The Dividend Cafe - Daily Covid and Markets Podcast - Thursday June 25

Episode Date: June 25, 2020

Futures last night really hugged around the flat line non-stop from 3pm pacific until 9pm or so when I stopped checking.  At 3am this morning they were still flat, and throughout the morning going into the market open they moved a tad lower.  The Dow got down as much as 200 points, gyrated around most of the day up and down, and then rallied the final hour of trading to close up 300 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 today's COVID and Markets podcast brought to you by Dividend Cafe of the Bonson Group. This is David Bonson and the market is closed now on Thursday, June 25th and I'm going to give you the whole rundown today. More than any edition of COVID markets I have done since this whole pandemic began and we began this daily offering. I will advise those who listen to the podcast to please check out the

COVID markets.com as I'm pretty sure it's a record set today for the most charts. And since the charts are not available on the podcast, I think you'll get more out of it to see it in the written form and daily commentary at COVIDMarkets.com. Now with that said, let me jump into it and give you kind of the rundown of the day. It's been a pretty exciting day. Futures last night, remember the market was down about 700 points yesterday. We're inundated right now with reports of ongoing case growth, particularly in a few states. And so a lot of health questions and then some various factors bleeding into the markets. Last night, futures were pretty flat from about 3 p.m. when the futures opened Pacific time till 9 p.m. or so when I quit looking.

At 3 a.m. this morning, they were still flat. But then throughout the morning, going into the market open, they moved a tad lower and didn't crash or anything but just were kind of giving up ground, going negative. After the market opened, the Dow got down as much as 200 points and then it really gyrated around most of the day, up and down, up and down. It was pretty – just kind of intraday volatile, up 50, down 70, things like that. intraday volatile, up 50, down 70, things like that. And then all of a sudden, the final hour of trading, we closed up 300 points. So from the low of the day to the high of the day, we were up 500 points. Net on the day, up 300. So made back a little less than half of what it was down yesterday. So on the broad economic front, first and foremost, before we get to the health side of things,

it is Thursday, which means it's weekly jobless claims day. The initial jobless claims number comes every Thursday morning, 5.30 a.m. And today, it's the second week in a row. The number was worse than expected. second week in a row, the number was worse than expected. Analysts have been expecting about 1.35 million between you and me and the gazillions of people listening to this. Analysts' expectations on this are pretty much nothing more than some sort of algorithmic digestion of Google search results. They don't have a way to really anticipate what new jobless claims will be, particularly with all the extraordinary circumstances. And if someone else out there has a different methodology than I've seen or I am aware of,

then fine. But I'm telling you that all of the analysts I unpacked understand where they get their number. It's almost entirely centered around some gymnastics of the Google search results. Now, that's fine. It may very well be a legitimate way to get it. But the analysts have not had a great track record of predicting it so far. However, generally, it's been that it was a little less bad than expected. In the last two weeks, it's been less good. So there are 1.48 million initial jobless claims. They were expecting 135. But then on the other hand, that number was down 2% from last week. So it's still continuing to trend down. But frankly, that's nowhere near

as much as it should be trending down. That's not a positive indicator. But the ongoing, what we call continuous claims, were expected to be over 20 million, and they were a little below, and they dropped 700,000 from last week. So in theory, what that means is that those that are, you know, filing for repeat claims, not initial claims, that number, which most states report weekly, some biweekly, so you get a little lumpiness, but those numbers did drop by 700,000. So I would say kind of a mixed bag out of the weekly jobs data. Bottom line, you know, even the stress test from the Fed, which I'm going to talk about in a moment, that didn't come until just 30 minutes after the market closed. So I really don't think that these types of things were what were moving markets today.

