The Dividend Cafe - Daily Covid and Markets Podcast - Monday June 8

Episode Date: June 8, 2020

The market rallied another 460+ points today, and the S&P closed back where it started the year (so not quite back to its all-time high, but back to its New Years Eve level). The Dow has a little more work to do still. The entire thing is surreal. 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 today's COVID and market submissive brought to you by the Dividend Cafe of the Bonson Group. It's David Bonson. It's Monday, June the 8th. The market rallied another 460 points today. It was up over 200 most of the day and then rallied hard at the end of the day yet again. The S&P 500 actually closed back where it

started the year. Now even on the year, not quite to its all-time high because of course the S&P had been up earlier in the year. But my point being, the S&P is now flat on the year. The Dow is a little more work to do. But regardless, the whole thing is surreal as we're sitting at a Dow level above 27,500. On the health data side, the numbers are more or less a broken record. I feel like I'm kind of saying the same thing every day. Uh, case growth is just a hair over 1%, absolute case growth right around 20,000. And yet testing is up 15 to 20%.

Uh, and then the positive ratio of test is coming back in between four and 5%, which it did yet again today. It was, let's see, 4.27% positive today, and that was on 380,000 tests. So the numbers on the health side are good, and they're just very steady. They're not changing a lot. New cases have been flat for, I don't know, two, three weeks, I believe, and yet those hospitalizations continue to decline. The recoveries continue to increase. So some folks are expressing some concern, and I don't want to belittle it, but I do want to unpack it a little. I did a lot of research on this this morning.

People are expressing some concern in Texas, South Carolina, North Carolina, in particular Arizona. I put some charts for you at covidandmarkets.com today where you see an increase in North and South Carolina, for example. Well, North Carolina reported 907 new cases, but four new deaths, four in the entire state. Since the very beginning, they have had 98 deaths per every one million of their population. And that's less, oh no, excuse me, it's right at,000 deaths total in the entire state. And I hope and pray it goes without saying that we mourn every one of those 1,000 deaths. I mean that very seriously. But that's the context of numbers in a macro sense that we're talking about, 1,000 deaths in a population of roughly 10 million

people. South Carolina reported one death yesterday and is more or less around the same place as North Carolina in their mortalities per capita. And they're near the bottom of the country in cases per capita right now, on an absolute basis, have only 6,393 cases in their entire state, less than 200 of which are classified as serious. So those are the numbers we're talking about in North and South Carolina. And these are the states that are being held up as the concerning states. Now, Arizona and California have had an uptick in cases, but there was a big one-time data dump of U.S. citizens and green card holders who had been quarantined in Mexican border cities, and they just returned to the United States for medical treatment. So there's a context behind those numbers. And then I think Texas, too, I'll go into that.

Texas is big on testing. They're not one of the leaders in the country of people getting the voluntary testing that is needed and desired and wanted and whatnot. But look, I mean, you're talking about 2,600 cases of coronavirus per 1 million population since this all began and only 64 deaths per 1 million, which is among the lowest in the country. So there were 953 new cases yesterday. That still keeps their total active at 24,000, among the lowest per capita in the country. You're talking about 24,000 people right now in the state with an active case, 1.6% severe cases, and that's out of a population

of 30 million people. Then you go to where we really did have obviously the significant center of our coronavirus pandemic in the country in New York City. Their first phase of reopening actually began today. Phase two is scheduled to begin in two weeks. And there are 781 new cases for the entire state yesterday is the lowest since mid March. So I think that context around the country is important. And I think that the health data right now is probably going to stay about flatlined here or very predictable until we get a chance to see if indeed there is an uptick around the events of the last week or so with the protests and things like that. Let's move on to market technicals a

little bit. There's no question that the underlying tension right now is the strong market momentum, which only got stronger today, and then some of the contrarian sentiment factors. You see that put-call ratio at its lowest level, and then you see the, what is it, 65% of S&P 500 companies at a three-month high. So really strong breadth and advanced decline ratios on these strong up days. The market momentum is strong. Then I looked at the things that I think are more fundamental indicators that I care about a lot more. You see the 210 spread starting to get more attention. And again, what that is a reference to is the spread between the yield on the two-year treasury and the 10-year treasury. And you want there to be a wider spread there to indicate more of an appetite for risk.

