I'm back on the soap box.
I've been feisty the last few days. yesterdays tech collapse and subsequent ramp-o-thon saw prices soar to fresh post Virus highs. Where are you folks who said in late March and all of April that the market had not bottomed? Quiet now are we?
I thought $270 and $295 and then $310 on SPY. It hasn't been easy. Plenty of upside taken out the next day. Plenty of late day downside reversed over night.
At least the market is moving. I love a moving market. A stagnant market smells. And with that where the heck are we headed going forward?
I don't know... But I think this rally is the hope rally. Sure the hope is fed from reopening of the economy and the FED's trillions of $$$, and stimulus and goverment support.. but its still hope. Hope that we all return to our jobs. Hope that normal comes back sooner or later.. if at all.
But I think one thing is certain. Its going to be a while before we can get back to normal, if that is even possible. And even then the normal will be different than it used to be.
Work from home is going to stick. We've seen it already with Twitter, Square and other large corporations.
What does that do to the transit system that relies upon packed buses, trains, and subways?
Many of these mass transit systems, like the MTA in NYC, was struggling to survive no full ridership. With social distancing in place for the foreseeable future and less people commuting to work when the new normal arrives are we to bailout mass transit FOREVER? And if not how many Cuts will need to be made. How many permanent jobs lost?
Can these mass transit systems even survive without endless bailouts? Who is going to pay the cost? Are fares going to rise 40-50-60% as they are on some roadways in New Jersey already?
Will higher costs, fares, and trillions of stimulus $$$, finally bring about that inflation that the FED has saying they want, but happily did not have the last 12+ years?
I think the mass transit issue is just one of a host of issues the new normal will face. Higher costs, higher taxes, higher fees.... and ultimately down the road... inflation.
What does that mean for the stock market? In my humble opinion, the cheap money policies of the FED has helped stoke asset prices higher.
Cheap money = higher stock market.
When/if we ever see inflation rise and interest rates come up... money become more expensive. And while it may be good to see some debt inflated away.. its the new debt that becomes an issue. The bailouts become that much more expensive. And at the end of the day the endless policies of the FED come to a screeching halt.
When the cost of the FED policies are zero.. as they are today with rates at zero... all is well. Free money for all. But when the cost of capital rises., so does the cost for the seemingly endless FED asset price inflation policies.
One theme since the lows in March 2009 and beyond has been low inflation. Interest rates and inflation have been FALLING for 40 years!!!
These trillions upon trillions upon trillions upon trillions of FED and govt spending may finally trigger the previously unattainable. Inflation.
Which will make money, whether the FED wants to or not.... more expensive. Which will change the dynamics of the stock market.
You can't print trillions upon trillions of $$$ with inflation running amok.....
What are they going to do when the next economic calamity arises? What can that do? Exactly......
Inflation is like kryptonite for all those FED tools.
Maybe I'm wrong. Maybe inflation will stay low for another 40 years. Perhaps interest rates will go -.5% or -1%......
Perhaps the next economic disaster will be met with 100's of TRILLIONS of $$$.. quadrillions... perhaps DOW 100,000 is closer than we think?
I'm not so sure.
We had the fastest bear market in history in 2020
The fastest bull market in history in 2020.
I think the next recession is going to come quicker than anyone expects.
This Virus was Bear Sterns. We have many months to prepare. But the new normal involves a real recession. Not some Virus economic shutdown.
Have a great day 🙂