June 11, 2020
Why the aggressive 5% decline today? As we know the bounce was bought and paid for by the Fed, Treasury and Congress (pumping a total of nearly $10 trillion into the economy). And the extent to which the bounce will continue (and to what degree) has everything to do with how quickly (and to what degree) the economy rebounds.
Remember, the liquidity insurance that has been pumped into the system buys time. If the economy comes back stronger, earlier, the excess money in the system should drive a boom in nominal GDP, a boom in asset prices and a boom in wages — but also a boom in inflation. If the economy were to come back too slowly, and the stimulus were exhausted, the Fed, Treasury and Congress would do more – but there would be significantly more damage to the country.
That said, as we've discussed in this daily note, the data we've seen thus far squarely supports the former — and supports the notion that we are in for a very hot second half bounceback in the economy.
But yesterday, the Fed had a relatively conservative projection on the economic rebound (not too surprising). They said they were looking for a V-shaped economic recovery, but running through 2022.
Did people take that view as a signal to take profit today and de-risk some, because the Fed's economy projections were less aggressive? Probably.
Now, with stocks down, there was a lot of talk in the media today about "spiking" infection rates, and the fear of a second wave.
I've been seeing this headline now for days about the alleged "spike" in Texas. And it was said over and over in the news today (including warnings on a couple of other states).
So, I went to the Department of Health website in Texas and looked at the data.
As we know, changes in cases are a function of changes in testing volume. Hospitalizations give a better view of what's going on. Here is what's going on in Texas …
For perspective, when Texas did the "first phase" opening of the economy in Texas on May 1, there were 1,778 confirmed COVID patients in the hospital. Right now, they are into "phase 3" and the current number of COVID hospitalizations is a whopping 2,008. That's 230 more people, in a state with 29 million people (you can see the data here).
Here's that same chart, if we manipulate the y-axis for effect.
That, I assume the media would prefer to show. But same interpretation: nothing to see here.
What about Arizona?
Arizona too is more than a month into the reopening.
Here is what the current number of COVID hospitalizations look like in another state the media is flashing warning signals on.
Hospitalizations are moving lower, not higher (see it here). And notice the scale on the y-axis. These are very small numbers/tiny relative to a population of 7 million.
Add to this, we've talked about Minnesota, where widespread protests took place as early as May 26. That's 17 days ago, beyond the incubation period, and the hospitalizations rates have been falling, not rising (see it here). What about NYC? Protests began in NYC on May 28th, 15 days ago. Same deal. Falling, not rising (see it here).
Moral of the story: Don't rely on the headlines. Do some primary research. See the numbers for yourself.