Editor's note: You can find a full transcript of Doc and Matt's briefing, complete with slides, below the video. If you'd like to view a pdf of the slides, click here.
Matt: Alright, we're back with conversation 10. Let's go, Doc.
Doc: Hi, everybody. Welcome back. This is a conversation No. 10 COVID conversation. I'm Dr. David Eifrig and with me is Matt Weinschenk. We are still socially distant, although less intentional about that. And we took a week off last week just to kind of regroup. How was your week, Matt?
Matt: It was good. Yeah. Just hanging out at the house. The weather's nice here. We're trying to enjoy ourselves as best we can. How about you, Doc?
Doc: Yeah, same thing. Fantastic. Got some reading done. I'm reading an interesting history of the CDC and then I'm also reading a book by a Scandinavian econometrician - right up your alley. Kind of fun stuff for me.
Yeah. All right. Well, let's jump right into it. Just a reminder for folks if you have questions, you can contact us at REM@stansberryresearch.com. That's R E M at Stansberry research dot com.
And then if you want to get free updates, we do a daily piece that's a mix of health and wealth, and aptly named HealthandWealthBulletin.com. Sign up there, that stuff is free. Spread the word. I know folks have done a great job of doing that. We'd love to see that. We've had at least 1,000 people learn about our stuff in the last several weeks. So welcome, and thanks again. All right, let's dive in.
Matt: Yeah, let's get to it.
Matt: So I think this week, we'll do a little less, a little less biology, if you will, and we'll just sort of recap some of the numbers and spend a little more time on the economy. You know, a lot of the things we've been discovering is, I don't want to say they're settled, but they've… You know, they're converging on understanding this virus better. So I don't know if there's a lot of new things to add this week. But here's the good news. The death, daily deaths 3-day moving average is definitely on the decline, under 1,000.
You know, fantastic, fantastic results there. And I mean, you can you don't need any math to tell that the trend there is definitely downward. And even with the reopen, I don't know if you call the reopening around May and we're a month out from that, and it's not been going up. So, that's all good news.
The new cases in the U.S., you know, we it was looking like a bit of a plateau through here. But that plateau is definitely heading downward. And again, no resurgence. So all that's looking good.
Doc: I've been on a couple of other people's podcasts in the last week. And one of the things I pointed out - We don't have the graph here, but it's a simple thing. The number of tests has gone up around the country, and so to see cases dropping, so the scenario we pitched for you four or five weeks ago, is that this thing is seasonal. And as we get into the summer months in the Northern Hemisphere, it will naturally go away. And so we're excited to see that that's coming about.
I just think we should open stuff up health wise. If you're older, keep wearing a mask. I mean, these are things that… I just don't think we need to be as afraid of this as once thought and believed.
And you've heard the story… And I don't think we've talked about, about the, the 14-year-old who wrote a paper for her dad and this was kind of the basic fundamental starting point about isolating everybody sick and poor, you know, full on countrywide, state, city, worldwide quarantine. Did you hear that story at all?
Matt: No, I'm not familiar.
Doc: Yeah, we'd don't have to get into it now. We don't have any slides but… It's not a good thing when you've got government officials running their… their plans off of a 14-year-old paper from a 14-year-old whose dad was and is a scientist in the epidemiology space. Anyway, we'll get details on that for you, but… I roll my eyes sometimes.
Anyway, but this is good news. And then your next chart I love.
This, to me shows it all where… I mean, you go ahead and tell the story. What this represents…
Matt: Right, so this is, if you call this is just a striking chart. The takeaway from it is uncertain, but either way. So call it 100,000 deaths. There were, if you break them down by zip code, there were… I'm sorry, county… There were 33 in the green area 33,000. There were 33,000 in the yellow area and 33,000 in the red area.
So this is just a striking visualization of just how focused the deaths were in New York, and some of these metro areas. Now, you know, so what we've been saying everybody is experiencing this differently, which is definitely part of it. Now, the question is, you know, if you're an optimist, you say, Oh, look, it wasn't that bad, it was a localized thing. If you're a pessimist, you say, well, do we still have all this area to go right to have those same rates? Now obviously, there's the population there is greater. But either way, it's a… it's an interesting chain.
