Sunday, August 30, 2020

The virus, the elections, and the Fed

I haven't made a post for over three weeks. If there's a reason, it stems from the uncertainty created by the unprecedented economic collapses suffered by most of the world's economies—in turn the product of the most colossal public policy errors in the history of mankind, all for a virus that is equivalent to a bad flu—coupled with the radically different public policy prescriptions of our two presidential candidates and now magnified by the Federal Reserve's recent decision to adopt a radical change in its policy focus. And to think that, despite all this, equity prices are making new all-time highs and interest rates are marking all-time lows. 2020 really does deserve to go down in history as the Crazy Year.

I can only offer some observations which may be of help to investors trying to sort out what this all means. I'm an inveterate optimist, but even so I am humbled by the task of trying to make sense of all this. For what they are worth, here follow some observations.

I can't argue that the market is over-extended, but neither can I argue that the market is too pessimistic (which long-time readers will know is my favored habitat). Current PE ratios are historically high, but forward-looking PE ratios are only moderately elevated. That's not all that strange given the extremely low level of interest rates.

The elephant in the living room these days is the November elections. There couldn't be a starker contrast between Biden and Trump. Biden's policies would undoubtedly be bad for the economy (e.g., sharply higher tax rates and much more regulation), while Trump's would be good (lower tax rates and more deregulation). Trump brings a lot of character baggage to the race, but his accomplishments (e.g., lower taxes, deregulation, strong-arming NATO allies, getting tough on China, winding down wars instead of starting new ones) remind me that the only way to understand Trump is to pay no attention to what he says or tweets, but instead to simply focus on what he does. Biden, on the other hand is a nice, decent guy, with few if any major accomplishments to his credit, but displaying all the signs of an elder politician that is way past his prime and bordering on senility. His worst decision ever could prove to be his selection of Kamala Harris as VP, since she is a socialist at heart and a policy lightweight yet would very likely succeed Biden before his term is over. Imagine our lives if and when BLM has a friend in the White House. Since the polls still favor Biden but the market behaves as if Trump will win, I can only conclude that great downside risk lies ahead should Biden prevail.

So now we turn to the charts and what they tell us about what's going on in the economy and the markets.

Chart #1

It's been a wild and crazy ride in stocks this year, with fear being the source of nearly all the volatility, as Chart #1 shows. Since the end of 2017, the annualized total return of the S&P 500 has been 12.9%. Whether that's adequate compensation for all the nerve-wracking twists and turns along the way, I'll leave it up to each individual to decide. And as the chart also shows, the level of nervousness (as reflected in the Vix index) is still somewhat elevated.

The main source of recent fears has been a lowly virus, fear of which convinced nearly every politician in the world to shut down their economies in unprecedented fashion. As I've noted repeatedly for many months, "The decision to shut down the US economy will prove to be the most expensive self-inflicted injury in the history of mankind.™" It probably sounded foolish at the time I first said it way back in early April, but it's rapidly becoming accepted wisdom as more and more countries tally up the damage while also realizing that it's tough—if not impossible—for anyone to show any correlation between lockdowns and the eventual course of the pandemic. In fact, the anti-lockdown Sweden probably made the best decision of all: its deaths per capita are in the same ballpark as other major countries, but its economy has fared far better.

Chart #2

As Chart #2 shows, the US economy shrank at a 19.4% annualized pace in the first half of this year, with the worst of that coming in the second quarter, when GDP shrank at a 34% annualized pace. In level terms, real GDP fell by $2.26 trillion, a decline of 10.4%. In Europe it was much worse, with real GDP falling 15.2%; that decline sent the Eurozone economy back to levels last seen 15 years ago. The US economy, in contrast, was only set back a little over 5 years. Regardless, nothing even remotely similar has occurred in such a short period in recorded history. 

Chart #3

Despite all the economic and psychological devastation, some sectors of the economy have rebounded strongly. As Chart #3 shows, the residential construction industry as of last July is almost back to its pre-crash levels, and housing prices are now making new all-time highs.

Chart #4

As I've noticed while driving the freeways of Los Angeles lately, traffic is still somewhat light, but it has improved dramatically from April's lows. Chart #4 shows how motor gasoline supply has rebounded strongly in recent months, and that is as good a proxy for miles travelled as you're likely to find.

Chart #5

However, as Chart #5 shows, while the airline industry rebounded rather quickly through the end of June, since then growth has stalled. (TSA traveler checks are an excellent proxy for total air travel.) Air travel today is running about 70% below the levels that prevailed a year ago. Airlines have been hammered.

Chart #6

So the economy is definitely on the mend, but not uniformly. Unemployment remains extraordinarily high (10.2% as of last month), down from a mind-numbing high of 14.7%. Driving is almost back to normal, but air travel is still way below normal. Housing is practically on fire. Throughout all this, the Fed has reacted in extraordinary fashion—thank goodness—by reducing interest rates to near-zero and expanding bank reserves by $1.25 trillion (see Chart #6).

Chart #7

The Fed needed to greatly expand banking system liquidity in order to accommodate the huge increase in the demand for money, as shown in Chart #7. Think of this chart as showing how much cash the average person or business wants to hold as a percent of their annual income. Money demand has soared to previously unimaginable levels as the economy shrunk and tens of millions lost their jobs. People were desperate for the safety of cash because the virus and governments' response to it had put us into uncharted and frightful territory.

Chart #8

Chart #9

Everyone scrambled for safe havens. Bank checking and savings deposits exploded (see Chart #9). As Chart #8 shows, the price of gold and TIPS soared, a direct reflection of the demand for safety. But as Chart #9 also suggests, we have probably seen the peak of the demand for money and safety. 

Chart #10

Vaccines are on the horizon, therapeutics are hitting the market, confidence is slowly returning, and in most of the world we are seeing a definite and very welcome slowdown in the growth rate of new deaths (see Chart #10). 

