Is the Casino Closing?

One interesting development the last couple weeks is the expanding high-yield (aka junk bonds) spread. Here’s the chart:

You can see the spread never made it down to the pre-COVID low. It’s starting to creep up a bit now.

If this continues, it is probably a big negative for equities. 1) It means people are becoming more risk-adverse and 2) stocks get paid after bonds. If there is a higher chance bonds don’t get paid, then there is a higher chance stocks are worthless.

Something to watch…

COVID-19 Modeling Update

As I have posted for weeks, my baseline model is that the US will follow Italy’s model. We are still a long way from being to reopen based on the current criteria of governors.

As you can see through yesterday, the comparison matches.

We are running about two weeks behind Italy when it comes to the peak. Presuming we follow Italy’s path, we will still be at a high level of cases in two weeks.

Another example if if we compare to the EU overall. If you think about Italy as say a NY and the rest of the countries as States, that could be a good comparison. If we match peaks, here is the EU. (France had a weird day so I cut that off.)

We are about 9 days behind the EU. Please note that big drop at the end looks impressive, but that gets them to 61% of cases at peak, 18 days after it happened. Italy only took 9 days to have that same drop and of course Italy is still at 61% of cases.