Weekly Market Comment: May 22, 2020

What happened to politicians bashing Big Pharma to great public applause?

The bi-partisan criticism has evaporated as the world desperately awaits medical breakthroughs to restore our world back to normal. Help from large drug companies has never been so universally anticipated.

Most experts and policy makers, including the Federal Reserve, believe a full economic recovery will require a vaccine to end virus threat. As the Fed’s Powell said, “the no.1 thing, of course, is people believing that it’s safe to go back to work. And that’s about having a sensible, thoughtful reopening of the economy, something that we all want – and something that we’re in the early stages of now,” he said. “It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine.”

This is why Monday’s news from Moderna was taken so positively by the market. Their 8 person human safety trial showed all healthy volunteers who took their messenger RNA-based vaccine (the first vaccine to use rDNA as a delivery mechanism) developed as much or more antibodies as people who contracted the diseases and recovered. A 600 person trial is now being enrolled with another multi-thousand study being planned for July. The company said that a vaccine could be ready for a limited roll-out to front-line workers in January.

That’s still a big “if”, but so far so good. The company’s stock jumped as much as 30%, prompting them to smartly issue a quick financing. Keep in mind that it remains a crapshoot to invest in vaccine companies as we don’t know if they will find successful solutions. Also note that the company insiders sold nearly $30 million worth of stock. They know better than anyone that risks remain.

Is our quarantine groundhog day finally over?

All 50 states have begun to reopen in some way or another, and so is Canada. The other night Marko met up with a friend at a restaurant patio where half the tables were laid out. The wait staff wore masks and rubber gloves, a decision the restaurant made, so as to keep staff safe and to send a message to patrons that they are taking every precaution to keep them safe, too.

While that’s encouraging from an economic perspective, global daily new covid-19 cases hit a record this week.

“Home ownership is like blood pressure: you can have too much of it,” said the CEO of the CMHC.

The Canadian Mortgage and Housing Corporation (CMHC) has warned that home prices could fall anywhere between 9% and 18% over the next year as debt as a percentage of personal disposable income is expected to climb “well over 200% through 2021”. They see as much as 1/5th of mortgage payers falling in arrears. The CMHC also warned that its protections are not unlimited.

That’s a warning to the banks, which would be on the hook for what the CMHC doesn’t cover.

While how the economy unfolds, Ned Davis Research thinks the recession is likely to end in the 3rd quarter. Improved auto sales are a leading indicator, as will be a reversal in unemployment claims (which has not yet reversed but is rising at less than a third of the speed we saw a few weeks ago).

A return to normal employment and economic growth is going to take time but there are many indications that the worst of the pandemic’s damage on the economy is behind us. Fingers crossed for all our scientists desperately working to beat the virus once and for all.

Notable reads:

Musing Beyond The Market

From the recently released biography of Saudi’s effective leader Mohammed bin Salman, titled MBS:

“It is piracy,” she said, accusing MBS of using the allegation of corruption to cut down anyone who might outshine him. “Anyone who has money in this country, he wants it. Anyone who has a good reputation in this country, he wants to destroy it.”

Others questioned why some princes widely seen as notoriously corrupt had not gone to the Ritz. Two of them were sons of King Salman’s full brothers. Had he given them a pass, or an opportunity to strike a private deal beforehand? It was never clear.

MBS also faced an optics problem. He had never explained where he got the money to buy his [$460 million] yacht. Less than two weeks into the campaign, a mystery buyer at Christie’s auction house in New York laid down $450.3 million for Leonardo da Vinci’s Salvator Mundi. That was more than three times what the painting’s previous owner had paid and it shattered the record for the highest price ever paid for a piece of art at auction. A little-known Saudi prince was soon revealed to be the mystery buyer, and American intelligence agencies confirmed that he was a proxy for MBS. (MBS later denied that he had bought the painting, but said that “any human with good taste must admire art.”)

A short time later, The World’s Most Expensive Home,” which MBS had bought for more than $300 million two years earlier, was also unearthed. These did not appear to be the shopping habits of a man committed to curbing royal excesses, but many of my Saudi friends cheered on the crackdown nevertheless, taking pleasure in seeing figures who had flown so high brought so low.

Over time, information trickled out casting the operation in a harsher light. Princes who had dodged the first round of arrests but complained about them were arrested. Some of the detainees were welcomed with beatings and other physical abuse, sending a number to a nearby hospital. One ended up dead, a man named Ali al-Qahtani, who had been a sidekick to one of King Abdullah’s sons. When his boss was arrested, al-Qahtani was taken, too, and died in custody….

The Saudi government vehemently denied that any detainees were abused.”

The TSX Composite gained 1.9% as the S&P 500 rose 3.2%.