Weighing the Week Ahead: Sustaining a Fragile Recovery

The economic calendar is a big one, compressed into a holiday-shortened week.  Market participants will be checking out shortly after the Thursday morning jobs report for an extended weekend – somewhere! Employment data is the focus, but ISM manufacturing, consumer confidence, industrial production, factory orders, pending home sales, and auto sales are also all on tap.  Everything except auto sales is predicted to increase smartly.

The economic news is encouraging, but the worry continues:

Can the fragile recovery be sustained?

Last Week Recap

In my last installment of WTWA, I brought together evidence about the mixed messages facing investors.  I expected that to be a focus for the week and it was. The chart for the week displays the market reaction, confirmed but good economic data and poor pandemic data.  That tension will not end soon.

The Story in One Chart

I always start my personal review of the week by looking at a great chart.  This week I am featuring Jill Mislinski’s version, which provides a lot of key information in a single look.

The recent uptrend was interrupted by news of an increase in COVID-19 cases as well as Fed restrictions on bank dividends. 

The market declined 2.9% on the week with a trading range of 5.0%. My weekly indicator snapshot monitors the actual volatility as well as the VIX (see below).

Here is the updated tracking for sectors.  Most of the trends continued on a weekly basis, but there were major deviations on the “down” days.


Statista draws upon Harvard research using credit card data to look at year-over-year changes in consumer spending.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations.  I avoid using my personal preferences in evaluating news – and you should, too!

New Deal Democrat’s high frequency indicators have always been a valuable part of my economic review. They are especially important as we all try to monitor the economic recovery.  His three time frames all show some improvement – positive in the long-term, neutral in the short-term, and “less awful” in the nowcast. NDD has a warning, however:

…(W)hether conditions continue to improve from their recent horrible levels depends very much on the trajectory of the coronavirus pandemic. Fundamentally, this is entirely dependent on decisions made by 51 people: 50 Governors + 1 President. It is also subject to whether Congress extends the supplemental unemployment insurance payments that were temporarily enacted two months ago, but expire at the end of July. Several States in the Deep South and Southwest have started to reimpose some business closures, so continued improvement is very questionable, to say the least.

The Good

  • New Home Sales for May were 676K (SAAR) beating expectations of 635K and April’s (downwardly revised) 580K.  Existing home sales were roughly in line with expectations.  As usual, Calculated Risk has excellent commentary on both.  Existing sales are counted at the time of escrow, so the data are more reflective of the March and April period.  New home sales showed strength and may get even better, but Bill warns as follows:

No one should get too excited.  I’ve long argued that new home sales and housing starts (especially single family starts) were some of the best leading indicators for the economy.   However, I’ve noted that there are times when this isn’t true.   NOW is one of those times. The course of the economy will be determined by the course of the virus, and New Home Sales tell us nothing about the future of the pandemic.

  • Durable goods orders for May increased by 15.8%, beating expectations of 11.6% and gaining back much of April’s 18.1% decline.
  • Personal spending in May increased 8.2%, beating expectations of 7.0%. April’s 12.6% decline was revised better from the original -13.6%.
  • Core PCE for May increased by 0.1% compared to expectations of no change and April’s 0.4% decline.

The Bad

  • MBA Mortgage Applications declined 8.7% versus a prior gain of 8.0%.  The series still looks good when compared to recent years.
  • Initial jobless claims registered 1.480M worse than expectations of 1.250M but better than the prior week’s (upwardly revised) 1.540M.  Claims have flattened out but remain elevated, especially when including the more liberal pandemic rules.
  • Continuing claims improved to 19.522M, better than the prior week’s (downwardly revised) 20.289M.  This series lags initial claims reports by one week.  As the economy improves, we should see it in these reports.
  • Personal income for May declined by 4.2%.  While this was better than expectations of a 6.0% decline, it was much worse than April’s gain of 10.8%.
  • Rapid Loss of COVID-19 antibodies is reported in early research.  Does this make these people vulnerable to reinfection? (TheScientist).
  • Hotel occupancy of 43.9% is an improvement over the prior week, but still much lower than last year.  Drive-to destinations led the way. (Calculated Risk).

