Dear Valued Clients and Friends –
A pretty significant weekend around the country in the news cycle and with key COVID stories. Around the horn we go …
COVID Health Information
- Those rapid antigen tests from Abbott Labs that got FDA approval Thursday? The government is buying 150 million of them …
- By the way, one of the very good reasons deaths have not dropped at the same level hospitalizations have (from summer highs to now)? Because deaths never went up that much! Thank God. The summer cases put way less people in the hospital than feared, and way, way less people in the hospital died than had been feared.
- Europe is seeing this effect now, as well, where their higher cases in the countries of France and Spain (heavily locked down in March/April) are clearly hitting younger/healthier people who weren’t exposed in the spring, and are now going through the virus cycle, but without severe health impact.
- I expect to hear a lot in the coming weeks about “spiking” and “surges” of cases around college towns and bars and such. The “college student effect” can either be interpreted as a negative (more cases possibly coming), or as a positive, as 99.99999% of those cases will be highly mild in their symptoms, if not asymptomatic, and very quickly cured, with potentially zero mortalities associated whatsoever. In other words, the lack of systemic risk from young, healthy people testing positive than quickly getting better may be reinforced by the “college effect.” I would not presume this is how it will be covered in the media, though.
- A lot of attention was made this week of the CDC’s reporting that only 6% of deaths from COVID-19 (roughly 9,000, total) occurred without co-morbidities. Yes, the CDC’s own website does indicate that 94% of COVID deaths were not from COVID, alone. However, in fairness and objectivity, this is not new, and has been reported and presented this way from the beginning. That the vast majority of COVID mortalities came with co-morbidities is a fact, and the information and relevance and data to all that is amply provided at the CDC website.
- A better way to summarize what it means than the silly statement that 94% of COVID deaths were “not real COVID deaths” is that those without co-morbidities have a very low chance of dying, and young people without co-morbidities have almost no chance per CDC data.
- Perhaps the bigger news this weekend, though, is on the findings around the PCR testing that has largely served as the national standard for COVID tests, and its very high propensity for either false positives, or positives with just absolutely minimal levels of the virus. The New York Times carried the story, and even Elon Musk chimed in to say that Tesla was seeing as much as 50% false positives in their internal testing. I am studying all the reports that come out about testing integrity intensely.
- Speaking of that NY Times story, the notion that 90% of these positive PCR tests can’t transmit and are barely symptomatic does reinforce the view seemingly priced into the market that rising cases are hard to get worked up by, versus rising hospitalization and severe cases.
* Pantheon Macroeconomics, August 28, 2020
- Today’s testing data shows over 727k tests done today, with a positivity rate of 5.3%. A fascinating thing about today’s data was how the positivity rate, hospitalizations, and cases all dropped, even with five states reporting no negative test results, and the “probable” case debacle in Alabama.
* The COVID Tracking Project, August 30, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- Policymakers have some interesting analysis to do in the weeks ahead. They obviously so dramatically reversed their trend in cases and hospitalizations, one may normally conclude that “actions taken” caused the reversal. But the only actions they really took were closing inside bars. The idea that that policy change alone could have created the improvement is unlikely to convince many, so that does leave the idea that perhaps the pockets of Florida which were experiencing growing infections reached a certain herd immunity level. It will be interesting to see how this plays out in the weeks ahead, and might be informative around future outbreaks in other geographies.
- Of the 148 deaths Florida reported Saturday, over 50% of them were from three weeks back (or older). July 23 (five weeks ago) is the peak for “date of death” mortalities, at 193.
- In what was perhaps the most surprising and concerning policy move since COVID began, on Friday Governor Gavin Newsom altered all of his prior (extremely strict county standard/requirements) and replaced them with a new color code system that essentially wiped away all of the improvements (massive improvements) the counties have seen in hospitalizations and ICU’s. The new standards shockingly focus on cases and positivity, the two metrics that Florida, Arizona, and Texas proved this summer were the least significant in gauging total COVID impact. The blow-back has been fierce, and it will be interesting to see what happens from here.
- There appears to be an impression from some Governors that voters are looking for more lock-down measures and activity limitations. If they are reading the political tea leaves right, that would surely alter economic expectations from here, but if they are wrong, there may be a real change in how some states proceed. As I have been saying more and more lately, the biggest economic variable that is challenging my outlook is not the COVID data itself, but the policy response at various cities, counties, and states.
- Interestingly, the Governor’s new standards take away the Orange County, CA progress of the last couple weeks and indicate on one statewide website that OC schools will not be able to re-open. But then, this …
- Hospitalizations in CA are down another 132 people today, with LA County in particular down 4.2% in one day (lowest level since early April!!!)
- Hospitalizations are down another 19% this week, and now down 61% from the summer peak
- The daily growth rate is -8.8% (daily hospital admissions trend)
- It is interesting that Texas’ website says “New daily cases may fluctuate for a variety of reasons, but the daily hospitalization trend shows an objective view of how COVID-19 impact.” California has apparently concluded differently.
* Worldometers.Info, August 30, 2020
Stock Market Today
Short interest in the Nasdaq at lowest level in decades. Oh, and Nasdaq company insider selling at record high levels.
Will be curious to see if the tightening polls and Republican bounce out of the RNC convention changes any of the dynamics on a stimulus deal between the House Democrats and the White House …
Oil and Energy
Sitting at $43 – quite stable and steady for a couple weeks now …
My comments the other day on softer appraisal requirements at Fannie/Freddie (basically, 40% not needing an appraisal at all, vs. 25% pre-COVID, vs. 5% last year), generated a lot of response. I am convinced the reasons for this soft use of appraisals in Fannie/Freddie loans is that:
(1) So many of the new loans are re-financings of recently done loans because of declining interest rates, thereby softening the utility of a new appraisal, AND
(2) The COVID period explains some of the 25 to 40% move (in appraisal waivers), as “on site” visits were mostly disallowed (or at least more inconvenient). The COVID period does not explain the 5% to 25% move from the year prior, though.
(3) There is a genuine softening of risk management from the GSE’s that should concern us at least on the margins.
These three factors can all exist simultaneously, and I would argue, do.
Concerns about potential vulnerabilities in the GSE’s further reinforce how important it is that the capital risk in them be removed from the taxpayer. While the post-crisis years have seen the operating performance improve dramatically, and the Fed’s post-crisis support proved instrumental in maintaining a market for their debt securities, the sustainable health of the U.S. market requires non-socialized risk for mortgage lending. How the FHFA releases the GSE’s from conservatorship will require robust capital standards, and a serious evaluation of how lending can function in an economic setback.
The news last week out of Jackson Hole provoked special coverage on the Fed in Dividend Cafe that provided me a lot of feedback. If you missed it, see here.
Futures are up 90+ points. Last trading day of August tomorrow. And last month of Q3 starts Tuesday. Onward and upward …
Be well, be safe, be free.
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.