Friday Follies – America Heads to the Beaches
"Come sleep on the beach
Keep within my reach
I just want to die with you near
I'm feeling so high with you here
I'm wet and I'm cold
But thank God I ain't old
Nothing is planned, by the sea and the sand" – Who
It is, as noted by Linette Lopez "The Perfect Storm of Stupid" in which, for purely economic reasons, we are risking the lives of Millions of Americans to get business back up and running for Memorial Day Weekend. She notes that China's economic rebound has been led by manufacturing and industrial sectors while the country's service sector, especially when it comes to transportation and leisure, is still pretty dormant. That is bad news for the US. Most of our economy is made up of small and midsize businesses in the service sector. Consumption is what we do.
Manufacturing will not lead America out of this economic malaise; it simply isn't big enough. The coronavirus pandemic has hit our economy exactly where it counts: in services. we have in the market is an unholy mess. We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors has the ability to make the biggest waves. It's very stupid — people are going to drown.
Meanwhile, I've been discussing my own experiences in Florida this week as you are hard-pressed to find people wearing masks down here and the hotel my daughter is staying at (she drove down) is now about 1/3 full and the restaurant we ate at last night (I know!) was half full with the staff wearing masks but none of the customers doing so.
This has been going on since last weekend and every day people get braver and braver but, meanwhile, do you see that spike in new infections. Well, spike is an understatement because it's a 100% increase in new cases over the prior few days. I don't want to jump to conclusions so we'll check back on Tuesday but let's say we add 1,200 a day for the next 3 days – that would be 4,800 in 4 days or a 10% increase in cases just a week after we open up. How would that be going?
Texas is also back in the 1,000 case per day club after opening back up as is Georgia (a much smaller state). Wisconsin only has 6M people yet they've managed to jump from 100 back to 300 infections a day in just a week since opening – and they are one of Trump's main success stories!
North Carolina and North Dakota are both states with inferiority complexes to their southern sister states and both of them rushed to re-open and both of them are on disastrous tracks. It's very, very clear that reopening leads to more cases – just how many cases remains to be seen and then we'll get to see how many people do have to die for the economy – if it even ends up being enough to help.
Nonetheless, the market should have a bit of a boost this morning as the beaches are, indeed open and, so far, only a few kids have been eaten by sharks so why ruin everyone else's fun, right? Mnuchin and Trump are pushing the GOP to move forward with another stimulus package and we have dozens of potential cures and vaccines people are already counting on to fix everything but it reminds me of 30 years of Jerry Lewis telethons for Muscular Dystrophy when he always talked about the promising cures they were working on and that it was always "just around the corner".
I'm not saying we shouldn't work on cures for these things – I think it's urgent that we do so – I just think that we should be realistic about the problem, how badly it will affect us and how long it will take to fix so people can do ACCURATE assessments of the situation. False hopes can cause as much damage as the disease….
False hopes are very much driving this rally at the moment and we did well (again) shorting the S&P (/ES) at 2,950 yesterday so that's still going to be our line and 1,350 on the Russell (/RTY) has also been hard to cross. I can't believe we're going to go into the weekend without a sell-off – there must be some rational traders out there – somewhere.
Have a great weekend – enjoy the beaches,