The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

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THE DAILY EDGE: 10 MAY 2021: Transitory to What?

U.S. Added Just 266,000 Jobs in April

U.S. employers added a modest 266,000 jobs in April, a report Friday by the Labor Department showed, far short of the one million that economists had forecast and the weakest monthly gain since January. The deceleration came after payrolls rose a downwardly revised 770,000 in March and left total employment down by 8.2 million from its pre-pandemic level.

The unemployment rate ticked up to 6.1% in April from 6% a month earlier, partially reflecting an increase in people entering the workforce. (…)

Some businesses are cautious about ramping up hiring, given that the pandemic and related uncertainty continues. Others are reporting they can’t find enough workers due to expanded unemployment benefits, workers’ fear of contracting Covid-19 and child-care burdens due to school closures, economists say. (…)

Payrolls grew solidly last month in many sectors that were hard-hit by the onset of the pandemic, and they declined in many that previously benefited. Transportation and warehousing employers cut jobs. Temporary-help employment fell by 111,000. Manufacturing employment was down 18,000—predominantly in motor vehicles, where semiconductor-chip shortages idled some factories. [Car and car-part manufacturers lost 27,000 jobs.] Retail jobs fell by 15,000, despite robust consumer spending this spring. (…)

The leisure and hospitality sector, including restaurants, accounted for the bulk of employment creation in April, adding 331,000 jobs. (…)

[But] Food and beverage stores—the supermarkets and such that saw sales jump as Americans cooked more at home—shed 49,000 jobs last month. Courier and messenger services, which have been busy delivering packages throughout the crisis, cut 77,000 jobs. Temporary-help services, to which many employers probably turned in lieu of making permanent hires as they saw demand go up as a result of the pandemic, cut 111,000 workers. (…)

Wages for workers rose in April as some employers appeared to lift pay to attract or retain employees. Average hourly earnings for private-sector employees rose by 21 cents to $30.17 in April. The gain is notable because strong hiring in the lower-wage hospitality sector—which occurred in April—would typically put downward pressure on average earnings. (…)

The average workweek increased to 35 hours in April, an indication some employers added worker hours to compensate for the lack of labor. (…)

Under federal relief plans, those receiving jobless benefits get an additional $300 a week on top of regular state benefits, nearly doubling the average of $318 a week, according to the Labor Department. That means the average unemployment recipient earns better than the equivalent of working full time at $15 an hour. Those enhanced benefits are available until September, for a maximum of nearly 18 months—about three times as long as most states typically allow. (…)

Consensus was nearly 1M new jobs, Goldman was at 1.3M. How could they all be so wrong?

  • Pandemic unemployment stats for April trended much like March…

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  • …but regular unemployment claims (blue line above and bars below) flattened in April. Actually, last week’s number was revised higher by 37K to the highest level of claims in three weeks.

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  • Yet, various surveys suggested suggested continued strong job gains in April:
    • The ADP National Employment Report indicated that April nonfarm private sector payrolls increased 742,000 (10.4% y/y). The rise followed a 565,000 March gain, revised from 517,000 and a 180,000 February increase, revised from 176,000.
    • Markit’s Manufacturing PMI: “employment increased strongly and at the second-fastest pace since December 2017”.
    • Markit’s Composite PMI: “Companies indicated a sharp upturn in employment during April, amid a marked accumulation in backlogs of work. Pressure on capacity led to the second-strongest rise in workforce numbers on record.”
    • The Paychex | IHS Markit Small Business Jobs Index, compiled from aggregated payroll data of approximately 350,000 clients, “increased 4.33 percent from March to 98.34 in April, and returned to its pre-pandemic peak, seen in February 2020. The country has been waiting for a significant increase in job growth since this time last year—and April delivered.”
    • The J.P. Morgan employment tracker is ahead of the BLS data:

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It may be that the BLS seasonal adjustments have not adjusted to the rather unseasonal distortions of the pandemic. Indeed, non-seasonally adjusted payrolls rose 1.1M in April after +1.2M gains in February and March. From Feb. 2020, the number of people employed was down 10.0M last January, 8.8M in February, 7.7M in March and 6.6M in April when total employment was 4.3% lower than in February 2020. That number is -2.2% for goods-producing employees and -4.7% for service-providers. The same number for the leisure and hospitality sector is -14.1% or -2.3M employees, one third of the missing total.

