2020-03-29

Monday Game Plan

I'm watching the 2650 area on the S&P 500 Index. It lines up with the 38.2 percent fibonacci retracement on this downturn. Above that line, it would also break the downtrend resistance line. Then I think a run to 2700 gets underway. Slightly above that is the cyan support line from the 2009 Satanic low. That would also be a good fail point. Barring good news about the virus in the short-term, I don't think the market will move much beyond that.

Bitcoin looks weak here, a test of $5500 support area incoming. At this moment, I do not think it will hold. As an indicator of speculative excess, the implication for broader markets is bearish.

I still hold long-term positions in gold mining shares, but I'm heavily long calls on DUST, an inverse gold miner fund. Net bearish in my overall exposure. Given the compression of time in this bear market, I could reverse that position as soon as tonight with offsetting futures positions. But that's where I am heading into futures open in about 90 minutes.

Coronavirus Overblown? Look at Some Numbers

When coronavirus first came out, we didn't know much about the virus itself. It was clearly an economic threat though, if countries followed China's example. Whether justified or not, on an individual level it made sense to anticipate a big hit. As I put it, look at how people react to the flu each year, the media hypes it and pushes everyone to get vaccinated. The early data on coronavirus said there would be a freakout. It happened.

The media and health authorities ignored the risk. The CDC wasn't looking for community spread until late February. It was only looking for China travel links until then. Media and various political figures called travel bans racist. They said masks don't work. Health authorities said masks don't work. The globalized supply chain was hit and many people learned their nation, including the supposedly power U.S. economy, couldn't produce masks or basic medicines. Then these same media and health authorities swung into panic mode and ordered China-style lockdowns in the United States. At the same time, "the mainstream" learned about the virus. Average people (and especially journalists and even doctors when it comes to statistics) are horrible at math. Insane figures were going around that projected absurd death totals. They didn't take into account that quarantine measures slow the spread, but even without quarantine, some numbers were nuts. Even Fauci is out there claiming 100,000 to 200,000 deaths now. I expect that total could be hit when this virus infects the whole population, assuming no precautions or treatments. The death rate is almost always highest to start because a novel virus has no known treatment and there is no immunity to it.

Christopher Blading runs through the numbers in a new post. The tl;dr is the R0 rates indicate higher than reported infection rates and that depresses the severity/morbidity of the virus. Evidence from some countries (excerpted below) suggest this might be where the numbers are headed long-term. There are obvious outliers such as air pollution in China and Northern Italy, or a massive intentional travel and high population density such as NYC, that could explain much worse outbreaks. There also may be a genetic component. Some ethnicities may be more susceptible than others. There is probably also a weather component and if your local area is going to end up using quarantine policies, it still makes sense to prepare for it. When the herd moves, you get out of the way.

Balding's World:How Fast is Corona Spreading and How Many Undetected Cases Are There?
Iceland has taken a broad population sample that now comprises nearly 5% of the entire population. There is not much detail about the specific testing criteria but the reports are that it was designed to test for corona in the population and not merely sick at the hospital or a medical clinic. According to Icelandic data available from the government, they recently listed 963 confirmed cases for a positive rate of 6.6%. Sounds bad right? Actually, because of the testing criteria, most people did not even know they had corona because they did not feel any worse. Out of the 963 cases only 19 needed hospitalization and only 6 needed ICU care. In other words, while there have been some tragic outcomes, corona is already much more wide spread and it has no or only mild impact on most people who tested positive.

In Holland, a similar thing happened. Hospitals in the Netherlands started seeing reports of corona and had a couple staff members fall ill from corona. To make sure their staff was protected, the conducted a broad population testing on medical staff to see how prevalent corona was among front line personnel. According to their data, after testing 1,353 they found 86 positive tests for corona a rate of (tell me if this sounds familiar) 6.4%. Only half had a fever and most positive cases continued working because they felt either no different or symptoms were so mild. Notably under existing criteria 40% of positive cases would not have been even tested because they did not have a known risk factor.

