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‘Somber Again’
The second quarter began on a downbeat note as investors grappled with projections of nearly a quarter million coronavirus deaths in the US and digested contractionary PMIs around the globe.
Although the forecasts Donald Trump presented during his daily coronavirus briefing on Tuesday afternoon were the same as those he and Anthony Fauci have been discussing every day since Sunday, the president's "this is going to be a painful two weeks" remark seemed to resonate, if for no other reason than h
The timeline to return to a society that can interact, at will, is very, very long. As laid out by Bill Gates, we have roughly two more months in lock down ahead of us, followed by months and months of rigorous testing/re-testing, during which we can slowly allow people out of lock down ( which will have periods of new lock downs as the virus starts to spread again), with vaccine development occurring simultaneously. Once we have a vaccine, it will take time to manufacture enough vaccine for everyone.
Evidently, we do not have the right manufacturing facilities- so hopefully those are part of the $2T infrastructure plan.
I remain in cash- last week showed me that I might miss the correct time to get back into the market because even though I was well informed about liquidity and rebalancing ( thanks, Prof H) , I did not participate in that partial recovery.
Cash is king. The bottom is not in.
The thing that hit me yesterday is that the end of the Great Corporate Buyback Carnival is over, either because companies need to protect cash or are not allowed to participate in the government relief while also buying back.
Seeing as most investors seem to have a memory that dates back 24 months at best, no one has ever seem a market where price discovery wasn’t driven by Corporate Buybacks.
Going forward, it will be interesting to see what the Compensation Committees do with respect to stock grants/option awards. In the recent past, very dilutive– but offset by open market repurchases.
I have always struggled with quantifying the effect of monetary/fiscal easing( aka money printing) on the US stock markets. I determined it was not something I had to worry about too much as long as earnings were at least flat with prior periods. Now that earnings are most likely declining, I am much more focused on quantifying the effect of money printing on US equities again .
The direction, I get…. but how much?
Spx peak in 1999 was 1469. 20 years later and is not even a double. Let’s hope the next 20 turn out better
… oh the good old days when the SPX was “valued” at a 30+ pe ratio.