If you’re curious about the market future, just take a gander at the market present.
Has COVID Changed Everything for Good?
Angele Merkel has described the COVID pandemic as the “greatest challenge” of the post-war era. The market future is apparently facing a sea-change.
Whatever one’s individual views on the market future, a new kind of financial world order akin to the planning which took place in Potsdam after the end of the Second World War is now in motion by policy makers around the world.
In short: COVID is shaking things up. The market future is growing out of the COVID present.
Already, anyone with a passport (and a broken faith in Consulate employees) feels the impositions on their freedoms.
But the financial pressures and job dislocations regarding the market future are much harder to ignore, even if a miracle vaccine were to simply arise by the close of business day.
Meanwhile, the ongoing debate as to who has the right to force a facemask, lockdown or border control is dividing all sides of the COVID controversy as the inevitable struggle between liberty and safety, science and politics and facts and fiction rages on in the backdrop of nations clearly in turmoil and a media circus scrambling for drama, headlines and click bait rather than facts.
Have you noticed how most of the headlines contain the words “could,” “may” or “might” as so-called investigative reporters speculate on fear, opinion, hope and drama rather than facts, advice or scrutiny?
As to resolving these larger social struggles, my opinions are not helpful, as they are just opinions.
But as to facts, one thing is clear—COVID created the perfect backdrop to temporarily give new life to an otherwise tapped-out credit market.
In this regard, the market future is just as fake as the market past.
Printed money to the tune of trillions created new (and artificial) bond “demand” (even for junk bonds, which is disgraceful) as the Fed once again came to Wall Street’s rescue with far more efficiency, speed and attention than those same policy makers came to the rescue of their Main Street populations.
As I wrote here, COVID literally saved the bond pits, and just in time…Hmmmm?
The Range of COVID Opinions is Extreme
Opinions are extreme.
At one end are those who fully trust the media, their governments and the spokesmen of the medical community (all of which are in fact divided in opinion, if you look closely) and naturally see the humanitarian crisis as a key priority over any and all financial matters, including speculation as to the market future.
Such a view is both clear and understandable: Trust the experts. Lives come first, dollars second.
They see the viral death rates (below 1%) as far less dangerous than the contagion rates and believe the data does not justify a near global “new order” of imposed knee-hugging, civil liberty repressions and business lockdowns on what they view is just one hell of a bad flu used to justify yet another bailout for otherwise broken markets and S&P lemons.
In short, this view is based upon trusting almost nothing from the top down, including the market future.
In the middle of these two extremes are those who just don’t know what to believe. I have a lot of sympathy for this group.
The COVID Trifecta
Notwithstanding legitimate doubts, concerns and/or convictions as to the pandemic and its policy reactions, we can at least all agree that the world is facing the trifecta of a well-advertised health crisis, a blatant financial crisis and a growing crisis of institutional credibility.
As social unrest follows economic stress, governments are getting more involved in our lives—which can be construed as either humanitarian or authoritarian, depending on one’s views.
China, of course, is always looking for an excuse to get assertive and involved (overly so) in the rights of their citizens and neighbors, using COVID as the backdrop to crack down on not only the rights of those in Hong Kong, but on the nerves of those as close as Australia or as far as Canada.
A New World Dis-Order
Just as Truman and Churchill had to battle Stalin in rebuilding the post-war era, the current COVID era is seeing a standoff between free markets and centralized markets, free trade vs protectionism, globalism vs nationalism and of course, Trump vs. Xi Jingping.
This makes the market future look precarious.
This September, the G-7 are scheduled to meet to discuss these tensions, but there is little expectation that any leadership, consensus or direction will be gleaned from an EU on its knees, a US President seeking re-election and an Asia-zone bullied by a Chinese bear, whom just about no one, from Mumbai to Sydney, trusts at all.
Accelerating Fault Lines
COVID, of course, has highlighted a number of pre-existing fault-lines, all of which impact the market future.
As Constanze Stelzenmueller, senior fellow at the Brookings Institution in Washington observed, the pandemic has “thrown a brutal spotlight on the flaws, deficiencies and disrepair both for the international order and national order. And where there have been flaws and weaknesses, the pandemic has ripped through them with particular brutality.”
In sum: COVID is revealing pre-existing weakness now too stark to hide.
As for the fault-lines in corporate balance sheets, COVID has simply made already debt-soaked companies even more comical in their “brutal” distortions, yet sadly, no less corrupt in their C-suite greed and rigged support form a complicit central bank…
It Pays to be Bankrupt?
In case you hadn’t noticed while cashing your $1200.00 relief check, the executives at bankrupt companies like JC Penny, Chesapeake Energy and Hertz wasted no time in dolling out multi-million-dollar bonuses ($10M, $25M and $1.5M respectively) to themselves on the way toward their recent Chapter 11 filings.
Of the 100 other major companies which COVID sent to the bankruptcy bottom, 19 have committed to paying their “brilliant” executives a combined total of more than $130M in bonuses, like rats grabbing their last piece of cheese before their corporate ship dips below the surf.
