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.
This week saw progress in the US on two fronts: substantial progress on healthcare (vaccine via Moderna, etc.) and steps forward on the re-opening of the US economy (CT re-open on 5/20). But a return to normalcy in the US is more than retail openings, outdoor dining and it is as much about sports, traveling, business travel and entertainment.
Entertainment is very much a part of the American experience and also one of the industries most impacted by the reality of post-COVID-19 world. A major step forward took place today. Universal Orlando’s phased opening plans were approved by the Orange County Economic Recovery Task Force group today and also approved by Orange County Mayor Jerry Demings. CNBC’s Scott Wapner interviewed Mayor Demings this evening (5/21) (CNBC interview –> https://www.cnbc.com/video/2020/05/21/florida-task-force-approves-reopening-plan-for-universal-orlando.html). Based on the approved plan, Universal will have a soft open on 6/1 and a public opening by 6/5.
With each passing day, the US is incrementally re-opening its economy, with new procedures to maintain the safety of the public. There is going to be a short-term cost to meet this compliance, and procedures that will be initially felt inconvenient but over time, with no doubt, will become part of the new normal. For instance, a CEO acquaintance of mine (insurance company) in Hong Kong noted that whenever an employee is diagnosed with COVID-19, deep cleaning and sanitation is embarked upon, costing this company ~$40,000 per cleaning. Hence, we can understand why some businesses may initially favor keeping WFH in place (work from home).
Daily case growth has been stubbornly flat. I know many of our clients have pointed out this is due to testing (correctly), but it also shows COVID-19 is not declining and with states opening, this increases movement. While there will be concerns about a second wave (which has not been evident in any nation or region opening), the consensus among health experts is that such a potential wave is probably more likely when flu season returns in the US (late Fall). And thus, the openings of the US economy is really a story about tracking engagement and seeing how the new normal is reflected in screening and sanitation and mitigation.
This is still progress nonetheless, and perhaps better progress than many imagine in early March as the crisis was in its earliest stages. But COVID-19 is not necessarily fading around the rest of the world, global daily case counts are still elevated and it looks like Brazil (and Latin America, Russia, Middle East are the regions now dealing with high cases counts and growth.
POINT #1: Total USA cases surge to 25,483, +2,873 from 22,610 1D ago, led LA, FL, NY, VA, MD… NYC to open early June
As has been the case for the past few weeks, case numbers surge in the US midweek and today, total reported COVID-19 cases +2,873 to 25,483. The case numbers simply have stayed stubbornly high. Granted, part of this is an increase in testing (see below) which was >430,000 today, but it also tells us that case prevalence in the US is just lingering. And makes us continue to posit whether it is realistic to expect cases to fall to zero in the US.
Source: COVID-19 tracking project
Total tests administered has risen impressively and remains >430,000 for a second consecutive day. And as we commented yesterday, this annualizes to 150mm tests per year, enough to test half the US population in a 12-month period.
Source: COVID-19 tracking project
Tests per capita, the US ranks #9 overall…
The US ranks 9th overall in tests per capita. Currently, this figure is 1,305 per 1mm residents and is ahead of Italy. But the UK figure is nearly double that and even Russia is testing at a higher rate.
– High testing is good, but this level of testing is not really higher than Italy and COVID-19 has fallen much faster in Italy than the US.
– NY tristate and NYC are the epicenter of the crisis in the US (followed by nursing homes).
Source: Johns Hopkins
Scott Gottlieb, former FDA Commissioner and a well-known subject expert on COVID-19, has pointed to falling positivity rates as a potentially better metric (cases positive divided by tests). And this figure is below the 10% “ideal” value. The latest reading shows it is around 6% and has been in this range for the past week.
Source: COVID-19 tracking project + Johns Hopkins
5 states account for most of the rise in reported daily cases…
5 states account for the majority of the rise in daily cases. As we have noted in a recent commentary, there tends to be a ping-pong with daily cases, reflecting testing lags and also the number of administered tests. But the top 5 states today account for the entire rise in reported daily cases:
– Louisiana 1,188 vs 278 (1D) +910
– Florida 1,204 vs 527 +677
– New York 2,088 vs 1,525 +563
– Virginia 1,229 vs 763 +466 <-ping-pong
– Maryland 1,208 vs 777 +431 <-ping-pong
Total 5 states +3,047
Again, like other days, there is ping-pong as some states reporting fewer cases.
