Market Lab Report / Dr. K's Crypto-Corner
by Dr. Chris Kacher
The (R)Evolution Will Not Be Centralized™
Music is the shortest distance between two people
Negative news aside, I will open with a new piece of mine I call "In the Time of the Corona Quarantine". Plz excuse the crudeness of this (no lighting, recorded on the fly off mobile) https://www.youtube.com/watch?v=SIKqkVFWL6Y
Lockdown = Quarantine = House Arrest
Semantics. Welcome to the dead bat bounce. Markets have bounced even in the face of some of the worst economic reports in history due to the promise of limitless liquidity. But the problem is that mainstream media has driven the world into a panic that will have serious economic consequences due to lockdowns, quarantines, supply chain disruptions, and so on. Meanwhile, a study out of Stanford University stated that the global response has been a massive overreaction that will have serious consequences. Indeed, second and third order effects will carry a huge impact on livelihoods, lost jobs, unemployment, and stress levels. It might be called quarantine or lockdown, but isn't it really house arrest? Countries such as Singapore are effectively putting all of its returning citizens, close to 50,000 at last count, under house arrest for two weeks. They are not allowed to leave their premises or face fines or jail time. Meanwhile, suicide centers have reported a surge in suicides. One said over the last 48 hours, the number equaled one-quarter of a year's worth under normal conditions. Websites that contain forms for whistleblowers to report sightings of house or public gatherings of groups of 3 or more have been crashing due to many attempting to download the forms. From a trader friend who has been a voice of reason:
When governments intentionally implode economies then give money to the masses, you have socialized government assistance. Is this not a step towards socialism? Civil unrest, supply chain distruptions, shortages, fines and jail time for those who break the rules of lockdown, and further draconian rules could be on the way. Maybe this is why gun sales have skyrocketed, especially among the Chinese. Meanwhile, the governor of California has halted all gun sales. But it's not just the Chinese who are being harassed. It is often hard to distinguish between Chinese, Korean, and Japanese.
At any rate, despite the easiest money on record, a lack of demand due to lockdowns, panics, and overall uncertainty will spur bankruptcies which will cause a rise in unemployment which will cause a further drop in consumption, all of which can devolve into a depressionary loop.
But based on numerous examples of prior bear markets, QEInfinity will eventually help major averages find their bottoms. It might take longer than expected such that instead of just one retest of lows, markets may go lower 1930s style. The worst case was Oct 1929 - Jun 1932, or about 2 3/4 years from peak to trough. But one big red herring back then was the devaluation of the pound in September 1931. Hopefully the equivalent doesnt happen this time. Also, money wasnt as easy then as it is now. It took the Federal Reserve a year and a half to bring the discount rate down to 1.5% by mid-1931. Today, both the discount and fed funds rate sit at 0-0.25%. With this amount of firepower, it is therefore still possible the major averages will simply retest prior lows, then embark on a new bull.
This is also true of bitcoin and gold. Both stand to ultimately benefit greatly from the unprecedented levels of liquidity flooding the system. Fiat degrades, bitcoin upgrades.
Still, certain issues remain. The U.S. during World War II sat with record levels of debt. But the U.S. back then was a creditor nation. Today, it is a debtor nation. The ramifications could impact the future sovereignty of the dollar as the world's reserve currency. Nevertheless, this crisis will likely spur major paradigm shifts as Ray Dalio of Bridgewater has suggested. A number of exponentially growing technologies such as AI, blockchain, and AR/VR which facilitate tracking and social distancing may be part of the post-corona chapter. The world will also have to grapple with a number of dominoes that have been tipped due to the economic lockdown.
For example, the Federal Housing Finance Agency Director Mark Calabria said on Wednesday that ‘it is certainly possible’ the number of delinquencies caused by the coronavirus outbreak could exceed the subprime mortgage crisis in some segments of the market. He cautioned that, “If this only goes on for two to three months and we see pop back in the economy and people are hired back to their old jobs by and large, then I think this will be something the industry can get through without too much stress. But if this is something that goes on for six months or more, then I think you’re going to continue to see a lot of stress.”
FAQ: What do you make of AMZN, NFLX and GOOGL at/near all-time highs as they seem to be resisting the downtrend in the major averages.
A: This question was sent a few weeks ago when this was the case. Now, only AMZN and NFLX are trading around their 50dmas while GOOGL and the other FAANG names have been hit much harder. Patience can pay off.
Naturally, if a stock shows leadership characteristics by resisting a downtrend, it should be placed on your watch list. When the market puts in a major bottom, the top 20% performing stocks and ETFs leave many clues as to future leaders. When the weight of the market comes off, and markets move higher, some of these stocks can act like coiled springs thus are often the price performance leaders in the next uptrend. Meanwhile, the bottom 20% enables one to pinpoint which industry groups and stocks have been greatly oversold that may offer a huge upside, keeping in mind that certain major transformations may now be underway as a result of the corona crisis thus one must be selective in which oversold stocks and groups are actual bargains.
Currently, gold miners, hotels, airlines, and logistics companies should be watched for potential entry points but only once the major averages have found their bottoms. This could still be weeks off as the economic standstill is likely to induce a serious recession which could easily push major averages 50% or more below their all-time highs. In other words, a lot more selling would come as no surprise. But due to the speed of information dissemination, this selling may come quick. Another wave of panic selling due to economic shocks that far underestimate the damage done could occur which could be the point at which the market averages find major bottoms.
As one example, the jobs report shows unemployment spiking to 4.4%, indicative of the start of past recessions, as 701,000 jobs were lost, but the reality is several million jobs have been lost so far. The jobs report does not include the start of the lockdown period in the U.S.