The Ugly

Facial recognition misuse.  Like others, I am concerned about privacy and have often mentioned increased monitoring by government.  This week brings a case of someone Wrongfully Accused by an Algorithm.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

We have a big economic calendar compressed into four days. Employment news is most important, including the official BLS numbers (on Jobs Thursday this week) as well as the ADP private employment report and the regular weekly jobless claims data.  The ISM manufacturing index, one of the better early indicators, is expected to rebound.  Conference Board consumer confidence, construction spending, factory orders, and pending home sales are all expected to rebound sharply.

There is no calendar for COVID-19 news, but it will compete for attention with the economic data every day.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

The mixed messages became clearer:  Economic news got better, and pandemic news got worse.  This leaves investors facing a crucial question:

Can the fragile recovery be sustained?


Some do not see significant economic risk from the pandemic.  They see the problem as one of misguided human reaction.  Brian Wesbury and Strider Elass call it, Miscalculating Risk: Confusing Scary With Dangerous.

It’s critical to be able to distinguish between fear and danger. Fear is an emotion, it’s the risk that we perceive. As an emotion, it is often blind to the facts. For example, the chances of dying from a shark attack are minuscule, but the thought still crosses most people’s minds when they play in the ocean. Danger is measurable, and in the case of sharks, the danger is low, even if fear is sometimes high.

The authors liken the problem to an insurance actuary who made risk 1000 times greater than supported by data.

According to CDC data, 81% of deaths from COVID-19 in the United States are people over 65 years old, most with preexisting conditions. If you add in 55-64-year-olds that number jumps to 93%. For those below age 55, preexisting conditions play a significant role, but the death rate is currently around 0.0022%, or one death per 45,000 people in this age range. Below 25 years old the fatality rate of COVID-19 is 0.00008%, or roughly one in 1.25 million, and yet we have shut down all schools and day-care centers, some never to open again! This makes it harder for mothers and fathers to remain employed.

[This article reminded me a video Mrs. OldProf and I watched this week.  It was sponsored by our retirement community to help those who needed to learn about their new neighbors:  rattlesnakes!  I now know that the harmless gopher snake is just trying to frighten me with those wide-open jaws.  You can tell the difference because it has a pointed tail instead of rattles.  Of course, some rattlesnakes have lost their rattles, so you need to check closely to see if the tail is pointed.  Also, it is handy to have both around to eat rodents and scorpions.  Oh, and don’t poke rattlers with a stick or try to shoot them].

Paul Schatz, in true analyst fashion, sees a different reason for caution in recent trading.

The theme for the week has been one of caution, not because of the Coronavirus, but because after the four, big quarterly options expiration, the stock market usually faces a headwind. Add on top of that, we have a massive quarterly rebalance out of stocks and into bonds to the tune of somewhere between $100 and $200 billion. And then there is that “little” thing called the annual Russell rebalance which takes place today at the close. There have been all the makings of a pause or small pullback for stocks.

David Templeton sticks to the economic data in his analysis of the LEI, participating in the “V” recovery.  He writes:

Certainly news around the virus is making headlines. However, as more states and their economies open up, an improving economic environment becomes more sustainable.

Some Important Facts

To make sound investment decisions, start with sound data.

  • The pandemic is surging in many states, including my new home state.
  • This is delaying the Great reopening in some states (Barron’s).

The past week, however, has changed that seemingly inevitable narrative. Covid-19 cases are surging again in some parts of the country, forcing a change in the reopening timeline. Texas has closed its bars, Florida paused its reopening schedule, Apple has shut stores it had reopened, and Disneyland in California is postponing its comeback. The S&P 500 ended down 2.9% for the week.

The stocks everyone liked at the start of the pandemic are rising again, and the stocks sensitive to a “return to normal” have stumbled. That means Zoom Video Communications (ticker: ZM), Etsy (ETSY), Peloton Interactive (PTON) have been flying, as Royal Caribbean Cruises (RCL) and United Airlines Holdings (UAL) fall. Evercore’s “quarantine” portfolio has outperformed its “rebound” portfolio by 10% since June 8.

And the implication:

Are statewide lockdowns coming back? Most analysts say no. Governors are highly reticent to issue broad stay-in-place orders now that they have better capabilities to test people widely and pinpoint hot spots. But it doesn’t take government-imposed shutdowns to affect the economy. When the disease is spreading, some people get scared and stay home.

