The Virus Is Still Alive in the 'Post Curve' World
Tomorrow is a big day for oil... $20 oil again?... The ultimate bear market strategy... Beware the 'second wave'... The virus is still alive in the 'post curve' world... More bar-room napkin math... Lessons from Singapore...
The reporter wanted to ask a question about oil...
This was during last night's "The Apprentice: Coronavirus Edition" briefing (as the critics may call it), live from the White House...
"What's the price?" the president asked the questioner who was sitting in a chair, six feet away from everyone else, computer on his lap and looking up at the podium.
"I honestly don't know," the reporter replied. A quick Google search would have done the job in that moment, but he hesitated.
"How can you ask a question about oil if you don't know the price?" President Donald Trump replied. He had a point... Then, he pointed to another reporter and said, "Let's move on to something important."
Ah, but this was important...
We wish the reporter just had basic competence to elicit an answer.
Understandably lost in the pandemic on our planet's hands... the loss of life... and the global impacts of this "sticky" disease (which we will talk about today, as well)... is what's been going on with the price of oil over the past month or so.
It's easy to forget... But back in early March, as the coronavirus fears were reaching the U.S., the price of Brent crude oil, the international benchmark, dropped 9% in a single day on March 6, and tanked further that weekend.
When this happened, whether directly or indirectly, panic started to really set into the markets the following week. As we wrote in the March 6 Digest, there were two big things going on with oil at the time...
First, the coronavirus outbreak and the associated fear-driven impacts (like less people traveling) have lowered oil demand across an already oversupplied-with-oil world... (Stansberry's Big Trade editor Bill McGilton wrote about this last month in the Digest.)
Second – and the more pertinent catalyst – Saudi Arabia and Russia, two of the three largest oil producers in the world, are locked in a negotiation standoff that reached a significant boiling point yesterday.
We also laid out the backstory, which ended with the fact that without an agreement, there would be no oil supply restrictions on Saudi Arabia, Russia, or any of the two dozen OPEC or OPEC+ members, starting April 1.
Since then, the spread of the virus has only gotten worse – and oil demand has cratered...
Today, the price of Brent crude oil is up a bit... sitting around $33.
But the Saudis and Russians – although they're at least talking to each other – haven't reached a significant agreement in their standoff.
In fact, Saudi Arabia is flooding the market with supply while demand has fallen by about 30 million barrels per day in recent weeks...
Yet apparently, officials involved in the talks did agree on something... that U.S. oil-supply cuts need to be part of the global path forward.
At the same time, President Trump said on Monday that he doesn't want to tell private U.S. oil companies what to do.
Trump said cuts are probably happening "automatically" due to supply and demand factors. And that's part of the reason the U.S. released data earlier this week that said oil production would decrease 13% in 2020 – from 13 million barrels per day ("bpd") to 11 million bpd.
The White House is reportedly hoping this data convinces Russia and Saudi Arabia to end the oil-price war when representatives from the OPEC and OPEC+ nations chat tomorrow via video conference.
That means tomorrow is a big day for oil...
As Stansberry NewsWire analyst Nick Koziol reported on Tuesday, what comes out of Thursday's OPEC cartel meeting is important...
It remains to be seen whether OPEC will accept this decline in [U.S.] production as a cut from the U.S. or if it wants a firm commitment on extending cuts.
But the oil market needs a production cut. Saudi Arabia is flooding the market with supply and demand has cratered.
If the meetings come and go without a cut, we could see oil prices plummet back to $20 per barrel.
$20 oil is, of course, bad news for the oil and gas industry...
Many highly leveraged companies in this sector were already in fragile financial states before the coronavirus and the "price war" emerged. Our Stansberry's Big Trade editor Bill McGilton wrote about this idea in the February 14 Digest...
At current prices, many oil companies remain uncompetitive...
They have cost structures that can't keep up in the world of $60-something oil... let alone $50-something oil.
In the boom years of 2011 to 2014, these companies took on huge amounts of debt that made sense in the world of $100-plus oil. Now they're burdened with heavy debt and projects with high break-even costs.
