MAX WIETHE: Hello, everyone. Welcome to the Real Vision Daily Briefing. For Real Vision, I'm Max Wiethe. It's December 3, at 4:00 PM here in New York City, right after market close. I'm joined today by Jack Farley and Ed Harrison. But before I talk with Jack, let's send it over to Haley Draznin for today's stories.
HALEY DRAZNIN: Hey, Max. We saw the market rally again on Thursday. This time-- good jobless claims data that was released earlier today. Initial jobless claims fell last week to 712,000. That's well below the expectations for 780,000 and down from 787,000, which is the revised number from the prior week. It's the first drop in three weeks and the lowest since the pandemic hit in March.
But it came during Thanksgiving week, and people don't really file claims as much when there are holidays. So there is a natural fall off that occurs, but we just don't know how big it was. And we can't really read in too much to these numbers. Thinking ahead, the Thanksgiving related drop could cause a measure of catch up when next week's numbers are released. So we'll continue to monitor that very closely.
It's important to note that while these numbers do show gradual improvements, they're still well above pre pandemic levels. We're talking three times the pre pandemic levels, and they haven't even dipped below the Great Recession peak of 665,000 initial jobless claims. So let's hold off on the parties-- there are still over 20 million people on some kind of benefits. Context really matters here.
Bottom line-- layoffs are still happening in the COVID economy. 25 states reported more than 1,000 layoffs each last week. They are concentrated in the same sectors we saw when people pulled back in March like food services, health care, retail, and hotels.
And once again, the jobless claims data has come under scrutiny this week. The Government Accountability Office said that the Labor Department hasn't provided an accurate estimate of the number of Americans claiming benefits. States' backlogs are overloaded with the historically high number of applications, which is contributing to this issue. And on top of all of that, millions of people may not be receiving the full unemployment payments that they're actually owed.
We're also looking at the jobs report releasing tomorrow. We're expecting that number to inch down a little bit, but again, we need to take these numbers with a grain of salt. Typically, jobs reports are surveyed mid-month, so it won't show the full effect of this resurgence in COVID-19 cases that we're seeing across the country in the last two weeks.
Just yesterday, the US recorded its deadliest day of the pandemic with more than 28,000 people dying from the virus, and at least 98,000 COVID-19 patients were hospitalized on Wednesday. That's the highest number of COVID-19 hospitalizations we've ever experienced, and these hospitalization numbers will be the key driver of government mandated economic rollbacks that caused jobless claims and unemployment to increase.
Overall, the labor market recovery will remain tempered until a vaccine is widely available. Once that happens, some of these jobs may start to come back. So we don't want to trip over our own feet with the finish line in sight. Back to you, Max.
MAX WIETHE: Thanks, Haley. Jack, it's a pleasure.
JACK FARLEY: Yeah, pleasure to be here. This is our first time being on camera together. How are you doing?
MAX WIETHE: I know it's exciting. Well this is a unique Daily Briefing, because I'm going to be talking to you and Ed. And we have an intro from Haley. So we only have a short time-- only about 15 minutes for me and you. So let's try and get through as much as we can.
We took some time to plan this out, so I have a little idea of what we're to talking about. So let's start out with sort of these reopening trends that you're seeing and some of the news that we have around movie theaters.
JACK FARLEY: Right. So today Warner Brothers announced that not only are they going to be streaming all of their major films in 2021 on HBO Go, but that they're going to be filming them on the exact same day that they're released in movie theaters. And most people who go to the films, who go to movie theaters. I think that they see it, because they can't see it anywhere else. Some people go because of the cinematic experience. And I like that. That's certainly part of it. But I think a lot of people go for that exclusivity. So it's a real blow to the movie exhibitors-- AMC, Cinema, Cinemark. Companies like that were down 8 to 10% today.
So that makes me think of what you said about the reopening trend. We all know this virus, thank God, is going to end some time. There is going to be a return to normal. But what is the sort of economic scarring. What trends have we adopted during these lockdowns, either by fiat government or by just economic behavior and self preservation. What is the behavior that will last? And so I'm looking at movie theaters. I'm looking at airlines. And I'm looking at commercial real estate.
MAX WIETHE: Well, that is really interesting, Jack, as it relates to what we're going to see from the potential long lasting economic effects of lockdowns after we get out. But to me, the question is the check that the big studios would normally get say on an opening weekend from AMC going to be the same size from HBO that they're getting? And basically if HBO can't give them the same amount of money that they would get from AMC in normal times, then this will be something that reverses.
But I want to move on to another area of the economy that we're seeing similar things, which is airlines. So you talked to me before about how-- I forget which airline it was. Was it Delta, American?
JACK FARLEY: OK. So it was both. So today the CEO of Delta, Ed Bastian, released a memo to employees saying that the cash earned is actually going to increase during December by about $2 million per day. So they're expected to burn $12 to $14 million per day. Now, Delta has a very good balance sheet, perhaps the best in the airline business, so they can handle that.
