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Circuit breaker limits today

Level 1 – S&P must fall 7% – 173.64 pts

Level 2 – S&P must fall 13% – 322.48 pts

Level 3 – S&P must fall 20% –496.13 pts.

And the beating continues. Stocks got absolutely smashed as the Dow, S&P, Nasdaq and Russell careened out of control, triggering for the second time in one week – the Level 1 trading halt – a loss of 7% in the S&P. That got triggered at 9:35:50, 1 min and 35 seconds longer than the halt that was hit on Monday – at 9:34:15. On Monday – it was all about the oil price war between the Saudis and the Russians, a war that that saw the price of oil collapse by 33% or $14/barrel – trading as low as $27.34 – before finally settling at $31.13. It has since rallied back to $35 and then again today took a nosedive along with nearly everything else ending the day at $31.50/barrel, a level that is sure to spark a wave of defaults in the high-yield space in the coming weeks, giving investors/traders and algos just one more thing to consider as they try to assign a proper valuation to the markets.

Yesterday, it was all about what Trump apparently didn’t say or didn’t do during the speech he gave on Wednesday evening. What the market wanted to hear was how big of a “bailout” was there going to be?  And which industries would be the beneficiaries, and that is exactly what they did not hear. Instead, they heard about suspended flights from Europe to the US and financial relief for workers who are ill or quarantined but it wanted more and it didn’t get it. And so – the temper tantrum began. It started overnight with US futures trading “limit down” (Limit down is a move lower of 5% in the futures pricing). Once that happens – futures essentially stop trading and therefore don’t really give you a sense of what the broader market will do when the opening bell rings. But the Dow ETF (DIA) and the S&P ETF (QQQ) are the barometers that then guide the move and both of those ETF’s suggested that a 7% move was only minutes away (and to confirm the weakness. We saw all of the European markets down MORE than 8% as our opening bell rang – suggesting we were about to get slammed). So it happened, the bell rang – the market came under immediate pressure. The Dow piercing a loss of 7% within the first minute, while the S&P teased and then breached the 7% level five and a half minutes into the session – causing the first (and only) trading halt of the day, which stopped the action for 15 minutes to give everyone a chance to breathe before resuming. Then the selling continued.

In addition – the NBA, the NHL, the MLB, Broadway, March Madness, museums, the CME, the Pentagon, gatherings of more than 500 people, colleges and universities, etc. all being suspended/closed for at least two weeks. In addition, Governors around the country are declaring states of emergency. Where – by now – it is assumed that the virus is present in all 50 states – and while there are 1600 currently confirmed US cases – that is expected to surge once testing begins. Guesses range anywhere from 10,000 to 100,000 new cases. Public schools and senior activity centers are also on the list of places to close as the hysteria builds.

By 11:45 – the indexes were all down nearly 10% as the selling remained unabated. Then the FED came out and announced a $1.5 trillion safety to “counter signs of dysfunction” as the fear continues to spread. The safety net includes billions of dollars of temporary loans as well as the purchase of a broad array of government securities. This then saw the market surge – taking back half of the losses before stalling out. Then Christine Legarde – President of the ECB (European Central Bank) refused to cut rates further into negative territory (they are currently negative 0.5%) but did offer some support while telling Europe that it was NOT her responsibility to protect the individual Eurozone countries but rather it was theirs saying:

“We are not here to close bond spreads, there are other tools and other actors to deal with these issues.  An ambitious and coordinated fiscal stance is now needed in view of the weakened outlook and to safeguard against further materialization of downside risks.”

This is a striking blow to Mario Draghi’s “the ECB will do whatever it takes…” now famous statement made during the height of the GFC (Great Financial Crisis). And the markets began to plunge again. By the end of the day – the devastation was clear – The Dow lost 2,352 pts or 9.99%, the S&P gave up 260 pts or 9.5%, the Nasdaq lost 750 pts or 9.4% and the Russell lost 141 pts or a stunning 11.4%.

It took just 16 trading days for the world to change.

The Dow is now down 28% from its highs only three weeks ago. The S&P is off 25% and the Nasdaq is lower by 26%, all approaching levels that many Wall St. analysts suggest should be the bottom, but are unwilling to put a stake in the ground. Why? Because of the lack of clarity on a number of issues – the virus, the new oil war, the global macro economy, global monetary policy, fiscal policy, elections etc. In fact, I will go out on a limb here and toss in the idea that this is a direct result of ALL of the Kool Aid that has been fed to the markets for more than 12 years. I mean, we’ve all said it – at what point would the central banks allow policy to normalize versus the continued artificial accommodation that has fueled the markets? How long can we have near zero and in some parts of the world ongoing negative rates?  Because look what has happened after 12 years of the Kool Aid. The Asian and European economies continue to struggle after trillions of dollars of support while the US market continues to scream for more. When it doesn’t get exactly what it wants, what happens? It plunges – because that is not enough. It is like a drug addict – at some point one hit, then three hits, then five hits do nothing. And the unwind takes on a new meaning, as the technology allows for “efficiency” in pricing!

Sophisticated and complex ETFs continue to add to the pressure – as the market sells off. Illiquid ETFs that use complex strategies to try and create yield are now imploding, leveraged ETFs only adding fuel to this fire as the leverage cuts both ways, but always cuts deeper on the way down. With one touch of the sell button – the market gets sprayed with sell orders indiscriminately – bids get cancelled leaving massive voids in pricing, causing the indexes to spiral out of control. Good names, good companies getting caught up in the drama – get unduly punished. The average investor gets beaten and bloodied because we are all in playing in the same sandbox, unable to control the outcomes. Behavior that is driven by computers/mathematical models/algorithms that scrape headlines trying to interpret the meaning of the story become completely disconnected to reality. And the pendulum swings.