Covid-19 stimulus payments boosted the purchase of goods. Reopening the economy will boost services. Based on May 3rd data from Chase consumer card spending tracker, spending in restaurants was 11.9% below its pre-pandemic trend, airlines -45.5% and other travel and entertainment -28.2%.

But it is what it is, until the next revision. February was revised up by 68,000, from +468,000 to +536,000, and the change for March was revised down by 146,000, from +916,000 to +770,000.

U-6 unemployment, a good measure of labor slack, declined from 11.1% in February to 10.7% in March and to 10.4% in April. At that rate, labor slack will be back to its 7.0% pre-pandemic level, when the unemployment rate was 3.5%, in 10 months, Feb. 2022. If the objective is 4% unemployment, U-6 would need to be around 8%, which could be reached before Christmas.

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Importantly, there is no slowdown in the payrolls index (employment x hours x wages) which now exceeds its February 2020 level by 1.8% even though employment is still down 5.4%.

fredgraph - 2021-05-08T072436.512

Statistical quirks due to the pandemic surely distort average wage data but average weekly wages are booming unrelentlessly. The 1.0% MoM gain in April is particularly remarkable given the mix of new jobs which favored lower wages.

fredgraph - 2021-05-08T074940.805

A recent Bank of America’s survey reveals that corporate America is concerned about rising cost, materials and labor:

VariantPerception says that “the rising Quit Rate suggests workers are confident enough of finding a new role if they quit, and this often leads to rising wages.” The Atlanta Fed wage tracker shows that job switchers are enjoying wage gains of 4.0%, but this is down from 4.7% pre-pandemic. There could be some compositional quirks there too.VP continues:

(…) companies are having to raise wages to attract better quality labour, especially in lower-skilled jobs.

Chart Source: Bloomberg, Macrobond Variant Perception 

This is reflected in the median wage for low-skilled occupations rising the fastest. (…)

Chart Source: Bloomberg, Macrobond Variant Perception 

The Chase consumer card spending tracker keeps trending up (through May 3) with even Travel and Entertainment almost reaching back the 100 level:

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Based on its credit card data, Chase estimates that Control retail sales rose 1.3% MoM in April coming after the huge +6.9% actual growth in March which Chase had estimated at +7.0%. There is no let up in the “Spend up” thesis so far.

More signs of dis-saving.

Consumers are confident enough to take on more debt. Consumer credit outstanding strengthened $25.8 billion during March after rising $26.1 billion in February, revised from $27.6 billion. The gain came after credit edged $1.6 billion higher in January, revised from a $0.1 billion. Earlier figures were revised. A $20.0 billion March rise had been expected in the Action Economics Forecast Survey. The ratio of consumer credit outstanding-to-disposable personal income fell to 19.4% compared to 23.9% during all of last year and 25.7% during 2019.

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Canada’s job report also underwhelmed but for more obvious reasons:

The economy lost a net 207,100 jobs last month, undoing some of the 303,100 gain in March, Statistics Canada said Friday. The unemployment rate rose to 8.1 per cent from 7.5 per cent. All told, Canada has recovered about 83 per cent of its pandemic job losses.

A reversal in Canada was widely expected for April, given rising infection rates that month and the response to contain them. Employment fell by 152,700 in Ontario, where a stay-at-home order and other measures went into effect April 8. British Columbia, which implemented “circuit breaker” restrictions at the end of March, lost 43,100 positions. (…)

Chinese Consumers Are Opening Their Wallets Again The world’s second-largest economy is rebalancing as consumer spending—the weak link so far in its post-coronavirus recovery—picks up steam, a burst of data suggests.

