Let me begin by thanking all of you who read my last My Gut Feeling on Deconstructing the Correction as it was the most opened and most read My Gut Feeling of all time. Furthermore, thank you for sharing that commentary on social media and forwarding to friends and colleagues.
It is going to be a long day today and it is getting late, so I will try to keep this commentary short and to the point. On Friday, there was a last half hour rally, which is uncommon for a Friday when the market is exhibiting the sort of panic and volatility that occurred last week. That was an encouraging sign.
However, all dreams of a follow through on Monday turned into nightmares. Over the weekend at the OPEC (Organization of Petroleum Exporting Countries) meeting, the Kingdom of Saudi Arabia refused to agree on coordinated crude oil production cuts. Instead, Saudi Arabia decided to boost production. This caused crude oil to crash about 25%, essentially starting a price war.
I spent some time last evening chatting with my energy expert, one of my proteges, who as it turned out was on vacation. Why have the Saudis started this oil price war? Here are a few reasons:
- The Saudis desired to retake their prominence in the industry
- It was a direct attack by the Saudis on the Russian energy business
- Saudi Arabia seeks to put the fracking industry out of business, which is primarily located in North America
- A direct message to the alternative energy industry / green movement that crude oil is here to stay
The good news is that drops in crude oil will lead to lower energy prices around the world for consumers and businesses. The bad news is that the Saudi actions reverberated into the world equity markets such that futures for US indexes were down limit – 5%. The other benefit is that the crude oil war may push coronavirus off as the lead story for the 24/7 news cycle.
So be prepared for a harsh market open. After the open when the down limits are released, we could stabilize as the down limits are intended to work and perhaps rally or, we could take another leg lower. As I write about 2:30 AM EDST, it is hard to say.
I will say that equity markets were already well oversold and overnight at least one Wall Street chief market strategist (another friend of yours truly) is calling for a multi-week rally. Others may follow.
If there is one company that might most benefit from the coronavirus panic and crude oil decline, it is Costco (COST). I plan on swapping out of Boeing (BA) into COST today at or just after the open. BA can be repurchased at a later date.
I would add that Friday’s job report added nearly 100,000 more jobs than expected and there were solid upward revisions of 85,000 for prior months. March’s report will be interesting give the panic over the coronavirus.
Just remember that in 2009, H1N1 killed more that 12,000 people in the United States as per the Centers for Disease Control and Prevention or CDC. So far, the coronavirus has claimed 22 casualties. I do not see that figure getting to 12,000. I don’t even think that it gets to 2,000. I am not going to let coronavirus scare me from going to a hockey game, associating with other people or being in large crowds, especially as I survived 9/11. I will just wash my hands as often as possible, use hand sanitizer and be careful. Futhermore, in South Korea, new cases of coronavirus has declined. That could be a very positive development
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long BA – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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