The Dividend Cafe - Daily Covid and Markets - Thursday July 16

Episode Date: July 16, 2020

The market missed out on its first five consecutive days of price increase by dropping 135 points today … Initial jobless claims came in at 1.3 million for the week, a tad higher than 1.25 million expected. Continuing claims dropped to 17.3 million, a bigger drop than expected and now down 30% from the 25 million high of March. Retail sales were up +7.5% in June vs. +5% expected. 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. Today's Thursday and we are here at the Bonson Group to once again debrief and download on all the things in today's market action and the COVID health pandemic. The market was facing the possibility of five consecutive days of an increase, but sure enough, and probably you could argue kind of expectedly, missed out on that opportunity. The Dow ended up being down 135 points, so not a big move. At one point, though, I want to look at this. At one point, we were down close to 300 points,

and so it made back more than half of that downside in the final one hour of trading. But again, a small move down after what's been obviously a pretty big run here. And as I've pointed out day by day and written about ad nauseum and so forth, this is perhaps more noteworthy just because it has come with an ongoing contrast to what is being presented in the health data. And indeed, not only where I think there's a lot of exaggeration and sensationalism, but also where there's just plain, you know, bad news. I mean, all things being equal, I think everybody would really prefer to see the cases declining, not increasing. And even if the growth is flatlining,

the fact of the matter is that you have, you know, plenty of pockets in the country where hospitals are more crowded than others and IC units maybe. And I think that you can definitely look at it if you're being kind of scientific and statistical and analytical, which is really my job by providing analysis is obviously to be analytical and be encouraged that the mortalities and deaths have not moved back to where people had feared they might. And even though there's obviously been a bit of an increase that it's stayed relatively muted compared to the total cases and all that. So I don't think there's anything wrong in being encouraged by that. But obviously, there's also a discouragement in the fact that you'd prefer that nobody be sick

and you prefer that nobody be dying from it. And I think that everyone's going to be in a much different position, not just economically, but kind of the emotional psyche of society when we inevitably see these cases going the other way. And I'm encouraged in some of the data to see that peaking formation coming. And I don't think it's going to come imminent. Maybe it's a week, maybe it's two weeks. I think 10 days is what I'm kind of saying. And I'm talking with other analysts and whatnot saying the same thing, but none of us really know. I mean, the scientists and epidemiologists don't know, and certainly a lowly dividend growth portfolio manager like me doesn't know.

But what I am trying to do is learn from others, and I'm trying to learn from data. And so I'm going to share some things with you today, and then we'll call it quits. So as far as what I would consider to be a kind of contrarian framework for viewing the health data, high reported cases in Florida and still the high level of hospitalizations in Texas and so forth. The truth is that there are signs of why these states are getting ready to see those trajectories move lower. these states getting ready to see those trajectories move lower. And the first thing that has to happen before the absolute number of cases is dropping is that the growth rate of the cases has to drop. And we were running at about 25% trailing average of case growth last week, and we're running now down to about 11%. So that's where some of that optimism will come from. So that's where some of that optimism will come from. But cases and hospitalizations are peaking or even falling in a lot of states, and the goal would be that that will reflect in every state.

I don't know if daily deaths have peaked yet just simply because obviously there is that lag on the mortalities from some of the more severe hospitalizations. But I think the data trending suggests it's close if it hasn't happened already. But the reality is that that mortality data has exhibited a level of stabilization that I think honest sensationalists would even say has proven to be a bit lower than feared. And I would argue significantly lower than feared. And so at this point, you know, we look to a whole lot of other factors and we recognize that there's a lot we don't know and where all this could go. What else do I want to share before we get into nitty grgritty here. That hospitalizations are eight times more frequent for people over the age of 65 than that age 20 to 35 demographic. That's a universally accepted data point that one could

verify at CDC and HHS and a number of different resources. And of course, your own intuition would tell you it makes a lot of sense. So then you say, okay, well, if there's eight times more likelihood of a hospitalization at that older demographic versus the younger, then what is the hospitalization demographics? Who's getting sick? So we can sort demographics, who's getting hospital, excuse me, who's getting sick. So we can sort of forecast who's going to be hospitalized. And we continue to see that trend line running much younger. And, and that is obviously a good thing in the sense of, while I'm not obviously rooting for 24 year olds to get COVID, I do believe that everybody has to acknowledge that from a macro standpoint, higher median age is far more concerning than a lower median age. And again,

