The Dividend Cafe - Daily Covid and Markets - Thursday July 23

Episode Date: July 23, 2020

Data this week has been quite a mixed bag with some of the encouraging data being more encouraging than I expected, and some of the negative data being more negative than expected. “Sustained outright declines in new cases are not that far off” [Ian Shepherdson, Pantheon Macroeconomics], but right now we are just watching the new case curve peak, and disparate results in different states makes it all tough to analyze. The chart and information I provide at the top of our FACT section below is, I think, the most important part of today’s missive. Fundamentally, these three realities have all held up incredibly true: (1) Case growth has been mostly amongst the young and healthier, and (2) Treatments have substantially improved since March/April. I was fascinated to see that Sweden had 132 new cases countrywide yesterday, while Australia had 468. It is just an interesting contrast between a vigorous lock-down and shut-out of visitors (Australia), versus the encouragement of a herd immunity build-up. Sweden’s new cases and mortalities are now so low that all eyes are really on whether or not they get a sort of “second wave.” The chairman of the Scientific Advisory Committee of the National Institute of Epidemiology in India stated yesterday that Dehli, India is fast approaching herd immunity, another massive world city showing huge positivity in seroprevalence tests and therefore a large part of the population already infected. Major League Baseball season officially kicks off tonight, and while fans are not allowed for now even with masks and distancing (no comment), it is symbolically and substantively delightful that the Yankees will be teeing off on the Washington Nationals tonight. I expect big ratings. Really big. 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 Dividend Cafe of the Bonson Group. We had a down day in the market. We haven't had a whole lot of those here in the last few weeks. And so today the market, the Dow was down 350 points, which is 1.3%, but the NASDAQ was down 2.3%,

which is something like the sixth of the last eight days, I believe, that the NASDAQ's been down, particularly some of the really well-known, highly regarded big tech companies were all down between 3% and 5%. So for the Dow to only be down a little over 1% with that kind of downward pressure on big tech is really actually quite interesting. The weekly jobless claims came in this morning at 1.4 million, which was close to 100,000, higher than expected. But then continuing claims dropped way more than expected. So the numbers don't add up this way. There's a reason why it isn't quite this simple. But in theory, you had 1.2 million people get off unemployment and you had 1.4 million people get added to unemployment. And like I said, there's some tracking error reasons why it doesn't exactly line up that way,

but that's kind of the general state of affairs. Still just way too high weekly jobless claims and more than likely going to be driving ongoing fiscal thought as Congress walks through stimulus 4.0 and then even potentially federal reserve action as we'll go through in a moment. When it gets to the COVID health information, I really as always encourage you to go to covidmarkets.com. I'm very pleased with some of the information that's there today. There's one chart in particular that I have been searching for far and wide that I just believe is one of the best encapsulations of everything that is sort of going on and transpiring right now in the COVID moment. Both that I think carries with it a

hopeful takeaway, but also that shares the seriousness of the pandemic. So I'll walk through that here in a moment. But basically, I really believe that a few realities are true at once. Case growth has been mostly amongst the young and healthier, and then to the treatments have substantially improved since March and April. And the treatments doesn't necessarily only mean steroid treatments they may be using or repurposing of other medications or even viral therapeutics such as remdesivir. It means also just overall doctor familiarity, doctor wisdom with the practices. There's some reason why discharges have doubled in their speed. The length of time that people are in a hospital for is half of what it was a few months

ago. But more or less, when you look at the outbreak of cases in Arizona, Florida, Texas, and benchmark that up against the outbreak of cases that existed in New York, it's not as high of cases but on a scale it looks very similar in terms of how daunting the growth of cases was but then when you look at the corresponding mortalities that existed in New York and how it correlated to its case growth and do the same thing with Arizona, Florida, Texas, you see a just completely different looking chart where there's this huge disconnect. And that's what I think we're trying to solve for. It's most certainly what we hope does not worsen. There's no question the mortalities have increased a little bit, but that chart, I think, provides such a helpful encapsulation of where we've been, where we are, what has not gone well lately, and what has still

