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
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Trader Bill on Wine 