2020 has certainly been off to a wild start but here is the big surprise as we kickoff trading this week.
A Market Run By Machines
February 18 (King World News) – Peter Boockvar: I want to ask something somewhat rhetorically here. What is more surprising, that Apple with its huge customer base in China and broad procurement needs also in China announces that its business is being negatively impacted by 2/3 of the Chinese economy almost shut down or that the stock in the face of these obvious facts hit a record high last week? Was last week’s confident stock action proof that the stock market is no longer a discounting mechanism because it’s mostly run by machines that are only using current inputs? Was it the assumption that this virus is just not a big deal and will quickly go away? Or was it the belief that the Fed and other central bankers will continue to save us from every single ill?
If it is the last possibility, I’d caution people in believing that will continue to be the case with rates already so low. I recommend instead that investors focus more on the fundamental stories of what they are investing in and get that story straight instead of relying on a central bank put that might not exist anymore in terms of its effectiveness. My personal answer to the questions: all of the above…
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Also a factor on the early market weakness in tech is also the possibility that US tech companies will lose more of China’s business in the name of national security. I get this concern of ours but it is quite a tough balance to create between that security and cutting off US companies from the 2nd biggest market in the world. I don’t have any smart answers here to the dilemma.
Japan’s GDP Plunges
I also want to comment on Japan’s GDP report for Q4 that was reported a few days ago. Instead of falling 3.8% q/o/q annualized, it was even worse, down by 6.3%. Much of this was the negative impact on consumption because of the October hike in the value added tax as that raised the cost of living for its citizenry and the cost of many things. As inflation is just the form of another tax, it begs the question why the Bank of Japan is still so intent on generating higher inflation. If they eventually succeed it would have the same impact on the Japanese economy that the VAT increase did. If the Fed and ECB are also successful at some point, they should expect the same economic impact that Japan just saw. Why they don’t connect the dots is still beyond me.
Trouble In Germany
The February German ZEW investor expectations index of the German economy fell to 8.7 from 26.7 and that was well below the estimate of 21.5. The Current Situation also weakened falling to -15.7 from -9.5 and that was less than the forecast of -10. The ZEW said:
“The feared negative effects of the corona virus epidemic in China on world trade have been causing a considerable decline of the ZEW Indicator of Economic Sentiment for Germany…Both the downward revision of the assessment of the economic situation and the downturn in expectations show clearly that economic development is rather fragile at the moment.”
We know unfortunately this level of heightened uncertainty is coming at an already vulnerable state of the Germany economy where it’s economy was barely growing before any of us ever heard of the corona virus in part to their big exposure to China. This figure, along with the flight to safety trade that continues to help the US dollar, has the euro lower and testing the $1.08 level. The German 10 yr yield is lower by 1.5 bps.
Growth In The UK Post-Brexit
In the face of Brexit uncertainty in December didn’t stop the UK economy from still moving forward as for the 3 months ended December saw job growth of 180k, above the estimate of 148k. The unemployment rate held at the lowest level since the 1970’s at 3.8%. Wage growth did moderate to a pace of 3.2% y/o/y ex bonus’ from 3.4% but that is still well above the rate of inflation. January jobless claims rose a modest 5.5k. The pound is higher in response and gilt yields are higher too. I continue to like the pound and pound denominated UK stocks.
Also of importance…
Eric King: “John, your company had some news today. Can you talk about the just released PFS and your plans for 2020?”
Nevada’s Next Gold Mine
John Awde: “This is going to be Nevada’s next gold mine. It will be extremely profitable with a towering IRR (Internal Rate Of Return) of 40%! Gold Standard owns the second largest land position in Nevada and it is our intention to not only ramp up the ounces and move existing ounces to measured and indicated from inferred, but we also intend to go after another Dark Star-style discovery. The bottom line is we are just getting started and 2020 should be a banner year for Gold Standard Ventures, both in terms of discovery and enhancement of the existing flagship project.” Gold Standard Ventures, symbol GSV in the US and Canada.
KWN has now released an audio interview
***To listen to Egon von Greyerz discuss the Coronavirus and its impact on markets, gold, silver, stocks and what to expect in 2020 CLICK HERE OR ON THE IMAGE BELOW.
Greyerz – End Of A Grand SuperCycle
ALSO RELEASED: Greyerz: DANGER – World At The End Of A Grand SuperCycle CLICK HERE TO READ.
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