(…) Now, with the last coronavirus resurgence having been brought under control for several months, Chinese citizens—still confined within their own borders—are beginning to open up their wallets again.

In April, the Caixin China services purchasing managers index, a private gauge of services activity, rose to 56.3, up from 54.3 in March and hitting the highest level since December, Caixin Media Co. and research firm IHS Markit said Friday.

Strong overseas demand for some Chinese services—such as consulting and other knowledge-intensive work—played a big role in boosting activity in the sector, prompting companies to add to their staffing levels for a second straight month, Caixin said.

But traditional consumer spending is also picking up.

During the five-day Labor Day holiday that began on May 1, official data showed Chinese travelers made a total of 230 million trips, topping the 195 million trips recorded during the same holiday in 2019 and marking the first time that traveler numbers have surpassed their pre-virus levels for any public holiday normally associated with heavy traffic.

China’s box office also broke new records for revenue and visitor numbers during the five-day holiday. Movie ticket sales rose to 1.67 billion yuan, the equivalent of $258 million—a 9.4% increase from the same holiday period in 2019. Movie theaters were shut down during last year’s Labor Day holiday.

“The robust holiday activities suggest consumption, especially consumer services, is emerging as a new growth driver,” Citigroup economists told clients in a note Wednesday.

Despite the rebound in the number of trips, tourists collectively spent 23% less money this year than during the same holiday in 2019, official data showed. Citigroup economists attributed the cautious consumption to a discounting of travel products and a shift toward shorter-distance tourism.

For the first quarter of the year, all of China’s 31 provinces reported double-digit percentage growth in gross domestic product when compared with the year earlier, state media reported Friday. Hubei province, the original epicenter of the coronavirus, saw its first-quarter GDP skyrocket by 58.3% from the previous year’s exceptionally low base.

Consumers Feel the Pinch as Prices Rise Americans accustomed to years of low inflation are beginning to pay sharply higher prices for goods and services as the economy strains to rev back up and the pandemic wanes.

Price tags on consumer goods from processed meat to dishwashing products have risen by double-digit percentages from a year ago, according to NielsenIQ. Whirlpool Corp. WHR 1.09% freezers and dishwashers and Scotts Miracle-Gro Co. SMG 1.53% lawn and garden products are also getting costlier, the companies say. (…)

Costs are rising at every step in the production of many goods. Prices for oil, crops and other commodities have shot up this year. Trucking companies are paying scarce drivers more to take those materials to factories and construction sites. As a result, companies are charging more for foods and consumer products including foil wraps and disposable cups.

Kellogg Co. , maker of Frosted Flakes, Cheez-Its and Pringles, said Thursday that higher costs for ingredients, labor and shipping are pushing it and other food makers to raise prices. “We haven’t seen this type of inflation in many, many years,” Chief Executive Officer Steve Cahillane said. (…)

Costs for apples are up 10% to 20% depending on the variety, said Mike Ferguson, vice president of produce and floral at Topco Associates LLC, an Elk Grove Village, Ill.-based cooperative of more than 40 food companies including grocer Wegmans Food Markets Inc. Bananas and leafy greens are more expensive too, Topco said, while vegetable oils and oil-heavy products like salad dressing and mayonnaise are also getting pricier in part because of higher ingredient prices.

(…) Kimberly-Clark Corp. said it would increase prices by mid-to-high single digits on Scott bathroom tissues, Depend adult diapers and Huggies baby-care products. (…)

Kevin Hourican, CEO of food-distributor Sysco Corp., said that even at higher prices the pent-up demand for restaurants is enormous. “People feel bad for their local restaurants. They want to support them,” he said. (…)

(…) As producers attempt to navigate supply-chain pitfalls for the commodities necessary to produce their wares, wage growth is beginning to percolate. A recent Labor Department report showed the largest quarterly increase in worker pay at companies since 2003.

