I’ve written that the powers that be (TPTB) would pull out the stops to counter this year’s economic downturn, and they sure are. One of the talking heads on financial media said yesterday that the Fed’s new $2.3 trillion in bailouts amounts to a “too big, medium, or small to fail” policy. There’s no targeting; everyone gets a bailout.
Looks like panic to me: “Ready, fire, aim!”
The talking head’s point, however, was that what we’re seeing now on Wall Street is not a dead-cat bounce. It’s a real rally, driven by fiscal and monetary policy. With the Fed now buying junk bonds, the only thing left is for the government to start buying stocks, as Japan so infamously did. Plunge Protection Team to the rescue.
That may or may not happen, but what the Fed is doing is close enough that it doesn’t matter. No class of company will be allowed to fail, the argument goes, so it’s safe to buy mainstream stocks.
QED: The bottom on Wall Street is in.
Not so fast, says the independent speculator… I’ve got questions.
- Can it really not matter to share prices when Q1 earnings start to show the extraordinary damage already done to the real economy?
- Can share prices really surge when the scope of the Q2 earnings massacre becomes clear?
- Can Wall Street rally when Main Street is still seeing worsening death and misery on their screens every day?
- What happens if current hopes are dashed by renewed outbreaks in China as it tries to get back to work? Or by the new outbreak in Singapore, which had seemed to beat COVID-19? Or by the increasing number of cases of people who’d beaten the virus themselves getting it again? Or if hydroxychloroquine turns out not to be as effective as hoped?
- What happens if the firehose of easy money does inflate a new bubble on Wall Street—but people don’t go back to work, or out to eat, or on a trip anytime soon?
No one knows the future, but I just can’t see the rally in mainstream equities making any sense at all in front of the tsunami of bad news already baked in the cake.
I expect more waterfall events to exacerbate the Crash of 2020 in the near term.
Could I be wrong?
Sure.
Let’s suppose retail investors like me respond to reality and pull out of the markets. I’ve seen estimates that retail accounts for only about 2% of the trading on the NYSE. If we pull out and leave trading to institutions and their machines, the algos will keep trading on the basis of the models behind them. If those models say that more easy money is a buy signal, the algos will keep buying and buying every time the Fed or Congress renews that signal. And the Fed has already said it “will never run out of ammunition.”
Another reality is that people will have to go back to work soon. At some point, not being able to buy food becomes much more urgent to healthy, working-age people than fear of a disease that’s most dangerous to older people. Politicians know these people vote.
The combination of easy money and the appearance of things starting to get back to normal could spark a new melt-up on Wall Street. Given the historic volatility we’ve seen this year, I wouldn’t rule out new all-time highs in the major stock indices, driven by pure hope, greed, and easy money. The cheerleaders in financial media would love it. That would fan the flames.
This could all make me wrong: Wall Street could power higher despite the economic devastation of Main Street.
But…
The reality of that economic devastation would remain.
Restarting the economy doesn’t mean getting back to normal.
It means beginning the process of discovering how to even do that after such an unprecedented shutdown.
And remember that the experts are telling us to expect another COVID-19 wave in the Northern Hemisphere in the fall. Meanwhile, in the Southern Hemisphere… winter is coming. That’s a threat to our globalized economy, even if the US and EU do manage to restart their economies as quickly as they say (fantasize).
Back in the USA, what if TPTB give the all-clear to get back to work, but people still won’t go out to eat, or to the movies—or even to church—as much, for the next year or two? How does any business that profits from high concentrations of people stay in business if people are no longer comfortable being in close quarters with strangers?
What if it’s hard to persuade anyone to travel any further than a drive to Grandma’s house one state over?
What if parents don’t want to send their children to physical schools again?
And, as I’ve asked before, what if—gasp!—people decide to save?
People speak of “historic periods” without really thinking about what the words mean.
An historic moment can be defined by big news or exciting milestones, like the first lunar landing. But an historic period is a time of great, tumultuous change. It’s never easy. Even if it turns out to be for the best, people endure great hardship during historic periods. That’s what etches them in our collective memory, making them historic.
I think we’re in the early stages of such a historic period.
Mass psychology is changing.
Consumer preferences are changing.
Business decisions are changing.
Perception of the proper role of government is changing.
I wouldn’t presume to say I know how this will all work out.
One thing I’m very sure of is that things won’t be getting back to normal, not soon… maybe not ever.
And that means—at the very least—pain for existing businesses as they adapt to the new reality… or fail to do so.
I’m sure of one more thing: the Big-Money Bazookas are on full auto.
Whatever else happens, this is extremely bullish for monetary metals—gold and silver—going forward.
In time, it will be bullish for all real assets, including other metals, commodities, land, and more.
But what now?
I concede the possibility that the Fed and Congress may succeed at blowing so much money into our tattered bubble of an economy that they reflate it for a time. (The EU will try, but political realities there make it harder—and potentially more dangerous for the EU’s continued existence—but that’s a topic for another day.) This would make me wrong about another major drop on Wall Street just ahead.
But while it may be possible, is it likely?
I think not. The divergence between Wall Street and Main Street can’t be sustainable.
If I’m right, the thing to do is to go to cash ASAP.
We want to accumulate as much cash as we can in order to buy some of the spectacular opportunities the next market meltdown will bring us. That can include many things, but I’ll be particularly keen on gold and silver bullion, and related stocks. I’ve prepared a Market Meltdown Shopping List of stocks I want to buy, which I’ve shared with subscribers to The Independent Speculator. I continue sending all the money I can to my brokers. I now have more cash piled up in my brokerage accounts than I’ve ever had.
I’ll be ready—and able—to pounce when the time comes.
If I’m wrong, it would indeed be time to go long again.
If I did that, I’d use strict stop-loss orders on any mainstream equities I might buy. The bubble economy is still tattered. The new party on Wall Street could—will—come to a screeching halt when reality reasserts itself.
But me being me, I wouldn’t buy mainstream stocks. I’d want to add to my savings in gold and silver. I’d be very keen to load up on gold and silver stocks—many of which are still on sale. I might even buy some of the best industrial mineral stocks while they are on the deep-deep-discount rack.
Key point: whether I’m right or I’m wrong about another market meltdown, my highest priority is to buy more of the best gold and silver stocks—the only question is when.
And the best part is that whether I do so now or later, I win either way.
I’d have to be completely wrong about the implications of 4,000 years of monetary history to be wrong about higher gold and silver prices over the years ahead—and much higher prices for related stocks.
I don’t think I’m wrong.
I think that everything we’ve learned since 2008—and the 4,000 years before—says that gold and silver will rise to new all-time highs and keep going higher.
Since I think I win either way, it’s easier for me to ignore the FOMO and wait until I see the whites of shortsighted investors’ fearful eyes.
And I’m putting my own money where my keyboard is on this.
That’s my plan. You must, of course, make your own call.
Caveat emptor,
P.S. To be kept abreast of more dangers, opportunities, and issues affecting us all, please sign up for our free, no-spam, weekly Speculator’s Digest.
