Daily Briefing – June 16, 2020

Published on
June 16th, 2020
Duration
32 minutes


Daily Briefing – June 16, 2020

Daily Briefing ·
Featuring Peter Cooper, Ash Bennington, and Ed Harrison

Published on: June 16th, 2020 • Duration: 32 minutes

Senior editor Ash Bennington joins managing editor Ed Harrison to unpack today's positive retail numbers as well as whether the recession is now "over" (even if in name only). Bennington and Harrison explore what this actually means in the technical sense, but how it may lend itself to a double-dip recession in the same way the Great Depression was. They also discuss the increased spread of the virus, the public perception of COVID-19 wrecking more havoc on the economy, and Jay Powell's testimony before the Senate Banking Committee today. In the intro, Peter Cooper discusses how the Fed's announcement on its corporate bond-buying program as well as burgeoning retail sales numbers have supported the stock market rallies this week.

Comments

Transcript

  • NG
    Neil G.
    17 June 2020 @ 15:51
    Declaration of recession over is absolutely laughable. We are just getting to the point where companies strapped for cash, and still lacking cash flows (tourist reliant industries, restaurants, bars, etc) will be coming into the crunch period where gov support is expiring, yet no vaccine/reliable treatment exists - i.e. restaurants and the like will be no where near full capacity, while the fixed costs are still the same. Are they even considering how long it will take to return to GDP at Q4 2019 numbers? Even JPOW is painting a bleak picture for that fact....and you have to figure they always are on the optimistic/outright lying side of things.
    • NG
      Neil G.
      17 June 2020 @ 15:53
      Not to mention, you have retail investors piling into bankrupt company equities as if they are not going to go to $0.00. When the equity value actually does reach $0.00 for these companies and the horde of retail gamblers get wiped, how do we think that plays into sentiment? What could possibly go wrong....
    • DM
      Don M.
      17 June 2020 @ 17:03
      This
    • JD
      John D.
      18 June 2020 @ 08:03
      Recession is a technical indicator. He isn't referring to subdued growth.
  • SJ
    Sean J.
    17 June 2020 @ 12:55
    Ed’s “wokeness” bleeds into his commentary. 👎🏼
    • DS
      David S.
      17 June 2020 @ 22:50
      I agree with Mr. Harrison. Unfortunately, the Fed's only real apparent mandate is to protect the banks, hedge funds, corporations and the wealthy of Wall Street. That is why the Fed was established. Like earlier incarnations in England, they protect the wealthy by acting like they care about Aunt Mary’s pension. It will take Congressional action to correct social issues with Black Lives Matter and courts to uphold the intent of the law. Our administration does not understand the issue and is therefore unprepared to help. DLS
  • VK
    Vaclav K.
    17 June 2020 @ 17:47
    Ash, it would be more fun if you made trading theories and bets of your own as well. But anyway u r are already great!
  • DB
    Donna B.
    17 June 2020 @ 14:45
    Ed is ready to join the CNBC cheerleaders professing the recession is over with the release of one metric. Remember the adage: two data points don't make a trend. Let alone one.
  • ME
    Mark E.
    17 June 2020 @ 13:22
    Appreciate the effort guys, but your analysis and takeaways need improvement. Calling the recession over based on a one month increase in retail sales from a total lockdown the previous month is both superficial and misleading. We all know it's a shit storm out there, so let's not kid ourselves and try to put lipstick on a pig, regardless of what's happening in the heavily Fed-manipulated financial markets.
  • CA
    Cyrus A.
    17 June 2020 @ 09:49
    Gents, Appreciate your analysis but not sure about the 'recession is over' comment. Isn't a recession two consecutive quarters of declining GDP?? If it was -5% in Q1 in the US, with barely 3 weeks of lockdown in Q1, how can the recession be over when the economic activity in Q2 has been more depressed than Q1. Not to mention:- i) May's retail sales may be more down to pent up 'one off' demand rather than anything sustainable and ii) the 17.7% May jump was month on month (which is meaningless at the best of time vs YoY) and comes off a 16.5% decline in April's numbers
    • PC
      Peter C.
