New Covid-19 cases are declining in 9 states including Florida, Louisiana, Arizona and Texas. But they are increasing in 16 states per the NYT data.

Democrats, White House Upbeat After New Talks on Coronavirus Aid Bill Democratic leaders and White House officials sounded cautiously upbeat notes after another round of talks Monday on a new coronavirus aid package, while President Trump floated potential executive actions.

• U.S. Will Borrow Estimated $2 Trillion in Second Half of 2020, Treasury Says The U.S. expects to borrow an additional $2 trillion in the second half of the year as federal spending ramps up to combat the coronavirus pandemic.

The department estimated the government would borrow $947 billion from July through September, a record for the quarter, bringing total borrowing for fiscal year 2020 to $4.5 trillion, in line with earlier estimates. That total is more than triple last year’s $1.28 trillion, and it dwarfs borrowing during and after the 2008 financial crisis.

The Treasury also estimated net marketable borrowing from October through December would total $1.216 trillion. Senior Treasury officials said their estimate assumes Congress will eventually pass another round of economic relief, driving about $1 trillion in borrowing through the end of calendar year 2020. (…)

U.S. Light Vehicle Sales Rise Further During July

The Autodata Corporation reported that sales of light vehicles rose 10.2% last month (-14.6% y/y) to 14.53 million units (SAAR) from 13.18 million in June. It was the third straight monthly increase from a low of 8.81 million in April. (Previous sales figures were revised.)

Sales improved last month versus 11.35 million averaged in Q2’20, but remained below the average 15.17 million in Q1’20, and 17.05 million in Q4’19. Improved vehicle sales added 0.15 percentage points to Q2 growth in real GDP, after subtracting 0.78 points in Q1. (…)

Imports’ share of the U.S. vehicle market fell sharply last month to 23.1%. Imports’ share of the passenger car market weakened to 27.7%, a four-month low. Imports share of the light truck market similarly fell sharply to 21.6%, also a four-month low.

Used-Car Dealers Really, Really Want to Buy Your Vehicle A shortage of inventory, along with higher demand, has used-car salespeople asking what it will take to get you out of your ride

(…) The availability of used vehicles has grown scarce in recent months as fewer people traded in vehicles or returned leases this spring due to virus-related restrictions. Many dealerships were closed or did limited business in early lockdowns, and lease extensions were a common form of Covid relief from lenders. Meanwhile, economic worries as well as a shortage of new cars due to factory closings have sent more buyers to the preowned car lot.

After a drop in April, auto retailers sold a total of 2.1 million preowned vehicles in May and June, a nearly 9% increase over the same two-month period in 2019, according to research firm J.D. Power.

Used-car stockpiles at dealerships dwindled to just under 2.2 million vehicles by late July, a roughly 22% drop from a year earlier, according to research firm Cox Automotive. (…)

The average price paid at auction for a used vehicle rebounded from $12,548 in April—its lowest point in three years—to an all time-high of $14,895 in June, according to vehicle auction operator Manheim. (…)

The dealer’s initial offer for Mr. Dering’s Mariner was $2,000. They ultimately bought it for $6,200, he said. (…)

U.S. Construction Weakens Again in June

Construction activity remains weak. The value of construction put-in-place eased 0.7% (+0.1 y/y) during June following a 1.7% May decline, revised from -2.1%. A 1.0% increase had been expected in the Action Economics Forecast Survey.

Private construction weakened 0.7% in June (-1.9% y/y) after falling sharply for three straight months. Private residential construction fell 1.5% (-0.8% y/y), down for the fourth consecutive month. Single-family building weakened 3.6% (-7.6% y/y) after falling by 7.7% in each of the prior two months. Spending on improvements dropped 0.4% (+10.0% y/y) after edging 0.7% higher in May. To the upside, multi-family construction activity increased 3.0% (-2.1% y/y), up for the fifth month this year.