This combination of higher labor and materials costs will probably lead to a bigger pickup in consumer inflation at a time when monetary and fiscal policies are conducive to faster economic growth. (…)

Wait times of factories for production materials grew to 79 days in April, the longest in records dating back to 1987, according to the latest Institute for Supply Management data. The average delivery time of supplies for maintenance, repair and operations was also the longest in ISM data. (…)

The ISM’s monthly reports also provide a clear indication of a growing number of commodities in short supply. In November, purchasing managers listed just 8 materials companies were struggling to get their hands on. Five months later and it’s expanded to 24. (…)

Jobs openings are plentiful and hard to fill – time to pay more?undefined

BTW, directly from the horses’ mouths, thanks to The Transcript:

  • “(…) 73% of Americans are planning a trip and the highest in history was 37. So it’s going to — America is going to party the summer like 19 — like it’s 1929.” – Starwood Property Trust (STWD) CEO Barry Sternlicht
  • “…we are on pace to see record leisure demand in the U.S. over the summer months with April bookings for the summer exceeding 2019 peak levels by nearly 10%.” – Hilton (HLT) CEO Christopher Nasseta
  • “…business travel volumes already 75% of what they were in ’19 in those markets. So I think it is — even though not fully through it, not fully open anywhere, I think it is really good evidence that as people get back to work, as kids in the fall go back to school, which at this point, I think, is very highly likely, you’re going to see a step change into the third and fourth quarter in business transient.” – Hilton (HLT) CEO Christopher Nasseta
  • “I would say and many have reported already, but the summer looks strong, particularly in the U.S. and in other markets where vaccinations are well along the way. We are already seeing booking trends well above 2019 levels for leisure destinations, beach, mountains, et cetera. And that goes for not only vacation rentals, but also for conventional lodging.” – Expedia (EXPE) CEO Peter Kern
  • “The fundamental drivers of our operating businesses improved during the first quarter. Based on data reported by the FAA, flight activity nationwide was up 8% in the first quarter versus the first quarter in 2020 and just 3% below the level recorded in 2019. Activity levels for the month of March exceeded those in March of 2019 by 7%.” – Macquarie Infrastructure (MIC) CEO Christopher Frost
  • “…the booking window is very, very compressed. But again, speaking to the pent-up demand, it’s filling up quickly. (…) For the first half of 2022, our load factor is meaningfully ahead of 2019 with pricing higher when excluding the dilutive impact of future cruise credits” – Norwegian Cruise Line (NCLH) CEO Frank Del Rio ” –
  • (…) fans are buying tickets and events are selling out faster than ever. In the US, Bonnaroo, Electric Daisy and Rolling Loud festivals all sold out in record times at full capacity.” – Live Nation (LYV) CEO Michael Rapino
  • In fact, we have booked twice as many shows in ’21 as we did in ’19.” – Liberty Media Corporation (LSXMK) CEO Greg Maffei
  • I think we’re now looking at it [inflation] being in the high end of the mid-single-digit rate for 2021.” – Kellogg (K) CEO Steven Cahillane
  • “Our research team recently published a survey based mover report…the report indicates that the pandemic has indeed caused people to rethink where they live, and concludes that approximately 8 million existing homeowner households that have been on the sidelines may enter a real estate market already be set by unrelenting demand. Additionally, 8.9% of consumers plan to purchase a home in the next six months near a 20 year high per the conference board’s April consumer confidence survey.” – Zillow (Z) CEO Rich Barton

So, we have this environment:

  • the payrolls index (employment x hours x wages) now exceeds its February 2020 level by 1.8% even though employment is still down 5.4%;
  • employment is quickly closing the gap with its pre-pandemic level;
  • wages/compensation (QoQ % change), already gathering pace before the pandemic, are accelerating again:

image

  • It seems that the pandemic boosted productivity to offset sharply higher compensation per hour (averaging 6.4% in the last 5 quarters vs 3.4% during the previous 5 quarters);

fredgraph - 2021-05-09T102548.762

  • how much longer can the average work week get?

