Rpss Rant – 04/19/2020
After listening to all sorts of “experts” on reopening, the one certainty is, nobody has any sure idea what will happen over the next 6 months. It might go well, the virus will go possibly mostly away, the therapeutics will have been proven effective, and people will flock back out, or, people will be afraid to go to restaurants and hotels, and to sports events, and it will be slow. My gut says it will be better than some think because there is a pressure growing quickly to end this stay at home, and resume normal life. It is spring, people want out. People need to work. The economy can’t bear much more of this closure. Most people have had it with sheltering.
Reality is the real death rate for those infected, including asymptomatic, is less than 1%, using 330 million population it is miniscule, and for most people who are generally healthy, it will prove to be barely measurable. The number of known cases in the US is just .2% of the total population.
That includes NY which has 33% of the cases. Net of NY it is .14% of the population. If they would deduct out people over 65 who had other conditions, blacks in NY, Detroit and Chicago who had diabetes or other health problems, then what is the real death rate for the rest of us? I bet it is miniscule and we are safe going back about our normal lives knowing we might get sick and need some sort of therapy, not dissimilar to the flu situation. 20% of all deaths are in nursing homes.
People need to get things in perspective. Thus we can tell old people, and those with other conditions, to be very careful until there is a vaccine, and that will materially negate some of the real risk.
Maybe in NYC we need to wear masks for another month or two or three in the subway, but for most parts of the country maybe the rule is, just don’t get too close for a while, and don’t shake hands.
Mass General did a random test on the streets of Chelsea MA and found 30% were positive, but all said they did not note any real problems and went on with their lives. It is my view that the destruction of businesses and people’s lives, is much worse than locking everyone in their house for another few weeks.
There is all sorts of complaints about testing. They need to be manufactured and the solutions and supplies need to be manufactured. There are different test regimes in different places. It just takes time to get caught up, but the economy does not have time.
I have a feeling, if they do this slowly and by state, where there is almost no infection, or very minimal, (58% of the country by state count has little infection), and then move to the places like NY and NJ at the end, it will work out OK.
Let’s get back open-the real risk is very low in many places. A lot of people have had it with staying home, and are making the risk reward calculation, and demanding to get reopen.
The downside for most people is far worse than the tiny risk of people under 65 and healthy maybe getting sick, and getting one of the new therapies. If the therapies do work, as it seems several do, then resuming normal life for the vast majority of the population is no worse than a bad flu season. The problem with this virus is there has not yet been a finally proven therapy. That is about to change.
The flu, even with a vaccine, kills more people than this virus, but we don’t shut the economy, and we don’t have daily death counts and 24 hour press. I think a lot of people have made the same conclusion and are quite willing to take the risk of getting sick and having to get treated. Just like the flu. People flocked to the beach in Jacksonville when it was reopened. That is what will happen everywhere
My tennis club is apparently the test club for all of central and northern FL. We are hoping they will add back the partial closed courts and allow doubles again in a week . I will let you know. A lot more members are now playing, and there is great pressure to open up. I use this as a leading indicator of how people are done staying home since a lot of members are over 70.
The governor of Michigan is preening to be VP and is being irresponsible. She is doing a lot of harm instead of protecting people. They need to reopen auto plants quickly and get all their suppliers back open. If Boeing can build planes as they are about to restart, then Michigan can allow cars to be built.
This is as bad as Pelosi and Schumer holding up PPP funding. Round one had money for states and hospitals and that money is not yet all used. This is politics at its worst.
When you hear Cuomo raging about how the feds need to give him money for testing, that is simply, as I have mentioned before, due to his profligate spending and the $6+ billion hole in his state budget he just approved.
He is just using the virus and blasts at Trump as way to get Pelosi and Schumer to press for federal funding of NY shortfall due to massive wasteful programs Cuomo and the Dems in the legislature have put in place.
Cuomo was also supposed to change the disastrous bail reform law they passed last year which has led to a huge spike in crime in NYC. That law essentially says unless you commit a really bad felony, you walk out of jail the same day with no bail. Judges have no discretion.
When combined with DeBozo emptying Rikers island jail, the main jail in NYC, the crime on the streets has reached levels reminding us of the bad days of Dinkins, and has undone all the great work of the Giuliani and Bloomberg administrations, and the cops.
It is liberals run wild passing insane laws to help “people of color” who can’t raise bail. Sounds lovely, but has dire consequences for the law abiding community and shop keepers, and people who park on the street. The cops don’t even bother anymore as they are powerless now. Even mugging, so long as you were not badly injured is a bail free crime.
In January crime in the city was up 16.9% and shootings up 29%. That was a Cuomo special. So when the press praises Cuomo, you can keep this reality in mind.
Here is what Pelosi is really after with funds for hospitals. There are tens of billions unspent in the original bill for hospitals. Pelosi wants much more so the plaintiff lawyers who are already geared up, can sue the hospitals for liability for deaths from the virus. The hospitals settle. The lawyers then donate part of their settlement to the DNC. That is the game.
She is holding up $250 billion to small business for campaign contributions. This is why having the Dems control the House is so disastrous.
Two weeks ago I posited that the origin was a tech in the Wuhan lab who got bitten by a bat, or somehow became infected, and then went to the nearby market to buy something for dinner. Evidence now is suggesting that it was a tech in the lab working on the virus who did get infected, and it was her boyfriend who she infected, who went to the market to buy dinner. That is probably how it started.
For those of you pushing the phony internet story that Beijing was unaffected, therefore, it is bio war, facts now show the Chinese acted swiftly to protect the ruling class, and completely shut off any travel into Beijing from Wuhan by any means, but they allowed flights out to the EU from Wuhan. China used facial recognition and other means to stop anyone from Wuhan coming to Beijing. They did things we cannot do. Trump stopped that from coming to the US in January, but Pelosi and Schiff want to launch investigations to show he did not act when he knew there was a problem.