I think there just continues to be uncertainty. There continues to be a kind of baked in expectation of volatility. And I don't think it's going away anytime soon. So I would no more be thrilled by a 300 point up day than I was upset about a 700 point down day. I think we're going to have more of both than those types of things for quite some time. I think we're going to have more of both and those types of things for quite some time. Now, getting to the health data, there are, again, a whole lot of charts I like people to look at. The attention in the media and the attention in a lot of medical centers is around Florida, Arizona, California, Texas. There's other states that are going backwards with COVID substantially, meaning in a good way,

they're going backwards with case growth and hospitalizations and mortalities and infections and all these different things. That stuff's not going to get covered. There's also a lot of states that are seeing an increase, but it's not real dramatic. The main reason I bring up Florida, Arizona, California, and Texas is they're all seeing case growth and it's all pretty big numbers. And so I think that when I look at

the various scenarios that exist out there and what risk reward trade-offs exist in all of them, I think it's very important to continue evaluating the severity of the cases, particularly mortalities that result and then, of course, the potential for hospitalizations, use of equipment, things of that nature. Because it's when you get to resource capacity constraints that you're at risk of more economic slowdown as opposed to this just sort of running its course through the country on a medical basis. in COVIDMarkets.com today that reflect where we were in terms of deaths per capita for the hot spot states of New York, New Jersey, Connecticut back in April, as well as for the rest of the country, and then now these hot spot states over the last week or two. And what you can see in powerful visual form is a complete and total lack of mortalities in these present hotspot states relative to the rest

of the U.S. through the whole period. And even in the rest of the U.S. through this whole period, you see a mortality rate that is just monumentally lower, even at its peak, than the New York, New Jersey, Connecticut level was where we had that, you know, just huge and tragic surge of mortalities back in April. I think that the cases that are growing in a couple of these western or southern states, we want to provide as much evidence as we can as to what's going on, including boots on the ground, kind of giving indications of what they're seeing in their own hospitals. And the reason I think this approach is important from the investment standpoint is a headline number of case growth could be bad. It could be not bad. You know, it could mean a number of different things.

It doesn't tell us really anything that we want to know from an investment standpoint. The investment standpoint is going to require us understanding the potential fear of lockdown. And that's just simply not something that we're going to get out of the mere existence of case growth. And so when you look to the various numbers, you do see an uptick in mortalities in Arizona. It's minimal, but you also get to see it in the chart I provided relative to New York, New Jersey, Connecticut to get an idea of where things stand. Okay, so with that said, and a whole lot of other charts and everything that are included around testing and around hospitalizations and so forth, There also was a study that I, for whatever

reason, took the time to read again this morning out of Penn State. It was published in the Journal of Science, Translational Medicine, suggesting with all the anecdotal evidence that they provide that the COVID spread in March was not just higher than previously believed, but exponentially higher. And then therefore, of course, a lethality mortality rate, if you will, that's dramatically lower than feared. So I'm happy to send that report to anyone who requested COVID at thebonsongroup.com. I'm spending more time reading an individual named Dr. Thomas Sia, the Harvard School of Public Health. He there's plenty, you know, to chew on out of the different data points and so forth. Some of the conclusions, you know, may or may not be agreeable to folks. But what

you know, he's saying is very clearly that the there is a concern of greater community transmission, but the reason is just simply because this younger demographic are the ones getting it, and that means that they're going to be less symptomatic, have much lower hospitalization rates, which, again, I'm viewing as a very good thing. But then, of course, they may not take distancing and masking and some of these things as seriously. So he kind of means it as a glass half empty thing because he thinks that you will see a complacency that will allow for more community transmission. And that seems like a fair enough conclusion, objectively speaking. But then I'm seeing the glass half full in that to the extent that that's where those cases are.

You will, I believe, end up with less of a drain on the medical system and therefore more green light to reopen the economy. As of recording time, forgive me, I don't yet have the tally. It will be at covidmarkets.com by publication, but I don't yet have the tally on today's testing. I'm sure it was a very high number, but we want to see if that positivity rate that has been ticking up will begin to start ticking down hopefully early next week. You know, one of the things throwing this stuff off, it just drives me crazy. And I can't believe more people are not upset about it. But yesterday was the third time that California's data included this huge backlog of data as they did a kind of retroactive dump, whether it be from an old nursing home toll or some kind of an outlier

situation where they didn't feel that they were ready to report. And I'm seeing stuff from like back in April. And then they take that day's worth of testing that they finally now are able to go classify and dump it all into one day's data. And so I think a lot of the reason why California is not showing up in some of the media reports now, even though the case growth has actually been higher on an absolute basis, not per capita, is because even the media who really wants a lot of this sensationalized is aware that California's numbers, there's more than meets the eye, both in the testing adjustment and then when the negative numbers are including a kind of backlog of things from previous. Arizona's cases Wednesday were only half that of Tuesday's, but then they did pick back up Thursday relative to Wednesday. So still kind of a volatile number, but