Doc: Yeah. And I think it goes to show those two things and, and they could be nuanced. And I would not get worried about this chart, I would celebrate and be overjoyed. Because it shows where there's a whole bunch of people together, there's likely to be more deaths from that. And it's split up this way by a third of the country, you know, right out in New York and Long Island and, and then high density cities, again, northern climates.
And then the rest of the country. Again, adjusted related to population – maybe? But I mean, with California on the West Coast, they've got sun and more warmth, and so I'm super excited when I saw this.
This makes me even happier than I was before. So…
Matt: Okay, so now we're kind of looking at reopening, right. So the previous map shows us that this is not the same everywhere. So we have to look at different locations. So let's see how reopening is going. About a third of, so call it, so these states are still rising in case counts, seven day average, these are declining. And these are flat, so call it a third, a third, a third, right? It's pretty even there.
Doc: And before, before you go, I want to just make a point for people. It's small on my screen, and I bet it's really small for others.
But the height of these are not scaled across these. So these are individual graphs for each individual place. So…
Matt: Right. Here California is at 100,000. Here, South Carolina is at 12,000. But there each state is scaled on its own.
Matt: And also if you if you scroll down underneath the video, there'll be a version as you can look at a little a little bit larger.
So you… so yeah, just look at these for general trends, so California, Virginia, North Carolina - these places are rising. Now, I see a little, you know, is this a spike on reopen? Is this a spike on reopen? I don't know, it's early to tell. I mean, I said we're a month in, but Alaska might be a testing spike, right? Because they, and that's only 476 cases. So that's just noise. Same with Montana. So overall, pretty good. You know, these big declines in New York. So, New York is a big number 300,000, New Jersey is 160,000. So these are the big numbers and these states in decline are sort of masking some of these other ones when you look at the national number. But, you know, the reopen has not gone as bad, you know, as it could have been. It's not an immediate resurgence. So that's definitely a good thing.
But it is all local. So, the question is now…
Matt: What are we going to see with the economy? So here's kind of, yeah. Which is, surprisingly kind of a harder question. So what kind of recovery we're going to see. So people talk about V-shaped recovery, right? Drops, pops right back up, okay?
Or a U-shaped drops and it comes up, but it takes some time, right, it loops around.
Then there's the swoosh, right drops, and then it comes back up like a U, but it takes longer.
Doc: We call that a Nike recovery.
Matt: A Nike recovery. Exactly. So then there's this. Now, I think we're probably talking about between these two is sort of the discussion I'm looking at. But let's go with these other ones.
You know, you get a drop and then you get a spike to make up for it. And then you come back down. That seems to me unlikely at this point, but it's possible. Also unlikely economy never recovers. I skipped ahead here.
I don't think that's the case.
I think never, you can never say never, it'll eventually recover. And then finally, this would be, you know, decline, resurge. Economy comes back then a virus resurges. More shutdown, they would call that a W.
It looks like if there's going to be a resurgence, it will be a seasonal one. It'll be a fall resurgence, or that might not happen, but it doesn't seem like the reopening is causing a problem. So in my opinion, Doc, we're between here and here and trying to decide which one it may be.
Doc: Yeah. So I know we're going to dive into some more economic stuff. And I just wonder though, if the stock market isn't signaling, this one down on the lower left that will end up with this huge surge, way above trend line.
I just… it's fascinating to me to contemplate this. But anyway, I'm, I'm not saying I'm in that lower left camp, but if I had to pick one of these six, that's kind of what the market is sort of suggesting.
Doc: I don't see how it happens anytime quickly though. That's my worry. But yeah. All right.
Matt: Well, actually, so let's try and figure out what are people doing? You know, in previous weeks, we've said polls and things showed that people might not go right out just because things opened up, they might not go right out and do things.
So we've got this great data source from Google. It tracks people anonymized and it determines what locations they're going to, what type of locations and it gives you data compared to what you'd expect from previous year's baseline. So let's look at what's happening. Retail and recreation is the one category. Okay, so this blue line here, it's going, you know, it's zero percent off what you would expect so it's what you would expect. Drops 60% here at the worst, and now we're coming back up, right. I don't see a big inflection on May 1 where things reopened but you know, the incline continues.
