Trafalgar Partners LLC

From an investment perspective, and to an even greater extent the general business community, that a bifurcation, or split, is rapidly growing between businesses that will thrive as a result of the current virus, and those that will fail.

The top technology companies including the usual suspects of Apple, et al, and mid tier firms like Adobe and Nvidia, continue to take market share as demands for their products and services sky rocket. Since the March low, we are up almost 70%.

Sadly though, the general market for stocks continue to languish as the market sorts out the remaining companies. To a fair degree retailers are getting annihilated as are restaurant stocks. Cruise lines, airlines, and hotel/travel businesses continue to see volumes 60-80% lower then the February peak.

The question now is how long can they survive and can they continue to tap the equity and bond markets. As of a month ago that was still possible, but even with government intervention rates for noninvestment grade credit are rising.

This morning's weekly jobless claims show a slight improvement but we are still seeing weekly claims of about 20 million.

Dark times remain. The Federal Reserve and US Treasury are all in and that is supporting liquidity though we are reaching $8 trillion in government borrowing.

Be careful out there.

The main driver of the 2008-09 Financial crisis was the reality that the commercial banks and brokers had net negative equity, a result that the property held as collateral for mortgages was worth less then the loans themselves. We, and other financial firms, believed that the banks that had got themselves in trouble should be allowed to fail rather then be bailed out.

Sadly, that didn't happen as both the Federal Reserve and US Treasury dumped trillions of dollars into a bail out that temporarily papered over the problems. The idea was that if you could reflate asset prices (bonds and stocks) you could fix the problem. And they did reflate prices with huge Bull markets in both, encouraging companies to leverage up to expand and grow the economy away from the Depression.

But the Corona Virus has derailed this approach and our sense is that the bail outs this time won't work. For the market, a retest of the 2008-09 lows are in order, basically 66% below the current levels. As of tonight the Dow is just under 20,000, the low back in 2009 was 6469.