Good morning! As I begin to write this S&P500 futures continue a massive overnight rally turning sharply higher after an ugly late day and afterhours collapse for the market.
A quiet session yesterday ended with a thud. Stocks collapsed into the close and the selling didnt stop until the S&P500 ETF the $SPY had dropped $11 in the span of 4 hours.
Wow.
It was the biggest drop since the market bottomed on March 23rd.
I've written about the market several times since this Virus induced sell-off began. I thought many years ago when the bull market was happily running strong, that the next recession may very well send stock prices higher not lower! Oh boy. So far that appears to be the case. The massive recovery off the March lows has come in the face of the worst economic data the world has ever seen.
It's mind boggling. Even more mind boggling is the size and scope of the money being thrown around these days. Yesterday the FED embarked upon a fresh asset price manipulation journey with the purchase of bond ETF's, some of which hold JUNK bonds. When JUNK has the backing of the strongest currency in the world.... my goodness. Moral hazard on steroids.
The market's recovery is coming as the FED has taken risk out of the market. The government is using the word trillions in 2020 like it used billions in 2008. Trillions are nothing. And when trillions are nothing.... well... let me say this...
Absent the massive response we have seen, the stock market would be much much lower today. I think $SPY $180 would probably be a generous target.
However the FED continues to say they will do everything they can to keep asset prices aloft.... there is really no other option.
The recovery off the March lows has been hope.... hope that we find cure.... hope that the vaccine comes quick.... hope that we have very few companies go bankrupt... hope that the consumer comes back.... hope that all the lost jobs come back... hope that life as we once knew it returns as quickly as possible.
Well here is the reality..... we may never find a cure... they may never have a vaccine.... and even if they do it may be years away..... small and large businesses alike may not turn back on the lights when the economies open back up.... the consumer has been changed and will not be the same after this.... not all jobs are coming back...... life as we know it will not return quickly..... and we are coming out the other side of this as a c ountry with a massive amount of debt.
Who else has debt? We see it again today... offering after offering after offering.... companies raising cash. And I think its very smart to be backing up the truck when the FED has your back.
This Virus created an unprecedented situation, one that has been met with trillions upon trillions upon trillions of $$$ of support. There was no choice. Absent a response like we've had from the FED and the government, my goodness... the Virus destruction would pale in comparison.
The reality is we have to get back to work. We can't stay inside forever. How many companies, let alone families, were ready for months of no revenue/income?
I've said it before as well... low interest rates are awesome... but it doesn't matter what interest rate you have when you don't have the revenue to pay it.
Reality. No one knows what lies ahead. Not even the market. The stock market is looking out right now and seeing the money spigot open wide. Trillions upon trillions of $$$. Possibly negative interest rates?
Beyond mad. That is where we are.
And you know... I think we are getting to the point where the Cure for this Virus is going to be far worse than the Virus itself down the road.
When we were trading in $SPY $240's in March I thoughts $270 and then $293 would be good target zones. And then a possible move to $310. Even knew record highs? Mind you I was saying this as the panic was still at a fever pitch.
Yesterday the Nasdaq stood a mere 5% away from new all time highs. Even after yesterdays late day collapse the Nasdaq is GREEN for the year. Green!!!
The most DIRE economic scenario the World has ever seen and the NASDAQ is GREEN for the year!!!!
I was a bull almost the entire run from the financial Crisis. And yes it took me some time to get on the right side of the trade. Back in 2009 they kept talking Green shoots... and yet it was only the stock market that was seeing them.
I realized that asset prices would remain supported. That the proverbial pandora's box was opened. That the FED would do anything in its power to keep the expansion going.
I also wrote that when it was time to sell we would have many moons to prepare. How great is it that this market has gifted us all with a second chance?
I thought the Virus was not going to create the ugly, historic market crash that we ended up getting. Why? Well as the Virus was spreading like the plague in China and the ugly headlines were coming daily... the S&P500 was busy hitting new record highs!
And here we are again. I think the market is ignoring what lies ahead and focused on the massive trillions of dollars in so far endless response to the crisis. It makes sense. P/E ratios dont matter when Trillions of $$$ is getting thrown around like its nothing. But it is... there is a cost.
We reap what we sow. What does all this massive debt mean for our country. With so many out of work how do we even go about thinking about paying it back?
The amount of borrowing is staggering. I'm not one of those gold bugs or Bitcoin fans... but you know what? Those make more sense today than ever before. With interest rates going negative.... absent throwing caution to the wind and getting into risk assets.. how else are you to protect your capital?
I know its been said before... but this is not going to end well.
I remain torn to a degree. As the response has been so massive and endless.. at what point does the FED just start buying the stock market?
The Cat is out of the bag. Anything and everything is on the table. It remains a first place trophy for all kind of world. But when you hand everyone a first place trophy you kind of take the meaning away from what a first place trophy means.
At what point does all this massive debt and endless stimulus take the meaning away from money? IF we can just hand it out endlessly forever....what does that do to the value of our money?
Ok off the soap box.
I hope everyday from today forward is better than the next for everyone. I hope we emerge bigger , stronger, and more determined than ever after this virus. I hope every business not only survives but Thrives on the other side.
The reality is... I don't think that will be the case.