The Dividend Cafe - Daily Covid and Markets - Tuesday July 28

Episode Date: July 28, 2020

COVID Health Information • Cases were down 8.3% from the same day last week, and these two consecutive days of week-over-week decline represent the first two days of such in about eight weeks. • Testing is up, case growth is dropping, so positivity rate is dropping. All data points have more room to go, though. • The vaccine candidate from Pfizer/BioNTech have begun stage three trials and are targeting a regulatory review by October. Moderna is also in a large, final-stage trial for their candidate. • Dr. Francis Collins, the Director of the National Institutes of Health (Dr. Fauci’s boss), has provided some stunningly useful insights in understanding the greater resistance to COVID embedded in the society than we previously thought. T cell resistance based on past exposure to other coronaviruses (sometimes the cause of colds we have all had) is explaining a larger immunity and resistance than previously understood. 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. This is David Bonson. Thank you for joining us today where we are going to quickly go through the health data and then spend a little bit more time actually in the public policy front just because everything is heating up as the House and Senate and White House delve deeper in their negotiations for a fourth stimulus package. Quickly, just in terms of a market summary, the Dow actually ended up dropping 200 points today, but the vast majority of that came in the last hour of trading. It was kind of a flattish day throughout. And then in the final hour, we kind of traded down and really no particular reason that I'm able to surmise.

But in terms of the COVID health data and a couple of the things I wanted to share, really the storylines are sort of more of the same. Cases were down 8.3% yesterday from the same day last week. So the two consecutive days of week-over-week decline in cases is the first two days of such in about eight weeks. Testing is definitely way up in case growth on a percentage basis is dramatically dropping. And so, of course, mathematically, that means the positivity rate is dropping. We were sitting there over 9% just a week or two ago, and now we're running in the low sevens. Bottom line is that, you know, we have a lot of work to do. I mean, the case growth is dropping, and the hospitalization data has either flatlined or dropped in almost every major market. Mortalities have stayed very low,

have stayed very low, particularly as a percentage of the cases that grew out of June and July. But until we see a substantially lower case growth and just existence of cases, I don't see how the narrative in the media is going to be able to change. But as far as the utilization of hospital resources, it does appear that perhaps with the exception of a few select counties, on a national basis and for the most part statewide basis, we're performing quite well. And in terms of the awful potentials of just, you know, mortalities increasing and getting to that level. All of that talk, of course, that we have heard throughout June, July, we continue to be in just a very, very different position around the severity of the COVID positives that we're dealing with. The vaccine candidate from Pfizer and their joint venture with BioNTech out of

Germany have begun stage three trials, and they are actually targeting a regulatory review by October. So that's by far the quickest track that we're hearing right now, one of the major vaccine candidates. And you don't go to that size of a late stage trial and start to peg a regulatory review unless you're extremely serious and, of course, positive about your outlook. Moderna, which has obviously been one of the major vaccine candidate scenarios, is also now in their final stage trial, and that will take some time to play out. So there are still four or five very significant candidates, and then there are, you know, dozens of slightly less frontrunner status type candidates. But of

the kind of top four or five, these two, Pfizer, BioNTech, and Moderna appear to be kind of in the lead. But I will point out that there are American connections. Moderna is here in the States. Pfizer is in the States. The US is committed to huge purchases of both of these. So we have a lot more of an inside track on what's happening on those. But the Oxford University, Jensen Institute, and then AstraZeneca for production distribution venture out of UK is apparently very far along as well. So I don't know enough to really, you know, treat these things like a horse race, but from the indications of what we're studying and following and seeing, those appear to be the major three candidates for the inevitable vaccine.

There is an article I put into covidamarkets.com today that I cannot emphasize enough. First of all, it's very readable, very impressively clear and understandable coming from Dr. Francis Collins, who's the director of the National Institutes of Health. He is basically Dr. Fauci's boss. And so Dr. Fauci and him have worked together many, many years, and Fauci's division reports into Dr. Collins' division. But I thought some of Dr. Collins' insights on why we are seeing a greater resistance to COVID embedded than we thought around this study of T cell resistance coming out of perhaps past exposure to other coronaviruses, including, you know, what is often the cause of common colds that we all have, being a sort of foundational explanation

to a larger immunity, a larger resistance than had been previously understood. So I would definitely check that out. It provides a little bit better understanding as to where we are. The normal quadrant of charts is at covidamarkets.com, just again, continuing to track cases, hospitalizations, seem to see a downward track now, not only a significantly downward track in California, we're getting a downward track in Florida, excuse me, a significantly downward track in California, we're getting a downward track in

Florida, excuse me, a significant downward track in Arizona, starting to get that shape going in California, which I just want to point out, never did on a per capita basis get anywhere close to Georgia, Idaho, South Carolina, Texas, Florida, Arizona. and yet has, I will just say, you may not have gotten that impression in following the policy and the press coverage. The dip in cases coming with the positivity rate declining is something we got to be very encouraged about. And lest I be accused of only sharing the good news, there are still rising cases in Alaska, Mississippi, Kentucky, Missouri. There's a few smaller states and the absolute numbers are frankly very small. But just to scale that, there are some states that are not showing the same trajectory in

their case growth line that the bigger fact states are. I think I'm only doing it once a week. If I'm doing it twice a week, it's just because I can't help myself. But the continuing monitoring of Sweden's case growth decline and mortality decline, there is an updated chart. of how a really significant increase of cases built up from late May throughout June, July, and have just precipitously declined practically to zero. And that all along since their original peak back in April, much like New York City has declined its way down very close to zero. And so I continue to watch Sweden because of the encouragement it gives me about what options may be available in other places. And, of course, we pray that there isn't a reversal of Sweden's good fortunes as well. Okay, so let's see. In Orange County, by the way, the trend down in new cases out in California is unbelievable.

