The Dividend Cafe - Daily Covid and Markets - Tuesday August 4

Episode Date: August 4, 2020

The market was up 164 points today, though the % move up in the S&P and the Nasdaq was less. There was a little move up to start the day, then a flat range for most of the day, followed by a dip, and then a rally into the close. My own feeling is that investors are a little hesitant to be unexposed into a close out of fear that a stimulus deal may get announced while markets are closed … (it isn’t impossible, but I doubt that it is imminent). The “hurricane” set to come through NYC turned out to be a rain shower, and something tells me this won’t be the last time a doom & gloom prediction for New York City turns out to be wrong this year. Speaking of NYC, they have LESS THAN a 1% positivity rate right now with high levels of testing, and that positivity rate has been less than 2% for almost two months! Their new cases are almost not registering at all (57 yesterday, same as some small towns in the midwest). Hospitalizations were just 15 yesterday – again, 15 is a fraction of what towns 1/100th the size are experiencing. And mortalities have been zero many days recently, and not more than ten in a day for several weeks. So I am pleased to see all of this in NYC, and hopeful that it leads to steps towards economic revitalization, not the opposite. Now, with NYC’s health status out of the way, let’s jump everywhere else we normally go. 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 the Dividend Cafe of the Bonson Group with our Tuesday COVID update. First of all, just quickly on the market front today, August the 4th, the Dow was up 164 points, and that actually was a higher percentage move up than either the S&P or the NASDAQ. But all three market indices were up. There was a little move out of the gate this morning to the upside, and then we were kind of flat through most of the day. We dropped a little bit, but then off of that drop had a big rally into the close.

My overall feeling is that you're getting rallies near the end of the day for the same reason that sometimes you get sell-offs at the end of the day, which is the desired exposure of investors overnight. Sometimes they desire to not have risk exposure out of fear of a particular news development going against them. That's certainly more common. That can apply over the weekend as well. It's applied on overnight basis many times. The kind of logic of that has applied many times this year. But right now, I think there's sort of the inverse thinking, which is that some investors appear to me, whether it be a weekend or overnight, to be a little bit hesitant to not be exposed to risk at fear that a stimulus announcement could come and then you get a gap up that unexposed investors would be missing. It's not impossible.

It's not totally illogical. I am pretty confident, by the way, and that is in what's going on. But I don't think a deal is necessarily imminent, but nevertheless, fear of such a thing certainly makes sense. I'll talk about where we stand on that stimulus at a moment. Let me jump through some COVID data. I'm actually going to start with New York today, because I did a deep dive on New York very early this morning. First of all, we were supposed to have a big hurricane come through and I was able to get my run in Central Park done this morning and no rain had started. And throughout this very long work day, it most certainly did rain, but right now it's just absolutely sunny and blue skies and beautiful.

And so, you know, you had a lot of fear, a lot of trepidation, a lot of concern. And then the actual result ended up being much less than a lot of the hype and fear had been. And I will let you decide if there is something metaphorical there or not. Okay, so let's talk New York data. Less than, okay, I can make a typo when you're reading something I've written, but I hopefully will not make a verbal faux pas. Less than 1% positivity rate in New York City with the coronavirus, and that is with pretty high levels of testing, and it has been a positivity rate of less than two percent for almost two months. Total new cases yesterday, 57. Okay, you understand the population in Manhattan, and you're talking about 57 cases, which is similar to what some very small towns in the Midwest are seeing right now.

Hospitalizations were 15 yesterday. That actually is right in line with certain towns I looked in Alaska. right in line with certain towns I looked in Alaska, a fraction of what some towns that are one one-hundredth the size of New York are experiencing. Mortalities have been zero many days recently. They have not been more than 10 in a day for several weeks. So I'm very pleased to see all of this, as anyone would be, particularly given the just absolutely grave place that New York City was at in the middle of April in the earlier part of the COVID pandemic. And I'm certainly hopeful that this incredible data will lead to steps towards economic revitalization, not the opposite.

Now, when you take a step back and look at the whole country, first of all, I'm going to do something I don't normally do. I just, in the last hour since the market closed, came across a chart that I've been unpacking and studying, and I'm kind of a little bit in love with it. But I'm going to hold it until tomorrow's COVID and markets. And the reason is just that I had already drafted most of what I wanted to communicate today. And I don't want to have it get lost or anything else get lost in the most visual, significant encapsulation of the summer of 2020. The narrative and the reality all kind of packed into one particular chart.

