Wednesday, June 10, 2020

A Storm is coming ...

The Stock Market just keeps going up while main street and the rest of society reap the whirlwind of COVID-19 and the tanking the economy. What's interesting about all of this is how "experts" describe the continuing rise of the stock market in terms of it not being the economy while ignoring the fact Trump and company gifted the 1% and the companies they own, with "wonderful" tax cuts while the Fed continued to grease the wheels of WS by printing money to the nines while letting the rest of America, in effect, to twist in the wind.

Question ... how long will it take for people to realize they have been had, especially when one doesn't have enough money to feed their family or keep from being evicted while the financial types continue to live large. Good question to ask is it not?

The economic news has been terrible. Never mind Wednesday’s G.D.P. report for the first quarter. An economy contracting at an annual rate of almost 5 percent would have been considered very bad in normal times, but this report only captured the first few drops of a torrential downpour. More timely data show an economy falling off a cliff. The Congressional Budget Office is projecting an unemployment rate of 16 percent later this year, and that may well be an underestimate.

Yet stock prices, which fell in the first few weeks of the Covid-19 crisis, have made up much of those losses. They’re currently more or less back to where they were last fall, when all the talk was about how well the economy was doing. What’s going on?

Well, whenever you consider the economic implications of stock prices, you want to remember three rules. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.

The one nugget of truth ...

The point, instead, is that the market’s resilience does, in fact, make some sense despite the terrible economic news — and by the same token does nothing to make that news less terrible. Pay no attention to the Dow; keep your eyes on those disappearing jobs.

The broke and destitute will be doing just that ... without a doubt.

It gets better.

Teetering on a constitutional precipice, the country faces catastrophic unemployment, grave trade tensions and a deep recession. And no one needs reminding that the world has been stricken by a coronavirus pandemic that has already killed more than 380,000 people, more than 106,000 of them in the United States.

You may want to place these items in a different order, add some or subtract others. But it would seem that at least we can all agree that we are looking at an ugly picture.

Yet there is a glaring exception to all this gloom: the stock market. It has been absolutely fabulous! In fact, by some measures, the American market has never been better.

Consider these remarkable statistics from Bespoke Investment Group. Through June 3 — the 50 trading days since the market’s coronavirus low on March 23 — the S&P 500 gained 39.3 percent. That was the best 50-day performance since comparable records began in 1952.

But right now, it’s all about the money. And the immediate questions facing traders are whether current prices are insupportably high and, regardless of your answer to that question, whether they are soon likely to go higher still.

The nugget of truth yet again ...

Trepidation about current price levels is widespread. But so is the assumption that it would be unwise, short-term, to bet heavily against a rising market when the Federal Reserve is bolstering it.

Well, for one thing, the facts are not all positive. At the moment, tens of millions of Americans are still out of work and the unemployment rate in May was 13.3 percent, higher than in any previous postwar recession, even if better than the 14.7 percent rate of April. Another reason for skepticism is that stock prices are already quite steep, based on standard metrics like price-to-earnings ratios.

That’s not terribly surprising, Mr. Paulsen said, because earnings typically fall sharply in a recession. Today’s prices — and higher ones in the weeks ahead — can be justified by the rock-bottom interest rates in place and by the prospect of increased corporate earnings in the future.

“If the economy really rebounds,” he said, “then stock prices are likely to go higher.”

But that is a big “if.”


Financialization ...

As such, since the 1980s, the financial industry has chased short term financial returns over long term goals, which would require investment in technology and product development. One of the biggest reasons for this was simply a matter of Wall Street following its capitalistic instincts, which told them there was more profit in making money from money rather than in engineered products. Financial instruments provided quick returns with little fuss. They invested in software that facilitated this approach rather than investing in costly brick and mortar needed to build factories. They were also supportive of products that could be sold at Wal-Mart and manufactured overseas. As a result, the financial industry has played a major role in the decline of manufacturing in the U.S.

A Storm is coming ...

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