Westchester county in New York implemented an aggressive testing plan. Their tests were largely by self selected individuals and needed to pass a criteria screening protocol so it is different from Iceland and Holland in key ways. However, they have tested 29,000 people. What have they found? They registered 7,187 positive result for a 25% positive rate. This large jump in positive rate is expected from self selected individuals that pass a screening protocol. So what is the severity? 73 hospitalized and 12 deaths in county. In other words, from positive cases in Westchester county, hospitalization rate of positive cases is running at 1% and deaths are running at 0.26%.
There is another case of broad population testing. The first resident of Vo, Italy died from corona in late February. Local officials being aware of corona virus spreading in China with the help of a local university opted to quarantine and test the entire city of roughly 4,000. Now it is worth noting that Vo is a small remote town in north eastern Italy. It is not one of the major cities which would have lots of international traffic. 89 people out of 3,300 or roughly 3% of the population tested positive after they discovered one death. There is no additional data but they do not report additional tests and actually advised people against going to the hospital unless they had severe problems. Testing two weeks later revealed positive tests dropped to roughly 0.5%.
The Y2K melt-up scenario is still in play.

Here We Go Again: GCL to Build One Solar Plant to Meet 50pc of Global Demand

Will the demand be there?

Caixin: China's GCL to Build World’s Biggest Solar Panel-Making Plant
The Chinese manufacturer plans to invest 18 billion yuan ($2.54 billion) to construct a facility in eastern Hefei province that will be able to produce 60 gigawatts of solar panels a year, GCL System said in a filing to the Shenzhen stock exchange on March 27. It didn’t provide a timeline.

The plant’s maximum output is double the 30 gigawatts of capacity installed in China in 2019, and would be able to supply to almost 51% of solar installations worldwide. The project will boost GCL System’s ability to produce panels more than nine-fold from 7.2 gigawatts, according to data from BloombergNEF. The world’s biggest solar-panel maker, JinkoSolar Holding Co,. has 16 gigawatts of capacity.
Note this GCL trades under symbol 002506 in Shenzhen, not the 3800 in Hong Kong.

Another firm is GCL New Energy, symbol 0451 in Hong Kong.

PV Magazine:China walks away from state bail-out of GCL solar project business

Another company owned by the parent Golden Concord Group (GCL) is a traditional power company GCL Energy Technology that trades in Shenzhen under the symbol 002015.

2020-03-28

How Does QE Affect the Dollar?

Coronavirus Update: Moving North, Be Prepared, Kill the CDC

I thought Italy would break its curve two weeks ago, more certain last week, and there's still no clear break yet. The U.S. is looking towards Easter as a hopeful peak with full quarantine measures in New York.

I was hoping for a quick lift of the virus. It looks like weather will have to cooperate after China closed movie theaters this week. This is a bad sign for service industries such as casinos and restaurants. Maybe less so for theme parks. As for the weather, here's a post from earlier in the week: Is Coronavirus Weather Related?

One reason why I recommended stocking up early (and why I started buying supplies in January), was that even if you don't have coronavirus in your area, shortages will occur because of supply/demand disruptions in other areas. Out of an abundance of caution and lacking other information to disprove the theory, I accept the hypothesis that coronavirus is highly infectious around the 45 to 50 degree temperature range, or 10 degrees Celsius. The yellow band on this April map shows where the average temperature is 10 Celsius. Areas in green and moving into yellow are where coronavirus outbreaks will happen next if the theory is right. The news is saying Detroit and Chicago are at risk in the USA, and they are moving out of green and into yellow this month. Also seeing a lot of news about Germany, Sweden and Russia, all of which fits the pattern. New Orleans, Texas/Dallas and Atlanta are seeming outliers, but if this theory is right, those should clear up quicker than expected. You can read the paper that proposed this theory here (clicking this will open/save a PDF): Temperature and latitude analysis to predict potential spread and seasonality for COVID-19

The flipside of hoping warmer weather will lift the virus in cities such as Atlanta, New Orleans and New York, is that this also means cities such as Toronto are going to be hit hard if they do not practice extreme social distancing or quarantine. If you live in an area moving into the 10 Celisus, 45 to 50 Fahrenheit range, the next month will be crucial period for you and your govt/health authorities. If you can get masks, if you can stock up on food and medicine, do it now.

A report out of France said to use Tylenol/acetaminophen/paracetamol. Not ibuprofen. The said there was evidence the latter could intensify a Covid-19 infection. I don't know the truth of this information, but I haven't seen any rebuttal of it. Moreover, the reliably wrong institutions such as WHO and CDC, say there's no evidence for this. Well, they found no evidence of a covid pandemic. They also said masks don't work.

Masks work. N95 are best. You don't need a lot of masks if you plan on working from home and staying home as much as possible. I reuse 1 mask if I need to go out or take a trip to the supermarket.

