THE DAILYALTS PLAYBOOK

March 16, 2020

Today, the DailyAlts Playbook talks about Limit Down, Bill De Blasio’s Economic Ignorance, and Scott Minerd on the Market.

PRIME OVERVIEW

Good morning:

We start today where we left on Thursday night. Friday was a dead cat bounce, and we’re back to limit down. The Dow Jones projected a 1,041 point loss in premarket hours after futures hit “limit down.” The downturn came despite news that the Federal Reserve slashed interest rates to zero and introduced a quantitative easing program that is worth $700 billion.

I waited until the market opened to send a note. Markets are selling off despite news that the Federal Reserve has introduced a $700 billion quantitative easing program to address the impact of coronavirus on the U.S. economy.

The SPDR S&P 500 ETF Trust (NYSE: SPY) is off nearly 9% and bond markets are effectively frozen. Virtually any company that is seeking money in the public markets is trying to cover negative cash flow, which is a huge problem that markets do not like. The U.S. government and the Fed will likely continue to explore ways to boost liquidity and extend loans to businesses at a time that markets are in a freefall. The International Monetary Fund has said it will also mobilize about $1 trillion in lending to help stave off the virus.

All this while the S&P 500 is still historically overvalued, Boeing (NYSE: BA) was just moved to a negative credit watch list by Moody’s, and it’s unclear what the next move will be by the Fed heading into its policy meeting starting tomorrow.

QUOTES OF THE DAY

“This is a case for a nationalization, literally a nationalization, of crucial factories and industries that could produce the medical supplies to prepare this country for what we need.”

That’s Bill De Blasio, who argues that we need to have the government overtake manufacturing to make testing kits, masks, and hand sanitizer. As if these companies are idling their production in the face of a massive outbreak where demand for these products has gone parabolic. Yet government – in all its history of efficiency – would somehow make the best healthcare products in the world? This guy makes it perfectly clear that he has never had a job in the private sector. And he is a constant reminder that you should always trust people with motivation to make money from their effort than a person who has worked in government their entire life and will get paid no matter what.

“In God we trust — all others put up sufficient collateral.”

Kevin Williamson at the National Review. A perfect reaction to the revelation of what terrible leadership we actually have in the bulk of our politicians.

“Come clean my roof you monster. Your giant body will never fit in Washington DC.”

That’s a person who didn’t want Bill De Blasio to be President back in 2019… and whoever that person is, I hope that they know that I am thinking of them. And I hope they are thinking of me.

MORNING MOMENTUM

HISTORIC CHALLENGE: I argue that Scott Minerd at Guggenheim is the best thought leader in all of finance in 2020. CNBC should cancel half their shows and just let him talk all day. Every briefing he offers is refreshing and gets right to the point. His assessment of bond ratings has driven our assessment that this isn’t over yet in terms of a selloff. But it’s his interview from CNBC on this page from Thursday that people need to hear. He’s been right about valuations and the 10-year so far this year. Also, a nice nod to game theory and the problems with price discovery in debt assets and true lack of liquidity in this market. He’s very worried CLOs, and he thinks that we’re going to need trillions more in asset-buying to stabilize the economy.

VIRAL SPREAD: The coronavirus continues to spread across Europe, the Middle East, and the United States. Iran announced that its death toll hit 853, with another 129 deaths over the last 24 hours. In the United States, political leaders are aggressively stepping up actions to encourage social distancing. States across the country are closing restaurants and retail locations, news that could bring those industries to their knees. Look for the government to aggressively seek ways to dedicate capital to these industries to support workers.

OIL SLUMP: Meanwhile, oil prices remain in a freefall thanks to the ongoing tensions between Saudi Arabia and Russia. According to BP (NYSE: BP), demand for oil could be negative in 2020, a sentiment that has crude falling more than 9% in premarket hours. Both Saudi Arabia and Russia have been engaged in a price war after OPEC failed to reach an agreement to curb production. Look for crude to fall below $30 in the week ahead.

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ABOUT THE DAILYALTS PLAYBOOK

Garrett Baldwin is the author of the DailyAlts Playbook.

An economist and author based in Naples, Florida, Garrett has an extended history of financial analysis, business journalism, public relations and consulting experience in hedge funds, private equity, alternative investments, housing policy, commodities, and public equity coverage. He holds degrees from Northwestern University, Johns Hopkins University, Purdue University, and Indiana’s Kelley School of Business. He also has a Certificate in Global Business from Harvard Business School.

An avid Baltimore Orioles and Buffalo Bills fan, he would prefer to discuss other sports, please.