Nonresidential private construction edged 0.2% higher (-3.2% y/y). Commercial building fell 1.3% (+2.0% y/y) while office construction improved 0.3% (-3.5% y/y). Manufacturing building strengthened 1.7% (-9.1% y/y) while health care rose 1.7% (0.6% y/y). Amusement facility building remained under pressure and fell 6.2% (-14.7% y/y).

Public construction weakened 0.7% (6.2% y/y). Within the two of the largest sectors, road construction weakened 1.7% (+3.7% y/y) and school building fell 2.7% (+5.5% y/y). Office construction eased 0.3% (+6.8% y/y).

  

At least 25 major retailers, including Manhattan mainstay Lord & Taylor and the parent company of Men’s Warehouse and JoS. A. Bank, have filed for bankruptcy this year, with 10 coming over the last five weeks. (Bloomberg)

BP Reports $17.7 Billion Loss, Cuts Dividend BP cut its dividend for the first time in a decade and outlined plans to pivot away from oil and gas and invest more in low carbon energy—marking one of the most dramatic energy-transition plans among its oil major peers.

A MARKET OF STOCKS

Below is one chart from this week’s Bespoke Report that shows the strength we’ve seen from the mega-caps in 2020.  As shown, the five largest stocks in the S&P 500 have collectively added $1.66 trillion in market cap this year.  The other 495 stocks in the index have lost $1.61 trillion in market cap!

(Bespoke)

Jeremy Siegel On Why Rising Stocks Won’t Peter Out

(…) For one thing, short-term rates are zero, which means Treasury and corporate paper don’t have that much more running room for yield declines. (Siegel, like Federal Reserve Chairman Jerome Powell and much of the U.S. financial establishment, doesn’t expect negative rates to visit our shores.)

(…) As the result of low rates today, Siegel contends a bear market for bonds is looming.

In a fascinating recent Bloomberg Radio podcast hosted by Barry Ritholtz, one of the most engaging minds on Wall Street, Siegel sketched out why he thinks stocks will eclipse bonds going forward. (…)

Siegel explained that “as the economy opens up, as therapeutics and/or vaccines get developed that reduce that fear, you will see the so-called cyclical economy sensitive stocks do better clearly.” One factor is that Americans are sitting on a pile of savings that will be searching for an outlet beyond delayed consumer spending.

He noted that M2, the measure of the money supply available to the public (cash and checking accounts, plus things like money market funds), jumped 20% in eight weeks earlier in the the pandemic. “All this is suppressed purchasing power,” he said. (…)

He rejects the label some have stuck on him as a “perma-bull” about stocks, by pointing to his Wall Street Journal op-ed in March 2000 decrying the dot-com boom. “The tech sector was selling for 90 times earnings” then, he said, versus a 32 multiple today for the S&P 500.

Going forward, Siegel still expects stocks to outdistance everything else, albeit at a somewhat lower rate, 5% to 6%. And owing to all the government stimulus of late, he looks for a temporary bump up in inflation to a bit above 3%. If you’re a stock investor, though, that shouldn’t faze you, he said, adding “stocks are really good as a moderate inflation hedge.”

With bonds likely to pay tiny yields up ahead and people’s longer life expectancies, Siegel advises investors to switch to a 75-25 stock-bond ratio, from the traditional 60-40. (…)

FYI, M2 is very rarely up more than 10% YoY.

• It was up 10.3% in early 1987…
• It was up 8.3% in early 1999…
• It was up 12.2% in September 2001…

Two charts drawn with Morningstar/CPMS. You be the judge.

First one in M2 YoY vs S&P 500 Index:

Second one is M2 YoY vs SP500 YoY:

A 2016 paper from the European University Viadrina Frankfurt (Oder) (Department of Business Administration and Economics) concluded:

In-sample regressions show a relatively high level of predictability of subsequent stock returns, especially over a longer forecasting horizon. Higher money growth predicts lower stock returns. If an expansionary monetary shock increases stock prices immediately, there is a reversal of stock prices in subsequent periods, since stock returns are lower in subsequent periods. Hence, concerns that liquidity shocks push stock prices permanently to either too high or too low levels are not justified.

