Drumbeats of the Epocalypse: The Economic Death March Has Come to Town!

Photo of breadlines during the Great Depression

The coronavirus pandemic inflicted a “swift and massive shock” that has caused the broadest collapse of the global economy since 1870 despite unprecedented government support, the World Bank said.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu….

The depth of the crisis will drive 70 to 100 million people into extreme poverty.

Yahoo! News

The Depression is deep, and the pain is wide.

Yet, the NADAQ is a rocket, attempting to break out of earth’s atmosphere. As I wrote several days ago and reiterated yesterday, saying I’d follow up with greater detail today, this bubble in stocks is the most extreme euphoria ever seen. It will, however, blow when the initial burst of good news from reopening gives way to the reality of all that did not recover after reopening.

That endless lineup of headlines is arriving now.

Since COVID-19 has been rebuilding its claimed outbreaks around the nation in the news, the market has become troubled, knocking the S&P 500 and the Dow back down to that seemingly magical 61% retracement fibonacci line on the charts that really big rallies after really big crashes like to top out at.

As I mentioned yesterday, the Nasdaq has pressed on ahead in a tear. Here is how it looks relative to the rest of the economy (GDP). See if this picture looks stable to you:

Northman Trader

And how well did that work out last time?

“Ahh,” you may say, “but this time it is only because then denominator (GDP) has crashed so hard.”

“Nay,” I say.

It is also because, in six days, the five top stocks in the NASDAQ have added half a trillion dollars to the market’s value; and, since the start of this wondrously promising year, they have added 1.6 trillion! All but one of these companies have claimed a heady position in the trillion-dollar-company club.

I’m sure that is not because their businesses have become so much more promising during 2020, earning this appreciation.

As Sven Henrich notes,

That would be a feat during any bull market during times of great growth, but in a historical recession?

Northman Trader

So, while the Dow and the S&P got decapitated the second a new COVID-19 surge took the headlines back, the NASDAQ has continued to be a riot of irrational enthusiasm.

A growing drone of doomsayers

In June, one of the great bubble-blowing predictors of market madness joined with me (unbeknownst to him and for his own reasons of course) in calling out this madness:

Stock-market legend who called 3 financial bubbles says this one is the ‘Real McCoy,’ this is ‘crazy stuff

Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., [offered] up a stark warning to speculators driving the stock market to new heights amid the greatest pandemic of the past century….

“My confidence is rising quite rapidly that this is, in fact, becoming the fourth, real McCoy, bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one. And the chutzpah involved in having a bubble at a time of massive economic and financial uncertainty is substantial.

Gratham painted a very dire picture of the investment landscape in the U.S., suggesting that rampant trading by out-of-work investors and speculative fervor around bankrupt companies, including car-rental company Hertz Global Holdings Inc. … reflects a market that may be the most bubblicious he’s seen in his storied career.

It is a rally without precedence,” he told CNBC, noting that the run-up comes amid a period in which U.S. economic health is at a low point, with millions of people out of work and bankruptcies likely to continue to rise due to a slowdown in business activity and closures that have come in the aftermath of lockdowns implemented to curb the spread of the deadly COVID-19 pathogen….

Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in 2000 and again in 2007, anticipating those market downturns.

MarketWatch

Grantham was one of the clear-eyed people in 2000 who could look at the graph above and say it was a picture of fabulous nonsense. And this time, the graph says it is worse, and Grantham says it is worse. This time, he’s saying this stock bubble is the greatest and craziest of them all.

Grantham indicated his firm has moved to zero exposure in stocks, and he recommends others make that shift, too. And he said that nearly a month ago! Imagine what he thinks of the nonsense now.

In my last article I described three main aspects of the economy that show massive permanent business closures as a result of the first shutdown. Imagine how much worse it becomes as the knock-on effects that are continue to develop. Then imagine how much worse it becomes if any states that go back into a shutdown.

BUT THE NASDAQ KEEPS CLIMBING thanks to the fabulous five!

Second quarter 2020 came and went like a California wildfire. The economic devastation caused by the government lockdowns was swift, the destruction immense, and the damage lasting. But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.

The Dow booked its best quarter in 33 years. The S&P 500 posted its best performance since 1998. And the NASDAQ had its biggest increase since 1999…jumping 38.85 percent in just three months.

The economy, on the other hand, was severely scorched. Decades of debt had built up like dead wood amongst a forest understory. Then, at the worst possible time, government lockdown orders sparked a match and set it ablaze.

Economic Prism

News of plague turns for the worse

We are now entering the phase I talked about for July where the good news from reopening starts to fade, and we get to see how much didn’t recover. Now we start to find out how much is permanently lost and, by the end of the month, we start to see the bankruptcies and foreclosures lining up like a soup line in front of the courts. Then, in August, the business dominoes start to topple because of the businesses that have already collapsed that other businesses depend on.

In this article, I’m going to start laying out the parade of facts that reveal how much did not recover during reopening. First, here was the news three weeks ago that clipped the heads off the Dow and S&P:

Coronvirus cases rise in at least 9 U.S. states, while Fed’s Powell tells Congress unemployment benefits should be extended. U.S. stocks slumped in the final hour of trade Wednesday to end three days of gains, as investors monitored signs of a revival of the coronavirus pandemic in some U.S. states and China, while still hoping for a quick economic recovery as business activity resumes….

