Wall Street Breakfast: Bonds Rally Into Uncharted Territory

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The 10-year Treasury yield hit an all-time low of 0.694% overnight as the coronavirus continued to push investors into the safety of government bonds. "Better to stay in cash," responded bond guru Jeffrey Gundlach. "I don't think calling the direction of interest rates is all that meaningful. Even if you are absolutely right and you get lower 10-year rates, you don't make any money." Investors are meanwhile increasing bets that the Fed will follow this week's surprise 50-basis point rate cut with further easing - at or before its scheduled March 18 meeting.

Stability nowhere to be seen

More pain will come at the open, with Dow futures sinking 652 points and the S&P 500 and Nasdaq down 2.7% and 2.9%, respectively. The spread of coronavirus has accelerated in the U.S., and investors who once downplayed down the virus are now re-assessing risks. Infections surfaced in at least four new states and San Francisco on Thursday, while the death toll from the respiratory illness rose to 12 nationwide. Concerns about the outbreak are also likely to overshadow any signs of a strong labor market today as investors digest the most recent non-farm payrolls report.
Go deeper: Largest two-week withdrawal from stock funds since 2018.

Jobs Day

Estimates suggest employers added 175K new jobs to the economy last month, a step down from than the 225K created in January but a number that would match the average monthly jobs growth in 2019. The headline unemployment rate will likely remain at a low of 3.5%, while hourly wages are expected to rise by 0.3% from the previous month. Impacts of the coronavirus will not fully be captured in the figures, as the disease spread in the U.S. beginning in late February.

Risky gamble at OPEC meeting

Crude futures tumbled 4.6% to $43.78/bbl after a high-level Russian source told Reuters that the country would not back an OPEC call for extra reductions in oil output, saying the "position won't change." OPEC ministers told Moscow on Thursday that if it doesn't join them in slashing crude output by another 1.5M barrels a day, then the cartel could abandon its reductions altogether. It's a high-stakes move in a market already slammed by the coronavirus and which triggered Saudi Aramco (ARMCO) to delay announcing its monthly crude pricing.
Go deeper: 'Oil & Gas MLPs: Why Such A Sell-Off' by The Dividend Guy.

Miss Climate Action

Defending the business of fossil fuels and resisting targets on carbon emissions, Exxon Mobil (XOM) CEO Darren Woods called pledges by some of its Big Oil rivals to cut carbon dioxide emissions a "beauty competition" that would do little to halt climate change. "Individual companies setting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world," he declared. The company is focused on "taking steps to solve the problem for society as a whole."

Wishing a speedy recovery to Jamie Dimon

The 63-year-old CEO, at the helm of JPMorgan (JPM) for over a decade, was rushed into emergency surgery yesterday after suffering a tear in his aorta. He's now "awake, alert and recovering well." The bank was quick to disclose his condition and be upfront about who's in charge. Daniel Pinto and Gordon Smith, the co-presidents and co-chief operating officers, will take the reins as Dimon recovers (possibly giving a glimpse into a future succession plan).
Go deeper: 'JPMorgan Chase - I'm Out At $150' by Regents Research.

737 MAX certification flight?

FAA adminstrator Stephen Dickson thinks a certification test flight for the 737 MAX could happen "in a matter of a few weeks" (prior reports pointed to April). "We're working though the last few software review and documentation issues," he announced at a Washington aviation conference. Boeing's (BA) 737 MAX has been grounded for almost a year after two fatal crashes which killed 346 people in five months.

Tweets about Africa move were 'mistake'

Jack Dorsey appeared to back off plans to spend part of this year in Africa as he tries to fend off a push by activist fund Elliott Management to replace him. Speaking to Morgan Stanley's TMT conference, the CEO of Twitter (TWTR) and Square (SQ) said he "made a mistake and should have provided more context about why." The continent will be one of the most populated in the next 20-30 years, and room for tech innovation there is incredible, but "in light of COVID-19 and everything else going on I need to reevaluate."

Asked about the economy...

"[Coronavirus] certainly might have an impact. At the same time, I have to say people are now staying in the United States spending their money in the U.S., and I like that," President Trump said in his first town hall of the 2020 election season. "We have plans for every single possibility and I think that's what we have to do. We hope it doesn't last too long." "I still believe we can get through this year without a recession," added Dallas Fed President Rob Kaplan, in an interview on Bloomberg Television.

