How the S&P 500 has Ignored the Resurgence of the Coronavirus Pandemic

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Highlights...

1. The S&P 500 index (a.k.a., the broader market) grew at a spectacular rate of 5.5% in July 2020, defying the on-going massive resurgence of the pandemic outbreak in the Sunbelt.

2. Today (7/31), the index closed at 3,271, just 122 points below the all-time high of 3,393 set on February 10, 2020. Considering that the recent trend has been a linear, the index is expected to eclipse the prior high sometime next week. 

3. Though the trading volume in July (4.325B) has been slightly lighter than the YTD average (5.257B), it is by no means very thin. The lighter volume in July generally results from the 4th of July vacation stint.

4. The 49% reversal thus far since the March 23 low of 2,192 is simply awe-inspiring. The fact that the volatility index (VIX) is still at 24.46 -- far above the 52-week low of 11.42 -- perhaps indicates that the market is not overbought yet, meaning it has quite a bit of room on the upside.

5. The trend will remain bullish if it breaks out of the congestion between 3,275 and 3,300. Likewise, it has developed firm support around 3,150, breaching which, it may quickly fall into a short-term correction.

Stay safe!

-Sid Som
homequant@gmail.com

Coronavirus Pandemic – 5 Countries from 5 Continents Occupy the Top 5 Places (Truly Global)

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The above table shows the five countries - from the five different continents - are topping the current list of the total number of cases thus far (as of 7/24). The US continues to be the front-runner with 4.25M cases, followed by Brazil (2.35M), India (1.34M), Russia (800K), and South Africa (422K). The fact that the top five countries represent five different continents makes this pandemic a truly global one. 

The correlation matrix shows that while the USA has high collinearity with India and South Africa and moderately high correlation with Brazil, it has a high negative correlation with Russia. In fact, Russia has negative correlations with all four countries. The reason is simple: While the daily cases of Brazil, India, South Africa, and the US are rapidly rising, Russia has been trending down. This inverse relation has generated negative correlation coefficients.

Brazil -- Brazil's pandemic nightmare has been an open secret. It has 2.35M cases, with a death toll of 85K. The daily average caseload was 14,118 in May, doubling to 29,572 in June, and further elevating to 38,497 in July. At 48%, it has one of the highest positivity rates in the world. Being located in the Southern Hemisphere it has also run into the winter flu season, resulting in a double whammy. 

India -- Of these five countries, India's chart is the most awful. Though the slope is not an exponential one yet, it has already broken past the linear trend, making it look all the more appalling. The rapid change in the slope can be explained by the change in the daily average caseload from May to July: The daily average caseload in May was a mere 4,893, skyrocketing sixfold to 29,208 in July. The monthly death toll also jumped fourfold between May and July, from 134 in May to 564 in July.

    

Russia -- After having peaked in early May, Russia's daily cases have been steadily declining. The daily average caseload in May was 9,714, declining to 6,400 in July. The death toll has moved up slightly from 117 in May to 155 in June/July. Of course, Russia has done a great job in testing, thus achieving one of the best credentials in the world. 

     

South Africa -- Though South Africa's trendline resembles that of India's, it nonetheless lacks the expanse of its counterpart's. The daily case average of 891 in May grew thirteen-fold to 11,167 in July. The death toll also grew eightfold during that period, although South Africa has one of the lowest death rates in the world. Unfortunately, its positivity rate has been climbing, causing serious concerns in some of its densely-populated cities like Johannesburg, Cape Town, Durban, etc.

The USA -- Though the initial outbreak in the US had tapered by mid-June, a powerful resurgence in the Sunbelt -- particularly Arizona, California, Florida, Georgia, and Texas -- has renewed its place at the top of the chart. In fact, as of today, California has eclipsed New York in total cases, the original epicenter of the outbreak in the country. Florida and Texas now occupy third and fourth places. The daily death toll has also been climbing, forcing many states to return to the partial closure of businesses and restoration of mitigation measures like face-coverings, curfews, etc.   

Stay safe!

-Sid Som

homequant@gmail.com 

Link to the Book

Coronavirus Pandemic – A Powerful Resurgence is Tormenting Florida

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The resurgence of the outbreak in Florida that started in mid-June has grown into a full-blown explosion by early July, forcing re-closing of bars, restaurants, and other retail establishments. Some counties in southern Florida are facing curfews, meaning gatherings of ten or more are prohibited. 

The assumption that the rising heat would help contain the spread of the virus in Florida has turned out to be false, as the mid-day temperatures are consistently hitting the low-to-mid 90's every day.  

Highlights...

1. In May, the daily cases averaged at 725, surging exponentially to 3,209 in June and tripling to 10,398 in July. The highest number of cases were recorded on 7/12 at 15,300 while the daily cases exceeded 10K in nine out of the last ten days.

2. The 5-day moving average trendline in July thus far looks genuinely worrisome. The recent highs far exceed the prior peaks in May and June, raising serious concerns for the public health professionals, considering that most beaches, theme parks and indoor entertainment centers are already open. Shockingly, amid these skyrocketing daily cases, Disney World opened on 7/11, while it remained closed in May-June when the cases were flat-lining. 

