And the band played on

rono

Howdy folks,

Anyone else feel like we're on the Titanic? I simply cannot fathom the stock market evaluations. Sure, I realize that Fed has the markets back and of course, I won't and wouldn't ever fight the Fed. Geez, God help you if you're short side. That said, I don't see any way for this to end well. The Fed's writing endless checks to businesses and while most are viable and can use the bridge, a lot of them are zombies. I know it. You know it. Everyone knows it. And yet, every day, these are some of the winners. I see casinos stocks climb and everyone knows they won't be profitable for at least 12 to 18 months . . . if then. Cruise lines? Really?!? Oh, I see, they're going to check everyone's temp and ask them if they've been to China. Right.
Oh, and speaking of gaslighting, temp checks just confirms the dead customers. Airlines? Real estate?

Sure, while I'm still conservatively allocated, I own stocks and stock funds. It's pretty much the only game in town and that's another reason while the Band is still playing.

Sooner or later, I still don't see this ending well.

And so it goes,

peace and flatten the curve,

rono

catch22

Hi Ron,
Thank you again for your insights.
The power of big money continues, whether we individual investors; many times, can't quite digest the current or forward impacts.
I'm not knocking the big money flows, as they have their business and customers to satisfy; and it is nothing new in the history of money. If not for all of this money flow, few of us could look back and forward to smile about our available choices for investments to preserve our sweat equity investment money.
But, yes; where will all of the injected money find its resting place?

Lastly, "the band played on" took you to the Titanic, which is appropriate for the investing side. Before opening your post, my first thought "pop" were these words in the lyric from the 1970 Temptations song, "Ball of Confusion". Which, 50 years later remains fully in place for the ongoing and current societal upheaval.

Roots of the song: For those too young, or those who have forgotten or where not aware.

Song with lyrics

Take care of you and yours,
Catch

LewisBraham

The only potential rationale I can offer for it in addition to the Fed's stimulus is an almost complete disconnect between Wall Street and Main Street. The belief that this president has and previous ones had that the stock market is an indicator of broader economic health is mistaken for a reason unique to our era. Companies can now have massive market valuations without employing many people because of technology. One fascinating and depressing stat for me is the number of employees that work at Netflix compared to its market capitalization. In 2019 it employed only 8,600 people, yet its market cap valuation is $186 billion. Compare that to Blockbuster, the old movie distribution company, which at its peek in 2004 employed 84,300 people and never reached Netflix like valuations. Compare it to Disney today, which has a comparable market cap, but employs 223,000 thanks to its theme parks most likely. Think about this in comparison to the old model where if people were out of work, chances are GM and Ford or U.S. Steel were suffering because they employed so many people.There was a more direct link between labor and business. Equally important, there was a more direct link between U.S.-located labor and business. But if companies don't need a lot of U.S.-based employees to grow big and income inequality is so great that they can still have growing profits even if a significant portion of the population is unemployed, does it matter if the "other America" is experiencing a Depression-like scenario to Wall Street? This disconnect is further proof that market indexes should cease being considered economic indicators. What they really are is an income inequality indicator.

bee

I just starting to read this article and thought it fit this thread:

...had it not been for the spectacular intervention carried out by the US Federal Reserve, the Bank of England and the European Central Bank, we would now be facing not only the ravages of Covid-19 and the disastrous social and economic consequences of the lockdown, but a financial heart attack as well. Instead, we are experiencing a shockwave of credit contraction. Production and employment have shrunk dramatically. Huge programmes of government spending have been set in motion, not to create new jobs but to sustain the economy on life-support. The challenge isn’t merely technical. This is a global crisis, which affects virtually every community on the planet. And it has exposed stark differences between the major economic blocs, such that it is now more difficult than ever to understand how the thing we call the world economy actually fits together.