Latest coronavirus updates

Facebook (FB) told employees in the Bay Area to stay home and cancel any trips, while Gap (NYSE:GPS) shuttered its New York City headquarters after a worker tested positive for the coronavirus. Microsoft (MSFT) also confirmed that two employees have been diagnosed in Washington's Puget Sound region, the area that includes its Redmond headquarters. More bad news for the travel sector... Southwest Airlines (LUV) is expecting a hit of up to $300M for first-quarter operating revenue, prompting the carrier to cut its outlook.

What else is happening...

Starbucks (SBUX) comparable sales in China tank 78%.

Old Navy boss promoted to lead Gap (GPS).

NXP Semiconductors (NXPI) names new chief executive.

3M (MMM) says no disruptions in face mask production.

Again... Samsung (OTCPK:SSNLF) takes smartphone factory offline.

U.S. coal consumption plunges most since 1954.

Thursday's Key Earnings
American Outdoor Brands (AOBC) -16% AH on weak earnings.
BJ's Wholesale Club (BJ) +6.1% as EPS met estimates.
Costco (COST) +1% AH posting strong comp sales.
Kroger (KR) +8.1% following penny EPS beat.

Today's Markets

In Asia, Japan -2.7%. Hong Kong -2.3%. China -1.2%. India -2.3%.
In Europe, at midday, London -3.2%. Paris -3.8%. Frankfurt -3.5%.
Futures at 6:20, Dow -2.5%. S&P -2.7%. Nasdaq -2.9%. Crude -4.6% to $43.78. Gold +1% to $1684.10. Bitcoin +0.7% to $9168.
Ten-year Treasury Yield -2 bps to 0.75%

Today's Economic Calendar

8:30 Non-farm payrolls
8:30 International Trade
9:20 Fed's Evans: “Transparency and Communications"
9:20 Fed's Mester: “Transparency and Communications"
10:00 Wholesale Trade
10:00 Fed's Kashkari Speech
11:20 Fed's Bullard: “Inflation Targeting and Rules-Based Policy"
1:00 PM Baker-Hughes Rig Count
2:00 PM Fed's Williams: “Monetary Policy and the Zero Lower Bound"
2:00 PM Fed's Rosengren: “Monetary Policy and the Zero Lower Bound"
3:00 PM Consumer Credit
3:30 PM Fed's George: “The Fed’s Balance Sheet and Credit Policy"

Companies reporting earnings today »

Comments

[deercreekvols]

Not sure where the discussion thread about staying in stocks or moving to cash made more sense went, but it was a good one.

Lots of good comments about the two different schools of thought and whether one was "smarter" than the other.

Miss being notified when comments were taken off the board. At least I would know the reason, whether I agreed with it or not.

If I am not mistaken, yesterday's thread was up for most of the trading day.

[deercreekvols]

Airline stocks in the green today.

No clue why airline stocks are not being bludgeoned like most other sectors, but OK Mr. Market.

I see you.

[Fracguy]

@deercreekvols "FAA adminstrator Stephen Dickson thinks a certification test flight for the 737 MAX could happen "in a matter of a few weeks" (prior reports pointed to April). "We're working though the last few software review and documentation issues," he announced at a Washington aviation conference"

[Bubba365]

The Federal Reserve joined the corona-virus panic this week. One thing that chairman Powell has demonstrated during his tenure is that he is overly swayed by the markets and does not have the economic understanding to model out how his actions play through the economy.

It takes 6 - 18 months for a rate cut to filter through the economy. Most every epidemiologist report I have seen has said that when the weather warms in the next 1-2 months, the virus will have mostly run its course. This means that by the time we actually see the effects of the cuts the crisis will have long been over and we will be stuck with the ill effects of a rate policy that is at extreme levels.

CPI has already been running above 2% inflation for several months. Pushing more money supply into this environment creates additional inflationary pressure. Additionally the short term supply shock from the virus adds additional pricing power. The convergence of these factors could lead to hyper-inflation occurring as early as late Q3 early Q4 this year. My model suggests CPI at 3.5 to 4% in Q4 if central banks continue on their present course.

We have already started seeing negative effects in the corporate bond markets. When the 10 year treasury traded 1.1% I started selling my longer maturity corporate bonds and received pricing of a YTM between 1.75 and 2%. Once the Federal reserve made the emergency cut, bond desks stopped buying bonds. The yield spreads on my remaining bonds exploded to the point it became a better option for me to let what I have left just run to maturity as I am now under a 2 year maturity on the longest of my bonds. To give you an Idea of the spreads. When I was able to sell there was .25 - .5% YTM spread between bid and ask. Now these bonds are pricing with a more than 2% spread. So the bond desk sells to you at under 2% YTM but if you want to sell to them you have to give up 4% YTM.

