Super Ugly

The last week has been a long year.


Disclaimer: I am not a finance professional. I hold no licenses to trade or manage money. Do your own due diligence when investing your money. These views and opinions don’t necessarily reflect the views and opinions of CLNS Media.

About 20 years ago, rappers Nas and Jay-Z were in a fierce rap battle. Though the two have long since made up and actually united, the track “Super Ugly” was what escalated the beef to the point of going too far. I won’t go into the details of the diss track, they don’t matter. This week reminded me of that track. I saw a great comment on social media this week from a coworker about what the last 7 days have been like. “The last week has been a long year.” Boy, that is the truth. Here’s a short list of what has transpired since my last article:

  • The oil pricing war began
  • US equities went limit down… twice
  • All major sporting events have been suspended or cancelled for the foreseeable future
  • A national state of emergency was declared to battle the Coronavirus pandemic
  • There was a national run on, wait for it… toilet paper

Bear with me because there’s quite a bit to unpack here, so let’s take them one at a time. I’ll do oil first. The collapse in the oil price year to date is significant for a few reasons. First, the oil market has been foreshadowing a global economic slowdown for months. It’s now foreshadowing recession. Second, it shows that despite popular belief, Putin and Trump are not actually friends. Russia is very clearly trying to harm the US shale industry by not cutting supply and driving prices down even as global demand slides. That is an incredibly dangerous combination for US producers. Many of them now have a higher cost of production than what they can get on the market. More simply, at $30 per barrel, the business model just went bust. Third, prices at the pump will come down temporarily. Yay! Fill up. It won’t last.

To update my previous equities analysis, my daily S&P chart now looks like this:

Though I accurately predicted much deeper declines ahead two weeks ago, I did not anticipate the total lack of a bounce before fresh lows. Even still, I think that bounce may come. There was an aggressive 1,400+ intraday Dow move on Thursday after the Federal Reserve announcement of massive increases to overnight repo operations. In plain English: market intervention. If you’ve been following along from my two previous posts, we’re now about to get our final fed “tool.” There is more intervention likely coming. Friday’s intraday trend was again almost a carbon copy of the two Fridays before it with late afternoon surges to the highs.

If you think the President waiting to hold his emergency declaration until 3p was an accident, I have a bridge for sale. While it’s possible, even likely, that broad market stocks continue to rise, I am now of the belief that we cannot achieve new highs without substantial stimulus. I view any rip continuation as a sell opportunity until that stimulus is announced. And to be clear: balance sheet expansion are the key words we are looking for. Until we get that (and we probably will), sell the rip. There is no bullish case for equities without massive stimulus.

On Wednesday night, Americans figured out what pretty much everyone else on the planet already knew; Coronavirus is a problem. After delaying the NBA game between the Jazz and Thunder, Jazz center Rudy Gobert tested positive. The NBA quickly suspended what remained of the season. The rest of the sports world followed suit within 24 hours.

You would think at this point, people would now understand that what we’re facing is a significant health concern. Yet somehow, there are still people who believe the Coronavirus is a hyped-up media-driven non-event designed to hurt the president. I’ll do my best to explain this so that a 5th grader can understand it.

Though there is much we do not know yet about COVID-19 because it is so early, reports from around the globe to this point show two key differences from your run of the mill seasonal influenza. Those differences are mortality rate and incubation period. Everything we have seen in the early stages of this point to a mortality rate multiple times higher than the standard flu. The World Health Organization has put that number in the 3% range. Though that number will likely come down considerably closer to the 1% range, it still means that even though far fewer people have Coronavirus than the flu today, those who get it are 10 times more likely to die from it than those who get the flu. If we don’t take drastic measures, COVID-19 will quickly pass seasonal flu cases.

This brings us to incubation period. The incubation period estimates have been between 2-14 days on the lower end with a typical case producing symptoms in the 5 day range. This incubation period can be as large as several weeks on the outlier higher end. Again COVID-19 is far worse than the seasonal flu in this category. If you get exposed to the flu, you’ll probably know in a day or two. If you catch COVID-19, you could be passing it to anyone you come in contact with for two weeks before you know you have it. In summary, COVID-19 is easier to spread and more likely to kill you than typical influenza. If the virus spreads parabolic like it did in China and Italy, our health system won’t be able to handle the influx of patients and we will have a large scale health crisis.

We can avoid the parabolic spread by taking the steps the State of Ohio took this week. As Ohio’s Department of Health Director Dr. Amy Acton said, we can reasonably expect 100,000 infections already in the buckeye state alone. At a mortality rate of just 1%, 1,000 people could potentially die from this in Ohio even if the disease stops spreading. And did I mention Ohio is one of the states handling this well? Others are not.

Can we stop calling this the flu now?

If you happen to be worried about the economy, I understand your concerns. They are valid. It is going to get bad and recession is almost a certainty. There will be bankruptcies and job losses. But read between the lines. The president told you where this is all going yesterday. Taxpayers are backstopping the insolvent US shale industry. Student loan interest is cancelled. When things start to really get bad, both of these programs will be expanded beyond just oil companies and student loan interest. ‬It won’t just be banks and automotive manufacturers. We’re bailing everyone out this time.

Roy Sebag was one of the first people who I saw throwing out the idea of a “debt jubilee” back in 2018. If you think that outcome is impossible, you’re not putting all of the dots together. Every major development this week points to a much weaker dollar in the future. The Fed just announced a major repo stimulus and it barely moved the needle in equities. We will need more than cash bazookas when the virus has subsided. We will need the bombers. Our current debt-reliant system can’t sustain the deflationary shock it is currently experiencing. The Fed will print, the currency will be worthless, and we will start over.

If the dollar gets obliterated, as I suspect it will, those who hold the gold make the rules. Who has been buying gold? Russia and China. Coincidentally, the country that just triggered the oil crisis and the country that just gave the world COVID-19 are the countries that have been aggressively buying bullion the last several years. Love him or hate him (I don’t love him), Putin is a tremendous chess player.

Final point: please stop blaming the media. News organizations did not create hysteria to take down the economy and hose your guy. Truth be told, from a purely economic standpoint, news organizations are arguably among the biggest losers in this. Do you think Disney (ESPN and ABC parent) and Turner (TNT) want to lose the NBA? Do you think ViacomCBS wanted March Madness cancelled? Of course not. Will news ratings go up as more people are stuck in their homes? Possibly! Guess what? It doesn’t matter if nobody is buying advertising because the economy isn’t functioning. Media companies just lost billions of dollars in the last 3 days. Yes, that’s billions with a “b” …in 3 days. Regardless, the people who work in this industry are going to continue doing what they do, exposing themselves to a pandemic in the process, to get you the information that could save your life. They are not the enemy. So please cut it out.

Bringing it back to “Super Ugly,” this week has to be our super ugly moment if we are to survive as a nation. The political fights, the blaming of others, all of our issues; it has to stop if we’re going to get through this and come out stronger together. We have officially escalated the bickering and blaming to the point where a global pandemic is now a political argument. Jay-Z and Nas came to their senses and buried the hatchet. There is no reason we can’t as well.