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Circuit breaker limits today

Level 1 – S&P must fall 7% – 167.86 pts

Level 2 – S&P must fall 13% – 311.75 pts

Level 3 – S&P must fall 20% –479.62 pts.

Stocks CRASHED again yesterday – as the selling from around the world continued – as markets came under pressure the selling became more pronounced sending the markets lower by 6% as the opening bell rang and then hedge fund manager – Billy Ackman taking to twitter and CNBC did nothing but create more panic as he rattled on about his assessment of the devastation that is about to hit the US. Saying that “Hell is coming,” spending nearly 27 minutes spewing fear, angst and havoc on investors and the markets, demanding that the President give the country a “Spring Break.” He demanded that the entire country go on vacation for 30 days otherwise the outlook was grim – detailing how each industry was about to go bankrupt and how the Private Equity would be next. All while telling the audience – in between the rants – that he’s a buyer. (Do you see what’s going on here?)

I mean you had to hear this guy – going on and on – crying at times that he didn’t want to “be responsible for killing daddy.” I mean it was almost surreal. The market at the time was off by about 5.5% – and when he started his rampage – you could see how the algos reacted. As he spewed complete irrationality the market became unglued and traded down to the magic 7% loss – triggering the first trading halt of the day. Reaction to this interview was swift – many calling him out for being histrionic and hysterical – suggesting that he was talking his own book and using the platform for his own benefit while others apparently chimed in sounding their own alarm bells in support of his assessment. And while everyone is entitled to form their own opinion and assessments – this was completely off the rails.

Another famed successful investor Bill Miller – taking the complete opposite approach – being methodical, reasonable and focused as he detailed the opportunities that are being created. Opportunities reminiscent of 1973/1974, 1982, 1987, and 2008/2009 opportunities that created massive amounts of wealth. And in his opinion – today is presenting itself the same way. Now make note – these opportunities are not specific “moments in time” but rather trends in time yet even all of his thoughtful analysis and presentation did little to stop the bleed. Because Ackman’s hysteria plays so much into the current conversation – into the hysteria that is becoming our new normal. Even reasonable people were unable to process – or should I say – the algos were unable to process. I mean if you were watching the drama unfold it was almost unbelievable.

Stocks, oil, gold, treasuries, etc. are ALL going further into RISK OFF mode as the algos unleashed punishing rounds of sell orders… sending all the markets lower –  and in the case of treasuries it sends yields higher!  And this now is another canary in the coal mine – because now you ask – how can rates go up when the FED and every other central bank have cut rates to zero or lower?  Simple – as the gov’t issues NEW debt – the supply of this new debt coupled with the existing debt increases SUPPLY of debt offerings… so when supply goes up – what happens to price?  Price typically goes down – and in this case prices will go down if investors shun treasuries and go to CASH.  And that my friends will force interest rates to go up – creating the next conundrum for the central banks.  Can you say Quantitative Easing (QE)?

But the question is – can we stop it? Can we stop the illogical behavior of the artificial intelligence that drives the algos that control the US capital markets? Can we? Most likely not – we allowed that Jeannie to come out of the bottle and putting her back in – ain’t happening.

Investors around the world sold nearly everything that they could – no longer looking for the safety trade as the rush for cash is key right now. By the end of the day – the losses were once again heavy. The Dow lost 1,338 pts or 6.4%, the S&P lost 131 pts or 5.1%, the Nasdaq fell by 344 pts or 4.7% and the Russell gave up 115 pts or 10.4%. As of the bell yesterday the total devastation so far – in less than 1 month – has been earth shattering. The Dow losing 36%, the S&P off by 30%, the Nasdaq -32% and the Russell is off by 42%.

