COVID-19 UPDATE: CA cases surge due solely to LA County... bears watching. Travel can return even in a '6 feet' world. Boeing $25b debt sale, 40-yr tranche priced at 6% yield, suggests debt investors look past "crisis". Barely perceptible signs future travel bookings rising.

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COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage ("restart economy"), so feel free to share our commentary to anyone who has interest.

On the COVID-19 front, the only notable development seems to be a surge in reported cases in California to 2,417, nearly +1,000 higher than the previous day and a new high (2,258 on 4/21/2020 was old high).  CA is the only state reporting a new high in cases and the county-level data shows the +1,000 was all in Los Angeles county.  CA Governor Newsom noted the +5% increase in cases but did not seem particularly alarmed and noted that hospitalizations and deaths increased by less than 1%.  But he did emphasize the need for beachgoers to comply with social distance measures.

The most important development today, in our view, is the massive $25 billion bond deal priced by Boeing, the largest debt deal in 2020.  This is a company caught in a double maelstrom - 737Max and the complete travel shutdown from COVID-19.  Yet the company managed to not only do the largest deal in 2020 (after drawing its $14 billion credit line) but at fairly reasonable rates.  The 40-yr tranche is priced at ~6% yield.  And credit markets closed a record issuance in April, exceeding the record $260 billion priced in March.  The fact that Boeing is able to price such a large deal speaks to both the health of the debt markets (very healthy) but also that debt investors are likely looking past COVID and realizing BA is still BA.

That is why we are focusing this note on the travel sector.  Travel and Leisure is an epicenter group, getting massacred with 65%-80% declines as the global shutdown evaporated their business.  But some of the data gathered by our data scientist, tireless Ken, shows forward travel bookings are barely but perceptibly rising (Adara is the data source), particularly among singles/couples which are 42% of US households.  And of the 5 groups within travel, 3 can comply with the '6 feet rule' -- casinos, timeshares, and hotels. 

These are among the 'operating leverage' and epi-center stocks we think can outperform as the post-COVID 19 world starts to actualize.  As most states open, we expect more local leisure travel to take place.  

I really liked the "lead" from the latest The Information briefing.  Basically, it is reminding us that nobody wants to be profiting from this pandemic.  This is our view.  This is a global crisis, causing unimaginable misery to the entire world.  And it is a reason we have been somewhat careful in speaking about the upside and the moves in the stock market.  Stocks have reasons for rising, including the fully functioning credit markets, fiscal stimulus, likely huge operating leverage by businesses (cost cutting) and the potential for a faster end to the pandemic.  But the problem is that rising stocks gives the impression the financial markets are ignoring the misery.  That is not the case.  But this article is a good reminder.




POINT #1: CA cases surge (flat testing), which is not good.  USA cases rise but testing rising elsewhere.
Total USA COVID-19 cases rose to 29,951 up from 25,586 the day before, or a +4,095 increase.  Total tests in the US has been jumping around a bit but was a tad higher from a few days ago, so the rise is mostly falling within that band of lumpiness. 

- But among the states reporting higher daily numbers, California reported a new all-time high in daily cases at 2,417 cases.
- This is >900 from the day prior and exceeds the prior record of 2,288 on 4/21/2020. 

CA Gov. Gavin Newsom did not offer much explanation for this 5% daily rise but noted that this further justifies his desire to further limit congregating in areas, including the state beaches.  We discuss this more fully below. 

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