fredgraph - 2021-05-09T103239.570

  • U.S. personal savings are 3.7x higher than normal, around $2T of excess savings;
  • the Biden administration proposes to keep boosting the economy for several more years;
  • the Fed is obliging, keeping all interest rates well below normal when the economy’s output gap is closing rapidly and fiscal boost coming;
  • the rest of the world is in a relatively similar excess savings position with dovish central banks and increasingly liberal fiscal policies;

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output” said Milton Friedman:

US money supply growth vs. US inflation

Source: BofA Global Research

Question: “transitory” to what?

This week, we get inflation and retail sales data and they are likely to keep the debate very hot.

TECHNICALS WATCH

Large caps roared ahead last week even without support from the NDX and smaller cap stocks. Overall, buying measures remain on the weak side but so are selling measures. Looks like equity markets are also in a transitory mode, but transitory to what?

California Population Falls for First Time in More Than 100 Years Pandemic-related deaths and immigration declines added to long-running trends that have caused the once-booming state’s population growth to stall.
NYSE to Delist Chinese Telecom Carriers After Rejecting Appeals China’s big three telecom carriers lost their appeals against being kicked off the New York Stock Exchange and will be delisted to comply with an investment ban introduced by former President Donald Trump.

THE DAILY EDGE: 8 JUNE 2020: R20 Strategy Raises Cash

Jobless-Rate Drop, Payroll Gains Signal a Mending Economy. The May U.S. jobless rate fell to 13.3% and employers unexpectedly added 2.5 million jobs, early signs the labor market is mending. The jobless rate fell from 14.7%, which was the highest on records dating from 1948.

Employment remained down by nearly 20 million jobs, or 13%, since February, the month before the pandemic prompted states to shut down huge segments of their economies. By comparison, the U.S. shed about 9 million jobs between December 2007 and February 2010, a period that covered the recession caused by the financial crisis. (…)

Restaurants and bars added 1.4 million workers last month—more than half the overall job gain—as new virus infections eased and many states began lifting shutdown orders. Other industries adding workers included construction, health care and retailers—among the industries that had been quickest to let go of workers in March and April. (…)

While 21 million workers remained unemployed last month, research suggests that more than half of those laid off during the pandemic are earning more than they did at their jobs, thanks in part to stimulus checks and extra $600 a week in unemployment pay approved by Congress.

“People have been cooped up in houses and apartments for weeks and they’re anxious to get back,” Mr. Sohn said. “They have money to spend—disposable income.” (…)

In May, a broader measure of unemployment—including jobless workers, those working part time and those who have given up the job search because they are too discouraged—stood at 21.2% in May. Many other workers have taken pay cuts. Gregory Daco, chief U.S. economist at Oxford Economics, estimates that at least half of the workforce has lost a job, lost hours or took a pay cut. (…)

fredgraph (89)

More than 80% of the people who lost jobs during the pandemic expect the loss to be temporary.

Those permanently separated from their jobs totaled 3 million in May, a low level compared with prior downturns. In October 2009, when unemployment peaked after the financial crisis, there were 8.3 million such workers. (…)

Nearly 90% of Fiat Chrysler Automobiles NV’s hourly factory workforce in North America has returned to work, the company said in a statement. (…)

Forecasting firm Moody’s Analytics projects the unemployment rate will fall to 8.5% by year-end and that the annual job loss will settle at 8 million. (WSJ)

(…) The jobs report is subject to revisions, however, and given the difficulties with collecting data in the midst of the Covid-19 crisis, and the sheer scope of the economic disruptions it has caused, those revisions could be enormous. For example, the Labor Department reported that the response rate in the survey it uses to calculate the unemployment rate was just 67%—about 15 percentage points lower than it was before the crisis struck. Unemployment among the people that the Labor Department isn’t reaching is probably higher than it is for the people to whom it can get through. (…)

Pointing up At the very end of the footnote to its release, the BLS warned:

However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

Pointing up Pointing up And, as pointed out by David Rosenberg:

Businesses were incentivized to hire back their workers in May in order to meet the requirements under the $660 billion Paycheck Protection Program — as in, having
the loans shift to grants so long as staff levels were maintained.

