The Dividend Cafe - Daily Covid and Markets - Monday July 6

Episode Date: July 7, 2020

Market futures never did point down last evening, and I woke up very early eastern time to futures pointing up 450 points. After a cup of coffee I realized that China’s market was up a stunning 5.7% today alone. Consider this for those mystified by the actions of the U.S. stock market: the Shanghai Composite Index is now the highest it has been since early 2018. We live in crazy times. Anyways, the Dow opened up big, and traded between +300 and +400 most of the day, and closed right near the high of the day, up +460 points. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the COVID and Markets podcast brought to you by the Dividend Cafe. This is David Bonson of the Bonson Group and it is Monday, July 6. We had a huge market rally today starting off a brand new week and that comes off of a pretty big market rally last week as well. It's in the four-day holiday week saw markets advance 800 points and then today we started off the week with a 460-point rally in the Dow. The futures were never really down last evening. They weren't up a ton, but I never saw them go into negative territory. And then when I got up very early Eastern time this morning,

they were already up 450 points. China's market overnight was up a stunning 5.7%. China right now, their market is at the highest place it's been going back to the early part of 2018. So you, it's just, I don't know, kind of confounding, I guess is a good way to say it. There's reasons for China's market performing the way it has, but they're probably less explainable or less rational than understanding what's going on with our market.

It wasn't a super volatile day. I mean, when I say we went up and down a bit, at one point we were only up 275 points But we kind of stayed up between three and four hundred most of the day a good portion of that Upside coming at the first tick of the day And then it rallied in the last 15 minutes of the day to close near the high at up for 60 You know there was big news around the announcement that Warren Buffett

had made his biggest acquisition in years. A lot of people have been saying throughout this post COVID, the peak hysteria of March that post that period, we had not seen Buffett make a major acquisition despite having over a hundred billion dollars of cash on hand and my argument has always been that it's actually a lot harder to do a deal when you have over a hundred billion cash than when you have much less cash because to move the needle you need a much more sizable deal and more sizable deals are harder to come by. And there's also been

the little reality that largely around Federal Reserve interventions in the credit markets, but there hasn't been a significant amount of large-sized companies that have been in distress or in need of equity capital, let alone M&A. And so I just don't think that argument has made a whole lot of sense. But then now you do get a $10 billion deal today in the natural gas space, and you barely get a report about it. So that's the media environment that we're living in. The fact that that deal was in natural gas transmission, I think, is telling of where there is distress, where there is opportunity, where there is upside, where there will be growth, where there is an infrastructure story and so forth. we normally do first. That Buffett transaction really is the biggest story of the day, but perhaps it ended up getting somewhat eclipsed by the federal judge's ruling out of the court in DC

that the Dakota Access Pipeline in the Bakken region would not be allowed to go forward. I'm sure it'll be appealed, and I doubt that that story is done yet, but it is a really bizarre blow for some of the job opportunities that were available in that region. And now you do have some pipeline growth that will not happen until there is a different judicial ruling. And so we will see what ends up happening with the Dakota Access Pipeline, but that's potentially a big story around the regulatory environment for the pipeline transportation of crude oil and natural gas. Okay, I know a lot of you listened for the COVID data. I'll be honest, I was surprised by how much admission there was today

from at least some non-media doomers and gloomers. The media is definitely doing what they do, and that's not going to change. But I think that the weekend's data in a lot of ways is, again, revealing of those who live with a half-full-glass mentality and those who live with a half full glass mentality and those who live with a half empty glass and then those who live with neither, but rather just a kind of agendized approach to things. The fact of the matter is that there were green shoots over the weekend,

some of which are overwhelming, and others I still think there is data we want to continue to watch. But I'm going to go through all of that here in a moment. It was a long weekend. I mean, a lot of people started to check out already on Thursday, and then you had Friday being off, and then, of course, Friday was the 4th itself, and then the Sunday add-ons. So you had three or four days worth of data.

There were some states that didn't report on Sunday. We were expecting that to hit the data hard here on Monday, and it didn't. We had about 250 deaths reported today. We had about 250 deaths reported yesterday. We're averaging something in the 500 range over the last week, which is the lowest seven-day number we've seen. So the mortality rates, you know, what they're saying now is, well, it'll be another week or it'll be another two weeks or what have you. And I hope that isn't true.

I hope there aren't more people that will be passing away. I hope that the mortality rates stay very low. I do get the feeling at times that there are others hoping for something different. And I find that very morbid and very odd. But regardless of when it is we're supposed to see these deaths surface, they haven't yet, and I would think for most people it would be really good news. Certainly the case growth has continued,

although the rate of case growth has declined. The idea that we're going to shoot right through 50,000 a day and get up near 100,000 a day, as most of the analysts I was following on the more doom and gloom side were projecting, seemed to have hit a little stall there. And we've been in the 40s a couple of days. But again, there could be reporting lags. I just want to continue reiterating the point that regardless of where the case growth goes, whether we are actually declining, whether it's leveling, or even if there ends up being some more expansion, which there does not seem to be at this time, I don't know

what the big long weekend reveals. We'll get that sorted out in the days ahead. What I do know is there does seem to be a growing acceptance, not just by markets, but by society, that case growth is a part of our world right now at least until it isn't and that that case growth is not the defining metric that matters I would add that the other thing I think getting settled into the narrative that is playing out at this moment is the eventual decline of the virus as greater herd immunity is developed. That seems to more and more be on the horizon when you see places like New York that had such

