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Wkly Round-Up thru Feb. 7th 2020; Risk Appetite is High!

Hey Folks, the markets have been resilient to almost everything thrown its way thus far. Even the Corona Virus has proven to be nothing more than a common cold; -at least so far. But Colds can develop into something much worse if not treated properly. Enjoy this week’s update.

Market Sound Bites;

• To others around the globe, loading up on US Equities makes some sense because our interest rates continue to attract foreign buyers with the current 10 year around 1.58%, our inflation is low and our markets continues to outperform other markets…and with a very strong consumer, optimism is high and so is current levels of spending…so given all of this, what could go wrong? And some may be thinking the Corona Virus as a potential Black Swan event may be killed off by the virus itself…

• The market action this week was very much bullish with most all major Global Markets finishing in the green except for China…Risk Appetite continues to rise despite the move lower at the end of this bullish week…for example, risker behavior is materializing in areas that foreshadow how increased market liquidity forces investors to take on greater risk in order to secure higher yields…this can be seen in speculative paper called PIK Securities which is like the interest only mortgages but here with PIK Securities Companies don’t even pay more interest; –they just borrow more debt…it also allows PE Firms the ability to extract their investment returns from deals that may go south…one company issued over $450 million in 5 Year PIK Securities rated CCC with yield over 12% with the proceeds immediately going back to the PE backers of this company…not for R&D or to pay down debt; -rather it is used to extract returns from the original PE investor…this type of behavior was also last seen and common a year before the 2008 Financial Crisis…Greater speculative risk is always the counter to more market liquidity and search for yields in a very low interest rate environment…in these cases the investor is not being adequately compensated for the extra risk they are taking…

• And speaking of risk appetite and speculative heat, look no further than TSLA stock which doubled in less than 8 weeks before seeing its shares sell off a bit from peaks attained this week…at its current market capitalization each car produced by TSLA is worth $367,000 per market cap; for BMW each car per market cap is worth $17,000 and for GM it is worth $6,400….

• Even though this past Friday’s monthly Jobs numbers were very strong coming in at 225,000 vs expectations of 160,000 with unemployed coming in at 3.6% as more folks entered the work force, the Corona Virus fears and some profit taking caused markets to take a breather…the biggest fear with the Corona Virus currently is not the current death toll or the total confirmed cases, but the rate of increase in reported cases…when this number shows signs of leveling off and then slight reductions, then we will see the markets respond very favorably…

Weekly Round-Up

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