David also

noticed that there were actually 295k more people who lost their jobs permanently in May, bringing the cumulative tally over the past three months to over one million — we last saw this at the depths
of the 2008/09 Great Recession. And the BLS’s own probability measure of re-employment is only 38%, so we’ll see what sort of
follow-through we get in the months ahead.

Bloomberg:

(…) “High frequency data — including mobility stats and small business openings — have been pointing to a trough in economic activity since mid-April,” Jefferies economists Aneta Markowska and Thomas Simons said in a note to clients. “Jobless claims did not fit with that picture, suggesting there was no positive follow-through to the labor market. We now know that claims were wrong. The May employment report was rock solid, with broad-based gains across many industries.” (…)

But claims cannot be wrong. And they are still rising, even if at a “slower” pace of +2.1M (!) on average in the 3 weeks since May 9, the week of the BLS survey.

fredgraph (90)

Markit’s May PMI surveys cover data collected 12-28 May 2020, so after the BLS survey. From the Services PMI survey:

Reflecting weak demand conditions, service sector firms reduced their staffing numbers at a significant rate in May. The rate of job shedding was faster than any other seen before April, as lower new business inflows led to greater excess capacity. Another monthly slump in total sales also drove a further depletion in outstanding business.

From its Manufacturing PMI survey, same dates:

Despite  efforts to adapt using reduced working hours and furloughing  staff, firms cut their workforce numbers at the second-quickest rate in over 11 years.

Markit also publishes a Sector PMI covering over 1,000 private sector companies:

The latest survey data, collected 12-28 May, pointed to a steep downturn across all areas of the US private sector economy with the exception of healthcare. But all sectors display negative employment diffusion indices, indicating that many more firms are reducing employment than there are increasing it.

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Lastly, the BLS report reveals that private service sector hours increased to a record 33.8. I truly wonder how solid that stat can be when most services are shut or operating with most employees working from home.

That said, Canada had a similar surprise as the Globe and Mail writes:

In Canada, the number of employed people rose by 289,600 last month as provinces began to reopen their economies, Statistics Canada said Friday, or strikingly better than a loss of 500,000 that economists had expected. The unemployment rate climbed to a record high of 13.7 per cent as more people rejoined the labour market in search of work.

Indeed, with May’s increases, Canada has recouped just less than 10 per cent of a combined three million jobs lost in March and April, while the U.S. has recovered 11.4 per cent of 22 million positions lost during those months.

Over all, there are still close to five million Canadians who either lost their jobs or the majority of their work hours because of the pandemic.

Markit’s Canada PMI;

(…) employment numbers continued to decrease at much a faster pace than at any time prior to the COVID-19 pandemic. Around 40% of the survey panel reported a decline in staffing levels, while only 9% signalled an increase.

Time will eventually tell but I sense we should be careful with this positive May employment report

The real key to the recovery will come from demand statistics. Fathom Research:

Looking at some of the dramatic falls in consumer debt statistics across the world, the COVID-19 pandemic has all the hallmark of one great, orderly and synchronised global consumer deleveraging.

Reuters Graphic

“Consumers are placing a greater focus on essential spending categories,” Fitch Solutions said in a June 4 report, predicting a fall in Chinese household spending this year and slashing its 2020 growth forecast to just 1.1% from 5.6% before the pandemic.

In the United States, commonplace brands such as chocolate giant Hershey or toothpaste-maker Colgate say consumers have traded down.

