Weekly Research Briefing: Plenty of Masks and Jobs available...

August 10, 2021


That jobs number was smoking on Friday. And it showed that people are getting back to work despite the rising virus wave. With revisions, July's non-farm payrolls added more than a million jobs, while the unemployment rate fell to 5.4% from 5.9%. A few more months like July and the Fed should be ready to taper and talk to us about lifting the Fed Funds Rate.

Unfortunately, the COVID tightrope walk continues. This Delta variant has become a much more difficult bug to squash and is filling up the hospital beds in the most unvaccinated communities. The only good news is that vaccine shots in the arm are growing equally as fast and people are wearing their masks again. If the U.K. is any guide, the next one to two weeks should tell us a lot about how this U.S. ramp will peak. For now, we can only listen to the doctors who suggest to double mask indoors and get the kids masked up for the first few weeks of school.

Rising COVID data is changing plans on return to work for most major employers. Some are delaying their return dates until October or even 2022. Others are requiring masks. Many are requiring vaccinations. We will have to wait to see if supply chain disruptions reoccur like they did a year ago with this new pause.

We are about to hit a couple of the quietest weeks of the year as news flow is low, and vacation plans are high. We will get some inflation data next week along with some straggling earnings releases, but market volumes and appetites to buy and sell will be muted. The team that puts together the Weekly Research Briefing will be taking a well-deserved break next week to spend time with the kids before they start their new school year. Have a good August and we will see you again before Jackson Hole begins.

5.4% and mic drop...

U.S. Unemployment Rate


Tweet from @DianeSwonk

Need another signal that people are working more?

@bencasselman: The number of people working part-time because they couldn't find full-time work fell again in July and is approaching prepandemic levels. Suggests employers are giving more hours to existing workers as they try to hire.

People working part-time for economic reasons

Will we see any cards from the Fed at Jackson Hole?

Tweet from @carlquintanilla

Even before the big jobs number, Fed Vice Chair Clarida was showing some cards, which caused a jump in yields last week...

Federal Reserve Vice Chairman Richard Clarida said the central bank is on course to pull back on the massive support it is providing to the pandemic-damaged economy, starting with an announcement later this year that it is paring bond purchases and moving on to a liftoff in interest rates in 2023.

While acknowledging that the rapid spread of the Delta virus posed a downside risk to the economy, Clarida on Wednesday painted an upbeat picture of the outlook in the coming years as growth powers ahead and inflation falls back from its recent elevated levels.

The “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,” paving the way for a lift-off from near-zero rates in 2023, he told a webinar held by the Peterson Institute for International Economics.


Goldman now sees the 2022 U.S. unemployment rate falling to a 50-year low rate of 3.5%...

@JimPethokoukis: GOLDMAN SACHS on July jobs report and where US labor market is heading

Goldman Sachs on July jobs report and U.S. labor market

(Goldman Sachs)

The nation's largest retailer is now giving bonuses to keep workers on board...

Walmart Inc. is offering special bonuses to many warehouse employees to work every hour they are scheduled and, in some cases giving temporary pay raises, as the country’s biggest retailer ramps up for the holiday shopping season with a tight labor market and stretched supply chains.

The majority of Walmart’s 190 U.S. warehouses are offering the weekly bonus or pay raises. The bonuses and raises vary by location and job type, according to a person familiar with the situation.

Some workers have been offered $1,000 over four weeks for not skipping any scheduled shifts during the second half of the summer. Last week, some workers were also offered temporary pay raises of several dollars an hour through January 2022, said this person.


Goldman Sachs is also lifting wages to retain talent...

Goldman Sachs has become the last of the big US investment banks to raise salaries for junior staff in response to complaints about burnout from new recruits caught in a dealmaking boom during the pandemic.

First-year analysts will now earn a base wage of $110,000, rising to $125,000 in their second year, according to people familiar with the decision. Those at the more senior associate rank will receive a boost to $150,000.

The figures do not include annual bonuses, which can be multiples of salaries in buoyant years…

The increases mean Goldman will have one of the most generous starting pay packages in the industry, having previously paid junior bankers less than their peers, according to Wall Street Oasis, a website that tracks pay.


And United Airlines is giving all of its employees the choice of a free vacation day or a job at a competitor...

Tweet from @Lebeaucarnews

Important piece here. We are now learning that the pandemic pushed 500,000 entrepreneurs off the fence, which could lead to further jobs acceleration...

