Economic disaster is no longer an opinion. It’s a current reality. With 40% of our service economy on its knees, the matter is settled.
The bulls will tell you to hold tight. They’ll remind you that DC, along with the PPP and unlimited QE from the VIP’s at the FED (and other acronyms) can pay for (i.e. borrow against) yet another “recovery.”
Sounds good, right?
Unfortunately, the data, math and indicators say otherwise.
In short—the bill to cover the current economic disaster (attributed to the COVID policy reactions, right or wrong) is simply too high this time around to whistle past.
Doom and Gloom?
No one likes gloom and doom. No one likes market bears. We get this. Economic disaster is no fun, and the costs of “solving” for an economic disaster are even less fun.
But the data before us is not about bear vs bull, red vs blue or optimism vs pessimism.
Instead, the economic and market facts which we track day after day, month after month and year after year speak for themselves.
After all, anyone can have an opinion, but no one can make up their own facts. Those facts are now speaking loud and clearly to those willing to listen.
Fantasy or Reality?
Facts, moreover, are stubborn things, and the economic and market facts we are tracking here at Signals Matter point to choices we all need to make, and this boils down to one question: Will you chose fantasy or will you choose reality?
Fantasy, we understand, is comforting. Fantasies can be good. Fantasies are needed. They motivate us in work, in love, and in life. They comfort us too. Like the fantasy that we can afford the current crisis. That’s a nice thought, no?
But at some point, in work, love and life, we are sometimes faced with hard truths and thus forced to accept hard realities, like the reality that the bill needed to solve the current economic disaster will itself be the stuff of, well…economic disaster.
Those who accept and thus prepare for such realities—including economic disaster– are always survivors. Those who are not prepared are always victims, finger-pointers and casualties.
Which will you be?
Out of Site and Out of Our Minds: What’s Here and What’s Ahead is Scary
As the US presidential election nears, an economic disaster and storm is blowing that is way beyond politics—a topic Tom and I tend to shy away from anyway.
That said, be you blue, red, purple or paisley, the general mood as to leadership choices in the US is increasingly one of national division and national disappointment with what boils down to mediocre or controversial leadership choices across the board—at least for many of us.
But regardless of this sad slide from the days of IKE or JFK, one thing beyond opinion is data, and regardless of who wins in November, the economic disaster data regarding our nation and markets is already bad—and likely to get much worse.
Why? Because the invoice for the current crisis is simply too large, even for a country that can print money at will.
It’s scary. Not even Santa Claus, Papa Smurf or our rich Uncle Fed will save us, no matter how “fantastical” they each may seem
And yet many investors believe otherwise. We get this too. Fantasy, again, is comforting. Some still believe the Fed has or can outlaw recessions, despite the fact that we are already in one…
Realtors still peddle hope and overpriced houses to suckers; stock-brokers still sell over-valued securities to pensions and gullible 401K holders; the Fed still peddles BS “calm” , and politicians of all flavors still sell whatever talking points they can tweet or stutter to get or stay elected.
These things never change. These “salesmen” never change. They know almost nothing about the markets they deal in. They simply sell for a commission or make promises for a vote.
But blunt facts change, which means informed investors can change too.
We also understand this need and instinct to feel safe and to trust our systems, markets and so-called elites.
To confess as much is neither un-American nor bearish. It’s just blunt.
What’s ahead is scary.
But rather than toss opinions and adjectives at you, let’s just agree on certain key facts and draw our own conclusions, ok?
Tens of millions of Americans have lost their jobs.
US GDP dropped 33% last quarter. Folks, what would you think of a company whose revenues dropped by 33% Year-over-Year?
Such facts would make you think badly of such a stock or enterprise, but now we are talking about an entire country. That’s not only really bad, it’s really scary.
Speaking of scary…85% of the US economy is derived from the service economy. But thanks to the COVID shutdown, nearly 40% of that service economy was not only shut down, it was wiped out.
Data from the National Restaurant Association, for example, indicates that unless further aid is given, at least 35% of the restaurants across the land will simply vanish.
According to YELP data, 55% of the businesses listed in their ratings are not only listed as “closed,” but “closed for good.”
And we’re not referring to just restaurants—but gyms, hotels, airlines, retail shops etc.
Hotels, for example, need at least 80% occupancy to break even, yet more than half of the US hotels today are empty.
Unless a miracle cure for COVID is politically or medically achieved soon, the cost to cover these and countless other ravaged business sectors will be astronomical.