So the economy and nerves are on the mend, albeit slowly and nervously. But we're not out of the woods by any stretch, with the biggest unknown being the future of monetary policy. The Fed recently announced a landmark shift in its policy-making. Instead of preemptively fighting inflation, the Fed is now hoping to see inflation rise. How exactly will this play out? No one has the slightest idea. 

I have always been an advocate of very low and preferably zero inflation. From my years of experience in Argentina I know first-hand how inflation distorts an economy and business decision-making, and how it ruins the lives of nearly everyone. Not many realize that the biggest victims of inflation are those who are least able to protect themselves from it: the poor, the uneducated, and the old. Already we can quantify the losses accruing to anyone these days who is holding large amounts of cash or cash equivalents (e.g., currency in circulation which totals  almost $2 trillion, and bank savings deposits which now total a gargantuan $11.6 trillion). This simple measure of "cash" is equivalent to almost 70% of GDP, and it pays almost nothing in interest. Ex-energy inflation is already running about 2% a year, so those holding cash and cash equivalents are suffering annual losses of roughly $270 billion in terms of purchasing power (2% of $13.6T). And its likely to get worse, since the Fed has all but guaranteed that short-term interest rates will remain very low for the foreseeable future while they also hope that inflation rises.

Chart #11

Even the smartest of investors can't escape the ongoing loss of purchasing power for holding cash, cash equivalents, and Treasury notes. Real short-term interest rates (available through investments in TIPS) are strongly negative. You can have the security of a 5-yr Treasury note, but you are guaranteed to lose almost 1.5% per year in the purchasing power of your investment. Yikes. And by the way, interest rates are extremely low for two reasons: 1) the demand for short-term, safe securities is intense (which causes their prices to be extremely high and their yield to be therefore exceedingly low), and 2) the Fed is promising to keep its Fed funds reference rate close to zero for the foreseeable future. 

Chart #11 shows the history of nominal and real rates on 5-yr Treasury notes, and the difference between the two, which is the market's implied expectation of future inflation (currently about 1.7% per year for the next 5 years). 

Chart #12

Chart #12 compares the ex-post real yield on Fed funds (blue) with the market's expection for what the real funds rate will average over the next 5 years (red). Both are hugging -1.5% per year. Nobody thinks rates are going to rise from their very negative real levels for many years. That thinking is driven by a combination of 1) pessimism over the economy's long-term growth prospects and 2) a belief that the Fed will deliver on its current promises to keep rates low for a long time.

But here is the real story: by promising to hold interest rates at today's rock-bottom levels for an extended period, the Fed is trying hard to discourage people from holding cash and short-term investments. The Fed wants you to spend that money instead, and it would also like you to borrow money instead of save it. The new mantra is "borrow and buy."

It shouldn't take long for people to begin to figure this out. In fact, many already have, as we'll see in the following charts.

Chart #13

As Chart #13 shows, the level of the dollar's value vis a vis other major currencies (blue) is inversely correlated to the price of gold. A weaker dollar typically leads to rising gold, and vice versa. The recent rise in gold has probably been driven by the expectation that the Fed would seek to weaken the dollar (by increasing inflation, which erodes the value of the dollar). Gold is now back to its all-time highs in inflation-adjusted terms. If this interpretation of gold is correct, then it's too late to buy gold as an inflation hedge. What the gold market expected (a very easy Fed has already happened.

Chart #14

We see the same dynamic with copper prices (Chart #14) and for most commodities as well, except that most commodities (with the exception of gold) are only now just beginning to react to a weaker dollar. Of course, rising copper prices may also be symptomatic of a stronger global economy. But if the global economy continues to improve and rising inflation begins to take hold, copper prices would likely have plenty of upside potential.

Chart #15

Chart #15 shows the stunning increase in lumber prices in the past several months. This likely reflects at least in part the robust conditions in housing construction that we saw in Chart #3. On the other hand, strong demand for housing could be due to people figuring out that in a rising inflation environment, real estate tends to do well—as do most all real assets. And it's part and parcel of today's ultra-low interest rate environment, which makes it cheap to borrow. Without saying it directly, the Fed is encouraging people to borrow and buy. The Fed is keeping interest rates low in order to reduce the attractiveness of holding money. There are two ways you can reduce your money holdings: either by borrowing money or by using your money to buy stuff. Both are now being observed in the wild. The seeds of rising inflation have been sown, but the fruits won't be seen in the official inflation statistics for awhile.

Unless, of course, the Fed is able to react to a declining demand for money by withdrawing the bank reserves which it has recently injected. What are the chances they can withdraw trillions of dollars of new reserves at just the right time to avoid unwanted and unexpected inflation? It's anybody's guess, but the stakes have never been higher.

Chart #16

Ultra-low interest rates on cash equivalents and short-term securities also encourage people to buy other types of assets. Chart #16 shows the current yields on selected sector investments. In order to find a yield higher than the Fed's 2% inflation target, you need to look at things like lower-quality corporate bonds, REITS, and emerging market debt. Stocks too offer attractive yields, with the S&P 500 currently showing an earnings yield of 3.66% (the inverse of its current 27.3 PE ratio). Stocks, in other words, are benefiting from very low interest rates. In a new age of near-zero interest rates, PE ratios of 27 may seem high from an historical perspective, but in actuality they could well be seen as attractive. And in any event, PE ratios based on 1-yr forward earnings expectations today are only 21.2. It's not obvious that stocks are over-extended at today's prices.

Chart #17

Inflation expectations have picked up a bit in recent months (see Chart #11), but they are still well within normal ranges. Likewise, the yield curve has steepened a bit (see Chart #17), but it is still relatively flat from an historical perspective. The bond market appears to be in the very early stages of anticipating rising inflation and an eventual Fed tightening. There is lots of room left in this trade.

As for Covid:

The three charts below come courtesy of Brian Wesbury at First Trust. In the first, we see that Covid deaths occur overwhelmingly among people 65 and older (gulp, that includes me!). Unfortunately, the MSM have utterly failed to communicate this effectively to the population. As a result, the country has been swept up by a pathological paranoia that has resulted in, among other bizarre behaviors, young people wearing masks outdoors even when walking alone or riding a bike. In the second we see how dramatic the decline in hospitalizations has been in states previously categorized as "hot spots." The third chart is welcome news of a quick-and-easy Covid antigen test which is just around the corner.


