Stansberry Research

Doc Eifrig's COVID-19 Briefing No. 13

June 25, 2020

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.

Dr. David Eifrig: Hello everybody and welcome to COVID conversation No. 13. I'm Dr. David Eifrig and with me, again socially distant, is Matt Weinschenk. Matt, welcome back. How's your week?

Matt Weinschenk: Good, good.

Doc: Good. Well let's jump right into it.

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Alright, let's dive right in. And before we jump in, I want to just highlight this when I saw our slide deck. I was super excited. I'm excited to hear kind of Matt's thoughts today. And I'm looking forward to kind of the bouncing back and forth, as always, but jump in, Matt, let's go.

Matt: Let's see what's happening. Well, there's certainly been a change in this chart.

Positive case tests definitely shooting up. I mean, that's no question there. So let's see what's happening there. We've been talking about how this has become a local phenomenon that nationwide chart hasn't been telling us a lot for a while.

And we've been looking at it this way. We've been looking at each state. We have our rising states here, that number is increasing by a few. And some of these, you know, California has had it steady growth, but the real standouts right now are Texas, Florida, Arizona. And we'll get to some of those a little bit more in depth. But what we're doing here, let's look at the same sort of thought a different way.

So this big blue line here is New York and that had their big surge and it's coming down. And that was driving a lot of the overall decline or flat cases. Meanwhile, these have really started to rise. And now we're seeing the new cases here overtake the declining cases here. And so our overall number is now reflecting those.

Let's do it one more way. Okay, here we have the four different regions of the U.S.

Northeast had their big surge, they seem to have gotten over it still declining. Midwest doing okay. But the South and West here, you know, they never had, they haven't had their peak yet. So, again, people argue second wave. I mean, that's semantics. New York, the Northeast had their wave. The South and West are having their first wave. So we don't have to get bogged down in that terminology. But the number of cases are on the rise.

Another way, because everything even pandemics has become political. If you divide red counties and blue counties, this was absolutely an urban northeast, blue state problem for quite a while, but we've moved past that. And now the red counties are starting to see the effects of it. So whether, you know…

I wonder Doc, so there has been a political divide here, between sort of, I don't know, belief, I don't want to say belief, but just the general opinion. And I don't know if that was because of personal experience. Because the blue state people were experiencing it, or maybe it's just you know, where we're taking our marching orders from our parties who we've pledge fealty to, but maybe it's gonna flip. But people have been experiencing different things in different counties.

Doc: Yeah, you mean to say that the COVID the virus can infect both Democrats and Republicans. Next thing, you're going to tell me that libertarians can get infected as well. And really?

You know, I think this is a case of reminds me a little bit of some of the data that we saw earlier, I think you showed us and maybe COVID one or COVID two conversation, where the 1918 pandemic, how its spread from East to West. And I'm not saying that exactly has happened because this has not just been Southwest. But as you point out, it's been also, you know, South and the West. But what I want to maybe suggest is, those people have gone out and about more and interacted more. But they've also and I think your next slide will kind of get into this…

It's actually warmed up. It's gone into summertime. And so that means people go out and interact. Guess what they do… Then they come back and stay inside with people. And we know that that increases infectivity, and I want to make I hope I'll make the case today. And you and I might see this slightly different. But I want to make the case again. And there was a paper that's just come out a favorite of mine, a Stanford Prof. And we don't, it's wording that I'll share it towards the end. But that the danger of this as a killer for young people, let's say 70 and under is very, very minimal in my opinion.

Now, of course, we don't want to overwhelm and I'm not recommending that you go and visit grandma and grandpa if you're sick so that they pass away and die early. I just don't think we're ever going to see the things that folks worry about, which is overwhelming ICUs. Overwhelming intensive care facilities that have ventilators. And then even that initially in one of our last slides you and I were just talking about this minutes ago, we'll talk about Italy and the problems that they sort of face perennially that make this thing seem much worse than it is.

So in spite of this the cases, there's worry and concern, but I would just tell you that it's affects everybody and just continue to be common sense about this. And if people have questions you can write in and say, What do we mean by this? And Come on, Doc.