For comparison, grocery stores are in orange here. You know spiked here while people stocked up. That drops too, but not nearly as much as retail and now it's about 10% off. So people are out and doing retail and recreation, but it's still off about 30%. Alright, and…
Doc: Which is I mean, that's huge. Those are huge that…
Matt: Yeah, exactly. Right. So, incline: Yes. Shocking. V-shape recovery? No, I don't see that there.
This I put in here. So Google breaks it down to four categories, five categories. One of those is parks. And in my experience, what I see people doing is, yes, they're going out, but they're being cautious they're going to a park, or going to a friend's house for you know, one-on-one gatherings. I know they show on the news people go into bars or the party on Lake Ozark and all these things like that. I don't know people doing that. I don't know how big those numbers are. But this is what I see people easing into things like this. And sure enough, you know, traffic to parks is up 60% over what you would expect. So certainly, people are getting out and doing that. So that's interesting.
Doc: I'm sorry we missed you down at the Ozarks party.
Matt: I would have… Well, I don't know if I would like to be there. I wish I could go…
Doc: I don't think your wife would have let you come down.
Matt: I prefer a quieter party than that anyway.
And now here so now, here's another interesting one. This is workplaces and this you would have to take to be office building, you know, sort of office workplaces, although Google doesn't tell us exactly. But you know, down 50% this is probably Memorial Day, right? Is that right?
So, slower incline but not a lot of activity getting back and, you know, I think in our modern economy, and that is kind of what we're doing. We can we can work from home, you know, there's no reason for us to rush back to the office. You know, there's no reason to take any risk, even if it's small. So a lot of people, you know, in office situations are still staying home. But I think, you know, a lot of the economy can do just fine with that, unless you're, you know, a lunch place near the office buildings and things like that will still be suffering.
Doc: Yeah, so I find this graph interesting, because I would have thought the V and the sawtooth would have been the other way that is, the longer flat would have been the workweek.
And then is this is this saying that people went into work on the weekends? Is that…
Matt: Yeah, so I think so this is adjusted for what you would expect. Okay. So, so this line has the seasonality put into it, right, so you don't see the weekends on here. So here, you would, it's only down 30% because this is adjusted and say, hey, it's a weekend it won't be down that much. So that is down 30%. So the seasonality into the number is then reversed when you put it on a drawdown. So yeah, that's a that's a good observation.
But yeah, that's it. That is, it's the weekly seasonality you want to call it.
Matt: Alright, so let's move on to again, are people…
Doc: Can I can I do this one because I just love I love eating. I love food. I love wine. So this is reverse chronology. Right? So the most recent data is June 1 on the far left column, and then to the right goes over to May 12. And a bunch of cities around the U.S.
Matt: And the globe.
Doc: Oh, globe too. Yeah. There's a few in there. Yeah. Yeah. It's kind of the fine print here. But what it really is saying is that places since it's getting lighter on the left, places have been opening up for eating out and this is from Open Table. You got this data. But really Edmonton, Germany, Italy, München, Naples. That's all fantastic stuff. Right. So that's great news. Good stuff. Happy about that, although I point out those are still down 30%, right?
And so yeah, you say, say see in dark red down 100% bookings over last year. And so yeah, you're starting to see some more pink in here, but some, you know, U.S. is still Miami Beach 80%, down 84% and so to look at the U.S. as a total in a different format…
This is the same data, you know, we dropped, restaurants dropped 100% and now they're coming back. That's great. Still down 80% so this is all you know, this is all sort of mixed results. Yes, people are getting out, but we got a long way to go.
Matt: Gasoline consumption, you know, things opened up on May 1. People went and filled up their gas tanks. You know, this is compared to last year.
We were down. We were at for about 50% last year. We see it coming back up, but still down 20% off last year. So still a ways to go but good signs.
TSA traveler throughput. We were down as low as 100,000 a day. Now we're triple…
Doc: Now when you when you put this in there - Oh, sorry. You said it tripled from?
Matt: Yeah we're triple that 300,000… 350,000…
Doc: Raw numbers, right?
Matt: Raw numbers of people.
Doc: And I was like, wow, that's great. Wonder where it is relative to last year.
Matt: Yeah. And I did this one last as a as an example of what you can
What you can do with a chart right? So this is the same line, but a longer period. And also we have last year. So you know, last year we are doing two and a half million a day. So yes. Let me go back.
Yes, we've made this progress. We're going up.
That progress is this right.
Doc: Still down 92% or 91 and a half percent from last year.
