The Virus, the Bernie Factor, and the Europeans Rodney Johnson | February 27, 2020 It's been a crazy week. The major U.S. equity indices puked their guts up, mostly over the spread of the coronavirus, COVID-19. With the Chinese economy stuck in a very low gear and new outbreaks happening in South Korea, Italy, and Iran, it looked like it was just a matter of time before the nasty bug washed up on our shores in a meaningful way. Then staff from the Centers for Disease Control and Prevention (CDC) said as much, noting it's not a matter of "if" we have an outbreak in the U.S., but rather "when." Well, that's just awesome… But that's not the only thing driving the stock markets into the ground. That little thing called the presidential election is heating up, and the Democratic race for the nomination took a not-totally-unexpected turn when the candidates took turns punching Mike Bloomberg in the face during his first debate appearance. Bloomberg's performance was largely panned, though it did have one big positive: he can only improve from here. The ugly outing sapped the power from the notion that Bloomberg would swoop in on his billions and secure the nomination as an adult moderate, friendly to business and yet nodding to social concerns. Mike's loss was Bernie's gain, which was punctuated by the results of the Nevada caucus, where Sanders picked up almost 50% of the vote. There's now an avowed socialist at the front of the race, and it's scaring the hell out of investors. If you're not sure about it, take a look at United Healthcare Incorporated (NYSE: UNH). The stock lost 6.3% on Monday, then 6.4% on Tuesday, and was responsible for more than 15% of the drop in the Dow. Bernie has pledged to destroy private insurance, and he's leading in the polls. Just to drive the point home, the latest Reuters poll shows Sanders beating Trump in a head-to-head race among all likely registered voters, 47% to 40%. But there is a caveat. If Sanders takes the nomination and gathers national support, he would likely repel voters in Trump country who sent Democrats to the House in the midterms. Those seats could flip back, giving the Republicans either more voice, or perhaps even a majority, in the House of Representatives. Gridlock would be a friend to the markets if Sanders sits in the White House, but it's not a solid wall. With the presidential pen he can still enact many regulations and call for interpretations that favor a socialist agenda. After all, that's why his supporters would be sending him to the Oval Office. And then there are interest rates. The rush to safe havens as COVID-19 spread drove up the dollar and flattened interest rates, but there's more to it than that. If the knock-on effects of the virus put the Chinese economy into recession and drag Japan and Europe down with it, then it's a sure bet that the Bank of Japan and the European Central Banks will respond with a flood of new cash, sopping up equities and anything else the can find in Japan and buying government bonds across the euro zone. The moves will drive interest rates further into negative territory in those markets, eventually pulling U.S. rates down as well. The only question left will be, "When will the Fed lower rates?" If the sell off continues and the economic pain increases, the pressure will mount on the Fed to fix the inverted yield curve by cutting the overnight rate. Rodney Johnson This Week in Economy & Markets... Just a Corona Correction? Harry Dent | Feb 26, 2020 The markets on crack have largely ignored the coronavirus, which obviously could be a potential game changer. And now they react, down 2,600 points on the Dow, as soon as it hits a "white toast" country like Italy. Yes, the markets are quite bigoted! The markets have been on a tear ever since the Fed started pumping money feverously due to the repo crisis, and have continued with the coronavirus. That has stalled for now, hence I expected a correction here... READ MORE » All Hail the Mighty Dollar… Or Not Rodney Johnson | Feb 25, 2020 There's always some old relative who, when you ask how he is, says, "I woke up on the right side of the grass, so I must be alright!" Kind of funny . . . the first time. Then it's just another non-reply that doesn't answer the question. If the only choice was being dead or alive, we wouldn't ask. The answer would be obvious... READ MORE » The Coronavirus Goes Global Rodney Johnson | Feb 24, 2020 When such a deadly virus hits, the first stage is always containment, as has occurred rapidly in China. But when it starts to spread past its origin more rapidly, it gets a life of its own. At this stage of the coronavirus's spread, it's better to focus on mitigation through sanitation and less direct social contact. Governments should support businesses and stop closing things down to make the economy and panic worse.... READ MORE » On the Markets: Stay Skeptical Rodney Johnson | Feb 21, 2020 Our eyes these days are on the Fed's balance sheet, and they'll continue to be, as we march forward through this repo and coronavirus crisis. What we're seeing is a slight easing back and now flattening on repos, but the Fed's still buying Treasury bills. That all combines to a mild positive for stocks, but it hasn't been enough to show the likely next big surge quite yet. Keep an eye on... READ MORE » Economy & Markets  |  Dent Research You are receiving this e-mail as a part of your free subscription to Economy & Markets E-Letter. Remove your email from this list: Unsubscribe. 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