Matt, what do you think of my comments there when I say yes, it's rising increasing. Let's not sound the panic bell.

Matt: Yeah. So it depends, you know, on what you're what you're trying to address because on one hand, again, you know, we're going to get into all this stuff on one hand. No, it's not as deadly as we first thought at when people were extremely panic, right? Okay, that's essentially an established fact.

And if you are policymaker, that's one thing, But what my viewpoint is, and what I think we're trying to do, as you know, financial and investment analysts here is say, what's going to happen, right? So what is going to be the reaction? And what I see from that lens, whether we should be concerned for our own personal safety or not, I see a case counts rising. We're going to see death counts are not going there yet, but maybe they do. And all these things are raising the chances of additional shutdowns, a longer struggle for the economy. And so that's the thing I'm trying to chase down. So people's reaction to these things whether rooted in a good understanding of its mortality or not, are what's what I'm trying to figure out. And so I think that the news on that front is not good.

Doc: Yeah. I think you hit the nail on the head. The question is, how will government respond to this news and data? Will they panic? We I already saw today that New York and New Jersey have declared people who traveled to other hotspots now when they come back, they have to do 14-day quarantine. And I, you know, to me, I just think that's absurd. They ought to come back and yeah, don't go visit old people who can really get sick and die from it. Yes, don't do that.

But quarantine? Oh man, especially if you're asymptomatic. You know, people who are asymptomatic are some studies on this, but it's got some construction going on here.

Anyway, yeah, those kind of my thoughts.

Matt: So let's just say, okay, there is a difference along political lines of what's happening in the country now. Is that because they didn't shut down long enough is that because there's our battle over masks? There's a lot of things that could be. One of those things is we've talked about the seasonality. And right now, you see, so these are cooling days so that the hotter the hotter states are over here, and the states up this way are having bigger breakouts. So Arizona, Florida, Texas, Louisiana.

These are the hot states. So what's going on with seasonality here? And the answer is, it's partially maybe you know, the seasonality is not enough to choke off a growing spreading virus. But if you're as hot as Arizona, you're actually inside in air conditioning, which is worse condition. So while you may be a hotter state, and that makes it harder for the virus to spread, you might be inside in still air, you know, in a cold room, and that is helping the virus spreads. So that could be part of the explanation.

So again, is it because Arizona and Texas have Republican governors? Or is it because they're in air conditioning? You know, there's a lot of things going on here.

And this is the reproductive rate. This is whether the virus is spreading.

Here's where we are right now, if you're at one, you're staying flat. If you're below one, you're decreasing cases, you're choking off the virus. And you can see, you know, some of these states are definitely you know, even 1.2 or so means you're going to have a pretty rapid spread, pretty rapid doubling rate.

And the important thing to note is that two months ago, I'll be I'll go back and forth on these a few times. Two months ago, it looked like this, right? We're doing pretty good.

If we stayed at that level, the virus was going to you know, go away.

But you know, all these states on the right have increased past one again two months ago. So there's a lot of different ways to look at it. You know, Doc, we talked about testing a lot.

You know, there is an increase in testing. I think I don't think that's enough to explain some of the rates of growth we're seeing. But I mean, this is New York's positivity, right. Go ahead, Doc.

Doc: Yeah, just this is I wanted to, to show folks Matt and I go back and forth behind the scenes about this. And he just alluded to that. I just wanted to throw this in there to show you that in New York City and New York state, that the positivity rate on tests given has both dropped and is now leveling off. And to me, that's a good sign and a better use of testing. One of the things that I believe is fundamental to good medical care is you only test if it affects your treatment. And when I say treatment, treatment could include in this case, quarantining somebody or quarantine in yourself or staying out in nursing homes, and so on and so forth.

All of these rules have been violated in New York state, in my opinion, and New York City. And but now we're getting down to where it does make sense. And this to me is a positive thing in that it's actual proper use of testing and then we'll be able to maybe even contact trace in the area because more people have it. And then people who have symptoms will get tested and we'll be able to track this down. So I love this chart. That's kind of all I have to say.

Matt:  All right, so let's look at some of these trouble states.

