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Texas Leads the Nation in Reopening Its Economy

Summary:
Today is “reopening” day for Texas, home state of U.S. Global Investors. Restaurants, retail stores and malls can now open their doors to customers again, so long as occupancy is kept at 25 percent of what it normally would be. In metropolitan areas such as San Antonio, social distancing and masks are still required in public places. If everything works out well and we don’t see a massive spike in new COVID-19 cases, then bars, salons, barbershops, gyms and more could be next to reopen later this month. This is all very positive for the state and local economies, especially San Antonio’s. Hundreds of thousands of people work in the city’s important travel and hospitality industry, which contributes some billion to the San Antonio economy every year. Many of you reading this may have

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Today is “reopening” day for Texas, home state of U.S. Global Investors. Restaurants, retail stores and malls can now open their doors to customers again, so long as occupancy is kept at 25 percent of what it normally would be. In metropolitan areas such as San Antonio, social distancing and masks are still required in public places.

If everything works out well and we don’t see a massive spike in new COVID-19 cases, then bars, salons, barbershops, gyms and more could be next to reopen later this month.

This is all very positive for the state and local economies, especially San Antonio’s. Hundreds of thousands of people work in the city’s important travel and hospitality industry, which contributes some $15 billion to the San Antonio economy every year. Many of you reading this may have visited the River City to stroll down the beautiful River Walk, take in the historic San Antonio Missions—named a UNESCO World Heritage site—or enjoy the Battle of Flowers Parade during Fiesta.

And for those who haven’t yet, I highly recommend you make it a point to visit San Antonio—once you feel that it’s safe, of course.

Coincidentally, the Transportation Security Administration (TSA) reported a big jump in the number of daily commercial air passengers this week. From April 29 to 30, the number of people the agency screened in the U.S. rose by 35,000, or 30 percent, to 154,695 people. That’s still 2.3 million below where we were a year earlier, but I see the increase as an encouraging sign that we’re past the bottom.

Texas Leads the Nation in Reopening Its Economy

The experience of commercial air travel has not returned to “normal,” of course. Most major airlines, including American, Delta and United, now require masks be worn, even though the average number of passengers on domestic flights stands at only 17.

New Screening Technology Post-COVID-19

Air travelers have had to adapt to change before. The 9/11 terrorist attacks gave us TSA and lengthened wait times to board planes—though that time has been dramatically reduced thanks to PreCheck. We’re now accustomed to taking off our shoes and leaving our cans of shaving cream at home.

It’s possible that, even in a post-COVID-19 world, all passengers will need to undergo a health screening of some kind before boarding. That’s the plan, at least, for Etihad Airways, a United Arab Emirates (UAE) carrier, which has partnered with Australian tech firm Elenium Automation to develop technology that can monitor passengers’ temperature, heart rate and respiratory rate. If any irregularities are detected, staff will be alerted to assess the situation.

What if there was a way to “zap” the virus before it had a chance to infect someone? A company here in San Antonio believes it may have figured out a way to do just that. Xenex Disinfection Services announced this week that it has developed a robot that can shoot out ultraviolent pulses “more intense than sunlight,” according to a press release. In under two minutes, these pulses can “kill” the SARS-Cov-2 coronavirus, responsible for causing COVID-19, on public surfaces such as walls, doors and tables.

Putting Things in Perspective

State reopenings are happening at a time when newly released data show that the coronavirus is not nearly as lethal to most people as initially thought. Please know that I don’t mean to downplay the risk. It’s highly infectious, and we should all remain smart and cautious as we await a vaccine and better treatments.

Those in high-risk categories—65 and over, underlying conditions—should be extra cautious.

Be that as it may, I believe Texas and other states are making the right choice by safely reopening certain businesses so working-age people can return to work and bring back a level of normalcy to their lives. The truth is that younger, healthier people are statistically far less likely to run into serious problems should they happen to contract the disease.

Below is a chart illustrating coronavirus data provided by the Massachusetts Department of Public Health. What it shows is that the likelihood of dying from COVID-19 was greatly dependent on the person’s age. People 80 and over were most at risk, those between 70 and 79 less so, those between 60 and 69 even less so, and so on. Again, this data includes cases just in Massachusetts, but I believe it’s reflective of the U.S. as a whole.

