The Dividend Cafe - Daily Covid and Markets Podcast - Thursday June 4

Episode Date: June 5, 2020

The weekly jobless claims came in at 1.87 million, and continuing claims totaled 21.5 million. We will get the official unemployment number for the month of May from the Bureau of Labor Statistics tomorrow morning. The numbers today were about as bad as expected if not a bit worse, whereas yesterday’s number was exponentially better than expected. More on all of that in tomorrow’s Dividend Cafe! 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 brought to you by the Dividend Cafe here at the Bonson Group. This is David Bonson. You know the routine. I'll spare you all the details. Look, the market ended up kind of flattish today.

Dow was up a couple points, but the S&P was down a bit more, and it was really just one or two stocks that brought the Dow up. So kind of a flattish day, but really strong performance from some select shopping mall REITs that will remain nameless,

some banks, life insurers, some of the areas you would expect to benefit from a steepening yield curve. And I absolutely love a chart that I put in straight from my own fact set analytics today at covidandmarkets.com to kind of help explain what's driving the performance in some of these select industries, the benefit from a widening spread between short-term interest rates and long-term rates. So you basically have the short end of the yield curve, very short maturities, six-month, one-year, two-year of treasury bills that their yields have really not moved this week, last week, or over the last month, but you have a longer dated treasury bond, let's call it the 30-year, where the yield has spread, has gone much higher.

So the spread between the short and the long has really expanded, and that becomes a very positive environment for risk-taking. It becomes a very positive environment for the banks and certain companies that are financially organized around those lines. So on a macroeconomic standpoint, it's Thursday, which means it's weekly jobless claims number. Came in at 1.87 million, lowest number we've had since COVID began, but still a very high number and actually a little higher than some of the economists and so forth had predicted. The futures moved down this morning when that number came, but then kind of rebounded after that. Now, the continuing claims totaled $21.5 million. So that number is way down from the kind of high

level. If you look at the aggregate of weekly jobless claims, there's clearly some large number of people that have either gotten their jobs back or have totally stopped working altogether and are classifying themselves that way. I find that a little less likely, but we'll get more color on all of this. And I plan to really, really expand on it in the Dividend Cafe tomorrow. But the reason we'll get more color on all of this, and I plan to really, really expand on it in the Dividend Cafe tomorrow. But the reason we'll get more color tomorrow is it's Friday, first Friday of the month, monthly unemployment rate and total unemployed data from the Bureau of Labor Statistics. So we'll have more to say tomorrow. On the health data side, it's become a broken record.

We're not out of the woods. We still have 20,000 cases, but once again, another low number on case growth, barely over 1%. And yet testing is up 60% from where it was the same day as last week. And then even as I was wrapping up COVID markets today, the daily run for Thursday here today was 465,000 new tests done. I think that's a new record. And the positivity rate of 4.46%. So we're now even pushing that 6% rate down below 5%. And we're pushing that 350,000, went up to 400, up to 450. So total number of tests going higher, positive percentage of those tests going lower, win-win all around. those tests going lower, win-win all around. There are probable COVID deaths being added to some states' data. And yet, even with that, the daily death number is continuing to decline. Okay. And hospitalizations, I talked about this, I think it was yesterday, they've continued to

show a very steady, very significant decline that's not been interrupted by data anomalies. But when we look at a few states that have seen case growth, Arizona, California, Kentucky, Texas come to mind, the testing in those states has increased so dramatically that the case growth adjusted for new testing levels is either flat in some states or actually declining. And that is the real mathematically and statistically honest way to be assessing it. There's always little pockets you want to look to. Even when you see states like North Carolina that adjusted for new testing seem to have a bit of an increase, you have to understand you're talking about a few hundred people or, let's see, two weeks, there are 200 people higher in case growth per day. It's not

statistically earth shattering by any stretch. Medically, the Roach test for severe COVID cases has received emergency FDA approval. This was not really expected. I don't know why I got into it this morning, but I read a whole report on their blood test. I'm probably pronouncing it wrong, but it's spelled as Elixis L6. And it's essentially intended to identify patients who are carriers of the virus and are more likely or prone to develop extreme respiratory distress. And they can do all of it in 15 to 20 minutes. And the science that goes into how they identify

severe carriers or carriers with severe vulnerabilities is beyond me. But it is seemingly a pretty breakthrough ability for them to be able to identify early on those that would be most at risk, because that, of course, could lead to theoretically more aggressive therapeutic treatments early on, which should help decrease cases that become severe or, God forbid, fatal. Roach, by the way, is saying company makes one of the most lauded antibody tests. To my comment the other day about infection risk from the wide scale protests that have been taking place all over the country this last week, I thought this quote from my favorite analyst at Fundstrat was informative just to get an idea

when we'll be able to kind of understand a bit more. His point was that protests started, and I'm quoting here, five days ago, and 92% of those exposed to COVID-19 are symptomatic by day 14. 50% are symptomatic by day seven. Now, day 14 from these protests would be June 11th. So if there is not a massive second wave by june 11th then you have to conclude we've had a definitive break in transmissibility do with that what you will and then finally probably the most important news that you've been waiting for in the health data section nba board of governors approved almost unanimously one vote against it i don't know who that was, to finish the NBA season at Disney World. The Players Association still has to prove, but they're expected to do so, and that would be tomorrow that they will be voting.

