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Mounting loan defaults Mid-Corona – XLF a sell?

Mounting loan defaults Mid-Corona – XLF a sell?

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Mounting loan defaults Mid-Corona – XLF a sell?

Earnings season kicked off last week with big banks like Wells Fargo, Bank of America and Goldman Sachs delivering Q3 earnings for Q3/2020 and giving some first insights into their business and revenues Mid-Corona.

While Goldman Sachs delivered some strong numbers, Wells Fargo and Bank of America disappointed.

Trading houses like Goldman outperform "classic" banks like Wells Fargo

Goldman Sachs earnings came in significantly above the expectation of $5.37 Earnings per Share (EPS) at $9.68 and revenue at $10.78 billion against $9.19 billion.

In general, it seems as if chances are high that US banks with a focus on trading continue to profit from the elevated volatility Mid-Coronavirus and before the US election.

But given recent developments around the Coronavirus lockdown, the focus in the US banking and financial sector will likely be more on those banks which are more defined by interest rates, consumer banking and commercial real estate since these will potentially paint a clearer picture on what to expect in terms of the US economic outlook.

That said, a look at Wells Fargo, one of the biggest US banks, seems to make more sense:

  • Wells Fargo's total revenue of $18.86 billion was down 14 year-over-year, but slightly above expectations of $17.98 billion
  • That didn't help in terms of EPS, which came in at $0.42 against an expected $0.45
  • Wells Fargo "only" set aside $769 million for credit losses in Q3, down from a staggering $9.5 billion in Q2/2020 and well below a FactSet estimate of $1.76 billion

CEO Scharf told investors that "[…]The trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain[…]".

That sceptical outlook can also be seen in presented earnings from Bank of America:

  • EPS was $0.51 against $0.53
  • The bank set aside $1.4 billion for loan loss provisions, against $5.1 billion in Q2/2020
  • Net interest income is down 17%, coming in at $10.1 billion.

With our expectation of mounting defaults Mid-Corona and a further decline in US interest rates, our outlook for the US banking sector is not very positive.

How can you trade #XLF in this environment?

This leaves us with a bearish expectation for the Financial Select Sector SPDR Fund ETF (XLF):

While the ETF is currently trading around its SMA(200), we consider the overall mode on a daily time-frame bearish if bulls can't sustainably recapture 26.00 USD, the region around the August/September highs.

A break below 23.00 USD should be considered bearish and would make a substantial stint lower to a target around the "Corona lows" of 17.50 USD in the months to come an option, with a stop-over at around 20.00 USD:

Admiral Markets MT5 with MT5SE Add-on #XLF Daily chartSource: Admiral Markets MT5 with MT5SE Add-on #XLF Daily chart (from April 01, 2019, to October 19, 2020). Accessed: October 19, 2020, at 09:00 AM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of #XLF decreased by 1.74%, in 2016, it increased by 22.59%, in 2017, it increased by 22.0%, in 2018, it decreased by 13.04%, and in 2019, it increased by 31.88%, meaning that in five years, it was up by 52.3%.


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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures that refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
  7. Any kind of previous or modelled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
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Spread & Containment

A rapid, highly sensitive method to measure SARS-CoV-2 in wastewater

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in…

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Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

Credit: Hiroki Ando, et al. Science of the Total Environment. August 8, 2022

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

A team of scientists from Hokkaido University and Shionogi & Co, Ltd., have developed a simple, rapid, highly sensitive method for the detection of SARS-CoV-2 in wastewater. The method, EPISENS-S, which does not require specialised equipment, was described in the journal Science of the Total Environment.

During the COVID-19 pandemic, Japan has had the lowest number of cases per capita. Thus, the viral loads in sewage have also been lower, and much more difficult to evaluate using established WBE methods—due to their low sensitivity. Prior work by the research team showed that the SARS-CoV-2 virus was associated with solids in sewage, so they focused on developing a method to analyse the solid phase of wastewater.

The method they developed, EPISENS-S, involves centrifuging collected wastewater samples to separate all the solids in the samples. The solids were then treated with a commercially available kit to extract all the RNA; the RNA was then reverse transcribed and amplified to obtain a substantial amount of DNA copies. A separate set of samples was subjected to treatment with polyethylene glycol followed by RNA extraction and reverse transcription to synthesize DNA: the method that is currently widely implemented in Japan. The DNA obtained from each of these methods was subjected to quantitative PCR (qPCR).

