Vol. 6 No. 2 The Morning after the Night Before

Market Update (wine follows)

TB hopes that this will not become like so many New Years resolutions and fade after a week or so as it is a good exercise for him and hope you find it useful too. As promised, today will combine economy/market news with wine industry news and thoughts of the author. Here goes:

Yesterday, the markets had a strong rally, up about 6%, and based on the overnight markets which are up 2% now, but down from 4%+ earlier, we should have a continuation today. But what is of utmost importance/concern is that it closes up again today. Why? Because Monday’s strength only took us back to a week ago, before last Tuesday’s (3/31) gap down and collapse.

Since the selloff began, the VIX (options volatility index) surged from the low to mid-20’s (to simplify meaning 4:1 calls than puts) to the mid 80’s – a total reversal! Last Friday was options expiration and a triple witching (stock market index futures, stock market index options, and stock options), thus producing enormous volatility. Overall, the market did quite well  in the first test of an expiry at end of a quarter! Note that the 31st was last Tuesday and a bad day for stocks but better than it could have been.

Sri Kumar, of his eponymous global strategies group, in Santa Monica, CA. was on Bloomberg this morning and I always listen to him. He does not see the rally as sustainable, and the risk is now that people believe a bottom is in, which Kumar feels is too early. Contrast this to the great financial crisis of 2008-09, when the market bottomed on implementation of the bailouts that were only accomplished under the Obama Administration, whereas under Bush 43, who wasn’t proactive enough to push a GOP Congress to act. Thus beginning on March 9, 2009 a rally ensued, continued relentlessly until February 2, 2020! Heed! (note: in case you think TB is a guru, he missed most of the rally and went to mostly cash when Trump was elected. Note on the night of the election the overseas markets tanked along with U.S. futures but after selling off early in Wednesday’s session, resumed the rally…ugh!

Bush 43 also left running the government to the Cheney/Rumsfeld duo that Bush 41 loathed and tried to warn his son about to no avail. The duo convinced Congress into invading Iraq in what was supposed to be an ‘in and out’ operation and that convinced the Democrats who had voted against (and were proven wrong), to vote for it…to his credit Bernie nixed it. The result was the destruction of the first balanced budget in over a decade under Clinton (like him or not), and the beginning of the monstrous deficits we are running today…along with THREE tax cuts that gave most of the benefit to the wealthiest Americans thus widening the wealth gap. Note too, that we were promised they would only go into Afghanistan to get Bin Laden. These lies along with the one Colin Powell was forced to give to the UN that Iraq had weapons of mass destruction (WMD), have put us in the longest and most costly wars in our nations history. Think what that could have done for the economy, especially with the infrastructure spending that economists were calling for, and no, Trump’s ‘Wall” does not constitute infrastructure spending!

But I digress…TB is a fiscal conservative, former Republican but can’t call himself a Democrat however that is how he will vote unless and until both parties come to their senses…along with 70% of American voters who are split evenly and both sides are wrong (IMHO). Extremism is not sexy…or useful. On a personal note, we are in the process of selling our beautiful  condo home of nine years on Lake Minnetonka. We listed it just before the crisis and rather than be under the stress of living there with prospective buyers coming on short notice, moved to a beautiful luxury apartment in nearby Edina, MN. This puts us closer to our kids and grandkids! Would have been nice if we had decided on this earlier, but ya never know, do you?