those reasons should be obvious. The other piece that took me a little while to digest today, because I am just not good at reading really deep dive, and I'm talking like peer reviewed research from scientific community. I'm trying to make those things available to readers and listeners of ours when they're interested. And so University of Oxford just today, I guess they published it yesterday. It was posted today, though, or I would have seen it last night. But, you know, the University of Oxford is not an outlier in the scientific community. They're not fringe. They're not, I mean, this is a pretty potent and pretty credible and respected research team from Oxford that has done a significant amount of analysis and laid out

the basis for the premises that lead to their conclusion. But on that herd immunity threshold subject, a major priority needs to be even exceeded the herd immunity threshold, in which case the risk and scale of resurgence is lower than currently perceived. scale, a resurgence is lower than currently perceived. And so what they're apparently suggesting is that the 10 to 20% number may even be a bit high, but certainly within that range. So I'm encouraged by that. I don't believe it's a foregone conclusion. I don't think anyone knows, but there's an awful lot of data, including data I'm going to have for you at COVIDandMarkets.com that helps to sort of back up this idea that herd immunity is not as far away as many have feared. So we want to be able to call a peak in daily deaths. We hope to be able to do that very soon for all the right reasons. I do believe cases have peaked in Arizona and California. Florida had a big case growth

report today, but again, as I look under the hood, as much as 5,000 names are backlogged 5,000 names are backlogged on their daily death count. They continue to have a very low number of daily deaths, but what is pushing it higher, and when I say higher, it's still 100 to 150, not 1,000 to 1,500. But my point being, many of these, well, the vast majority, it's not just many, are backward. And of course, there is the understandable nature of catching up with the data. But I think that breaking out the difference between date of death and reported is a big deal in a state like Florida. So let me kind of move it on a little bit. There is some of the most valuable stuff at COVIDMarkets.com today relates to both Sweden and Japan. I fell asleep last night reading a piece about Japan that I'm just kind of shocked how much was in there that

I didn't know. And I still don't know because no one else does either. The answer is as to why and how. What we do know is that there's some inconvenient truths because you have some people in our country that are real hostile about masking, and Japan's had an incredibly good fortune, very, very low cases, very, very low mortalities, and they're very, very pro-masking in their culture. But then there's also a group that's really, really pro-lockdown and just shelter in place forever and everyone stay inside until we figure it all out. And Japan never went to that whole compulsory lockdown,

and even their kind of encouraged involuntary lockdown didn't last really that long. lockdown didn't last really that long. And you're talking about a country with 125 million people and the city of Tokyo has 37 million people. I'm sitting here in Manhattan, which I consider to be the biggest city in the world. And Tokyo trumps Manhattan four or five times over and is more dense, which is hard to believe a higher density could even exist. And obviously, Japan is a much more aged and elderly population. And yet their highest day back in April was 90 mortalities. And they've had one or two or zero across the whole country in recent days. And so it is that the fact that are there behavioral things? Are there biological things?

Are there cultural things that play in? Maybe it's a combination, but I think it's imperative that people get a better understanding of some of these countries have had a great success, Taiwan, Japan, so that policy decisions are made that do impact the economy. They do impact human life and human health.

And we can try to make the best decisions possible going forward. That's all anybody can want. The other piece is Sweden. I think that putting New York and Sweden against each other or on top of each other is a better way to put it, not to show how much worse New York had it back in April and that kind of mountain of deaths that we know New York tragically had, a huge amount of nursing homes, where Sweden had an increase in deaths during the peak times of COVID, but obviously much less. But then it's more to me about where we are now. And you see the higher cases that Sweden has gone through than New York in June, July, and yet the exact same deaths. and then now even the cases have kind of gotten to the same level.

