Yep, I’ve been absent for a while, so this one’s a bit longer than usual. There definitely is not a shortage of material. In fact I can start briefly with my own personal COVID-19 journey. Not going to ignite any big debates about re-opening and crowding bars. I don’t want this to get political and that will send us there. Being a survivor, feeling stronger every day makes me feel lucky. This thing kicks your ass. Only way to describe it. And I thought I was being careful (paranoid) before I got sick. Just want it known; I’m a believer in masks and distancing. ‘Nuff said.
Plenty of economic material too. I recently went against all of my own rules. I shorted the NASDAQ. Bought puts soon after the open for the trading day after all-time highs. The day the NASDAQ dumped about 150 points. When teaching or discussing charts I always tell people that you should have the same opinion about a chart no matter the symbol. And if I was looking at a NASDAQ chart with no symbol, I’d be solidly in the ‘Buy the Dips’ camp. But I just couldn’t stand it anymore.
So I broke the rules. I went against the chart. I put on a trade steeped in emotion. I went with my gut. The list goes on. And yet, so far I’m right. Stepping back I do see some places that were cracking that maybe I saw but didn’t pay attention to. Maybe those actually were good reasons.
The lack of good measurable momentum. The RSI couldn’t make a new high when the market did on either the weekly or monthly (so far). The monthly chart shows an impending TrendStall, which would indicate the move is over, at least temporarily. But not great reasons to fight the overall trends.
[NASDAQ e-mini Weekly] [NASDAQ e-mini Monthly]
But the Fed is printing money and they’re ready to print more. The government has even gone so far as to buy corporate bonds. Sure sounds like a nice soft cushion under that ugly looking cliff jump. We don’t want to fight the Fed, as the old saying goes. And I’ve discussed in this space what happens when an incumbent President is running for re-election. Make no mistake, many of the actions sold as helping citizens when they need it might not have occurred a year or two ago (one man’s opinion, but it is my blog).
What made it so that I just couldn’t stand it anymore and had to get short? Well, timing aside as it wasn’t the first new all-time high day, but I had been holding back. Printing money is nice, but what good will come out of it (unless you’re long gold and/or bitcoin)? Let’s look at what else is going on and we’ll come back to that one. Unemployment is around 14%. That’s not going to get better. There are business that have hung on for the last 3 months, but now we’re faced with being back where we started. States reversing course on openings. Bars realizing they’re the center of it all, helping extend the pandemic to a population group that we all thought was in less danger (but isn’t), and the people in that group believing they’re invincible…didn’t we all when we were in our 20’s? And many of those people go home to parents in known risk groups. Not going away.
So all that curb side pickup that let restaurants hang on while they thought a re-opening after a couple of months would help them make it through, now see that the light in the tunnel may be a freight train. And even home improvement can only go on for so long when you’re semi-quarantined. Eventually the house is in decent shape. With the economic problems we’re facing and the fact that they could get worse rather than just being a brief period of pain, well, people get nervous. They get nervous about losing their income, i.e. job. Sure don’t live on Amazon as much when you start getting that feeling in your gut.
It hurts to see how many small, family businesses will be seriously hurt and probably close. More unemployed, many somewhat older and less employable; just late 40’s early 50’s is older or simply old in today’s corporate America. These are the entrepreneurs and businesses we’ve encouraged for almost 15 years. Since the last time people lost jobs en masse. We’ve created a Shark Tank nation. Can’t find a job, simply invent a business. It’s great in times when things are expanding and people are spending money. Unfortunately, now is no longer that time.
Commercial real estate? Not feeling it as more companies see people really can be productive from home. Big purchases like cars? Really need a brand new Ford F-150 truck? Well if you’re in the home building or improvement business probably not as business slows. If you leased the last one because you thought it was the awesome truck you absolutely needed to haul your Home Depot stuff home, you’ve probably figured out a smaller, less overkill truck will suffice. How many grills are you really going to need to bring home. You may even question whether you really need a truck at all. Maybe a nice electric car after all. Save money on the purchase and the fuel. Double win. You get the idea.
Vacations? LMFAO. If you can’t drive there, and probably stay semi-secluded like a beach house (but not going to the crowded beach), chances are you’re just staying home. Drinking more perhaps, but there are only so many alcohol stocks out there to invest in. And all of this is just the easy to spot low hanging fruit. The lack of jobs and resulting lack of spending are like pebbles in the pond. The ripples will touch every part, every piece of shoreline. And if it doesn’t happen to you, it will happen to enough people you know to scare you.
Now back to that money printing thing. Eventually that leads to inflationary pressures, Econ 101. One can argue that with the lack of spending I’ve just argued is in progress inflation probably isn’t a worry as there isn’t demand across the board for goods of all kinds. And that’s true. What’s also true is that food is not part of the inflation measures that are cited to make arguments one way or another. But we all feel it when food goes up; I know I’ve noticed. Therefore it’s tough to say that’s not an important thing to think about when really thinking about the price pressures that hurt the most.
So what do we get? Some inflation that no one can avoid. An economy that’s going to struggle in almost every aspect and sector to find a way not to contract. In fact, it’s tough to argue against a worldwide recession. Ugh! As in Ug-Ly. Maybe F’ugly is an even better word. Stagnant economy, inflationary pressures, and don’t forget a currency under pressure as we lower rates and talk about negative rates. This is called stagflation. People cringe at the word. It’s kind of the worst of all worlds, economically speaking. It was coined in the 1980’s to explain problems that previously followed economic theory never accounted for. In other words, the shit would never hit the fan. I’ve heard that one more recently…Oh yeah; mid 2000’s the educated professionals said real estate would never go down. Nope, we don’t learn…short memories. And negative rates will not improve that situation or outlook. Brief Public Service Announcement: Negative rates are not a good thing. I’d go into more depth, but it’s a blog unto itself. That blog will focus a great deal on the economic history of Japan since the mid 1990’s. Or look it up. Probably be quicker than waiting for the blog.
The point I’ve been trying to make is this upward movement in the market is unsustainable. Hopefully one of the many arguments I’ve put forth has made that point in your mind. Did I pick the dead high? I’m not going to bet on that. If I did, well better lucky than smart any day. But the lack of technical momentum, paired with overall economic news that contains no positive long term indicators drove me to it. I won’t learn from this trade if I make money. In fact, it will probably just lead me to do the same undisciplined thing again. But this market is like that old joke about shit inside Tiffany boxes. If you put some shit in a box, no matter how pretty the box may be, robin’s egg blue with a wide white ribbon, it’s still, well…just shit in a box. And no matter how much money we print to find its way to temporarily drive a bull run, any look at history will show this is unsustainable. As I’ve said before, there’s rarely a new normal. It just looks like it till we go back to the old normal. Be prepared.
4 thoughts on “Where to Begin?”
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Good stuff Bill. As usually very thought provoking topics. I look forward to your next installment!
Thanks Steve! Just giving people a sometimes different perspective to just think about is always the goal.