It's interesting, though, Delta was up 5% and American Airlines was up 10%. And the reason is because that Ed Bastian forecasted that by March or April, somewhere around there, Delta will actually break even. So it's odd that a company is up a full 10% on one of its competitors making this sort of wishy-washy statement to employees, but that was the price action today.
MAX WIETHE: OK. And do you see a trend in these internal emails that are meant for potentially being leaked? And we've seen that before with Elon Musk, and now this email from Delta. Is this going to be the new way to circumvent, having to do these things at normal quarterly ends like has been done traditionally?
JACK FARLEY: Yeah, I think the media definitely knows what's going on. They sort of don't make a huge distinction about whether it's reported to shareholders and thus is illegal-- if they make a material misstatement because of fiduciary duties versus to employees. But, yeah, that's definitely an enduring trend that you saw with Tesla, so I expect it to continue.
MAX WIETHE: Well, one of the nuances that we discussed was actually some of the focus that's shifting from more consumer air travel to business class, first class, and focusing on really the bread and butter for the airline industry. And we were talking about, yeah, that seems like a good play. Those are the people who have to fly. They're generally a little bit more price insensitive to these sorts of things. And as we have decreased demand, that could make up for some of the decreased demand. But are people really going to be doing business travel as much as they did before the pandemic? You are interviewing-- who is it?
JACK FARLEY: James, James Litinsky.
MAX WIETHE: Yeah, so you're interviewing James Litinsky who is the CEO of--
JACK FARLEY: --MP Materials.
MAX WIETHE: Yeah, MP Materials. And we did a documentary with them previously where we flew out. We went to the mine. And you're doing it over Zoom. I don't think we're going to go to the MP Materials mine ever again. And there's good cost reasons why we're not going to do that. So is this focus, is this turn towards business class really going to last? Or is this going to be another one of the things like we were talking about with movie theaters that, yeah, we might get back to normal in a lot of other areas of the economy. But is that ever going to be normal again, or are there lasting changes?
JACK FARLEY: That is such a good question. I don't think anyone can really the answer to it. I'll share my thinking. You're right. I interviewed Jim Litinsky that comes out next Tuesday. He's a CEO of a rare earth mine, and we did go to his mine in 2019. And we used an airline, and now we just did it over Zoom. Will that last? It's funny you say that, because Jim actually invited me to his mine at the end of the interview. So maybe, if he was sincere, I'll have to take him up on that.
MAX WIETHE: The question's is Real Vision going to foot the bill for that trip, or are you going to have to do that one out of pocket?
JACK FARLEY: See, that is the real question. Here's the thing-- I think the big corporate events, and not just like a company retreat, like this securitization event or these massive events where 40,000 people are going to go. The Berkshire shareholder meeting, that is still going to happen. But are you really going to have to fly to Buffalo to sit across from someone who you can have the exact same conversation over Zoom. The economics would say, no. You're not. We'll see.
MAX WIETHE: Yeah, we will see. But another area of the economy that we have these questions about is commercial real estate. You've been looking at that.
JACK FARLEY: Yes, well, I've just been looking into a few companies that Jim Chanos mentioned in his interview with Mike Green-- companies like SL Green Realty or Vornado Trust. It's quite obvious that people are going to use less commercial real estate as, oh, hey, I'm actually going to be working from home one day a week or two days a week. Because people have been working from home throughout this entire pandemic. They've noted that they kind of like it.
What I've got my eyes on is just how ironclad the leases are. That's why Jim Chanos isn't saying it's going to unravel tomorrow. He says that it's going to be a slow motion train wreck. You know that, because you're the man who made that whole interview happen. So, yeah. Well, I don't know. What do you think about commercial real estate, Max?
MAX WIETHE: Well, I tend to agree that people will probably not go back into the office. I haven't been looking at the leases. I'm really just looking at it more as another example of, yes, we are going back to normal, but what does that mean. Because it is going to be-- to use a tired phrase-- a new normal. And so, yes, there are reopening trades that can happen, but are any of these reopening trades going to be-- how many of them are going to be short lived, and how many of them are going to be long lived? And some of the more obvious ones, like airlines, movie theaters, commercial real estate, those might not last.
But we were talking about, you and I are never going to get a beer over Zoom. We used to go to the bar after work and have a beer and talk about our days. And I don't think we're ever going to get delivery beers and do that over Zoom. And so there are certain things that we haven't lost our appetite for, that we're craving.
And so if I were somebody who were looking to play this reopening trade, and I wanted to make sure that. It's not that I don't think that the airlines or the movie theaters or whatever aren't going to pop on reopening and good data. It's how long is it going to last.