“If fatality rates start to increase, we don’t need an official shutdown for economic activity to be impacted dramatically,” Dennis DeBusschere, the leader of the portfolio strategy team at Evercore, said on a call this past week with investors. “We’re going to see natural social distancing, which has already started in Houston and, to a lesser extent, Miami and Phoenix.”

  • Expanded testing does reduce the percentage of positive rates, since early testing was focused on sicker people. 
  • The increase in COVID-19 cases is not explained merely by additional testing.
  • The market rebound has been concentrated in a small number of stocks.
  • And this also applies to valuation.

The facts suggest investor caution.  As usual, I have a few more comments in my “Final Thought.”

Ideas for Investors

I have decided to switch the investor section to a separate post.  I hope to run it nearly every week, calling it Investing for the Long Term.  In last week’s edition I reported on results from our most recent Wisdom of Crowds survey.  As usual I linked to several of my favorite sources for investment ideas.  In each case I added a comment about how I might use the idea and also related it to our Great Reset results.  I hope readers will find this valuable and that my colleagues will consider the Great Reset matrix as part of their selection process.  Wouldn’t you like to know about movie theaters? Or restaurants? Or business meetings?

One of my personal 2020 resolutions was even more emphasis on investor education – not just recommending stocks but learning how to find suitable choices.  I have created a resource page where you can join my Great Reset group.  You will get updates about what is being studied and can join in the process.  There is no charge and no obligation, but I hope you will join in my Wisdom of Crowds surveys. I need more wise participants!  The latest survey results are part of my most recent report.  The results of our team effort will be published on a regular basis, so you will be joining me in contributing to a greater good.

Quant Corner and Risk Analysis

I have a rule for my investment clients.  Think first about your risk.  Only then should you consider possible rewards.  I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

For a description of these sources, check here.

The C-Score remains at levels never before seen. It is combining the sharp economic rebound with pandemic effects.  When we are able to separate the two, a current mission of Dr. Dieli, it will provide more guidance on the timing and extent of the recovery. I continue my rating of “Bearish” in the overall outlook for long-term investors.  I’ll comment further on my reasons in today’s Final Thought.

The Featured Sources:

Bob Dieli:  Business cycle analysis via the “C Score”.

Brian Gilmartin:  All things earnings, for the overall market as well as many individual companies.   This week Brian also takes note of the improvement in corporate credit spreads.

David Moenning: Developer and “keeper” of the Indicator Wall.

Doug Short and Jill Mislinski: Regular updating of an array of indicators, including the very helpful Big Four.

Georg Vrba: Business cycle indicator and market timing tools.  Georg’s unemployment monitoring tool, based upon weekly claims, shows no significant recovery.

Final Thought

A reader asked why I am so bearish when there is so much good news.  A fair question.  My conclusions are based upon proven indicators, which I mentioned last week without elaboration.  Partly it is a question of the difference in time frame for traders and investors. Here is more detail.  I have traditionally controlled risk by considering relative valuations of stocks and other assets, the likelihood of a recession, financial stress, and quantifiable factors not picked up on the regular indicators.  Here is what I see:

Valuations are very high on a forward earnings basis.  I know that many have seen valuations as elevated for many years using assorted methods.  There are also many critics of forward earnings.  A young man once wrote in response to a question forward earnings were used only by bullish analysts!  Personally, I employ that method because I would rather make an imperfect forecast than an accurate account of history.  The history buffs use it to forecast anyway.  Brian Gilmartin has done everyone a great service by maintaining focus on this indicator, accurately reporting what is out there.  The problem is that we cannot depend on the estimates right now.  Most investment managers are looking to 2021 and 2022, but even those numbers are uncertain.  Until we know more about the economic rebound, we just won’t know about earnings.

Recession odds are 100%.  Most of the big market declines – 40% or more – come during recessions.  People spent years on recession alert.  Guess what?  No recession indicators are required right now.  The economic indicators may look a little better, but they are at dismal levels.

Outside risks are extremely high.  We can debate about how the pandemic crisis will play out, but we cannot debate about the risk.  Even if Brian Wesbury is correct in analysis, no one can relieve the fear.  That perception drives economic growth, politics, and markets.  The coach on the rattlesnake video was well-informed and persuasive, but…..