Wine

As promised yesterday, TB’s thoughts on the state of the wine industry which was already having issues prior to the virus, and is having mixed impacts since. Here goes:

  • First, the tariffs imposed on Euro countries who make parts for the Airbus (go figure on the relationship to wine), have impacts that are muted so far but have far-reaching implications:
    • the tariffs imposed were on all wines from some countries but limited from others such as Italy where only red wine with alcohol above 14.5% are subject…huh? Meanwhile, all French wines are with the U.S. being the top importer along with China,
    • one might think this would be a boon to U.S. winemakers, and you would be wrong. First, we are working off supplies of affected wines, and importers are reducing their markup on imports to offset the impact of the tariffs, thus no benefit to American producers…at least so far,
    • any benefit to luxury American winemakers is muted as demand hasn’t shifted (at least not yet), and worse, the Trump tariffs on China have increased the ones by the Chinese, thus drastically reducing the demand from China and TB is now being told that this has shifted foreign sales to South Korea which is not as strong a market, however.
  • Please note that tariffs are never a good idea: first, it isn’t the producer who pays it (except eventually in demand), but the CONSUMER..i.e. Americans! It causes enormous dislocations and now that we have the virus, shipping is being curtailed as dock space is limited and finding healthy crews is an increasing problem. No good will come from this.
    • speaking of crews, the actions of the Acting Secretary of the Navy, Thomas Modly, are inexcusable! First, he is a graduate of both Georgetown University (bet the Jesuits aren’t proud), second he is a former naval officer (helicopter pilot), and while criticizing Captain Brett Crozier, not just publicly but before the crew that respected him for his going out on a limb for them and the safety of the ship. Modly should be FIRED, just like his predecessor , who was fired for his handling of the Navy SEAL courts martial, and more importantly going against Trump, so Modly acted preemptively…and STUPIDLY. This from TB, a former Navy man.
  • There has been a ‘run’ on wine and hard liquor at stores due to fears of quarantine. This means that at least for one go round, retailers will have to restock. On a recent Sunday morning, a local wine shop TB buys from opened up and the first sale was $900 worth of assorted wines. The good news here is being offset by the slack in buying wine from restaurants who need to move that inventory due to the high carrying costs (note that they pay more than a retailer for wine)
    • some have asked states to allow them to sell cocktails and wine in bottles, but not hard liquor, to go. One innovative method is to take advantage of the law which allows purchased bottle leftovers to be taken home – perhaps take a little out of the bottle and recork it to go on demand? Hmmm. TB likes that idea and it should be allowed for the duration of the epidemic,
    • meanwhile wineries are concentrating on improving cashflow and reducing inventory in anticipation of the bottling and release of the new vintage by reducing price, offering free or $1 shipping, and even selling library wines, and donating all or part of the profit to efforts to eradicate the virus…very commendable…and wise!
  • TB is not sure where the big liquior retailers led by Total Wines & More, end up out of this. Both wineries and retailers are experimenting with virtual wine tastings…huh? How can you do this virtually There are two methods:
    • first, a somm or wine rep, or a wine lover can announce a virtual tasting where she describes the wines to be tasted, discusses them, and then goes through a tasting of them either blind or not. TB thinks there is little interest in this,
    • one idea that is gaining traction is to create a list of wines to be tasted virtually, either by a winery (their label) or a retailer who prepares a list of the wines to be tasted and allows time for those interested to pick up the wines and participate. One problem: let’s say there are six wines: what do you do with the leftovers?
      • you can drink all six bottles over the next couple of days ,or
      • you can drink them all and awake with an enormous hangover, or
      • pour them down the drain, especially if you don’t like them (not for TB!)

You decide, in the end YOU are the only one that matters, as always!

Best to all of you, and thanks for reading…if you are still with me.