This is Texas. All right. here's the daily positive rate. Here's the number of daily positives and it is outpacing the daily tests, which also is indicated along this bar here. So, you know, in here we had 6% of people, 5% of people being tested, were coming up positive, and that's jumped up to 9%. So that's, that's not a good sign, it's an indicator, these are real, real cases. And the hospitalization rate in Texas as doubled in the last couple of weeks. I mean, this is, so there's definitely a real increase in cases.

Deaths have not had so much of a surge and we're gonna see that sort of again and again, and we'll talk about that, as we go along. If you take the Texas data, you can see what the fatality rate is.

So this gets a little messy, but here's your age groupings. And here's the fatality rate and this is not adjusted for any sort of lag that may happen. But you can see a lot of the, you know, younger age groups don't have much of an effect.

You know, Doc, I'm not too excited 4% of 60 to 64. 2% of 50. I mean, those aren't stellar numbers. But, you know, these age groups are safe, you know, up to 50.

Doc: I mean, so what I would tell you, Matt, is that the folks who are in those group 50 to 59, 60 to 64, you would be shocked. I'm actually shocked. It's as low I don't say as low as that, but the number of folks who are 50 and over that have multifactorial things, think of heavy smokers. They're certainly more than 2% of the population is diabetic, and two pack, three pack a day smoker. So I would actually say that's a good sign that the fatality rate – and I don't mean to say that that's a thing that people are dying – but I understand we understand, oh, it's really at 70 where it jumps up. And again, I want to argue that some of these fatalities are clumped in lumped from the CDC's pitch to label anything that COVID-19 is associated with, call it COVID-19 deaths.

That's again, another deeper discussion. But yeah, I agree with that. It makes me nervous. Being in that those brackets, you know, under 64 I'm like, wow, okay. I don't really want to get COVID and roll the dice for, you know, one out of 14. It's not good, you know, one out of 16. Yeah.

Matt: So, Alright. So let's go to Arizona.

Yeah, hospitalizations, again, have doubled. Cases have I mean, notice that five times over the past few weeks, tests are going up. Test positivity rate is going up, which suggests it's not just an artifact of testing. Arizona in definitely in real, real trouble.

We don't have the same data here for Florida, but this is something we talked about last week, and I think you'll see this across all the states is that the number of people with cases are skewing younger. Now is that because young people are going out and they feel safe? And so they're the ones who are catching it?  Now, I'm sure that's part of it. Is that because a couple months ago, we were only testing people we were worried about, so we only tested older people and now we have more tests and now we're finding more young people? I'm sure that's part of it.

But there's definitely an artifact where only younger people are making up a larger part of those new cases. And that could be good news as far as why deaths haven't followed. So, you know, for the reasons why deaths have not followed yet could be better treatment, could be younger people, could be just a delay. And it's going to be all those. I mean, you're not going to see numbers like these in Arizona without some increase here. I mean, it's not going to be magic. But as far as what's the reaction going to be? What are governors going to do? What are people going to do?

If we see that death number go up, I think we're going to see some bad headlines. And I think we're going to see some more volatility in the market and hopefully, you know, not so much in the economy. But…

Doc: Yeah, I agree with you all those thoughts. I see a future where you might imagine if people want to get into… Well, I'm guessing airlines and other places will probably test everyone before they allow you to board. I think it's just a matter of time someone will offer the test up at you know, pennies over cost and then restaurants will do it. Sporting venues. I mean, I can imagine a world where, I think, you know, go on to star trek where it eventually becomes a scanner, they just go, and they know that you do or don't have it in your, by looking at your nasal passages for these diseases. I mean, you know, technology, the future is coming, you know.

And so back to your Florida thing. I think that is just a sign of more and more people out and about and then the people who are out and about are tending to be younger, and they're interested in being tested. And then also having maybe mild symptoms and go all, you know, test me and see. So yeah, yeah, I love it.

Matt: All right, so, okay, so let's talk about this. Again, we're thinking about the reaction to these new cases.

And we've talked before, it's not just about reopening, it's about people's behavior. So here this is this open table data again of the number of diners. And we saw that it over last year, so we saw they dropped restaurants down 100% and then people started coming back. And now we've got this, this news about second wave and people have, we've gone back down we got back up to 40% off of last year we're off 66% again. That's the U.S. Now look at a problem area.