So I'm going to hold that for tomorrow. that for tomorrow. And if that's my idea of leaving you in suspense, then I really don't give you very much credit for having much going on in your lives. But nevertheless, there's a reason why I'm going to wait till tomorrow, and it's definitely not to leave you in suspense. In terms of where we are right now, though, positive cases have dropped a great deal the last couple of days, but testing has been down too. I'm assuming that's partially from weekend reporting, certainly from some of the weather issues up the East Coast and so forth. But even on a relative basis, the cases are down in 70% of the states and the positivity rate decline reinforces the drop in cases,

even when you're adjusting for testing decline. If we can see a positivity rate with a six handle nationally holding up by this time next week, I think we will have confirmation of a truly sustained and a sizable decline in infection exposures. Now, there is some question as to whether or not testing has dropped a bit. And I'm wondering if that's because of a diminished vigor for testing in certain states, or if it's because of logistics around weather alerts or something around, I don't know. There's a number of possible explanations, so we'll have to see. I don't know. There's a number of possible explanations, so we'll have to see.

But, you know, we'll get clear data on that by the end of the week. On the hospital occupancy side, we are at 65.9% nationwide, okay, of hospital bed occupancy. The average for the last 10 years, and I think you know that 9.6 of those 10 years were pre-COVID, was 66.1%. So you essentially right now have hospital occupancy that's exactly completely totally in line, and in fact, just a tad bit lower than the 10-year average. Now, here's the thing I'm going to do because I really want to reinforce what I hope you perceive in me to be data integrity. And that is to basically tell you that what I just shared with you is irrelevant. Okay. I love finding optimistic data points and I love finding numbers and figures and so forth that you would not necessarily get from the media that maybe perhaps sometimes portray a contrary message. However, in this case, I think it's fair to say that it isn't as rosy as it could sound just simply because the hospitalization crisis data would always be on a local level. Like, in other words, if the national average is right in line, but a particular county is significantly overstretched,

the national average doesn't make a lot of sense. And I think back, it's not a perfect analogy, but I think back to the way I was taught to not think about risk in a portfolio, that by putting one arm in a freezer and one arm in an oven, you do not balance a portfolio. And so if we had a lot of, you know, counties where their hospitalization was way down, and then some that were way in awful plates and you blended it all together and the number looked benign, it wouldn't change the fact that we could have significant hospitalization crises taking place. I don't think we do. I think there have been a couple counties, Maricopa County in Arizona, and certainly the Houston area were good examples

this summer that got not into a crisis mode, but there was concern about getting into crisis mode, and now we've seen their numbers just dramatically improve, particularly in Arizona. But on a national level, to share that broad context, hopefully there's some comparative data that you can find useful. By the way, new ICU cases have dropped 10 of the last 11 days. And then I think that the data point that maybe has not gotten enough coverage is not just simply overall mortality rates, not just hospitalization rates, and obviously not just cases, which I have long advocated is really almost irrelevant, if not borderline irrelevant. But the data point that I think is very interesting is the mortalities that come

out of hospitalizations, because then you're getting kind of two data points merged together, and you get a chance to look. You limit yourself to the pool of only those severe cases. How do we know they were severe? Because why would someone be in the hospital for COVID if they didn't perceive it to be a severe case? And then when you're seeing mortalities from hospitalizations rapidly shrink, not grow, you have something very encouraging going on, which is a declining lethality, a declining severity, an increasing treatment skill, an increasing treatment and therapeutic resources. And so there's a chart at covidandmarkets.com today telling that story,

markets.com today telling that story and one we're very pleased with. So in Florida, there are now 2,000 more hospital beds available statewide than there were two weeks ago. The positivity rate was about 15, a little over 15% a month ago. It's now down to about 10%. And I'm, like I said, just because of the hurricane, because of reporting anomalies, and to let there be some time around lag and so forth, I really am looking forward to next week doing a much deeper dive in Florida's data. I expect, you know, we'll still continue to get some backlog on some of the mentalities and things. the mortalities and things, but really overall, the data appears to be headed in a better direction.

