There were additional signs of economic stabilization in the world’s largest economy on Monday, even as worries about a second virus wave were a wet blanket on sentiment.
Empire manufacturing printed -0.2 for June, far better than the -29.6 the market was looking for, although, as you might imagine, the range of estimates remains comical (-41 to 25).
Notably, optimism surged. The future business conditions gauge jumped 27 points to 56.5. That is the highest in more than a decade.
That might be viewed as a kind of microcosm for sentiment more generally.
Recent setbacks notwithstanding, investors had become comfortable with the reopening push. Even some skeptics were beginning to embrace the recovery story, if not the “V-shaped” narrative, which many (including Fed officials) continue to describe as unlikely.
The last several sessions have raised new questions and it doesn’t help that there’s seemingly no middle ground to the discussion.
On one side is Larry Kudlow who, on Monday, in remarks to Fox, continued to pretend as though upticks in infection rates aren’t really a concern, calling rising cases in some states “small bumps”.
He went on to say the resurgence of COVID is “controllable” and reiterated that the White House “doesn’t believe this is a second wave”.
I’m not going to sugarcoat this. The breathless pitch Kudlow subjected the public to on Monday was pure, unadulterated propaganda. If you watch the 2-minute clip below, you’ll note that Kudlow’s hosts (on Fox) were visibly incredulous to the point of smirking.
And let’s be clear: Fox’s anchors weren’t smirking at the message as much as they were at the messenger and his cadence. Fox was marveling at their inability to squeeze in a word edgewise around Larry’s nonstop, carefully-scripted spiel.
If you cannot wrap your head around all of that (everything Kudlow says in the video) you’re not alone. Both of Fox’s anchors began to chuckle when Kudlow said: “Some people – you know – I’m describing a ‘V-shaped’ rebound – some people are calling [for] an ‘I-shaped’ rebound'”.
I’m not sure what an “‘I-shaped’ rebound” even is, despite Kudlow’s efforts to illustrate by gesticulating.
He continued: “The thing’s just going straight up. But look, I don’t want to get cute here, I’m just saying…” And he kept on “saying” for an additional ~45 seconds, uninterrupted.
As a reminder, here is what the Atlanta Fed’s GDPNow model shows for the second (i.e., the current) quarter:
So, that’s one side of this – the Kudlow side. Everyone knows that narrative (as expounded in the clip above) is designed to appeal to an audience of one. Nobody can possibly be expected to take that rapid-fire ramble seriously. Fox obviously didn’t, and the network’s entire reason for existing is to champion the cause of the GOP.
But, I want to point out that the other side (i.e., the narrative pushed by every outlet not called “Fox”), is now engaged in an unceasing effort to document every ominous turn in the virus numbers and to do so in virtually real-time, under the guise of protecting the public.
As I tried (and, I think, succeeded) to communicate over the weekend, I am squarely in the camp that believes reopening too quickly is a mistake. And I am overwhelmingly inclined to side with health officials and the mainstream media (i.e., ex.-Fox) on that point.
That said, when every other story from an outlet like, for example, Bloomberg, is about the “second wave” in the US, one can’t help but ask if there’s not a point beyond which the law of diminishing returns kicks in.
There is little question that Bloomberg’s coverage of the “second wave” story over the weekend (and into Monday) was in part responsible for global equities’ swoon, and also for the rough morning US stocks experienced. Let’s face it: nobody is trading based on CNN and no serious traders or investors outside the US care what CNBC has to say.
The point is largely the same as that communicated in this post on Saturday, when I wrote that “the rally’s next hurdle is a wave of ‘second wave’ coverage”.
Moving forward (i.e., post-COVID), nations absolutely have to find a way to strike a balance between optimism and pessimism. The public needs to hear a realistic glass-half-full take but must also be fully apprised of the reemergence of health risks, as they exist in reality, not as they exist in the nightmare scenario.
Right now, America isn’t doing a good job of striking that admittedly delicate balance, and it’s confusing the hell out of traders and investors.