The Dividend Cafe - Dividend Cafe - Daily Covid and Markets Podcast - Thursday, April 16

Episode Date: April 16, 2020

The Dividend Cafe Podcast will now add a Daily Covid and Markets reporting with the latest on the many aspects of the capital markets affected by COVID-19. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. podcast of our COVID and markets daily commentary. COVIDandmarkets.com is the site that our team at the Bonson Group set up. I have been for about a month now providing a daily summary of market activity, health data, public policy commentary, and various ramifications of this coronavirus-driven market and economic impact and all these things that we are living through as a society. And of course, along the way, we've been doing our normal weekly Dividend Cafe podcast, sometimes twice a week. But a number of listeners requested that we add a daily briefing on COVID and markets to the podcast. And so that's what we're doing here at Dividend Cafe. We'll keep it short each day and hopefully hard hitting and useful. It just so

happens that, and maybe there is some divine providence in this, we can hope and pray, but it just so happens that as I am recording here in the afternoon of Thursday, April the 16th, the futures market for Friday morning has opened. The Dow is pointing to a 700-point opening in the futures, about a 3% move higher in the S&P 500. That, of course, as has been the case in futures almost every day for over a month, could change in five minutes, let alone five hours, let alone the roughly 15 hours now until the markets actually open for tomorrow's trading. But the reason for the huge move up in the futures is the release that has just come moments ago of federal guidelines for the reopening of our country, the reopening of our economy.

the reopening of our country, the reopening of our economy. And so obviously, at least what the market is hearing so far, it on a preliminary basis likes. I know from a policy standpoint, what I've begun to read, there's an 18-page PDF that the White House has just posted that I have posted in our COVIDermarkets.com. What I'm reading, I like a lot, but there's still more unpacking to do. So we will see if this holds or not in markets, but the point being that some policy advancement taking place here in terms of the plans to reopen the country, to do it in a sensible and safe way. And as you can imagine, it largely centers around delegating some of that power and decision-making to the states. It involves criteria that they hope the

states will implement before governors make those decisions, a decrease in confirmed cases over a 14-day period, a decrease in symptoms and influenza-like illnesses and indicators, greater testing capacity, greater hospital capacity. And obviously, it would kind of phase in different parts of the country, which is sensible, different focus in different areas. And so the details are available at the website. I myself want to process more of it before commenting further. But again, the very early indicators that the market likes what it sees. Today was interesting day in the markets. Last night, futures were down about 150 points. As I went to bed, they were, I believe, up about 100. I get up in between 3 and 3.30 in the morning every day and been tracking futures religiously over the next month from where it was overnight and where it is in the middle of the night.

And they moved actually even higher, the futures did, when the jobless claims number came out at 5.30, reporting 5.24 million people with initial weekly jobless claims. Now that was lower. It's a hideous number, but it was lower than the 6.6 million of last week and the 6.8 million of the week before. But all three of these numbers, again, cumulatively represent something well over 20 million people now over the last four weeks having filed initial unemployment claims. So this is interesting that it is four Thursdays in a row that the market has been higher. And in some cases, profoundly so. I mean, 1,300 points one week, 300 one week, 500. Today, the Dow was only up 33 points, but it had spent most of the day down 300

and rallied back, excuse me, down 100 to 200. It was at one point down 300, rallied back in the final hour of trading. As I sit here, we have not only the news of the White House releasing their guidelines for reopening, but also promising news from Gilead Sciences on their therapeutic treatment. I'm pronouncing it like the president does. Remedivisor, which is apparently some results have been released on another one of their clinical trials reporting really promising possibilities for those with a real severe case of coronavirus.

So you had bad economic news expected, promising policy news of reopening, somewhat unexpected, at least the details, and then obviously any news that points to a potential promising therapeutic for treatment is very exciting, not only to markets, but to human beings who value the sanctity of human life. On the economic front, in addition to the atrocious weekly jobless claims number, which again, atrocious on absolute basis, but for the third or fourth week in a row, slightly less bad than the really, really bad that had been expected. But when I say really bad, I mean like historically really bad. Now, not surprising in the sense

that the economy has shut down. And I've made this point over and over again. Any bad economic number, I generally am sort of wondering why it isn't worse because I assume when the economy is shut down, there aren't people buying houses. There aren't people pulling building permits. Building permits fell 6.8% last month. And my immediate response is, how did they not fall 100%?

Who's out pulling building permits right now? But, of course, most of the country was open for the first half of June. And there is, you know, construction, was considered essential activity in most states. Housing starts fell 22%. That's a pretty severe number. I think it'll get worse in April. And I am working on a separate piece right now on some of the particularly profound threats to the housing market that are in front of us. And I'll share that as it comes.