– Texas 945 vs 1,411 (1D) -466 <-ping-pong
– Connecticut 191 vs 587 -396 <-ping-pong
– New Jersey 1,073 vs 1,386 -313 <-ping-pong
– Kansas 0 vs 199 -199 <-only reports M/W/F
– Rhode Island 215 vs 405 -190 <-ping-pong
– Georgia 758 vs 926 -168
Total 6 states -1,732 The states with declines are ping-pongers and Kansas, which reports only 3 days of 7. Again, there is no clear pattern of opened states reporting a rise in cases.
Source: COVID tracking project
At long last, NYC announces plan to open in early June
NYC finally announced plans to open, by early June. This is slightly faster than previous conditional comments by NYC Mayor Bill DeBlasio. But this is an “open” date, meaning it is sometime between June 1 and 15th and subject to continuous improvements. NYC residents have already been increasingly venturing outside. But NYC has real practical issues to deal with regarding meeting the standards of screening, sanitization and also keeping a minimal distance. So, it will be up to the ingenuity of business owners to make this happen.
Source: NY Post
NYC Case figures have fallen >80% from peaks…
We have shown the 5 boroughs NYC daily cases/1mm residents and compare it to that to that borough’s peak reported figure. In all cases, these numbers are down >80% from highs.
– the best figures are Manhattan (63) and Staten Island (65) and these are in line with the US overall of 66.
– but Western Europe had daily cases 3D avg of around 20 at their re-opening date.
So, by this measure, NYC is still reporting a higher level of daily cases.
Source: NYC Health Dept.
At some point, we have to wonder if NYC might simply be saturated with COVID-19. NY Gov Cuomo released the results of additional joint serology studies (with Northwell), and the latest figures are pretty startling. They show figures by zip code.
– Some areas in the Bronx have a COVID-19 prevalence of 43% (Morrisania)
– Brooklyn’s Brownsville antibody prevalence is 41%
One has to wonder if these areas have herd immunity. If not, these areas will be potential areas where the second wave is small, assuming recovered patients have some immunity.
Source: Gov Cuomo’s office
POINT #2: Return to “normalcy” — Orange County, FL Task Force approves opening plans for Universal Orlando
The Orange County (FL) Economic Recovery Task Force (ERTF) voted to approve Universal Orlando’s park reopening plan, and was also approved by Orange County Major Jerry Demings and FL Gov Ron DeSantis. This is one of the surest signs of a “return to normalcy.” Theme Parks are part of American culture, summer vacations, media and entertainment.
CNBC’s Scott Wapner interview with Mayor Jerry Demings highlighted the importance of theme parks. Disney is the largest single site employer in the nation with 77,000 workers in the Disney World complex and we can thus appreciate the importance of these parks to the regional economies.
Under the proposed plan, Universal Orlando launch schedule:
– June 1-2, making the park accessible to employees
– June 3-4, allow some guests to enter on annual pass holders and invited guests
– June 5, opening in a limited capacity to the public.
And given the crowds seen at all these parks (in the past), implementing appropriate procedures is simply a daunting task. During Universal presentation to the FL ERTF, John Sprouls, Universal Orlando chief executive officer, and Rich Costales, Universal Orlando executive vice president of resort operations, proposed Universal Orlando’s plans based on the “3 S’s” – screening, sanitization, and spacing
– Screening (employees and guests)
– Sanitization
– Spacing (social distance)
These are logical steps for any business with customers and the company will likely take guests’ temperatures at all entrances and employees and visitors will be required to wear masks. Select venues at Universal Orlando Resort’s CityWalk reopened May 12.
Source: https://www.insideuniversal.net/2020/05/orange-county-approves-universal-orlando-proposal-of-june-5-re-opening/
So how will guests line up for rides? We all have memories of being inches away from the sweaty guests in front and behind us. And these lines snake for what seem like miles. Universal has shown what the schematic of the new lines looks like. This is like “business class” spacing between guests. In some ways, this is what we can expect of airlines in the future as well.
Source: https://www.insideuniversal.net/2020/05/orange-county-approves-universal-orlando-proposal-of-june-5-re-opening/
POINT #3: US no longer COVID-19 epicenter with 23% global share of daily cases, accelerating in Latin America and the Middle East
As COVID-19 recedes in the US (and this has been not been a steep decline), the US share of global daily cases has fallen to ~23% from >40% on April 6th, 2020. This is good news for the US, as the containment efforts in the US have acted to make the US less the epicenter of this deadly pandemic.
– But unfortunately, COVID-19 is not fading across the world. Total global cases are still about where they were in early April (see below) at ~90,000 per day. It is just proliferating in new regions.
Source: Johns Hopkins
It has been a few weeks since I looked at the global case data closely and I was surprised to see that global daily cases is essentially flat for the past 6 weeks. See the chart below. Given the US was the epicenter, and since then, given all the knowledge about containment measures, it makes sense to expect other nations to fare better. But this is not the case.