Stock market strength has provided a false sense of security.  The leading stocks can also lead downward.  Few investors have considered the actual downside risk in their portfolios.

There is a good solution ahead.  It might be a vaccine, but more likely will be a combination of partial solutions – social distancing, regulations, testing, tracing, and a slower pace of reopening.  Individual effort will help, but leadership is also required.  I cannot force my fellow shoppers to wear a mask.

Additional restrictions may be coming.  The US faces travel restrictions from other countries where we are seen as a new Coronavirus hot spot.

My family plans to celebrate July 4th on our patio, watching fireworks from there.  I sincerely hope that all readers have a safe holiday weekend, wherever you choose to go.

I’m more worried about

I’m less worried about

  • And yet, scientists continue to cooperate.  From TheScientist:

The US and China, the largest scientific research producers, are now international adversaries in the midst of a global health crisis. Since the new coronavirus was discovered, geopolitical tensions between Washington and Beijing in relation to COVID-19 have been appearing on major news outlets daily, and the US-China trade war has escalated to a looming “new cold war.” Despite such turmoil, scientists around the world, including researchers in the US and China, are collaborating at a higher rate than ever before to address COVID-19, according to our analysis of SCOPUS bibliometric data.

  • The speed of vaccine production.  Companies are scaling up manufacturing even before a vaccine is approved. (MarketWatch).
  • Will a vaccine be approved before the election? Jefferies health-care strategist Jared Holz thinks so, based partly on “signals from vaccine-development companies.” (MarketWatch).

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  • Rick June 28, 2020  

    Hi Jeff,

    Just a heads up that your submit form linked to yout resource page is not functioning properly. The topic selection links are inactive and it appears that causes the submit form fubctiin to fail.


  • John Malcolm June 28, 2020  

    “Rapid Loss of COVID-19 antibodies is reported in early research. Does this make these people vulnerable to reinfection? (TheScientist).” Answer: We haven’t a clue. T-cell immunity may be the key, and that doesn’t depend upon antibody production. Notice also that in the cited studies, 90% of those who had become symptomatic had good antibody levels when tested a few months later. Asymptomatic carriers are one of the big problems with this virus, but that’s only a few percent of infections, as far as we know.

    “Below 25 years old the fatality rate of COVID-19 is 0.00008%, or roughly one in 1.25 million, and yet we have shut down all schools and day-care centers, some never to open again!” I beg to differ with the exclamation point. Kids at school infamously pass viruses around from household to household. If Mom’s a nurse, she may be shedding virus in the hospital or clinic for days before she knows she’s ill. The first symptom of illness might be a powerful sneeze, which could infect a dozen other people, some of whom are aged, some chronically ill, many critically ill, and some being other caretakers. If the author isn’t scared, they should be!

    “The pandemic is surging in many states…” followed by a chart of The Trajectory of Each State’s Positive Tests. I wish we knew more about the relationship between positive tests and population cases; one thing for sure, they’re not the same. More interesting are the statistics on DEATHS per state, but these data lag infamously, maybe by more than a couple of weeks.

    In general, I agree with OldProf’s conclusions on this matter. I would say this pandemic is a true Black Swan event that will dominate market dynamics for many months to come, and I doubt we’ve seen the worst of it.

    • Harry June 28, 2020  

      John, on schools…the often missed issue is the health and safety of the teachers and staff at schools. Here in Fairfax County, VA, the teachers union is stating that the teachers do not want in-classroom schooling this fall due to safety concerns. A good percentage of our county teachers are old enough to retire. As a parent of two high schoolers, I prefer in-class vs virtual, since the last school quarter only had one class taught per subject per week. If the teachers want virtual classes only, they (and the school system) need to step up their game and have five full days of classes each week.

  • Phil June 28, 2020  

    1. Re: the matrix in the latest “investing for the long term”- I am not sure how to read the matrix? For example, are you indicating banks will do worse in a rebound (C1)? What am I missing?
    2. Agree that risk is real and fear is emotional. They go hand in hand but a constant struggle to keep in balance.
    3. Stretching the fear analogy, historical earnings are real and forward estimates are educated guesswork. They also go hand in hand.
    4. Lacking a magic vaccine we are going to live with the virus. Blanket restrictions as you suggest make no sense given the data. Mitigation efforts should be focussed.