As another example, Europe is facing a recession deeper than in 2008 based on the shocking declines in services activity which make up most of Europe's economy. In Italy, the services PMI fell to 17.4 from 52.1 which is the lowest number Markit has ever reported for any of its PMIs, worse even than Greece at the depths of its recession. Pantheon Macroeconomics estimates that eurozone GDP fell -4% in the first quarter and will plummet -10% in the current quarter.
Potential Industry Groups
In times of crisis, certain stocks can reap huge rewards. In this period of the quarantine, stocks that support online collaboration which include WFH (working from home) are worth a watch, though this does not mean to buy now. Odds are markets could go a lot lower. But once the stock market hits a major bottom, keep an eye out for price strength relative to the major averages.
WORK is used by many businesses to collaborate online. It shot past all moving averages then pulled back to its 50dma. Of course, such stocks that came straight up from lows are also vulnerable to larger pullbacks so could be short candidates in the interim. Always know your timeframe. Longer term, WORK is likely to outpace the major averages in an uptrend. Short term, WORK is a possible short.
Zscaler (ZS) is another company benefiting from WFH. Many employees working from home use virtual private networks, or VPNs to connect with their company. Its ZPA product is replacing VPNs as its cloud ZPA service is more efficient. Further, ZS employs SD-WAN, a new computer networking technology where companies can use bandwidth on the public internet rather than lease private data connections. It's near its 200dma.
Another industry that is reaping the corona awards is home delivery in this time of quarantine. It would explain why AMZN has been trading around its 50dma while other FAANG stocks are trading around or below their 200dmas such as GOOGL and FB. A pet product delivery company, CHWY, has also done well. It pulled back to its 10dma on Thursday.
I'll finish with an anecdote. Imagine if you discovered your deceased grandmother’s diary in the attic where she post dated events. One entry dated April 1, 2020 read:
"A nice man in China eats a raw bat and starts a global pandemic that specifically kills those around my age. Everyone loses their minds. 40% of the population thinks it's the end of the world, another 40% thinks it's all fake, and 20% blames the whole thing on cell phone towers. The one thing everyone seems to agree on is that the only way to survive is by hoarding toilet paper. Grocery stores are ransacked and Charmin ultra soft essentially replaces the dollar as the world’s reserve currency.
Eventually as hysteria grows, world governments are forced to shut the entire planet down and lock everyone in their houses via GPS tracking, public cams, police helicopters, and draconian law. Meanwhile, the incarceration rate skyrockets as violators standing less than 6 feet from one another are jailed."
April Fools! (Well, maybe not this year, but hopefully next.)
(͡:B ͜ʖ ͡:B)
This is how various countries are enforcing stay-at-home/lockdown rules:
https://gulfnews.com/uae/covid-19-precaution-dubai-police-using-ai-to-find-out-if-your-trip-was-essential-1.70829268 . Around 20,000 arrests of rule breakers in South Africa alone. Around 50,000 Singaporeans under 2-week house arrest for returning home. Websites with forms to report rule breakers have been overburdened with floods of people trying to download the forms. A video was posted on facebook of 2 joggers harassed by police for getting exercise when they live in a stay-at-home country. Hundreds on facebook wrote in "How tf were they not arrested??!" "The police let them go! They aren't doing their job!!" "Fire the police!" "People like this only care about themselves :( " et al.
Stanford University, a voice of reason: https://www.youtube.com/watch?v=RyTTbLA3AZY&feature=youtu.be&fbclid=IwAR0vxqkoulhg2ijygSVtKcs4-V8XfLDjvZ8woICXe6IjD5WKcSLwpL3IaJs&app=desktop
Sweden goes the other direction:
2008 redux? https://www.bloomberg.com/news/articles/2020-04-02/home-lenders-brace-for-up-to-15-million-u-s-mortgage-defaults?fbclid=IwAR06d3medE_mfcLd6M8R4zZOP21DjTaEy02C0xIHeoAbV0uC5pwy3Jgb6EY
Dr. Andrew Kaufman (MIT) explains this has been orchestrated: https://www.youtube.com/watch?v=IxG1cp28SCo
From our publisher, Wiley: https://onlinelibrary.wiley.com/doi/pdf/10.1111/eci.13222
This article https://peerlessreads.s3.us-east-2.amazonaws.com/CV19_FactNotFear_Full_200323a.pdf was removed. It perfectly showed how the number of deaths per year averages over 15 million and gave mortality tables for a broad spectrum of diseases, viruses, SARS, MERS, etc. It showed COVID-19 barely placed in the top 10 in terms of risk vs. mortality rate even for the worst case scenarios. Here is a slide from the London Business School:
London Business School gave a realistic report on the situation. It has been illustrated that the second and third order effects of the global economic lock-down have serious health consequences that well outweigh the total harm caused by COVID-19. Stress is a health compromiser if not an outright killer.
FORECAST (in brief... read my prior reports for a fuller explanation)
Was this a test run to see how easy it would be to exert force over the entire planet? ???? Ayn Rand et al always cautioned about the state vs. the individual. Nevertheless, odds favor a second wave of selling that will retest the stock market low hit in March. Fire-sale bargains will abound in certain oversold stocks and industry groups, keeping in mind that certain major transformations may now be underway as a result of the corona crisis thus one must be selective in which oversold stocks and groups are actual bargains. We should then experience a huge rebound after the second quarter. Bitcoin and gold, meanwhile, should continue their uptrends.