Pro Perspectives 7/29/20

July 29, 2020

Yesterday we talked about the big announcement from Navarro, that the government would be reviving the once iconic American company, Kodak, by anointing it as the primary manufacturer of ingredients for medicines to be made in America (bringing the supply chain home).

As we discussed, this was a $100 million company on Monday that would likely become a $5-$10 billion company in the coming years.  That means after the near quadruple in the value yesterday, it was still dramatically undervalued.

Here’s what the chart looks like now …

The valuation touched as high as $2.6 billion today!  It’s still cheap. 

Next, we have developments on the virus front …

The “second wave” of rising cases, is now more than a month and a half in, and indeed, as we discussed in my July 16 note, the rate-of-change in the death-to-cases ratio has only declined more rapidly as the rate-of-change in testing has increased

To put it simply, those that were projecting a big spike in deaths, because of the spike in cases, have been wrong. Rather, the spike in cases is simply representing the slow closing of the gap between the reported infection rate and what the CDC believes to be the real infection rate (at least 10 times as many), while revealing a death rate that is converging toward the annual flu death rate.  

With the above in mind, we have another big development on the treatment front. The controversy over an early treatment option for the virus is re-emerging. Doctors are standing up and making their case publicly for the safety and efficacy of hydroxychloroquine and zinc.   The group met with Pence today asking for the administration to “empower doctors to prescribe hydroxychloroquine without political obstruction.” 

As Jay Powell said today, the path of the economy depends on the path of the virus.  The developments above are positive for the economic outlook.

Finally, the battle between the Republics and Democrats on a new stimulus package is playing out just as we’ve expected it.  The federal unemployment subsidy is the political football, and there is no viable path toward an agreement.  With that, as we’ve discussed, it may boil down to an Executive Order from Trump to extend the $600/ week.  Good news.  It was reported today (by Jim Cramer) that a short-term extension is coming.  Based on history, I suspect his “source” was Mnuchin.