Finally, I recommend this 7-minute video ("Shut up and put on your mask") from Graco. In support of its thesis, I recommend this summary of a recent NBER study that found that lockdowns and mask mandates do NOT lead to reduced Covid transmission rates or deaths. All they succeed in doing is to destroy economies and lives, while handing immense power to public officials who have trampled the civil and constitutional rights of billions of individuals by making decisions not supported by facts. Thus, a very dangerous precedent has been set that poses significant risks to economies and the general well-being of the entire planet in the years to come.

If you want to really worry, this is where you should place your chips. Think of a mask mandate as the first step on a slippery slope to despotism and socialism. We are not "all in this together;" our leaders are not more intelligent than a market of billions of individuals. Kamala Harris, I do not need you to tell me what to wear and what to think.


The Cliff Claven of Finance said...

I agree with the I don't know tone of the article. Smart people are willing to say I don't know while "fake experts" always have a confident prediction of the future. Usually confident but wrong. The power seized by state governors has been stunning

It is time to be honest about unemployment here. 27 million Americans were collecting state or federal unemployment benefits as of last Thursday according to the Labor Department. That real number suggests 17 percent unemployment not the much lower number (nonsense) reported by BLS used at this blog. I have never before criticized the BLS in the 45 years I have been using their data.

The good news is the 27 million is down from a peak of 32 million in May, and down one million from last week. BLS explains why they report a much lower unemployment number in their COVID footnotes. I disagree with their reasoning, which might have made sense if lockdowns lasted a month or two.

The real unemployment rate, whether recognized here or not, is an even more important reason to phase out of the lockdowns quickly.

This is a good article except for failing to recognize stock prices are at or near the most overvalued levels in the history of the stock market. The PE Ratio is not a good valuation measure because it does not predict long term movements of stock prices. The Price Sales Ratio and others work much better.

I am now taking bets that Trump will win. Biden can't win by hiding in his badement, pretending he has not accepted all the socialist positions of his party, refusing to debate, and picking a very unpopular VP who impressed no one in the primsries. The late response to urban violence gave Trump the lead on that unusually important subject.

I heard for a third time ftom rich Dems planning to tank the stock market in October by stopping all buys and selling some of their positions if that doesnt work. Just to make Trump lose. That smells of desperation. I hope the mail in votes do not cause too much disruption.I loved the TV ad showing Biden before and after his mental decline. Biden is hidin' and his mind is sliden'. He used to be a pretty good debater but people around him report a noticeable mental decline in the past six months. A decline fast enough to be noticed by others is a real symptom of eatly dementia. I unfortunately had a lot of experience with my mother and father in law.

Cabodog said...

Great post Scott. Thank you for your thoughts, facts and analysis.

Scott Grannis said...

Thanks to Johnny Bee Dawg for catching the CDC's incredible "clarification" that 94% of reported Covid deaths were people who also had on average 2.6 co-morbidities!

CDC quietly updates data showing only 6% of Americans died of COVID alone:

While this may sound incredible to many, this is information that surfaced many months ago in Italy.

Bottom line: the risks of Covid were totally misrepresented to the vast majority of the people on this planet. It is a virus that primarily targets old AND sick people.

EHR said...

Thanks Scott for your courage to share your views.

The Cliff Claven of Finance said...

Scott and Deputy Dawg are giving wrong advice on COVID.
It was known in March that older people with other medical issues were dying of COVID.
ANd the same people were also needing hospital care and surviving far more than younger people.
This is not news that deaths and severe illnesses were among the elderly.

I guess older people don't matter here? And COVID suffering doesn't matter just deaths? Most older people have one or more medical problems. The risks of COVID were not misrepresented. They were wild guessed and usually wrong just like the wild guesses of a coming climate crisis we've been hearing for 50 years. The COVID pandemic is still in progress so there are no experts. Especially Deputy Dawg and Scott Grannis. The effect on the economy was partially from the disease and partially man made.

The failure of this blog to discuss the fact that 27 million people are collecting state and federal unemployment benefits, meaning at least 27 million Americans are unemployed, is a deception. The 16.3 million BLS unemployment number is nonsense. Scott repeatedly refuses to refute my unemployment benefits (now 27 million, had been 32 million in May) which is a proxy for the real unemployment rate is what people who refuse to admit a mistake do. Not worthy of this blog. I was not a professional economist. I have a Finance MBA and wrote a for profit economics and finance newsletter as a hobby for 43 years. The real unemployment rate is huge and important. Refute it if you think I'm wrong (I'm not).

K T Cat said...

I'm looking for help reading chart 16. Is EMD Emerging Market Debt? What is HY?

Thanks in advance.

Kman said...

"But here is the real story: by promising to hold interest rates at today's rock-bottom levels for an extended period, the Fed is trying hard to discourage people from holding cash and short-term investments. The Fed wants you to spend that money instead, and it would also like you to borrow money instead of save it. The new mantra is "borrow and buy." "

How is this helpfull if u dont want to do risk or dont have the capability ?

and is there a point at which it becomes counterintuitive and starts doing more harm than good ?
Its actually contradictory in a way, as this creates asset price inflation. Still inflation ??

Fred said...

Scott: Are you saying that the other 94% of the people with Covid would have died anyway? That seems unlikely. There are lots of people who live a long life with high blood pressure, diabetes, etc. as long as they control it with medication. I think we'll have to see what the true excess deaths are for the entire period after this is over, and I certainly believe that number will have to take into account the number of excess deaths due to lock downs (e.g- cancer, heart attacks, suicides).

Scott Grannis said...

EMD = Emerging Market Debt
HY = High Yield Bonds ("Junk" bonds)

Scott Grannis said...

Re the CDC's 94%: If the world had known/realized back in March that healthy people below the age of 65 faced only a very, very small risk of death from Covid, the rationale for shutting down the entire economy would have evaporated. Without economy-wide lockdowns, the global economy today would be far healthier, far fewer lives would have been disrupted, far more businesses would be alive and well.

