The Dividend Cafe - Daily Covid and Markets - Tuesday August 11

Episode Date: August 11, 2020

Market futures were screaming higher yet again when I woke up at 3:30am PT this morning, and if the headlines were to be believed (they often aren’t in financial media), it was because the market was reacting to Russia’s claim to have a working vaccine for COVID-19. The market opened 300 points or so, stayed up most of the day, but then sold off late in the day (dropping from +300 to -100). The Nasdaq and Big Tech were actually down all day today, even when the Dow was up 300, and the Nasdaq ended off 1.7% today. Energy, Financials, and REIT’s were still positive on the day. The market was not rallying on Russia vaccine news, in case you were wondering, and today was an extremely mixed bag of conflicting signals and confusions. COVID Health Information • So speaking of that Russian vaccine registration, here are the facts. First, we are talking about Putin and Russia. Let’s just leave that out there as the fact on which all other facts sit. Second, the registration is conditional; trials are actually still ongoing. Third, production has not yet begun. Fourth, no trial details or doctor/scientist reports have been released, let alone peer-reviewed. Fifth, would you take this vaccine? • The total number of Americans hospitalized WITH COVID-19 (which is categorically different from being hospitalized BECAUSE OF COVID-19) has dropped to below 50,000 people nationwide. 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. It is Tuesday and I'm going to walk us through the market first and then go through some of our daily COVID info because it actually was quite an interesting day in the market. If you haven't been paying attention, the market was up seven days in a row, which is just stunning. And the rally not only was long in terms of market indices going up that many days in a row, you recall that it had really been quite rare to even get three days in a row up until just recently.

And then to have this kind of winning streak is historical in any context, let alone right now. But actually, you know, eight looked like a foregone conclusion that we would actually have an eighth day in a row earlier today because the market was up 350 points shortly after the open. And yet the market petered out near the end of the day and in fact closed down about 100 points, which wasn't that big of a deal on the Dow, although the NASDAQ was actually down, I think, 1.7%. So quite a significant percentage move for big tech. Dow down a little, but actually from its intraday high quite

a bit. Now, look, there's this talk that, oh, the market was, I was up at 3.30 this morning to headlines of market rallying in the futures on Russia vaccine. And I don't really know what to tell you. Very quickly on that Russia vaccine front, maybe you can tell me if you would take it. Okay, we're talking about Putin, first of all. The registration that they've applied to it is conditional. The trials are actually ongoing. So it's sort of like they approved a vaccine before it was tested and ready. The production of this vaccine has not even begun yet.

There's been no trial details, no doctor or scientist reports that have been released, let alone peer reviewed. So, OK, I guess I'm just going to go on a limb and say that that probably wasn't really a big factor in driving markets. I'm just going to go on a limb and say that that probably wasn't really a big factor in driving markets. And obviously, regardless of what country it is on earth, we hope somebody out there is really successful with driving a vaccine. But no, I think the market action today was just more a byproduct of the ongoing things that have been moving markets higher, getting another little run. And by the way, for those of you who are clients of Bonsai Group who look at your account today and say, well, wait a second, we're up and the market was down. It was just one of those days where the financials, energy, REITs actually did pretty well, even as the overall market closed down. So there's a very high dispersion of returns right now within different

market ingredients. In terms of the COVID aspect, I have a chart that is, I think, very, very important on a national level. And I actually have nine other charts region by region of the same one, but I didn't put all of them at covidamarkets.com. To again, reiterate where those that are looking for correlations and more meaty data to kind of get an idea of what the leading indicators are. And I've been really on this hobby horse since I studied in Arizona about what they call CLI, COVID-like illnesses, where people end up at an emergency room or at an emergency center of a hospital with a COVID-like illness, whether that be pneumonia, flu, you know, what have you. The issues with CLI, COVID-like illnesses that then lead to hospitalization, potential use of a ventilator, certainly often use of a therapeutic, and then sometimes cases that get more severe even into an ICU and, God forbid, in mortality in some of the more severe situations. forbid, in mortality in some of the more severe situations. And what you see in the chart that I printed is just the incredible correlation between CLI visits and positive tests for coronavirus

on the date of the test. So when you get to look at the data based on the date a test was taken and what those cases that ended up being positive versus looking at the date of reporting, which gives you a data point of a bunch of positive tests, some of which could have been taken a month ago, a week ago, 10 days ago, and even sometimes little isolated cases of two or three months ago. And it doesn't really have any predictive power whatsoever. So when you can isolate the CLI visits in their correlation to day of test, positive testing, then you know that you can get through some of the noise of the testing results, which are not from data of tests, but from all sorts of backlog reporting all the time, and use the CLI visits, which are real time, as a better indicator.