      17 June 2020 @ 12:48
      Two consecutive quarters of QoQ GDP contraction is a recession and it ends with the first quarter showing QoQ GDP growth. Because the Q2 contraction will be so severe due to imposed lock-down during that quarter it is actually a given that Q3 will be better and as such GDP growth will be positive and the recession ends. It could be different if there is a wave of bankruptcies and continued rise in unemployement but the data tells us that in the short term this is not what happens. So technically we will be out of a recession in Q3 but the question is of course what happens next. A 2nd spike may force the economy back in a recession in Q4. Without a new shock, the economy may recover to 2019 levels over time but due to unemployement, reduced spending (e.g. due to virus fears or just less optimism), bankruptcies and overleverage, this will be a very slow process. Continued monetary and fiscal spending could boost it but not without debasement of the dollar. So fundamentally all three cases are worse than 2019 and the market should price it in if it cares about fundamentals. However, as long as mama fed feeds it, it is happy ... for now.
  • ML
    MIKE L.
    17 June 2020 @ 04:20
    Great briefing, Ed does that plant behind you need water?
    • EA
      Egil A.
      17 June 2020 @ 11:59
      The plant is still in recession...
  • PC
    Peter C.
    17 June 2020 @ 11:08
    If the recession is over and a full recovery is what the numbers tell us (regardless of the recovery speed itself), why is Powell claiming that the downturn is not over yet? Does he need backing for continued spending regardless of the recovery so will he basically tell the same story to congress every time? I think he needs it to keep the markets from collapsing. The balance sheet expansion slowed last week and we saw the result: a massive VIX peak and a sudden decline in markets. The repo markets also peaked at 120 billion per day. I wonder if there is anything that can force him to stop flooding the market because it looks like the only real risk for the market.
  • SW
    Stephen W.
    17 June 2020 @ 10:59
    4,300 for S&P is my target in next two years
  • DA
    David A.
    16 June 2020 @ 22:53
    Capitalism without bankruptcies is like paying people not to work: Great retail sales today, at the cost of economic growth in the future. Socialism, including central banks picking winners and losers, has not worked in Japan or Europe for decades, why should we expect central planning by bureaucrats to increase productivity (aka GDP) in the US? At some point earnings will matter.
    • PP
      Patrick P.
      17 June 2020 @ 03:23
      David A. ---- I like your premise "Capitalism without bankruptcies" But David ...who believes we have Capitalism?
    • SW
      Stephen W.
      17 June 2020 @ 10:57
      People not working has been going on for quite some time now - the amount of unproductive paper shuffling that goes on in most sectors is beyond real.
  • AN
    Andrew N.
    16 June 2020 @ 23:29
    Winter is coming.
    • DG
      Dave G.
      16 June 2020 @ 23:50
      You have no idea how long I've been hearing that line.
    • SW
      Stephen W.
      17 June 2020 @ 10:55
      OK Ackman :)
  • TS
    Thomas S.
    17 June 2020 @ 10:49
    where can I find Ed's credit report that was mentioned during the briefing ?
  • RD
    Riki D.
    17 June 2020 @ 00:35
    Need to be careful on the data flowing on the 'new' drug saviour and firstly ask what gold standard trial protocols have been adhered too and which have not - the trial is not double blinded. Secondly, the 1/7 death save rate is obviously good from a 'save a life perspective' for those on ventilators, but its still a fairly low number. The data not being subject to double blind treatment, has the potential to blow that number out to futility. Perhaps another hydroxychloroquine moment. Wait for full blown gold standard (double blind, random, placebo, multi-centre, multi-phase, predefined tria objectives), FDA endorsed, peer reviewed trials, which take years (unless there is already pre-existing trial data to overlay supported FDA endorsed Phase 3 trials).
    • MT
      Mike T.
      17 June 2020 @ 10:07
      it was subject to randomised test of 11500 patients over 175 hospitals in the UK. It's not a wonder drug, but has found to reduce mortality rate of those patients that end up on a ventilator. http://www.ox.ac.uk/news/2020-06-16-dexamethasone-reduces-death-hospitalised-patients-severe-respiratory-complications
