This was another eventful week. I write this a lot these days. The weeks are so eventful, in ways I never once imagined. And it’s real. The world has been in lockdown to combat a global pandemic. In the modern world of innovative medicine and cutting edge technology, we are fighting a deadly virus. Oil went below zero. 26 Million Americans are newly unemployed. 50K Americans have died from the virus.
When and how we recover is the great debate. President Trump said his administration might extend its national social distancing guidelines until Summer. The State of Georgia is testing it today, by allowing the reopening of select small businesses. Fifteen other states are unveiling plans to lift coronavirus restrictions. It is highly controversial. One of the obvious dangers of reopening portions of the economy is that it is happening without any cure or vaccine to treat the coronavirus. It increases the chances of a second wave. Testing for the virus is still inadequate. In a recent Pew poll, 66% of Americans are more concerned that lockdown restrictions will be lifted too quickly, while 32% say they are more concerned they will not be lifted quickly enough. The results seem to fall along political party lines. Strong feelings lie on both sides of the debate.
4.4 Million more Americans filed for unemployment. That makes it 26 Million Americans out of work since the economic shutdown. These are depression numbers. US PMIs came in much lower than expected. It’s bad overseas too. European PMIs hit historically low levels. Germany came in at 16. France is at 10. Below 50 is contraction. I say it again, these are depression numbers.
Despite all of this, the US Stock Market is having its best month in a decade. It still seems to be pricing in a quicker recovery and more robust 2021 than seems plausible. Most companies and Americans are frozen in activity and cautious about the future. If people don’t feel safe, they’re not going to re-engage. The willingness to spend, to travel, to socialize in size is going to take a long time.
Many leaders are pushing back on the rush to open things up. The United Auto Worker President said it is “too soon and too risky” to reopen auto plants and Michigan’s economy. He cited insufficient scientific data and testing for providing assurance workplaces are safe. The statement appears to derail plans by the Detroit 3 that aimed to return UAW workers to manufacturing lines in two weeks.
Small business is getting crushed and does not have the resources to survive much longer. It was so irritating and disheartening to see midsized, and in some cases, publicly traded companies get money from the relief package while smaller companies were left out. These midsized companies have deeper pockets, much broader resources and access to the capital markets to borrow. A mom and pop restaurant or hair salon does not. Small business owners are always at a disadvantage. It’s their entrepreneurial attitude and spirit that make things happen. Under normal circumstances, small business owners need to be nimble, resourceful, creative and have guts to compete. In this crisis, the requirement is essential for survival. They also need to embrace science and logic. Not everything is in alignment right now.
Grocery stores are struggling to secure meat supplies. A dozen of the nation’s meatpackers have been forced to close due to the virus spread. The National Guard has been activated in Iowa to protect and help distribute testing supplies. Beef and pork production fell 20% last week. This followed a period of vast oversupply with nowhere to go as restaurants around the country closed. It’s led to some weird action, with prices for hogs headed sharply lower but prices for pork belly (used to make bacon) doubling in the last four days. The industry is in a bit of disarray. This is happening as demand around the country is on the rise again.
Whether we like it or not, politics are definitely at play here, with the election a little over six months away. Democrats want state aid to allow states to extend lockdown measures. California and New York have substantial influence, politically and economically. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer are pushing for state aid in a Phase 4 package.
According to our Washington sources, Pelosi needed to tell her caucus that aid for the states would be included in the next phase to get them to support this latest bill since that was their top priority for this round and it was excluded. Schumer is under political pressure to deliver assistance to New York. He represents the Empire State. In addition to being the epicenter of the coronavirus outbreak, Schumer has to fight off a primary challenge from far left-leaning Representative Alexandria Ocasio Cortez in 2022. Schumer needs to show that he was a leader on coronavirus.
It’s obvious that Democrats want to blame the White House for poor handling of the virus response and the economic shock. The President keeps pushing the virus response responsibility on Governors, so that he can blame Democrats and China. Republicans in Congress have there own plan. Our Washington sources say there is no incentive for Senate Majority Leader Mitch McConnell to even suggest that states will receive aid because it makes them less inclined to pursue reopening measures. McConnell is also up for reelection in 2022 and does not want to alienate his base of conservative voters but can use state aid as negotiating leverage.
We are told the Phase 4 package will be more contentious and will likely be the last aid package before the November Election. Partisan politics are always at play. In this time of need for leadership, Washington still promotes politics. Blames and claims are everywhere. It’s no surprise our nation is so divided. It’s going to get much worse in the coming months.
The 2800 level on the S&P is proving to be resistance for the massive oversold rally. Stocks have been trading sideways around this level for two weeks. 2800 also represents the highs first reached in January of 2018. The Stock Market is in the same place it was 27 months ago. It was a lot higher in February. It was a lot lower in March. So much has happened in between.
Anecdotally, I have heard from people that provide essential services for a living, on both coasts, that traffic on the roads have picked up over the last week. There seems to be movement. The Peach State will be under a microscope this weekend to see how the reopening of gyms and hair salons transpires. We will be paying very close attention.
Have a nice weekend. We’ll be back, dark and early on Monday.