3. Unfortunately, the daily death tolls have not subsided either. Though the hospitals are much better equipped today to handle serious and critical cases than they were at the onset of the outbreak, it was, therefore, widely expected that the death toll would come down fast. But the stats are not confirming that expectation. The daily toll averaged at 35 in June, while it more than doubled to 79 in July. In the last seven days the average jumped to an eye-popping 114.

4. The 5-day moving average trendline of daily death tolls in July is dreadfully upsloping, confirming that the death tolls are rapidly rising, rather than going sideways as was the case during May-June. Of course, the only silver lining in this resurgence is that the growth angle of the daily cases is more expansive than the growth angle of the daily deaths.  

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5. Though Florida has one of the lowest death rates in the country, its positivity rate has been climbing, causing serious concern for the hospital system. Also, given its population demographic, the rising positivity rate is a double whammy. At 88%, it has the highest active rate in the Sunbelt, closely followed by Arizona, and remains significantly above the national average of 50%. Fortunately, its testing credentials have been getting better. 

Politics aside, Florida needs to get its act together before the resurgence turns into a deadly second wave. 
Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Florida


-Sid Som
homequant@gmail.com

Link to the Book

Coronavirus Outbreak – the Sunbelt Faces a Powerful 2nd Surge

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A powerful second surge has been sweeping through the Sunbelt since mid-May. Arizona, California, Florida, Georgia and Texas have been registering record-breaking daily cases, pushing the daily US totals above 50K. Today (7/2), the total cases in the US hit the highest ever at 57K, buoyed by Florida's first-ever 10K, followed by California's 9.3K and Texas' 7.5K.

Highlights...

1. In the last five days alone, the total number of cases nationally jumped 10%. While the total escalation, since the beginning of the surge on 6/15, has been 30%, Florida has registered a whopping 120% surge, along with a rising death toll of 25%. Los Angeles County in California has also been registering significant surges in both categories. 

2. While the US daily average jumped from 23,000 in May to 27,000 in June, it has jumped to 35,500 since 6/15 alone. The graph depicting the daily cases makes an emphatic case. The 7-day moving average trendline confirms the rapid surge as well.

3. Of course, the regression graph of total deaths to total cases is somewhat comforting. While the death rate exceeded the case rate at the middle of the curve (meaning between 1.6M and 2.2M cases), it has tapered significantly during the recent surge. The optimal fit is, therefore, logarithmic, rather than exponential or even linear. The high r-squared value backs up the fit.

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4. Though the US accounts for 26% of the world's cases and 25% of all deaths so far, the overall death rate, despite the surge, has been steadily declining. Of course, due to the on-going surge, the active case rate has been on the rise again. While the per capita testing credentials have inched up, the pace has been less than stellar; for instance, Russia and the UK have been doing a much better job than the US. The positivity rate has been holding steady at around 8%.

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5. Fortunately, the surge in the Sunbelt has not spiked the death rates. In fact, the death rates in Northeast have still been significantly higher than those of the surging states; Georgia's death rate of 3.2% has been the highest among these states.

Unfortunately, the surge has elevated the active case rate, which is quite concerning. If the criticality of the cases starts to rise, it will start putting significant pressure on hospitals, especially ICUs, as was the case at the height of the outbreak in New York and New Jersey. 

The silver lining has been the increased testing and the moderate positivity rates thus far. Texas, however, needs to intensify testing to isolate the moderate cases from the serious ones to avoid having to end up in the same situation that New York was in at its peak.

Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_the_United_States

-Sid Som
homequant@gmail.com
  

Post Pandemic, Home Ownership will require New Incentives, Promotions and Protections

Post pandemic, federal and state governments must provide additional protections and incentives to American citizens to buy primary residences. In doing so, retirement savings and investment in primary residence must be promoted simultaneously and economically interchangeably.

1. Restrictions on Foreign Home Ownership -– Since there is a real shortage of affordable homes in the US, foreigners must not be allowed to penetrate that segment of the housing market. Ideally, foreigners should be allowed to compete for the expensive-to-upscale homes only. Of course, that sector varies from market to market, so each state should regulate the price level and the corresponding inventory. Upon approval, the MLS and other sales agencies should allow the listing of those homes, clearly specifying "Open for Foreign Buying." Again, while the foreign buyers should be allowed to buy American homes, they must be prevented from competing for the inventory that the middle-class Americans demand. Since credit reports may not be available for them, a meaningful vetting process must also be established.  

2. Penalty and Tax-free use of Retirement Funds -- One of the primary obstacles to homeownership for the younger generation has always been the access to the required down payments and closing costs, which the primary mortgages do not finance. To incentivize the younger generation into buying primary residences, they should be allowed to use funds from their IRA, 401(K), Pension and Deferred Compensation plans totally penalty-and tax-free to finance down payments and closing costs, which will simultaneously incentivize retirement savings and homeownership. Since most 401(K)s also come with some employer matching, the required down payment accumulation will be further accentuated.  

3. Introduce Million-dollar Home Sales Surtax -– Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must be subjected to additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive given the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment. 

4. Higher Transfer Taxes for Gamers and Flippers -– At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when primary homeowners and gamers are treated alike by the local assessors. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the use of home as primary residence could be proven. 

5. Higher Sales and Transfer Taxes on Income-producing SFRs –- In terms of sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals creating a whole new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family and must pay higher sales, property, and transfer taxes than the primary residences.

Stay safe!

-Sid Som

homequant@gmail.com

Link to the Book