And if all this goes through, which, again, it really appears it's going to, 22 of the 30 NBA teams will be beginning July 31. Don't ask me why it's so late. I don't know why they need seven, eight weeks from here to get in shape but you know uh i i digress uh they will play eight games to kind of finish up the season and help formulate that final playoff bracket and then from there they'll do playoff series best of seven you know at normal. And it will take the next couple months, finishing up all the way into October. So some really good news, not just for sports fans, but for all who want to see ongoing normalcy in American culture and American life. Market technicals, I, you know, it wasn't exactly the most courageous call of my life.

But I did suspect that yesterday's 500-point-plus rally in the market had a spectacular breadth to it. And indeed, 68% of the S&P companies were trading at a 20-day high yesterday, which is one of the best readings of that many companies in such a short-term movement in over 50 years. It can be climactic in the short term. I have a chart indicating all this at covidamarkets.com, but it also has an unbelievable track record of being very longer-term bullish. Past observations where you have 50 or 60% of market names at 20-day highs in the same time has led to outperformance versus regular average returns, two months out, four months out, nine months out, very consistently. We don't have any law that says history has to repeat itself. I'm just trying to provide that substantial historical precedent. And it does kind of align with our own worldview that is short-term agnostic

and medium-term optimistic. By the way, first time, the average stock in the index is starting to outperform the index itself. So you're getting that broader penetration of market performance. And that was evident yesterday. It finally broke out a little range. Now, a kind of cautious tale here, another chart at COVID markets is the put call ratio, total amount of puts buying protection on the S&P divided by. Actually, this is across the whole spectrum divided by call options, which are more bullish. divided by call options, which are more bullish. As a contrarian, a screaming number of bearish option trades compared to the collapsing number of bullish option trades would be a very bullish contraindicator. Yet, we're seeing the opposite now, where markets have rallied in dramatic fashion, and all of a sudden you have a much lower percentage of puts divided by calls, indicating a more optimistic sentiment. And that, again, because we're contrarian, is considered to be a bearish indicator in terms of sentiment, even though that can take a while to play out.

So the Senate did pass the House's fixes to the PPP legislation. I think we're just waiting on POTUS's signature, but you have the payroll requirement from PPP money will now only be 60%, not 75% as far as a percentage of what those PPP proceeds are spent on. And then the window to use the funds is now 24 weeks, essentially half the year practically versus the prior eight weeks, which was about to expire. Keep in mind, there is still another $120 billion in the tank in this program. And you remember when they extended it, okay, they did 350 and it went real quick. And it went real quick. And then they added it another 310 or so to the revolver in that second legislation.

And of that, we still have 120 left. The initial portion went out right away. It was kind of the overflow from round one. Then everything slowed down. And the consensus was either that we had maximized demand or that there were a number that maybe wanted it, but just thought those two restrictions I just mentioned were too tight. We're going to see now, is there more demand for PVP funds that was just simply being held up by the inflexibility of the forgiveness demands? Or have we just kind of run our course with the total amount of available capital and demand for such capital.

By the way, WTI crude broke past $37 a barrel today. That's not a great number, but I just want to put it in context. On Sunday night, March the 9th, okay, in what would become the following week, a week from hell that I will never forget. On that Sunday night, oil gapped down from just a little over 40 down to 30 bucks. And that's the last time we saw 37. And so we're, we're kind of back into filling that gap, uh, from the initial sell-off when the Saudiussia supply war began in the early part of March. The fact that this has been in a three-month time period is simply surreal. In Fed news, I focused on the Main Street lending facility yesterday, and I didn't touch this, but I want to get you up to speed around the chatter surrounding the Fed's corporate bond

facility, which by the way, has so far bought a grand total of zero bonds. And so I think there is a little case going on here of what I would call Paulson's bazooka theory working 12 years late. You recall 12 years ago, Secretary Paulson said, Fannie and Freddie in July, that if the market knows Congress has given them a bazooka, that they wouldn't have to use the bazooka. And of course, that didn't work out. We're just a couple months later in September. Obviously, the United States Treasury took over Fannie, Freddie.

Well, I wonder if in different circumstances here, that is what's going on, is that there's such great health and liquidity reinstilled into the corporate bond market because of the Fed announcing their intention to intervene, that it's become unnecessary for them to intervene. market improvement, and the fact that the issuers would have had to pay a fee to the Fed, a user fee, which would make it more expensive. This is something a bond money manager of mine explained to me directly yesterday that was very informative. But I also do think there's a kind of stigma that companies may not want, and they right now don't feel they necessarily need if they tap the facility. Now, the secondary market facility has to get up and running because surely there are bond buyers out there who bought on the news in March and April with the intention of selling to the Fed later. And so less and less, I think, is this facility necessary to create financial stability? The question really becomes whether or not it's a self-fulfilling prophecy, like we don't need it for financial stability because we got financial stability from them believing it was coming, or if there's just really legitimate external improvements.

But it's an important aspect when we look across our financial capital markets. important aspect when we look across our financial capital markets. Now, other central banks are going to be in my Fed news here because the European Central Bank announced this morning that they're increasing their quantitative easing, their bond buying from their prior target of 750 billion euros to 1.35 trillion euros. So an increase of 672 billion US dollars. And they're going to give themselves all the way till next June, a year from now, to do that. So they elongated the time period and substantially expanded the dollar threshold by which they will use their balance sheet as an interventionist and expansionary tool. So that's all I got here today. Good amount of health.

Good amount of technicals. Flattish market today, jobs number tomorrow, Dividend Cafe tomorrow, longer podcast, regular weekly commentary. You know the routine and please reach out to us anytime with any questions. Review the Dividend Cafe podcast, please say nice things about us

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