we do think that there seems to be some stabilization kicking in there, if not outright decrease, but it'll take a few more days to be able to verify that. Florida's data is very worthy of monitoring. You have this statewide median age of 35 years old now for their positive COVID test over the last 10 days. And that was almost half of what it was in mid-March when the median age was 65. So different counties, it's 29, 32, 27. I mean, very young. And as far as the positive tests taking place at long-term care type facilities, we're starting to see a really meaningful decline, thank God. So testing is way up and positivity rates within the testing are up.

There's no doubt been an escalation of transmission in Florida, but so far that escalation appears to be most present in the least vulnerable part of the population and therefore the least likely to need medical resources. Now switching to Texas, there's a lot of talk about hospital beds in Harris County and that percentage of ICU beds being used has grown from COVID usage, but the total ICU beds in use remains pretty much about the same. And so I read a chart from the, it's a project called the COVID Executive Hospital Summary, which is available from the Southeast Texas Regional Council. And they pretty much are drawing the conclusion that somewhat inescapable that a significant amount of these new COVID

infections that require ICU contracted COVID at the hospital. They're in the hospital because they got sick at the hospital. So there seems to continue to be some effort, some inadequate effort to safeguard against those things. Okay. Well, in terms of market technicals, this is where the charts get off the chain today. But you have a really meaningful reinforcement of how markets perform in the very, very short term coming off a market bottom. And then the slightly longer and then longer than longer term. And the chart, I think, reiterates some of the confidence we have in the March number

being a bottom. But then you look at some of the factors that are at play. And again, factors that have all done the same type of thing. I refer to high beta versus low beta, small cap versus large cap, these types of metrics. The way they've behaved the last two months since the market low is very similar to what proved to be a market low in 2018, 2016, 2011, 2009, 2002, and even 1998. So you have these different periods of time and you have a lot of market factors behaving the same way. And you have a lot of market factors behaving the same way. The contrarian side of me just can't get past the explosion of money that's been going into bond ETFs, $80 billion versus equity. The number in equity is not negative as of a week ago.

But again, the substantial appetite for low-yielding bonds relative to equities continues to stick out as a contrarian indicator. That put-call ratio, which as a contrarian, has really kind of been a concern for us, as you see the very low ratio of puts defensive to calls offensive. And now we have seen that start to tick up a bit, perhaps less call buying or perhaps more put buying. Usually it's a little bit of both. In the oil and energy space, WTI crude did shoot back up about 3% today.

So kind of stuck in the middle, similar to equity markets in terms of a risk standpoint. But natural gas hit a 25-year low today. So the actual price, the takeaway price of natty gas has come way down. Perfect storm of obviously contracting demand and increasing supply. As I mentioned, I think it was yesterday though, liquefied natural gas has seemingly picked up a little bit. So we'll see how those numbers play out in the months ahead. The CARES Act provision for mortgage forbearance that I've been very critical of, we got the new numbers from the Mortgage Bankers Association this morning. And you can see that 8.48% of loans are in forbearance, and it was 8.55% last month.

So it's our first time where we have a slight, slight, slight downtick in that number, but it's still much higher than we ever wanted it to be. And we will see what happens with those borrowers to be able to work through their troubles and allow some sort of normalization in the mortgage market. So I mentioned the Fed came out with their stress test results. It sounds to me like they pretty much kind of split the baby, didn't do much of anything. Said, of course, we're not wanting companies to do stock buybacks now. That was a given. Companies weren't doing stock buybacks anyways. But as far as dividends go, they're going to let companies keep paying their dividend. But in the third quarter, they're not going to let them increase it. So it's only for one quarter. And it is only referring to the increase, not to the payment of the dividend

itself, which the financial sector was up quite a bit today. Okay, I will write quite a bit tomorrow in Dividend Cafe in the politics and money section on some things pertaining to Joe Biden and the overall presidential race and why I think these things matter. But in the meantime, I will look forward to more COVID and markets talk when the time is right. And I do ask all of you to check out Dividend Cafe tomorrow for your weekly market commentary. Thank you for listening to today's COVID and Markets. are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein

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