relatively hung in there, despite, of course, the tragedy that is any loss of any human life. Let me move through a few other things quickly, and then we'll go through our fact states. I was fascinated to see Sweden at 132 new cases countrywide yesterday, the whole country, and Australia at 468. And this has been trending for a little bit. And of course, Sweden's cases have just been declining like crazy. But the reason I bring that up is just the contrast between the vigorous lockdown that Australia went through, a total shutout, kind of, you know, closing off their entire island and the rest of the world. And then you look at Sweden, where there was this sort of encouragement of a herd immunity to build up. And so right now, of course, our eyes are on whether or not Sweden will end up

getting a sort of second wave, because there's no question that their new cases and new mortalities are all very, very low. The chairman of the Scientific Advisory Committee of the National Institute of Epidemiology in India stated yesterday that Delhi, India, and this is a very, very large city, both population-wise and size and so forth, is fast approaching herd immunity. Another massive world city that's showing huge positivity in their seroprevalence test, indicating a very large part of the population already infected. I believe they're estimating something around 26%. And you see this total collapsing lately of cases and mortalities there. So I am so open to being wrong on this, so open to counter evidence. But again, it's these big

cities, big population centers that have had high infection rate, New York City, London, high infection rate, New York City, London, Stockholm, Delhi, et cetera, that right now are not participating at all with an uptick in cases as so many other uninfected markets are, indicating to me a potential herd immunity development in those various large population centers. May not seem like it's health-related news, but Major League Baseball, I don't mean exhibition games, but actual real-life regular season officially kicks off tonight.

Of course, fans are not allowed, even if they were there with masks and social distancing, but just having the game take place symbolically and substantively I think is delightful. The Yankees will be teeing off on the Washington nationals tonight. And I expect really big ratings from that game. Our standard quadrant of charts is at COVID markets.com. Looking at new cases and deaths, the hospitalization picture across a handful of States,

the trend and new hospitalizations slowing, and then a couple of the states that are still problematic watching their case growth. As of press time here, I do not have yet the final data on the day in terms of what uh the covid tracking project is showing us for um new cases and mortalities and so forth but all the numbers this week you've kind of tracked pretty similar and then you get a little surge of reporting later in the day so i always want to wait as long as i possibly can um although it does look like some new reporting just came in from both California and Texas. So if this trend holds, we'll probably be a little lower in new cases and new mortalities today than we were yesterday, but I'll let the final numbers play out. Okay, so quickly with Florida,

and we'll go through the fact states. A very helpful chart in Florida that I am wanting to share for the purpose of explaining why this issue of the reporting death date versus date of death is so significant. Because, you know, I think today Florida is reporting 173 mortalities. They had 190 or 140, 150 a few days in a row. And yet they really not had a day over 100. I think one was 103 and one was 106 and that's it. But in 150 deaths on a given day, it could have been only 20 deaths from that day. So I provided the chart. It's awful lot of research that goes into it.

And I'm kind of tired of doing this manually. I found a couple other resources with their back filling it for me and doing it with color coding and other nice things that i am too technologically uh incapable of doing but essentially you look at um the death mortalities get reported on a certain day. And there's cases, there's deaths that took place on June 8th, June 18th, June 19th, a whole lot from June 30th through July 8th. And they were all reported yesterday. All right. And so the numbers just end up not giving you the same message you want by way of a narrative, either that mortalities now are worsening or getting better or what have you, you're getting a kind of mixed bag. And that's where the seven-day

average of mortalities, and there's a lag time for its efficacy, but it becomes more helpful. Now, look, Florida was averaging a seven-day average, so mid-April all the way through about mid-May, 45 deaths per day, and they're averaging 80 per day now. And so I can see people saying, well, 35 extra deaths with everything they've gone through, 10,000 to 15,000 cases per day, and they're getting 35 extra mortalities out of it. That doesn't seem that bad. And I can understand that point other than, of course, the tragedy of those 35 extra losses. But that number hasn't started trending down yet either. And so that's where I think it remains vulnerable in Florida.

