• GB Davis

Before the Bell - 5/13/20

  • Yesterday, Dow Jones Transports ($TRAN) declined 2.84%, Financials ($XLF) declined 2.61%, Consumer Discretionary ($XLY) declined 2.19%, Industrials ($XLI) declined 2.81%, Real Estate ($XLRE) declined 4.25%, Airlines ($XAL) declined 4.20% Banks ($BKX) declined 3.92%, all eclipsing broad U.S. Equity Indices. Small caps also more pressured than Large Caps.  Livestock (COWTF) up 9.09%, Sugar also catching a bid.  Market Volatility ($VIX) a near 20% increase day-over-day to 33.04, the largest such move in several weeks.

  • With J Powell on the tape today - much talk about confirming WSJ Article and Fed Talking head conveyance to the market that there will not be Negative Interest Rates (NIRP) in the U.S., while the market has factored in negative rates in the U.S., seemingly in mid-2021.  Even if that comes to be the Fed will not admit such until it is forced to and NEVER before such time.  Our view is that the ONLY situation in which the U.S. moves to NIRP is if social and civil unrest become front and center.  Of course NIRP stimulates the economy - it only hurts capital - and capital will only be "willingly" hurt in the face of potential violence (i.e. the heightened prospect of such), to avoid such prospects. Credit Agricole indicating that foreign investors will demand a weak USD to continue buying up the Current Account Deficit Funded USTs issuing in bulk size - we beg to differ.  The USD will weaken materially WHEN growth returns to Emerging Markets and their growth rates accelerate past the U.S. - and U.S. growth, itself, returns.  Otherwise in EM FX terms, USD will maintain its strength and vis-a-vis the Euro, Pound and Yen, everything comes back to relative CA Deficit and QE - of which the EU, UK and Japan are all in a world of hurt too.  BS commenting that they expect JPow to convey an urgency for the U.S. Government to focus on measures that drive employment and get people faced with permanent job losses back to work (to there by drive Consumption and keep the system humming along as best as possible).  To this extent, the groundwork for major U.S. Infrastructure bill, which we believe will include 5g, and healthcare infrastructure will begin to take more shape between here and Labor Day

  • Stan Druckenmiller, former chief strategist for George Soros, converted his hedge fund into Duquesne Family Office in 2010. His long-term track record, making returns of about 30% a year over three decades, established him as one of the world’s top money mangers. He has an estimated net worth of $5.8 billion, according to the Bloomberg Billionaires Index, said the risk-reward calculation for equities is the worst he’s seen in his career, and that the government stimulus programs won’t be enough to overcome real world economic problems.  “The consensus out there seems to be: ‘Don’t worry, the Fed has your back,’” said Druckenmiller on Tuesday during a webcast held by The Economic Club of New York. “There’s only one problem with that: our analysis says it’s not true.” Prospect of a V-shaped recovery in U.S. ‘a fantasy,’ he says.  If it's not obvious as of yet - we hold the Warren Buffet / Druckenmiller view on risk here.

  • BAML / Bofa indicating that Swiss National Bank (SNB) look to weaken the Swiss Franc (CHF) - we see a band of 102 - 104 for $XSF, and IF the SNB were to weaken such for focus to be above 104.5.  The see the Swissie gaining from here vis-a-vis the Euro.  We see room for the Swissie to strengthen from 103.15 ($XSF) to 104/104.50 before the SNB does anything and while their focus is on stuffing their coffers with hedge fund like assets such as 'select' global equities.

  • Morgan Stanley believes that the world will return to pre-recession levels in 4 quarters. We hope for the best but this seems optimistic to us.

  • Weakness in the Lodging Sector is starting to show, with $MAR, $HST, $HT, $INN, $CLDT, and others all trading off following earnings releases, and the sector pointed down, the path of least resistance for the foreseeable future.

  • $CBRE seeing selling pressure on Tuesday, while short interest in $JLL is up almost 22% in April.

  • California State University system suspends classes for the fall semester.  It can't be long before other universities in California do the same - and - raises the prospects of such for primary and secondary schools in the state.  LA County has extended its lockdown by three (3) months.  Maybe Newsome will run for President on a Populist platform (the United Socialist States of America) - if so they will not take his calls here in Texas, even if he were President - a resurgence in global corporate tax inversion schemes out of the U.S. into Canada would pick up if tax rates are raised too far - though are expected to be raised some (it would be folly for the Republicans to just not raise taxes at all at this point - at the same time, as underfunded States begin to request federal assistance - some budget balancing prudence ought to be enforced - carrot and stick style).  CDC releases new COVID data today and we will be watching the forecasting curves closely.

  • Coach Paul Greer of the San Diego Track Club graciously with some corrections and running insight: " Someone has broken the four minute mile at over 40 years of age and that was in 1994 as Eamon Coghlan broke 4 minutes in the mile at age 41. I also believe Bernard Laggat has also broken 4 in the mile at age 40. Let’s Run did a March madness bracket of who the greatest long distance runner in the United States is and Jim Ryun was deemed the GOAT. I have to agree with this sentiment as Ryun in his day broke the World Record three times (One in the 800 meters and twice in the mile) He also won an Olympic Silver medal in 1968. Ryun is a true legend and the one Track and Field athlete that is really well known outside of the sport. For many he transcended our great sport of ours. Check out one of his world records in the mile on a cinder track in 1967 where he came through the half mile at 2:00 and ran his last half mile in 1:50. Truly legendary. Meb was considered one of the top eight long distance runners of all time but did not advance out of the quarter finals. You can not argue with the great careers of Frank Shorter, Galen Ruup, Dave Wottle and Jim Ryun. Shorter has a Gold (1972) and Silver medal (1976) and Ruup has a silver (2012) and bronze (2016) Olympic medals. By the way Ryun ran 3:55 in the mile in high school at San Diego High School in 1965 and that high school record stood for over 35 years until Alan Webb broke it,"

Happy Hump Day,

Gavin Davis

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