Daily Briefing – August 26, 2020

Published on
August 26th, 2020
Duration
32 minutes


Daily Briefing – August 26, 2020

Daily Briefing ·
Featuring Nick Correa, Ash Bennington, and Ed Harrison

Published on: August 26th, 2020 • Duration: 32 minutes

Senior editor, Ash Bennington, joins managing editor, Ed Harrison, to discuss risk assets, credit markets, and the fiscal cliff. Within an environment of secular stagnation, they talk about the cross-asset play between bonds and equities as well as how overall credit tightening in the financials sector and the velocity of M2 money plummeting will have pernicious effects on growth. They also consider the dichotomy of monetary and fiscal policy and why the Fed will have to continue throwing all their chips in should fiscal authorities continue to be hawkish. In the intro, Nick Correa gives an overview of the tightening of credit markets.

Comments

Transcript

  • RM
    Robert M.
    29 August 2020 @ 02:33
    Future topics: 1. Parabolic markets. Which ones fairly reflect the future and which ones are temporary. Industries like EV, e-commerce, semiconductors (particularly with China accelerating in-house development), homebuilding/home improvement (LOW, HD, SHW, TREX), metals/commodities, streaming services/media (Netflix/Disney/Apple/CBSViacom/Spotify/SiriusXM), cloud/SAS (Amazon/Google/Salesforce). These are all industries that have seen their futures possibly rewritten since March and stock prices rise accordingly. 2. Recovery themes. With the uncertainty around the virus, discussing timing and potential of various themes like hotels, airlines, cruise lines, amusement parks, concerts (Live Nation), energy, banks, commercial real estate. Particularly interested on thoughts on NYC REITs as the city's survival is debated. Could be some money to be made here, but all industries will not recover on the same timeline. 3. Overseas Markets. Which economies are recovering faster from the virus. As outsourcing moves from China, what countries may benefit? If dollar weakens or strengthens, what are the best plays to diversify out of US? 4. Surviving inflation. If the Fed is successful in achieving +2% inflation, strategies for protecting your portfolio. What worked in Weimar Germany? Late 1970s in US? Bitcoin and gold have been discussed on RV, what are other strategies? We seem to be at a juncture of a recovered stock market that is somewhat narrow in breadth, battered recovery industries hoping to rebound, a weakening dollar, rising gold, a struggling US economy and possible diversification to stronger EM markets. Next 2 months will be enlightening on the US recovery, the election results, and the interest rate curve. So above macro themes may be interesting to position portfolios before positive or negative turns in markets.
  • TB
    Teacher B.
    28 August 2020 @ 01:35
    Ed, my wife says that shirt color looks great on you and goes good with the plant behind you - and I agree!
  • BA
    Bob A.
    27 August 2020 @ 01:28
    I would fully expect that the forbearance on rents and mortgages will be extended past the election and probably until January 1st.
    • RM
      Robert M.
      27 August 2020 @ 18:13
      If democrats win, possibly. But creates other issues in the marketplace. It would be better to give unemployed money and let them pay their bills than to not pay bills and create problems down the credit line.
  • CM
    Christopher M.
    27 August 2020 @ 00:42
    Usually the VIX and stocks are anti-correlated. Stocks go up, VIX goes down, and vice versa. What do you make of the fact that stocks were up today (S&P up 1.02%), and tech stocks up huge (FNGU up 11.26%), while the VIX went up 5.63%?
    • DL
      David L.
      27 August 2020 @ 16:21
      It looks like there was increased SPX option volume, particularly calls, which would bid up the price of the options and consequently the VIX. If VIX seems sticky at these high equity levels, it may indicate a heightened amount of uncertainty. That's a narrative that makes sense to me anyway. Thoughts?
  • RB
    Robert B.
    27 August 2020 @ 13:29
    Big fan of the show but one thing, in no way is a hurricane hitting the Texas and Louisiana coast a black swan. It happens often, is expected and can be predicted.
  • RM
    Robert M.
    27 August 2020 @ 00:26
    In reference to Ed's comments from the GDPNowcast on residential investment, thought some subscribers may be interested in the following info on construction/home improvement: From the Nashville Tennessean 8/25/20: When commercial and industrial architects see demand for their work begin to dry up, the outlook usually isn't positive for construction. And so far, that's what has been the case for Tennessee architects in recent months. "A lot of people consider architects the canary in the coal mine," said Bob Franklin, president of the American Institute of Architects' Tennessee division. "There's a huge industry below us that has not experienced it yet. They still have a lot of work, but it's only a matter of months before they wake up and realize their backlog is running out. They realize there are no new projects to bid." Franklin, an owner of Franklin Architects in Chattanooga, on Friday stopped by the city building in Athens, where his firm had placed a bid for a municipal renovation project. An employee in the purchasing