune to the disease: “Right now, we have no evidence that the use of a serologic test can show that an individual is immune or is protected from reinfection,” the WHO’s Maria Van Kerkhove said at a briefing last week. And there are already reports from South Korea that 163 recovered patients are testing positive again for COVID-19.

On the positive side, there's strong evidence starting to emerge that the true mortality rate of this disease is a lot lower than initially estimated, which might make it easier to restart the economy. Given all of these developments, it should be a bit of a wild ride for the market for at least the near future.

I agree but knowing if you have some antibodies is a small step in the right direction, especially for young non obese people.

There are now at least 30 strains of this virus. It could wind up being like the flu in the sense that it mutates regularly, so you can be continually reinfected with a new and different strain even if you have immunity to the other strains. They can try to make vaccines, but remember that the regular flu vaccine doesn't work all the time, since scientists have to guess which strain will be prevalent each year, and it requires one chicken egg to grow each dose, so it's a slow process.

Some big companies are now discussing keeping their NYC offices close the rest of the year and telling staff to make appropriate arrangements. With the sole exception of the equity markets, the data just keep getting worse.

*closed. My pet peeve is when people confuse "close" and "closed".

George: Yep, which is why all of the recent chatter about testing seems to miss the point. It's potentially giving people false hope that everything can go back to normal soon. There's still so much we don't know about the disease that it's hard to predict anything at this point.

People who have read about testing know that if it is done as advised by the experts it doesn’t give false hopes that everything will get back to normal.

What it will do is help us better understand the pandemic, identify infected individuals, enabling isolation of those infected, and tracing their contacts. Testing gives the data that is necessary to know how to respond to the disease.
This is absolutely the first necessary step.

Testing is only partially useful and is no panacea. Active virus tests can be used on random samples to determine problematic hot spots, for breakout management. Active virus tests can be used to identify individuals who must quarantine. And they can be used along with contact tracing for spread minimization. Antibody testing can be used on random populations to determine infection density and, therefore, herd immunity within certain populations (though there's still uncertainty regarding immunity characteristics).

Active virus tests are not a "gateway" tool to identify healthy individuals for purposes of returning to work, since they could get infected the next day theoretically. For testing to be a gateway tool, we would need to be testing individuals at frequent, regular intervals, which is far beyond our testing capacity in the near term. Antibody tests may be useful in this regard, but too little is known about immunity.

The best statistics for determining whether to open a local economy are likely:

1. Sampling of local population to estimate what % has or had the virus (virus saturation)
2. Hospital capacity utilization

The higher the virus saturation and the lower the hospital cap utilization, the better argument for loosening restrictions. Other things to minimize ICU hospitalization would help - making sure households have thermometers and pulse oximeters to stay ahead of severe ARDS.

Here's a great piece by dr. Levitan, yes that Levitan...
Discusses the importance of blood oxygen monitoring as mentioned above.

https://www.nytimes.com/2020/04/20/opinion/coronavirus-testing-pneumonia.html

Keith
TBG

I prefer to get my COVID-19 advice from doctors who haven't been locked out of Coops.

Thanks to Fritz Frigan for bringing this article to my attention. Very interesting/important observations.