Making Sense Of The Chaos
New York State troopers turn back cars at Manhattan's Lincoln Tunnel entrance
(photo via journalist Michael Tracey).
Driving Through Chaos
In a previous post, I described how the engine we use for security selection had expanded from 4 cylinders to 10. Here, I wanted to update how that's working now, but before I do, I wanted to address the elephant in the room.
From One Epidemic To Another
Two months ago, President Trump mooted a quarantine of the greater New York City area, to limit the spread of COVID-19. His call for a quarantine was rejected by local officials, but much of the U.S. economy was shut down to prevent the spread of the disease. Movie theaters were closed, gyms were closed, sports were canceled, and people were required to wear masks when leaving their homes and to keep 6 feet apart from each other. That's how we dealt with the epidemic of COVID-19 which, as of June 2nd, had killed over 107,000 people in America, with more than 40,000 of those deaths in New York and New Jersey.
Now all of those restrictions on outdoor gatherings have gone out the window, as America has erupted in mass protests of another putative epidemic: deaths of blacks as a result of police brutality. That issue came to the fore at the end of May, when a black man, George Floyd, died while in custody of the Minneapolis police.
As of June 2nd, Manhattan below 96th Street appeared to be quarantined to limit looting. The looting is happening in conjunction with protests in the wake of the death of George Floyd.
The Scope Of This Epidemic
Given how quickly we've abandoned social distancing, and given the extent of the protests, you might assume the epidemic of unarmed black men being killed by police rivals COVID-19 in scope. Yet according to official data, only 41 unarmed individuals were killed by American police in 2019, and of those, only 9 were black. Deaths of unarmed blacks at the hands of American police have actually declined by about three-fourths since 2015.
(Click on image to enlarge)
Who Is The Target Of The Protests?
What's extraordinary about these protests is that I can't think of anyone in power who doesn't claim to agree with the protesters. The policeman who knelt on Floyd's neck has been arrested by authorities in Minnesota, along with the three other policemen who were with him; the Attorney General of the United States has launched a separate investigation, and everyone from the current President of the United States, to his predecessors, to the leaders of America's largest companies and most prominent brands has paid obeisance to the protests. Many of the brands have been looted during the unrest, but this hasn't dented their fervor.
What Is Going On?
In part, we're probably seeing some effects of most Americans going two months without any sports or live entertainment, gyms, and similar outlets. Beyond that, I don't know. One theory is that the current movement is akin to a religious awakening, as suggested by video such as the one in the tweet below.
Another theory is that this is an attempt to oust President Trump.
Why Is the Market Unperturbed By This?
Two reasons come to mind. The first is that the messages of solidarity with the protesters by brands from PepsiCo's Doritos to Disney's Star Wars suggest Corporate America has nothing to fear from the unrest, aside from some smashed in storefronts.
The second is that the tolerance of the mass protests indicates that the COVID-19 lockdowns are effectively over. So, after the unrest ends, the economy can reopen. COVID-19 deaths will tick up or down, but economic life will go on.
Selecting Securities In This Environment
Every trading day, Portfolio Armor analyzes every security with options traded on it in the U.S. It looks at total returns as well as options market sentiment to select its top names - the ones it expects will do the best over the next six months. Because its universe includes exchange-traded products as well as stocks, it's able to shift to different asset classes as market conditions change.
In most markets, the top names tend to be mostly stocks. March 2nd's top names cohort was the first one to shift away from stocks after the COVID-19 Correction started in late February. That cohort only had two stocks in it, LogMeIn (LOGM) and Allergan (AGN) (since acquired by AbbVie (ABBV). The rest of the names were gold or fixed income ETFs, with the two gold ETFs, IAU, and GLD leading the pack so far.
Despite the SPDR S&P 500 ETF (SPY)'s climb back from the March 23 low, this cohort is still outpacing the market slightly.
Shifting Back To Stocks
Partly as a result of the changing market conditions, and partly as a result of the changes we made under the hood recently, 8 of the top 10 names on June 3rd were stocks. We track performance for these top names cohorts for 6 months. We've been doing that in real-time since June of 2017, so we have full 6-month performance for 130 weekly top names cohorts now. So far, they've outperformed SPY by 0.78% annualized so far. We'll start to see in 6 months if the changes we've made recently will increase our performance relative to that of the market.
This is a good analysis of the current situation. And while I agree that many people have had "enough" of racial inequality, I too think the protests and riots are partially a direct result of being cooped up at home with nothing to do.
But you make a good point - once the riots run out of steam, there will be no excuse to keep people locked down at home. The economy can reopen safely as people will be far more socially distanced than they are at these protests.
Unless of course there is a massive 2nd wave as a result of these protests - it can take weeks for symptoms to show. And most people are completely asymptomatic the entire time - in fact #GeorgeFloyd himself tested positive for #COVID19 during his autopsy.
@[Dick Kaplan](user:7622), really? No way. Sounds like #fakenews to me.
It is true, you can Google it. Makes me wonder if he infected the police who killed him. His revenge from beyond the grave!
While I agree that people have the right to protest injustice, it is worth noting the chart in this article that puts things in perspective. It's also worth noting that far more blacks kill blacks, and more blacks kill whites, than white on black deaths. In fact far more whites are killed by police than black people.
I'm not saying people shouldn't protest, but all lives do matter.
It goes far deeper than the statistics. Yes, the police kill more whites than blacks. But that's simply because there are more white people. If you look at actual interactions with the police... a black person is far more likely to end up dead, than a white person. That's the stat that matters.
Duanne,
You can't say "it goes far deeper than the statistics" and then make a statistical claim "a black person is far more likely to end up dead" with no numbers to back it up. The facts don't support your claim. If you take into account crime rates, blacks are less likely to be killed by police than you would expect.
From the WSJ ( www.wsj.com/.../the-myth-of-systemic-police-racism-11591119883 ):
"In 2019 police officers fatally shot 1,004 people, most of whom were armed or otherwise dangerous. African-Americans were about a quarter of those killed by cops last year (235), a ratio that has remained stable since 2015. That share of black victims is less than what the black crime rate would predict, since police shootings are a function of how often officers encounter armed and violent suspects. In 2018, the latest year for which such data have been published, African-Americans made up 53% of known homicide offenders in the U.S. and commit about 60% of robberies, though they are 13% of the population... police officer is 18½ times more likely to be killed by a black male than an unarmed black male is to be killed by a police officer."
My point was that it goes deeper than statistics. There are cultural and social economic issues at play as well. At the end of the day, people tend to be more suspicious of black people. Jesse Jackson's quote comes to mind:
"There is nothing more painful to me at this stage in my life than to walk down the street and hear footsteps... then turn around and see somebody white and feel relieved.”
Oh and the stats I quoted are accurate:
"Overall, black Americans are several times more likely to be killed in police shootings than white Americans are."
Source: Snopes.
www.snopes.com/.../do-police-kill-more-whites-than-black-people/