The result is that you are seeing the corporate bond market starting to freeze up which will make it harder for companies to refinance debt as it matures. S&P and Moody's have both announced that downgrades are coming in the next few weeks. Watch out for the bursting of the debt bubble.

[deeminimus]

Best post of the day

[deeminimus]

The denouement begins

[techy46]

FED should raise rates 1.0% and show bond traders how's boss!

"Thank you for your correspondence in which you expressed your concerns about the effects of the Federal Reserve's monetary policy actions on retirees who rely on their savings to supplement their income.

Please know that the Federal Reserve does not intend to cause undue hardship to retirees when conducting its mandated policy actions. While the agency's policy decisions have important implications for the federal funds rates, there are many factors that determine the levels of market rates, including the current overall demand for funds, the expectations that people have about the future direction of the economy, and the likely trend for inflation.

The Federal Reserve does assess the impact that changes in interest rates will have on particular sectors of the economy, and it is true that, for example, some of those on a fixed income can be adversely affected as rates decline. The opposite is true when the level of interest rates is raised; people with variable interest loans will be affected. The goal of monetary policy, however, is to foster conditions conducive to sustaining sound, noninflationary economic growth over time; thus, policymakers must make decisions that provide the greatest benefit to the economy overall. When the economy is weak, for example, raising interest rates would likely result in further weakness and rising unemployment, a result that would not be in our nation's interest.

It is also important to recognize that the Federal Reserve has no general jurisdiction over the rates on savings instruments, such as CDs, which are determined by financial institutions.

Again, thank you for taking the time to share your thoughts with us. Please note that this email account is not monitored. If you have additional questions, use the "Contact Us" form at"

www.federalreserve.gov/...

[genomegk]

Exxon Mobil (NYSE:XOM) CEO Darren Woods called pledges by some of its Big Oil rivals to cut carbon dioxide emissions a "beauty competition" that would do little to halt climate change. "Individual companies setting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world."

Woods makes an important point and acknowledges two essential facts: (1) the climate crisis is real and (2) must be solved. Releasing over 400 million metric tons of carbon each year, oil and gas production is the 2nd leading industrial source of carbon pollution in the world. www.foreffectivegov.org/...

[genomegk]

Pop quiz. What do Shell, Exxon, BP and Chevron all have in common beside the fact that they are big oil companies?

A: They are all lobbying for a US carbon tax.

[Interesting23]

To be more accurate, it is the usage of oil products in vehicles and energy consumption that releases the carbon. Therefore the solution is to reduce the use of hydrocarbons for transportation and energy use which has to do with Hybrids, EV, alternative forms of energy.

[SB Pirate]

Cement production must be lowered world wide too. It is also a big producer of CO2. In the end the climate argument is all about controlling people thru force since all government is force. The elites, companies to the extent they pay a tax will pass it on as costs to the little folks, the little folks and less developed countries who want to get ahead will be prevented from doing so by new laws. And then as the new ice age hits with no warning...scarcity will set in.
Personally I would rather see just one law. All climate change proponents must walk the walk.
I drive a hybrid and live in a modest size house so don't get on my case!

[SB Pirate]

For me the bull market will be living or dying in the next 2 trading sessions.

QQQ long tern trend at 195, pre-market 203ish

SPY long term trend at 300.26, pre-market 291ish well we can kiss that good bye at the open so expect it to become upside resistance.

And don't forget the canaries IWM and EEM have already succumbed.

[Jpokergman]

The race to zero.

[Rideshare1]

I love your podcasts! Good job and thanks!

[Robin Campbell]

For once I my life I'm mostly cash. I have to admit that its dumb luck as I was changing my Advisor when the bug hit.

[Rabbit1960]

Never admit that! It's all intuition and hard learned skills. √

[Robin Campbell]

@Rabbit 1960
lol. I wish!

[No Picknic]

The world economy is net a consumer of oil. Lower oil prices are net a big stimulus for everyone who consumes oil and everything that is dependent on oil. Longer term it is pointless to stay out of stocks, especially at these interest rates. Globally 150000 people die each day. Most of them die of age related conditions. The new Corona virus will most likely over the whole year won't shift the global mortality rate by 0.1%. ergo sell all your shares.