The three great centers of production, exchange and corporate activity are the US, China and the Eurozone. These economic hubs are tied together through flows of trade, organized through complex supply chains that span the globe. Each of the three hubs has a hinterland extending into neighboring regions in Latin America, East Central Europe, Africa and across Asia. They are all stitched into a global financial system that uses the US dollar as its currency of trade and credit. Each of the three hubs has characteristic weaknesses. The worry about China is the sustainability of its debt-fueled economic growth. The basic weaknesses of the Eurozone are that it still doesn’t have a backstop for its rickety banking system and that it lacks a shared fiscal capacity; what’s more, Italy’s finances are so weak that they continually threaten to upset European solidarity. In the US, the national institutions of economic policy actually work: they demonstrated this in 2008 and are doing so again now. The Fed and the Treasury exert a huge influence not only over the US economy but the entire global system. The question is how they stand in relation to a profoundly divided American society and how their technocratic style of policy making is received by the know-nothing nationalist right wing of the Republican Party and its champion in the White House.

Over recent years, each of these weaknesses has at various times seized the attention of the fund managers and business leaders who direct global business, and the experts and technicians who advise them. It isn’t a secret that China’s debt bubble, Europe’s divisions and America’s irrational political culture pose a challenge to the functioning of what we know as the world economy. What caused the panic last month was the realization that Covid-19 has exposed all three weaknesses simultaneously. Indeed, in Europe and the US the failure of government has been so severe that we now face a public health catastrophe and an economic disaster at the same time. And to make matters worse, Donald Trump appears tempted to juggle the two

Link to Article:
adam-tooze/shockwave

Old_Joe

Hello there Ron- Thanks for starting this post, because you've raised the same questions that I've been pondering, and it's always nice to see that someone else is seeing things through the same lens. I've been pretty quiet on this board for a while now, because nothing that I'm seeing out there is making much sense to me, and I just have no idea where we're headed or how long it's going to take to get there.

Insert Added: Bee's article excerpt, above, pretty well covers the economic perspective.

About just one aspect of the general situation I will say this: If I were black I would be damned sick and tired of the American police just killing us any time they felt a little aggressive. This crap had damned well better stop. People are really pissed, and very rightly so. The response of the President and Attorney-General of the United States, assaulting a group of peaceful protesters to clear the way for a photo-op, pretty well says it all.

OJ

Shostakovich

@Bee -- where is that article from?

bee

Link is London Review of Books

Rbrt

Rono is spot on! Thanks also to Bee for the link. I especially like when long articles come with a Audm read along (I probably have ADD). Here’s another quote:

“ What we are witnessing in the American response to the crisis, more than the flame-out of Trump, is the gulf between the competence of the American government machine in managing global finance and the Punch and Judy show of its politics. That tension has been more and more glaring since at least the 1990s, but the virus has exposed it as never before. It has forced an apparent choice between economic performance and mass death which, not just in America, is profoundly shocking to the prevailing common sense.”

Rbrt

rono said:

Howdy folks,

Anyone else feel like we're on the Titanic? I simply cannot fathom the stock market evaluations. ...
I see casinos stocks climb and everyone knows they won't be profitable for at least 12 to 18 months . . . if then. Cruise lines? Really?!? Oh, I see, they're going to check everyone's temp and ask them if they've been to China. Right.
Oh, and speaking of gaslighting, temp checks just confirms the dead customers. Airlines? Real estate?

Sure, while I'm still conservatively allocated, I own stocks and stock funds. It's pretty much the only game in town and that's another reason while the Band is still playing.

Sooner or later, I still don't see this ending well...And so it goes,..peace and flatten the curve,
rono

It just struck me today, I’m sure on April 1st, a lot of us questioned why we didn’t sell March 1st. Well stock indexes are back to March 1st levels, is anyone considering selling now? Rono says they are the only game in town, but that’s not totally true. There is always cash or a deep discount CEF.

carew388

I also feel like I'm on the Titanic but I'm hoping it's really the Andrea Doria! If I were African-American I would emigrate to another country/continent (after first checking their racial politics) if at all possible. Canada,Australia, most of the OECD countries in Europe, and as a last resort Uruguay !

hank

carew388 said:

I also feel like I'm on the Titanic but I'm hoping it's really the Andrea Doria! If I were African-American I would emigrate to another country/continent (after first checking their racial politics) if at all possible. Canada,Australia, most of the OECD countries in Europe, and as a last resort Uruguay !