Matt: Yeah. So that's, I think kind of puts, you know, points us to that U-shaped recovery. Recovery. Yes. But I would say we're not in V territory.
It would be very hard to get to V-shaped territory.
And to put that as a whole, this is the current forecast from the Congressional Budget Office versus what they had forecast before this happened. So as of now, we're, we're in here. We're $700 billion off the GDP forecast. And the CBO just, you know, they're not going to get it right. But this is at least what they're looking at. Looks like it's gonna take us about 10 years, 2029, to catch up to what we thought where we thought we would have been prior to this virus.
So again, and actually there's your swoosh-shape for you. I didn't even intend for that to come right back. But that comes back to it. So they're not right. These projections are never correct, but it doesn't look that fast at this point.
The other thing that we look at a lot is inflation. And the other question people have a lot is because of all this money printing, right? Is there going to be inflation? We got the Fed doing all this stuff. We got… I don't know how many, I lost track of the trillions out of Congress, but they're talking about another one. Now, I don't think it's as big as the others, but we'll see. So isn't that going to lead to inflation? Well, at the same time, the economy is doing very poorly. People aren't employed. So they're not out there spending. That's lower demand, blah, blah, blah, so those two things are battling. If you want to use velocity of money in red, it's a reasonable indicator here of where core CPI is. So here's velocity of money now down 25%. You know if that holds, we're talking… we're talking deflation, maybe not one and a half percent, but somewhere in the zero, half percent range.
The Fed has a deflation probability model that is, probability of deflation is now just under 80%. So if you're worried about money printing inflation, it looks like things are going the other way. It looks like the economy's bad enough to offset that. Again, this is all short term.
Doc: Now these are different government modelers than the government modelers that model the COVID-19 right?
Matt: Oh, yes, yes, yes. Yes. That's the CBO or, no I'm sorry, the COVID-19. Yes, those I will… Maybe they're the same modelers, I don't know. I mean, I would assume they find someone with some domain expertise but… But you know, look 80% percent probably deflation we have a little bit, a little bit there. This one never, you know, 30% but never came through.
But you can't just… anyway.
You can't just guess if it's going to be which one of these is going to win out, so.
Doc: Yeah, no it's… Modeling is good to start. A place to contemplate and try to plan from, but yeah it's just… like you said, you worry that… What we were talking about this before I wonder if what's what is bad and has been inflationary as this money is going to larger, bigger pockets and that's why the stock market and financial assets have inflated.
Anyway that's another conversation but yeah.
Matt: yeah and at the same time so it's funny, well it's not funny, but um, core CPI is down and then but the things most people are buying, you go to the grocery store and a lot of things there are more expensive right? Especially meats and things because of their you know, it's not a monetary thing but it's a supply and demand thing on those on those assets. And the basket, right, the CPI is built on the basket of what people typically buy. People don't buy what they typically buy now, with that they were they used to the whole basket is changed so I don't I do not envy the people trying to measure CPI.
And do you keep it consistent so that the number there consisted you change it to what people are buying now? Oh my god. Yeah, yeah. So I don't know what that… we'll probably see a bigger divergence between, you know, actual inflation, mythical inflation that you can't really measure and, and what the CPI is showing us. And I can't even tell you which direction that's relationship is going to change but…
Quite, quite wild. Okay. So more on fiscal deficits and fiscal spending. This chart will take a little explanation, but I find it very interesting. Okay, so let's just look at this access. Forget this right now. This is the U.S. deficit as a percentage of GDP. So last year, so this year, we were going to spend 5% more in government spending than we took in in tax revenue, right. And that puts us pretty much you know, in the pack of all these other developed countries, France, Italy and things like that. They're in the zero to 5% range.
But now this axis itself is what it is now in April after our stimulus packages and things like that. So we've gone from we would have been here on 5% we've gone over to 20%. We've jumped out of the pack so, so this is a year ago, this is now. We're totally out of range of the usual suspects here, the usual developed nations. Started weak, got ourselves weaker.
So, you know, I know people are worried about this in the long term, you know, modern monetary theory says we don't have to worry about it, but we are now outside of the international consensus.
Doc: Certainly strange relationships at levels of sigma or deviation from a pack and a norm that are just mind blowing. Yeah.
