Markets to resume down move soon
All eyes on NFP; Berkshire reports colossal losses
This coming Friday, we have the release of the monthly NFP (Non-Farm Payroll) report and the unemployment rate. It is going to be a noticeably big number. The expectations for NFP are above minus 21 million and unemployment rate above 16%. We are so used to seeing biggest and lowest for many data sets in the recent past, so that itself should not shock us.
Many of these big numbers have never been reported in our lifetime nor have they come up ever since the authorities started compiling data formally. The good thing is that most of these have been factored into the prices.
In the last report, we touched on Berkshire Hathaway’s first quarter results. In fact, the company lost more than 54 billion dollars from their 90 odd investments in various companies. That’s a lot of money to lose!
They got out of all investments that flies in the air. But still have huge investments in a company called Precision Castparts who are mainly suppliers to Boeing. That investment is only adding to their pain. The truth is that major listed airline companies are going to take a mountain of debt and a lot of government support. When will they give some returns to its shareholders if they are going to be buried with so much liabilities?
If you are so negative about airlines, it means you are not bullish on globalization anymore. If airlines are duds, then neither can you be bullish on hotels, restaurants, airports, and tourism related stocks too. As usual, Buffett is very bullish about the long-term prospects of USA. Long term for Buffet could be a generation.
Drumbeats about holding China responsible for the pandemic are increasing from all corners of the world. US is leading the charge with Secretary of State Mike Pompeo making some clear remarks. Trump has repeatedly said there will be “consequences”.
The US authorities are investigating to confirm if it was a case of neglect and cover up or even a deliberate attack.
Very soon, we can expect trade issues to be reignited again. Think the immediate response to this in the markets have transpired in the prices of Bitcoin. In two days, prices have spiked by 23%. The Chinese control this market. Chinese citizens have always used Bitcoin to express their fear of capital control and a way to move money out of the country.
Let’s analyse the markets.
Equities
The NYSE advance/decline ratio opened sharply negative in NY yesterday but as the day progressed it became less negative. But it remained negative towards the close with slightly more increase in downside volume (53% vs 47%). Both the major indexes – the DJIA and S&P 500 – closed above the Friday’s close.
Think this upside pressure should peter out soon and the market should reassert its down move. Whatever it is, important prices remain below the highs posted last week at 24,765 in the Dow and 2955 in the S&P 500.
Bonds
The move up in the 30-year US bond prices from Mar 18 to Apr 22 is a three-wave pattern which is corrective in nature. So, we are waiting for the next significant move which should be to the downside. At the moment, it is still displaying a lot of sideways activity.
Euro
Euro traded as per our expectations and think we have already seen a top. We are now looking for a move below the low of Apr 24 at 1.0727. The bigger picture is a bit confusing but a move below the previous low should give us more clarity.
Gold
In the short-term, Gold can rise to 1722 or slightly beyond before it resumes its down move.
There is also an outside chance that Gold can make an upside thrust to suck in all those fence sitters who have been contemplating about buying gold before the downturn starts in earnest. A move below 1665 to 1660 will cancel all the above possibilities.
Be safe. Be small. Be home.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.