Same data but just for the city of Houston down to 100. Houston went rip roaring back they were only off about what's at 15% from last year. So they are almost back to full capacity, but when you see those headlines when you see those hospitalization numbers now they have stopped going to restaurants again. So to me this is worse than, you know, have we stayed around here because businesses spent money to open back up they got people back people got off their extra unemployment checks I'm sure and now we're headed back in the wrong direction.

And you know, again, Doc, I think after all this I don't think we need shutdowns. I think masks and distancing can do it. So we don't need to go that far. But I have a feeling that that's where we're headed.

Doc: Yeah, I mean, I'm less concerned or worried about it, especially given the light of the data you showed in Florida, younger age getting it. That means almost next to no growth in deaths. I think you will see some spikes in these places like the Southwest, Arizona, and folks who have had to move inside because the heat, Texas as well. And then if those folks stay indoors with people at risk, older folks without wearing masks, yeah, you're going to see an increase in death rates. But I don't think it's going to go... I just can't imagine going back up to where it was.

I would bet almost everything that that's not going to happen. But like you said fear, the fear driving that Houston numbers down like that is just… I'm shocked it was that fast actually.

Matt: Yeah, and you know, let's just look at it again.

It's really one week, I think… Oh no, this is daily. So maybe it's going to come back up, maybe that's a little bit of noise. But that's what we're seeing right now.

Matt: And again, deaths, you know, here's our death… common death chart. You know, over 500's not great, but it's still made progress and, and hopefully that doesn't follow the case numbers.

Matt: Oh, you're on mute, Doc. There we go.

Doc: Perfect. Thank you. 

Matt: Yeah.

Doc: This chart here is showing a bigger picture of tests, total confirmed cases and deaths, and doing it on a log scale. And so if you can kind of eyeball it and see the slope, you can see the testing is going up. Total confirmed cases, is not going up quite as fast and then confirmed deaths. Not as fast as confirmed cases. So all, to me, this is a very positive thing.

I'm much more hopeful about this even than I was last week. But the fact that headlines and fear driven in the Houston OpenTable numbers that blew me away when I saw that last night. So.

Matt: Yeah. And this doc was one of your most interesting charts.

Doc: Yeah. And so just to quickly talk about this, you can see this is case fatality rate. So this is number of people dying, divided by confirmed cases. And what I wanted to show you is that Italy is on the top curve, the United States is the next one. United States is coming back down to where the world average is kind of closing in on Germany. But just to highlight Italy, Italy has perennially had problems with

health care and areas, and in the northern part of Italy, where both there's a larger Chinese population, there's a larger and have traveled from China so brought this in. There's much, much more high… a higher rate of smoking for sure, long term smoking, older age, air pollution from the industrial area of northern Italy. And even in regular influenza seasons, winter time, influenza-like illnesses, they push the envelope to… running out of nurses, running out of physicians, running out of ventilators.

So that, to me, is an anomaly that we need to explain away and with science, and labeling deaths. We've talked about this before, if everyone gets labeled COVID-19, you could very easily see a difference in a double of case fatality rate. I mean, that makes no sense from other than the things I've mentioned those factors but…

So anyway, looking down at the bottom, there's this fascination about how South Korea and Iceland were able to control that and have a true case fatality rate that looks to be under 2%. So, to me, I just wanted to share this curve with people and show that the United States it is going down. There are other places where they've had stricter quarantine philosophies and tracking and tracing philosophies. Iceland is one. I mean, they've known the genetics. I think they did full populations in Iceland back… I mean, am I making this up? 20, 25 years ago?

So they've got great data and great control over their population, and they're not many people there. So if you hear that Sven is sick, maybe it's not a spin, I don't know Iceland, Iceland. But you know, you can control it and you don't go and visit him. And he's, you know, three miles down the road. So and do you have any thoughts on this at all?

