Surprises, contradictions just keep coming

Well folks, it’s been quite a week. The contradictions and surprises just keep coming. Last week ended with Joe Biden on the ropes and predictions that Bernie Sanders would sweep Super Tuesday. That didn’t happen. As expected, Biden had a good showing in South Carolina, but he got to work cutting deals with Pete Buttigieg and Amy Klobuchar to drop out and endorse him. He then went on to win 10 of 14 States. As of this writing, Mike Bloomberg and Liz Warren have dropped out as well, but Tulsi Gabbard has not yet thrown in the towel. Tulsi, who is running in the wrong party, is barely showing up on the radar, but as of Thursday morning, her campaign is still active.

It all comes down to delegate math, of course, and although Biden won ten of the fourteen states, they are not winner-take-all contests. Sanders is approximately 65 delegates behind Biden, but with more than thirty states to go, the race is far from over. Bernie is fighting back by differentiating himself from Biden and minimizing differences between Biden and Trump, but so far, the electorate seems to prefer back rubs over free stuff. As Uncle Joe would say, “That’s why it's called Fat Tuesday...er, super…. You know what I mean.”

The ongoing virus saga took an interesting turn this week as well. Late last week, POTUS held a press conference flanked by Vice President Pence, HHS Secretary Alex Azar as well as infectious disease maven and national treasure, Dr. Anthony Fauci. Fauci, who started with NIH in 1968 and has been on the front lines of disease control from AIDS through Ebola and everything in between, admitted that even he couldn’t predict the scale of an outbreak in the US, at which time the press immediately claimed that he was being squelched by the administration.

I have followed Fauci’s career for many years, and I am convinced that if he can’t predict the outcome, no one can, and I’m inclined to disbelieve anyone who thinks they know better. As misfortune would have it, however, the list of US fatalities reached double digits shortly after that conference, feeding media speculation of a cover-up.

Not to be daunted, recommendations by professionals remain the same. Stay calm and wash your hands. So far, the coronavirus pales in comparison with the seasonal flu, and our local hospital, health department and first responders have all stepped forward to support that assertion in recent days. I’m convinced that they are as prepared as reasonably possible and that, if you’ll pardon the pun, we are in good hands.

The biggest surprise of the week came in the form of a rate cut by the Fed. I am always fascinated by the carefully studied, cryptic hint dropping used in Fed statements. It’s a bit like listening to KICX for clues to the Pirate Pete contest, but this time they were much more direct. Fed Chief Jerome Powell as much as promised at least one rate cut in the month of March, with possibly a second to follow.

The surprise was that they didn’t wait for the March 17-18 meeting to announce the cut, but rather made an “emergency” cut on Tuesday, March 3. It was the first emergency action since the housing bubble crash of 2008.

The cut follows several difficult days in the stock markets. In what was heralded as the biggest single loss since 2008, nearly five trillion dollars of market valuation disappeared into thin air. That’s never a good sign, but we were reminded to put the losses in perspective by viewing it as a percentage of total valuation, which has increased substantially since 2008. Those caveats provided little comfort for traders who were looking to recover from sudden losses and seemed to inspire the Fed to stimulate investment accordingly.

The market drop has been blamed on several factors. The one most often cited is the concern that the coronavirus has already resulted in manufacturing shutdowns in the PRC and can potentially do so in the US and elsewhere.

Domestic GDP is already down, due in part to Boeing’s difficulties with the 737 MAX, and any further degradation of GDP is likely to reverse some hard-won employment gains.

Another theory posited as a joke by the president was that the market was responding to the tenth DNC debate in South Carolina. Like many of the President’s off-the-cuff wisecracks, it was lauded as brilliance by Fox and Fact-checked by CNBC. The debate was, by any measure, chaotic, but more importantly, Bernie Sanders, the socialist who rails against corporate America and promises a speedy return to government regulation came out of the debate relatively unscathed and as a possible front-runner. It’s not hard to imagine that this would cause jitters on Wall Street.

An additional factor, most likely related to all of the above, is that the “VIX” volatility index had spiked, which triggered an automated sell-off by fundamental traders.

Many observers (including me) saw the market as due for a correction, and while political and virus concerns were influential in the timing, the correction was inevitable.

As a decades-long fan of Public Broadcasting’s McLaughlin Group, I am too often tempted to make political predictions as the group does at the end of each broadcast. Weeks like this one remind me that predictions are a risky, messy business and fraught with the twists and turns that keep life interesting. Have a good weekend.