As for their stockholders? Well, let them eat cake…
With corporate leadership this deranged, even WeWork’s moronic founder almost looks disciplined.
Needless to say, it’s precisely this kind of corrupted executive culture, alongside a Federal Reserve that keeps buying their junk-class bonds with printed money which helps explain why our economic system was so ill-prepared for the current crisis and why the market future looks far from bright.
And as for “solving” this crisis, our rigged-to-fail system can only now be “saved” by adding more debt to the fiscal balance sheet and more printed currencies to the monetary policy tally.
In other words, the Fed is just doing what they always do—tossing bad money at bad actors. This is no longer opinion but fact, and means the market future is playing a game against time, debt and common sense.
Needless to say, more printed dollars just means precious metals are no longer a dinner debate for informed investors, but an absolute must. Currencies continue to dilute, which means the purchasing power of every dollar, yen, euro or peso you own just gets weaker by the second.
The scales of debt vs income point to a very rough road ahead—i.e. a market future with more rain than shine.
The Real Economy—Struggling as per Usual
Meanwhile, as bankrupt executives take their ill-gotten spoils to the nearest Tesla Dealership outside of East Hampton, the rest of the US is staring down the barrel of what appears to be ever-worsening COVID data and thus ever-more likely economic constraints on Main Street in the months and weeks ahead.
Over the next two weeks, millions of Americans are positioned to lose their last lifeline of $600.00/week unemployment benefits, unless, of course, DC extends the deadlines and dolls out more debt to a national balance sheet that thinks “debt” is just a monosyllabic noun rather than a mathematical component of economics.
Then again, 20 million+ unemployed Americans, whether wearing a mask or not, will need someone other than the CEO of JC Penny to pay their rent, groceries and student debt—the levels of which are both immoral and suffocating.
To Work, Or Not to Work?
The debate as to jobless benefits is a real one, and its one which with my neighbors here in France are all too familiar.
One the one side, people need to survive. On the other side, those who work are taxed to their ears to support those who don’t.
In the US, as in France, many who receive jobless checks make more money doing nothing than they did when they were working. This runs the risk of creating a culture and market future of dependence rather than initiative.
This concern raises all kinds of strong emotions and opinions—far too strong for me to resolve here—even from France.
Certainly, there are many who want to work, and who are looking for work in the US. Unfortunately, that job market is getting smaller and the competition for the jobs is getting higher.
Job postings as of July 2020 are down by greater than 20% from a year ago.
Needless to say, restaurant, bar and hotel jobs are less available thanks to COVID policies, and even those who still survive off bubble assets like real estate (and real estate brokers), may be enjoying a boom today that will be a bust tomorrow, unless Uncle Sam simply buys more time by keeping the entire economy on fatal doses of debt steroids day after day after day…
But we know how steroid-dependency ends…
Right Back to the Seminal Question
And that brings us, alas, to the seminal question on everyone’s mind: How long can the madness of tossing printed money and more debt at a broken system continue?
How long can debt solve a debt crisis, and printed dollars solve a liquidity crisis? How long can policy makers preach calm while shaking in their loafers at home (or their second home)?
How long can an economy ignore the fact that growth has to come from the bottom up, not printed from the top down?
Or more bluntly: How long can markets survive on central bank steroids before the fatal overdose/hangover sends currencies, markets and national economies toward a perfect storm of a financial and monetary crisis—the kind that can lead to stagnation at best or pitchforks at worst?
I have no idea. But rather than cite a crystal ball—just look out the transparent glass of your closest window and see for yourselves.
Look Around You Rather than at the “Experts”
Company closures are now on pace to exceed their 2008/09 peak, and Congress is still debating whether another $1 trillion can be tossed at the problem, which is akin to prescribing aspirin to heal a knife wound.
In short, while investors like me debate recessionary start and end dates, bears vs bulls, inflation vs deflation or the Fed vs Santa Clause, the real economy—the one Powell and all his predecessors since Greenspan forgot to study in graduate school, is already rotting all around us.
In short—this is no time to be “all-in” when it comes to risk assets and expecting a market future miracle, even if the Fed decides the stock market matters more than the local fruit stand. Just today, markets surged because the EU added more debt to the bailout pyre…
At some point, as I argued HERE, the system breaks from the bottom up despite all the attention (and fiat dollars) given from the top down.
I addressed many of these questions in a recent podcast here, and will be publishing Part II of my interview with Robert Leonard again on Thursday, so stay-tuned.
In the interim, be safe, stay-informed and keep asking the right questions rather than trusting every answer you hear from on high—including from me.
It’s important to draw your own conclusions. As John F. Kennedy said, “there’s something immoral in abandoning your own judgement.”
Based on all the data we share each week, it will pay to stay vigilant, fact-focused and data-driven rather than fantasy-enamored or fully vested in the Fed when gazing toward the market future. After all, the Fed’s track record for predicting recessions (we’re in one now, btw) is 0 for 10.
Matt and Tom