Matt: Yeah, I mean, it's interesting to see you know, this number, these numbers out of Italy and the early Wuhan, when Wuhan was really overrun, you know, completely unprepared you know? If I mean just, it's hard to even go back and remember how scary it was to be like, is this? Is this a 10% fatality rate? Is this… what if we had 14%? It would be, you know, hysteria. So it's as bad as all this is. And you know, the people who have been warning about pandemics and things like that, I mean, it's just, it's just pure luck that this is 2 or 2 or 4%. And not 10.

Doc: Yeah, so the interesting thing, too, I kind of want to highlight this. You know, you say, we say, it's good, it's 2%, it's 4%. What I want to point out again is it's higher in older population. And this buddy of the Stanford professor Ioannidis who was controversial, some some are saying now his research has been the most read and cited research in the history of science. And this was a guy who's very calm, cool, collected.

Is a medical bioinformatics guy, ran a group, runs a group at Stanford, highly respected until he started saying things like, Hey, everybody, let's look at the data. Imagine that, Matt. Like, you know, you and I sort of a believer that. I think I've made my living now I'm doing that. And you certainly are as well. But he just did a paper. It's in pre press. And he looked at the under 70-year-old case fatality rate, so under 70. And he looked at hundreds of studies now that have been compiled, put it all together, and this is the kind of thing that he does. And the range from the studies he looked at were again under 70, published data already that he used, from zero percent, which you might imagine there's some studies there that no one was above the age of 70. Zero percent to 0.26%, with a median of 0.05%. This is under 70.

So just so you know, 0.05 is half of the median seasonal influenza case fatality rate for under 70. So I want to highlight again, this is not as deadly as influenza. And for under 70 it's really, really safe. Again. This is this is a guy who's, who does nothing but runs a big huge Center at Stanford, does this analytics. He's publishing this.

I don't know. I don't know if you'd heard that yet, Matt, or seen that, seen that paper, but I just saw it last night. And again, I was relieved by that being under 70. And that I have to worry about influenza, which I have started to do. So. These are, this is just another thing to worry about. So.

Matt: Yeah, and I think it goes to point out how it's, it's tricky to convey this nuance some time, and we do, you know, I think this is a time where, you know, you don't have to talk about maybe government coercion. But this is a time where we can have collective action, we can do things to, you know, help everybody and help minimize this thing, even though but at the same time, you… if you're under 70, you don't personally have to live in fear at this time. Right? So, and that's tricky. I mean, because the way to motivate people to do something, if you wanted to, would be to have them be scared about it. So you, you want to balance those things. And health, maybe that's what we can do. I mean, we get into a lot of the nuance, but yeah, most people don't have to be personally scared. But there are things that we should all be doing. I think we don't have to shut down and we should wear masks and so on and so forth.

Doc: I mean, it's funny. If I were Governor of New York State or New Jersey, instead of saying people who come back from hotspots have to quarantine themselves. I'd say people who come back, if you're older than 70, don't let your friends or family in your freaking house if they've traveled away like, because they can kill you, right? I mean that… we know that, we can see this. So that would be the message. Not that people coming back you know go quarantine in the house with grandma and grandpa like no, no keep make him sleep in the tent in the backyard.

Matt: Alright, so what are people doing it we've looked at some of this Google number before. 15% down on retail and recreation, but that's, you know, an improvement. If you want the economy to pick back up, it was down. 40 transit stations, public transit probably is still not the best option if you could avoid it. Workplaces is pretty flat. People really aren't going back to offices because a lot of the modern economy it's not necessary.

Groceries, even people are still staying home a little more than normal. And again, this is good, you know, parks and outdoor activities are pretty safe for pretty much anybody. And we see that people are actually doing that more than they were last year. So that's a good thing.

And digging deeper here, this is a study from the Chicago Fed. Yes, the Chicago Fed. And it's three charts in a row. So let's just see this is charting people's movement and how different it is from the baseline. You can see we dropped about 60 or 80%. Now we're back up to 40%.

But the point of looking at that is to see how mobility relates to the spread of the virus. And obviously, you see, you know, the more people move, if we're at baseline, their reproductive rate is higher. But what's important about this and interesting is that it's not a linear function. There's some concavity here, meaning on this scale here, if we stopped moving, we can we can choke off the virus. Okay, we can move a little more. But as you go back to normal, the effect is larger and it contributes to more viral spread.

