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Morning Commentary

Escaping LA Circa 2020

By Charles Payne, CEO & Principal Analyst
5/13/2020 9:30 AM

Is 'Escape from L.A.' (1996) available to watch on UK Netflix ...Going into yesterday’s session, investors knew the new bear narrative was encapsulated in a single word: resurgence. 

But even with those headlines being regurgitated, stocks rallied early in the session.  

The same with Senate testimony from Dr. Fauci, who has held the same position throughout this ordeal.

He’s walked a tightrope from the very beginning, as he would probably like to see the economy shut down until a vaccine is discovered.

But he has amended his thoughts to administration standards, but for some places, those mean lockdown for many more months.

This position is embraced by Los Angeles Public Health Director Barbara Ferrer who announced stay as home orders for the county will “with all certainty” be extended for the next three months.

Just days after the Golden State announced a $54.3 billion deficit from $21.0 billion surplus, we learn things are about to get a whole lot worse.   Right now, official projections seem too low:

I suspect there will be a lot of folks trying to escape from home in LA either to work or to express freedom.  Gavin Newsome is suggesting 14 days without any Covid-19 deaths (which by the way are what many deaths, including old age, are being labeled these days) is completely unreasonable. 

Dr. Fauci and several other “experts” say the tests for reopening economies should be 14 days of declining cases (note others think a focus on declining deaths is a better metrics since wider testing automatically means more cases, although it may not reflect growing spread of disease).

Entitlement of the West

This notion of longer shutdowns is always going to be weighed against the economic and health damage from staying shut even longer.  The world has spoken via actions that think the most important aspect is a realization of a bump in cases, but not so much as to overwhelm the healthcare system. 

So why is there such a sense of entitlement for those privileged enough to stay at home to keep the rest of the nation on economic tenterhooks?

Newsome must know Los Angeles would be the very last to open up employing a bar of no deaths.  So why?

Maybe there is a sense of confidence the $1.0 trillion the so-called Western States Pact requested from the federal government will be wired over soon.   Its fair to say the market wants to hear about economies reopening, especially when they are the largest county of the fifth largest economy in the world.

Speaking of Wish List

Nancy Pelosi & Company Need Another Three Trillion

1,815 pages

347,144 words

44,803 paragraphs

There is no doubt more money will be spread around, but there is also no doubt the longer we stumble along, the more limited intervention and the more dire economic reality. 

Bankruptcies Unlocked

Yesterday, the Dave Calhoun CEO of Boeing (BA) suggested a major American passenger air carrier could file for bankruptcy protection.   The comments did not help shares of his own company, as well as the overall industry.  JETS exchange traded fund hit an air pocket, down close to five percent on the session.

Meanwhile, James Bullard who had been somewhat optimistic about a sharp recovery in the country made it clear we cannot stay shut down much longer and avoid the worst consequences imaginable.

“You will get business failures on a grand scale and you will be taking risks that you would go into depression” Federal Reserve Bank of St. Louis President James Bullard said.

Bankruptcies were trending lower in recent years, which coincided with greater shared prosperity and an uptick in business formation.  Trends like this feed on themselves in such an insidious way to hobble any recovery and mask what might be apparent to be a return to normalcy down the road.  

Business bankruptcies have declined, but even when there is a filing, many survive. The same cannot be said for individual bankruptcies.  The chart below illustrates how these filings can linger and even climb long after the end of recession.

Source: https://www.uscourts.gov/news/2018/03/07/just-facts-consumer-bankruptcy-filings-2006-2017#table1

Technical View

Despite headlines trying to find the reason(s) the market stumbled into the close, one that won’t be mentioned, but I have written about, is the inability to breakout leading to a pullback.  This happens every time. 

It is remarkable, and of course, talking heads attribute such pullbacks to everything else except failure to breakout, triggering selling and just like that support holds for a period and buyers mysteriously emerge.

The Good News

Major equity indices have been ranged bound and one could still argue the recent action is consolidation of big gains.

There is still a series of higher lows in place for the S&P 500, but just barely, and the index has to make a stand today or that trend could be reversed.

The Worrisome News

With market breadth shifting, key test on the downside could come rapidly.  We all know stocks and markets take the stairs up and the elevator down.  There are several pockets of support below, but the “must hold” support point looks like 2,730. 

Portfolio Approach

Yesterday, we added a stock in Financials in our Hotline model portfolio. 

Today’s Session

The Dow and S&P 500 are in the red, while Nasdaq is pointing higher. Fed Chairman Powell is currently speaking. He said the "path ahead is both highly uncertain and subject to significant downside risks" and a recovery may take some time.

On the economic front, we received the Producer Price Index final demand for April, which decreased 1.3% and is the largest since the index began in December 2009. Final demand prices fell 0.2% in March and 0.6% in February. Eighty percent of the reduction in the final demand index is due to a 3.3% drop in prices for final demand goods, while the index for final demand services declined 0.2 percent.

Core PPI, less foods, energy, and trade services decreased 0.9% in April, the largest drop since the index was introduced in September 2013. For the 12 months ended in April, the final demand less foods, energy, and trade services is lower by 0.3%, the first 12-month decline.


Comments
If someone doesn't talk some sense into these (D) Govs. I'm truly worried we will have a full market collapse. People will just take their money and run. The President needs to step in here privately or publicly.

David Howley on 5/13/2020 10:17:30 AM
I agree with you. I think President Trump is doing it both ways publicly (see Twitter and press conferences) and privately especially†through more moderate aides.† I hate to say this but some governors probably see economic collapse†as the pyrrhic victory needed to gain more control and at same time help potentially push Trump out of office.† Watching the narrative on women with respect to Biden is a classic example and some prominent†folks have readily admitted as much.† No, I never thought hatred of a single person could or would supersede the needs of people elected officials but power always has and always has and always will.† †CP

Charles Payne on 5/13/2020 12:57:32 PM
As usual, Charles, your analysis is clearly presented and filled with the common sense needed in times like these.

Elaine Inman on 5/13/2020 10:40:14 AM
The Democrats have LOST THEIR MINDS!
We need to open everything up and let the cards fall where they may! Governmental control is creating an environment that will destroy families, businesses, States and the economy for the foreseeable future imho.
I wish no harm or evil on anyone but this "pandemic" has been turned into a hysteria that is unwarranted based on real data and morbidity statistics.

garro on 5/13/2020 11:08:01 AM
All good comments Charles! Fauci and company need further exposure as to their real intent and their falacious models that don't work. They don't care about people and only care about their deceiving statistics and agenda. Dennis Prager said Newsome is a thug. Pelosi's father was a drug dealer and she doesn't seem any better. Her crooked mind does not work. Check out the (4) families that control CA. They include Pelosi and Newsome incestously.

William L. Baumner III on 5/13/2020 1:14:03 PM
Living in San Diego, I believe it's reasonable for me to feel distressed that my volunteer work at the local VA medical center is less essential than selling weed.

Patricia Flynn on 5/13/2020 7:32:22 PM
 

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