Johnny Bee Dawg said...

GOD BLESS AMERICA, what a post!
Thank you, Scott, for speaking Truth.

FWIW, the link to the 7 minute video says it is no longer there.
Would love to see it, if you know of another way.
I can tell you from first hand experience that the kind of information in your blog is being scrubbed from lots of internet sites.
Isn't that odd? Feels like living in China, suddenly.

Thank you again for this blog.

Tom L said...

Thank you Scott - glad to see the latest column and great addition to bring in Brian's work!

Scott Grannis said...

Re the 7-minute video. Sadly, it looks like it has been "cancelled," and I cannot find it anywhere on the web. The speaker was Pat McHale, president of Graco, and he was very blunt. I'd bet Graco received a lot of heat for his message, which was that the government-mandated shutdown was unnecessary, as are masks. Government has exercised dictatorial powers with no justification for those decisions in the data. He's probably been branded a subversive.

Scott Grannis said...

Further with the theme that the risk of Covid has been greatly exaggerated and misunderstood, the NY Times reports that up to 90% of those testing positive are not actually infected with the virus. This, coupled with CDC's admission over the weekend is nothing short of astonishing! We should be seeing headlines about this everywhere. At the very least shutdowns should be cancelled everywhere.

randy said...

I'm really struggling with the utility of widespread testing... even if the tests were reliable. Which they are not. If you have symptoms, the intelligent thing to do is self quarantine regardless of knowing whether you have Covid or not. And those in your household should quarantine. With testing, you are either positive or negative - today. Even before the NYT article any thinking person should suspect the accuracy of that test - today. The results do not tell you what your status was 3 days ago, or will be 3 days from now. Unless we have the resources to test everyone, every week or so, I just don't see the widespread utility.

I can see the value for front line workers, health care workers, etc. Save the weekly tests for those folks. If I feel ill, I'll stay home.

Needelman said...

Glad to have you posting again Scott. Thank you

JDonley said...

appreciate your posting your thoughts, with outstanding graphs/charts. i know it's going to be a good day when your Califia Beach Pundit appears in my In Box. please continue to post.

Holsinger said...

The virus only kills 6% of its victims. For the other 94% it only causes an early death.

K T Cat said...

Thanks for the clarification, Scott. Also, thanks for sharing your insights here.

John said...

"If you want to really worry, this is where you should place your chips. Think of a mask mandate as the first step on a slippery slope to despotism and socialism. We are not "all in this together;" our leaders are not more intelligent than a market of billions of individuals. Kamala Harris, I do not need you to tell me what to wear and what to think." --SG

This paragraph is beyond absurd. This "market of billions of people" is indeed composed of depositism, authoritarianism, corrupt regimes, extremely closed markets and a relatively small amount of true open societies based on the rule of law.

It's always good to see a reminder that economics is not an exact science and not even really a science at all. That's why it's all so easy to fill up any theory argument with biased political/ideological/religious nonsense or cherry pick any numbers you want.

Johnny Bee Dawg said...


That doesn't even make sense.

Johnny Bee Dawg said...

July market was best July since the 1990s.
August market was the best August since 1984. AMAZING returns this year!!
We just had the best 100 days off the bottom in all of US market history.
Read that again....BETTER than the 1920s, the dream decade. (God Bless Calvin Coolidge!!)

2020...IS the George Orwell 1984. Think about that. What a coincidence.
Unprecedented censorship and chilling effects on free speech happening NOW.
Speak the Truth, and lose your job.
We are at the pivot point, BUT....The Silent Majority are rising up!!

August markets in 1984 correctly forecast the incumbent PUB President winning re-election in THE BIGGEST LANDSLIDE VICTORY IN UNITED STATES HISTORY.
For the youngsters...the incumbent PUB Prez won every single state, except for loony Minnesota.
August markets are now forecasting greatness, now, and it AINT Sleepy Joe Biden. Its the exact opposite.
Don John, bay-bee. DON JOHN.

FWIW, that incumbent in 1984 had endured the worst, non-stop coordinated press attacks in US history since Abe Lincoln.
Both Abe and that incumbent were shot. (Dont get me started on Daddy Bush 322)

Everything about this market is forecasting a Trump victory, and forecasting unprecedented prosperity for the US citizen at the expense of Washington, DC. GOD BLESS AMERICA.

Some "guru" at JP Morgan this weekend has advised investors to now reallocate their portfolios for a Trump victory.
Glad to have him on the Trump Train, but he is late to the Party! lol

Cant wait to get in my pickup truck and drive across this great nation AGAIN to attend the second inauguration.
One of the best things I have ever done in my life the first time. SEE AMERICA.
Ride with me. Lets go!

randy said...

"Think of a mask mandate as the first step on a slippery slope to despotism and socialism. We are not "all in this together;"

Not really so absurd. See this latest Atlantic article. Slippery slopes. One doesn't have to be paranoid to be suspicious being told to shut up. (Curious not a mention of the BLM protests.)

Mask Up and Shut Up
COVID-19 transmission would go down if we spoke less, or less loudly, in public spaces. Why aren’t more people saying so?

Benjamin Cole said...

Another very valuable post by Scott Grannis.

Why is it to find sensible commentary today, one must visit off-mainstream websites?

Why does not someone at the NY Times hire Scott Grannis to author monthly or weekly columns? They worship diversity at the NYT, defined by the way you look.

Even spookier, some websites and Youtubes are getting banned, usually for having "right-wing" views.

My only disagreement with this excellent post of Scott Grannis' is I have a sinking feeling there is but a small difference between the establishment parties today.

The globalists rule DC.

Trump is the oddest man ever, and has been an exception to DC norms. The long knives came out for him, especially after Trump dared upset the China applecart.

Something tells me Trump will pull a rabbit out of the hat and beat Biden.

DownSouth said...