Doc: Can I, before you dive in there? Can we just review the vertical axis? And that one is this R value, which is the reproductive rate of spread of the virus in a population, right. And so what we worry about, like, I think the pandemic in 1918 was thought to be… have an R value of somewhere between what, 1.4 and 2.5, something like that, right? We're not really sure, but somewhere in between there. And then I think the last, the swine flu was somewhere around 1.4, 1.5. So that gives you an idea. It's how many people are infected by a person with the disease, right? Does that…

Matt: Yeah, exactly. Yeah.

Doc: And so you're showing here on the x axis, that this is people getting out and about more and then this starts to spread more.

Matt: Yeah, that makes sense.

And then going back to deaths have not followed the rise in cases, the same data set sort of suggests, you know, what is that lag there? And to suggest that deaths, we'll see them peak somewhere 10, 15 days after the cases rise. So this is really saying R is going to go up based on cases and then R is going to go up based on deaths 10 or 15 days later. So that's just trying to put some sort of window on what that lag may be.

Doc: Yeah, and I'm hopeful that this… If we do see cases peaking again, even with cases rising, that because it's in a younger population, we actually won't see… We might see we might see an increase but the lag and the peak will be much, much longer and much much flatter than this. So that's what I'm hopeful for. But yeah, I love this chart as well.

Matt: Yeah.

Okay, so we're fully into the economy now. And we're talking about V-shaped, not V-shaped. Here are two things that look like a full-on V-shape recovery. And those are… So this is Google searches for autos, the sales haven't fully come through, but the blue line is essentially telling us what people would search for to buy a new car at this rate, they totally shut down, and now they're back even higher than they were before. Right?

So you're going to see a lot of… if people need a car, they kind of need a car. So you're going to see a lot some quick boost here to sort of fill that back in. And mortgages for new homes, right, not just refinance, same thing, right? They came through and I you know, I was selling a house during this time and it was very, very quiet. But if people are out there, they're going to move there. They're now up there at higher volume than normal. So there's this surge that's actually going to have to tail off a little bit. But these are two V-shaped recoveries that look, that show that people are out there and do the things that they needed to do.

Fiscal deficit. We can do this one quickly, Doc, you can tackle this if you'd like.

Doc: Oh well yeah, I want to share that when we were looking at this earlier you just… you I don't think I've ever seen you shake your head and go, man, this has me worried. Me as in Matt Weinschenk.

Matt: Yeah.

Dpc: And then when Matt Weinschenk's worried, who's never worried that's got me worried.

Matt: You know, I don't even know if I'm worried about repercussions. But it's just so… it's just so irresponsible. I mean, I am actually in favor of stimulus to help keep people afloat. You know, this, these extra unemployment runs out at the end of July and I think that they need to extend that, extend that soon.

But I'm just so disappointed that we left ourselves no flexibility to deal with these things when they happen. So our fiscal deficit, 25% of GDP for the year is just abominable.

Doc: Well, and again, you know, when you look at the spending and the deficit in the increase, I saw something about, I don't know, on the weekend, maybe four or five days ago, and it was saying that somebody has gotten very, very smart. I think it's Green Bay, Wisconsin. And they said, you know, what, they're gonna figure out a way to take the money they're getting from the feds, and instead of applying it in the way it's supposed to be applied for da da da…

They're just gonna give it to the unemployed as payment, like gonna make them do work for the government, and sort of hire them I guess, would be the way to put it. Through their agency and it's kind of a works thing. But I've always contended, that's a great way to, to do it. Right. Why… And if you can keep your administration costs down, I mean, that's how we should be spending money that we're making up out of nowhere. Is to have, how do you say this? People perform for it, right?

I mean, if I was out of work, and able bodied, I'd want to be able to work to make money and if it was the government that was supporting it0 because there wasn't a local job that I could pick up, I personally would be okay with that. And as somebody who is a taxpayer, I prefer that over just giving someone to sit home and do nothing, or sit home and make more money as the $600 a week has been able, you know, has kept people from coming back sooner and so this just goes to again… I roll my eyes, you roll, you worry, I worry, government and institutions, Congress passing stuff, they just have no clue. And they do it to be the first to say they're saving the country or the first to get out of the shooting and do this without any care and without any, what shall we say?

