Today the bulls did it it again. This market remains deeply entrenched in denial, soaring even as unemployment soars higher toward the grand summits of the Great Depression and with certain knowledge that many jobs will not return.
The U.S. stock market secured another strong advance on Thursday, despite an economic bombshell of historic proportions. The Dow Jones Industrial Average (DJIA) soared nearly 500 points after this morning’s jobless claims revealed a further 6.6 million unemployed. A gut-wrenching 16 million Americans have now filed for unemployment over the last three weeks…. Some investors are beginning to doubt the ongoing relief rally with many holding out for new lows.
The Fed is Not Infallible and Bulls are Dumb
Apparently, investors are not doubting it enough, or the market would not have bolted upward today (Thursday, April 9) at the bell right after the third and equally horrid jobs report.
The bullheaded fools are flying high because they are betting on a V-shaped recovery without any basis in fact. Such wishful placing of bets is insane for so many reasons. Some are even believing (not “thinking,” just believing because they want to) that the first rally in a record-ripping, flesh-tearing bear market means the bear is already dead.
Our economic history of the last few years, however, says that is not likely to be the case:
- The upcoming earnings season, largely devoid of buybacks that inflated the market for years, says that is not likely to be the case because the bailout-bonanza law prohibits buybacks for those who participate, and buybacks were the only thing causing the market to rally for many years. (Subtract out all the buybacks, and the market was dead for most of the last decade.)
- The fact that corporations are deep in cheap debt that financed previous buybacks — debt some cannot now service because they are losing money, not making it — says they will not be using more debt for buybacks either, but just for survival, so that is not likely to be case.
- The knock-on effects that haven’t even started to show yet — of banks and other corporations and hedge funds, etc. that are likely to go out of business if this lasts two months or more — all say that is definitely not likely to be case.
- The number of jobs that will certainly not return — because retail stores that were already struggling under the Retail Apocalypse will not be reopening or rehiring, and restaurants that were already struggling because the Retail Apocalypse was cutting down their traffic will not likely be reopening or rehiring — all say that is not likely to be case.
- The fact that the bulls were particularly betting today that the Fed, as master plate-spinner with more plates than ever up in the air, won’t drop a single important piece of china seems not likely to be the case either.
- Finally, the unpredictability of a virus that hasn’t even climaxed yet in the US says that the end of the bear is not likely to be case.
The bulls, of course, have ignored that history throughout recent years; so, they are banking on a V-shaped recovery. That is just plain DUMB!!! Dumb like can unthinking creature, driven only by its appetites. These unthinking creatures have been conditioned to believe the Federal Reserve is omnipotent and can always save them.
Let me blaspheme their god, and say that is just plain dumb, too. The Fed comprises ordinary human beings, misguided by poor philosophies who have a track record, by their own admission, of killing every economic expansion they ever engineered. As former Fed Chair Ben Bernanke confessed, “Expansions don’t die of old age; they are murdered.”
In fact, the Fed has a solid record of failures. Heck, we all know the Fed crashed its most recent recovery by overtightening. We know that is why the market plummeted in 2018. We all know they failed to see the recent and massive Repo Crisis coming, and we now certainly know they were always wrong in claiming they could wind down their balance sheet, given how quickly they went back to quantitative easing last fall to undo the damage they had caused. (That, or they’re just evil as some say and plan these failures.)
So, for the bulls to bet the Fed can perfectly manage all the emergencies that are piling up right now and not have a single catastrophic accident with so many possible fatal accidents in cue … is just plain dumb.
As an example today of their unthinking way: Remember, how yesterday I said the bulls were irrational to believe a one-day dip in the New York death count was anything more than a one-off? Well, today New York reported its highest number of new deaths in a day so far! The higher average for the week holds. So much for that wishful thinking as being a basis for wise investment choices.
Any sentient creature would have recognized the dip could easily prove to be an anomaly and would not have assumed a low number for a single day meant anything at all. Trends and averages count; single days don’t mean much.
In the testosterone-addled brains of the bulls, however, the only thing that mattered was they heard what they wanted to hear so they leaped into the sky again as if bulls could fly.
Historically speaking, we’re walking into a Great Depression
Next time you see a payroll report that looks like this…
… followed by another and another, be smart and recognize it means it’s time to buy stocks! That’s what it means in this deranged market.
And, if all measures of the unemployment rate spike upward like this …
… go all in.