I was able to obtain the text of the Patrick McHale / Graco video from The Powerline Blog:

Patrick McHale is the president and chief executive officer of Graco, the prominent manufacturer whose corporate headquarters are located in Minneapolis. The company explains itself: “We pump peanut butter into your jar, and the oil in your car. We glue the soles of your shoes, the glass in your windows and pump the ink onto your bills. We spray the finish on your vehicle, coatings on your pills, the paint on your house and texture on your walls. We’ve been a part of your daily life for more than 90 years.”

Mr. McHale comments on the experience of the company with the COVID-19 epidemic, on the relevant data, and on the shifting public health advice in the current company video posted here. McHale captures the attitude of the authorities in the refrain: “Shut up and put on your mask.” He restates in concise form many of the themes that we have pursued as we have followed the course of the epidemic. His concision extends all the way through to his conclusion: “My closing line this week is: Wake up!”

The seven-minute video is not available in embeddable form, but it is well worth your time to click on the link and check it out.

BrettW, here’s the transcript – (I don’t think I’ve made any typos)
(the video began part way into what presumably is McHale talking about company employees who’ve tested positive for Covid)

…. In our Rogers distribution centre & one in our CBD manufacturing facility.
Two of the employees were living in the same household & each of the Covid exposures appears to be with other Covid positive people from outside Graco. All have mild or no symptoms & are at home recovering.
Our positive total now stands at 41.

If you’ve been watching the news of late, you’re starting to see tens of thousands of new layoffs, the airline & aerospace industries are current examples, the coming school year is getting shredded, bankruptcies continue to skyrocket, industrial capital spending globally has cratered, individual state finances have been destroyed.

Since consumer spending has remained fairly strong in many places, I think most people are unfortunately are oblivious to what government shutdowns & other restrictions are doing to major segments of the economy. I’m very concerned & will continue to ring the alarm bells from time to time, including today.

Let me share some facts with you, per the Minnesota dept of health, we have now tested 1.1 million Minnesotans for Covid, our total population is only 5.6 million, of the 1.1 million approximately 70,000 had positive results, we’ve had approximately 1,800 Covid deaths, more than 1,300 of those deaths have come from people who are already in long term care facilities.

Outside of long term care facilities, a person living in Minnesota’s chances of dying from Covid has been 8/1000 of 1%, for Minnesota people under 60yrs of age the chances of dying from Covid has been 2/1000 of 1%. The median age of people dying from Covid in Minnesota has been 83, which is 2 years beyond the median life expectancy in the state.

This is not the way Covid is being portrayed daily by the media, by politicians, by the teachers unions, by the medical folks, etc.

We spent trillions, we bankrupted people, we pulled our kids from school, we put millions out of work, we’ve let the govt turn us into sheep, there’s better than a 99.99 chance that you’ll be fine.

But shut up & put on your mask.

-continued in next post

DownSouth said...

Continued from previous post:

Speaking of masks, since Minnesota put a mask mandate in nearly a month ago there’s been zero improvement in Covid data, zero improvement. Well how can that be since masks supposedly dramatically reduce the transmission of Covid.
Shut up & put on your masks.
The CDC for months has been recommending a 14 day quarantine when travelling internationally or to another state. Many governors have followed this advice & put travel & quarantine restrictions in place, with severe penalties for violators.
This week the CDC said they no longer recommend the quarantine. We never got any data, they told us the original quarantine recommendation was fact based & they provided no data now to support the change in position.
Shut up & put on your mask.
The CDC has told us for months that if you’ve been exposed in close contact with someone with Covid, you should get tested, even if you have no symptoms.

They’ve been telling us that asymptomatic spread is a major concern, even though the WHO has said there’s little evidence to support that asymptomatic spread is common. Of course, the CDC never provided us with any data to support these claims on asymptomatic spread.
Now this week the CDC said that people who’ve been in close contact with someone with Covid don’t need to be tested if they don’t have symptoms & have provided no data & no facts to support this new change.

Shut up & put on your mask.

For almost 6 months now most of our politicians have been putting in place mandates that have tremendous negative consequences on people’s lives, they’ve told us they’re listening to the medical experts.

The media has worked 24/7 to scare people. They’re pushing a single narrative, focusing on those medical experts that are the biggest fearmongers, the sky is falling group of medical experts. Dissenting medical opinions are not allowed.

Shut up & put on your mask.

Did you know that globally over 56 million die per year, 98% of people are dying from something other than Covid. The Asian flu in 1957 & 1958 killed more people than Covid has, the Hong Kong flu in 1968 & 1969 killed more people than Covid has, the Russian flu in 1977 & 1978 killed almost as many as Covid has.

Never before have we used long term economic shutdowns as a tool to deal with a new virus.

Can anybody explain what the end game is? Are we going to keep restrictions in place until we get a vaccine?

Did you know that the regular flu kills 650,000 people a year, & we already have a flu vaccine?

I don’t see one shred of evidence that all these restrictions are saving any lives.
The negative consequences of govt actions that we can measure are mind boggling, & there are untold additional negative consequences that we can’t measure.

I’m extremely frustrated that society has been so willing to go along with govt mandates without expecting those decisions to be supported by facts. My frustration is probably increased because I’ve worked 31 years at Graco, we’re a fact-based organisation & we expect decisions to be made based upon data, we should be expecting the same from our elected officials.

My closing line this week is: Wake up.

John A said...

It's unfortunate Scott has bought into the Biden-will-kill-the-economy-and-stock-market spiel. One would think that, after seeing the stock market do just fine under Obama and the economy do OK, and seeing that both were little different under Trump compared to Obama, that he would have learned presidents have less control over the economy than often advertised. But I guess not. One would have to make a case that Biden is some sort of radical socialist compared to Obama in order for outcomes to be any different - but that's a stretch to say the least. I predict that after Biden wins, and the stock market and economy do just fine under him, Scott will find himself writing blog posts that, contrary to his prognostications in this blog entry, the sky isn't falling after all.

The WSJ, at least, seems to have its head on straight:
Get Ready for the Biden Stock Boom

John A said...