Sensibilities related to actually being out in an economy. So I don't know. This. I don't know what to do with this. It's got me really, really nervous. But I'm happy to see that some states are going, Hey, wait a second. Let's take this money and actually get people to do stuff for the community off of this money as opposed to just…

Matt: Yeah, and I think as long as this goes back to 5% or so by 2022, I'm not worried. I think we can handle this but never know what's gonna happen next. Right?

Doc: Yeah, I mean, and I said this is related to the Fed and you can you can keep, leave this up. But I was telling you I was reading a book by one of the Samuelsons. And it's just… it never, never ceases to amaze me of how often the Federal Reserve, how often governments, how often presidents, political leaders, and I've been studying mostly United States around inflationary times at the moment. Just they think they've got it right and I think they know what they're doing. And I don't even pretend to know that I would know what to do. But all of these things that you're taught to believe, philosophies, you know, Milton Friedman and monetary theory and, you know, what's, what's the phrase everywhere and anywhere, you know, inflation as a monetary thing. Like all this stuff is just so… it's theoretical and doesn't ever seem to work and they don't ever seem to apply it with the right pace. And I don't know what what's your take on that and my comments saying that. Do you… You think that's true?

Matt: Well, I mean, I think every…

Doc: It's a great country, right? I mean, I don't want to…

Matt:  Yeah, no, I mean, so, you know, it's always, it's always different and that, you know, but so Bernanke, he was an expert, one of the foremost experts on the Great Depression. And he knew it inside and out. And then he is the one who was sent, you know, to face the financial crisis. And I think that the knowledge that we gained from something like the Great Depression helped us get through that better, but not perfectly, because it was different. And I mean, you know, we can look at the flu pandemic, we can look at past recessions, but, and we can take lessons from those, but it's not going to answer perfectly what's happening now.

So I think there's progress being made. But these are highly complex systems. And, you know, just even the interconnections and the way the banking system works, and all these things, make all different levels that haven't been studied. And, you know, economists, prior to the financial crisis would had all these models but they didn't know, include like the financial system. So there wasn't a mechanism for when liquidity locked up like that. So they just weren't prepared for it.

So we'll see how we can handle this.

Doc: And I was gonna say, the mortgage pipeline model, the mortgage pipeline hedging, which our group at Goldman devised. No one had in the model there is prices of real estate, homes went negative, how did that affect the value of these securities. Things like that that people always think, real estate does this or real estate does that. Not modelling. Interest rates… I mean, how much would you have bet eight years ago if you had met me and said, alright I heard about you, Doc. I heard you want to make a $1,000 bet that interest rates would go negative at some point in the future. Would you take that bet?

Matt: Would I say…?

Doc: If I said, hey Matt I bet you interest rates are going to go negative. $1,000. Would you have taken the other side of that bet? You said there's no way they're going to go negative.

Matt: It's hard to think back. Now I feel like of course they would have, but I don't think at the time I could have made that jump.

Doc: There's no way. Yeah. So we were even talking about – and I have to talk to Havenstein about this – but option models now are… People are starting to model options with negative interest rates, short-term interest rates. What? Crazy. Anyway… We digress.

Matt: Yeah, so heading back to the balance sheet. Obviously the Fed has been supporting things. So this white line, it's gone, what is that? $4 trillion to $7 trillion. Is that right? That can't be right. But the growth here, the blue line, it's actually gone negative. So the Fed balance sheet is decreasing a little bit. Some of the support being pulled from the market, which the market's done okay. Today is a big down day, but that's virus news.

But again, valuations. You know, it isn't much different than some of the other charts we've shown, but forward P/Es are just way up there.

Hard to buy at these levels, but, again, it's the support from the Fed that's helping things out.

Alright. I'm sure you've all heard the line, "The market is not the economy." And that's used to explain when the economy looks bad but the market can go up, which is what we see now…

They don't always move in lockstep. The market is anticipating, so the economy could be bad now, but if it's going to improve the market could be going up now. But this is an interesting chart. So this is only the last 12 years. So that's not exactly a full sample size.