To be fair, the market actually dropped on one day’s bad jobs report, but then it soared the next day, so ignore that. 3.3 million unemployment applications one week, then 6.6 million more the next:
Looks a little out of proportion to the Great Recession — like skyscrapers that tower over the nearest mountain, dwarfing it into an insubstantial presence in the distant landscape. Then you realize that mountain is K2, the second-highest summit in the world. So, what unearthly skyscrapers are these?
And then 6.6 million again today! All told, well over 15-million new unemployment apps. Now we’re not only getting height, but breadth of record peaks. Yet, the real numbers of total unemployment, of course, are worse.
These are just NEW unemployment claims. Then there are all the old ones, and then there all the people who LONG AGO fell off the unemployment register simply because their benefits ran out during the Great Recession and they chose to retire early on less retirement than they would have liked as they gave up getting a job at their age. Then there are gig workers who are considered self-employed, who go out of work and often don’t qualify for unemployment. Then there are all the people who still show up as employed, except that long ago in a land faraway they used to have real full-time, benefit-paying jobs and, throughout the continuing Great Recession, they were only able to get part-time jobs.
So, the big numbers in this article are all just the NEW stuff! We’ve never seen anything like this, but …
What’s not to like?
The three highest spikes in new unemployment claims in the history of the universe … at least in our solar system. Hey, we’re breaking all records. That’s got to be good. Right?
Surely that’s a reason for bulls to fly like Taurus into the sky. Woohoo! We beat all apocalyptic job failures … twice, no thrice! It’s now a pattern. Score!
Actual claims worse by far than the most pessimistic estimates out there? Let’s party like there’s no tomorrow … because there probably is! Give us another couple of weeks, and the aggregate of all unemployment claims may top the Great Depression. Then we can really party!
Headlines said such things as …
Except that the Dow recoiled for only a matter of minutes before it shot to the moon the first time. Now it doesn’t even recoil. It shoots up at the opening bell as if a cataclysmic jobs report to start the day was exactly the jolt of caffein it needed!
It does so because the market in its inferior bullheaded wisdom knows these jobs will all come flying back in a month or so.
But will they?
Undoubtedly there are more layoffs to come as companies still operating find they must reduce labor costs during the deep recession the pandemic is creating….
But more than the immediate pain, this crisis is likely to reshape the economy permanently.
In good times, when business is profitable and getting more so, many bosses avoid making hard choices. Inefficiencies are ignored, new labor-saving technology is not installed, under-performing employees are tolerated.
But when the bad times inevitably come, suddenly executives have no choice but to run the tightest ships possible and labor costs are usually one of the easiest variables to control. And those lost jobs don’t come right back after the economy once again turns up….
After having been forced to cut back, many companies are likely to decide to try to move forward with less — at least at first….
Some jobs are just not going to come back. Most restaurants in the country are closed right now, at least for in-house dining. A fair number in all likelihood will never reopen. Restaurants are a labor-intensive, low-margin business in the best of times and many close every year anyway. The pandemic will undoubtedly push many over the edge….
A significant portion of the working population — and their bosses, of course — find they can work just as well from home, they are likely to increase doing so. That, in the long run, will mean fewer jobs for transportation workers as the volume of commuters declines.
Things will change when we reopen for business on planet Earth. It won’t be the same world.
Let’s look at some of the other reasons given for the bulls head rush
On one of the days when unemployment claims broke all historic barriers, President Donald Trump tweeted that he had just spoken to Vlad Putin, and they had agreed to a deal where Russia would pump less oil to help raise oil prices to alleviate stress on the US oil market and its banks. The market rose as though that was the only issue of importance that day. Then Vlad responded, “Not so fast. We will cut production if you also cut production.” To which Trump didn’t respond, and the market didn’t care. It had heard what it wanted. The rest could be ignored. Testosterone bull saw cow. Nothing else existed.
The market, you see, doesn’t need any real hope. All it needs is words to feed into the algorithms that are the drivers of today’s — as Trump would say — “fake” market. Given the right headline, they will find a way to tease and cajole each other into spectacular gains.
Who cares if nearly 16% of America is unemployed in just three weeks. Call Vlad. Trick the slick oil market into a price change; we’re good. Give us a jingly line, and we’ll be fine!
So, here’s what’s going to happen in Wonderland, and it’s wild!
On the bright side, all those buybacks that have been pumping the market up for years as everyone knows … they’re going away now. So, the tree tops are going to start hitting the underbellies of the flying bulls. The market knows that, too, but it is cavalierly ignoring that because it wants to. Denial is still primary.
