Apr 30 2020
April 30, 2020

1st Quarter 2020

0 Comment

One aspect of a Black Swan market is you don’t see it coming until it lands on your shoulder.  The first quarter of 2020 will be one for the financial history books.  The market dropped from all-time highs to drops not seen since the stock market crash of 1938.  Another perspective is the market dropped all the way back to where we were at the end of the Obama administration.  A reflection of just how much the US economy had grown in the past 3.5 years. 

This market pullback has been a buying opportunity.  During the market drop we have been spending cash to buy US large cap growth and high dividend paying stocks FSK and BXMT.  The later are financial and real estate positions which have been supported by moves from the FED to pump money into the debt market.  By the way, interest rates are also now back to zero, the rate in place when President Obama left office.

President Trump and congress have passed a $2 trillion dollar bill that would push funds (slowly) out to workers, many of whom have lost their jobs.  Expect to see unemployment numbers get scary before the economy is reopened for business.

The virus has not been the only excuse for the market drop.  A dispute between Saudi Arabia and Russia has led to a worldwide glut of oil.  The result has been a drop in oil prices below $20 a barrel.  Rumors that an agreement might be reached between the 2 oil super producers pushed the price higher but still well below the price needed by US drillers to be profitable.  As 2020 started the US had become the world’s top producer of oil and gas but the industry was heavily leveraged and already dealing with lower prices.  The US drillers have also been hit hard by the shelter in place orders issued for much of the US.  The drop in gasoline pump prices has been welcomed by US drivers.  There just aren’t that many of them. 

Many different names have been given to the virus.  I personally like the name Chinese Communist Party virus, CCP.  The party was aware of the dangers of the virus after it broke out in Wuhan, China but made every effort to conceal those dangers from their own population along with the rest of the world.   There have been many winners and losers through this event, but one of biggest long term might very well be Chinese manufacturing.  The US is dealing with medical supply issues created by the production almost entirely located in China.  The Chinese government has been building its own stockpile of those supplies while refusing to allow those much-needed medical supplies to leave their country. 

Watch for changes in China’s relationship with the rest of the world and the CCP’s standing with the Chinese people.