Oil prices had reached the 18-year low of $19 yesterday. They got back above 20 this morning, closed in the high 19s. One thing, though, I would encourage you to look at the chart at covidandmarkets.com because it is interesting that even as oil made a new low, high yield energy spreads, so the spreads in the high yield junk bond market that covers the energy sector have come in quite a bit, pointing to an improvement in perceived credit conditions in the oil sector, even as the price of crude oil itself has declined. The most logical explanation for that is that even though the oil price itself is not yet in the supply-demand crux, been able to find a reason to go higher, the production cuts

that have taken place in concert with the market's expectation of greater demand into the future have given some visibility to what the real exposure of some of the shale producers is that are bank indebted and the market's expectations have been somewhat relieved in that front. So not any movement in the commodity, but some very positive movement in the credit markets. On the health front, the new cases per million in the United States are now essentially where European countries were at the point that they were able to allow their lockdowns to be dramatically reduced. As I'm sitting here talking, I'm seeing the White House Task Force put a chart up

of those trends of new cases in New Orleans, and I'm just blown away at how much improvement there has been in some of those areas of the country that just a short while ago we were not expecting any positive direction. So those curves have clearly bent, and yesterday, besides in New York, we had the lowest growth rate of new cases we've seen around the country to date. Testing numbers have continued to increase. Yesterday, it looked like we hit about 160,000. And today, it looks like we were very near the same. So we've increased our average per day here over the last few days,

about 20,000 new tests per day higher than what we had been doing. And that positive ratio is still staying below 20%, somewhere around 19. We'd like to see that go even lower. The ratio of positive test results to total new tests taken averaging somewhere in the 18, 19, 20 range to 80 to 82% negative range. The news on Gilead Sciences Therapeutic for Remdesivir is very important, and I encourage you to read the report that I posted in covidandmarkets.com. Economically, the funding for the Paycheck Protection Program of the SBA, authorized in the CARES Act, administered by our Treasury Department, well, administered by SBA, but regulated and created by the Treasury Department, has officially exhausted their

funds, $349 billion that has gone out to small businesses. And now we await Congress reloading that arsenal of capital. I have no word at all. And I talk to a lot of politicos every day, a lot of policymakers, a lot of people behind the scenes. And generally you hear, well, there's a back channel thing going on right now with Schumer or Mnuchin or so-and-so. I am not hearing anything as to what exactly is going to move. And I think that generally means both sides

are trying to figure out who is going to be politically blamed. And we will see how that unfolds in the days ahead. I will go ahead and close it up there. There is something at covidmarkets.com that I close with regarding my optimism around the realities of a new normal coming out of this COVID scare. I do believe there will be significant changes. I don't know how long all of them will last. I do not believe society will forever and ever be categorically different. I do not believe people will be eating at restaurants for the rest of my life with a mask over their face and things like that. But that is not me down talking the profound significance of the fear and concern that has been implemented into society over the

last couple of weeks. I think it will be economically profound and I think it will be medically profound. With that said, the language of a new normal is not new. The language of a new normal was created out of the financial crisis. And I know the very people who actually codified that language 10 years ago, a huge bond manager here in Newport Beach, California. And what they meant was not just something new. They meant it as a negative. It was meant to be a bearish indicator, a warning that was made famous out of the financial crisis of compressed growth,

compressed economic activity, heavy-handed government, a lot of which, by the way, on a macro level was very true, but in an investing level was totally untrue. And I think that one of the stories that has got to be elaborated on in the days, weeks, and months ahead, and I fully intend to do this, is how markets adjust to new normals,

how markets adjust to new circumstances, how free enterprise works, entrepreneurial flexibility, human freedom, human choice. There has been a pulverizing erosion of demand in the last few weeks in our economy. Now, even that I believe is far more transitory than structural. And I think everybody believes that. I don't think anyone believes that all demand is permanently eroded as a result of the measures taken to curtail the coronavirus threat. But there's probably varying bandwidth, differing opinions as to how severe and how long the mitigation efforts will last and what the impact to the economy will be out of those things. But whatever a new normal is, I will tell you that I believe just as coming out of the financial crisis, people misunderstood the capacity for businesses to redefine margins, to redefine revenue sources.

The ability of market actors and companies to adjust out of COVID will be what it has always been when talking about free enterprise. And that is a miracle and a sight to behold. Forgive me for not capitulating to permanent pessimism, but it is my very earnest opinion here that there will be tremendous difficulties and challenges economically in the weeks and months and potentially quarters ahead, but that we will be very surprised at the free enterprise system's ability to deal with some of those things. Even though not everyone will succeed and win out of it, the opportunities that exist at large, I think, will be significant. More on that at the Dividend Cafe tomorrow and, of course, in other COVID markets tomorrow as well. COVIDMarkets.com, trying to keep you up to speed.

But in the meantime, I'm going to let this go. Thank you for listening to this special Daily Dividend Cafe. Thank you for listening to the Dividend Cafe. Financial food for thought. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance. This is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable.

Any opinion, news, research, analyses, prices, or other information contained in this research is provided as general market commentary. It does not constitute investment advice. This document was created for informational purposes only. The opinions expressed are solely those of the team and do not represent those of Hightower Advisors LLC or any of its affiliates.