The team found that the EPISENS-S method is approximately 100 times more sensitive than the polyethylene glycol method. They used EPISENS-S to conduct a long-term analysis of wastewater from two sewage treatment plants in Sapporo city, and found that there was a high correlation between changes in RNA concentrations in the collected samples and changes in the number of reported cases in the city. EPISENS-S can also detect and quantify the Pepper mild mottle virus (PMMoV), which is associated with fecal matter and is used as an internal control.

EPISENS-S provides a way to track COVID-19 cases that are asymptomatic, as well as those that have not been clinically confirmed. In addition, it has great potential to continue tracking the prevalence of SARS-CoV-2 as vaccination rates increase. Finally, EPISENS-S could also be adapted to track other viral diseases with low infection numbers and viral loads.


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Spread & Containment

Mish’s Daily: Step Back to the Monthly Chart on Transportation

Last Friday, I spoke on Women of Wall Street Twitter Spaces and Fox Business’s Making Money with Charles Payne to talk about a key monthly moving average.What…

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Last Friday, I spoke on Women of Wall Street Twitter Spaces and Fox Business's Making Money with Charles Payne to talk about a key monthly moving average.

What makes this moving average so important right now is that three of the Economic Modern Family members are testing it. The three members, Granddad Russell 2000 (IWM), Grandma Retail (XRT) and Transportation (IYT), well deserve their status as what Stanley Druckenmiller calls the "inside" of the U.S. economy. In fact, the components of the modern family were put together before we heard Druckenmiller's viewpoint. We have observed how predictive they all are in helping us see in advance the next big market direction. Hence, these "inside" indicators -- right now -- are all sitting just above a 6–7-year business cycle low.

For the purposes of this daily and because we have featured this sector a lot lately, the chart of IYT is a perfect example of this moving average and what to watch for. Except for the brief blip in 2011 when the government shut down, and then again during the pandemic, IYT has sat above the dark blue line for 11 years. Currently, that line sits at the 195 area. The same is true with IWM and XRT, both marginally holding their monthly MAs.

So, watch IYT to either hold, and begin a rally possibly back closer to 220, or for IYT to fail 195, in which case we see the whole market selling off further.

To note, the other family members, such as Sister Semiconductors (SMH) and Prodigal Son Regional Banks (KRE) are still sitting well above the monthly MA. Big Brother Biotechnology (IBB), however, is now trading below it. And not in the family, but still notable, is the REIT sector (IYR), also sitting below it. SPY has the same MA, only that one sits at 310 (a long way off).

Incidentally, junk bonds broke down under this moving average in November 2021. The market has been slow to take junk bond's hint.

For more information on how to invest profitably in sectors like biotech, please reach out to Rob Quinn, our Chief Strategy Consultant, by clicking here.

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Mish in the Media

A business cycle is about 6-7 years - where are the indices now and what should you watch for? Mish discusses this question in this appearance on Fox's Making Money with Charles Payne.


ETF Summary

  • S&P 500 (SPY): Testing the previous low; 362 support, 370 resistance.
  • Russell 2000 (IWM): Broke the June low of 165.18; 162 support, 170 resistance.
  • Dow (DIA): Broke June low -289 support, 298 resistance.
  • Nasdaq (QQQ): Testing the June low;269 support, 280 resistance.
  • KRE (Regional Banks): Relative outperformer; 57 support, 61 resistance.
  • SMH (Semiconductors): 187 support, 194 resistance.
  • IYT (Transportation): 196 support, 200 resistance.
  • IBB (Biotechnology): 112 support, 118 resistance.
  • XRT (Retail): 55 support, 60 resistance.


Mish Schneider

MarketGauge.com

Director of Trading Research and Education

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We can turn to popular culture for lessons about how to live with COVID-19 as endemic

As COVID-19 transitions from a pandemic to an endemic, apocalyptic science-fiction and zombie movies contain examples of how to adjust to the new norm…

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An endemic means that COVID-19 is still around, but it no longer disrupts everyday life. (Shutterstock)

In 2021, conversations began on whether the COVID-19 pandemic will, or even can, end. As a literary and cultural theorist, I started looking for shifts in stories about pandemics and contagion. It turns out that several stories also question how and when a pandemic becomes endemic.


Read more: COVID will likely shift from pandemic to endemic — but what does that mean?