And so I don't want to be the person who's left holding the bag, for instance like the tanker trade that we had back in March with super contango. It worked very, very well. But you know what, I got a little greedy, and I held onto it too long. And I gave back some of my profits, because that contango worked itself out that fast. So that doesn't mean it can't be a good trade, but how quick is it going to happen.
JACK FARLEY: Definitely. To the folks at home, that trade with Max, Max wasn't the only person who was hurt by that trade. Because I had to listen to it. Ed had to listen to that trade. We all heard about the kvetching and the moaning.
I just want to go back to something. You've mentioned, how do you trade this? I've been talking about this with Ed a little bit, is I think there could be a flight to quality. No matter if the airline industry gets decimated, that actually could be a good thing for Delta because American Airlines would go out of business like it did in 2013.
We were talking, before this call, how it wasn't until 2011 or the 2010's that the airline business became something that was thought to be investable. Because these companies just went bankrupt. There was no consolidation, no pricing power, and yeah.
So I think that if American Airlines goes out of business, then that could be good for Delta. I'm seeing kind of a long the quality names and then the short the names that might get irreparably damaged.
In commercial real estate, it's my understanding that the best assets in commercial real estate are don't trade. They're owned by privately run companies, so you can't buy an EFT on that one, sorry.
But yeah, just one last thing on the airlines-- and we can put this chart up-- is the TSA traveler throughput. The orange line in this bar chart is the passenger volume currently, and the blue line is the passenger volume versus a year ago. So obviously, we saw a huge drop off in late March, early April and a slow reopening. But the growth has kind of stalled there.
The bet is that it's going to increase, because the vaccine is going to reopen the economy and make people feel more comfortable going out. So I think the success of the airline industry as a whole hinges on how quickly that orange line catches up to that blue line.
MAX WIETHE: Yeah, and you and I talked about how we couldn't find this chart ahead of time, but I think we've both seen that one of like China and Russia air travel traffic back above COVID level. So there is some good indication that should we get the virus under control, or live in a society that doesn't care about the virus, that travel will return to other levels.
But I want to move away from these and give you the opportunity to talk about some content. So MP Materials, obviously we've talked to them before, but you were talking about it in terms of the EV Revolution and what could happen. Basically, Tesla has been running. But the question is, is Tesla really going to own the EV market? That's the big question.
And if you aren't certain on that bet. You like rare earths as potentially the way to do the picks and shovels of EV. So talk to me about why you're uncertain about who's going to win in electric vehicles, and why you like picks and shovels as the real way to play the train.
JACK FARLEY: Right, so Tesla has the lead. It has the first mover advantage. It was the first company to focus exclusively on electric vehicles that was publicly traded and to be successful, but it is just priced so richly. And if I said this two years ago, I would have also said it was priced too richly, and now it's over 10 times more valuable.
But you do see that its market share is eroding. It's expanding into China, but its market share is eroding in the US as well as countries like Norway. I actually know this because I was researching my interview with Jim, that 58% of the electric vehicles-- excuse me. 58% of the vehicles in Norway that are being sold right now are electric vehicles. So electric vehicles, they're not just the future. In countries like Norway, they're the present. So I'm seeing market share erode in countries like there. And companies like Volkswagen, companies like GM-- you have the previously high flying startups like Nikola-- but are the legacy automakers like GM, Ford, Volkswagen going to catch up.
I just saw the headline today of Bloomberg Intelligence Report that Volkswagen is now pricing its electric vehicles at under the key quarter million Yuan mark-- so that's about $38, $39, $40,000-- so really targeting the Chinese middle class. We could see basically, Tesla, it'll have to over deliver in order to keep its dominance in the electric vehicle market.
And so we don't know which companies are going to dominate the space. We don't know which technologies. Is it going to be lithium batteries with cobalt or zinc? We don't know. Is it going to be hydrogen powered fuel cells like Nikola?
But we do know, with almost as great confidence as you can have, that that battery is going to touch against and run with a motor that needs NDPR, which are two rare earth material. So that's why Jim Litinsky and I think of this as a picks and shovels play. When there's a gold mine, you don't want to be owning the gold. You don't want to be rushing down into the mine. You want to be standing outside the hole with a pick and with a shovel and selling that to the brave folks who go and brave the deep core of the Earth. So that's the picks and shovels play.
MAX WIETHE: OK. Well, my argument would be people know that that's the picks and shovels play, and so it could already be priced in. So why isn't it priced in? And a company like MP Materials, why is it interesting? Is it because of the ore they have in the ground, or is there some other reason why somebody might be interested in a company like MP Materials?
JACK FARLEY: OK. So there are two mines of any scale that mine rare earths outside of China. China has over 80% of the market. 15% of the market is the Mountain Pass Mine. There's also a mine in Australia that's pretty small and has a few problems. So really it is the only game in town.
Now there are other deposits, but this mine has actually existed for, I think, over 100 years. And the previous owners invested a lot of capital into making sure it's the state of the art facility. And the mine is about 8%