To judge by the green on my stock screens last Monday, you'd have thought Lam Research (LRCX, news, msgs), Research In Motion (RIMM, news, msgs), IBM (IBM, news, msgs) or perhaps a few other companies had some solution to the swine flu outbreak.
As a friend commented with tongue in cheek: "Buy some RIMM. People will lose jobs, stay home and e-mail nonstop from RIMM-a-phones."
In that way, I guess RIMM would be a "play" on both swine flu and unemployment.
Certainly, there is nothing to commend the travel/tourism sector, as companies such as Royal Caribbean Cruises (RCL, news, msgs) and Carnival (CCL, news, msgs) will clearly be hurt by the flu outbreak (not that their businesses weren't already in trouble, thanks to the recession).
There was logic behind the slide in those companies' shares. But in other areas of the market, the action was far less logical.
Swine flu concerns? Go out to dinner!
Dot-connecting was certainly MIA the next day, when many restaurant stocks (already the beneficiaries of huge rallies in the past month or so) finished higher. It was somewhat incongruous to witness world markets like our own panic over swine flu (to the point of pounding the price of hogs, etc.) while speculators partied in restaurant stocks, even though the flu's spread might keep many cautious diners at home.I can't tell whether that means the fears of swine flu are overblown and it was just an excuse for traders to lower the stock market, or whether restaurant stocks are caught up in some weird orbit of their own.
In any case, I found it striking that the consequences of swine flu would apparently matter to everything except for one particular group that would definitely be affected by a flu pandemic.
Tilting at inflection points
Now to turn from infection to inflection points:For someone with a bias like mine, Tuesday's action in the bond market, combined with Wednesday's macro data and action in foreign-exchange trading, made it possible to conjure up the notion that we are nearing a major inflection point: the funding crisis I've written about before, the consequence of all the monetary and fiscal stimulus the U.S. is using.
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On Tuesday, long bonds cracked a potentially important level around 3.85%. One could make the case that the low is in for yields and that they are on a slow, steady march higher. Of course, the Federal Reserve is not going to accept that at face value and will become more aggressive by monetizing long (30-year) bonds.
What ought to happen to the dollar -- as I have felt for some time -- is that it should be pressured by that monetization. On Tuesday and Wednesday, the dollar was very weak. It looks like it could be beginning to break down on the charts.
But charts have a way of repairing themselves, and I may be jumping the gun (which I have been known to do on more than one occasion).
There are myriad reasons -- not least of which are the trillions of dollars of supply -- why one would expect interest rates to rise and the dollar to decline. But an environment where we saw weaker growth and more inflation would be especially bond-unfriendly.
Weaker growth would prompt the Fed and the government to keep applying stimuli. The inflationary consequences would pressure interest rates higher, which the Fed would try to suppress. That action would exacerbate the problem, and the vicious cycle would continue.
Continued: A replay of the 1970s
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