The positivity rate has also not really declined substantially. It has declined a little bit, but it needs more time. So we'll continue to watch that. Where there is really undeniable benefit, undeniable improvement in data in Arizona, the seven-day average of new cases is down 28% from its July 6th peak. We're hoping that Florida, which has up till now consistently lagged Arizona in these various health metrics by about 10 days. So hopefully Florida will follow Arizona in some of these categories as well. But today, from a hospitalization standpoint,

Arizona inpatients with COVID dropped to the lowest point of July. Intubations, lowest point since late June. The percentage of visits to their hospitals and emergency rooms with a COVID-like illness is the lowest since mid-June. So Arizona definitely standing out as being on the right track. We did get a lot of hospital data here from Texas this afternoon. It all looked really positive, and I share the numbers with you at COVID Markets. But then after all that, there was a report that came up from the Department of Health Services that some of the hospitalization numbers are incomplete because they're transitioning to a new reporting to comply with federal requirements. And so some of the hospital data is incomplete. So I don't want to read too much into the numbers that I'm tracking, either in Austin or Houston, just because it's very possible there's

some incomplete data there. Okay, as far as the stock market goes, check out at Covenant Markets, the consumer staple sector, one of my favorite sectors for my entire investing career. Always enjoyed a number of things about the space, a number of the names that we happen to own belong to this sector. I've never seen consumer staples be the hottest sector in the market. I've never seen it be the coolest sector in the market. But right now in particular,

I do like the fact that some of the multinational companies would benefit, get a little tailwind from what we believe is a weakening US dollar. There certainly is a kind of non-cyclicality to how the business model gives it a bit of defensiveness. And I also would say that you just have a kind of valuation issue where some of these names are pretty reasonably priced. All of a sudden, it's picked up a little momentum, not necessarily relative to the market, but on an absolute basis hitting some new price levels that are attractive on a technical basis. The public policy side is really going to be the

main focus outside of the COVID health pandemic for this missive for the next few weeks. And I promise not to give you information unless there is information to give. And so what happened today was utterly bizarre. Secretary Mnuchin came out and said they're looking at a 70% sustenance of the federal unemployment supplement. Senator McConnell was going to share his proposal for the stimulus bill and then ended up saying he had to put it off to next week because there were some issues as the Senate Republicans and White House Republicans are fighting over a couple of these elements. My own forecast, I'm in pretty heavy conversations. I had two

significant talks today with one resource in Capitol Hill, one resource in the Treasury Department, and there's my dog telling you what he thinks about all this. I think that unemployment issue is definitely going to be extended. I think it's going to be somewhere around 400 a week, and we'll phase down. I do not think there's going to be a payroll tax cut, and of course, that was easier when I typed it at four o'clock in the morning today than when Secretary Mnuchin ended up coming out later and saying it wasn't going to be there. So at this point, my prediction from four in the morning was already validated later in the day by the Treasury Department. However, I do believe that there will end up being other supply side stimulants in the bill that the White House is going to hold out for, including extension of business investment deductibility and expansion of tax credits for R&D and new structures, new CapEx, new equipment, things of that nature.

I think there's definitely going to be an extension of the PPP program for small businesses, I think there's definitely going to be an extension of the PPP program for small businesses, including allowing some of them to take a second PPP loan. And I also believe that there will be liability protection. That's basically not something the Senate's going to give in on. So, you know, beyond that, a whole lot more to say. Okay, a little information on the housing market and the way in which these credit risk transfers, which I don't really want to bog you down with now, but there's some funky things happening that Fannie and Fred are having to deal with with some kind of quasi-non-agency residential mortgage-backed securities. I think that has an impact to the whole housing market. And so I'd encourage you to reach out if you want some of this info from us

that we're working on. With the Fed, it's kind of interesting to me, I'm now starting to see analysts and economists again talk about how the Fed has more room to increase the level of bond buying they're doing. We know there was just an absolute machine gun of buying that took place in March and April, and then it sort of leveled since then. And I am hearing more and more talk about the Fed expanding that balance sheet even further, just sort of believing that the kind of heavy accelerated V-shaped recovery of Q3 has been largely neutered to some degree, and that they may need more firepower out there.

Let me put it this way. I don't know what kind of firepower it really provides. I think there is ample liquidity, and I think it's a diminishing return at this point. However, do I think that they could do it and the market could respond, and then it becomes a disincentive to market shorts? I do. So I'll leave it there. I thank you for listening to the COVID and Markets podcast every day. Tomorrow, we will have our weekly Dividend Cafe commentary and we'll cover a whole host of subjects there. So thanks as always

and have a wonderful evening. This has been COVID and Markets. The Bonson Group is a group of investment professionals registered with Hightower have a wonderful evening. This has been COVID and Markets. Thank you. Do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.