But can’t we just borrow more to pay such costs?
Our national debt is at record revels and deficit spending this year alone is over 300% greater than the annual average that was already embarrassing and frightful before 2020 rocked or shaky economy.
Fantasy Check—How Big is the Bill Gonna Be?
But there are still those who will tell you, and others who will believe, that all will be fine.
After all, they’ll remind you that Elon just shot a rocket to space; technological innovations will usher a new era of growth and US entrepreneurial panache will win the day yet again.
Or failing that…at least the Fed can spin some more magic fairy dust on everything that is broken.
The great fantasy today, in short, is that another bail out will save us.
But just how big will another bailout have to be this time around and can we truly afford to “pay” for it without pain?
Let’s consider some facts behind such a fantasy.
First, there’s the commercial real estate market, almost as loaded with half-wits as the residential market. I’m talking about malls, office buildings and shopping centers.
Do you think they have been thriving in the post-COVID hysteria?
Well, just as residential markets tanked in 2008, this commercial market is tanking today.
In 2008, brokers were selling mortgage backed securities, or “MBS” to suckers, and they all got burned. MBS was effectively market kryptonite.
In the commercial real estate sector, the new kryptonite today is CMBS—“Commercial Mortgage Backed Securities”—which amount to a pile of risky loans on office buildings and shopping centers packaged into securitized products sold to suckers who ignore default risk in a sector that is otherwise riddled with defaults.
Can the Fed simply bail out the CMBS market (i.e. pay another bill) the way it bailed out the residential MBS market in 2008-09? If so, what will that cost?
And what about our broke and crippled pension funds—over $7 trillion in the red? Can the Fed just bail them out too? That’s a big bill to pay…
Or, what about the thousands of local businesses failing in a town near you?
And how about defaulting residential mortgage holders? Can the Fed just bail them and countless other failing sectors out with no pain or risk to the over-all economy, currency and markets?
And the stock market? Many believe nothing can stop it. After all, even after tanking in Q1, the Fed brought it right back to life, no?
Furthermore, informed investors have seen this movie before—i.e. fantasy “recoveries” that promised much hope yet ended in market and economic diaster.
Another Reality Check
So, here’s the blunt rub: The Fed and US of A can’t defy reality and can’t solve everything with an IOU and a money printer. This will become clear very soon. The question for you is this: Are you prepared?
The weekly unemployment checks for $600/month are ending as our Congress takes a vacation it hardly deserves.
Student loan debt forgiveness is ending.
Mortgage debt relief is ending.
Who will save these sectors? The Fed? Your government? The debt-ravaged stock market? And if so, how much will it cost in terms of dollars and market pain? In terms of a radical re-repricing of just about everything?
By nearly every measure, our stock market is heading toward a reality check and economic disaster of historical proportion, yet at least for now, many look at their rebounding 401K balances and feel safe.
To be blunt, such faith and safety is ignorant in the face of the facts, data and indicators we track and report upon daily.
Ignorance, of course, may be bliss, but ignorance stifles preparedness, and being unprepared now means you won’t be in control when trouble strikes—and there’s no bliss at all for that kind of ignorance and this kind of economic disaster.
At Signals Matter, we can’t solve every political, philosophical, historical or professional woe heading this way, but when it comes to your portfolio, we do have a solution.
Our entire focus is spreading market awareness so that you can at least be prepared on this front.
Another Fantasy Check
And yet…and yet…and yet many still cling to the hope that for every problem there’s another trillion or so we can create to solve it.
Trillions, after all, no longer seem to matter to most fans of fantasy. Trillions are now abstractions. We print trillions every year out of thin air. Abra Cadabra!
But here’s another little fact to consider: It literally takes a mouse click to print a trillion dollars, but to spend a trillion dollars, at a rate of 1 dollar a second, would take you 34,000 years.
The trillions and trillions in debt (and money created to pay these debts) actually matter, and soon, very soon, that reservoir of debt will burst because the dam is about to break, drowning millions of 401K’s and uninformed investors.
Are you prepared? Still think we are just gloom peddlers? Market bears? Armageddon-timers?
Hardly. We don’t “time” markets, we simply track (and report) their signals and prepare accordingly, one sector, day and signal at a time.
And doing so, we’ve been beating the markets for years with these same blunt realities and warnings, and we’ll beat them again in the next storm and moment of economic disaster.
In short, we are prepared. Are you? If not, simply join us here and let’s get on with reality and invest realistically.
Matt & Tom