I checked in with Mike, my book writer friend. He said the Chinese government has forced its citizens to return to work because the economy is tanking.
Being an investment professional, he follows the bond markets. The 10-year Friday dipped briefly to 0.65 before recovering a bit to 0.75 in the afternoon. He says the bond market is never wrong.
Meanwhile, the stock market actually finished the week with a slight gain of one-half percent. That was due in part to the large one-day rally on Monday or Tuesday.
So, we're at an impasse. Does the stock market, which we think of as a "discounting mechanism," simply shrug it off and continue higher on the notion this pandemic, which is what it is, is a temporary event that will have little lasting effect on the normal exchange of goods and services?
If that is the case, then the decline in the past month, actually less than a month, created a situation of relative bargains for the common stocks of large, listed companies. Not wanting to be left out, institutional money will rush to buy up these discounted shares until they are no longer considered relatively cheap, and the pricing discoveries will return to one of investors paying a premium for future earnings.
This would also imply that the bond traders have been caught in a bull trap. Their trading profits evaporating, they will rush to sell to preserve what profits they have. The interest rate will rise above a percent as prices decline for the available supply for sale.
Warren Buffett and his billionaire sidekick Charlie Munger are both closer to 90 than 80. You actually think they will get in their private jets and travel to Wuhan and Hubei provinces looking to buy up distressed Chinese factories?
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