[New Adams]

Black Swan has arrived!

[User 509088]

New Disney ride?

[blueline]

273K jobs created in February!

[SB Pirate]

That's great! It's a backwards looking number and in a slowing economy all those employees will drain profits. The report for March will be the ONE!

[mrvgg]

European markets are getting massacred again, the US opening bell will be fun to watch

[blueline]

"Infections surfaced in at least four new states and San Francisco on Thursday, while the death toll from the respiratory illness rose to 12 nationwide"

11 of the deaths are in the same nursing home.

If you have a compromised immune system or are 80ish stay home and take extra precautions. If you're not in those two categories you don't have much to worry about. You will likely not realize it when you get it. I would bet that I have already had it.

175K new jobs added in February!!! What! It can't be, we have a "national crisis" a "catastrophe" a "pandemic" going on in February.

[blueline]

Correction!!!! 273K jobs in February. Unemployment rate drops.

NOOOOOOO! we're all going to die!!

[SowingAlfalfa]

" Coronavirus Cases Exceed 100,000 as Countries Struggle to Contain Spread

... On Friday, a top Hong Kong university released research that surmised the “fatality risk” for symptomatic Covid-19 patients was 1.4%, based on data its researchers analyzed from the city of Wuhan.

That is lower than the 3.4% mortality rate cited earlier this week by the World Health Organization, which was calculated from the number of deaths relative to the total number of confirmed infections.

U.S. health officials, in contrast, have said they think the mortality rate for the novel coronavirus is likely between 0.1% and 1%, in part because there could be many unreported cases or asymptomatic carriers of the virus.

Gabriel Leung, dean of the Li Ka Shing Faculty of Medicine at the University of Hong Kong, said that the estimated 1.4% mortality rate among people who showed symptoms means Covid-19 is deadlier than the 2009 swine flu epidemic, though less so than the 1918 influenza pandemic.

And given the large and rising global tally of coronavirus infections, “that means a lot of lives,” he added ..."

www.wsj.com/...

[SowingAlfalfa]

" U.S. Economy Added 273,000 Jobs in February

Jobless rate ticks down to 3.5%; impact of coronavirus on economic data has been muted so far

... Most companies reported their February employee head counts before cases linked to the virus rose in the U.S. and other countries outside of China, triggering fears the epidemic would hit global and U.S. economic growth.

... Some companies have expressed concern in recent days about the business impact of the virus and the global economic slowdown. United Airlines Holdings Inc. announced a hiring freeze through the end of June as the spread of the virus depressed bookings. Hyatt Hotels Corp. also froze hiring at some properties as the growing coronavirus outbreak dampens demand for travel.

While virus-related uncertainty could lead to a wider slowdown in hiring in future months, many employers are still reluctant to cut workers given the virus could soon pass and the labor market remains tight. Jobless claims, a proxy for company layoffs, declined to 216,000 last week, a historically low level.

... Kate Bischoff, a Minnesota employment lawyer, said some of her clients in technology and professional services are rethinking the wage increases they had budgeted for 2020, wondering if they can afford to dole out raises if coronavirus wreaks havoc on the economy.

“Should we be preparing for a recession?” she said they are asking. “Should we be raising salaries at this point in time?” .....

www.wsj.com/...

[TK8500]

Close below 2800 today.

[SB Pirate]

Technically we are getting close or in bounce territory pre-market. And just for giggles Monday is the anniversary of the market turn in 2009 so it's make or break time in the next two trading days.

[techy46]

SP500 PE ratio still way too high at 22.7.

It needs to dip below 20!

[deeminimus]

Although I'm not a fan of Gundlach, he made at least 1 good point. When the emergency rate cut was made and sent the 10 yr negative versus inflation, that was a turning point. Now we'll see round 2 of the market panic going into next week. The stalwart issues that have supported mutual funds and ETFs will be rerated by the panic stricken computers that run the market today. He and others that have said that neg rates will kill this market are correct.

[Seekingbetaguy]

Jobs number. Oh boiy.

[deercreekvols]

Futures starting off very cloudy. No need for shades today, which seems like a theme at this point. Crude down sharply. Gold up 1% with no comment from King Midas. Bitcoin, proving that it is a safe haven, is up fractionally and remains well below the All-Important $10,000 level.

