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What Next Wednesday – Fauci Fears 100,000 New Cases a Day, Market Soars

Fauci Says U.S. Risks 100,000 Daily Cases in Dire Virus WarningThe US "is not in total control".  

That's quite the understatement from Dr. Anthony Fauci, who warned the Senate yesterday that daily new virus cases in the US were trending towards 100,000 per day.  That would knock out the entire population of Wyoming in 15 days!  The country is now reporting nearly 40,000 new coronavirus cases every day - almost double from about 22,800 in mid-May - driven largely by outbreaks in a number of states across the South and West.  “I can’t make an accurate prediction but it’s going to be very disturbing,” Fauci told the Senators.

“Well I think the numbers speak for themselves.  I’m very concerned and I’m not satisfied with what’s going on because we’re going in the wrong direction if you look at the curves of the new cases, so we really have got to do something about that and we need to do it quickly.”

Outbreaks in states like Florida and Texas also threaten to disrupt the progress states like New York and New Jersey have so far made in driving down the outbreak in the Northeast, Fauci said. New York, New Jersey and Connecticut last week announced they would mandate 14-day quarantines for any travelers coming from a states with rapidly expanding outbreaks. Nonetheless, Fauci said increased infection anywhere in the country threatens to spread everywhere.

Keep in mind that 100,000 people a day is 3M people per month which means 1% of our population will be infected each month and that means that in two months, 1 in 50 people will have the virus and how likely is it that we can stop the spread at that point?  1-2 months later,  1 in 25 and 1-2 months after that 1 in 12.  Hey I know – let's keep doing almost nothing, right?  

The S&P 500 has pretty much done nothing since the end of April.  Well, it's gone up and down but, on the whole, not much higher than that peak which is still much lower than the pre-virus peak yet people are still acting as if we're in a raging bull market – which we should be after $6.7Tn in stimulus, shouldn't we be?  So, if $6.7Tn isn't enough to get us to new highs – what will be?  

The Federal Reserve is now one of the Top 5 holders of the biggest Corporate Bond ETFs.  That's right, the money YOU borrowed for this bailout is mostly going to Corporations (Trillions!) who are issuing bonds with terrible credit ratings that are being snapped up by the Fed at ridiculously low interest rates (the rates the Companies should be paying YOU, the taxpayer, for lending them the money).  What could possibly go wrong?

$51.5Bn in additional Junk Bonds were issued in June but the Fed, through the ETF's is buying the old ones too and that in turn is bailing out their Member Banks like BAC, JPM, BLK, C, etc. who were "stuck" in major junk positions and had no buyers to exit their positions (until the Fed came).  Now YOU are buying all the crap the Fed's Member Banks are dumping while the markets are being propped up and the Government messaging (other than Fauci) is that you should ignore the virus and focus on the pretty rally.

We're not that dumb, are we?


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  1. Morning All!

    Join Phil at 1pm (Eastern) today for a brand new webinar!

  2. Good Morning.

  3. Phil any thoughts on WEAT here?

  4. Good morning! 

    Spiking up into the open, we'll see if it lasts.  

    TSLA still going up, apparently.  

    WEAT/Coulter – I don't generally pay attention, very nuanced market for wheat and very thinly traded options so I've never found it interesting or worth the effort to play that market. I'd say it's probably cheap, people haven't stopped eating and distribution hasn't broken down yet – but it still might.  The rest of the World is recovering so, if they can just build some sort of a wall around this country to contain us – I guess wheat sales can rebound nicely globally but what if people start worrying about buying tainted goods from the US out of the kind of irrational fear we have about China?  Then wheat is screwed. 

    It's not particularly cheap either.

  5. hi Phil, Good morning 

  6. could you share your watch list with us?

  7. Haven't seen much discussion anywhere yet about schools opening up next month and the potential for that to further flame the spread of the virus. 

    In Georgia the state is planning to open schools, provide an option for remote learning, and "encourage" kids to wear masks on buses and in the schools.

    As a father of 3 between Kindergarten and 8th grade, I've done everything by the book to keep my family safe for the past 4 months.  Now, I feel less confident in my ability to continue to do that.  Our kids really do need to go to school for a variety of physical, mental and social reasons (not to mention their parents' mental health), but doing so at a time when we otherwise should have contained and minimized the virus has left me distraught and filled with countless emotions, but primarily anger.  

    This has to change!