And I do believe that for my non-medical, non-scientific training, there has to be some openness to counter explanations, multiple explanations. multiple explanations, but the convergence patterns, despite totally different mitigation strategies, I do think is anecdotally supportive of a herd immunity concept. So Japan, Sweden, a lot to learn from in the numbers today. And the fact charts as we go through Florida, Arizona, California, Texas, um, one of the things I wanted to bring up with, um, uh, Arizona real quick is that the hospitalizations by their, um, case date and then by the discharge and then looking at the kind of growth rate of those that were impatient for COVID, those that were in ICU for COVID, and then what the actual census said of total impatience and total ICU and the growth rate along the way, going all the way back to late May, it really does speak to a significant, yes, increase in cases, but minimal hospitalization growth, minimal ICU growth relative to cases. And then now when you

get a discharge rate as high as they're getting, We hope to see some real empirical evidence of that turn in Arizona. In terms of Texas, a very bizarre thing today, 3,484 cases, which is obviously a pretty significant number, have to be unclassified as a positive test result. Some of them never tested at all. Some of them were antigen tests, which the CDC only can classify as probable, not an actual test, but they got lumped in with the PCR test or whatever.

But my point being, which is the one that we looked to for the confirmed positive cases, I think that what you have here is just a, it kind of forces a question of where else there may be kind of these data issues. 3,484 cases, a lot of cases, and it's all from the San Antonio Health Department. And so it could potentially be happening. We know already Florida's struggling with the same issue. It could really speak to a significant data reporting problem in other counties and perhaps other states as well. But either way, we know that Texas continues to be at a higher number on hospitalization,

higher number on ICU. It's a very different story in select counties. And so we look forward to what we pray will be a health improvement that allows discharges from hospitals at a faster rate than new admissions. And you get that bent, and you get the right mitigation in place. And then you get the right defenses against the virus and so forth. So that's where we are. Again, please go to covidermarkets.com.

There's a lot more there that I'm going to be able to cover here on the podcast. Market technicals, the breadth in small cap yesterday. I remember we had a big rally day and you had nine advancers for every one decliner, which is the strongest we've seen in over two months now in the Russell 2000. It's outperformance of the S&P in recent days is a couple standard deviations, more than normal, very uncommon. Be interesting to see you have one of the major S&P big tech kind of names who

reported after hours today and is down over 10% so some of those big tech names that have been struggling a bit will play into those broader markets and then that equal weighted S&P and that Russell 2000 and some of those other broad market indices that are not as reliant on four or five or six big tech names could very well end up giving a different story into the market tape. On the public policy side, I really do want to be able to cover more what we're expecting to see with the stimulus 4.0. But the fact of the matter is that there's not a lot of great meat on the bone. Um, we know broadly what each side's looking for and it sure seems in the public square, like they're pretty far apart. Um, there's also this kind of assumption that they're going to

end up bridging it. So I've put together a couple of things kind of you know give you evidence of what each side's looking for give you indication what each side's looking for um but yeah i mean i think when you look at oil uh again right around 41 kind of stayed there throughout the day um there there's talk about a supply surge but iraq Iraq seems to be the major player helping out, that even if Saudi and Russia come off a little bit in some of their really heavy cuts, that Iraq would slash their exports even more, and that's what's really coming out of these OPEC Plus meetings, keeping oil around the $41 mark. Housing delinquencies are increasing. We expect that. The mortgage-backed market looks

very, very healthy. Spreads have tightened a lot in residential mortgage-backed. So clearly, those delinquencies are not slipping over into concern in the mortgage pools. And the problem is, it's very hard to evaluate the delinquencies where there may be cross-pollination in the data with the forbearances that were allowed by the CARES Act. And so you don't really have a clear idea as to who's delinquent because they're facing economic hardship and don't want to make a mortgage payment. And who's delinquent because Congress gave them permission to be delinquent. and who's delinquent because Congress gave him permission to be delinquent. Regardless, we know of the distress that the forbearances have put in. That has to be counteracted then against this high demand for new housing and the very low cost of capital making it all possible.

So I'm going to leave it there. I think I've covered enough things. I really do want you to go to covidamark it all possible. So I'm going to leave it there. I think I've covered enough things. I really do want you to go to COVIDMarkets.com. I really want you to reach out to us if you have any questions. And I'm looking forward to tomorrow's Dividend Cafe, the weekly market commentary we do every Friday. I've already written a good portion of it, and I'm really excited for some of the things that we cover at the Dividend Cafe. So please reach out to us with any questions,

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