Have gun. Will travel. His name was Paladin. He was played by Richard Boone way back in the early days of serial television (1957-1963). He was perhaps popular culture's first "anti-hero." Certainly. Paladin was no traditional hero, nor was he villainous. Not in the least. He was a fictional gun for hire brought to us through the wonders of over the air transmission well before such transmission was colorized. He was educated. He gambled, and won. He could speak French, or Mandarin if required. He could quote Shakespeare. He could quote Seneca. Yes, sometimes he killed. Not anyone though. He was not truly mercenary. Just bad guys who left him no choice. He would walk away from lucrative compensation should he find the cause lacking in justification.
Every kid my age loved cowboy movies and western style television, even if we watched many of these programs only in syndication. Being sick is awful when you're six years old. Unless Mom lets you stay home from school, sets you up on a "couch-bed", makes you some toast, and puts a "cowboy" show on the house's one TV set because she knows that's what you like. Then being sick still stinks, but you know that your Mom... she does not. Now a much older man, I still fancy the dashing skill and education flashed by American televisions' first conflicted character. Some things have changed though. At times, there would be scenes in these shows that make one cringe to even think such words or visuals were once socially acceptable. There would also be other scenes that appear to be 30 years or more ahead of their time in the progression of human interaction. What an early stage in the development of our social norms. One thing has never changed. She may live in Florida. I may live in New York. That same woman? She still hurts when she knows that I don't feel very well.
So why bring up such a complex creation, who was really neither hero, nor villain? Whose creation was probably meant to impress pre-adolescent males growing up in a far simpler time? My friends, because that's right where we are. Just take a look at our situation. We are complex, yet underdeveloped. Oh, we have a clear villain. That would be the pandemic. This would be the cause. The effects are multiple, and quite unclear even to the trained eye. This is where the "Paladins" are. Sophisticated. Quite earnest in the attempt to do the right thing, and I think that's true on both sides of the aisle in DC. Mistakes have been made again, on both sides of the aisle. I don't think the vilification of one side nor the other (easy for me to say being neither blue nor red) helps much at all. There will be a time for that. You either rehire people in positions of leadership or you do not. Right now, a common enemy is threatening not only our economies and our quality of life but the fragility of life itself. Everyone take a breath right now. Taste it. Cherish it. So sweet.
Five Days Gone
Last week, the financials led off second quarter earnings. What they, in aggregate... showed us was telling enough. If you can trade these markets, you can survive in almost any environment. This has been one of my sticking points forever. Trade the field before you. Be amphibious. If you are out of step with the marketplace, do not blame the marketplace. Understand that you have failed to adapt. This is something that everyone including yours truly, can always improve upon.
What I do find troubling not as a trader, but as an economist would be the size of the reserves that banks have prepared for future loan losses. On the one hand, the virus remains in control despite our best efforts. The aggressive policy actions taken across both fiscal and monetary fronts have forced an almost "vee shaped" recovery in equity markets as there has necessarily been a revaluation of such asset prices. This morning, you wake with the S&P 500 trading at 22.3 times forward looking earnings (according to FactSet) with the Consumer Discretionary sector trading at an incredible 46 times. Even the already mentioned and traditionally undervalued (at least vs. tangible book value) Financial sector trades at 14.7 rimes versus "sector specific" five and 10 year averages that have valued that sector with a 12 handle.
Moving The Football
What does this increased valuation across perhaps the most unloved (save for Energy) sector of all tell us? I don't know everything. I am no "Paladin", for if I need to quote Seneca, I will check the quote prior to submitting for publication. That said, there is at least a chance that aggressive fiscal policy that borders on Modern Monetary Theory, and aggressive monetary policy that borders on Yield Curve Control have brought forward rapid economic recovery as long as economies can remain fully functional. The problem as I see it is that the framework of severe recession has been left in place, and this place will be tested, as Congress wrestles with further fiscal support, and as states that had obviously gotten ahead of themselves are now likely forced by reality to renew efforts to reduce human interaction, that in turn slows economic activity.
The discussion is not whether the $600 a week federal stipend paid in addition to those successfully filing for state level unemployment benefits was right or wrong. The discussion is now how to either end, extend, or taper these payments. There is no way to mend this issue without doing statistically significant damage somewhere. Either consumer behavior stalls now or the Federal government's budget continues to test the limits of permanent damage that will eventually pressure long term growth. Other than that tidbit of information, piling on debt does not matter. At least not until there is a widespread consumer level inflation that forces rates higher in self defense. Then it will matter greatly. Third and 10? Passing down?
The point here? The virus matters most, This includes news related to not just spread, and mortality, but also news relative to treatment and immunization. More fiscal help is on the way, but our legislative friends will likely take us to the brink of failure before agreeing on anything. Both sides will take credit while casting blame. Headline risk is unavoidable in my opinion. At least, I think we can count on the Fed for as long as possible. Until there is an "all clear", I think the Fed errs on the side of accommodation for longer than they probably should. That will remain a market positive. For the time being. Expected electoral results are not priced into this market just yet, and probably can not be for some time still.
Monday's "Need To Knows"
For one, the S&P 500 is catching up to the Nasdaq Composite, at least since the wild swings of early last week. By catching up, I refer to the gap between where the index went to sleep for the weekend, and the gap in between that spot and the 50 day SMA for each index. Currently, the Nasdaq Composite stands at a 7.4% premium to its own 50 day line, down from 12% not too long ago. This same premium stands at 5.1% for the S&P 500, which is up from virtually flat in late June. By the way, trading volume was absolutely anemic on Friday, especially when one considers that that was the third Friday of the month.
Secondly, traders will note that European equities as well as U.S. equity index futures have literally traded all over the map this morning. There has been some disappointment as meetings of European leaders that had been expected to last two days have now turned into four, and the expected E750 in funds set aside to aid in the bloc's economic response to the virus now appears to possibly be far smaller in size.
Thirdly, there is some news, and will likely be more news later on today on the vaccine front. The government of the United Kingdom announced on Monday that the nation had secured early access to as many as 90 million early doses of two vaccine candidates currently under collaborative development between U.S. drugmaker Pfizer (PFE) and German biotech BioNTech (BNTX) . The British government already has a deal with AstraZeneca (AZN) as that drugmaker is working in partnership with the University of Oxford on a vaccine candidate of their own. This is where today's news will come from as Phase One results are expected. Early reports are hopeful that this particular vaccine possibly produces both a strong antibody response as well as active "killer T-cell" production. Let us hope. By the way, the Pfizer/BioNTech collaboration has been "fast-tracked" by the FDA in the U.S.
Economics (All Times Eastern)
There are no significant domestic macroeconomic data-points scheduled for release.
The Fed (All Times Eastern)
Federal Reserve Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)