09182020 :: Friday finance week in review

A partial digest of what we learned:

  • There is still no agreement among the political establishment of the United States over further stimulus measures or safety nets for the general public or the country’s municipalities. The calls for more, now from the likes of BofA’s CEO, continue to be made and, it is hoped, heard. Meanwhile, a survey conducted by the Fed highlights the benefits already reaped by households from past government aid, supporting the notion that it was positive and more is needed.

    Unsurprisingly, retail sales continued to decline as that same fiscal support for households has dried up. Elsewhere, some market observers are giving up on municipalities getting any help at all, while Pelosi wants to see airlines get more assistance, as well.

    Conversely, it is believed that the CDC’s moratorium on evictions is having its intended effect, at least in certain places. However, even more small businesses are at risk of shuttering if they themselves cannot get any breaks on rent from landlords, who are also under pressure.

  • As has been widely reported, Chief Justice Ruth Bader Ginsburg died at age 87 with pancreatic cancer, which had metastasized. She was known as a champion of inclusion, and womens’ rights and equity, in particular. Of special interest to this publication, she influenced the financial realities of this country’s people (all genders) in numerous ways, ruling early on over cases that addressed the administration of estates, military survivorship benefits, and social security and household incomes, among others. In the process, she addressed stigmas and connotations, and helped change perceptions.¹

    Her final wish was for her vacancy not to be filled until Trump is no longer acting president of the United States.² Mitch McConnell wasted no time, however, in vowing a quick vote on a replacement, a desire immediately echoed by Trump.

    Among the upgrades Ginsburg hoped for this country yet: an amendment to the constitution that would spell out gender equality in the eyes of the law, something she estimated had become commonplace in constitutions drafted globally after 1950.

  • Adar Poonawalla, chief of India’s Serum Institute—the largest vaccine manufacturer in the world—has intimated that we may not see a vaccine for the entire planet’s population until the end of 2024. As it stands, he does not believe pharma companies are ramping up their production capabilities quickly enough to expect a shorter timeline. This has likely taken some of the air out of the sails in equities markets, following a strong start to the week.

    In the same vein, Trump is attempting to reorient the public towards vaccine availabillity in April 2021 now, not October/prior to the election as originally asserted. That likewise may have dragged equities down. How we are to reconcile even an April arrival of a vaccine in this country with what Poonawalla shared with the Financial Times is questionable.

  • Jerome Powell and the Fed maintained their realistic stance on the economy, painting a picture yet again of a slow recovery. They are standing pat on rates on out to 2023, at least, with Kashkari arguing for higher sustained inflation before any tightening is implemented. Bostich pointed out the racial wealth disparity in the United States and expressed hope that the recent policy shift on rates would help facilitate the future financial health of marginalized groups.

    It’s believed that markets didn’t take this somber outlook well, but the Fed isn’t saying anything new here. Thus, it would appear that the markets have a hard time swallowing the bitter pill, and as that catches up with them, there may be a gradual return to reason and equity valuation corrections before inflation drives them higher again.

  • The housing splurge may be finally weakening. Housing starts, mortgage applications, and building permits all disappointed.

    Advice, useful or not in the form it has been given, is beginning to emerge around whether it is wise to participate in the housing market at all during a pandemic.

    In the commercial sector of this market, malls are in grave health.

    [tracking: XLRE, VNO]
  • Between vaccine disappointments, a perpetually cautious Fed, softness infiltrating the red-hot housing market, slowing retail sales, and other issues like elevated jobless claims, the tech and general equities rout persisted this week.

    However, some of this, anyway, is due to capital rotation, not scared investors fleeing the markets. That is important to note. For instance, the frenzy around SPACs and IPOs is still unfolding. In other words, money is changing hands and being invested. It is probable that it will return to tech and the best of the big names across industries in short order, especially if valuations cheapen further or there are further economic shocks. In the latter case, safety may be sought in higher quality securities that simultaneously enjoy the backing of the Fed.

    [tracking: XLK, SPY, LQD]
  • Gold has been seesawing some, climbing and sliding in small amounts. It settled at roughly $1,950/oz for the week, still off it’s August 6, 2020, high. No doubt investors are awaiting another impetus for it to move higher again, but it is unclear what that would be. As it best hedges the irrational, it may take an unsettling election process in the United States, a resolute decoupling with China, global armed conflict, and/or another Trump White House term; anything that says, “All bets are off. (Even then, the opinion here remains that the next really major wave for gold is likely down.)

    For hedging inflation, on the other hand, equities and energy have reliably delivered over time, as stated here before. Equities especially allow for diversification across industries. Energy, on the other hand, appears to be further falling out of favor as the electric vehicle market increasingly takes center stage.

    [tracking: GLD, SLV, XLE]
  • Long-term Treasury yields appear to be channel bound for now. A sustainable recovery would have to take root for yields to rise again, and only with the Fed’s blessing.

    One related area of concern is that outside investors are increasingly divesting themselves of their US holdings, both Treasuries and corporate issues. What’s more, overseas purchases have slowed to a trickle. This would put upward pressure on yields, as well. For the month of July, foreigners bought $10.8 billion of Treasuries only, down from $113 billion in the previous month. The Fed will continue to pick up the slack, but the growing lack of foreign interest in US debt is something to watch out for vis-a-vis yields and the strength of the DXY.

    [tracking: TMF, TMV]
  • The options market is implying that volatility will persist following the election in the US in November.

  • Sovereign matters:

    • Jobless rates the world over are rising or steadily high, but one nation bucking this trend is Australia, which saw its unemployment rate unexpectedly fall considerably at last reading. Being tougher on COVID-19 helped them get here.

    • Both Botswana’s and Spain’s credit outlooks have been revised down to negative by S&P. Lockdowns and pandemic damage to economy and budget, respectively, were cited as the primary drivers.

    • Turkey has been downgraded by Moody’s, citing a host of factors pointing to a systemic crisis in store for the country.

    • Europe has seen a resurgence of coronavirus cases, including France, Spain, and Czechia.

    • Brexit just won’t go away, and firms are acting accordingly.

    [tracking: EDC, VXUS, VWO]
  • COVID-19 is becoming less lethal as the medical field dials in on managing patient care. Any discussion of fatalities, however, must take into account excess deaths per CDC data, and the reality that many deaths likely triggered by COVID-19 are going undocumented.

Footnotes

¹ Greenhouse, Linda. “Ruth Bader Ginsburg, Supreme Court’s Feminist Icon, Is Dead at 87.” The New York Times (September 19, 2020).

² Totenberg, Nina. “Justice Ruth Bader Ginsburg, Champion Of Gender Equality, Dies At 87.” NPR (September 18, 2020).