• GB Davis

Odds and Ends, Week Ahead - 5/10/20

  • COVID19 Death Rate in US to Rise, will it Flatline?   Almost every COVID19 Forecasting Model (n=14) currently utilized by the Centers for Disease Control and Prevention (CDC) for Cumulative Deaths in the U.S. is showing 100,000 to be eclipsed here in ~3 weeks time, before June 1. At the same time, countries such as Brazil are starting to see alarming numbers - and this is a country - without the testing and timely reporting abilities of the U.S., itself by no stretch par excellence.  For June 29 (8 weeks ahead), HME-CurveFit Model indicates 127,541 cuml. deaths (95k - 212k range); UCLA-SuEIR Model indicates 110,704 cuml. deaths (96k - 127k range); YYG-ParamSearch Model indicates 129,528 cuml. deaths 129,528 cuml. deaths (93k - 192k range).  HME, is the Institute of Health Metrics and Evaluation, and such projections are adjusted for aggregate population mobility and community migration (methodology: combination of a mechanistic disease transmission model and a curve-fitting approach) .  UCLA's projections make no assumptions about which interventions (distancing) have been or will remain in place (methodology: modified SEIR model).  YYG Model (Youyang Gu) accounts for individual state-by-state reopenings and the resulting effects of infections and deaths (methodology:  SEIS mechanistic model).  IF the virus is contained, it appears that mid-June should see a leveling off on the national level.

  • In New York, 73 reported cases of Rare Child Kawasaki disease have sadly been reported with inflammation and heart issue symptoms.  Three children have died, and each such death included either active COVID19 infection, or antibodies thereof.  So, this will continue to be watched closely (as it should) - and could have an impact on the next academic year.  Serology, reinfection and regular testing are going to be a major issue across all ages.

  • Zinc, Vitamin D, Vitamin C continue to be great easy daily preventive COVID19 measures (and not just storytelling).  We'd also recommend cardio - this stuff is a real killer if it gets into your lungs.  Further, the blood clotting aspect (see 30/40 somethings in NY) leading to fatal strokes also of issue. Zinc blocks of one of the binding receptor spots.

  • ING's base case is that Full lockdowns (speaking generally to the EU) will be ended this summer, while social distancing remains in effect for 6-12 months thereafter and a manageable winter outbreak (PIC Season) in '20/'21. ING's Downside 1 case is Lockdowns return in winter '20/'21 and new outbreaks are not manageable absent such. ING's worst case is that social distancing remains in effect for 12-18 months and a vaccine is unavailable for the masses for 12-18 months.  In turn, as with most Bank Macro, this is driving their Real GDP Quarterly Forecasts by country.

  • From State Unemployment Data, Kentucky and Hawaii have breached 30%.  Hawaii's COVID19 curve, however, bell shaped and trending towards zero.  First Hawaiian Bank ($FHB) was downgraded to a "Sell" Rating by BidaskClub.  We are watching the Hawaiian banks, generally full recourse bankers banks. Further, as $BKX and $XLF have sold off last week, before a small bounce, not just regional banking, but too-big-to-fails such as $BAC and $WFC are coming under increasing selling pressure. $BAC and $WFC CDS continued to widen last week, and show the likely prospects of future Credit Rating downgrades.  Financials do underperform in recessions (see e.g. Quad 4, Hedgeye)

  • Bros. Advisors LP Baker with a big trade of 500,000 shares of Seattle Genetics ($SGEN)

  • Turkey, who continues to see its currency destroyed, is preparing to lift its COVID19 Lockdown - and with it - massive migration is expected into the EU, primarily into Greece - provoking the EU and Brussels.

  • The U.S. is clearly analyzing Supply Chain weaknesses, and Trump has announced that Intel, in partnership with the Pentagon, is looking to build a semiconductor factory in the U.S.  Previously the U.S. was concerned with interruptions to items such as Rare Earth Minerals, a market cornered by China with some other influence (e.g. AUS)

  • Pulling it All Together.  Roubini, a grand economist, has estimates for the S&P500 to $100 in '20, from $140.88 currently (not everyone has taken numbers down yet).  At $140.88 this equates to a 20.8x FWD P/E - which is at or near ATHs. By Roubini's estimates, the market is currently believing that '20 earnings will climb to $170, and thinks a level back to $140 would be great.  Retail accounts open and actively trading the market have climbed significantly since the end of February - and - at some point the prospects of this ending in dot.com tears for Mom & Pop daytraders continues to increase, not decrease.  We believe Consumer Discretionary ($XLY) to be one of the most overvalued relative sectors currently.  80% of U.S. stocks are now above their 20-day Simple Moving Averages, 70% above their 50-day Simple Moving Averages, while under 25% are above their 200 day Simple Moving Averages. Some large cap Technology stocks continue to see a disproportionate share of market gains.  ING notes that (relative for the UK, and applicable to many countries including the U.S.), social distancing is or may be here to stay, at least for a period of significant time; people (via survey data) are reluctant to go back out-and-about (restaurant dining, gym usage, clothes and other shopping), businesses have changed their individual mindsets and will act accordingly; no one has actually written off the coming 20/21 PIC season and a 2nd COVID19 wave.  Checking in on the LuxSet BAin & Company indicates (5/7): "Faced with a global collapse driven by lockdowns and the shutdown of tourism in all key markets, the luxury industry faces a challenge like never before. After falling by an estimated 25 percent in the first quarter of 2020, the slowdown should accelerate in the second quarter and could lead to an estimated contraction of between 20 percent to 35 percent for the full year.China has begun to lead the way toward a recovery and Chinese consumers are set to cement their status as crucial drivers of the industry, accounting for nearly 50 percent of the market by 2025. Luxury purchases made online have increased throughout the crisis and the online channel could represent up to 30 percent of the market by 2025. These are the key findings from Bain & Company, the world’s leading advisor to the global luxury goods industry, in the “Bain & Company Luxury Study 2020 Spring Update” released today in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation. “There will be a recovery for the luxury market but the industry will be profoundly transformed."  On the UST front, hearing that supply may affect back-end steepening, so watching there.

  • With Monthly Options expiration this week (5/15) we aren't expecting much risk-off.  Respected market participants are now discussing a Trading Range for the S&P500, with current levels near the top, and lower levels about 10% lower from here - so not a considerable amount to necessarily "relatively" worry about if that holds.

  • We are watching OIL, now firmly above $20 - as we SAID IT WOULD - when PANIC hit the world but a mere few weeks ago.  Our view, now, is that oil should be range bound in the $25-$35 range, with $30 as the unofficial OPEC/G20 level - however, such is dependent on coordinated follow-through in June and cuts by 20m bbl off of early 1Q20 levels to reach a supply-demand balance.  IF oil trades into the $40-$45 range, then it's highly probable that a recovery is for real and timely square front-and-center.

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