Dear Valued Clients and Friends –
The market was up ~50 points today with the S&P and Nasdaq up higher than the Dow on a percentage basis. Markets had been down last night in very late night futures ~200 points, allegedly on Fed comments regarding yield curve control (please). Then markets evened up, allegedly on reports that China trade talks were re-scheduled (please). Then markets dropped a bit after the weekly jobless claims came in worse than expected (maybe). And by the end of the trading day, markets had grinded out an up day, and big tech led the way.
* FactSet, DJIA, August 20, 2020
The weekly jobless claims number came in at 1.1 million, far higher than the 960k we got down to last week and the 925k expected this week. Continuing claims, though, declined by another 636,000 though, bringing that number below 15 million.
COVID Health Information
- Franklin Templeton has a piece I am happy to send to any who request it, with just profound implications about why things are the way they are. Their CIO walks through an extensive data study indicating Americans believe half of COVID deaths are from those age 55 and over (it is actually 92%). The study is a non-partisan, highly data-driven analysis of what most Americans believe and understand about COVID, and the delta from that to the truth. That delta – is not small.
- New York City yesterday had a 0.24% positive infection rate. 0.24% is, I guess, not zero. But it’s pretty close. 0.24%. Did I mention their indoor restaurants are not open? The NYC Hospitality Alliance is reportedly set to file suit against the state and the city over the indoor dining ban. There are 27,000 NYC restaurants struggling through this.
- Testing has picked back up the last two weeks and the positivity rate has collapsed. For one to not extract very good news out of this chart requires a willful suspension of rationality.
* The Morning Dispatch, August 20, 2020
- Today’s testing data shows over 636,000 tests done today, with a positivity rate of 6.7%.
* The COVID Tracking Project, August 20, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- 4,500 new cases and continued collapse in the other metrics. AFTER the whole summer flare, what is Florida’s mortalities per capita? 16th in the country, and below the national average …
- Of their 117 deaths today, 53 were in the last three days – the rest older, and some from the month of May. July 20 was the peak mortality day at 184.
- Broken record. Arizona has less COVID and hospital usage from it now than any time over summer, and more available hospital resources now than before COVID existed.
- Those in Orange County are getting excited about their gyms, restaurants, and schools re-opening in ~14 days (right, Governor?) as all five of the metrics are checked off entirely! The CDPH website needs 1-3 days to catch up to the real time data in Orange County (everything would go quicker if somehow there was a way for computers to talk to each other??) but we should be well on our way. Note: The threshold for cases per 100k is 100 or less, not 25 or less; the 25 kicks in only if the positivity rate is above the 8% threshold.
*Orange County COVID-19 Dashboard, OC Health Agency, August 20, 2020
- The hospitalization improvement in Texas trumps even its other improving metrics, as the 5,600 current inpatient hospitalizations in the state of 30 million people is pretty close to half of its July peak.
*SOURCE DATA: Texas Health & Human Services, August 20, 2020
* Worldometers.Info, August 20, 2020
Stock Market Today
Has the market ever traded to an all-time high while still in a recession? Yes, five times. 1961, 1980, 1982, and 1991. Oh, and now, in 2020.
And in all of those cases – the market was up double digits a year later (except one, where it was up +7.7% a year later)
* Strategas Research, Daily Technical Strategy Report, August 20, 2020, p. 1
So the House Democrats began hinting yesterday for the first time that they may be willing to do a smaller deal to get something done (expecting to get some of the bigger things done after the November election). Speaker Pelosi actually specifically said “willing to cut our bill in half.” I am told by several sources of mine that the part which was already agreed to by both sides before talks broke down over other issues was the re-vamping and re-loading of PPP for small business aid. It would seem to me possible that a carve-out deal there gets done even where some of the other areas cannot be.
I think it is worth me pointing out that one of the analysts I follow most closely, an intensely thorough and reliable intellect who is a significant macro-research provider for major hedge funds (and The Bahnsen Group), and who sits at the nexus of markets and public policy as much as anyone I know, remains highly confident that a $2 trillion+ stimulus bill is coming. Pelosi’s summoning of the House back to DC for a “post office” deal is part of the thinking there, along with the basic political realities facing both parties. I am watching everything as closely as I was throughout CARES Act, and in communication with the White House, the NEC, Congressional leaders, and pundits/analysts every single day.
Oil and Energy
WTI Crude remains between $42 and $43, aided again this week by another 1.6 million barrel draw of inventories. This is three weeks in a row of a draw rather than build on inventories, last week’ being 4.5 million barrels. OPEC+ is meeting to discuss the status of their production cuts, and there continues to be discussions that China may need to substantially increase its imports of U.S. oil and gas (for their sake, not just ours).
Mortgage rates have ticked up a tad, likely as much related to heavy demand without adequate capacity as anything else …
The FOMC Minutes from July were released yesterday and there is reason to believe the Fed is inching closer to changing their policy to an “average inflation target,” which would enable them to “run hot” for periods of time (i.e. above 2% after periods of below 2%). The minutes did reflect the expected and continuing tone of economic skepticism around COVID, and contained the normal jawboning from the Fed that Congress pass a big spending bill.
Most notably, there was definitely some expressed skepticism about the use of Yield Curve Control (YCC) / yield caps to control rates up and down the curve. I do not see that as a sign that they will not use bond purchases to control the Yield Curve, because I am highly confident if not adamant that they will end up doing just that. Rather, I took it as a sign that they don’t see it as necessary right now to express an explicit policy that they will do so – as market forces are, for now, doing it for them.
But the use of greater “forward guidance” was highly touted, and I think you will see that in the September FOMC meeting.
Commercial Real Estate
Rent collections for shopping center owners nationwide averaged 80-90% in June/July (from 50-60% in April/May), per a report from JLL Capital Markets. There is very limited activity in buying/selling as this space goes, other than 1031 exchanges. Of the high profile retailer bankruptcies (Brooks Brothers, 24 Hour Fitness, GNC, Souplantation, J. Crew, Neiman Marcus, Limited Brands, etc.) – all of them – no exceptions – were deeply distressed before COVID and the lockdowns, and the COVID/lockdown moment either merely accelerated their filing, or tipped them over.
Futures are up a little over 50 points at the moment …
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.