French Labor Minister Muriel Penicaud said the economy is running at 80% of normal. Speaking on France Info radio, Penicaud said industry is running at about 60% of normal and that the long-term furlough program being discussed by unions could last for as long as two years.

Citing the risk of cash-hoarding, French Finance Minister Bruno Le Maire has called for direct incentives to boost demand.

“Overall, the (ECB) Governing Council sees the balance of risks … to the downside.”

Opec output curbs spur US shale to ramp up production Operators poised to reactivate wells after cartel’s success in reviving prices

VIRUS UPDATE
  • California, Some Other States See Virus Cases Rise Nearly three months since the U.S. declared a national emergency over the new coronavirus, some states are reporting a rise in new cases as they lift restrictions meant to slow the virus’s spread.
  • The virus continued its surge through Brazil, which reported more than 1,000 new fatalities, and Mexico, where the death toll at state-owned oil company Petroleos Mexicanos alone exceeds 100.
  • Worldwide infections from the coronavirus surpassed the 7 million mark, a little more than a week after reaching 6 million cases. The global pandemic is hitting such milestones faster as hot spots including Brazil and India drive a daily increase of more than 100,000 cases.
  • Iran President Hassan Rouhani pleaded with the public to take social distancing more seriously following a record jump in cases. Russia, the country with the third-highest number of diagnoses, reported a 2% daily increase. Infections in India surpassed those of Italy.
  • Indonesia reported a record increase in new coronavirus cases, taking its total number of infections to more than 30,000. The country had its largest daily increase as diagnoses spiked by 993 on Saturday. The record number of new cases comes as the nation’s capital Jakarta is set to ease restrictions put in place to counter the spread of the pandemic, with authorities pushing to reopen Southeast Asia’s biggest economy.
It’s Covid Code Red in Latin America With No Signs of Peaking

The number of regional cases just passed 1.1 million. Demographic giants Brazil and Mexico are posting among the fastest growth rates and logging daily death records. Viral illness is also rising in Peru, Colombia, Chile and Bolivia.

“The curve is steepening — the sky is the limit,” Julio Croda, an infectious disease specialist and former Brazil Health Ministry official, said about the trajectory in his home nation. “The current data show no signs of stabilization.” (…)

Latin America, with its 650 million inhabitants, is now a grim laboratory of viral pandemic. (…)

New Evidence Social Distancing Is on the Wane Data show that only a third of the public is now staying at home all day.

Fathom Research:

(…) a V-shaped recovery chiefly requires having learned some key lessons as the risks of a second wave seem to have also risen over the past weeks. In the absence of a vaccine, the experiences of Korea, Taiwan and Japan unequivocally show that the quick and effective implementation of track-and-trace measures is significantly more effective and efficient than economy-wide shutdowns, but rely on a highly effective bureaucratic apparatus. Attitudes to the virus seem increasingly complacent and primarily based on reports that Wuhan has not seen any new meaningful increase in infections. Indeed, new lockdown measures have been reported in Northern China in late May and seemed to have normalised since. Korea has also recently successfully quashed new localised virus hotbeds.

The recent experience from Iran is far more sobering and perhaps more pertinent to much of the western world. It has been reported that, this past weekend, the Iranian government let all state employees back to work, allowed mosques to hold daily services and removed most restrictions on businesses. This was against healthcare advice and without a track-and-trace programme in place. As of Tuesday, the health ministry reported almost the same number of new infections as at the country’s peak in late March. Saudi Arabia could be another country to keep an eye on over the next weeks as it allowed mosques to reopen for daily services. (…)

Equally importantly the recent experiences in Singapore and across Europe have highlighted how differences in the economic fabric of different countries are important determinants of a country’s susceptibility to the virus and the associated economic fallout. A recent report from the World Bank, for example, analyses differences across countries in the proportion of jobs that can be carried out from home. The spread between countries is striking as is the heterogeneity among European countries. It is also interesting to see how both the UK and the US do not feature anywhere near the top countries with a high share of jobs that could be performed from home. Yet, both have been among the more relaxed among developed markets in their efforts to curtail the virus.