department, creating a list of all the proposals the city had received by the deadline, was stunned to see they had received 18 bids. Nearly every architecture firm in Knoxville and Chattanooga had put in for the project, which would typically have drawn only three or four proposals due to the size, the city employee told Franklin. Harvard Joint Center for Housing: Will the home improvement boom last? Harvard’s Joint Center for Housing Studies expressed some doubts, noting in its latest Leading Indicator of Remodeling Activity (LIRA) report that it expects the remodeling market to cool until at least mid-2021. “The remodeling market was buoyed through the early months of the pandemic as owners spent a considerable amount of time at home and realized the need to update or reconfigure indoor and outdoor spaces for work, school, play, exercise and more,” said Chris Herbert, the center’s managing director. “However, sharp declines in home sales and project-permitting activity this spring, as well as record unemployment, suggest many homeowners will likely scale back plans for major renovations this year and next.” The center estimates that annual expenditures for home improvements and repairs will fall by about 0.4 percent over the next year to $326 billion. But Abbe Will, associate project director of the center’s Remodeling Futures Program, said that “given the ongoing uncertainty surrounding the broader impact of the pandemic, the timing on when we’ll reach a bottom in the remodeling market also remains unclear.”
    • PB
      PHILLIP B.
      27 August 2020 @ 00:33
      The economic catastrophe of the last few months is just unimaginable. It's just mind blowing the magnitude of all this. More and more, I'm thinking that we are still in the early stages of how this is all going to shake ou.
    • RM
      Robert M.
      27 August 2020 @ 01:16
      Phillip, I agree. Just finished an article on how bad things are getting in commercial real estate and projected to get worst. Maybe Raoul's thesis of liquidation will play out. After reading David Rosenberg's newsletter yesterday about Canadian's orgasm of spending in various categories and seeing Americans go crazy on home remodeling and buying boats/campers/kayaks, one has to believe there will be a sudden realization that all is not well and consumer spending may scream to a halt.
    • LK
      Lance K.
      27 August 2020 @ 12:14
      Which article about commercial real estate?
  • DO
    DIOGO O.
    27 August 2020 @ 10:40
    Look at what Professor Russel Napier has to say: ''In the aftermath of the Global Financial Crisis, central banks started their quantitative easing policies. They tried to create inflation, but did not succeed. Russel Napier: QE was a fiasco. All that central banks have achieved over the past ten years is creating a lot of non-bank debt. Their actions kept interest rates low, which inflated asset prices and allowed companies to borrow cheaply through the issuance of bonds. So not only did central banks fail to create money, but they created a lot of debt outside the banking system. This led to the worst of two worlds: No growth in broad money, low nominal GDP growth and high growth in debt. Most money in the world is not created by central banks, but by commercial banks. In the past ten years, central banks never succeeded in triggering commercial banks to create credit and therefore to create money.'' source: https://themarket.ch/interview/russell-napier-central-banks-have-become-irrelevant-ld.2323 also, refer to Grant Willians podcast with him
  • DO
    DIOGO O.
    27 August 2020 @ 10:25
    Nice interview! Regarding M2 and Money Velocity, see Russel Napier last thoughts on the subject! Bring this guy to Real Vision! IT IS URGENT!!! CHEERS!!
  • BG
    Barry G.
    27 August 2020 @ 02:37
    Ash, you need to tackle Ed on the offside & pass back rules.
    • PB
      Patrick B.
      27 August 2020 @ 08:25
      Man, Ed’s footy chat is about what you’d expect from an American “soccer” fan. Do keep up winding up Ash though
  • LS
    Lewis S.
    27 August 2020 @ 01:17
    "That is, is that." - Ed Harrison
    • DR
      Derrick R.
      27 August 2020 @ 02:03
      This is a drinking game for only the bravest among us..
    • PW
      Patrick W.
      27 August 2020 @ 06:27
      I sense a drinking game.
    • BA
      BURHANUDDIN A.
      27 August 2020 @ 08:00
      There's one popular podcast host, Bobby Lee (a stand up comedian), who keeps saying that & they even made mash-ups https://www.youtube.com/watch?v=H18oamhk-As https://www.youtube.com/watch?v=pcmajEYhdvM
  • SB
    Stewart B.
    27 August 2020 @ 07:17
    We shouldn't be surprised by collapsing of velocity as velocity is NOT measured but simply backed out as GDP/MoneySupply. For the same GDP, money supply and velocity are inversely proportional. Hence, if the Fed rapidly increases money supply then the velocity will rapidly decrease even if there is NO CHANGE to the economy or anything else.
  • DP
    David P.
    27 August 2020 @ 05:36
