[Market Madness] Edition 0066
Economics, Finance, and Politics
A lot to unpack
Well folks, a lot is happening across the board for the U.S., between finance, economics, and politics. Investors appear hesitant given the continued rise of new cases here in the U.S. as well as abroad. There still appears to be, however, a lot of picking and choosing by investors as to what news is good and what news is bad, and what news should be ignored altogether. Today, we’re going to look at the new unemployment claims last week, a stock market guru’s bubble call, and skipping repayments.
Elsewhere, Donnie mentioned he believed that China may have encouraged the worldwide spread of COVID 19 as well as touting the end of the pandemic for us in the in the states is near, despite growing cases and more medical experts growing worried about too quick of a reopening. His claims of a miraculous style comeback of the financial markets and the economy prior to his personally assumed re-election in November does not appear to be fooling market watchers at the moment as we seem to be moving up and down, keeping us mainly at a standstill. A little extra banter today to keep the mood cool on this hot, dog day of summer.
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Thursday Close:
Dow Jones Industrial Avg: -0.15%
S&P 500: +0.06%
NASDAQ: +0.33%
US 10 YR: 0.702%
Crude OIL: $38.85
Market Madness Portfolio: -0.04%
COVID 19 Global Cases: 8,514,889
Indices Overseas:
FTSE 100: -0.45%
Nikkei 225: -0.45%
Hang Seng: -0.067%
TEDRATE: 0.15
LIBOR (3 month): 0.31625%
Unemployment continues
Here we are once again. Unemployment claims for last week came out, and this time came in above analyst expectations (1.5 million versus expected 1.3 million). This marks the 13th straight week of unemployment claims totaling over 1 million, a truly scary statistic. We are, however, seeing gradual improvement as the total number of unemployment persons has declined from the week prior by a little under 60,000 applicants. The total number of people on unemployment assistance is also continuing to decline as states are gradually beginning their reopening processes. As we have also been seeing and hearing, there are concerns about the general status for coronavirus containment in the U.S. and abroad. We are seeing on average 20,000 new cases each day here in the U.S., mainly isolated to several ‘hot spot’ states. Other countries are also seeing some new spikes as well, including some areas of China.
Looking ahead, watching this unemployment figure will be very telling of businesses level of confidence toward reopening. Given that they have the ‘green light’ to reopen, but may choose not to out of hesitancy would be a telling sign of worsening coronavirus conditions. There is absolutely no lack of conflicting data to look at. On the one hand, we are seeing retail sales shoot to the moon in May, following a longstanding lockdown period keeping consumers from their discretionary spending habits. While on the other hand, we are continuing to see people across this country file for unemployment benefits. Although the weekly number is declining, as is the total, such large claims for such an extended period of time boasts no benefits toward economic recovery. Again, just like individual industries and sectors having different recovery curves, it is becoming increasingly evident that individual states will also follow their own recovery curves as well.
While there could be a large influence drawing more people to feel inclined to file for unemployment benefits to receive the extra $600 weekly compensation, it will be interesting to see what the unemployment claims number will look like for the first week in August. Once those additional benefits are expired, it could be likely that, now unemployment benefits are truly a fractional percentage of a person’s working wage, we could see a spike in the number of people looking for new work or returning to work more willingly than they would given the additional benefits. It is too early yet to say with confidence, but this will be something interesting to keep an eye on through September at least. We could also see a move on Capitol Hill to extend the deadline for these additional benefits. We will have to wait and see.
Read more here on CNBC and here on the WSJ.
The real McWho?
A ‘stock market guru’ and British investor, Jeremy Grantham, basically said he wouldn’t touch U.S. equities with a ten-foot pole. He also called the resent rise in equities the “Real McCoy of bubbles.” Ouch, that one hurt.
We’ve also given some harsh feedback to the quickly rising U.S. equities, particularly due to their large deviation from the underlying economic data, which is also a concern of his. He is also calling out the newfound day traders who are speculating on very questionable investments, like Hertz, which is a partial explanation for the general stock market rise.
His fears come into play with selloffs we had seen at the end of last week when equities dipped significantly, pushing novice investors into a ‘long squeeze’ type situation. It also is beginning to look a lot like a new-age Darwinian project as investors are betting big on household names they’d enjoy sticking around, despite poor financial health and bankruptcy filings. In unprecedented times like these, those who dare win and those who are destined for success will be here to tell the tale once we are years away from the coronavirus pandemic.
The best way to learn is to fail, so novice investors making risky gambles may see declines and adjust their future investing outlook accordingly. It is hard for me to believe that the entire market prop-up we’ve been watching lately is all retail investors passing time by day trading. The general sentiment is still bearish I think, but there have been capital gains in some areas that I know institutions and hedge funds wouldn’t be caught dead missing out on. I could be wrong, but I’d like to hear what some institutional folks have been doing!
Skipping payments
Desperate times call for desperate measures, and many Americans have skipped loan payments in their times of financial stress. You’d most certainly not be alone, as the total number of debt accounts in deferment or other forgiveness-type program has surpassed 100 million since the 1st of March. In times of reduced income coming in, but fixed payments remaining the same level, housing and food remain the most important priority. The majority of loans with skipped payments have been student loans followed by credit cards, auto loans, and mortgages. Many financial institutions have been open and transparent with customers who had reached out describing their inability to pay. This cooperation has been helpful in taking some immediate pressure away from individuals and their debt loads. But this can only last for so long.
On the other side of the coin, the banks are feeling stress on their balance sheets as they are unsure how many of these paused loans will go into delinquency in the future and how reliable new applicants are. Since one of financial institutions’ main business lines is extending credit and issuing loans, their risk teams need to be on top of challenges that may arise with loan delinquencies as well as the credit worthiness of potential future borrowers. As the potential for delinquencies rises, banks must set aside more capital to buffer the potential of losses. The hope is that the buffer is only a cautionary measure and will not have to be implemented. Many banks are preparing for this caution to become a reality, setting aside much more than normal to help weather these potentially bad times ahead in loans and credit.
Quick Takes
Delta looking to add more August flights, but is treading cautiously for the fall season. (via CNBC)
Online dating apps seeing a surge of users as consumers search for ‘lockdown love.’ (via FT)
A new study out of Wuhan, China (the epicenter of the global COVID 19 pandemic) suggests there many be ‘no immunity’ against the novel coronavirus. (via SCMP)
Jeremy Grantham, a popular British investor and market-watcher, believes goal U.S. equity exposure is zero, calls the recent rise in U.S. markets the ‘real McCoy of bubbles.’ (via Bloomberg)
Dr. Scott Gottlieb, former FDA Commissioner, says some parts of the U.S. are ‘on the cusp of losing control’ of their COVID 19 containment following reports of drastically rising cases. (via CNBC)
Coronavirus boosting the dash to suburbia. (via CNBC)
Lessons to young adults during COVID 19 from Ray Dalio. (via CNBC)
Reader’s Corner
The reader is following closely the battle between Donnie and Bolton over his upcoming book. A lot looks to be slipping through the cracks, and some of the accusations are getting wild. I’m not going to speculate because that is not for this platform, but interesting nonetheless. Read about the ongoing dispute here on the WSJ and here on the Wash. Post.
Behind the Madness
Thank you again for checking in.
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