April 13, 2020
We'll hear from the big four banks on earnings over the next three days. Just a quarter ago, these were big reports, measuring the financial health of the banks, the appetite for credit and the health of the consumer (it was all very good). This time, things are very different.
Aside from a few companies (the near-term winners from the "stay at home" economy), these Q1 earnings will have little value. With the uncertain outlook, what has happened in the rear view mirror doesn't mean much. Even "guidance" for management will offer little, if any, credibility.
With that said, this is the time, when broad sentiment is on its back, that corporate America will put everything on the table (all the bad news they can conjure up), in attempt to dial down the expectations bar as low as possible.
That will set the table for positive surprises (expectation beats) in the future.
With the above in mind, if we expect a very ugly narrative to come from earnings calls, we should expect that to put even more pressure on Washington to get the economy re-opened.
On the health crisis front: As we discussed last week, if we look at New York as the potential turning point in this health crisis, rather than the canary-in-the-coal-mine, we may indeed be getting to closer the "other side" of this crisis.
In my view, the most important indicator on the health crisis is the daily change in intubations at New York hospitals. As we discussed last week, it has been on the decline. The most recent number has gone negative (i.e. fewer intubations than the prior day). Here's a look at the latest chart …
If we look at the intubations relative to hospitalizations, this ratio is falling dramatically. Here’s a look at the daily new hospitalizations …
Again, while there is a lack of reporting on the effectiveness of treatments, we do see, in the data, that less people are getting to the severe stage. That means something is working.
With the conversation turning toward “getting back to work,” the fiscal piece of the multi-trillion dollar aid programs will begin hitting the hands of citizens this week. With that, the economy has to be re-opened sooner, rather than later, so that the money can have somewhere to go (rather than under the mattress).
That gold market is betting that the cash will indeed be circulated (i.e. inflation is coming).
Gold broke out to new seven and half year highs today.