But if you take a composite index of U.S. leading indicators, so over here the economy the economy is doing well. Over here the economy is doing bad. And you plot it against the level of the S&P 500. Actually, you know, the market and the economy do move together pretty well. But today, we're up here. The economy would suggest we should be at 2,000 on the S&P, but we're at about 3,300. You know, here we were in April and May. Here we were before things got bad. So there is definitely a disconnect between the economy and the market. And it's larger even then you would normally expect.

Doc: I wanna ask you something, Matt. And people who haven't seen this and seen you before or even people who have seen you and know you and heard me talk about you. Your training is as an econometrician, right? You studied econometrics.

Matt: Yeah, yeah.

Doc: So at night, when your kids and your wife have gone to bed, you're literally sitting there at the computer programming things to analyze data to imagine these data points and getting slopes of curves, and R-squareds and intercepts. I mean, right?

Matt: Yeah.

Doc: Well, I'm thinking about how to blend a Cabernet and a Merlot and this is what you're doing. What do you make of these points that are off of that curve?

Matt: So that's funny. So yeah…

Doc: What? It's not funny, it's serious!

Matt: I mean, I would change some things about the study. I think there may be better ways to look at it. The S&P level on the left is an interesting choice to me. But I mean, you know, it doesn't take a degree to know that the economy is not matching up with the stock market right now. So I'm just trying to get a visualization of how much, how different that is. So this would imply that we need to drop 30%. You know, I don't think… I think that's too much. I think maybe you do this on a log or you can do changes… changes here. But it's… it's striking. It's very striking.

Doc: Or it implies that the economy has to do what? Go up by, 50%? When is the… when has the economy ever done that?

Matt: Yeah, so that's interesting. So that would imply that the leading indicators have to jump from 50 to a 75, which is big. But those leading indicators can move pretty fast. So it's interesting that you point that out. I don't think we'll get there. And I think if we have more bad virus news, we're not going to get there. But you know, my business card says "permabear" no, "permabull" in residence. It really does, I think I could find one for you. But I always love stocks.

Doc: I know it does.

Matt: I always love stocks. And it's, I'm just in a weird place right now because this is one of the first times in 15 years that I'm really bearish. But it hasn't panned out in the last two months, so we'll see.

Doc: Folks, just let me say this. Matt has "permabull." That is his title on his business card. If he's getting nervous, uh-oh…

Matt: But, there's always something to buy.

So let me point two areas of the market where you can find strength. Okay, so we've talked about, and we've written about, how there's been this big shift online. That's pretty obvious, people are ordering things online, ordering groceries online. But sort of one of the conversations is some of that behavior is going to stick, right? Some of that is, "I've got the app on my phone, I'm going to order delivery more." Things like that. Oh, I finally figured out how to buy things here. Oh I have an account and my information's stored. So all those things are going to lead people online and some of that's going to stick.

So what we see here is you know, activity in stores absolutely dropped. But now, we've come back a bit. Even at the same time, at the same time we're going back to stores, online growth is still growing even faster. So, yeah, there's going to be a sustained benefit for online companies. I don't know if it'll match some of the increases in share price, but they're going to definitely see some shift of consumer behavior that is persistent.

And this is more of a trade set up. But you saw huge flows into healthcare stocks and into healthcare ETF when people were scared. And now it's totally reversed. People are pulling money out of healthcare stocks, they've sort of been left out of the recent rally. So that looks like an entry opportunity. You know, we're investors, not necessarily traders, and we do like healthcare stocks in general and we like them today. Looks like it would be an attractive entry point if you want to stay defensive and get into the market, that looks like a good place to do it.

Doc: Great. Alright, that's it. Thanks, as always, Matt. Enjoyed it. Folks, you got questions – Send them to us. We read everything. Respond to some through our written, published word and then again, please share wherever you can. We'd love to see that keep growing. You have anything else, Matt?

Matt: That's it for me, Doc.

Doc: Alright, bye bye.

Matt: Bye.