Thursday, October 8, 2020

The Morning Call--Cut the crap and fix what you broke


The Morning Call




The Market




            At the moment, the chart of the dollar may be the best directional indicator for the rest of the markets.  Having reset its short term trend from down to a trading range, UUP is holding a developing trend of higher lows.  If that presages a stronger dollar (economy) that would be a plus for stocks but a negative for bonds and gold.  On the other hand, if it fails to hold that very short term uptrend, it may be anticipating a move to safety.  Stay tuned.








              The Economy




                          Weekly jobless claims were up 840,000 versus expectations of up 820,000.




The August German trade balance was +E15.7 billion versus estimates of +E18.2 billion.




                          Vehicle sales per capita as of 9/20.



                          Framing lumber prices up 65% YoY.



Q3 GDP growth will likely show robust improvement; but Q4 remains a   big question mark.



                          UK threatens to walk away from Brexit talks.



                          Panic in the leveraged loan market.



            The Fed


The FOMC released the minutes from its last meeting; the most important takeaways being that (1) the QEInfinity/Forever policy through 2023 is not set in stone and (2) it was expecting more fiscal policy stimulus than has occurred to date.  Suggesting that QEForever could be upscaled if fiscal policy fails to deliver.  Here are the minutes.



              Another $3.5 trillion?



            Fiscal Policy


              Pelosi signals that she would support standalone airline rescue bill.



            The coronavirus


              End this recession now.



              How about listening to these scientists?



              7,000 scientists and doctors call for the end of the lockdown (must read).



            Bottom line.  I am amazed at how tone death our political class is.  Having made what I believe will be recorded as the greatest f**kup in economic history, these guys are debating over angels on a pin head. 

Meanwhile, personal income fell 2.7% in August.  Last week 840,000 workers filed for unemployment bringing total unemployment to around 12 million.  Small businesses are failing a rate higher than during the financial crisis. 

Wolf Richter points out that one of the major results of the PPP program was that it allowed many very small business owners to simply shutter their enterprises, giving them enough to settle with the landlords and other creditors rather than file bankruptcy.  In a recent article he points out:

‘From March through mid-July, over 420,00 small businesses – or 7.1% of all small businesses – permanently and quietly closed their doors, more than typically in an entire year, according to a study by Brookings, released in September.

The analysis found that “many small businesses are financially fragile and not equipped to weather a prolonged period of substantially reduced revenues”:

47% rely on personal funds of the owner to fill a two-month revenue drop.
88% rely on the personal credit score of the owner (such as working capital funded by personal credit cards).
Only 44% have had a bank loan over the past five years.

Small businesses account for about 99% of all businesses in the US and about 47% of jobs in businesses. If these 420,000 businesses are representative of national employment, “this means we have lost at least 4 million jobs that will only return with the creation of new businesses,” the report said.’

Cut the showboat crap and fix what you broke.

              Valuation update.



    News on Stocks in Our Portfolios


            Exxon.  Buy now



            Altria is controversial but resilient



            McDonald's (NYSE:MCD) declares $1.29/share quarterly dividend, 3% increase from prior dividend of $1.25.


CVS Health (NYSE:CVS) declares $0.50/share quarterly dividend, in line with previous.


What I am reading today


            Finally, someone gets it.



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