Wednesday Briefs – 1 July 2020

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

This week: Coronavirus in June; Accidental winners; New York City budget.

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Coronavirus in June

June was another month of great progress against the virus, albeit with some fresh concerns in a handful of states. Nationwide in the US, the seven-day average of daily deaths fell from 1,017 on June 1st to 586 on June 30th. On this measure, New York State continued its recovery with deaths dropping from 67 daily to 13. But Arizona, Florida and Texas saw increases from 16 to 35 (AZ), 30 to 39 (FL) and 22 to 29 (TX).

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While concerning, these increases are very modest compared to the big numbers of daily deaths we were seeing just ten weeks ago, with the US and New York at 2,618 and 760 respectively on April 15th.

Assuming a two to three week lag between the surge in cases and the rise in deaths, we would expect deaths to continue rising in these “hotspot” states and a few others for the next month or so. Based on the cases that we are seeing now, each of AZ, FL and TX could see deaths in excess of 100 on several days in July. In theory, the reversal or slowdown in the re-opening of these states should limit this surge however.

Accidental winners

Unexpected events like the pandemic produce unexpected winners and losers in the economy and stock market. Though the S&P 500 is still down for the year, erstwhile ho-hum stories Clorox and Kroger were up 42% and 18% in the first half of the year, while once-cool Shake Shack and Ulta Beauty are down 11% and 19% (and each down over 50% from its 2019 high).

On Main Street too, the divergence is clear, if not in actual sales, in demand for services or products. Most retailers and restaurants are faring poorly. Hair salons and personal grooming were devastated. But bicycle shops and the rare surviving toy stores are seeing strong demand. Much to their dismay, this demand is not necessarily translating into significantly higher revenues given that they have sold their inventories and are having difficulty sourcing product. Finding a bicycle of one’s choice during June was a near impossibility.

Instead of planning a summer vacation, consumers have moved their dollars towards indoor entertainment (electronic or other), bicycles, boats and, if anecdotal information is worth anything (it usually isn’t), horses. As far as we can tell from a quick browse on eBay, there is not yet a pricing mania in Lego or similar products.

New York City budget

Is New York City facing difficult times or will it once again defy the odds and prove to be antifragile (per Naseem Taleb’s terminology)? Betting against the city in recent decades has been a losing proposition, as was the case in the immediate aftermath of 9/11 when real estate activity recovered quickly.

The City relies on real estate taxes for a significant part of its budget and real estate is being pressured from the weakening economy, a scarcity of residential buyers (domestic and foreign), pressures on rents and the decisions of some companies to move out or to reduce floor space.

Ultra-luxury residential was vulnerable before the pandemic because inventory was rising rapidly with the completion of several condominiums on Billionaire’s Row or elsewhere. The pandemic has made things more complicated. Michael Hendrix of the Manhattan Institute relates the following:

The city’s wealthiest neighborhoods lost between a third and half their population since the pandemic hit, and recent unrest has not helped to draw them or the rest of the estimated 420,000 departees back. House hunters are reportedly “swarming” New York City’s outskirts. Roadway Moving reports “insane” demand from residents moving out of New York City, consisting “largely of higher net-worth individuals.”

A few years ago, we expressed doubt on the profitability of some ultra-luxury residential projects (then planned, now nearing completion), in Manhattan Ultra-Luxury ‘Battling the Serpent of Chaos’.

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Why the Market is Rallying

This article first appeared at National Review.

Some sectors have fared better than others. The general market thrust was greatly assisted by the trillions of dollars of stimulus.

A shrewd market participant, and one whom we know as a fine fellow, recently quipped that he would stop researching companies and instead start investing by acting on signals from the cover stories of prominent magazines. He would sell when the cover was exuberantly bullish and buy when it was all doom and gloom.

There is a whimsical theory that by the time the media gets sufficiently excited about a stock or investment theme to place it on a cover, such stock or such theme has already played itself out in the market and is therefore on the verge of reversing itself. The examples abound.

In February 2000, weeks before the beginning of the three-year bear market, a BusinessWeek cover screamed “The Boom”, cheering on the stratospheric dotcom bubble. In June 2013, Barron’s chose to worry on its cover about “Trouble Ahead at Tesla” — but the stock nearly doubled that summer. In September 2009, Fast Company celebrated “Nokia’s Plan to Rule the World,” adding, combatively, a subtitle on its “bold plan to trounce Apple.” Kindness compels us not to dwell on what happened next.

So the financial media is not the best guide to identifying major turning points in the markets, although it can be a useful reverse indicator. Read the rest at National Review >>>

Camus Against the Virus

Decency is of little value without a foundation of honesty.

Albert Camus’ masterful novel La Peste (The Plague) is enjoying a resurgence in the current pandemic. Published in 1947 in the immediate aftermath of WW2, it was not, or not only, about a biological plague but also about the plague of Nazism or other ideological cancers and their equally devastating effect on humanity.

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Albert Camus

Among the many different citations recently lifted from the book, this particular one has appeared in several articles and countless social media posts:

“It may seem a ridiculous idea, but the only way to fight the plague is with decency.”

Coming from Camus, this sentence looked unusual because there is no direct literal word in French for decency as we mean it in English. The closest are décence and pudeur but these words convey different meanings.

In the original French text, Camus had written: Read more