“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks

1. Oil Plunges Below Zero for First Time in Unprecedented Wipeout — the current May futures contract, which expires April 21 20, dropped to minus $37.63 a barrel. Underscoring just how acute the concern over the lack of storage is, June’s contract settled at $20.43. That gap between the two contracts is by far the biggest ever. This means that oil for delivery next month has essentially been deemed worthless, suggesting sellers may have to instead pay someone to take it off their hands.
2. First U.S. Virus Death Came Weeks Before Previously Thought — Two residents of Santa Clara County, California, who died at home on Feb. 6 and Feb. 17 were infected with the virus. The first death is 20 days earlier than what was previously thought to be the first U.S. fatality, and about three weeks before health officials identified the first Covid-19 infection without a known tie to other cases. The deaths were also weeks before cities and states began implementing widespread social-distancing measures. U.S. attempts to track the virus at the time were hampered by shortages of tests and highly limited criteria for who could be tested. In early February, the U.S. was still relying on the CDC for all testing of potential cases. Tests sent out by the agency to state and local health labs later that month turned out to be unusable, and widespread testing only became available weeks later.
3. House Ratifies $484 Billion in Aid for Pandemic Relief — Donald Trump signed a $484 billion spending package that includes more money for small businesses. The new law will also deliver tens of billions of dollars in aid to health care providers and grant $25 billion to expand virus testing. It’s unlikely to be enough, though, with lawmakers already discussing the next phase of virus rescue legislation. The news comes as the CBO said the federal budget deficit may more than triple to a record $3.7 trillion this fiscal year.
4. Cuomo announces phased plan to reopen New York — Andrew Cuomo sketched out a phased reopening beginning with construction and manufacturing, possibly on May 15, and probably upstate before NYC. Other businesses would reopen based on how essential they are. New hospitalizations must have dropped for two weeks. Bill de Blasio said in that event he’ll relax the lockdown and open up schools, companies and cultural institutions. New York had 367 deaths on Sunday, the lowest number in almost a month. Almost one-third of business economists expect operations at their companies will return to normal in five to eight weeks, though almost as many say it may be three to six months, a NABE survey showed. Georgia restaurants and movie theaters can reopen. Follow the developments with our Virus Update.

The week ahead — Economic data from Econoday.com:

“Only when the tide goes out do you discover who’s been swimming naked.” — Buffett

1. Airlines, Treasury Reach Tentative Accord to Tap Billions in Aid — U.S. airlines reached preliminary agreements with the Treasury Department to access billions of dollars in aid as the government attempts to shore up one of the industries hardest hit by the coronavirus pandemic. The aid represents a temporary lifeline for airlines after the outbreak and government travel restrictions erased all but 5% of daily passenger demand in the U.S. Forced in some cases to pay more in refunds than they were taking in from new ticket sales and fees, carriers have cut capacity as much as 80% and parked thousands of planes in the industry’s worst-ever disruption.
2. U.S. Economic Data Show Deep Hit in March, Collapse in April — the value of overall retail sales fell 8.7% from the prior month, the biggest decline in records dating back to 1992, according to Commerce Department data released Wednesday. Federal Reserve figures showed U.S. factory output dropped in March by the most since 1946, just after World War II ended. But surveys in April looked even worse, with manufacturing in New York state and sentiment among U.S. homebuilders plummeting by previously unthinkable amounts. Coronavirus containment measures escalated quickly in the month as states began closing restaurants and bars to dine-in customers and urging residents to stay home. Now, almost every state has issued a stay-at-home order and many businesses have temporarily shuttered in the wake. The month was also defined by millions of layoffs, which have continued into April, and sharply reduced spending power.
3. U.S. Jobless Claims Top 5.2 Million, Erasing a Decade of Gains — more than 5 million Americans filed for unemployment benefits last week, bringing the total in the month since the coronavirus pandemic throttled the U.S. economy to 22 million and effectively erasing a decade worth of job creation. The latest figures suggest an unemployment rate currently around at least 17% — far above the 10% reached in the wake of the recession that ended in 2009 — in a sign that the effects of shutdowns have spread well beyond an initial wave of restaurants, hotels and other businesses.
4. China Suffers Historic Economic Slump — Gross domestic product shrank 6.8% from a year ago, the worst performance since at least 1992 when official releases of quarterly GDP started and missing the median forecast of a 6% drop. The economy hasn’t contracted on a full-year basis since the end of the Mao era in the 1970s. Both retailing and factory output showed improvement from the nadir in the first two months, suggesting a stabilization in economic activity. But the data overall indicated an uphill struggle awaits the world’s second largest economy and its experience will be monitored elsewhere for clues as to how fast other economies will emerge from lockdowns.
5. Big Banks’ Profits Sink as They Brace for Loan Defaults — US banks are setting aside billions of dollars to cover bad loans after the coronavirus outbreak. JP Morgan boosted its reserves for potentially bad loans by nearly $7 billion. The bank warned it could boost those reserves even further in the April-June period. Meanwhile, Bank of America ’s allowance for loan losses is now almost $7 billion higher than it was in December. The reserve for credit-card losses is double what it was at the end of 2019.
6. Market Completes A 50% ‘Bear Market’ Retracement — Over the last couple of weeks, we have indeed had an extremely strong “oversold,” reflexive rally, that has now reversed the conditions that “fueled” the advance. The next level of resistance for the SPY is around 292 which shows a retrace of 61.8;

The week ahead — Economic data from Econoday.com:

“Most people view risk taking primarily as a way to make money. Bearing higher risk generally produces higher returns…But it can’t always work that way, or else risk investments wouldn’t be risky. And when risk bearing doesn’t work, it really doesn’t work, and people are reminded what risk’s all about.” ― Howard Marks

1. U.K. prime minister moved to intensive care — Boris Johnson, who is fighting a serious coronavirus infection, was admitted to an ICU in London. He deputized his foreign secretary, Dominic Raab, to run the government. More than 10,000 people in the U.S. have been killed by the coronavirus. The U.S. has more than double the number of coronavirus infections of any other nation. Meanwhile, there are signs that social distancing has helped slow the spread of the disease in other regions, such as Europe.
2. Exxon slashed capital spending — Exxon slashed capital spending by 30% to $23 billion and CEO Darren Woods said the company has capacity to further increase cuts if required. The Permian Basin will bear the largest share of the reduction, which exceeded the expectations of some analysts. Exxon aims to meet its projected investment of $20 billion on Gulf Coast manufacturing facilities. Continental Resources is also cutting production and suspending its dividend.
3. Joe Biden is the presumptive Democratic presidential nominee — Bernie Sanders dropped out of the race after suffering a series of primary defeats across the country, clearing the field for the former VP. Biden must now bring together often discordant factions within the party to try and defeat President Trump during a national health crisis that has all but eliminated public events and dramatically curtailed in-person voting.

Howard Marks Memo regarding the Corona-19 Bear Market
Howard_Marks_Calibrating

The week ahead — Economic data from Econoday.com: