The Dividend Cafe - Daily Covid and Markets - Thursday August 6

Episode Date: August 6, 2020

The market was pointing down over 100 points in the morning futures this morning, but reversed into positive territory when the weekly initial jobless claims came in at 1.18 million vs. the 1.42 million expected (the lowest weekly claims number since the March lockdowns began). After a grind throughout the day, and this time led by technology, the market closed up 185 points. COVID Health Information • New cases were down 25% week over week and, once again, all the talk is around what data may be missing with various weather and tech challenges around the country. Testing itself is down 20% and I am now in both camps as to why that is – that the decreased testing is both a reflection of improved conditions (less symptoms means less test demand), and some glitches and delays around weather and capacity, etc. • One analyst I adore postulated that less people are getting tested because they have seen media reports how long lines and delays to get tested (and get results). I am not sure what to make of that, but I can’t rule it out. • With a h/t to the reader who turned me on to this, I am shocked that the Clark County, Nevada data (i.e. Las Vegas) is not getting any kind of national attention (okay, I am not actually shocked). 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 in Markets podcast brought to you by the Dividend Cafe. This is David Bonson, Chief Investment Officer over here at the Bonson Group, and we have closed out Thursday with a 185-point rally in the Dow. It was kind of grinding throughout the day, and then in the last two hours of trading, got a bid to the upside. It was actually led by technology, so you did have NASDAQ and S&P even doing a little

bit better. So a pretty strong week there overall in terms of market indices, although tomorrow, Friday, is going to be an interesting day because you have jobs data that will come for the month of July. The BLS report will come tomorrow morning at 5.30 a.m. Pacific time and has the potential to be a market mover. Today, the market was pointing down in the futures about 100 points. And then as the initial jobless claims came, the market reversed to the upside.

And that was a result of the weekly initial jobless claims number being 1.18 million, and it was 1.42 million expected, so $300,000 to $350,000 better than expected. Nevertheless, still an over 1 million print, which is just very high. Now the continuing job claims dropped another, I think it was $800,000. So it was a pretty good day for the jobs data, but let's see what the BLS number comes in tomorrow and what market impact that has. I mean, at this point, everything seems priced so well that you could get some good news and not necessarily see a market response. I think most likely the next catalyst for markets is

something either breaking apart officially or getting done officially on the stimulus side. Quickly on the COVID health today, new cases were down 25% week over week. There continues to be all the heavy talk around whether or not testing levels are dropping. Now, testing was up 50,000 today. And it's very frustrating for me to not be able to tell you if some of the increase in testing in particular states, as well as nationwide, is a catch up of numbers that were missing in prior days, or just that we've, you know, reaccelerated some of the testing levels. rate was 7.3%. So 7.37%. So, you know, you really do have pretty good data, even when it ends up getting caught up from some of the lags that existed. It overall is pretty positive. One

thing I did at COVIDMarkets.com today, because I've been so focused on the fact states, Florida, Arizona, California, Texas all summer. And, you. And Clark County, Nevada, where Las Vegas is located, had quite a little outbreak themselves. And obviously, most of that was blamed on congregational activities and so forth. But there was a reader of this missive who sent to me a chart, and I went directly to the Nevada, it's actually the Southern Nevada Health District COVID-19 website. And you just cannot believe the drop in cases since the beginning, middle part of July to where they are in Clark County. And so beyond the news that I'm kind of getting bored of telling you every day about Arizona looking so much better, Florida

looking better, but not as better as Arizona, California looking better, but not as better as Florida, and then Texas looking better, but not as better as California. So I think I just said all that right, and hopefully you see what I did there. But my point is some of these bigger outbreak states are kind of lagging one another, but all trajectories point the same way. There's other states, though, too, that had issues, and they're going in the right direction. And in Nevada's case, substantially so. So I don't know if less people getting tested has to do with people seeing media reports about long lines and about delayed results, and so they're not going and getting tested. It's hard for me to believe that someone is real symptomatic is saying,

oh, I think it's all going to be a pain. I'm not going to go. But there could be people doing that. The weather is so limited in where its impact is. And there's still power outages and a lot of damage done up in the Northeast, but I'm not reading of areas in Florida where people are unable to go get tests and whatnot. Testing is down 20%, although cases are down more than that, so we're headed in the right direction, but I just think we all need a little bit more time to understand exactly where some of those glitches are and so forth.

