The Dividend Cafe - Daily Covid and Markets - Thursday August 13

Episode Date: August 13, 2020

The market dropped 80 points today though at one point was down ~200 points before rallying over half of the ddrop back in the final hour of trading. The weekly jobless claims came in below one million (963,000 to be precise), below the symbolic million mark for the first time since the COVID moment began, and well below the 1.1 million expectation. Continuing claims came in at 15.5 million, down 604,000 from last week. The numbers aren’t “good” – but they are “getting better” – and they are “getting better more than expected” … COVID Health Information • It certainly is reasonable that there are differing opinions as to “where” the herd immunity threshold may be reached, and whether one believes it is a lower number or higher number, the “variable” that sits in the middle is T-cell immunity which is a somewhat unknown component in getting to the total number. Nobel laureate and Stanford Professor, Michael Levitt, has been an incredible resource throughout this whole affair, and has provided the most reliable forecasts thus far about “excess mortalities” and other key measures. He has placed the herd immunity threshold at 15-20% (though again, others place it much higher, with varying differences as to where the T-cell immunity level sits in the equation). The University of Oxford study has placed the number closer to 25%, again, because of exposures many have already had to other coronaviruses, as well as what immunity exists from natural (t-cell) resistance. 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 I am bringing you our Thursday omissive. The market is closed. We have a bulk of our reporting data, and I'm going to give you all the update that I can

and welcome all of your questions, thoughts at COVID at thebonsongroup.com. Market dropped 80 points today. It was down at one point about 200 and rallied over half of that back in the final hour of trading. S&P down a little bit. NASDAQ was actually up. But this morning, the weekly jobless claims came in below 1 million. It was 963,000, so just a tad below a million.

And this was the first time since the COVID moment began, and it was well below the 1.1 million that was expected. Continuing claims came in at 15.5 million, which was down over 600,000 from last week. So the numbers are not good, but they are getting better, and they're getting better more than expected. So two parts of good news, one part of bad news there, a good trajectory, a lot to be thinking about. Listen, there's a good portion of the content today at covidermarkets.com centers around some more discussion on herd immunity. And there's a lot of reports out there. There is a paper that I make available for those who request it, a new medical journal

on the subject. And it's not something that I think is a deep dive is not something I think would be appropriate in COVID and markets.com where of course my focus is primarily on the impact of the COVID moment into markets, investments, and the economy at large. And yet, I do believe that there is a broad construction of the conversation that's useful for people to have. And essentially, there's this sort of controversy or disagreement, differing opinions as to where the herd immunity threshold may be reached. And by herd immunity, we mean that point at which it is spread enough that it sort of stops spreading. And there is a camp that believes that number is upwards of 60%. There's a camp that believes it is much lower based on the fact that there is T cell immunity that is already in place for an awful lot of people who have built up a sort of

natural resistance. And in fact, University of Oxford study arguing that there's people who have developed an immunity from past coronaviruses, including ones that cause the common cold. And so I am not going to pretend I know the number, and I'm not sure any of the expert experts know the number. I've been incredibly impressed and learned a lot from the research of Nobel laureate and Stanford professor Michael Levitt, but there's plenty who would disagree with his research as well. But I think that the issue in his forecast around excess mortalities as a means of being able to evaluate where the trajectory of the COVID data is going. And as you see the decline of excess mortalities compared to normal patterns and trajectories, you have to sort of question what some of the causation rate would be.

So regardless, Dr. Levitz placed the threshold at 15% to 20%. And the reason I bring it up is not to establish that that is where herd immunity exists. It is to establish that the threshold for an infection rate is important because we do have some states with infection rates that are indeed quite high. And you have a hard time establishing causation, but at least looking for various correlations is very useful in evaluating where we're headed from here. You look at the current infection rate in New York, it's over 20%. Texas, over 20%.

Arizona, near 22%. Florida, over 20%. New Jersey over 21%. There's 13 states that were previously considered hotspots that right now are projected in the modeling that has been done by a number of different sources to have infection rates somewhere between 15% and 25%. And so you want more information and more data to continue informing our understanding of both the infection rates and the herd immunity thresholds. But I do believe this subject, as boring as it may be for some, including myself as a non-medical, non-scientific guy,

considered to be one of the most important aspects of a proper COVID understanding. In terms of that question, by the way, about testing dropping off and there being states that are trying to figure out why and what results are missing and all kinds of lumpy things going on out there that are really very, very frustrating, I believe that this quote from the U.S. Department of Health and Human Services was very helpful and struck me intuitively as rather astute that, quote, the drop is likely multifactorial. There are less cases and therefore less need for testing cases and contact. We are also not working through backlogs anymore, which previously had artificially inflated the tests performed. Demand for testing is down, and that is probably appropriate. Finally, we believe that more testing is being done in non-CLIA environments

and likely not being reported to the system because there are some environments where testing can be done that do not get reported and end up in the daily HHS data. So I am totally open to any number of theories as to why some of the testing is down, but I still believe that Occam's razor suggests that there's less testing because there's less symptoms, therefore less infections, therefore less spread, and therefore the less testing, although it may be frustrating to not get the lower positivity rate that a higher denominator helps you get, is nevertheless to be expected in a situation where, in fact, there are perhaps less people that are getting sick. There's a bunch of, remember I talked last week about Governor DeWine in Ohio testing positive,

and a couple hours later testing negative, and now apparently a big hubbub, it's been covered at variety and at hollywood reporter and all these things that uh something like 10 members of will smith's production crew it all tested positive and then were negative the next day or day after so i i would report all the information i can on false positives if the information was available. You just don't hear about it unless it's a famous person. There's been athletes, Hollywood stars, governors. Obviously, I think most of us would assume that there are also false positives that take place in, you know, like the rest of the country, but I can't report on it if I don't know about it or hear about it. So there you go. Over 880,000 tests done today.

However, my understanding is that a big portion of those, 120,000 were a big catch-up number in the state of Texas. The total positivity rate, only 5.8%. So I said I wanted to see us at a six handle uh by end of this week and we are not averaging at the six handle because there's all that lumpiness from missing reporting and so forth but right now positivity right down to 5.8 um it it right now takes an incredibly incorrigible student of what's happening with COVID in our country to not conclude that the vast majority of the data is trending in a very positive direction, particularly in those troubled

states. Florida, Arizona doing the best of the troubled, Florida behind it, California behind that, Texas behind that. So I will go ahead and leave us there. Still stalemate with public policy in D.C. The House Democrats seem right now to actually not be as focused in what they're messaging in the public on a particular part of the package. Like, hey, we really need state aid or we really don't want liability protection, although they're saying that too. But where the line in the sand appears to be is just the gross size of it, the aggregate package. They want something around the $3 trillion level, and the White House is saying they want something on the $1 trillion level, and everyone's digging in heels. And in the meantime, life goes on. So we'll continue monitoring that. As I am sitting here recording, the futures are up about 30 points or so.

So we'll see where that goes. They've only been open for 45 minutes. Big night ahead, big day ahead. Looking forward to the week ending. Looking forward to Dividend Cafe tomorrow, Friday. And looking forward to answering any of your questions you may have. We are here for you. Thank you for listening to COVID and Markets of the Bonson Group. are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk.

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