As awful as the pandemic was, the uncertainty changed the business climate for the better in some ways, he told me. “It accelerated everything.” Around the country, roughly 500,000 entrepreneurs were finding much the same. The coronavirus decimated an unprecedented number of small businesses—200,000 more closed than would be expected during a normal year—but also enabled the launch of an unprecedented number of new ones. And that unexpected business boom holds lessons for how to make the economy more conducive to new ideas, new companies, and new entrepreneurs in the future.

As a general rule, business formation is cyclical: People are more apt to start companies when net worths are rising, confidence is soaring, and lenders are itching to lend. People are less apt to start companies when family finances are stressed, the business outlook is cratering, and credit conditions are tightening. It was no surprise, then, that the pandemic recession led to a huge drop in new business starts last spring.

What was a surprise was that business formation surged strongly in the second half of 2020, when much of the country was still shut down, and the surge just kept going. Entrepreneurs launched 500,000 more new businesses considered likely to hire employees from mid-2020 to mid-2021 than from mid-2018 to mid-2019, and today Americans are starting companies at the fastest-ever recorded pace...

In other ways, the unique characteristics of the pandemic recession made starting a business an attractive proposition. The shift to working from home made setting up shop faster and cut certain costs. “I’ve sworn off [office] leases, which also means swearing off escalations,” Landau of ParkMyFleet told me. “I was literally able to recruit C-level executives from around the world, super-talented people, and we got started without having to relocate a single person. They’re hiring. They are executing. They are cranking.”

The pandemic also made connecting with suppliers, investors, and sales contacts simpler, other new-business owners told me. “It was way easier to get people to agree to talk to you,” said Priyanka Jain, who just launched Evvy, which sells at-home vaginal-microbiome testing kits. “It was so hard for people to say no to a 15-minute Zoom call, and I felt like I could send more cold emails. Geography just stopped mattering. I talked to 200 people in the process of formulating my idea, and I never would have been able to do that if we were taking walks or doing in-person meetings in San Francisco or New York.”

On top of that, the pandemic recession fomented creative destruction, accelerating the shift to work-from-home, remote, distributed, and direct-to-consumer business models that economists have been anticipating since the dawn of the computer age. The coronavirus destroyed brick-and-mortar restaurants but boosted spending on delivery; it killed gyms and yoga studios but increased interest in personal fitness equipment; it decimated formal office-wear sales but boosted revenue for skin care and loungewear; it halted business travel but led to the uptake of virtual-conferencing and collaborative-work technologies.


Even with all the positives surrounding the employment picture, COVID's new Delta variant is becoming a pain in the...

@calculatedrisk: COVID case graph

Covid case graph

Even though vaccines are widely available, the smaller remaining population of unvaccinated is causing an outsized spike in hospitalizations...

@EricTopol: A troubling aspect of the US Delta wave's very rapid rise of hospitalizations: the N is ~half the number of cases. That's the same ratio as the 3rd wave, when there were no vaccines. And quite different from the ratio in the UK and Israel, both with much higher fully vaxxed %

Covid hospitalizations

These jumps in cases and hospitalizations are now impacting companies return to work plans for the fall...

The swift, startling resurgence of Covid-19 cases and hospitalizations across the U.S. is causing corporate leaders to rip up playbooks for the next few months.

No longer is a September return a target for many companies. Some employers, such as banking giant Wells Fargo & Co. and managed-care company Centene Corp., have in recent days shifted return-to-office dates to October. Meanwhile, a range of other prominent companies now predict it will be 2022 until most workers return.

Amazon.com Inc. on Thursday delayed its return for corporate employees to at least Jan. 3, from September. Lyft Inc. pushed back its planned office reopening to February 2022. Other companies, such as Dell Technologies Inc., have postponed fall returns in the U.S. without giving new reopening dates. Business travel at the company also remains largely restricted.

In a memo to employees Tuesday, Dell Chief Operating Officer Jeff Clarke said that, because of the Delta variant, many cities where Dell operates in the U.S. have moved from “green” to “red” on an internal company risk dashboard.


As school starts this month, it will be the kids who bring the Delta variant home along with their schoolwork...

Tweet from @ScottGottliebMD

We are already seeing a slowing of spending on dining and flying as Delta ramps up, so it is impacting some parts of the economy...