    Given the current structure of the market (see Mike Green latest interviews) and the religious faith in Tesla that many cashed up big IT employees and sycophants have in the company, it is indeed possible that Tesla goes to the moon. Free advertising ( done by baitclick "news" outlets day in day out), almost free capital as long as the flows are going one way, and potential the implicit backing of the US government ( we don't want all those subsidies to go to waste). Unsure if established car companies can compete with such momentum and the inferred story of inevitability of this stock ( reinforced by its survival to short sellers). It is a faith story propelled by a cult that appears to still have deep deep pockets ( and if the cult member are widely employees of the big internet platform, they have deep deep pockets).
  • DB
    Daniel B.
    27 August 2020 @ 03:50
    Nice job, I would like to see more daily briefings like this in the future.
  • DB
    Daniel B.
    27 August 2020 @ 03:26
    I'm not sure they understand the value behind Tesla. Tesla may be one of the most important companies in our lifetime. Your better off picking on Nikola, which I believe is a fraud.
  • JS
    John S.
    26 August 2020 @ 22:37
    Please cut the sports & politics talk. Real Vision used to be a place to get away from all the nonsense talk.
    • TB
      Tobin B.
      27 August 2020 @ 00:51
      Ouch! John are you candid like the Chinese?? lol but seriously John just upgrade and take these Daily Briefings with a grain of salt they are free on youtube, after all. You get out of it what you put into it!
    • RA
      Robert A.
      27 August 2020 @ 03:10
      Looking good Lewis....feeling good Billy Ray. Sorry John, I kind of enjoy a little patois.
  • DR
    Derrick R.
    27 August 2020 @ 02:02
    Guys, pandemics and cat 5 hurricanes are not black swan events..
    • RM
      Robert M.
      27 August 2020 @ 02:36
      100 year at this level of closures pandemics seems like it fits.
  • BA
    Bruce A.
    27 August 2020 @ 00:55
    I think Ed's comments about the Fed stepping in when fiscal spending isn't happening was perhaps more correct prior to Covid. The Treasury bill/bond issuance and govt spending are driving things now. If markets can absorb the USTs then Fed stays quiet. Since late 2018 the Fed generally acts in a reflexive manner by lowering the 'benchmark interest rate' and buying US Treasuries (UST) when that issuance isn't absorbed by the market at the Fed's desired rates. Think about the repo spike last year or during the dis-function in the UST market during March this year. As the US Treasury issues more bonds to finance either the special Covid relief packages, buy equity stakes in special purpose vehicle loans or finance some sort of MMT 'new deal' govt program, the Fed is forced to get active in bond markets and buy, buy, buy. From here, if inflation runs hot, the Fed will let it run but if nominal rates kick up too much the Fed will be providing forward guidance (ie what they will allow the rates to be) and eventually they will do yield curve control to keep rates where they feel is needed to keep people in jobs and keep credit flowing.
  • DM
    Don M.
    27 August 2020 @ 00:38
    Love you guys but if you're looking for new ideas get @biotequity Mike Taylor on. Saw him on Hedgeye and was excellent. A virologist turned hedge fund manager
  • DR
    Danilo R.
    27 August 2020 @ 00:37
    It is clear that the fed has one mandate and one mandate only. Leave no Billionaire left behind. Numbers like inflation are meaningless when we are living a K shape recovery and a barbell economy. Well gee, Apple or JP Morgan can get 1% loans but the average American is paying 20% more in health care and education costs and 8% more in groceries. People not traveling for work, not buying make up for work, not buying gum for work, or spending an arm and a leg for a commute is also deflationary. Charles Dickens, a tale of two cities, It was the best of times and the worst of times.
  • RK
    Ron K.
    27 August 2020 @ 00:33
    Ash, great job as always...but I think you need and deserve a vacation.... combing through NOAA reports is not an outdoor activity. Enjoy the end of summer!
    • AB
      Ash B. | Real Vision
      27 August 2020 @ 00:34
      lol. yep.
  • TB
    Tobin B.
    27 August 2020 @ 00:10
    Oh Ed… there'll be no football until we all realize this is a big game
  • TC
    Timothy C.
    26 August 2020 @ 23:33
    The GDPNow modeling is broken at this point and will remain broken. They can't adjust the algorithms or the inputs. When the inputs fluctuate, you need to adjust your model via AI/ML so that the information makes sense. Sounds great on paper, but then how do you correlate to previous data unless you tune the model to older datasets. Just my two cents having done way more ML based systems modeling that I care to admit..
  • DL
    David L.
    26 August 2020 @ 23:24
    In terms of the fiscal cliff, do you think spending down the large amount in the Treasury General Fund will be used to off set this? (Assuming the TGA fund is spent in Sept-Nov.)
  • AM
    Alexander M.
    26 August 2020 @ 23:17
    Thanks guys. What a true and great perspective to make one think. A mood of foreboding on physical, financial and one's mental health pretty well sums up what many are facing right now and for some time to come. Preparation can mean survival in many ways. Just do it.
  • ER
    Ernesto R.
    26 August 2020 @ 22:41
    Ed I see you like Football is a disaster in Barcelona Suarez , Vidal and now Messi amazing any time my friend excellent show one more time thanks for the knowledge