  • JS
    Jordan S.
    17 June 2020 @ 09:27
    The recession could be technically over but that doesn't mean the equity market makes any sense right now. eventually... pop
  • MH
    Maans H.
    17 June 2020 @ 09:12
    Calling that the recession is over based on one month numbers on just one specific thing ie. retail sales seems pretty weird to me. To me one month of growth is not sufficient to be out of the recession, you need a quarter of growth to call that. We'll see but I don't expect Q3 to show growth in GDP and if that is the case you can not say that we were out of the recession in June just because we had one month of growth in May.
  • RK
    Robert K.
    17 June 2020 @ 09:03
    Why shouldn't you be in risk assets when FED has your back you ask? Perhaps because you can lose 30% any time? I feel pumping the bullish narrative here and joining momentum at this stage of the rally is just not responsible..
  • SK
    Stefan K.
    17 June 2020 @ 07:58
    Where can I find/get Ed's credit writedowns newsletter?
    • IP
      IDA P.
      17 June 2020 @ 08:35
      https://creditwritedowns.com/
  • IP
    IDA P.
    17 June 2020 @ 08:34
    if the FED has got your back, why should analysts or money managers or financial advisors exist at all? the fed could just assign us a passive portfolio that we buy and hold right?
  • SL
    Stephen L.
    17 June 2020 @ 07:24
    great stuff as always
  • AS
    Ash S.
    17 June 2020 @ 07:03
    It's really starting to sink in how unconscionable the Fed buying corporate bonds is when you consider main street being crushed.
  • RM
    Robert M.
    17 June 2020 @ 02:13
    Not sure how people are analyzing these numbers. Ed, can't buy into the recession is over theory based on retail sales today. Numbers are going to be all over the place. Third quarter, we might technically be out of the recession just due to the fact that GDP has to be higher than the second quarter. But will the fourth quarter be up? So is this a double dip or just one continuous recession?
    • CH
      Connor H.
      17 June 2020 @ 03:25
      I agree, I think you need more than 1 data point to see if you are out of a recession
  • RM
    Robert M.
    17 June 2020 @ 02:17
    On Covid, just read that hospitalizations in Tennessee are at their highest levels ever. Problems particularly bad in Chattanooga and Memphis. Nashville already slowing down re-openings.
  • VL
    Vid L.
    17 June 2020 @ 01:27
    I feel we might look back at this time in markets in ten or twenty years and think: "What the hell was everyone thinking?". It might well go further but I'm convinced there's something profoundly unhealthy and thus unstable at the core of these bullish moves across the asset classes.
  • AN
    Andrew N.
    16 June 2020 @ 23:46
    Can someone explain to me why HYG is levitating along with LQD? My understanding is that the Fed will not buy the components of HYG (non-angelic junk), so why is the market acting like it will?
    • BS
      Bevyn S.
      17 June 2020 @ 00:07
      I think the big concern was downgrade risk that would cause the junk market to balloon beyond capacity of purchasers... Fed has eliminated this risk by supporting downgrades who weren't junk pre covid19
    • BS
      Bevyn S.
      17 June 2020 @ 00:08
      Junk and high yield spreads have narrowed a lot
    • BS
      Bevyn S.
      17 June 2020 @ 00:10
      And I should add quotations around "eliminated" ... I'm saying this is the markets perception
    • BS
      Bevyn S.
      17 June 2020 @ 00:14
      *junk and high grade spreads
    • AN
      Andrew N.
      17 June 2020 @ 00:23
      But shouldn't there be growing concern that the components of HYG will default, thereby reducing the value of their debt? This concern is reduced for investment grade, since the fed will buy more of their debt and they can use that to make payments....but I don't see how it applies to junk (HYG). Obviously I'm missing something here.
    • BS
      Bevyn S.
      17 June 2020 @ 00:32
      It's a legit question. I think it comes down to liquidity. Normally a lot of these companies would've been forced into bankruptcy due to spreads blowing out (market unable to absorb new junk issuance and downgrades at the same time...) Fed liquidity has tightened spreads. I think RV (Raoul and co.) was really early and dead on with this (but are wrong about fed ineffectiveness). However, I think the suspended animation will allow for 'extend and pretend' for companies that should've (and may eventually) become bankrupt. It's just going to take longer