Texas Leads the Nation in Reopening Its Economy

As of April 30, more than 2,200 residents of Massachusetts 80 years and older had died as a result of complications from COVID-19. Octogenarians, then, had a death rate per 100,000 people that was 4.7 times higher than those aged 70 to 79, 18.5 times higher than those aged 60 to 69, and 60 times higher than those aged 50 to 59. 

The average age of people who died in confirmed COVID-19 cases, in fact, was 82.

Meanwhile, the coronavirus contributed to the deaths of “only” 40 young people aged 49 and below. People in this age bracket represented just 1.1 percent of total deaths in Massachusetts related to the virus. Even one death is one too many, but it’s important to keep things in perspective.

Looking Ahead to Second-Quarter Earnings

A little over half of S&P 500 companies have now reported first-quarter earnings. Although there have been some exceptions (Tesla, Clorox and Colgate-Palmolive among them), earnings beats are down, as expected. FactSet estimates that, once all companies report, earnings may have fallen 13.7 percent compared to the same quarter a year earlier, which would be the largest such decline since the third quarter of 2009. What’s more, as many as 30 S&P 500 companies have withdrawn guidance for fiscal year 2020.

The second quarter is almost certain to be worse, especially now that approximately 30 million Americans have filed for jobless benefits. In April, consumer spending plunged 7.5 percent versus spending in March, marking the worst month-to-month change on record. For comparison’s sake, personal consumption expenditures (PCE) decreased 1.4 percent in September 2011, due to 9/11, and the same rate in November 2008, during the global financial crisis.

Texas Leads the Nation in Reopening Its Economy

Several big-name retailers are expected to or in danger of declaring bankruptcy in the coming weeks and months due to the economic downturn. These include Neiman Marcus, JCPenney, Macy’s, Ascena Retail (owner of Ann Taylor, LOFT and Lane Bryant) and Gap Inc. are on analysts’ watch lists.

In the second quarter, as was the case in the first quarter, gold mining stocks are set to shine on higher metal prices, which should translate to higher revenues and free cash flow. Last week I shared with you a list of gold producers that could be the most profitable on higher gold prices.

Stay safe and have a wonderful weekend!

Curious to learn more about the gold market? Click here to see my interview with Kitco News’ David Lin!

 

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Gold Market

This week spot gold closed at $1,700.42, down $29.18 per ounce, or 1.69 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 1.92 percent. The S&P/TSX Venture Index came in up 2.26 percent. The U.S. Trade-Weighted Dollar fell 1.32 percent.

Date Event Survey Actual Prior
Apr-27 Hong Kong Exports YoY -10.0% -5.8% 4.3%
Apr-28 Conf. Board Consumer Confidence 87.0 86.9 118.8
Apr-29 Germany CPI YoY 0.7% 0.8% 1.4%
Apr-29 GDP Annualized QoQ -4.0% -4.8% 2.1%
Apr-29 FOMC Rate Decision (Upper Bound) 0.25% 0.25% 0.25%
Apr-30 Eurozone CPI Core YoY 0.7% 0.9% 1.0%
Apr-30 ECB Main Refinancing Rate 0.000% 0.000% 0.000%
Apr-30 Initial Jobless Claims 3500k 3839k 4442k
May-1 ISM Manufacturing 36.0 41.5 49.1
May-4 Durable Goods Orders -14.4% -14.4%
May-6 ADP Employment Change -20000k -27k
May-7 Initial Jobless Claims 3000k 3839k
May-8 Change in Nonfarm Payrolls -21500k -701k

Strengths

  • The best performing metal this week was platinum, off slightly by 0.32 percent, with investors increasing their bullish platinum outlook to the highest in three weeks. Retail investors can’t get enough of gold coins. Consumers typically pay a little more for gold coins than the per-ounce prices quoted on financial markets in London and New York. That premium has surged to $135, more than tripling from two months ago, according to Argent Asset Group LLC. As 2019 saw the lowest gold coin and bar demand since 2009, this year demand has surged amid the coronavirus. The Perth Mint reported sales totaled 120,504 ounces in April and that gold coin sales were the highest ever.
  • Gold performed strongly in April overall. The metal traded near the highest since 2012 on Wednesday after the Fed voiced concern that the pandemic could leave permanent scars on the U.S. economy, reports Bloomberg. Additional liquidity thanks to central bank action benefited gold in the month of April after struggling in March from a selloff.
  • Ghana still plans to move forward with the sale of $750 million of shares in a gold mining fund this year. The top gold miner in Africa will list the fund in London and will pay dividends from the government’s income from mining operations. Finance Minister Ken Ofori-Atta said that “coronavirus makes things difficult but we will not relent.”