But the market, perhaps because of that spending, you know, we know the market recovery has been strong. But let's look at just how strong it is. Right? Here's your average recovery coming from 100. Here's the average of the last 16 recoveries, here's their range of the last 60 recoveries from the 90th to the 10th percentile. And here's this one. I mean, this is hot and heavy, real fast, and it's coming from a different place, right? It's coming from a government or from an economic shut down, and then the economy coming back.
And the decline was particularly fast. So some of that may be justified, but boy, that is well outside the range of recoveries of anything we've seen before, you know. And if, if this is the total recovery, right, not a lot of upside. Maybe we've gotten there or can this continue to go up like that? You know, that seems unlikely. So this is not just a nice little boost in stocks. This is very rapid recovery.
Doc: Yeah, and you know, the one thing I would remind people is it's not… The grayed out areas are not single path. So there's not one path that went on the top line of the gray and one went on the bottom line. These are at one-month periods from the trough data points. So there could have been something that went along, didn't go much up at all for six months, and then went and is the highest point at 12 months. Like there's, there's multiple paths here. So, but it is worrisome that we're again, outside of, you know, a couple sigmas beyond the norm and doesn't feel like that makes sense, you know?
Matt: Yeah. And let's see.
Oh, here's the… This might be our last chart. But here.
Doc: Speaking of doesn't make sense!
Matt: Yeah, speaking of doesn't make sense. Get ready. Okay, so let's just look at the top chart.
This is the S&P 500 in blue, this is the S&P 500 expected earnings. Right? It's, you know, earnings. Stocks follow earnings, right. Okay. The correlation between these two numbers is 0.9, right? It's 90%. correlation. Earnings are what drives stocks. There's nothing revolutionary there. So now take this little window here and expand it down here. That's what we're looking at. This is the S&P 500 now. And this is earnings expectations now. So the correlation up here is 0.9. Correlation down here is -0.9. So the basic lesson is yes, we know that stocks have decoupled from earnings, but they've they haven't decoupled - they've completely flipped, they've completely gone opposite.
Matt: The counter to this, if you have one, is the market's not looking at 2020 earnings, the market's looking at 2021, 22 whatever. And if everything comes back, you know then that's what you should be looking at. You know, you tell me. I mean, I knew that it was bad. Did you think it was the correlation had gone from 0.9 to -0.9?
Doc: Yeah, I mean, I don't understand why the S&P 500 has gone up so fast and hard because even before COVID hit… You know this, people know this. I've talked about it, I had concerns and worries about economic growth, had concerns and worries about a lot of different things. Debt. And none of that really changes from a functional economic point of view, that is businesses and consumers interacting in the United States and in the globe. But what concerns me though, is this wild card and it's a huge wild card, people say don't fight the Fed and all this, but this huge bucket of water or gasoline, whatever you want to call it has been thrown into the mix and lit.
But I don't think it's people who have worked all their lives, saved all their lives. Guys like Warren Buffett are not buying it.
I heard the other day Bill Miller is in buying up airlines left and right. And you know, you remember I thought Miller kind of died away 10, 11 years ago when he completely missed that collapse. And so it's hard not to follow the richest people in the world. And it's also hard to imagine when you hear stories, that brokerage accounts, among very, very young people with very, very little money.
I mean, it's in the 10s of hundreds of thousands of new brokerage accounts opened up and people buying stocks and I think because the press and everyone says, you know, you always have to be in stocks and what's the phrase? TINA? T-I-N-A there is no alternative. Interest rates are so low that you got a TINA and TINA means you got to be in stocks, but I like for what? I mean if these are earnings expectations and the stock market was to follow that then either earnings are going to explode upward. I…
They, I don't know. They're not going to explode upward, they're going to go up to where they were before and I didn't see when you looked at stocks outside of the handful of the big ones the FAANGs for example, you know, half of the S&P 500 wasn't making money, it was losing money. So I…
I don't know how this suddenly reverses and changes. Do you see it?