FAA adminstrator Stephen Dickson thinks a certification test flight for the 737 MAX could happen "in a matter of a few weeks." There it is! Boeing news is brought to you by Boeing, of course.

Defending the business of fossil fuels and resisting targets on carbon emissions, Exxon Mobil CEO Darren Woods called pledges by some of its Big Oil rivals to cut carbon dioxide emissions a "beauty competition" that would do little to halt climate change. Que the comments on climate change. The Sahara Desert was not always a desert. Rivers flowed through the area, trees were abundant.

Elon Musk is excommunicado. The Continental and its services are closed to him.

For the month of February, the company's comp sales in China were off 78% Y/Y, says Starbucks, with the worst week being the 2nd week of the month. Since, the company is seeing some green shoots. Starbucks says more than 90% of its stores in China are now open for business, albeit on elevated safety protocols that include limited lobby service, minimal seating and a greater emphasis on its mobile ordering service.

Customers who bought Tesla's Model 3 cars shipped out of the company’s Shanghai factory are threatening litigation, accusing Tesla of replacing the new control processors with older versions. Tesla has said that it was deeply sorry for the confusion and that it did not mean to mislead customers but wanted to “complete” order deliveries “as soon as it could.” Tesla claimed there was “almost no difference” in driver experience or user safety between the standard Model 3 and the ones made in China. Nothing like making an impression on Chinese customers! "Almost no difference" in driver experience but you still pay for a new vehicle. Yikes.

Tesla lands approval in China from the Ministry of Industry and Information Technology to sell longer-range Model 3 vehicles. Fantastic! No word if the longer-range Model 3s will be equipped with new control processors or with older versions.

After another worker tested positive for coronavirus, Samsung Electronics has again suspended operations at its smartphone factory in South Korea’s southeastern city of Gumi. Production will resume on Saturday.

The use of coal in the U.S. fell the most in 65 years in 2019, down more than 13%, with a similar drop forecast this year, the U.S. Energy Information Administration says. Last year was the second biggest on record for coal plant retirements, as ~18 GW of coal capacity went dark or were given a timeline for closing, and utilities already have announced plans this year to shut at least seven coal-fired plants. Natural gas anyone?

Southwest Airlines is expecting a hit of up to $300M for first-quarter operating revenue, prompting the carrier to cut its outlook.

Not much positive news out there, so it seems. Remember, it is only a loss if you sell at a loss.

Where is Jon Corzine and will MF Global be buyers of Coal?

Where is Marissa Mayer and will her online sports betting company see an uptick in business as March Madness draws near?

Where is Elizabeth Holmes and has she been practicing her different voices for her trial?

Have a great day and wonderful weekend everyone. Stay safe out there.

[DABA13]

Bought gas this morning at $1.97/gal.

[2959]

At least Exxon stated the obvious; offsetting/trading carbon just passes the buck and blame. The companies on paper look like they are producing less, but if your sharing, the overall output doesn't change. Sort of like some of the "feel good" laws that don't address the issue, just the symptoms. Long Exxon. I'm viewing the oil/energy plays like the banks during financial crisis. Time will tell.

[blueline]

The pro EV crowd always talk about how nothing can go wrong with them because there are fewer moving parts, just a lot of electronics. Ignoring the battery life what happens when the electronics become outdated and obsolete like these old Tesla processors?

I just had to buy a new Mac because my old Mac had become obsolete. Apps wouldn't work and updates couldn't load. The machine still works fine but it's unusable. In 5-6 years when the electronics on EV's becomes outdated and obsolete how much is it going to cost replace it?

[User 509088]

Why cover the town hall and not mention that he committed to moving on entitlements?

Once the trade deals kick in. What? Are they percodans or something?

Jimmy the gent throwing money in the air for his sponsors, and the room goes wild.

I mean, it’s not just politics if he’s continuing to remove the safety net to profitise it.

The Empire Loyalists were trumpites of a sort, who had to flee the wrath of the american revolutionaries who wanted to punish them for profiting from being corrupt insiders who benefitted from the king’s insanity.

Canada knows all about them, because the loyalists were allowed to flee to canada and have been a pestilence ever since.

[User 509088]

Another cruise ship goes red, a Nile cruise ship. Cruise ships are to corona like trailer parks are for tornadoes.

[Kodi]

Floating Petri Dish become Floating Incubators

[User 509088]

Let’s hold them there and see what grows on them!

[Quarter Section]

Cruise ships are floating single wides.

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