June 23, 2020

In a normal year, summer would be underway right about now. Kids would be finishing up that last week of the year, parents would be preparing the camp kit or the cottage stockpiles and the market would cool off.

This year has been anything but normal and it doesn’t look to be getting any more normal. Over the past week or so much interesting, if not controversial activity has taken place in the markets and the political climate, but the markets remain immune to reality.

Some big names (like Warren Buffet) have highlighted that valuations are dramatically separated from reality.  Still investors press on with bidding up prices for all assets no matter the quality. Don’t be fooled, you are buying hamburger for the price of tenderloin. Even if it is high quality hamburger, it still didn’t make the cut as a tenderloin and it ain’t worth it!

Luckily, the SEC has stepped in to protect investors in the case of Hertz.   Earlier a bankrupt Hertz was going to offer up to $500 million in shares to investors.   The SEC forced Hertz to reconsider their offering of equities which Hertz, in their filings, highlighted were likely to be worthless. Of course there are many other situations that are yet to become apparent, but the talk of ‘zombie’ companies is increasing. Companies that may be allowed to live with the help of government and lending programs yet may not be able to even cover the cost of their debt payments from operations. We used to call those companies bankrupt. Now we save them with tax dollars and call them zombies. Zombies are, of course, cool today. Just go see any modern horror movie, it’s the same; a bad movie, larger than life, purely for entertainment value.

So what’s next? Peter Navarro a trade representative for the Trump sideshow declared the China trade deal over yesterday, then the west wing declared that same deal to be still on. Seems like a lack of commitment from the most powerful government in the world, but that’s not surprising.

Meanwhile the coronavirus is ramping up. Like really ramping up. On a recent trip to the US (early June) very few people were social distancing or wearing masks. The Covid numbers suggest that small sample (although that trip covered three states) was not unique. It bears repeating that viruses don’t care what you believe and the coronavirus is still a thing. A deadly thing for vulnerable populations, perhaps less so for others, but it’s still a thing.

With the Nasdaq at an all time high, the S&P 500 not far behind and the marketplace fundamentals still in the dumps, the dissonance amongst various voices is huge.   Of course some will promote hope, some will highlight the despair and others offer a ‘realistic’ or ‘comprehensive’ view of this or that aspect.   This blog is firmly in the camp of ‘dire’ and perhaps comprehensive.  

The realities of current market highs also can’t be ignored.   Of course that won’t save Main Street and it is almost certain that there is a lot of hurt coming down the pike.   It’s just being covered up with deficit spending with your children’s and grandchildren’s tax dollars, as yet uncollected.

The highlight of this is clearly the continuing claims for unemployment in the US.   This blog has been presenting this statistic using a weekly chart, but the chart below shows the scale of the continuing claims for unemployment on a monthly basis, and highlights the massive problem from the COVID crisis relative to the downturns that the boomers have experienced over the past 40 years.  

There has never been anything like it in modern times, and while the economy is reopening slowly, the government funds that the world powers have been using to keep employees on the payroll are finite.  That money will start running out in the US in just a few days.   There is a good chance some of those who are no longer covered, may request unemployment benefits.


Back in March, when many of these measures were first proposed, this blog highlighted that the trillions of dollars being spent wasn’t going to be enough, and nothing has changed my mind.   The stock market can remain disconnected from reality for long periods and $6 trillion of aid to asset prices goes a long way to propagating that disconnect, but without a LOT more help, Main Street will suffer, and there is a good chance that investors will be bearing some of that pain in the not too distant future.

Along that same note, the Atlanta Fed recently produced their latest estimate for GDP, and while it is so bad that it is difficult to believe, the real shocker is that it didn’t get a boost when some of the employment numbers started to turn.    The estimate for GDP is currently sitting at -45.5 and that is DOWN from the last reading.   There is little indication outside of this measure that GDP will drop by 45% in Q2, but still it is meaningful that the many measures of real productivity are getting continually worse, rather than better, despite all of the talk of a ‘V’ recovery.   The stock market seems to be doing okay, but restaurants, bars, shopping malls, sports stadiums, etc., etc. are still empty.    The economy is not okay.   

Did anyone notice that the economy is not open yet and COVID cases are increasing again?  Things are not getting better anytime soon.  We are just four months into this crisis and normal is not yet apparent.  I steal this little chart from the John’s Hopkins tracker, but it clearly shows that cases are on a steady uptrend in the US.  The world is even worse, with Central and South America being a significant problem.  (It’s also worth noting that there is no evidence that ‘warmth’ reduces the incidence of COVID-19 as was once suggested by the idiot in the oval, Donald Trump.)


As a final note, it appears that the younger generation may finally be angry enough to make change.  A lot of young folks spoofed the president’s Tulsa, OK rally on the weekend booking tickets for an event without ever planning to attend.   The local fire Marshall counted less than 6,200 attendees at the rally.  The campaign thought they were getting a million, and prepared for over 16,000.   Ooops.   I guess that campaign machine is not making enough calls to validate their constituent’s interest.  For those in the stands, I wonder if they are starting to feel the pressure of being on the wrong side of history?   No matter how long Donald Trump remains president, history will almost certainly look back on this period as a stain on the reputation of the United States.   I think those kids have figured this out.

Go get ’em kids.  Your boomer parents had their shot at running the world and it isn’t working out so well.   It’s hard to imagine you screwing it up more than $24 Trillion of debt, massive unemployment and perhaps the worst racial, economic and social divide since the civil war.   Perhaps you can find a way (there has to be a better way) to bring everyone together without a civil war do-over.

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