– Even as the US share has fallen, total global COVID-19 cases have been essentially flat since 4/12/2020 (98,758 worldwide) compared to 99.285 for the most recent day.
– Cases are declining in Asia, Europe and North America, but it is a growing story in Latin America, the Middle East + Russia.
Source: Johns Hopkins CSSE
Easier to measure spread by looking at daily cases/1mm residents…
We have listed the 35 nations with the highest reported 3D avg daily cases per 1mm residents. The US is right in the middle at #14.
The regions seeing high case growth, measured as “daily new cases per 1mm residents” is the Middle East and Latin America. The ME regions are shaded violet (we included Belarus + Russia as well) and light red are Latin America. In absolute numbers of cases, Brazil and Russia are the largest. But look at Qatar, reporting 520 new cases/1mm residents and Kuwait at 212, compared to 66 in the US. And you can get a sense for the greater intensity of case growth there.
Source: Johns Hopkins
COVID-19 may be spreading in these other regions (LatAm and the Middle East) as the seasonal weather cools. But this has not led to a rise in cases in Australia. The fact that cases are rising rapidly does beg the question if these nations prepared properly. They had 12 weeks or more (3M) of advanced notice to see how COVID-19 swept through Asia, Europe and the US.
In the meantime, this does suggest to us that regional health security means nations will be reluctant to fully open borders. And this will restrict the movement of people around the World.
But this heightened vigilance is actually beneficial to the US. This will only make the US more prepared for any possible resurgence of COVID-19 in the Fall.
STRATEGY: BofA Fund Manager Survey shows high risk aversion, affirming reality there is a mountain of cash and risk appetite on the sidelines.
BofA Merrill Lynch released their May 2020 Fund Manager Survey (on 5/20). For those not familiar, this is a great survey with 200 hedge funds and institutions participating. And in the decade I have seen this survey, it has generally been accurate (in positioning) and quite tactically informative (contrarian at the extreme readings).
The latest survey shows the COVID-19 risk aversion remains in place. The chart below (taken from twitter) and shows:
– Cash and Healthcare are the two most OW trades with 1.6 and 2.5 std deviations
– Energy and Equities are the most UW trades at -2.2 and -1.8 std deviations
We would interpret this as the plurality of survey respondents seen the +30% eight-week gain in stocks since March 2020 as a “bear market” rally and hence, high levels of cash, low equity exposure and UW in Energy.
Source: twitter.com and BofA Merrill Lynch
In fact, this reflects in the distribution of answers regarding the shape of the recovery (markets) below:
– Net 75% see a U or W-shaped economic recovery (diffusion)
– Net 68% view the equity gains as a “bear market” rally
– Net 10% see a V-shaped recovery
Take the survey results. Add in the lingering bearishness seen in AAII Retail surveys. And the $5 trillion in money market cash. This tells me the ultimate contrarian bet is there is a new bull market underway.
Source: twitter.com and BofA Merrill Lynch
Part of the reason investors are sticking to sidelines is the abrupt decisions forced on investors in late-Feb and March…
This crisis is barely even one full quarter in duration so far. The world calamity events did not really take place until early March. At that time, we had the Imperial College Study showing millions of American deaths and also many “private conversations” with health experts talking about this being Spanish flu. So it is completely understandable why investors raised cash.
And if they raised it in Feb or early March — they are complete geniuses, because they avoided this catastrophic meltdown.
Many of you might have seen this memo circulating (we grabbed it from twitter) and was supposedly written by a Goldman Sachs customer. This was sent around in early March. This led to a lot of chatter among our clients.
Source: twitter.com
In fact, in early March, I remember several clients advising me that I need to get a large amount of cash out of my bank account to prepare for Armageddon. And I visited a Chase branch that weekend as I happened to be driving through Fairfield County.
And guess what. There was a huge line in the branch as people were withdrawing large amounts of cash from this branch. The bank teller even said aloud they are limiting cash withdrawals to $1,000 because of so many requests. Well, you get the picture.
If the circumstances led the institutional world to the point of taking cash from banks, one can hardly expect this perception to have faded by May, less than 3 months later.
Opportunity in the epicenter stocks…
And as we commented yesterday, the growth stocks have already retraced much of the March decline. But the “epicenter” stocks have remained well below their Feb levels. So the market has not become optimistic about stocks at the center of this crisis.
– the epi-center stocks are 27% of the market cap
– but are 66% of the points upside, if all stocks retrace to their Feb 2020 highs.
So the risk/reward is best in the epicenter.
Source: Fundstrat