  8. Tesla more valuable than Toyota …. that's completely sensible. I mean what do Toyota know about electric cars. 

  9. Schools/Buckeye – plenty of discussion, depends on where you look. This might be useful for you –

  10. Schools/Buckeye – this is the most recent, and looks like a pretty good piece of research.

  11. Watch List/Stuart – Sure, I update it once in a while but this is not that while so:  

    Good morning!

    I apologize for missing the close but I had to run out to help my Mom and I thought I'd make it back but I didn't and then it was too late and then I hung out for dinner….

    WATCH (not Buy) List/Maya – Here it is from 6/2with updated charts:

    So, what is a Watch List for?  It's a list of stocks we'd love to own if they get cheap, right?  We did a ton of buying in March and April so a lot of these are now in our portfolios but the main idea here – in a rally – is to look for the laggards and see who can still be played (and should be played – given the changing circumstances).

    HBI still cheap. 

    MO still cheap.

    NLY still cheap.  

    /KC cheap again.

    SPWR still my favorite down here.  

    MT still cheap.

    FCAU still cheap – especially at $18.7Bn (p/e 4) vs $164Bn for TSLA (p/e infinity and beyond!)

    VIAC still my favorite down here (I'm torn)

    AAL I don't trust airlines anymore and ALK is better.  

    OVV good if you WANT a gas play.  

    ING still cheap. 

    SAN may be too cheap to resist.  

    MUFG – I can't believe is still $4

    MU – Still cheap

    KHC – Told you so!

    UBS – Good if you want a bank.

    LYG – The made a nice bottom, I like the risk/reward now.

    X – Still not sure we're really through this all yet.

    M – Still a favorite

    MYL – Still cheap.

    ADS – Q1 earnings were $0 but lack of damage is encouraging.

    TECK still cheap.

    NRZ – Still cheap

    GPS – About to get away

    GT still cheap

    TWO – Another cheap REIT we like.

    AGNC -  Another cheap REIT we like.

    BSM – Still cheap

    HFC – Good side play on oil coming back.

    So there are still PLENTY of good values out there which is why I would rather sit back and be very picky for now.  The kind of stocks that are "getting away" are not generally ones I want to chase (as we already bought all the good ones).  

  12. See that's fun, you get to see if I'm making good picks or not.  

    TSLA $1,131.75 – up another $52!  

    Virus/Snow – Wow, the Red States are going to be wiped off the face of the Earth!

    Poor CA, dragged down by their other half (and on the map you can see it's really Arizona's fault). Florida is also toast, I have to get out of here!

    Schools/Buckeye – My kids are very pissed they are opening schools, they think it's a terrible idea – very dangerous.  Especially with little kids now any single breakdown in one kid (or their family's protocols at home) and, like the flu – the whole class is infected and soon the school and then the parents, community, etc….  

    TM/Malsg – Apparently they don't know enough.  

    In the STP, we sold 5 TSLA July $900 calls for $93.30 ($46,650) and they are now $230 ($115,000). That sucks but it's a $68,350 loss so that's what we focus on and we can sell 5 Sept $1,250 calls for $110 ($55,000) and we will set a stop on the $900 calls at $110, so that would be a roll of our losses (ish) – even if we choose not to DD or sell puts.   Hopefully, TSLA stops before $110, pulls back and they both expire worthless and we make $170,000 (vs STPs current $453,219). 

  13. DJIA – up 31, less than 0.1%

    SPX – up 1.06%. 

    Fed buying another Trillion in JNK.  Nice.

  14. JNK/Pharm – What could possibly go wrong?

    Nas up 1.5% – so crazy.

    • It's all downhill from here. Or is it an uphill struggle?

    Seeking Alpha PRO's exclusive survey of buyside investors' expectations resulted in a decidedly bearish take, determining that more than 51% of the professional money managers expect the S&P 500 in the second-half of 2020 to decline by 5% or more, while less than a third expect a market rise of more than 5%

    And when it comes to the more extreme forecasts, moves of 10% or more in either direction, the bears dominate, 34% to 10.6%. 

    It's a decidedly difficult question. The U.S. main gauge just came off the best quarter in more than 20 years, something less than insignificant. It could also be tempting to assume that it's unlikely to repeat, as "gambler's ruin" would imply. The issue is unique given the rally was off such a depressed base given the aftermath of the original economic shutdowns from the pandemic. From a research perspective, however, it may not be so clear. 

