Wednesday Briefs – 20 May 2020

A weekly commentary on current events. Follow populyst to receive notification.

This week: Milestones in the re-opening; Russia, Brazil; United States deaths; Bearish billionaires.

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Milestones in the re-opening

Every country, state or locality has set itself some milestones before it lifts its lockdown and re-opens. Because the re-opening, a reboot of the economy, will be gradual, consider these two important milestones after the first phase of such re-opening has occurred.

Airlines and cruises have suffered disproportionately during the pandemic. The load factors (passengers per seats) for airlines were below 20% in April (8% for Southwest) on reduced capacity. They now expect a rebound to at least 35% in May. A gradual return will feed on itself and restore confidence if it is not accompanied by a resurgence in confirmed cases. The shoots of spring include for example promotions by Southwest and the resumption of New York to Paris (and other international destinations) service by Delta for around $1,000 round trip, a 35% discount from the usual June fare. The brave will also benefit from hotel rates below their seasonal levels.

Big crowd events such as concerts or stadium sports will be slow to return. For tennis followers, the French Open Roland Garros that normally takes place in June has been postponed to late September at the usual location. Wimbledon has been cancelled for the first time since WW2. And the US Open is expected to start on time in late August at the usual or another venue, possibly at Indian Wells in California. Meanwhile, a tentative date for the restart of baseball is being discussed for early July with no fans in the stadiums and frequent testing of players. College and NFL football are hoping to start on time but no decision has yet been made. Yet the onset of a second wave may upend any plans if not managed properly.

Russia, Brazil

As noted last week, Russia and Brazil are the new countries of concern. They now rank second and fourth in confirmed coronavirus cases. The US and Spain rank first and third. Russia and Brazil’s death counts remain relatively low on a per capita basis, though growing at 5% which is a faster rate than almost any other country. The chart shows that Brazil’s death toll has grown more slowly (shallower slope of the curve) but that its trajectory is concerning. Granted, this assumes that the official figures are reliable, which is far from assured not just in Brazil but in most places. India (not shown) is also growing at 5 to 6% and now ranks 11th in confirmed cases.

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United States deaths

The chart shows the per capita number of virus deaths in several European countries, the US, New York State, New York City and the US without New York State. Of course, taking Paris out of the France numbers and Milan out of the Italy numbers would also result in lower curves for those countries. Germany looks good not only because of trust in its strong institutions but because it does not have a singular large international hub to the extent of a New York, Paris or London.

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Bearish billionaires

Judging from their comments to the media, some billionaires are in an investment funk and see the equity market as overvalued and destined to retest the late March lows. Warren Buffett’s sale of a Goldman Sachs stake was interpreted by some as a bearish view on financials, notwithstanding that Berkshire Hathaway on the latest information still holds large stakes in American Express, Wells Fargo and others.

Predictions based mainly on valuations (notably David Tepper’s) are notoriously unreliable as decades of sector overvaluation have shown. In addition, record low interest rates suggest that equities could in fact be undervalued.

In the residential real estate market, prices continue to push up, albeit on low volumes. Mortgage 30-year rates have ticked below 3% for the first time ever, providing more support. The vigor and optimism of the American consumer and investor are likely to surprise once again, as long as we can stave off a large second wave of the pandemic and as long as unemployment rates drop back to single digits within a few months. Two important caveats, for sure.

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