JPMORGAN: Delta spread slows spending for now

Covid case and Chase card spending

J.P. Morgan reflects on the most excellent Q2 reporting season further...

US: 86% of S&P 500 companies that have reported beat EPS estimates. EPS growth for these companies is running at +93% y/y, surprising positively by 17%. Materials, Industrials, Discretionary and Financials are recording very strong EPS growth, helped by easy comps. All the remaining sectors are seeing double-digit growth, as well. Topline growth in the US is coming in at +27% y/y, surprising positively by 5%.

EPS Growth


Digging down a level, Goldman Sachs notes the top beats occurring in the reopening stocks...

Strong headline results mask some of the differences across size and thematic spectrums. Large-cap and stay-at-home stocks fared better than their counterparts in terms of the number of EPS beats and recovery to pre-pandemic levels. But the typical size of earnings beats was greatest for small-cap and reopening stocks (Exhibit 2). The average EPS beat for reopening stocks was 45% (vs. 16% for stay-at-home stocks) and was 30% for small-cap stocks (vs. 20% for large-caps). However, despite 56% of reopening stocks beating consensus EPS, only 19% reported EPS above pre-pandemic profit levels.

(Goldman Sachs)

Average EPS beat for S&P 500 stocks in select baskets

Looking across the indexes, the mega cap tech weighted Nasdaq 100 remains the one to beat...

Nasdaq 100


But as the Leuthold Group graphs, buying the S&P 500 at these valuations could be a loser's game...

@MebFaber: Exceptional chart and analysis from @LeutholdGroup: S&P 500 P/E ratio on Peak EPS
"Taking this simple scatterplot at face value, today's Peak P/E ratio of 31.5 suggests the next 10 years could see an S&P 500 total return loss of about 3% annualized."

S&P 500 valuations

The Financial Times also takes a look at investing in expensive stocks...

When discussing allegedly expensive US tech stocks, it’s important to take a step back and think about why some equities are priced at double digit multiples of sales.

Say you have $1 now. If you could guarantee that was to grow at 30 per cent per year for the next four years to a price of $2.85, what would you pay for it now? Well, its purchasing power will probably be a touch less by then due to inflation, so probably the $2.85 minus a discount. Let’s say $2.60 or so.

Easy enough. But here’s where it gets tricky with the pricey stocks. Not only is buying an expensive scrip a bet that this revenue growth will continue at a pace into the future beyond expectations, but that the particular business — whether it’s PayPal, Twitter or Snapchat — will be able to convert those revenues into meaningful profits. Both outcomes are highly uncertain and idiosyncratic to every company, and depend on a multitude of obvious factors such as competition, management quality and the structure of the sector...

Which is why we thought it was worth sharing this chart that landed in our inbox a few hours ago from research shop MoffettNathanson. It shows a bunch of the popular internet stocks today, and how they stack up when you plot them on a chart of their current EV/sales multiple, versus MoffettNathanson’s expectations for their compound revenue growth through to 2025:

It’s a pretty neat chart. On this valuation basis alone, Google, Facebook and Spotify seem fairly priced while PayPal, Twitter and Netflix are on the expensive side. Conversely, Roku, Pintrest and Snapchat are relatively cheap. The problem for investors is discerning which of these companies can both meet and beat these estimates and cement a competitive position to the point they can earn super normal profits.

U.S. Tech Stocks


The one word of advice that Mr. McGuire would give to this summer's 'The Graduate' would be "HVAC"...

Barron's also could mention that this weekend Denver ranked as the worst city in the world for air quality, even while our state has no forest fires. It seems as if the new normal for summers on the front range have become irritating, cloudy skies with little to no visibility of the mountains. Exercising outside has become dangerous and our health officials are now suggesting creating clean air rooms in our homes. So, even more opportunities for the HVAC players.

The summer heat is nearing an end, but nothing is cooling off HVAC stocks.

The heating, ventilation, and air-conditioning business is rapidly becoming one of the most consistent end markets in the industrial universe. It’s also becoming an important ESG play, and it benefits from post-Covid back-to-work trends. Profits—and valuation multiples—are expanding.

The four main players— Carrier Global (CARR), Lennox International (LII), Trane Technologies (TT), and Johnson Controls International (JCI)—have all reported strong calendar second-quarter earnings and are up an average of more than 40% this year...

In the case of HVAC, there are two new trends that could help it beat the market.