a significant outbreak in March, April that have really been unscathed over the last several weeks and the European data backing up some of this idea. I spent a lot of time over the weekend in studies from some of the most respected scientists in the world and the notion of herd immunity I think is continued objective and likely part to play in us moving past the coronavirus chapter of our lives. The ongoing improvement in treatment from therapeutics to steroids to hospital practices that extend life are quick in recovery, making the awfulness of the virus more manageable. I think that's the third element that's really at play as well. And of course you know we understand the the younger age of those who are

contracting the virus. I did by the way post a chart in covidandmarkets.com today showing the just really significant cases by age in Florida going as low as 19, 20, 21, being the largest area up through the 30s. The age with the very most cases of COVID over these last couple of weeks is age 21. The median is still down there in the 30s. But again, that median age pretty much been cut in half

since March, April, really explaining a lot of why the mortality rate and the severities are not growing higher. So in terms of where we stand, we know 43% of all COVID deaths have taken place in senior care facilities. Part of it may be wishful thinking, but part of it I think is logical. I would just like to think that we are prepared for better care of our senior citizens in nursing and assisted care facilities now. And that alone would bring the mortality level way down if we're more equipped to deal with where the bulk of the mortalities have taken place to begin with. By the way, today's testing data was only 518,000 tests. I say only because we've been averaging about 650,000 tests

per day and so the testing seemed to have been a little lower today, maybe a blip coming off of the weekend. But around the globe, UK daily cases have been cut in half since mid-June. Germany and Italy see no second wave at all. There is more and more study out there, by the way. There was a German paper I quoted the other day. There is now a Swedish follow-up. Sweden's paper suggesting a 30% built-in immunity in the human body from a certain T-cell formation that basically keeps the virus from being able to,

it kind of kills off the virus before it spreads in the body. The German paper suggested it could be as high as 80% of people that may have such. I don't know exactly what the number is, but that would explain a lot of why there is this sort of resistance in some pockets of the population. By the way, I would encourage you to go to covidomarkets.com to look at a chart I put, it's not something I do a lot, from Iran. My argument is that I just would like to think, and I didn't put any effort into proving this, that our medical and our treatment, our prevention metrics and capabilities and resources in the United States should be much better than Iran's. I mean, I guess people could push back on that

if they want to do, but that's sort of something I felt comfortable assuming. And you see in Iran that they had a second wave kicked up pretty significantly after their initial, you know, big wave. Theirs kind of peaked out in middle of April and then dropped all the way through the end of April and then throughout May had another surge. And then you just see a dramatic decrease off of their second wave. And so I think if their second wave peaked after a couple weeks and then began to decline, I'm hopeful that that would be the case in other more developed societies. State of Colorado continuing to confound critics, pundits, they're just

speechless as Colorado has had such a benign response to their reopening. I think it is becoming indisputable that outdoor conditions are a tougher world for the virus. I'm a big advocate of outdoorsism despite the fact that I myself live so much of my life indoors working, but I am still quite fond of those who are outdoors and thereby representing a greater defense against the spread of COVID. But also I have to say that whether it's Colorado or any number of other states, there just simply has not been an easy correlation to find between reopening restrictions and the case growth.

In other words, you have states that have been lax on reopening, but hard hit and lax on reopening and not hard hit and vice versa. So the just various quadrants, the correlations are hard to come by between state policies and what their state has gone through in terms of COVID diagnoses. How are Americans responding to it? Well, it's only one data point. There's a lot out there, but I was taken by this report from First Trust today. 352,000 passengers on May 31st, the TSA total passenger count. 607,000 on June 22nd, 732,000 here on July

5th yesterday. So more than doubling total flight from Memorial Day to Fourth of July weekend. And, you know, even over the last two weeks, as there's been a lot more press around this kind of talk of case growth, you still saw that number continue to grow. So that's encouraging. What may be discouraging is that 55% of the entire U.S. potato crop had to be destroyed due to restaurant closures around the country. I guess when you can't convert to French fries or when French fries are not there for purchase, it really damages the potato crop industry.

So I shared the data point on Florida's age demographics. I have in California, 41.6% of ICU beds are currently available. 66.1% of ventilators are currently available. In Arizona, the implied estimate by CDC infection rates is a mortality rate in Arizona off of infected cases of 0.18%, hospitalization rate of 0.51%. They had one death today, four deaths yesterday. There could be lags in

reporting, but going all the way back two weeks, there's been, you know, somewhere between five and twenty-five deaths per day. Each life is valuable, but again, when you hear comparisons to New York a couple months ago where there were a thousand deaths a day going on, and we're talking about 10, 15 deaths a day, I think it's important that you're aware of that data. You'll have to go to covidmarkets.com because I'm going to wrap this up now. But market technicals, we'll talk more tomorrow about the breadth of today's market rally. You know, the last three to four weeks, we've seen a lot of up and down movement. We're kind of just at the same place we were three to four weeks ago.

We're about 50 points off in the S&P from the early June highs. But it is important to point out that this whole consolidation, so to speak, we've gone through has taken place with the S&P above its 200-day moving average. It's a pretty bullish indicator. Take note too, structured credit, CMBS, commercial mortgages, a default, or I should say to be technical, delinquency rate in June of 3.59%. That's a big jump from the month of May, but far lower than a lot of people are anticipating. Commercial mortgages are more complicated than residential. When it's in a CMBS security, there's a special servicer assigned to manage the process. And ultimate foreclosures have historically been very low and then where they have happened, very high recovery

because of equity and property and so forth. But obviously that whole concept in the structured credit has continued to be a very investable thesis. So I'm going to leave it there. The futures are about flat going into Monday night. Thank you for listening to COVID Markets Podcast. Please read COVIDMarkets.com each and every day. Reach out to us with any questions you have.

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