  • EDWARD LUNT June 28, 2020  

    Hi Jeff;
    Having grown up in the Utah and Arizona deserts, (my hobby for the past 70 years has been rockhounding), I have had occasion to meet five rattlesnakes, (no, I didn’t kill them), and heard two others. I am convinced that the reason I have avoided more “snakes” is that I make a lot of noise when I am out in the dessert. I have a walking stick that I make sure gives the ground a good “thump” with every step. I have learned that “snakes” want to avoid you and so a little advanced warning will give them plenty of time of slither away unnoticed.

    As for the COVID-19 pandemic, I have been absolutely amazed by how people have reacted to it, especially our “leaders”. While it is becoming clearer that the virus is much more contagious than testing shows, (the CDC is now saying that the actual infection rate is possibly 10X greater than the number of reported infections ), it is a whole lot less lethal to the vast majority of the population. The virus is going to spread, what is important it to reduce the rate of “spread”, and this can be done by wearing a face covering and social distancing, two extremely simple actions that everyone can take. As for reducing “deaths”, protect the most “at risk” groups, especially those in Care Facilities and those with known pre-existing conditions.
    However, since day one our leaders, (interestingly both Republican and Democrat in fairly equal measure), have failed us. Maybe the best example is that of the wearing of face coverings. At first, CDC told us that masks are mostly ineffective in protecting the wearer. Our leaders set the example and did not wear masks and we the public wondered why medical personnel all wore masks as “personal protective equipment”. Then CDC decided that while masks had little protective value for the wearer, they were highly effective in preventing the wearer from spreading the virus to others and started urging the use of masks. At this point, the media started promoting the wearing of masks as did leaders in one political party but not the leaders in the other. Then came the end of “lock-downs” in many counties and states. At this time, individual citizens started using wearing or not wearing masks as their own political statements. (Our local butcher shop was featured on national TV when it asked a customer to leave for not wearing a mask and the customer refused because, as he said, he had a constitutional right not to wear a mask as a matter of free speech/expression. Too bad he, along with so many others who uses the Constitution as giving them the right for their actions apparently do not understand the Constitution or the rights others including that of private property.) Then came the current “spike” in COVID cases and along with the “spike” came the reluctant realization that the wearing of masks and social distancing is effective in reducing the spread of the virus and reducing the spread of the virus was going to be necessary for the economic rebound to continue.
    While we might not be able to make our fellow shopper wear a mask, businesses can and I expect that business are starting to figure this out. We cannot depend on our elected leaders in this matter, nor have our Public Health Experts been totally honest with us, as evidenced by the CDC’s acknowledgement that the reason we were told that masks were ineffective protection for COVID-19 was because they needed all the masks they could get for health care workers and didn’t want to have to compete with the public for them. It is up to all of us to realize that in order for businesses to open we need to do our part and that is to take those actions that will protect others as well as ourselves.
    Sorry for writing so much but I just needed to vent my frustrations with how our National, State, and County response to COVID-19 has been handled and especially our individual response as citizens as “lock-down” restrictions have been lifted. I think we’ll get it figured out, (I have seen a lot more people wearing masks and socially distancing throughout rural parts of my state as well as in the more Urban areas and hopefully this acceptance of personal responsibility is starting to manifest itself throughout the country.
    Thank you for the articles you write and for sharing them

    • oldprof June 29, 2020  

      Edward — Thanks for sharing your viewpoint. Improvement will take cooperation on all parts, and political leaders do not always share our concept of the common good nor do they believe data that seems clear to us.

      Concerning snakes — thanks for the advice. It is similar to what our video presentation explained. It is difficult to inject any humor at all into a financial blog!


  • wkevinw June 28, 2020  

    Edward Lunt- Thanks for the post.

    Yes, with snakes (in the American desert): assume all are poisonous in the wild and give them room. Rattlers will generally rattle if you give them time to hear you coming. During the day in the summer they will be under rocks and scrub. You will hear them rattle if you are alert. The residential communities usually start out with snakes when they are new. Within about 2 years the snakes are usually gone because the habitat in the desert is too precious and the snakes have to go elsewhere to find enough food.