    Senior Market Strategist at LPL Research, Ryan Detrick, called it "whiplash," following the selloff in the first quarter. But future "strong" returns can be "quite normal" after a big quarter. Since 1998, the largest quarterly gains have been followed by a median gain of 9%, and the two quarters following a large quarterly gain have registered a median performance of 15.2% (13.9% average), he noted. 

    That said, historically, the third quarter is the "weakest" of the year, Detrick added, with returns averaging 0.6% from 1950-2019, compared to 1.8%-3.9% for the other quarters. 

    How does the survey line up with what individual investors are saying? The weekly American Association of Individual Investors, in its latest findings puts the bearish percentage at 48.90% after a recent spike, according to ycharts, found here, not far from the recent highs in the May 7 survey at 52.7%, closely aligning with the buyside survey.

    Among specific sector interests surveyed by Seeking Alpha, travel stocks fared poorly, with 44.7% of buysiders bearish on airlines and cruise names. Contrarians were few and far between, with just 8.5% of those surveyed bullish on the sectors that include names like American Airlines (NASDAQ:AAL), Norwegian Cruise (NYSE:NCLH). 

    Among the concerns cited was, perhaps unsurprisingly, COVID-19. Indeed, in an overlay from Nordea and Macrobond, detailing searches for Covid-19 versus the S&P 500, a near perfect mirror image arose, suggesting that, as the virus goes, so goes the market. Any worsening of the crisis could put a damper on future equity market gains.

    As you see below, the S&P 500 (SPX) trended higher by nearly 20% since April 1, as searches for the virus in Google trends steadily declined, only to uptick recently. 

    This all comes in the backdrop of Wall Street's own expectations. Bank of America analysts led by Savita Subramanian Wednesday published the results of their Sell Side indicator, which found that bullishness in June reached 55.8%, up from 54.9%, which implied a return in the S&P 500 of 11% over the coming 12 months — a timeline longer than Seeking Alpha's own survey. "Sentiment on stocks is still tepid," however, the BofA analysts wrote.

    More details on the buysider survey, including other risk factors cited, like the U.S. election, can be found at this link. 

    • The Fed's monetary policy-setting arm doesn't see the recovery in consumer spending being "particularly rapid beyond this year, with voluntary social distancing, precautionary saving, and lower levels of employment and income restraining the pace of expansion over the medium term," according to the minutes of the June 9-10 meeting.
    • Of course, they noted that "levels of uncertainty and risks perceived by businesses remained high."
    • The central bank officials agreed that public health developments will be critical in reopening businesses.
    • Data suggests that April could be the trough of the recession, but it's too early to draw any conclusions, they said.
    • They see the pandemic likely to be "disinflationary" as " the negative effect from the pandemic on aggregate demand was likely to more than offset any upward pressure from supply constraints."
    • A number of participant see the " a substantial likelihood of additional waves of outbreaks, which, in some scenarios, could result in further economic disruptions and possibly a protracted period of reduced economic activity," according to the minutes.
    • One source of risk is that fiscal support — i.e., stimulus checks, enhanced unemployment insurance benefits — might be insufficient.
    • While the officials agreed that the Fed's current monetary policy stance remained appropriate, many said that the Federal Open Market Committee could at upcoming meetings "further clarify its intentions with respect to its future monetary policy decisions as the economic outlook becomes clearer."
    • Most participants commented that the FOMC "should communicate  further clarify its intentions with respect to its future monetary policy decisions as the economic outlook becomes clearer."
    • The 10-year Treasury yield pulls after the release of the minutes to 0.69%.
    • Yield-curve questions: As for the potential use of yield-curve control — yield caps or targets ("YCT"), nearly all participants had "many questions regarding the costs and benefits of such an approach."
    • Many of the officials, though, didn't see a need for YCT as long as the FOMC's forward guidance, on its own, remains credible.
    • Of concerns over YCT — "how to maintain control of the size and composition of the Federal Reserve’s balance sheet, particularly as the time to exit from such policies nears"; "how to mitigate risks that YCT pose to central bank independence"; and how to assess its effect on financial market functioning.
    • EIA Petroleum Inventories: Crude -7.2M barrels vs. -0.7M consensus, +1.4M last week.
    • Gasoline +1.2M barrels vs. -1.6M consensus, -1.7M last week.
    • Distillates -0.6M barrels vs. -0.4M consensus +0.2M last week.
    • Futures (CL1:COM +0.5%), eased off gains seen before the inventory numbers arrived, despite the much-bigger-than-expected drawdown. Prices had been rising on the API measure.
    • Cushing hub stockpiles (-263K barrels vs. -1.64M consensus, -991K last week) hint that storage capacity problems haven't completely disappeared.
    • U.S. oil production remains flat at 11M bpd.
    • Refinery inputs rise to 193K bpd to 14M bpd. Refinery capacity utilized rises to 75.5% from 74.6%.