Pointing up THE RULE OF 20 STRATEGY RAISES CASH

At 3200 last Friday, the Rule of 20 P/E reached 21.6 which triggered an increase in cash from 30% to 40%.

TECHNICALS WATCH

Obviously, Mr. Market is not focused on trailing earnings. Actually, not even on forward earnings, at least those prior to 2022.

Lowry’s Research has been remarkably good calling the momentum through its research on Supply/Demand. After Friday’s close, Lowry’s commented that “At present, despite the various unsavory story lines, the trends in the forces of Supply and Demand are healthy and increasingly supportive of the market advance.”

Its analysis concludes that not only have sellers withdrawn, buyers have returned “enthusiastically”. “Despite its simplicity, the story of Supply and Demand, reinforced by robust breadth, tells investors all they need to know. Not only is the market advance healthy but it continues to strengthen as the price indexes climb – opposite of trends in vulnerable rallies.”

Yes Virginia, momentum feeds momentum, until it doesn’t.

I have never given a lot of weight to technical analysis in my asset mix decisions, until I discovered Lowry’s Research a few years ago. Their method, focused on intelligently measured supply and demand trends makes sense.

I have, however, always payed heed to the 200-day m.a. as an important, albeit not critical, indicator of the basic longer term trend. The fact that the S&P 500 Index has crossed above its now rising 200dma troubles the fundamentalist in me. Even more so since the equal-weight SP500 has now done the same.

And now, this chart is threatening to give a bullish signal as well:

And cash can’t even buy popcorn at the movie, even if we could go to the movies.

Still, this market has bounced on hopes is being valued with normalized data in a truly abnormal world fraught with significant uncertainties.

My friend Terry sent me a piece in Business Insider about “risk velocity” which quoted Seema Shah, chief strategist at Principal Global Investors. Excerpts:

  • “Markets are once again vulnerable to a negative swing in sentiment – certainly a second wave of infection that results in renewed lockdowns could bring this new bull market to an abrupt end,” she said.
  • The past decade’s rise of social media platforms formed “a global echo chamber to major, anxiety-inducing events,” Shah said. This trend accelerated the spread of coronavirus fears around the world and, accordingly, “exacerbated a collapse in both investor and household confidence,” she added. Unfortunately for bullish investors, the opposite is unlikely to take place. Investors and the general public alike will run into a great deal of misinformation as the virus threat abates and economies reopen, making the proliferation of social media a strong headwind against a broad market recovery.
  • “Global supply chains mean that the world economy will only be as strong as the weakest link,” Shah wrote, adding global growth and markets “may be the ultimate losers.”
  • “Even tech giants aren’t fully immune to the negative impact of COVID-19, and a disappointing earnings result from any one of them risks reversing recent US equity gains,” she wrote.

From Barron’s:

Insider Transactions Ratio
PANDEMONIUM

Trump Threatens New EU, China Tariffs Over Lobster in Maine Trip

President Donald Trump threatened to impose tariffs on cars made in the European Union and on unspecified Chinese products unless the trading partners reduce their duties on U.S. lobster.

“If the European Union doesn’t drop that tariff immediately, we’re going to put a tariff on their cars, which would be equivalent,” Trump said in a roundtable event in Bangor, Maine, with commercial fishermen and the state’s former Republican governor, Paul LePage. “It’ll be the equivalent, plus,” he added. (…)

Danger ahead: US bumps in China’s global belt and road 
  • Beijing’s ambitions to link countries and continents through infrastructure have hit a hazard in Romania, with Bucharest abandoning plans for a joint nuclear energy project
  • American pressure could mean a rethink in strategy for other small allies that do business with Chinese partners, observers say