Weaknesses

  • The worst performing metal this week was palladium, down 5.71 percent as investors cut their net bullish position to a five-week low; Norilsk Nickel cautioned the palladium market could go into surplus with stalled automobile sales. Gold had its biggest weekly decline since mid-March as major economies are slowly reopening. European nations offered cautious signals that they have moved past the worst of the coronavirus outbreak. Bloomberg notes that U.S. cases of the virus rose at the slowest pace. The European Central Bank increased its coronavirus response by cutting funding costs for banks, but refrained from boosting its bond-buying program, reports Bloomberg.

Texas Leads the Nation in Reopening Its Economy

  • Gold consumption in China fell 48 percent to 148.63 tons in the first quarter, according to the China Gold Association. Buying in the world’s top consumer was hampered by closed shops and higher metal prices. Inflows into commodity ETFs slowed last week by 55 percent to just $1.9 billion. However, precious metals ETFs led the inflows with $1.3 billion.
  • The global silver surplus is expected to more than double in 2020 as falling demand outweighs mine shutdowns, according to CPM Group. Supply is expected to surpass demand by 78.9 million ounces, compared to a surplus of 36.2 million in 2019. “While supply disruptions themselves would have been extremely positive for metals prices in another environment, the same factors that are causing supply disruptions are also resulting in less demand for silver for use in fabricated products.”

Opportunities

  • UBS raised its second quarter-end price forecast for palladium to $2,300 an ounce, up from $2,000. The group expects a supply deficit to continue in 2020 of 500,000 ounces, compared with almost 1.2 million ounces in 2019.
  • State Street Global Advisors is bullish on gold. The group says gold will trade between $1,700 and $1,800 an ounce for the next few weeks due to lower interest rates and expectations that fiscal stimulus will weigh on the U.S. dollar, reports Bloomberg.
  • Silvercorp Metals is buying Guyana Goldfields for a 71 percent premium – giving the company diversified exposure to precious metals. MAG Silver announced a private placement with Eric Sprott for over C$60 million. The company will use the net proceeds of the offering to fund exploration and development. Newcrest Mining Ltd., Australia’s largest gold producer, plans to raise as much as $720 million in cash to accelerate growth at a key mine in Ecuador.

Threats

  • First quarter earnings for miners aren’t a sure bet even with gold prices higher. Gold prices were up about 20 percent from the first quarter a year ago, but companies are still dealing with operation shutdowns and supply chain disruptions due to the coronavirus. Bloomberg’s Aoyon Ashraf writes that investors shouldn’t be fooled by gold’s rally. CIBC’s Anita Soni says that operational results will likely be “mixed and messy” and that estimates are less meaningful given the recent disruptions.
  • Bloomberg’s Eddie van der Walt writes that an ounce of silver has never been this cheap relative to gold and that as long as the coronavirus batters economies, there’s nothing to stop the ratio from moving higher. Although silver is moving closer to a supply and demand balance, the years of oversupply still have to be soaked up by markets before it can rally on fundamentals.
  • The central bank gold buying spree could slow in 2020 as the coronavirus ripples through global economies and creates a cash crunch, reports Bloomberg. Russia announced in April that it has paused its domestic gold buying. Standard Chartered Plc expects net purchases to drop to 360 tons from last year. The World Gold Council doesn’t expect central banks to become net sellers, but that demand will likely decline this year.

Index Summary

  • The major market indices finished mostly down this week. The Dow Jones Industrial Average lost 0.22 percent. The S&P 500 Stock Index fell 0.21 percent, while the Nasdaq Composite fell 0.34 percent. The Russell 2000 small capitalization index gained 2.22 percent this week.
  • The Hang Seng Composite gained 3.46 percent this week; while Taiwan was up 6.23 percent and the KOSPI rose 3.10 percent.
  • The 10-year Treasury bond yield rose 1 basis point to 0.614 percent.

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By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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