    Possible vaccine news is boosting us (very preliminary but promising):

    • Pfizer (PFE +3.7%) and development partner BioNTech SE (BNTX +3.4%) announce preliminary results from an ongoing Phase 1/2 clinical trial evaluating the safety, tolerability and immunogenicity of escalating doses of BNT162b1, the most advanced of their four investigational COVID-19 vaccine candidates, in 45 healthy adult volunteers between the ages of 18 and 55.
    • BNT162b1 is a nucleoside-modified messenger RNA (modRNA) vaccine that encodes an optimized SARS-CoV-2 receptor binding domain (RBD) antigen.
    • Interim data were assessed on 24 participants who received two injections of 10 µg and 30 µg (21 days apart), 12 subjects who received a single injection of 100 µg, and 9 subjects who received 2 doses of placebo control.
    • The highest neutralizing antibody titers were observed seven days after the second dose (30 µg) or 28 days after the first shot. Neutralizing geometric mean titers (GMTs) were 168 and 267 for the 10 µg and 30 µg dose levels, respectively, corresponding to 1.8x and 2.8x the neutralizing GMT of 94 observed in a panel of 38 serum samples from people who had contracted COVID-19.
    • In the 24 subjects who received two shots, geometric mean concentrations (GMCs) of IgG antibodies were 4,813 units/ml and 27,872 units/ml, respectively, at day 28, corresponding to 8.0x and 46.3x the GMC of 602 units/ml in the same panel of 38 samples.
    • At day 21 after a single injection, the 12 subjects who received 100 µg of BNT162b1 had an RBD-binding IgG GMC of 1,778 units/ml and a SARS-CoV neutralizing GMT of 33, 3x and 0.35x, respectively, the GMC and GMT of the convalescent serum panel.
    • On the safety front, adverse reactions, including low-grade fever, were more common after the second dose. Specifically, 8.3% of subjects who received 10 µg and 75.0% of participants who received 30 µg of BNT162b1 reported fever ≥ 38.0 °C (100.4 degrees Fahrenheit). Injection site reactions were generally mild or moderate and transient.
    • BNTX will host a conference call this morning at 11:00 am ET to discuss the results.
    • Six Flags Entertainment (SIX +3.7%), Cedar Fair (FUN +4.5%) and SeaWorld Entertainment (SEAS +6.0%) are notably higher despite the near-term concerns over park re-openings.
    • The focus of investors may be on 2021 after earlier today Pfizer reported positive results from its clinical trial for a COVID-19 vaccine candidate. The word from Pfizer is that all 24 participants in the trial developed neutralizing antibodies.
    • On the share price front, the three theme park stocks have been moving closely together over the last six months.

  15. Phil, on the off chance you're still checking this today, with those stocks you still find cheap, would you enter positions with your tried and true spreads with short naked puts? Or do you like to buy the stock outright? I'll post in tomorrow's if I didn't catch you today.

  16. I'm not keen on buying things at the moment, I consider this whole house of cards a risky bet.  I would not be too heavy on puts but small positions in things you would be happy to DD on in a 40% drop are the way to go.

    • McDonald's (NYSE:MCD) says it will delay the reopening of dine-in service in the U.S. as COVID-19 cases and hospitalizations continue to spread in hotspot states.
    • The company plans to wait three weeks before any new U.S. restaurants add dine-in service to the drive-through, takeout and delivery operations.
    • "Our resiliency will be tested again. Covid-19 cases are on the rise," states a letter by McDonald's U.S. President Joe Erlinger and National Franchisee Leadership Alliance exec Mark Salebra
    • Restaurant operators at the 2.2K dine-in locations that started offering dine-in service again in May can continue if their jurisdiction still allows it.
    • McDonald's has about 14.4K restaurants in the U.S.
    • Shares of MCD are down 0.77% AH to $183.25 vs. the 52-week trading range of $124.23 to $221.93