Offshore and deep-water drilling projects are the most expensive, Bill explained. And the lower prices go, fewer and fewer projects – and even cheap ones – would make less economic sense.
If you own oil and gas stocks, take a look at their financial reports and check their breakeven costs...
That's what Bill told his Big Trade subscribers back in January. And the same goes for today...
If most of their production has breakeven scenarios that rely on oil staying near today's prices... be careful.
And pay close attention to their debt, too. If these companies have high debt levels, make sure they can generate enough cash from operations to cover it...
I'm willing to bet you'll find a lot of companies are in trouble if oil prices go lower, as I expect... That means we'll likely see many more oil and gas bankruptcies from here.
All this, and more, is exactly why Bill recommended a bet in January against one such highly leveraged oil and gas producer. The trade is up an astounding 228% today.
It's the ultimate bear market strategy...
These results are all part of Bill's "portfolio insurance" strategy. While most assets fell significantly in value over the past two months, several of his trades have returned triple-digits.
And now – with stocks having sold off big – Bill has added a wrinkle to his approach. It allows subscribers to put on trades on high-quality companies – the kind of "forever" stocks that Stansberry Research founder Porter Stansberry recently recommended – at discounted prices.
Bill calls this the "Ultimate Bear Market Strategy." And in fact, that's the title of a brand-new special report available to Big Trade subscribers today.
If you don't already subscribe, you can learn more about Bill and his trading service right here.
Beware of the 'second wave'...
We've talked about the potential for a second leg down in U.S. stocks over the past two days here and here...
Today, we want to share a perspective on the possible "second wave" of the virus outbreak itself... because it informs how markets may react in the intermediate term.
In short, a move to the "downside of the curve" in the U.S. over the next few weeks shouldn't be accompanied by balloons and streamers... or forgetting that this whole thing ever happened.
As regular Digest readers know, COVID-19 has spread across various locales all over the world... first in China and then quickly to every other continent except Antarctica.
(Although the virus has been at least close to the home of the South Pole... 128 passengers who just returned from a month-long cruise to Antarctica recently tested positive for the virus.)
In China, the spread started at least in late December... reached a reported peak in mid-February... and only yesterday did the country lift its lockdown on the city of Wuhan, the epicenter of the disease.
That all took a little more than three months. And that's the rough math a person could use to reach an observation if he largely believes the Chinese data. We know many folks are skeptical.
In any case, today in China, there are big fears of a so-called "second wave" of the disease. As we're being told by doctors now, the disease might be able to be spread just by breathing, even if you have no symptoms.
So at the very least, people there are taking precautions as life gets back to "normal" in the "post-curve world." From a National Public Radio story today...
"Just because we have zero new daily cases does not mean we have zero risk," said Yu Yeru, a manager at the Hankou train station in Wuhan on Wednesday.
Amid growing public pressure, China's national health commission began disclosing daily new confirmed asymptomatic cases on April 1 but has not released a total number of such cases since the start of the outbreak.
Similar concerns linger in other places on the back end of 'the curve'...
Singapore, the Southeast Asian country that is the home base of our international editor Kim Iskyan, was lauded back in the early days of the pandemic as the "gold standard" for a country's approach for detecting COVID-19.
In early February, the country had the second-most cases of the coronavirus (after China). Given the population discrepancy, you might think the country was more open with its reporting.
A big facemask-distribution effort, taking peoples' temperatures everywhere, and an aggressive effort to trace and treat the contacts of people who contracted the virus helped stem the spread in Singapore.
The country fell to No. 53 in terms of number of cases, as many as the state of Oklahoma.
But today, Kim reports that cases have doubled in Singapore over the past two weeks, after it looked like the country had stomped out the virus...
In fact, today marked a new single-day high in new cases in the country with 142, out of a total 1,623.
That's a relatively low number by the standards of other countries – and even U.S. – but the point is that the trend headed in the wrong direction once "social distancing" measures were loosened.