OK, so and me going to great work in COVID and markets dot com to establish this correlation. That's the end run. That's the motive is because using daily test is not giving great indicators when the daily tests are not from today. They're so often filled with backlog data and yet the testing that is correlated to tests actually done real time, that's where the CLI data becomes so important. I hope that all makes sense. I'm going to make Wednesday tomorrow my kind of Florida day. I was chomping the bits here today and yesterday. I have a whole lot of data, a whole lot of charts on just the incredible move better that Florida has seen following in Arizona's footsteps. But because I just wanted to really, really get on the other

side of any accusations of data lags, reporting abnormalities, things like that, we're going to use tomorrow that were more in the clear of Florida to kind of give you a greater look at things. I have four different charts for California at COVIDMarkets.com. And within each chart, you have five lines. And that's because UCI has started a new research COVID dashboard that's very, very good, but they're actually using Alameda, Los Angeles, Orange, San Diego, and Santa Clara counties. And so you're getting five major counties represented, and you can see where across the different things we're looking at, the hospitalizations, the ICUs, the new cases, and the mortalities, how the data is not just getting better, where I've been

using Orange County a lot because the Bonson Group has so many clients here in our own headquarter town of Newport Beach, Orange County area. But across the Southland and across a greater part of California, the data is overwhelmingly positive, and those charts will help reinforce that. And those charts will help reinforce that. Texas as well, the Texas Medical Center, the ICU and new data on the seven-day trend for hospitalizations, just simply incredible progress made there. So, yes, tomorrow will end up being more Florida Day on the public policy front. Obviously, everyone's sort of looking to see if there's going to be any blinking or acting between the White House, the Senate GOP and the House Democrats. President Trump now is saying he's seriously considering a capital gains cut. And people are saying, well, surely he doesn't think he can cut taxes by executive order. And of course he can't.

And unlike some of the executive orders he did over the weekend, that might be a little bit controversial, gray area, even uncomfortable to a sort of constitutionalist like me, the fact of the matter is there is gray area there that's going to get some of those things through where a straight up tax cut just can't be done. However, capital gain tax cut is unique in that he isn't going to have to cut the rates. capital gain tax cut is unique in that he isn't going to have to cut the rates. If he really goes through with it, this is something I was writing about for two years in his first term and really was of the opinion that he wasn't going to do it. And in fact, he didn't end up doing it. But that is indexing capital gains to inflation, which can theoretically be done without an act of Congress because it's at the discretion of the Treasury Department which is a part of the executive branch and you can argue that it ought

to go through Congress you can argue that it's gray enough that if it were legally challenged you may not have judicial branch support for it but if the president's really serious about doing it that could again be a really interesting market-impacting event to see that sort of backdoor reduction of capital gain taxes. But no, right now my understanding is the Democrats are insisting that there not be federal liability protection for businesses and such that reopen in the bill. That's the hang-up point.

It's really very hard for me to believe that's the hang up point for them. I have to think it has more to do with the whole structure of how both sides approach the idea of state relief. And I don't know if they're going to get there or not. But I do know that the Republicans, particularly the White House, are increasingly confident that they have the upper hand now politically from the president's executive orders. Real quickly, politically, Joe Biden, after hours today, announced he had picked Kamala Harris from the state of California. His rival in the primary will now be his running mate. And I had, oh, I don't want to exaggerate, but it's over five people that have emailed me since then wondering if that is why the market sold off in the last hour of trading today. But in fairness, it wasn't, as best I can tell, leaked that it was officially happening until after market closed.

And to the degree it may have just been sort of known, I don't think that necessarily would have moved market because I think it's been kind of known for some time that betting odds have always had Kamal in a very high place. And so it's possible there's some leakage there, but I just – I wouldn't read into it. No one could prove it one way or the other. So I think that that's it for today. We will be back with you tomorrow for another COVID in markets. today. We will be back with you tomorrow for another COVID and markets with public policy, anything new that the Fed, oil or housing markets have to say in terms of market technicals. We'll see where things go. We obviously, you know, seven day winning streak. It was time to let a little air out. But thank you for listening to the COVID and markets podcast of the Dividend Cafe.

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