"Biden, on the other hand is a nice, decent guy, with few if any major accomplishments to his credit, but displaying all the signs of an elder politician that is way past his prime and bordering on senility."

BTW, it is Trump who almost certainly has dementia, not Biden. There is an overwhelming amount of evidence for this:
-- Trump's cognitive deficits seem worse. We need to know if he has dementia: Psychologist
-- Is Something Neurologically Wrong With Donald Trump?
And this one in particular makes a compelling case:
-- I’m a brain specialist. I think Trump should be tested for a degenerative brain disease

The following two people should be followed:

A visualization from the first of the two above.
Trump's way of standing is telling

A vote for Donald Trump in November is largely a vote for Mike Pence.

Unknown said...

All doctors are clearly not objective, especially the docs diagnosing Trump without interviewing him. The facts that document Biden's corruption are objective and provide strong evidence that he does not put the country above his own interests. Harris is even worse.

John A said...

@Unknown: "All doctors are clearly not objective, especially the docs diagnosing Trump without interviewing him."

We have non-doctors right here on this blog diagnosing Joe Biden. If it's OK for non-doctors to claim that Joe Biden is in mental decline, then it's surely OK to cite actual doctors stating that Trump is in mental decline. I can show you both doctors and non-doctors citing substantial evidence Trump is in mental decline. The evidence of it is so overwhelming both doctors and non-doctors can see it.

"The facts that document Biden's corruption are objective and provide strong evidence that he does not put the country above his own interests."

It is utterly hilarious watching fans of Donald Trump - who is probably the most corrupt and self-interested president we've ever had - accusing other politicians of being corrupt and self-interested.

Johnny Bee Dawg said...


So THIS is Joe Biden in a 100% controlled environment, and on message.
No audience. No Press. No questions, please.

"Trump almost certainly has dementia"
"overwhelming amount of evidence"
"Trump's way of STANDING is telling!!!"

TDS is real.
In the inimitable words of plagiarist Joseph Biden: "Come on, Man!"

Fred said...

I watched Trump's rally in NH the other night in the hanger at the airport, and I must say he looked totally relaxed, was having fun and had the audience engaged with him throughout. Quite a contrast with Biden's stilted "speech" in Pittsburgh yesterday where he could not even read from his teleprompter without stumbling through his words. I thought Trump was a dead duck a few weeks ago but now I think he's got a shot. I don't know how you could vote for Biden unless you are perfectly happy with Harris taking over a few weeks after he's elected.

John A said...

@Fred: "Quite a contrast with Biden's stilted "speech" in Pittsburgh yesterday where he could not even read from his teleprompter without stumbling through his words."

It appears you are unaware Joe Biden has a stutter. If you see Biden "stumbling through his words," you are witnessing the effects of his stutter, not mental decline.

Flying Robot said...

The economic commentary is as great as ever, but I'm not sure how anyone watching what Potus is doing can sanction it all. I do agree with some of his generic intentions, but he's a vile man who has done incredibly vile things in the name of our great nation. I'll give that a big no thank you in November.

John A said...

Your video is a perfect example of Biden's stutter.

And BTW, I could just as easily claim that you prove BDS (Biden Derangement Syndrome) is real, in addition to TCS (Trump Cult Syndrome). See how easy it is to call people names?

Scott Grannis said...

"John A," regarding the Biden Stock Boom: the article clearly lays out the dangers of a Biden presidency: more regulation and much higher taxes, both of which would curb investment and weaken the economy (and depress PE ratios and thus almost certainly be bad for stocks), then goes on to make some rather pollyannish claims, namely that a kinder and gentler president, better international relations, and a less polluted earth will spark a real surge in economic growth. Sorry, I don't buy that for a minute.

WealthMony said...

Scott, going back to the Obama years, I have been fascinated and encouraged by Chart No. 2. I have a question based on that chart, if you will be so kind as to reply. Going back to the 1950s, the US economy had grown at an average 3.1% annual rate, but during the Obama presidency it grew at only 2.1% annualized. There was a lot of lost GDP. Now, as a result of the COVID shutdowns, much more has been lost. I have heard it said that when one loses sleep, there's no such thing as catching up. Is that true for economic growth? Can we grow at a higher than 3.1% rate, substantially higher, without higher inflation, to make up for all that lost GDP? If so, why couldn't we have a roaring economy for a number of years without imposing inflationary danger where we have too much money chasing too few goods and services?

vito said...

Glad to see you posting worth the wait!

Johnny Bee Dawg said...

John A:
There is no "stuttering" in the video I posted.
But your post gave me a chuckle. So, thank you for that.

Meanwhile, markets are soaring to more all time highs.

Can you imagine voting on purpose to cripple all this recovery with high tax rates and regulations?
Its almost as if there's a part of the populace who'd rather get a govt check instead of a job.
Because a virus, donate know. Keep us safe, Joe!

The online companies are lobbying HARD to keep the virus controls going. Its good for biz!
Its almost as if the rich guy running Amazon who donates to DEMs, also owns a chunk of the Fake News media, too!
EU and UN say this virus shutdown is like their own mini de facto Green New Deal for the USA! Yay!
(Blackrock? Is that you?)

This is "progress"....DEAL with it!

Johnny Bee Dawg said...

"Dontcha know", not "donate know"....curse you, spellcheck!!

Grechster said...

Anybody know the best way to place a sizeable (for me) bet on Trump to win?

Fred said...

John A: I'm sure Nancy Pelosi is advising Biden to drop out of the debates because she's concerned about Joe Biden's "stuttering" confusing Americans as to his mental state. Nice try.

The Cliff Claven of Finance said...

Wealth Money
Obama real GDP growth averaged 1.5 percent the last time I looked. Eliminate the ladst two quarters of a recession that Obama did not cause and the growth was either 2.1 or 2.2 percent. You'd expect somewhay fastet grpwth bouncing back from a recession but that did not happen.

A long term negative for GDP growth is a slowdown of the labor force growth which subtracts roughly 1 percentage point from potential GDP growth each year versus the good old 3 percent growth rate days.