Matt: You know, what it's sort of done for me is solidify sort of the lessons we've already always had, you know, we… we've always kind of focused on quality but now you look at it and you know…
Let's say we've always tried to have humility and say we don't know where the market's going. So buy businesses, the stocks of businesses that are good, that earned positive returns, that are robust to different economic situations. And now you look at it and forget about like, just having sort of a sense of humbleness and saying, I don't know where the market's going. Now, let's just say I do not know where the market's going. I really… And nobody thought…
Doc: You thought I didn't know before, I definitely don't…
Matt: Now I really don't know! So the point, you know, it just and so you go, well, what do you do? And you say, well, you know, what, it still makes sense to buy those stocks, right? It still makes sense to buy those companies that have a good return on equity that have reinvestment opportunities that treat investors' capital well, and, you know, the multiples are going to change through the years that they get assigned.
But barring a huge, huge, you know, downturn, though, those will do those who do well. And sometimes that's, you know, Microsoft that's priced dearly. And you know, we did the Home Depot recently, and that's been doing well.
So those are the kind of things you want to do. The other thing that we always look at is if you're talking about your overall stock exposure, where… How much do you have in your index funds and things like that, you know, you don't have to be all in or all out. If you are cranked up to the max right now, I think that sounds that sounds crazy. I mean, it's been it's been working, but again, stocks are going back approaching highs that they had, when stocks were too high to begin with, in a remarkably healthy economy. And now you've got, you've got COVID, which, you know, seems like we're moving past and recovering from but, I mean, we're not even going to get into all the protests and the China trade arguments, and the international tensions and the upcoming election and all these things that are just sources of uncertainty.
So how they're again approaching those highs that were already too high is just is just wild to me. But that's where they are.
Doc: Yeah. I mean, I, you know, a couple minutes before we started this up I know I told you I said Man, I, I saw this chart earlier this morning and was contemplating and it is time to just go all in and buy one big, fat put option on the S&P 500.
Matt: What's your expiration date on that?
Matt: Yeah, here… what do we, what are we buying? Let me write it down.
Doc: I just said I threw it out, just telling the listeners… Folks that have joined us that that was the thought when I saw this chart. And you pointed out when we were talking beforehand, maybe it's the other way, maybe this is signaling, you know, that things are really are going to turn around. Look at that lower left thing that made me wonder. Maybe things just so much cash and flow of money now will happen. Weeks of being locked up and maybe we solve politically some of the challenges we're seeing. I, you know, with an election coming as well, I see more chaos.
Going into the fall, I see the potential for more governors, state level authorities that have done just the strangest authoritarian-like actions. There was a funny piece I saw, I read this morning where there literally are some states that have the governor has said in bars go into bars now, but you can only sit, you can't stand. And then there's other states that you can stand but you can't sit. Or sit you know, you know, I'm saying…
Matt: Evidence-based right?
Doc: Evidence based. That's what I love. Oh my gosh. Like I said, I, my fundamental belief about it is you just need to say, you know what, we're in this local community and area. We're just going to do our own thing. And if the police come to, you know, ticket us and arrest us or whatever, we'll fight it and everyone will fight it together. And we'll elect officials that change it and make laws or at least say at least find district attorneys that go that doesn't make any sense. I mean, that's my hope in this. I do like America. I think it's a great country. But I, I've been reading more and more about the history of and the flow of these things, how people actually get punished for stealing and misdeeds and violation of rules of law and all this. And it really kind of depends, apparently, on the district attorneys, and how good they are at disciplining. You know, like police officers they've continued to violate over and over and other things like businesses. In Texas, you know, the woman that was saying, no, this is my livelihood. I've got to stay open with people are wearing masks. We come in.
Anyway, I'm hopeful, but this this chart man scares the daylights out of me.
Doc: Alright, is that it?
Matt: That's it. That's it. I think so.
Matt: Yeah, that's all we got for charts. Yeah.
Doc: Yeah, questions. REM@stansberryresearch.com. And free updates you can get at healthandwealthbulletin.com. Sign up there. You just give us your email address if you're not already getting it, it's free. We don't bombard you with too much stuff and if anything, it gives you a taste of our writing and the content and hope that you will become a, an actual paid subscriber of our other stuff, which we feel really good about.
And that's all I've got, madam. I feel like there's one other thing to do, but maybe you've got it.
Matt: Um, sounds like we will be back next week, I believe. Thanks for giving us the week off.
Doc: Yeah, I may do a bunch of, maybe do a bunch of questions next week as well. That could be fun. So
Matt: Yeah. All right. Good talking to you, Doc.
Doc: All right. See you, Matt. Take care.
Matt: Bye, everyone.
Doc: Bye bye.