Well, we've been putting a lot of attention on the 90-day, the three-month T-bill, and the 30-year, and also the two-year and the 30-year. Those are traditional spread indicators. That is reaching new levels of steepness as well. This drives financial stocks higher, banks, insurers, those that make money off of the normalized environment of borrowing at one rate on a short term and investing at a higher rate on the long term, those are steep dynamics that indicate a healthy economy. This is not a healthy economy. This is getting healthier. This is moving in the right direction. It's a trajectory issue. There's a chart of the 210 curve in covidmarkets.com today. I want you to look at it. Interesting thing today, I kind of like a little

bit from a sentiment standpoint that the VIX was actually up over 5% today. So you saw the fear index going higher even as the markets were going up 460 points. Why do I want there to be fear in the market? Because when there isn't fear, then risk isn't respected, complacency sets in, and then bad things happen. On the public policy front, there is a significant debate right now politically as to whether or not the strong jobs number relative to expectations from last week disincentivizes policymakers to do that stimulus bill. I actually am on board with the contrarian opinion here of one of my favorite macro analysts on Wall Street who said over the weekend, from a contrarian standpoint, he actually thinks this accelerates Trump administration efforts to get a phase four deal done to go cement that economic rebound and kind of get a pile on momentum effect.

That victory lap that POTUS took on Friday is going to be very hard to walk back if some of the economic data reverses. walk back if some of the economic data reverses. So anything that can be done to limit the risk of momentum reversal, particularly in August, September, when you get closer to the election, has got to be a top priority for the administration. POTUS did sign into law. It's a done, done, done deal, that House-Senate modification to PPP. And then if anyone's interested, email us, covid at thebonsongroup.com for a 20-page policy paper from the Peterson Institute for International Economics.

It's a group I read religiously. I disagree with a lot of what they put out. I disagree with a lot in this paper. Fervently disagree with some of it, but I'm really very impressed with other parts of it. It's academically rigorous, very intellectually honest. it. It's academically rigorous, very intellectually honest. And this 20-page policy paper is centered around some recommended policy prescriptions for the COVID economic reopening. It's not medical. It's purely economic. It may be of interest to some of you. Oil and energy, WTI crude closed off of highs. It had gotten to that $40 level this morning. It closed at a little over 38.

of highs. It had gotten to that $40 level this morning. It closed at a little over $38. Brent closed at near $41. Again, that OPEC plus deal extending production cuts by at least another month having gone through. The FHFA director, Mark Libria, and our housing urban development secretary, Ben Carson, both testify for the Senate Banking Committee tomorrow. So there's potential for some action there. Mortgage rates, housing market, always looking for headlines. I think a primary issue that a thoughtful senator will ask about is to drill deeper into how forbearance will affect housing and where that stands in the priority of policymakers right now. In Fed news, the FOMC meets tomorrow, Tuesday and Wednesday. I presume the presser is on Wednesday

upon the conclusion of the FOMC meetings. I don't think they're going to announce anything with interest rates. I don't think they're going to announce anything with bond buying. I don't think they're going to announce anything with interest rates. I don't think they're going to announce anything with bond buying. So really getting some indication of how thoughtful they are around the Main Street Lending Program's concerns, what they think about the seriousness of getting borrower participation and banking participation. I'm curious where that lies. And then I also think that the Fed efforts sloped yield curve that indicates better economic conditions. And yet they want borrowing costs held down as the federal government essentially

turns to them to aid and abet in their efforts to run massive deficits. So I think the thing that ends up not inverting the yield curve, but flattening the yield curve will end up being if and when the Fed goes to yield curve control to push down borrowing costs at the longer end of the yield curve spectrum. Okay, job number wise, interesting weekend, digesting a lot of it. It became very political very quickly. You got to hear some economists embarrass themselves around conspiracy theories and other stuff like this. But the underemployment number is very high. There's still a lot of people that are unemployed, excuse me, part-time employed looking for full-time work. The part-time for economic reasons number was still 10 million, same as last month. So obviously there's a desire to

see that number get better. But I did put a chart at COVID and markets just showing the week over week decline in initial jobless claims, the weekly US unemployment benefit filings. In initial jobless claims, the weekly U.S. unemployment benefit filings, the basic summary, it really shouldn't be complicated for people. This isn't difficult politically or economically. We're much better than we were and we still have work to do. That's it. That's actually it all around here. We've covered jobs, housing, Fed, technicals, and oil and health data. And I'm going to leave it there and come back to you tomorrow with more COVID and markets. Thank you for listening to

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