TB

©traderbillonwine.com, 2020

Published by

traderbill

How did Trader Bill originate? It was conceived by me as a way of providing information summaries of global financial markets so that friends and associates could bring themselves up to speed on events and changing market conditions upon their arrival at work. In addition, it provides information on speakers and economic releases that day with consensus estimates and level of last release so that the reader is prepared to react, or knows how the market might react upon the release of information. Who is Trader Bill? Initially any reference to me was as ‘i’. This is to remove the aura of ego and to suggest that i am but a humble reporter, albeit with 35 years of investment experience. Investments are demanding of ego, however, or one would not feel that he was qualified to manage someone else’s money in the first instance. Therefore i needed an ‘alter-ego’. Like Winchell and Mahoney, Edgar Bergen and Charlie McCarthy and especially Trader Vic and Mai Tai’s! Why Trader Vic? Because he was a likeable man who delivered pleasure to his customers and knew exactly what their desires were. The reason for the alter ego became obvious once I introduced Trader Bill into my commentaries: people started asking what Trader Bill thought. They had never asked me what I thought before, but suddenly they wanted to know what TB thought! Now mind you they KNEW that I was Trader Bill but for some reason he became bigger than life. Maybe it was the small ‘I’? What does Trader Bill try to do?His goal is to educate from his years of experience. Consider that most of the traders and people managing investments weren’t even around in 1987 for the crash! Consider that Graham and Dodd, and even Warren Buffet are not relevant to them, too old hat. Their historical perceptions of markets and fundamentals (earnings, price/earnings ratios, bonds, debt service coverage) are irrelevant in this fast moving world. This is the NEW ECONOMY, or is it? How did your style originate?Years ago i found that i had a knack and talent for writing. In addition, i developed an ability to analyze market news about 15 years ago. It took the Crash of ‘87. Prior to that i was just listening to what others said about the economy. But bond yields had been soaring in ‘87 yet the stock market just kept hitting new highs. That was when i began to learn about markets. i have both a dry and witty sense of humor (some call it inane!). Therefore i attempt to make even the worst news somewhat amusing: whether it is the absurdity of an economic release, or the comments of a CEO. This is trading desk humor (or gallows humor). It isn’t politically correct but it does ease tension. Ironically, it is seeing the light at the end of the tunnel (in the Navy they say: it’s always darkest before it’s pitch black!), that allows you to be more objective in your analysis, as bad as a situation is there will still be a tomorrow! You will see that i practice three-dot journalism, a style made famous by San Francisco reporter Herb Caen, whom i idolized. At least to me it is effective. What is so special about your analysis?Frankly, i don’t know that it is special, but at least it beats “the market closed down today on profit taking.” What i do know is that most of what you read is spat out without considering whether or not it is rational, like the above statement. Is it right? Sometimes yes and sometimes no, and that is the key to what is different about my analysis: it is meant to make you think. Is Dan Rather right or is Trader Bill right? If it causes you to stop and think about it, regardless of whether you agree, i win! Because THAT is my goal…not to have you think i am a guru, got that? Bet you never heard that ANYWHERE before in my business! Instead they want you to think just how smart they are but remember in this business if you are right 60% of the time you ARE a genius! Another thing that is different is when i am wrong on an analysis i will tell you, not hope you forget what i said. So now you have the tools to do what the speculators and hedge funds do: challenge authority, and if you make money it is because YOU did it not me. i was just a tool, your flunky to do the grunt work and let you decide…course you could be wrong too but at least you looked at the big picture. But the goal is also to have fun! This shouldn’t be a business of hushed tones and grim faces. It is a living, breathing thing and nowhere else in the world do you have the odds as much in your favor as here. Just beware of the guy who wants to put his arm around you and tell you he is your friend. So there you have it. I hope you select me as one of your sources for market information. If you do I promise to work my best for your financial success. Trader Bill

3 thoughts on “Vol. 6 No. 2 The Morning after the Night Before”

  2. I shake my head at the thought of a virtual wine tasting. First, the wine has to be shipped, and then it needs to settle for a while before it is opened; will the consumer and winery actually wait for the wine to settle? (This may be on my mind because I received an email today from UPS that a case of wine recently purchased from California “will be delayed in arrival due to a train derailment”, a first for us.) Secondly, many people don’t have wine glasses that best show the wine (so the winery’s reputation may undeservedly take a hit with some of the participants). Lastly, the best part of a wine tasting is the sharing of observations among participants, something which is too intimate to transmit effectively on Zoom.

    Like

    Reply

Leave a comment