Overreaction or not?

I mean think about it – does anyone else think this is an overreaction at all? There are a total of 130 thousand cases across the GLOBE – not 130 million. Yes – 4700 people are dead (most in the elderly demographic or immune compromised demographic – the same demographic that gets killed by the flu ever year) – not 47 million. While this IS unnerving – is this really the reason for this violent vicious selloff? Or was this – along with the oil war – the reason the market was looking for to correct? Come on – tell the truth.

This morning we are seeing US futures surge. In fact they were down 700 pts overnight but have rallied back by 1500 pts – leaving them up nearly 800 pts, the S&P up 90 pts and the Nasdaq is ahead by 270 pts. Word that DC is close to making a deal with the WH over support for those affected is causing the algos to shift into buy mode. In another bold call – GS tells us that we should expect the FED to cut rates by 100 bps or 1 full percent which will take US rates to ZERO next week at the meeting. LOOK! This is not a FED problem, this needs a fiscal response and it needs a healthcare response. And while the economy may take a hit in the first quarter we are not in a recession, which is defined by two consecutive quarters of negative growth. We are nowhere near that. And while the first quarter may be negative – as this crisis settles down – as it is doing in Asia – then things should return to normal and growth should rebound.

European markets are in rally mode as well after their historic plunge yesterday with all indexes ahead by 3+%. Italy – which closed off by 17% yesterday alone – is up nearly 7% in a stunning rebound as cooler heads seems to be prevailing. The UK is now jumping in and estimating that they may have nearly 10k people infected as the CEO of BT is just one of them. The EU has delayed this year’s stress tests on the banks and eased capital rules in order to encourage lenders to continue to lend to help the Eurozone as they deal with this pandemic fallout.

As of 6 am – the FTSE +4.13%, CAC 40 +3.57%, DAX +3.21%, EUROSTOXX +3.87%, SPAIN +5.2% and ITALY +7.15%.

The technology will continue to send the markets lower then higher then lower again until the panic subsides. If you are invested now and have a long term view – do not sell here, because once this is over – the snapback will be just as quick. If you have money to invest – you can sit back and be patient – but make a shopping list. Again take a look at what you own and take a look at where they are trading. Does it make sense to add here or does it feel like you can wait? Sticking to the long term plan and NOT panicking is always the best option.

Oil is up nearly 5% this morning in a bounce back trading at $33.08 and while the Saudis and the Russians are still not talking – the move lower just feels a bit overdone. That being said – until they do come to the table to talk do not expect oil to rally much from here. And if it doesn’t – then expect more fallout (defaults) in the High Yield space and that will create another set of issues. But let’s just see how that plays out.

The S&P closed at 2480 well below the September 2018 support at 2765 and looking like it wants to test the December low of 2350 (at some point). Today’s bounce may also be short-lived, because as the US infections spike and deaths begin to increase – we can expect more volatility. But there is some good news on the horizon, the private sector is working hard to come up with anti-virals and a vaccine, and that is a positive.

Take good care.


corn brulee

Pan Seared/Oven Roasted Veal Chops

This dish is not difficult at all – do not be put off… the end result is delicious. Professional cooks use this technique all the time… and for good reason…it’s great. If you are unfamiliar – this is really a two-step process – first you pan sear the meat, then you transfer to a very high temp oven to complete the process. The searing allows for the meat to cook faster (thus reducing time spent preparing) and it creates a beautiful caramelized crust on whatever it is you are pan roasting… read on…

You will need: thick cut veal chops on the bone, butter, shallot, leeks, beef stock, s&p, olive oil, fresh thyme…

***Preheat oven to 450 degrees. This is important so that the oven is ready to receive the chops once you have pan roasted them.

Remove the chops from fridge and let come up to room temp. Rinse and then pat dry with a paper towel. Season with s&p, set aside.

Prepare the leeks – by washing/rinsing very thoroughly… Leeks grow in sandy soil – FYI – and as a result – the soil gets trapped in the stalk… so – trim off the bottom – separate the stalks and rinse well. Now chop the stalks. Peel and chop the shallot.

Next in a heavy bottom pan – heat the about ¼ stick of butter on simmer/med low heat… **very important** you do not want to burn the butter – add the leeks and the shallot… cook on this low heat for about 15 mins… this is called sweating. You do not want any color – you just want them to be soft and translucent. (The process of “sweating” is used when you put some diced vegetables into a pan with a little oil and begin to cook them on a low heat. This causes the moisture to rise to the surface making the vegetables look like they are sweating. You may think that this is the same as sautéing… it is not.  Sweating is done on a low heat while sautéing is done on a med/med high heat. Sweating is usually the first of a few steps while sautéing is usually the final step in the process.) Capisce?

Now – add about ¾ cup or so of beef stock and turn up the heat to medium. Simmer for about 5 mins… then cover, turn off heat and set aside. The mixture should not very liquid-y – it should be moist and thick…

In an oven proof pan sauté pan – heat the oil on med hi until you see it glisten… add seasoned veal chop and brown on all sides… Once browned and caramelized – put the oven proof pan in the oven and continue cooking for about 8 / 10 mins… depending on how you like your chop.  

Next add about 1 tsp of fresh thyme to the shallot and leeks – season with s&p and heat. For the presentation – spoon out some of the mixture in the center of a warmed plate and place the veal chop directly on top. You can complement this dish with your favorite green vegetable – asparagus, or broccollini and a large mixed salad.

Buon Appetito.