Thar She Blows – it was another rollicky session that saw a feeble midday pause give way to continued selling. Some folks might think I’m nuts, but the session could have been much worse. The lows from Monday (Feb 24) and last Friday (Feb 28) are still in place. The whipsawing, coupled with the spread of the virus and fake news, is a serious challenge to investors.
Long-time wealthy bears have been hitting media outlets, laying it on thickly (it’s always good to know where people stood before the virus hit). However, a note from Ray Dalio, the co-chief investment officer and co-chair of Bridgewater Associates, on the coronavirus, is fair and intriguing.
"As I see it there are three different things going on that are related yet are very different and shouldn’t be confused: 1) the virus, 2) the economic impact of reactions to the virus, and 3) the market action. Individually and together they lend themselves to a giant whipsaw with big mispricing, with the off chance that it will trigger the downturn that I have been worried would happen with both the big wealth/political gap and the end of the big debt cycle.
"Social distancing will trigger further short-term economic decline but won't likely have sustained impact. Previous world pandemics bear this out.”
I don’t think wealth gap-driven animosity will boil over this year, even with the politicization of the coronavirus. But there is massive mispricing and some opportunities will pop back in V-shape fashion.
Two Emails
I got two emails yesterday, and I think both reflect correct thinking for investors. People are going to have to close the most vulnerable names in their portfolios, and they should look to own great stocks at these super discounted levels.
If I had any cash, I'd be buying technology stocks today. I'm getting a salary bonus on March 13 (about $7,500 after taxes), and I will be buying [in] with all of it.
-Eugene
We've been hearing a few comments on taking some losses to create your cash for weeks/months to come. Your feedback?
-Cynthia
China from Both Sides of the Pacific
Costco (COST) posted revenue of $38.26 billion and earnings per share of $2.10, both beating the Street. It was a very robust quarter, which ended on February 16th.
For February, worries about supply shortages, have been a boon for the company. I was told over the weekend, that last Friday, the Costco in Livermore, California did $300,000. It was more than usual, as it hit $1.0 million for the day.
Here’s the statement from management:
February sales benefited from an uptick in consumer demand in the fourth week of the reporting period. We attribute this to concerns over the Coronavirus and estimate the positive impact on total and comparable sales to be approximately three percent.
Comp Store Sales | 2Q FY2020 | Feb through March 1 | ||
United States | 9.1% | 8.1% | 12.4% | 11.6% |
Canada | 8.9% | 6.8% | 10.2% | 10.4% |
International | 7.9% | 7.1% | 12.5% | 13.5% |
Total | 8.9% | 7.9% | 12.1% | 11.7% |
Forget About the Iced Pineapple Matcha Drink
After the close, Starbucks (SBUX) updated its situation in China, pointing out the “green shoots,” as it appears the worst of the COVID-19 impact is over.
During the direst part of the spread and evasive actions, Starbucks closed 80% of their Chinese locations. The worst part of the month was the second week, and since then, management has seen “green shoots.”
Now 90% of stores are open, and 95% will be open by the end of the second quarter.
The impact will be a 50% decline in same-store sales and up to $430 million for the fiscal year. There has been no impact on U.S. sales from the virus. Meanwhile, the company is excited about three new spring flavors:
Iced Golden Ginger Drink, Iced Pineapple Matcha Drink, and Nitro Cold Brew with Salted Honey Cold Foam.
Portfolio Approach
Today’s Session
The markets opened significantly lower. The 10-year yield has continued to decline and is now at .704%, up slightly after reaching a new all-time low of .692% this morning. The February jobs numbers did not disappoint, in fact, it not only beat, January and December were revised higher. However, that has not stemmed the losses in the markets.
February added 273,000 jobs and the 3-month average after the revisions was 243,000 new jobs.
- January revised higher by 48,000 to 273,000
- December revised higher by 37,000 to 184,000
- Average hourly wages were up 3% from the prior year
- Labor Force Participation was flat at 63.4%
- Private Sector jobs added 183,000
Large companies with more than 500 employees saw the most significant increases.
Business Size | Change |
Small 1-49 Employees | 24,000 |
Midsize 50-499 Employees | 26,000 |
Large 500 or more Employees | 133,000 |
Health Services and Leisure and Hospitality had the most robust growth, while Manufacturing and Mining continued to decline.
Good Producing | Service Producing |
Mining -3,000 | Trade, Tran & Utility +31,000 |
Construction 18,000 | Information -2,000 |
Manufacturing -4,000 | Financial Activities +9,000 |
| Professional & Business +38,000 |
| Education & Health +46,000 |
| Leisure & Hospitality +44,000 |
| Other +7,000 |
The major indices are currently trading below the lows from February 24 but above last Friday’s. Let’s see how things shake out this morning.
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