The Dividend Cafe - Daily Covid and Markets Podcast - Wednesday, April 22

Episode Date: April 22, 2020

The market rallied quite a bit today, coming off of the two ~600 point down days that started the week. Oil prices were up 22% (from their very low level, mind you) and they are at least now only showing the June contract vs. the delivery/storage fiasco in the May contract that was taking place Monday and Tuesday. Futures were pointing to a 250-point increase when I woke up this morning, and throughout the day markets traded roughly between +250 and +500. The +450 close was off of the high of the day that came ten minutes before the close. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. massive on all things COVID in markets. The market rallied quite a bit today. We had had two roughly 500, 600 point down days last couple of days. And today the market was up 450 points. Oil prices were up 22% off of their very low level, mind you. But at least the kind of fiasco of the last couple of days around delivery, storage, and a lot of these sort of technical issues is beyond us for now. And the futures market captured a lot of the gain that both oil and particularly equity saw today. So by the time we opened, we were already up a couple hundred points, stayed in a range between 250 and 500 on the day, and then closed at 450. So gave up some of our high on the day in the final 10 minutes of trading. Speaking of those market technicals, I remain of the view in the short term that volatility is more likely than not.

And that longer term fundamental strength will take over and that will have both good and bad associated with it once we get more clarity on the economy post-COVID. But there's a chart at covidandmarkets.com today just kind of indicating the pattern that's existed out of periods like this in the past, going back to 10 periods in a row, where following a sort of market rebound, you get ongoing volatility, sometimes for 10 days, sometimes for 30 days, followed by the consolidation that leads markets more forward on a 12-month basis, generally very positive returns. on a 12-month basis, generally very positive returns. We listed out the 10 biggest, most consequential movements like this in history, the 10 largest 20-day percentage moves.

And in all 10, the market was meaningfully higher nine months later. In 80% of the time, it was up four months later. So there's a good indicator around this directionally, but of course past performance is never solid proof of what will happen in the future, but it's worth looking at the sort of technical aspect that we list in COVIDMarkets.com today. On the health front, which I think is one of the more important factors in our daily missive, case growth actually ticked up a bit on Tuesday, although there was a big disconnect between a couple of the reporting bureaus that we track. And so we'll have to kind of see if it levels out there tomorrow. There's

some anomalies that have been consistently found on Tuesdays. I don't know why that is. But the rate of growth has shrunk in 46 out of 50 states. It's utterly collapsing in New York as are hospitalizations. So we definitely see a lot of positive data. But the most positive data of the day just literally came in five minutes before I was ready to record this, that we have tested over 311,000 people today, which would basically be not exactly, but very close to double our record. You know, we've been testing 130, 140,000 had a couple days that got higher in the 160s 180 one day, but 311,000 there could very well be a sort of anomaly in this state as well.

But my point being really, really big move up from what we're tracking here today. FDA did approve for home testing use a product from a company called LabCorp, whereby a doctor's order can be sent. Consumer pays $119, and they believe the accuracy and reliability has been just as strong as the more formal tests people are going to hospitals and doctor offices to take. It's still then sent to a lab, takes a couple days to get results, but the point being that it enables sick or at least symptomatic people from exposing healthcare workers and should very much speed up the process for results as well as the volume of tests that can get generated. In terms of the just kind of general medical update, there's a tri-state hospital's data I've been following every day and found it fascinating that they announced yesterday their entire COVID unit, and again, this is right there in the heart of New York, New Jersey, Connecticut,

entire COVID unit. And again, this is right there in the heart of New York, New Jersey, Connecticut. The entire COVID unit has been converted back to a clean unit. So purely out of the fact that data has improved so much. There is another clinical trial that's been approved for a vaccine beginning out of Germany, connected to Pfizer. So we're trying to track all the different vaccine efforts that are out there. Some of them continue to show promise, receive backing, have various governmental support, all of which is really important to the eventual finding of a vaccine that can be used for widespread distribution. Politically, the House is expected to vote tomorrow on the CARES Act extension. The Senate, of course, voted yesterday and passed it because they do believe that there's a certain congressman who's going to demand a roll call vote. They're going to need 215 members there to satisfy quorum, and they're working on a way they can go about doing that via proxy and so forth. So it's kind of a good point that bill is going to pass.