So the charts today, again, all kind of indicating positivity rates headed the right direction, still kind of high in a couple of states, Mississippi being one of them. But, you know, definitely the drop in cases is real. Deaths are headed, mortalities on an absolute basis are headed in the right direction, starting to drop nationwide. And then hospitalizations either flat in some states or dropping, all good. Florida today, 7,600 new cases. So that downward tick, even with some of the adjustments of the last few days, seems legitimate. I don't think they've actually gotten down to a 5,000 run rate daily,

but they seem to be well off of that 10, 12, 15,000 rate they were at a couple weeks ago. Arizona, the hospitalizations, the inpatient level, it just looks like a mountain chart now where there was a big climb up and a big climb down. And they're practically, I mean, they're really getting close to down to those early June levels again of impatience. So the Arizona miracle continues. Los Angeles County, the mayor is authorizing the shutting down of electricity and water at places where they think large groups may be forming. I won't comment further on that.

And then at Orange County, first time today that their positivity rate is showing at or below the 8% threshold. They're well above the ICU threshold. They're well above the ventilator threshold. They're in a negative compounding of their daily hospitalizations. And even their case rate per 1,000 is 40% of what it was two weeks ago. So my son is looking forward to going to high school. And then Texas is, as I mentioned, the one that seems to be the slowest. It's most stubborn in its decline in cases. There are reporting lags. Texas is a very large state, and there are issues on their Texas is a very large state and there are issues on their compiling of data that I think are frustrating but nevertheless understandable given some of the logistics.

But either way, Texas is definitely headed in the right direction and definitely going slower than I would like it to. The dollar weakness continues. I think that from a market standpoint, with all conversation around what big tech's doing, what the big market indices are doing, and then my focus on the breadth of market health and the average stock in the market versus the market itself, that still being the biggest story. But the dollar weakness, I think, is the second. And we'll likely be very involved to some of the leadership changes that we expect in the months to come. No news to report on the White House and House Democrat conversations. The White House is said to be ramping up their ability to go forward with an executive order subject to kind of confirming certain legal authorities and protocols on forbearance of student loans, putting a moratorium on

evictions, or rather extending the moratorium that already exists, and then extending unemployment insurance in some form or another. If they end up determining they have the ability to do that and the will to do that, I think it really does actually shift the leverage a bit because if they can redirect some of the thus far unused funds from the CARES Act, there's over a trillion dollars that's sitting there that has not yet been spent. And if they have the legal ability to kind of redirect some of those funds from within CARES Act, then that really does change their leverage in terms of this ongoing apparent stalemate with the House Democrats. So we will see what happens there. I still am predicting that a final bill will happen and it will end up being around $2.5 billion, that it will meet the Democrats' demands on extended unemployment, that there probably will

not end up being the payroll tax cut, and that PPP will get a substantial ramp up as well as improvements and enhancements. The issue I just don't know about is, will the Democrats give in to Republicans' demand for liability protection? I certainly hope so. And will the Republicans give in Democrats' demand for state support? It just seems impossible to me that they won't end up giving in because I think the Democrats are very unlikely to give in on that point, regardless of what one thinks about it on the merits. WTI crude, you saw the highest level since that fateful night, March 6, a night I will never forget the rest of my life, where Saudi and Russia kind of went forward with their little OPEC plus supply war. You have WTI crude at $43 range natural gas I talked about yesterday hitting its new high. And I put a chart up at COVID and markets to really illustrate the point of how inversely correlated the price of oil is to its supply level

to the inventory or what we call crude stock and how those stocks have been coming down and prices have been going higher and you just get a kind of organic economics around the supply and demand crux. The Main Street lending program from the Federal Reserve is starting to get panned as ineffective, as a failure. It is not drawing a lot of attention. Others are saying the fact that it isn't getting tapped a lot is an example of its success because it means other programs have worked and companies are not in as big of need. My thought is that the companies that are most in need of it, the hotels, the retailers, the energy

companies, are the ones that just from an underwriting standpoint are not able to have eligibility just around their leverage ratios and so forth. And so I don't know at this point whether or not there is an ability to draw people in if the banks are not prone to want to lend to them. It's a catch-22 because the companies that can get the Main Street lending facility probably don't need it. And the companies that need it probably can't get it. And so we'll see how those things get played out in the weeks ahead. I'm not going to draw a conclusion yet, but I'm watching it literally every day. A lot of data around the Main Street Lending Program from the Fed. I do have a little section in covidmarkets.com elaborating further on some differences in Federal Reserve policy after the financial crisis and where we are now in the

COVID pandemic and what some of the differences were. There's a big cry right now for the Fed to look at this moment as a chance to ramp up regulation on what we call non-bank actors, whether it be hedge funds, money market funds, non-bank lenders like mortgage servicers. And I think that there's various arguments out there that don't really fit the parallel to 2008 and some of the systemic pressures that existed with our big commercial and investment banks. But rather than me get into that on the podcast, please check that out at covidmarkets.com. So again, July jobs numbers, tomorrow morning, bright and early, Capitol Hill. I'm sure we're going into the weekend with that

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