    • AN
      Andrew N.
      17 June 2020 @ 00:39
      I see. So it's an indirect effect of the fed liquidity enabling the purchase of everything, including junk bonds and equities? That makes sense, but I would still expect a greater spread between LQD and HYG, since LQD enjoys direct fed support.
    • BS
      Bevyn S.
      17 June 2020 @ 00:44
      Yes indirect effect. The impetus for spreads blowing out would've been downgrades (a lot of BBB) that would've been junk. It's bloated in this mid grade 'investible' category. Pension fund (big owners of corporate debt) rules limit ownership of junk debt
  • JH
    Jacqueline H.
    16 June 2020 @ 23:23
    Good briefing, as always. As an aside, I recommend Hawaiian shirts. The Summer Solstice is on Saturday.
    • MA
      Melanie A.
      17 June 2020 @ 00:25
      The blue shirts looks great! Although green is always my favourite financial colour.
  • MC
    Michael C.
    17 June 2020 @ 00:20
    Better today gents. It was more engaging and more focussed than yesterday. 🙏
  • RA
    Robert A.
    16 June 2020 @ 23:42
    Love the new intro Music. Mr. Cooper’s intro was excellent...again. The point I was waiting for that I didn’t hear discussed was Powell’s “cover rationalization” for buying the Large corporation’s bonds and keeping big fat indebted Zombies alive—“they are large employers and if we let them go more unemployment will result....and err, err, you know....full employment is our second mandate”. Let me see if I’ve got this right?....you want to keep people employed in unproductive non competitive companies rather than have a “cleansing” and have people employed in innovative and productive companies that would take the place of the Zombies.....if they could just get some funding which they can’t because you used all the sop for the Zombies. It’s pretty obvious Jay what you are doing so perhaps you could spare us the hypocritical “inequality” rhetoric. I think Ed really nailed it.
    • AN
      Andrew N.
      16 June 2020 @ 23:49
      I take your point and agree with the situation, but Powell is in a tough spot. If he didn't support the bond market he would take a lot of heat and get blamed for the near-term credit crash. I'm glad I'm not him.
  • DS
    David S.
    16 June 2020 @ 22:31
    Good into Mr. Cooper. It will be interesting to see the rights of the Fed loans will be in a corporate bankruptcy. Will the Fed have priority before any other bondholders will be paid. Will the repayment of the Fed take priority over pension, payroll and vendor claims. It will make a difference in the risk of employees, vendors and other bond holders. DLS
    • RA
      Robert A.
      16 June 2020 @ 23:48
      I would be interested also David....except as long as the Fed keeps buying there will never be a bankruptcy I suppose.
  • MD
    Matt D.
    16 June 2020 @ 23:31
    Solid briefing today lads. Thanks. Nice intro from Peter too. Thanks for the last comment Ash on negative interest rates.
  • MS
    Michiel S.
    16 June 2020 @ 22:55
    Roger on holiday?
    • AN
      Andrew N.
      16 June 2020 @ 23:30
      He just posted a Refinitiv vid on youtube, Realvision channel.
  • BS
    Bevyn S.
    16 June 2020 @ 23:28
    Seems like dollar / inflation regime shift is dependent on high demand / short supply of commodities ... Where's the high demand and short supply for commodities? Don't see it
  • NL
    Nikola L.
    16 June 2020 @ 23:22
    Peter, Ash and Ed - great stuff. Thanks.
  • MR
    MARK R.
    16 June 2020 @ 22:43
    mkt seems to discount any negatives of 2 of the largest countries on the globe butting heads. excellent discounting mechanism equity mkts have become?!?!!?
  • DS
    David S.
    16 June 2020 @ 22:33
    Sorry, Good Intro Mr. Cooper. DLS
  • DS
    David S.
    16 June 2020 @ 22:31
    Good into Mr. Cooper. It will be interesting to see the rights of the Fed loans will be in a corporate bankruptcy. Will the Fed have priority before any other bondholders will be paid. Will the repayment of the Fed take priority over pension, payroll and vendor claims. It will make a difference in the risk of employees, vendors and other bond holders. DLS