And as I shared yesterday at COVIDandMarkets.com, you're talking about an additional $470 billion of stimulus, largely reloading the Paycheck Protection Program. But then you also have a lot of talk now, coming from POTUS himself yesterday and the presser, Secretary Mnuchin, reiterating their desire for a fourth kind of a 4.0 bill that wouldn't be much bigger, much larger, you know, larger than the 2.2 trillion one from a few weeks ago and the 450 billion one from yesterday. a few weeks ago and the $450 billion from yesterday. So infrastructure, support to the entire restaurant industry. The Democrats certainly want direct state and local support. I believe they're going to ask for unemployment extension. Republicans are talking again about a payroll tax cut, which would be very stimulative on the supply side. They want liability protection for employers to be able to really, you know,

open up the doors to get their work going up again. So there will be tradeoffs. There will be back and forth. But this one is just simply, in my opinion, not going to happen quickly. It's going to be more traditional in the horse trading and in the longer process by which legislation generally gets done unless it's in a crisis or emergency. We're in a crisis, but I don't think this particular bill is looking to band-aid some of the more urgent and time-sensitive aspects. So we shall see. I would add, by the way,

speaking of emergencies, that I was shocked how many today were already talking about this second round of Paycheck Protection Program running out of funds when it hasn't even been approved yet by the House. And so they took what was a $349 billion bill. They're adding another $250 billion to it, excuse me, over $300 billion to it, and already talking about that being potentially drawn down. But the Paycheck Protection Program itself, when you look to kind of round one, I think some of the data is quite interesting. 13 days, they gave away $350 billion to 1.7 million different borrowers. It was an average of $206,000 per loan. Construction was the sector that received the most money, but that was 13% of the total. So it sounds like it was pretty broadly sector diversified. That is more money

in less than 14 days than the SBA has processed in the last 14 years, cumulatively. 74% of the loans were for less than $150,000. And the amount of lenders that participate in the program was just a tad shy of 5,000 lenders. And a very large percentage of those getting their SBA 7A certification after CARES Act had passed in order to be eligible to help with the program. Oil and energy, I do have a whole section of COVID and markets. I won't bore your podcast listeners with the role that ETFs trying to trade on the price of oil, oil itself trading as a spot futures product. So you basically have an ETF that is attempting to match up to a futures contract where you're supposed to be basically

taking delivery. Of course, most people sell the futures before that happens. But the point is that mismatch of what is effectively an asset and a liability inside an exchange traded fund, I think is really significantly involved in the disaster that was this week of basically, you can call it oil prices trading negative, but it's a really silly way to say it. Oil prices did not trade negative as much as storage prices went through the roof. That's the far more accurate way to put it. And that, of course, happened in the sense that there was that extra amount of oil and so many buyers that were not physical oil buyers. They were in a different agenda. Or if they were physical, they didn't have a place to put the oil.

And so the role of these ETFs trading in the instrument really had a lot to do with it. And I think I unpack it at COVID and markets in a way that will make sense. The energy sector has been the top performer in the market the last 20 days, now up over 38% after today. Just simply fascinating based on all of the conversation. Healthcare and real estate, by the way, are second and third, right? They're near 30% in the last couple of days as well.

Excuse me, last couple of weeks. As it pertains to housing, the mortgage servicers are certainly separate for the general housing industry. And I want to continue monitoring where things stand with the federal support to the servicers out of FHA, where the federal play in, where DOT is advising. But that trickle-down effect that has led to a freeze-up in credit in the jumbo market has certainly had a huge impact to the high end of the market. And if it stays that way, I think it will continue to. But again, I don't think the March sales really tell us anything. An 8.5% drop was really referring to escrows that were opened in late January, early February. So to see the numbers that were kind of pertinent to everything that was happening

in our country in the month of March, that was really what will be coming out in April. So we'll get more look at that number tomorrow. Finally, I just thought there's a chart at COVIDandMarkets.com if you're interested, but it's a grid of every single state in the country and the amount of reservations made at OpenTable.com at restaurants for every state from April 9th, 10th, 11th, 12th, all the way through April 18th. And it just shows year over year a negative 100% for every state for every day of the week at Open Table, except for Kentucky, which just so happened to only be down 98%, 97%, one night only 95%. And I understand, actually, what's really behind all this is not funny at all.

It obviously points to the utter disaster that our retail and restaurant food and beverage industries are in right now. But I just thought it was a really stark sort of pop on the screen. This sort of, you know, apparently a couple of people in Kentucky getting a reservation at a restaurant last week. All right. Please look at covidandmarkets.com, reach out with any questions, and thank you for listening to our quick summary here on the COVID and Markets podcast

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