As of Tuesday, schools and all non-essential businesses in Singapore are closed... And social distancing is being more heavily enforced. According to Kim...
The government is calling it a "circuit breaker" (which sounds much better than "lockdown lite.") The Singapore exception – fighting a pandemic while keeping life more or less normal – is no longer.
What happened? Well, a few weeks ago, Singapore closed its borders (and now, anyone entering the country has to go into a forced quarantine at a local hotel)...
But before that, thousands of Singaporeans abroad – some of them infected with the virus – flocked home... from the coronavirus breeding grounds of Italy, the U.S., and elsewhere. And they've been spreading the virus here ever since.
What's more, the most reliable data we know of – from Johns Hopkins University here in Baltimore – doesn't show a conclusive sign of new cases stopping in the majority of countries as of today.
'Flattening the curve' isn't all that it's made out to be, according to Kim...
He says the main takeaway is this...
The experience of Singapore – which was so efficient at tackling the coronavirus that its curve didn't even need flattening – suggests that it's way too early for anyone in the U.S. or Europe to break out the Champagne, because a "second wave" is coming...
If even tiny, well-organized Singapore is suffering a "second wave" of the coronavirus, you can bet that New York, Italy, and anywhere else that looks like it's "flattening the curve" will, too.
Once asymptomatic carriers – as well as people who are sneezing up a storm – get out of lockdown, and social distancing becomes a relic of an early 2020 bad memory, the second wave will become real.
We'd rather not be the bearer of bad news... But as long as a COVID-19 vaccine doesn't exist (and that's why there are at least 70 treatments in development), it appears this pandemic will keep going. Stansberry Venture Technology editor Dave Lashmet wrote us, in part, today...
Without social distancing and masks, the cases will just spring up again, and hospitals will remain at capacity, and a 2,500-plus daily national death rate will be sustained.
We find ourselves writing words that are very similar to the ones we wrote back in February...
Back then, most people didn't know if what was happening "there" would happen "here"... But it was reasonable to presume it would.
We described the timeline of what was going on in China on February 26, the same day a U.S. Centers for Disease Control official finally publicly acknowledged the virus would spread in the U.S. As we wrote then...
We're halfway through the year before we can even start thinking about shaking the coronavirus jitters... and gross domestic products ("GDPs") across the world will have taken blows.
Now, six weeks later, it looks like we're hitting our peak in cases... just as "second waves" are starting in places that have had and probably will have stricter lockdown policies than the U.S. It's happening again...
Once again, using "bar-room napkin math" as we did in February – and that's exactly what these curves used by politicians are – it would be foolish not to expect a "second wave" here... a few weeks after we humans go back into the wild.
The good thing is, we sense there's less "fear of the unknown" with this disease overall (i.e., less panic), but only because most people knew absolutely nothing about COVID-19 before January at the earliest.
The second wave could be minor.
But we can't imagine the U.S. markets will react well if quarantines start all over again... or even if we're in "lockdown lite" for a while. And let's be clear...
We don't want that to happen. For instance, I really wanted to watch the Masters golf tournament, starting tomorrow... and see my mother-in-law, who is in a nursing home.
But if what's happening in the rest of the world is an indicator (and it should be), don't be surprised when a second wave reaches our shores.
New 52-week highs (as of 4/7/20): none.
In today's Digest, a question regarding guidance from our Greg Diamond in Tuesday's Digest... Do you have a question or comment? As always, send them to feedback@stansberryresearch.com.
"You mentioned in [last night's] Digest that [Ten Stock Trader editor Greg] Diamond [is] watching the 2715 level in the S&P as being important. No matter what method I use to capture a level of resistance, Fibonacci or any other, I don't get 2715?" – Paid-up subscriber Rob B.
Corey McLaughlin comment: Thanks for the question, Rob. Greg provided more detail on this in a Ten Stock Trader update early this morning (at 5:54 a.m., in fact... well before we were up for sure). The 2,715 level in the S&P 500 is near a key "retracement" level.
All the best,
Corey McLaughlin
Baltimore, Maryland
April 8, 2020