Investors monitored the trajectory of new coronavirus cases, as business activity resumes after lockdowns, along with a fresh outbreak in China, but the focus remains on the path to economic recovery, amid some progress in developing therapeutic drugs and vaccines against COVID-19….

Meanwhile, Arizona, Florida, Oklahoma, Oregon and Texas all saw record increases in new cases on Tuesday, while hospitalizations in Texas, Nevada and Florida hit recordsaccording to Reuters….

China canceled flights to and from Beijing, restricted movement of people, and closed schools in the capital city, after 137 new cases were reported in recent days….

“If COVID-19 were to get so bad this fall that the economy had to totally shut down, stocks would fall and fall hard. But right now, even with a surge, the general consensus is that the economy won’t completely shut down again,” said James Meyer, chief investment officer at Tower Bridge Advisors….

MarketWatch

We all know now how that return of the COVID story went. The news just continued to grow worse. Whether the cases of disease are rightly reported or not, this is the news that has dominated, and it is the news governors will certainly be responding to as they consider whether or not to remain open for business. Some of them have already begun winding back toward closure.

So, good luck with the idea that the economy will not shut down again! It’s already doing it in statewide moves. Trump may rail against it at a national level, but his own health advisors have been saying we need to move back in the direction of closure, and numerous states have shown they are free to ignore Trump on this issue, which they did when they chose the last lockdown against his express will.

So, that’s a heck of a thing to be banking on!

Atlanta Mayor Set To Reimpose Lockdown As Cases Surge, Defying Gov Kemp, Trump

And good luck with the economy not remaining well below where it was in January of this year (already not a good place) for a minimum of two years to come (probably more). Good luck with the arrival of end of the reopening bump in good-news statistics not taking out the stock market’s drug-addled euphoria later this summer if COVID-19’s rising case claims don’t do the job first.

(Note I say claims because a few people in the medical profession have contacted me to tell me they are instructed by the CDC to report all respiratory deaths as COVID-19 unless they are known with certainty to be something else. Yesterday, a reader here told me he heard Ron Paul claim that Texas is now reporting people who merely come into contact with COVID-19 as actual COVID-19 cases. See: “Ron Paul: Is the Texas COVID ‘Spike’ Fake News?” I keep hearing various reasons to question the numbers that are coming through. Still, as I said before, perception is reality in terms of how this story hurts the economy because politicians are acting on it and so are hundreds of millions of customers.)

Failure of the Fed is already being sensed

The stock bubble is already looking ready to burst. The Robinhood crowd, where the reigning self-proclaimed champion Dave Portnoy has proclaimed “stocks rise forever,” may be in for some sticker a shock when prices crash:

The first crack appears in bulls’ thesis that the stock market will rise no matter what.

Money printing by the Federal Reserve has propelled stocks for more than a decade. But that effect may soon wear off…. 

Until recently, the Fed has been unreasonably intransigent in that it will continue money printing even if the economy became strong and there was no need for it…. When the Fed announced it will buy individual bonds, the stock market loved it….

Fed Chairman Jerome Powell is a smart man. The way he came across in his press conference after the FOMC policy decision last week was troubling in that he was going to do whatever it took without regard to consequences and limits. Why would a smart man like Powell show such intransigence?…

Powell is being clever in exhibiting intransigence because he wants everybody to believe that the Fed is all in and there are no limits to what the Fed can do….

[However, looking deeper into Powell’s words:]

“We’re not actually increasing the dollar volume of things we’re buying. We’re just shifting away from ETFs toward this other form of index….”

The crack in the bulls’ thesis is that contrary to their belief, the Fed is becoming measured and may have difficulty expanding its balance sheet beyond $10 trillion. In plain English, unlimited money printing is highly unlikely…..

MarketWatch

Why is Powell talking big but then showing some signs of not going there? Maybe he’s offering empty reassurance as the Fed actually backs off on its monetary support of the market’s rise. He might talk big and back away if he knows the Fed is at the point where the distortions it blows into being are worse than what it seeks to cure.

Right now, the Fed’s financial money-printing in support of the market looks like the red line below:

Zero Hedge

The Fed knows it has pumped the stock market into the highest bubble in history, and it is trying to taper that because the risk gets worse the bigger the bubble gets. However, economic damage that is still building will likely press it back to more money creation. In the meantime, we know now from past experience, not just from my saying it would prove to be so, that the Fed cannot taper its balance sheet without crashing the market it has rigged up. We see in the graph the S&P has already responded by settling back down (same for the Dow as shown yesterday), and so the market is tipping.

With no further adieu, here is the rapidly approaching lineup of bad news the market is ignoring. Here is the bad news that is now relentlessly drumming louder and louder until it will become a deafening roar the market cannot ignore. (And the Fed is backing down right as the news arrives, though its arrival will push the Fed back to running the money pumps, which may, if that happens, buy the market a little more time … like until September; but right now, I’d say August is looking good for the start of a crash.)…….More Here

Click here for reuse options!
Copyright 2020 Hiram's 1555 Blog

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.