Hoisington Management’s Lacy Hunt argues that trends in the money supply must also include trends in the velocity of money

The second macro-economic effect of weaker MRPD [marginal revenue product of debt] will be the continued downward pressure on the velocity of money. Many factors influence money velocity, but a strong long-term relationship has been evident between the trend in the MRPD and velocity since the economy became heavily over-indebted in the late 1990s. Since the peak in velocity in 1997, velocity fell 34% as MRPD decreased 29%. This is a very close relationship in view of the large number of influences on velocity. Upcoming developments will be an excellent test of this relationship as M2 has grown at a 23.8% rate in the latest twelve months, the fastest since 1943.

We expect velocity to drop sharply in the second quarter then rebound in the second half of the year but not sufficiently to offset the fall in velocity in the first half. In 1934, Irving Fisher wrote that the velocity of money falls in heavily indebted economies. We believe that Fisher’s finding will be correct because his view is supported by the evidence and the rationale that the huge additional debt added this year will not generate an income stream to repay principal and interest. Accordingly, the reopening rebound in the economy underway will falter, leaving the economy with a huge output gap. Extreme indebtedness in the corporate sector is a micro-consideration that also supports this view.

Trump Says U.S. Should Get Slice of TikTok Sale Price President Trump said he was ready to approve a purchase of the U.S. operations of the Chinese video-sharing app TikTok, but only if the government receives “a lot of money” in exchange.

Mr. Trump said he told the company’s chief executive, Satya Nadella, that “a very substantial portion of that price is going to have to come into the Treasury of the United States because we’re making it possible for this deal to happen.” (…)

Legal analysts and others pointed out that the White House had been pushing for a sale of the U.S. parts of TikTok to U.S. owners, making the demand for payment all the more extraordinary.

“It is completely unorthodox for a president to propose that the U.S. take a cut of a business deal, especially a deal that he has orchestrated. The idea also is probably illegal and unethical,” said Carl Tobias, a law professor at the University of Richmond. (…)

“It’s a great asset,” Mr. Trump said of TikTok. “But it’s not a great asset in the United States unless they have the approval of the United States.”

Later in the day, he was asked to clarify his remarks. “It would come from the sale,“ Mr. Trump said. “Whatever the number is, it would come from the sale. Which nobody else would be thinking about but me. But that’s the way I think. And I think it’s very fair.” (…)

The White House referred questions on how a payment would work to the Treasury Department. A Treasury spokeswoman referred a reporter back to the president’s comments, and declined to comment further. (…)

• Microsoft Should Refuse Trump’s TikTok Payoff Paying the U.S. government a cut of TikTok’s sale price would be a dangerous precedent that could blow up in corporate America’s face

(…) He [Trump] is correct about one thing: The potential sale wouldn’t be on the table if not for U.S. pressure. Moreover, whatever TikTok’s U.S. operations are worth—its parent values the entire enterprise at around $50 billion—Microsoft is in an unusually strong negotiating position with an outright shutdown being the other alternative. (…)

If the proposal is serious, and deemed legal, it would set a dangerous precedent for the seizure of foreign businesses through regulatory fiat, and open the door for U.S. firms to suffer the same treatment. In countries such as Venezuela that often has recently been the case. Many business assets such as licenses to operate, mineral rights or physical facilities can be had for token compensation.

Landing the U.S. part of the wildly popular TikTok could be a major prize for Microsoft. But if the price includes an unseemly payout to the U.S. Treasury, corporate America has far more to lose than to gain by participating.

China reveals ambitious plans to supply Covid-19 vaccines to poor countries Beijing is offering loans and priority access to developing countries for vaccinations as they move to large-scale trials.

From Axios:

When asked if he found Lewis’ life impressive, Trump responded: “He didn’t come to my inauguration. He didn’t come to my State of the Union speeches. And that’s OK. That’s his right. And, again, nobody has done more for Black Americans than I have. He should have come. I think he made a big mistake.”

U.S. Satisfaction at 13%, Lowest in Nine Years