Back in February, about 5 days before they changed the guidelines, I saw shocked the CDC wasn't looking for community spread or even foreign cases from anywhere but China. Now after telling the American public for 6 or more weeks that mask wearing isn't necessary, they may recommend or even require it.
On the bright side, if everyone wears masks the economy can restart with a far smaller risk of new outbreaks. Also, this agency needs to die. I'm sure it has some good functions, but these can be preserved while the rest is destroyed. More troubling, the CDC is probably one of the better run government agencies in the U.S. federal government. The incompetence on display is present in every area of government, including the military. President Trump seems to be a less competent executive in these matters because he lacks experience in government, but the problem is replacing him with someone who can actually improve things. A politician from inside the system such as Biden will intensify the incompetence in the rest of the government as I discussed in Will Coronavirus Kick off the 4th Turning? I only touch on one piece of the puzzle there, a big surface piece that most can see. I believe America's problems are fundamental in the extreme. They go far beyond left-right politics to basic concepts such as "What is Truth?" Modern America is a nation of Pilates.

2020-03-27

China Will Cut RRR and Interest Rates in April

iFeng: 央行最新定调!明确下阶段六大目标 降准降息何时再现?4月落地概率大
Clarify the next six goals of monetary policy in April or reproduce the cut in RRR and interest rates

As usual, this regular meeting also makes arrangements for the next step in monetary policy. The meeting pointed out that it is necessary to track changes in the world economic and financial situation, strengthen research and analysis of the international economic situation, strengthen international macroeconomic policy coordination, and focus on doing their own business. Specifically propose the following goals:

1. Innovate and improve macro-control, and prudent monetary policy should pay more attention to flexibility and moderation, and place support for the real economy's recovery and development in a more prominent position. 2. Use a variety of monetary policy tools to maintain reasonable and adequate liquidity and maintain overall price stability.

3. Effectively play the role of precision drip irrigation of structural monetary policy tools, make good use of the 300 billion yuan special reloan, the 500 billion yuan re-loan rediscount special line of credit, and the 350 billion yuan policy bank special credit line to guide financial institutions to increase their efforts Credit support for maintenance of supply, resumption of work, production, poverty alleviation, spring ploughing, animal husbandry, and foreign trade.

4. Deepen the structural reform of the financial supply side, guide the sinking of service focus of large banks, promote small and medium-sized banks to focus on their main responsibilities, and improve the modern financial system with high adaptability, competitiveness, and inclusiveness.

5. Make great efforts to clear the transmission of monetary policy, continue to unleash the potential of reforms to reduce the real interest rate of loans, guide financial institutions to increase their support for the real economy, especially small and micro enterprises, and private enterprises, and strive to achieve financial support for private enterprises. The contribution of private enterprises to economic and social development is adapted, and the supply system, the demand system, and the financial system are formed into a mutually supporting triangular framework, which promotes the overall virtuous circle of the national economy.

6. Further expand the high-level two-way opening of finance and improve the ability of economic and financial management and risk prevention and control under the conditions of opening up.

From the overall position of monetary policy, combined with the latest deployment of the Political Bureau of the Central Committee, the next step in monetary policy will continue the current tone and rhythm, and the central bank's attitude towards loosening monetary policy is still cautious and restrained.

Zhang Ming, director of the International Investment Office of the World Economic and Political Research Institute of the Chinese Academy of Social Sciences, said that the Chinese government should rely on large-scale fiscal easing policies to deal with the economic downturn and unemployment pressure. . In the next stage, China's monetary policy should be relaxed in a rhythmic and targeted manner in accordance with the needs of the development of the domestic economic situation. The current monetary policy in China should not be pushed too hard. The burden of hedging the epidemic, stabilizing the macro economy, and promoting the steady development of financial markets cannot be all placed on the People's Bank of China. For the negative effects of potential large-scale credit expansion, we should also pay attention to relevant historical lessons.

Many analysts believe that the central bank's marginal monetary policy environment will pinch the point at which the policy will land, and the next observation window for RRR cuts and interest rate cuts will be in April.

The Next Shoes

Some of these charts I haven't adjusted the trendlines. Some I have played on the long-side at times. The title of this post refers to stocks such as Alphabet (GOOGL), Visa (V) and Netflix (NFLX) that could be the next shoes to drop in this market should selling move from the weak to everything. Many of these are from a list of companies with hefty China sales.

Emerson Busted Trendlines