Why the heck are people so optimistic that we can reopen the country without any serious health consequences? Where does this confidence come from? Has anything really changed? Did we adopt universal testing and contact tracing in each state when I wasn't looking?
Is that why we can have such a strong month with individual sectors rallying one after another?
That's not it.
That's not it at all. In fact, it's the opposite. It's much more about a level of hope combined with a safety net that covers many stocks of large companies, even as it totally fails to protect the smaller enterprises, even if the proprietors get a check from the government.
Let me trace out all the hopes and the dreams people have about opening the economy, cockeyed or not.
First, there's an imperative. We simply can't stay closed anymore. People have to go to work. This is a compromise position that I totally get. At a certain point, we have to say there are going to be necessary casualties, but it's time to allow people a chance to put food on the table again. People, we hope, will be careful and use some serious hygiene they didn't know about before. Hopefully, they will wear masks. Maybe OSHA will assert itself, if it hasn't been dismantled, and demand that workers wear masks in all stores and restaurants to keep customers from getting Covid-19 and customers do the same to not infect workers.
It's time to do this, because by this point the hospital system may be ready for an outbreak that might occur as a risk of opening. I believe many of the governors who are running the show think that the people of their states don't have to participate if they are afraid or think not enough has been done to help them. It's basically an at-risk quarantine: Those who know that they are likely in a category of high risk for death if they get Covid-19: If they are obese, diabetic, have a heart condition or asthma, they do not have to go out or can go out very rarely until we have a vaccine. That's truly what this is about when you think about it.
Instead of having everyone shackled to their home even if they aren't in a high risk group and are likely to to survive the disease without hospitalization, you are letting out everyone except those who could be most vulnerable. Silly? No, I think it's fair, provided we have enough testing to know if you have it early on.
If we don't, then I fear a lot of at-risk people will venture out and get sick and overwhelm the system. But that, again, is the risk people must accept if we are going to avoid what can only be described as a second Depression. This is why you can have a tally in travel or leisure stocks and why mall outfits that I told you I like, such as Simon Properties (SPG) , might be worth a gamble. This is why people will continue to buy Home Depot (HD) and Lowe's (LOW) . This is why Amazon (AMZN) keeps going down, because people want to do some actual shopping. It's still a pastime.
There's a problem. Not everything will be open. For example, I asked Gary Kelly the CEO of Southwest Airlines (LUV) , why more people aren't flying: SOT
But if we are open for business, someone, maybe many cooped up people, will show. So the airlines are all running
Second, I genuinely believe that some governors and possibly our mercurial president, believe this thing is about to run its course. Don't' laugh. That's what happened with the Spanish flu in 1919. It just ended. Was it herd immunity where so many people had it and lived that there was no one else to sicken, no more people left to die? Pretty much so. I think it is early for this view, but miracles do happen. Very bad to invest on miracles, though.
Third, once again rates are so low that if you have a decent dividend and you can raise that dividend, you are fiat currency. This morning 3M (MMM) reported and while it had some warts, there is no doubt that it can maintain its bountiful dividend, something that had been in question. Same with IBM (IBM) , which actually raised its quarterly dividend by a penny per share. I know; tiny. But it's the 25th consecutive year, and you don't raise it to cut it. I continue to believe that IBM's a good investment and when it got to $116 last week I pounded the table. Now it is at $127. You need income. IBM's stock gives it to you.
Fourth, the Fed or the Treasury seem hellbent on helping struggling enterprises get on their feet. We know this because the Fed backstopped Carnival (CCL) on its recent bond offering, at least according to the Wall Street Journal. Talk about a non-essential service that delivered Covid by the boatload. The Treasury's still writing checks and bouncing the big companies that got a lot of the money meant for small companies as sort of a business-interruption insurance concept. Don't know what to do with yourself? How about a cruise. They are so cheap now that you might want to get your mask, your Lysol, and hit the deck? The companies are saying they are getting heavily booked for next year. Why not this year?
Fifth, the vaccine. Maybe it is coming sooner. Why not open up if a vaccine is on the way? We know Moderna (MRNA) , Johnson & Johnson (JNJ) , Pfizer (PFE) , Merck (MRK) , Regeneron (REGN) , Glaxo SmithKline (GSK) , and Sanofi (SNY) are all trying beat this thing. If we can get antivirals that keep us alive and get all but the very old and sick people out of the hospital quickly, then we actually need to be ready for an open economy.
There's too much damage being done here. The vaccine is the answer, the timeline might be year, an incredibly fast time from injecting a healthy person with something that they don't even understand well, and have it ward off Covid-19. I wish we had one Manhattan Project instead of all of these disparate entities. But so be it.
Finally I think that at a certain point, there could be social arrest. While I know, unlike the 1930s, we have a safety net, can we really have an army of 25 million unemployed? It's not tenable. Time to get back to work.
So, what's my reservation? I think we left out what has made other societies able to open without a lot of risk: universal and frequent testing. We still can't do that despite what you hear from Washington. Contact tracing like that offered by Apple (AAPL) and Alphabet's (GOOGL) Google where you are told that you were near someone who was infected, with no names or even locations, so there's no privacy violation. That one has no champion and seems stillborn.
Americans, particularly men, don't like to wear masks. I think they believe it's silly. They don't know their stand is selfish. The mask is to help cut down on you giving Covid to someone else during that bizarre, frightening period where you are sick and don't know it. Of course it doesn't eliminate the risk. But it reduces it pretty dramatically.
And, perhaps most important, physical distancing will wipe out many an entity, whether it be sports, which can't be watched or played, or restaurants, which have to pull out half the tables and still make money past when the PPP money runs out. Sure, Constellation Brands (STZ) can run, people will be drinking Modelo and even Corona on Cinco de Mayo next week, but if they are six feet apart, a bar could be filled up with a dozen people instead of 80 and you can't start charging $100 per beer.
So, I say, bring it on. I'm an optimist. But I am also a realist: The stocks that are running this week are the cooped up stocks of companies that have to be doing better. Ask yourself this: Will Simon Properties make more or less money when it opens 49 malls May first?