The 2020 film Peninsula, a sequel to the Korean zombie film, Train to Busan, ends with a group of survivors rescued and transported to a zombie-free Hong Kong. In it, Jooni (played by Re Lee) spent her formative years living through the zombie epidemic. When she is rescued, she responds to being informed that she’s “going to a better place” by admitting that “this place wasn’t bad either.”

Jooni’s response points toward the shift in contagion narratives that has emerged since the spread of COVID-19. This shift marks a rejection of the push-for-survival narratives in favour of something more indicative of an endemic.

Found within

Contagion follows a general cycle: outbreak, epidemic, pandemic and endemic. The determinants of each stage rely upon the rate of spread within a specified geographic region.

Etymologically, the word “endemic” has its origins with the Greek words én and dēmos, meaning “in the people.” Thus, it refers to something that is regularly found within a population.

Infectious disease physician Stephen Parodi asserts that an endemic just means that a disease, while still prevalent within a population, no longer disrupts our daily lives.

Similarly, genomics and viral evolution researcher Aris Katzourakis argues that endemics occur when infection rates are static — neither rising nor falling. Because this stasis occurs differently with each situation, there is no set threshold at which a pandemic becomes endemic.

Not all diseases reach endemic status. And, if endemic status is reached, it does not mean the virus is gone, but rather that things have become “normal.”

Survival narratives

We’re most likely familiar with contagion narratives. After all, Steven Soderbergh’s 2011 film Contagion, was the most watched film on Canadian Netflix in March 2020. Conveniently, this was when most Canadian provinces went into lockdown during the early stages of the COVID-19 pandemic.

A clip from the film Contagion showing the disease spreading throughout the world.

In survival-based contagion narratives, characters often discuss methods for survival and generally refer to themselves as survivors. Contagion chronicles the transmission of a deadly virus that is brought from Hong Kong to the United States. In response, the U.S. Centers for Disease Control is tasked with tracing its origins and finding a cure. The film follows Mitch Emhoff (Matt Damon), who is immune, as he tries to keep his daughter safe in a crumbling Minneapolis.

Ultimately, a vaccine is successfully synthesized, but only after millions have succumbed to the virus.

Like many science fiction and horror films that envision some sort of apocalyptic end, Contagion focuses on the basic requirements for survival: shelter, food, water and medicine.

However, it also deals with the breakdown of government systems and the violence that accompanies it.

A “new” normal

In contrast, contagion narratives that have turned endemic take place many years after the initial outbreak. In these stories, the infected population is regularly present, but the remaining uninfected population isn’t regularly infected.

A spin-off to the zombie series The Walking Dead takes place a decade after the initial outbreak. In the two seasons of The Walking Dead: World Beyond (2020-2021) four young protagonists — Hope (Alexa Mansour), Iris (Aliyah Royale), Silas (Hal Cumpston) and Elton (Nicolas Cantu) — represent the first generation to come of age within the zombie-infested world.

The four youth spent their formative years in an infected world — similar to Jooni in Peninsula. For these characters, zombies are part of their daily lives, and their constant presence is normalized.

The trailer for the second season of AMC’s The Walking Dead: World Beyond.

The setting in World Beyond has electricity, helicopters and modern medicine. Characters in endemic narratives have regular access to shelter, food, water and medicine, so they don’t need to resort to violence over limited resources. And notably, they also don’t often refer to themselves as survivors.

Endemic narratives acknowledge that existing within an infected space alongside a virus is not necessarily a bad thing, and that not all inhabitants within infected spaces desire to leave. It is rare in endemic narratives for a character to become infected.

Instead of going out on zombie-killing expeditions in the manner that occurs frequently in the other Walking Dead stories, the characters in World Beyond generally leave the zombies alone. They mark the zombies with different colours of spray-paint to chronicle what they call “migration patterns.”

The zombies have therefore just become another species for the characters to live alongside — something more endemic.

The Walking Dead, Fear the Walking Dead (2015-), Z Nation (2014-18), and many other survival-based stories seem to return to the past. In contrast, endemic narratives maintain a present and sometimes even future-looking approach.

Learning from stories

According to film producer and media professor Mick Broderick, survival stories maintain a status quo. They seek a “nostalgically yearned-for less-complex existence.” It provides solace to imagine an earlier, simpler time when living through a pandemic.

However, the shift from survival to endemic in contagion narratives provides us with many important possibilities. The one I think is quite relevant right now is that it presents us with a way of living with contagion. After all, watching these characters survive a pandemic helps us imagine that we can too.

Krista Collier-Jarvis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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