Goldman Sachs predicts buybacks will fall away by 65-70% year over year throughout this year and says, “The decline in share repurchases will have a significant impact on the equity market.“
That is partly because Democrats fortunately and finally put a clamp on buybacks for companies that take any government stimulus money. (That was one of the reasons Nancy Pelosi stalled the approval of the stimulus package, and Trump half-heartedly agreed with her against many in his own party.)
Besides the government clampdown, companies don’t have any more capacity to use practically free Fed credit to spend on buybacks even though the Fed is pumping out money. Why? For the simple reason that they already piled up heaps of cheap debt on buybacks for years, and now they have to maintain that debt without any income! And that is exactly one of the problems I said we were set up to experience when the next recession hit.
Prudently, you are supposed to use good times to reduce debt, so that you have available credit as a cushion when bad times come.
So, what’s going to happen to stocks if they find a way to keep going up anyway?
We’ve already seen it happen, but the bulls are too stupid to learn. That means it gets to happen again and again … and will. They get to have their heads slammed from ceiling to floor to ceiling to floor as reality refuses to do what the algos have pretended is going to happen based on the goal-sought headlines they were programmed to respond to. It’s going to be a head-smashingly grand time as the permabulls refuse to deal with reality, thinking they have beat it forever.
There is an alternative, which is otherworldly and worse. It is the Wonderland scenario where the stock market keeps going up, even as the economy keeps going down, until the stocks that show record prices are shares in companies that no really longer even exist because economic reality on the ground wiped them out of business! Customers aren’t going to come just because stocks keep going up, and stocks going up won’t pay the bills.
That’s how unhinged this thing would ultimately become if the market doesn’t square with reality that is falling away quickly. To keep the market rising, investors will have to pretend companies exist and actually do business. They’re already pretending many of them are actually doing business anyway; so, what does it matter whether they exist or not? They’ve been pretending they’re doing fantastic in business for two years as sales, revenues, and profits continually declined into a recession that I documented through the last half of last year, but stocks kept rallying at record rates.
As one economist from Nordea Asset Management explained:
Equity markets are stabilizing today after pricing in a more realistic scenario in the United States. Many continue to bet on the long-term believing inherently in “apple pie,” namely the virtue of the United States as expressed in part by the innovation and competence of the Federal Reserve and to a lesser extent, the White House.
Apple pie? Pie in the sky? Political hopes a “more realistic scenario” than the market’s initial reaction to the Coronacrisis, which was all about reality sinking in? That writer is detached from reality even as he writes that stocks are pricing more realistically.
Reality? Who needs it! We have a stock market, for cryin’ out loud! And if you have a stock market, you don’t even need an economy! Give me one good reason why stocks can’t exist and be traded like casino chips without a real business behind them when the market hasn’t paid a dime’s worth of attention to GAAP-based business numbers for years anyway. Just make it a stock market full of shell corporations that used to be real businesses, and keep betting their values up using free Fed money if you can figure out how to do that without buybacks.
As one investor/analyst has just written, get ready for …
We are likely (clearly) in a consumer-led recession. Jobless claims have been off the charts. Unemployment is rising and is expected to spike through double digits in April. Businesses are closed, and the open ones are just hanging on. The streets are eerily quiet, and more people are on pace to die in the U.S. from the Coronavirus than the entire Vietnam War. The stock market is in a feverish bull market.
We’re not quite there yet, but we are setting up for one of the greatest disconnects in economic and stock market history….
How is it possible that we are in the worst economic situation since the Great Depression, but the coming of a stock market bubble? The Fed is backstopping capitalism.
The very fact that congress finally got smart enough to disallow buybacks with the bailout money may be enough in itself to keep the last hurrah of the stampeding bulls from fully forming even with full Fed support. Buybacks were the vehicle by which most free (or practically free) Fed funds were fed into the market. So, with that curtailed for a year by anyone partaking of the new bailouts, the market is going to have a hard time building the kind of momentum it needs to sustain a long rally.
Companies that don’t partake of the bailouts may be in no better shape. They have no income, and for many of them their cost of finance is rising, in spite of the Fed bailouts, because their corporate bonds are looking riskier. Even if the Fed somehow saves their sorry butts from lowered credit ratings by buying their soon-to-default bonds, they still cannot afford to take out additional loans to buy their stocks up any higher because they have no income! It’s all they can do to keep rolling over the bonds they already issued, and the money raised by those bonds has all been spent.
This is where this kind of foolhardy finance gets you. If you stay in the game to capture the last rush of greed, you get to be part of the massive explosion at the end … and are part of the cause for having cheered the whole stampede upward. It’s greed gone mad.