- Was it the briefest recession ever? Jobless claims suggest recession ended & recovery began in April.
- Unusual for a recession, personal income rose sharply (7.2%). Social income support policies more than offset declines in wages and salaries as employment fell.
- Consumer confidence about future economic conditions not only held up well, it has been rising over the last 2 months. Consumers expect the impacts will be short and are less likely to alter behavior.
- Companies largely viewed the slowdown as likely to be short-lived. They have been planning for recovery.
- Credit crunch or explosion? Corporate bond issuance is running at twice the pace of prior peaks.
- Vs other recessions that had a move out of cash begin around market bottoms, this time the cash mountain continues to grow, up by $1.2 trillion since early March, even as risk assets have rallied for 10 weeks now. A move out of cash should be positive for growth and risk assets.
- Global pandemic brought retail investors back into the equity market after being largely absent for a decade. They were important buyers of the correction in equities.
- Institutional investor positioning in equities by contrast remains extremely low (10th percentile). Tends to be correlated with macro data and represents an upside risk as growth picks up.
- Visits to grocery and drug stores are back up to normal levels.
- Potential issue in US, but not Europe
- Daily tests in US have increased significantly, so should focus on positive test rate rather than new cases
- Increased testing should reduce the bias of only severe cases being tested. Possible that positive test rate declines and testing captures more benign cases. Focus should also be on hospitalization
- In the US as a whole
- Positive rates have been on a downward trend but are stabilizing
- Hospitalizations are still on a downward trend but may
- Among the large states with consistent data, Texas displays rising
hospitalizations, positive test rates and deaths, but still look benign relative to NY at the beginning of the pandemic
- So far, it looks more like a localized rising tide than a second wave
United Airlines ($UAL)
- United provided a plan for $17 billion of liquidity by September
- United’s liquidity plan should mitigate solvency concerns even in the event of a second wave
- If United is successful in raising $17 billion by the end of the September quarter, it should alleviate solvency concerns among investors and place the company in a formidable position to withstand the negative consequences of a severe second wave of COVID-19
Hertz Global Holdings ($HTZ)
- U.S. + Canadian cash burn until August 21 is probably close to $1.2 billion (excluding International)
- HTZ’s public peer, Avis Budget Group (CAR; Hold; $26.19) estimated a global cash burn of ~$800 million for the Q2
- HTZ indicated it may issue up to $500 million of common equity (~177 million shares using Friday’s closing price of $2.83) following the approval of a request with the bankruptcy court to sell up to $1.0bn of stock
- HTZ’s October 2022 6.25% bonds are trading ~44 cents on the dollar, showing the credit market pricing in significant risk
- HTZ may get delisted from the NYSE
- JO: STAY AWAY!!