The other part of GDP growth is productivity growth which has been modest except for a few years when the internet became popular.

Real GDP growth is labor force growth plus productivity growth adjusted for inflation. For slow labor force growth maybe blame women not having enough children?
Or birth control pills.

Biden has had so many confused moments that it is scary. He was not like that even six months ago. To the comment that Trump has dementia I have to wonder if you think excessive bragging and exaggerations about his accomplishments are symptoms of dementia ... or symptoms of a good salesman.

The Cliff Claven of Finance said...

Sadly, the number of Americans collecting unemployment compensation increased to 29 million per the Labor Department yesterday. So there are obviously at least 29 million people unemployed. Last week there were 27 million and the peak in May was 32 million. The 29 million is about 18 percent unemployment. The August Bureau of Labor Statistics unemployment number released soon is extremely misleading and should be ignored. It is unfortunate that this blog is perpetually bullish, since fall 2008, so there is a confirmation biTVas to use the low BLS unemployment number and ignore the realistic Labor Department continuing unemployment claims with no seasonal adjustments. Seasonal adjustments dont work in tbe COVID era. What does the realistic 18 percent unemployment estimate mean? It means this economy needs to be reopened quickly. Even then, people are frightened to fly or go to crowded places. Our economy can't perform anywhere near 100 percent with social distancing. Even the voluntary social distancing in Sweden hurt their economy. Democrats want to throttle the economy until election day and that is two more months. That is sick behavior with 29 million people collecting unnemployment compensation. I see Trump winning with Biden now trying to pretend he is a moderate. A pathetic performance. I also see riots after Trump wins that will make what we have now look like a garden party. Prepare for election fraud and lawsuits. Hillary told Joe Don't Concede for a very good reason.

Johnny Bee Dawg said...

"It is unfortunate that this blog is perpetually bullish, since fall 2008..."

"Fall" Oct 31, 2008 - Sept 3, 2020:

S&P 500 Total Return: 13.71% per year
NASDAQ 100 Total Return: 20.17% per year
Unfortunate bullishness, indeed.

BAD blog...BAD blog!!
Now, go to your room!!

God Bless this blog.

In other news: Joe was ANGRY today, my friends. ANGRY at Donald, and he really means it this time.
Joe heard that anonymous, unnamed, former Senior Admin officials declared that TRUMP called dead veterans "losers" and "Suckers". Oh yes. THAT MADE JOE MAD!!!!! How dare Donald say that?!

Oh. Its The Atlantic again. The magazine for crazy people.
Even Bolton, who hates Trump, and was in the actual meetings said its a total lie. It killed Bolton to say that.
BUT JOE IS ANGRY, and wants you to know it!!

"Did you ever seen a Man who likes a mask as much as Joe?" LOL.

Meanwhile CNN, NBC, and ABC ignored the peace news of Kosovo today.
Barack would have gotten another Nobel Peas Price.

Here is a LINK to greatness for the weekend:


"165 credits".
Isn't funny how liars like to go huge, and get very specific. And lie when there's no need.

Nice comeback today for Tech. Record cash will do that.
Getting some PRIME ribeyes and YUGE Sea Scallops for the grill.
Oak wood tonite.
Have a great weekend, you silly bullish Americans!

Scott Grannis said...

Re The Atlantic: just noticed that Lorene Powell Jobs is the majority shareholder of this magazine.

Johnny Bee Dawg said...

I know it’s just a coincidence, but it turns out The Widow Jobs gave the Biden campaign “at least” $500,000 last QUARTER.

Fred said...

Let's be fair about what Bolton said. He did not hear Trump say those things but said the alleged remarks sounded accurate and "I have not heard anybody say, "oh that doesn't sound like the Trump I know" (see, e.g- his remarks about McCain getting shot down and captured during the 2016 campaign). Bolton said it was certainly possible he said those things to others later in the day. I agree that the sources need to come forward to confirm the article but I think it's probably true and if so, disgraceful. My uncle is buried in France along with some of his B-17 crew shot down in '44 on a mission to bomb German synthetic oil fields. I hate to think that Trump believes he was a "sucker" and "loser" because he somehow couldn't pilot his plane to avoid the enemy.

Grechster said...

Fred: I don't know what was or wasn't said. But this article is of interest... I trust the integrity and the intelligence of Glenn Greenwald; he brings up a very good point.

Johnny Bee Dawg said...

It doesn’t sound like ANYTHING Trump has ever said about our military or fallen soldiers.

To compare the comments against POS traitor John McCain is not fair at all.
“Songbird” McCain wasn’t tortured in Vietnam. He was injured in his jet crash. The jet he crashed when disobeying orders and hot dogging.
In fact, “Songbird” McCain, the admiral’s son, was allowed to go from cell to cell to encourage our guys to talk and not endure torture.

And don’t forget the fire he caused on the USS Forestall when he broke regulations with a “wet start “ of his jet to see the big flame come out. Over 100 men died and the eyewitness testimony against the Admiral’s son was all thrown out of the trial. He went AWOL on a chopper while the flames burnt, and went to Morocco for a drunken gambling spree.

Nobody in the MIA/POW community thinks John McCain was a war hero. He used his power in committee to block all efforts to investigate whether our men were still alive and being held captive. All those families hate his guts. Many believe he was hiding even more bad reports about his own conduct.

Trump knew all about McCain’s disgraceful war record, and spoke truth to power in saying so. Lots of veterans appreciated that.
And let’s not forget that McCain delivered and promoted the bogus Steele dossier to start a coup against Trump.

There are ZERO sources for the comments, just like a dozen attempts by the press already. DEMs did the same thing to Abe Lincoln, accusing him of laughing and cutting up while walking thru the dead Union soldiers. It’s an old DEM and crooked Press trick, and it didn’t work then, either. The people supposedly accusing Trump of this have no reason to hide. Let them come forward.

Atlantic magazine, indeed.

randy said...

Not going along with that line JBD. Whether or not all the things you say about McCain are true, he is/was still a symbol of service and sacrifice to the country. Only an idiot of a president, even if only for cynical political reasons, would disparage him like Trump did.