Down in new cases out in California is unbelievable. And so you always are at risk of a kind of reporting snapback if there was some sort of backlog that got missed. But now it's multiple days really showing a trend line in the right way after what had been a decent size increase of cases in Orange County to over 1,000 a day that were taking place right after the 4th of July weekend. Hospitalizations, ICUs, and medical resource use, such as intubations and ventilators in Arizona, are all down 30% from their peak two weeks ago. And I can only tell you that in Texas, a lot of the numbers look a lot more encouraging. It's trending in the right way. But I've been really trying to follow and monitor myself specific hard data in Austin and in Houston.

And there's so many data anomalies right now that it's just kind of off and I need to let it settle for a couple days. Because I'm seeing like 1000 beds go up one day and then 500 down the next day. And I know it's not right. You know, I would love to be that encouraged that all of a sudden we freed up a thousand beds overnight, but I just don't believe it. So something just seems off and we'll let the state sort those things out on their own COVID health website in the days ahead. In terms of the stock market, you got to see the chart I put at COVID markets just to kind of track the dollar against a basket of other currencies to give yourself an idea of how interesting this dropped down over the last several weeks, really kind of the whole month of

July has been. And when you look at it again, over the the last couple years, we're really kind of back to a place where the dollar hasn't been since the middle of 2018. On the public policy front, the Senate and Republicans and the White House got on the same page, and last night put out their kind of first draft of the bill. You got all the normal sort of posturing and punching and whatnot. Chuck Schumer called it totally inadequate. Speaker Pelosi called it pathetic. But then they all had a meeting and Mark Meadows came out and said the meeting was very, very good and productive. Senator Ted Cruz on the Republican side said about the Republican bill that he thinks it's too big

and not likely to go anywhere within, you know, Republicans in the Senate. not likely to go anywhere within, you know, Republicans in the Senate. So as I mentioned yesterday, they're talking about doing the same thing with direct support to taxpayers that we did before. $1,200 payments to single, 2,400 married couples, $500 per dependent child, phasing it out, $75K income up to $100K for single, $150 married, 150 married 200 phase out so that's just you know the kind of easy let's put a bunch of money out there type plan then they have some incentives to businesses to manufacture um you know emergency equipment in the u.s they are wanting to go to a 200 a week instead of 600 a week unemployment benefit that would phase down to 70% of wages in concert with the states come October. Pelosi's criticism of that, by the way,

was that it was too complicated. And I tend to agree, actually, that I'm surprised that they went with a more complicated route. I know that they want to take away the disincentive to work, and I definitely support that. But I'm surprised that they're going with something that's going to be probably harder to win the day, even if on the merits they have a better plan when it just is difficult to kind of articulate and difficult to administer. They'd be relying on 50 states that haven't had, some of them have had a lot of problems getting pretty vanilla checks out the last few months, and to go have to do a bunch of calculations and this and that, I find it very unlikely that that's the way it's going to go. The Senate GOP is looking to extend the PPP program

so companies could actually get a second forgivable loan as long as they can prove that revenue has dropped a certain amount. It does have the liability protection for schools and businesses to reopen. It does have $105 billion of aid and support for schools to reopen. I have to think that's conditioned upon those schools reopening. I don't think they'd be giving $105 billion to schools that don't open. It does have grants for parents who decide they want to move their kid to a private school or homeschool option in lieu of school closures. I would imagine the House Democrats will fight that one quite vociferously. And then it has some silly things like 100% deductibility for meals and entertainment, as opposed to 25% or 50% deductibility, allegedly to go incentivize supportive restaurants and hotels. And my joke is that I have never skipped lunch because I could only deduct half of it,

as anyone could attest, but be that as it may. It also has additional funds for virus testing and vaccine development and things like that, which I'm not totally clear on the vaccine side of it because I believe they have tens of billions of unused funds still from the last one. So anyways, let me kind of leave it there. On the housing market side, the percentage of mortgages and forbearance dropped from 8.6% to 7.8%. So it's down about 9% from where it had been. And that's very encouraging to me because it doesn't, you know, there were a high amount of mortgages that went into forbearance from the CARES Act provision. And it seems to me that a good portion of those were worked out already

or resolved, have exited forbearance, even before a new stimulus bill, even before economic recovery. And so I don't want to celebrate prematurely. That number needs to keep going down. But if we're declining that forbearance rate while we're still kind of in the midst of things, that's a good sign. We're going to keep watching that. Interesting to see on the Fed, I am hearing from a source of mine that there is a provision that would authorize, it wouldn't force, but it would give the authorization from Congress to the Fed to use more discretion in how they evaluate capital standards for banks. And it really is pretty benign. Senator Crapo out of Idaho chairs the Senate Banking Committee,

has actually been working on this for a long time, way before COVID, but now it all kind of hit the fan. And what he's wanting to do is give the Fed the flexibility to allow banks to not have to count certain assets that really do not represent an additional risk on their balance sheet in that tier one capital ratio. It's a fancy way of saying that if this goes through, it'll give the banks more leeway on what kind of capital they can lend out. I did hear today that both Mitt Romney and Susan Collins, Senator Utah and Maine respectively, are going to vote against Judy Shelton to be on the Fed board of governors.

So that really means Republicans can only lose one more if we assume every Democrat's going to vote against her. And so Judy Shelton is in a very tight vote and no real margin of error to be able to get approved to the Fed Board of Governors. I'm recording about a half hour before futures open up. So I don't know where the futures market stands at this time. We have 200 companies in the S&P 500 reporting earnings results over the next four or five days. So mostly markets will take P's and Q's from bottom up individual company activity. In the meantime, we'll continue to watch COVID data every single day. And we'll keep you posted on everything going on on Capitol Hill.

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