I’m with ya there. Most of the world is expressing outrage against not just the Floyd murder but the use of U.S. armed military forces to quell civilian protests in DC. Today there were boisterous protests at the PM’s residence in Britain, in Greece, in Iran, etc. But probably not in Russia. Hell, I’d expect Putin to send troops over here to “assist” DT in “keeping order“, if he gets desperate enough.

Re @rono’s post - Yup. I was buying back in March, but anticipated it would take a decade or longer to hit pay dirt. Never did I expect the kind of rebound we’ve seen in just a couple months. I’m a Bloomberg addict and will tell you the talking heads there have been outspokenly bearish all the way up from mid-late March. Only today did I detect a change - a glimmer of bullishness in the commentary and guest appearances. (Based on that, I’d be worried.)

Crash

"...This disconnect is further proof that market indexes should cease being considered economic indicators. What they really are is an income inequality indicator. "

...And even though I am invested and benefitting, LB's words are the simple, utter truth.Oh, and one more thing: "I can't breathe."

Sven

@rono, you beat me to it. I was also wondering on the current upswing. Main street has not improved much with the high employment rate (14.7% on my last count). Layoff has not stabilized and seems to worsen. Is all that QE across the globe driving these markets? Professor Snowball mentioned on his Commentary that computer buying/selling was driving the large selloff in late March. Is it operating again on the opposite direction?

sma3

Seventy plus percent of trades are driven by "algos" and are short term. They are run by people whose careers are on the line if they do not beat the market every quarter (Jeremy Grantham's "career risk"). Any positive headline or a data point that it is "awful but not as bad as it was" pushes the buy button.

Thus we have had a plateauing of cases ( not getting worse) opening up of several states ( slightly better) and the massive Fed intervention ( Don't fight the fed)

Currently priced for perfection ie full resumption of economy by late summer or fall, no second peak and a vaccine by 2021.

When the negative headlines start ( for example Israel re-closed schools today with covid cases discovery) we will see the crashes start again as the algos bail.

The only question is by how much.

rono

Howdy folks,

Thanks for all the great commentary and thoughts.

Hey, I'm still invested in the market. Sure, there are a couple of other games than equities as was pointed out such as cash and bonds but really?!? The opportunity cost is bloody enormous. I'm cautious at my present age and political inclinations, but it's dicey to stay long in any sort of real fashion. I've got lots of cash and some bonds and some MICHIGAN munis in a fund FMHTX in a taxable account. Wifey is more conservative than I, so I guess that means she doesn't play the penny silver miners like the kid. Precious metals is probably my one area where I stray from normal stocks, bonds, cash allocations. I've FOREVER suggested the everyone should have at 3-10% in precious metals, preferably physical bullion. For my regular equity investments, it's mostly individual stocks that I am a customer or AND pay me a dividend (e.g. CMS, DTE, T, VZ).

But folks, I really don't feel good about this market. I've been telling all y'all to buckle TF up since around the first of March and I'm still saying it. Can you make money playing stocks right now? Of course, but it's like a game of musical chairs. When the music stops . . .

and so it goes,

peace, and flatten the curve,

rono

Sven

Interesting read.

First, the economy is not really “broken,” as it was in the Great Recession, when the U.S. housing market collapsed like a wobbly Jenga set as the stock market, labor market, and manufacturing industry all came clattering to the ground at once. Instead, a global pathogenic pulse, whose reverberations are being felt in every corner of the world, has suddenly interrupted an otherwise normally functioning economy. That means we can’t solve the economic crisis until we solve the public-health crisis.

But that logic also leads to the assumption that if the public-health problem is solved, the economic recovery could be quick. That’s why stocks have jumped on optimistic rumblings about vaccines trials. When every company is in the plague business, every stock is a vaccine stock—and every cheery vaccine headline is a corporate-equity stimulus.

https://msn.com/en-us/money/markets/this-is-the-strangest-economy-ever/ar-BB151zQ0

Mark

You might find that the attached article by Jennifer Warren: Mental-Distancing Investing For The New Economic Paradigm quite pertinent to the topic of this discussion. While Ms. Warren is recognized as an expert in the oil patch her comments resonate with the current market valuations.

Old_Joe

Yes. good article. Thanks @Mark.