And no matter what financial assistance is offered – whether it’s the FED, the ECB, the BoE, the BoJ etc. or whether its fiscal support coming from the different governments – the markets are not paying attention at all because they are caught up in the hysteria. I mean overnight – British actor Idris Elba announced that the tested positive for Coronavirus – and the media immediately praises him for being “courageous.” Huh? What exactly is courageous about this? Is coronavirus something to be ashamed of?  If you get it are you going to die within 48 hours? I mean I don’t understand the mentality. What we need to do is hear from Tom and Rita Hanks – right – they got it and guess what? They didn’t die! And they weren’t ashamed! They did as they were told and BINGO – they are better! Let’s be clear – people are not dropping dead on the streets. And once the market gets that – maybe it will stop.

Overnight, the ECB (European Central Bank) announced an $820 billion pandemic bond buying program.  A quick turnaround from what Christine Legarde had to say last week. In a statement the ECB had this to say:

“The ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments. The Governing Council will do everything necessary within its mandate.”

So there it is – another central bank promising to do whatever it takes! As European investors digested that new info – European markets got off to a positive start but has since failed.  As of 8:30 am – the FTSE -1.68%, CAC 40 -0.69%, DAX -0.70%, EUROSTOXX -0.44%, SPAIN +0.19% and ITALY +1.45%

US futures were up and then flat and now appear to be under pressure once again…..  The Dow is down 550 pts, the S&P is down 60 pts, Nasdaq is off by 117 pts and the Russell is down by 27 pts.  

Word that cases in the US are doubling every day is true – currently there are 8000 cases in the US and 149 deaths. But let’s not become hysterical, of course the cases are going to double – we just started testing for it. So here is what you need to understand. These cases already exist – we just didn’t know it – so now we know it – ok – great – so let’s not let this spin out of control. They exist – in fact the truth is we probably have 200,000 cases in this country if not more. But we are a nation of 350 million people. So that means that .0006% of the population will become infected. OK.  . What is the real issue being not the infections but the financial disruption that will last for at least another 6 weeks or so. Has this virus sent the global economy into recession? Not yet, but with each day – it does appear more likely – but again – it should be short lived – once we come back on line.

The real issue is not the infections but the financial disruption that this has created and will last for at least another 6 – 8 weeks or so… has this virus sent the US and global economy into recession?  Not yet (formally), but with each day – it does appear more likely – but again – it should be short lived – once we come back on line.

Now yesterday – the S&P tested and breached the December 2018 low of 2350. (The low yesterday was 2280) but it did manage to rally and close above that key level, at 2398. This is a positive. Let’s see what happens today.

Again what we saw yesterday was a reaction by the algos, mathematical models that make up the majority of trading today. These models rely on a series of inputs, technical indicators, support and resistance lines and the markets own volatility so when things get stressed the algos go into overdrive only accentuating the move (either up or down).

Now also understand that the move lower has been dramatic and broken every technical indicator out there. Macro-economic data means nothing, as the world is caught up in the virus. Which is why as a long term investor you stick to the plan. Stay focused and eliminate the noise. Call me to discuss.

Take good care.


Buccatini with Roasted Sweet Red Pepper Sauce.

You can make the sauce in the time it takes to boil the Buccatini… 10 mins.

For this you need – Buccatini (a kind of spaghetti), diced onion, chopped garlic, olive oil, Roasted Sweet Red Peppers, Tomato paste, chicken broth and s&p, fresh basil.

Bring a pot of salted water to a rolling boil – add the Buccatini

Now – in a pot – heat the oil, and sauté the onion until soft and tender – it may take on that golden delicious color… Add the garlic – do not let the garlic burn!

Next – put the Onions & garlic in the food processor, add the chicken broth, tomato paste, and sweet red peppers, – Blend.  – season with s&p and put back in a large sauté pan to keep warm – on simmer…

When the buccatini is done – strain – always reserving a mugful of water – return to pot – add back a bit of the water – stir and allow to absorb.  Now toss the pasta into the sauté pan and mix well. You can always add a bit more of the water if you need to.

Serve in warmed bowls – to make this different – top with crumbled pieces of goat cheese (vs. grated parmegiana).

Buon Appetito.