    Virus: The performance of the leadership, especially the medical leaders (I will not degrade the word “science” by describing as such), has been dismal. The “no masks”-to- “all masks” broke the credulity meter, didn’t it? (American elite failure on full display- of all political stripes and most specialties/professions.)

    Masks work and they should have given that “general guidance” from the beginning; so much for that opportunity.

    Partial personal isolation with mostly opening the economy is required. How to accomplish this will be tricky. Schools- open- so how to isolate/protect teachers with medical conditions (just one issue of many).

    The economy will be weaker than it should be for months (a couple of years?) to come. The timing of the cycle between now and the election will determine whether the incumbent party wins-as it basically always does.

  • Yarbles June 28, 2020  

    Don’t worry about the poisonous Snakes in the Arizona Desert. Let them worry about you. Grew up there. Time for you to man up.

    COVID-19 is just the latest salvo from the Globalist Elite Deep State and Chicom Govt. Bill Gates seems to head the list in this particular department for the Elitists.

    Great Reset coming in 1Q 2021, so currency devaluation is ahead for the dollar at leaste.

    • wkevinw June 28, 2020  

      If you want to know the real priorities of the Gates folks and the elites, see a Bloomberg video where they are talking to Mr. and Mrs. about parenting.

      The Mrs. says: “if my husband, as CEO of Microsoft, could take the time to attend his family events, so could everybody else”.

      An out-of-touch elitist self-outing if ever there was one, facilitated by the elitist mainstream media (Bloomberg)- they thought it was great!

      Just one of the most pathetic cases of accidentally telling the truth as you will ever see. Preen those morals!

      They are quite some piece of work.

  • wkevinw June 28, 2020  

    “-The increase in COVID-19 cases is not explained merely by additional testing.”

    I would suggest more careful wording here. Unless I missed something, without context, this is a false statement.

    If you meant to say something about the “rate of of increase” then OK.

    Please explain if I am wrong.

    Clearly there is an uptick.

    The ONLY very reliable data are excess mortality stats, which are obviously a lagging indication.

    We should be informed and cautious about the new cases and more importantly, rates,, but cautious about too many radical actions.

    Remember “flatten the curve”? of course this is not politically expedient any more. I don’t think I saw this anywhere….

    The point is to keep the medical system at a rate where it can deal with the hospitalizations. (Oh, and don’t send sick people to nursing homes. Another unbelievable moment in elitist failure.)

    Good luck.

    • oldprof June 29, 2020  

      Wkevinw — by “merely” I mean that it is not the only causal factor. Most of those commenting on this topic need the more careful wording, since they imply that testing is the reason for more cases.


  • Yarbles July 2, 2020  

    In Houston it is mostly people under 35 and mostly mild cases which under guidance by the corrupt and complicit Deep State CDC MUST be isolated.

    ICU occupancy remains steady at about 10% of capacity for COVID-19 patients.

    MOST of the uptick now is ELECTIVE SURGERIES put off by the COVID-19 SCARE.


    Let’s get back to work and back to normal. NOT NEW NORMAL.

  • Imarealdoc July 2, 2020  

    “ICU occupancy remains steady at about 10% of capacity for COVID-19 patients.”

    That’s not what I’m hearing from other sources. Rather, some cities are approaching ICU capacity limits. Real statistics on this would be appreciated as it’s relevant to forecasting the next big market move.

  • Mike July 3, 2020  

    “According to CDC data, 81% of deaths from COVID-19 in the United States are people over 65 years old, most with preexisting conditions. If you add in 55-64-year-olds that number jumps to 93%. For those below age 55, preexisting conditions play a significant role, but the death rate is currently around 0.0022%, or one death per 45,000 people in this age range. Below 25 years old the fatality rate of COVID-19 is 0.00008%, or roughly one in 1.25 million, and yet we have shut down all schools and day-care centers, some never to open again! This makes it harder for mothers and fathers to remain employed.”

    I’m wondering if you verified this? It seems egregiously low. From what I’m reading the case fatality rate in the US 5.56% and the median age of those deaths are in their 50s.

    Also it’s



  • Imarealdoc July 5, 2020  

    Interesting data, Mike! Thanks.