The Cliff Claven of Finance said...

Deputy Dawg is right about McCain.
Even without the details ... being shot down doesn't make one a my opinion going to Vietnam does not make one a hero. I told Selective Service in 1971 I would go to prison rather than picking up a gun, going to another country, and shooting people who did not attack the US. I filed as a C.O.

Now the best news from last week for all the permanent bulls here:
US railroads total intermodal units (trailers and containers) in August 2020 were 3 percent HIGHER than in August 2019.That is good news for September. Those goods are headed for retail stores or directly to homes and businesses via e-commerce.

Johnny Bee Dawg said...

Hundreds of thousands of people (if not millions) have been angered by McCain and the media insisting that he was a "war hero" for the past 5 decades, while it was a lie. It was an affront to actual war heroes. Ask ANY family in the POW/MIA movement.

Is war hero talk was all circus propaganda.

And Trump made his comments about liar McCain a full YEAR AND A HALF before he ever took office as President.
Interesting you think his comments were made for "cynical political reasons". Trump said it to a REPUBLICAN audience, and got booed for it. Trump had the bravery to go against the false narrative in the room full of McCain worshippers. ALL the other PUB candidates scolded him and clutched their pearls. Media blew their tops. PUB "experts" predicted his comment would ruin his run for President.

Trump earned my vote that day with those comments.
That is the EXACT type of guy I want setting things right with China, and fighting Communist Enemies inside our Federal government.

And I said earlier that McCain went AWOL to Morroco, but it was actually Saigon. Admiral's son used his name to escape the ship with a NY Times reporter who gave him a lift on his helicopter.

Johnny Bee Dawg said...

Biden a nice, decent guy? I doubt that fired prosecutor going after Hunter's corrupt company in Ukraine agrees.

This is an oldie, but a goodie.
Who can forget good ol' Connie Chung?
Joe Biden's lies are legendary, and he's still the same plagiarist he was 33 years ago.

I wonder if there's video of him lying about how his wife was killed? He's done that quite a bit:

And Biden was still lying about Trump's "fine people" quote as late as his Kenosha speech!
I wonder when the media will call him out on that. On...wait. They tell that one, too.

I'm sure good ol' Chris Wallace will nail him in the debate on that lie. Oh...wait. Wallace is a registered DEM, and avowed NeverTrumper. No wonder he is moderating.
Never mind.

Higher tax rates, more regulations, and reduced US sovereignty is just what Americans are clamoring for.
"C'mon Man!"

Unknown said...

Cliff Claven wrote: “Sadly, the number of Americans collecting unemployment compensation increased to 29 million per the Labor Department yesterday.”

But, shows the non-adjusted State data sums to less than 14 milion. Where does the 29 million number come from?

randy said...

Now the UN is meddling in our elections. But I'm not entirely sure for which side:

The United Nations Secretary-General Antonio Guterres connecting the coronavirus pandemic with “patriarchy.”

“The Covid-19 pandemic is demonstrating what we all know: millennia of patriarchy have resulted in a male-dominated world with a male-dominated culture which damages everyone – women, men, girls and boys,” the UN tweeted last weekend, quoting a passage from Guterres’ speech.

Johnny Bee Dawg said...


Donald Trump's treatment of War Veterans.
Mr. President, you'll have to do better than that.

The Cliff Claven of Finance said...

The 29 million was from the Labor department last Thursday. I believe that number gives a more accurate picture of our economy than the 8.4 percent BLS estimate using their traditional methodology. The wufe and I did a field study of everyone we know to estimate how many of them would have been recognized as unemployed, or partially unemployed,if called by BLS for their employment survey.

I wrote an article on my finance blog explaining why the BLS number is not reflecting the total paid work hours lost due to Covid and overreaction to Covid. The blog, since 2008, is here.

The 29 million includes people whose work hours were cut significantly but are not gettong zero work hours.

Here is a real example with names withheld. A small business owner cut the hours of all 10 employees by 50 percent. The BLS would say none of the 10 were unemployed. I say cutting 10 employees' hours by 50 percent reduces paid hours of work the same as laying off 5 of the 10 employees. But if those 5 people would be laid off and called by BLS, they would be officially unemployed IF they were actively looking for a job. Which they might not be doing during the pandemic.

The 29 million includes partial unemployment and full unemployment combined -- some recipients of federal unemployment compensation are working part time, who had been working full time.

Another example is a friend whose small business has nearly zero business during the pandemic. He is selling assets to survive. If the BLS called him, he would be declared to be employed.

I published a for profit finance newsletter for 43 years as a hobby. I had only one minor complaint about BLS in those years. As of August I believe the U3 unemployment rate is deceiving the public because the hours of work lost were far higher than 8.4 petcent unemployment implies. Meaning opening up the US economy is even more important than 8.4 percent suggests.

I know this blog has been bullish since Fall 2008, just before a market crash, and I assume will always be bullish. So if you just assume "bullish" you don't have to bother reading any articles. I assume there will never be a prediction of a recession here and this blog will always be bullish on stocks. But sometimes the official economic data releases can be deceptive and need to be analyzed in any way possible. A field study of anecdotes is legitimate -- the more anecdotes the better the conclusion.

The medicine HCQ deperately needed the CDC to do a field study of the 1000's of doctors prescribing the drug in March and April. No such field study ever happened.

Unknown said...

Cliff Claven,
Thanks for your response. I checked again for the Labor Dept stats and a different link ( also shows a number around 14 Million, not 29 Million. I agree we still have problems, but I am having a hard time finding a DOL link to verify this.

The Cliff Claven of Finance said...

You need to combine state and new PUA and other federal unemployment compensation to reach 29 million. I did that for you and explained why the 8 4 petcent unemployment was deceptively low in my blog article at
Sorry you could not find the data online.

The Cliff Claven of Finance said...

Sorry that was

Brian H said...

Fantastic post Scott. Very helpful to see the view from the perspective of the millions of actors who make up the market.