First, commercial building operators are trying to improve air quality as people come back to work. That can mean upgrading systems to modify such things as air flow and humidity.

The other big trend is the E in ESG—which is short for environmental, social, and governance factors. Dozens of companies are setting aggressive targets to reduce their carbon footprint. More-efficient air-conditioning systems with newer coolants are an easy way to reduce environmental impact.


Some fine details on Berkshire Hathaway's fixed income portfolio lets us know what Warren and Charlie think of longer duration bonds right now...

@rationalwalk: Buffett's minuscule portfolio of bonds is a thing of beauty. Of the measly $20.5 billion portfolio, 46% matures in under a year and another 47% matures between one and five years.

Fixed Income Portfolio

Wow. Even the Grandparents...

Social Media Usage in U.S.


Future Denver Post headline: CU Boulder graduates buy Casa Bonita for $900 million...

The creators of “South Park” have signed a new deal with ViacomCBS Inc. that will pay them more than $900 million over the next six years, one of the richest deals in TV history.

Trey Parker and Matt Stone will use the money to make new episodes of “South Park” for Viacom’s Comedy Central network and to create several spinoff movies for the company’s Paramount+ streaming service, the parties said Thursday. Their first project under the new deal will be a movie set in the world of “South Park” that will debut some time before the end of the year...

Their new deal, which runs through 2027, covers six more cycles of “South Park” and includes 14 made-for-streaming movies.

“We did a ‘South Park’ movie in 1999, and we’ve never done another one because the show has been so satisfying,” Stone said in an interview from his home in New York. “Now we’re older, and the idea of what streaming movies can be is pretty promising.”

When Parker and Stone first created “South Park,” based on a short film they made in college, they were nervous that nobody would watch — or, alternately, that they’d be run out of town due to its outlandish humor. But the show, which debuted in 1997, was an instant hit, delivering millions of viewers and putting Comedy Central on the map. By the third season, they had stopped getting any notes from the network on how to improve it.


The healthcare industry will be forever changed by COVID and its impact on telemedicine...

In February — the month before Covid-19 hit Boston — Partners Healthcare, the huge health system that includes Massachusetts General Hospital, treated 1,600 patients via video visits.

By April, the number of patients seeking care through Partners’ video service had swelled to 242,000.

“We’re not the only ones,” said Joe Kvedar, a dermatology professor at Harvard Medical School and a telemedicine advocate at Partners for three decades, in a May webinar. The same thing was happening across the country as the Covid-19 pandemic made in-person visits at doctors’ offices dangerous for patients and clinicians alike.

Regardless of when the Covid-19 threat dissipates, video visits have crossed a tipping point to become a mainstream way to obtain care, says cardiologist Joe Smith, coauthor of an overview of telemedicine in the Annual Review of Biomedical Engineering. “I don’t think we go back,” he says. “For a long time, hospitals have been the cathedrals of health care where patients have to come. But people are now seeing that they can get their health care in the safety and comfort of their own home.”

Telemedicine adoption during Covid-19


Interesting thoughts by Jeff Speck on city planning post COVID...

When we look back at the impacts COVID-19 had on the way that we live, I think it will principally be in two categories. It will be in how we use our streets, which will be a limited impact, unfortunately. I don’t think those changes are going to stick as much as they should. In Europe, yes, in the U.S. not as much. We’ve seen a number of cities in Europe, like Paris and London, use COVID-19 as an excuse to transform the street network. Sixty-one percent of cyclists that were polled in Paris, commuting around the streets, said that they were not regular cyclists a year ago. It was the new, safe streets that caused them to be on a bike for the first time since they were kids.

Then the switch to Zoom meetings is permanent, not as a replacement for all meetings, but as a way that people are getting a lot of work done. I think the only folks that need to worry about what’s happened with COVID-19 are people who own or lease large office buildings. I don’t believe that translates into less demand for cities. In fact, this telework revolution means more people can live where they want.

Sixty percent of Americans polled by the National Association of Realtors say they want to live within walking distance of places to work, shop and recreate. Only 10 percent want to be located in homes that only have access to other houses. Yet, that’s the vast majority of the built environment we’ve created over the last 50 years. It’s dramatically oversupplied while urban walkable real estate is dramatically under supplied in relationship to demand. COVID-19 may have changed that ratio slightly, but it didn’t change the fact that there is a tremendous mismatch between supply and demand in the housing lifestyle marketplace.



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