Okay, in terms of what else do we want to say about Florida? 245 mortalities reported today. That's a pretty high number. Only 25 of them were from today. And the peak of 147 in a given day from July 16th appears to be holding. In terms of with Arizona, their per capita deaths have peaked at a level that is only 29% of that of the states with the highest deaths per capita. There are 13 states that have a higher mortality per capita than Arizona, again reflecting what was a less lethal reality of Arizona's summer surge in cases, which they're now clearly on on the downward slope from, thank God. ICU beds in use on July 4th was 91%.

That was their summer high. ICU beds today, August 4th, a month later, 83%. So that's the low since about June 15th. In California, the state website reporting, I put a chart up of COVID markets, a dramatic decline in day-over-day new cases. We even got a little bit of data out of LA County. They still don't have the hospitalizations on the website, but their positivity rate is all the way down to 7%. Orange County, really, really getting close to meeting all the criteria necessary to be off all of the bad boy lists. And so that positivity percentage just keeps dropping.

Negative percentage of growth in hospitalization, ample ICU capacity, ample ventilator capacity. Happy to see that in my other hometown of Orange County, California. Texas, the testing seems to have dropped by about 10% in recent days, and I'm not really sure why. I'm trying to understand it better. It's a huge state, and so the fact that their positive case level is the third highest in the country. It's not really a surprise, but per capita, Texas's positive cases is only 15th in the country. I think it's interesting, even after all the hubbub around the summer, to see Texas only at 15th in the country on per capita cases. So I will move on now from the COVID to the markets. so i will move on now from the covid to the markets um the stock market today as i mentioned was up across the board you do um you probably recall me writing quite a bit more earlier in this kind of market recovery about one of the data points that i i was a little just curious

about the very low put call ratio that I think is often a technical indicator of a little investor complacency. And today I got a report on margin levels across the whole US market, the percentage of equities being bought on margin, often an indicator of euphoria and a little investor risk apathy itself. And I was blown away at how low the numbers were. And I think those two competing data points reinforce a bigger picture, which is that there just simply aren't crystal clear indicators anywhere. There's mixed signals everywhere I look. And yet from those mixed signals, there's so many people willing to cherry pick to support a desired conclusion, and I'm promising you that I'm not doing that.

I'm not going to do that. it's imperative that I maintain objectivity and intellectual integrity to present you all the data points. And I guess the problem with them right now is they maintain a lot of ambiguity. On the public policy front, President Trump's floating the idea of an executive order or orders to impose a moratorium on evictions to potentially enact some sort of a payroll tax holiday and even said to be exploring ways to unilaterally extend the unemployment insurance program, assuming that they can't get some deal done with the Congress. And I really am not sure what mechanism or mechanisms would exist to enable this. I could be missing something. But in the meantime, the Pelosi, Mnuchin, Meadows, Schumer, Cabal met again today and no real news to report. Fascinating chart in the oil and energy section of COVID markets today about natural gas prices. I've barely talked about natural gas for some time, even when I was really covering energy

markets in the peak levels of all of our Saudi and Russian drama and OPEC plus and all that a few months ago, Natty Gas didn't get nearly the attention that I think it should. But the chart there today showing the front month contract kind of breaking out of a low base, I mean a very low base, like a multi-year downtrend, and now seeing a pretty sizable move above some of the recent averages. We'll see what happens there with U.S. natural gas prices. Housing sales, also another chart just kind of showing going back 20 years, U.S. existing home sales and comparing that against single family homes for sale to get an idea of the mismatch between inventory and so forth and you'll see the case for why um we've basically gone a decade uh with with inventories you know now in a right where they

were a decade ago and yet awful lot of demand built up. And I don't know, you're going to need a lot of construction to get supply in line with demand going forward. I'm not going to get into the stuff I have with the Fed here on the podcast, but because there's a link to a Bloomberg article that my equity research director, Julian sent to us that I thought was just fascinating. A couple of former Fed officials that are presenting a monetary tool called recession insurance bonds. And I don't think

it's going anywhere. I don't think that there's an appetite from the current Fed governors for it. However, these are very credible people. And if you read it and get an idea of just how extraordinary and experimental what they're proposing is, I think you'll get an idea not that this policy or that policy is going to happen, but I really want you just to get an idea of how incredibly comfortable with experimentation and novelty our monetary policymakers are right now at this juncture in time. I'm going to leave it there. Thank you as always for listening to COVID and Markets. Reach out with any questions, any time. Look forward to coming back tomorrow, Wednesday, with more. And please do share this podcast with anyone you'd like. Write us a good review.

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