Biden, the Dems, the press and the WHO attacked Trump for shutting the border. There is further evidence the WHO intentionally covered up the Wuhan situation, it was mid-January that WHO stated there was no human to human transmission, and it was not until March 11 that WHO announced a pandemic, long after it was happening.
The WHO is responsible for what is now worldwide calamity by lying and covering up. Did anyone ask how much the head was paid by China to shut his mouth. He did not do it for free. Trump is exactly right to shut funding. WHO has blood of the world on its hands, but Pelosi slammed Trump for acting against WHO. She is disgusting. Where is her outrage? Where is Schumer’s outrage?
Mid- January WHO says no human to human transfer, Jan 23 Wuhan shut down, Mid-Jan Chinese come to DC to sign trade deal and say nothing of Wuhan, Jan 31 Trump shuts border-Biden, Pelosi and press attack him, as racist, January-Feb all press and Congress focused on impeachment-not a single mention of virus except in passing, March 11 WHO declares pandemic – way too late. By then Trump was organizing the government to act. April, Dems and press attack Trump for not acting in January. Same people who attacked him then for acting by closing the border and attacked him again when he shut off the EU.
The real damage to companies is the balance sheet, and cash liquidity to meet liabilities and retain staff. Weak companies will not be getting regular working capital loans from banks to help unless they are good long term customers. It is not earnings-it is cash. PPE will have funded hundreds of thousands of small business loans by this week. Tens of thousands more need to be funded immediately.
Where are Pelosi and Schumer to provide that funding? Using it to try to blackmail Trump into agreeing to more unrelated funding for programs already well funded like food stamps and funds for hospitals that is already in the original bill and not yet fully spent. Many financial and economists think April is the bottom and May will begin the recovery. Begin, not a V. More a U.
Treasury has used $300 billion allocated to it, to backstop with loss reserves, the Fed funding for its Main St loan program. The Fed is also buying non-investment grade corporate paper now to try to support the capital markets. They had the advantage of the tool box from 2008 -09 to use as a knowledge base to move very fast this time. That made a big difference.
Small REITs are getting margin calls on their levered BBB paper. They went for current yield and got killed. You take risk on lesser rated paper, you pay the price when things go bad. They can’t handle these margin calls. Super senior and AA is still able to be traded. BBB are now valued at 60%-70% of face. That is a huge hit. Tranches below BBB are much bigger haircuts. The big REITs with access to capital will swoop up these smaller ones. Now you know what happens when bonds are not the sure thing money managers promoted to you all these years.
Multifamily is getting originated through agency funding. It has to be an experienced and solid borrower with a real track record. No new sponsors get funding. There is a huge amount of approved single family residential inventory on the books of big servicers that is refi paper that was ready for Fannie to buy. Sponsors of multi who want to refi to get lower rates, or due to a maturity, but who do not have cash to cover a gap, may soon have a source to borrow the missing amount they need to cover yield maintenance. It will cost 12%-15% for 2 years term, but will allow a refi to happen if the math works. It may not in many cases. Office might still get traded and funded, but not hotel or retail. Nobody really knows where office goes from here if virtual work takes off after people go back to work. Big unknown. A lot of people are not happy working alone at home, or with the kids at home, or the spouse sharing space to work. Hotels and retail are burned toast.
Nobody who is senior and knows what they are talking about, sees CMBS coming back for a very long time. Years. Funding for hotels and retail going forward is going to be close to impossible for a long time, unless you are a proven successful sponsor with cash. Maybe big REIT’s or PE funds can do it based on their balance sheet, but an ordinary small hotel owner is screwed. There are a couple of hotel owners with cash who played it smart and are already on the prowl to pick up B pieces for pennies, and then be in a good position to get control. Some will end up big winners out of this mess. This is a perfect example of survival of the fittest jungle rules.
Clearly the production cuts agreed by OPEC and Russia did not do it at all. They need to cut another 10 million, or more probably. This cannot continue. Russia is already in economic difficulty, and they cannot go on this way. And now the virus is hitting them. Iran is really getting crushed now. In the US, production cuts have been made, and more will be made. Energy companies were responsible for a sizable amount of cap ex expenditure, but that will be a long time coming back. That will be a drag on GDP.
There needs to be a filling of the US reserve as Trump proposed, but Pelosi, as usual, blocked the funding to do it. Pelosi is a one woman wrecking crew for the US economy as she pushes the left wing policies.
On March 25 Rant, I said, “You will be sorry in May if you are not all in equities now”. The Dow is up approximately 30 % since March 25. Rule- don’t fight the Fed. To me some things are pretty obvious. When the Fed and Treasury went all in, that was the sign the market would recover. The market can only go down so far before buyers show up, and then the algos jump on the train. The S&P is up 28.5% since March 23. I am now only down 3% vs the S&P down around 11%. One of my larger portfolios is up 3%.
I stayed all in large cap US equities the whole way, and only did one trade- sold BA for a big loss and bought WMT at 117. If I had sold BA earlier when it hit bad times I would be down somewhat less for the year to date. Other than that I did nothing at all. Which just goes to prove you sometimes just need to be patient, not smart. Some examples—HD, TMO, MA, MSFT, ADBE, AMZN. That is the sort of stocks I own for years. Makes life easy. Just do nothing, and over time you make a lot of profit. I usually own the good ones for several years. Doesn’t take smarts to make money this way. Just stay all US equities, ignore the pundits on CNBC and Fox Business, and be patient. I never own bonds. They make money when we have a big downturn, but then you lose as things improve and rates rise, which is about to happen.