Bear markets die on bad news

I don’t want to jinx it (the financial markets have a remarkable ability to be bipolar), but we are technically back in a bull market. And as someone who personally made a massive financial bet on America prevailing – and the fragile tower of fake news collapsing – quickly, I love to see it happen.

(This is not financial advice. I have an exceptionally high risk tolerance when it comes to investing. Congress and state governments can still screw this recovery up; it’s sort of their forte, in fact. But fortunately we are in an election year, so their interests and ours are nicely aligned for once.)

I have received a lot of questions about why the stock market is rallying when we are getting terrible economic news (i.e. that over three million people are suddenly out of jobs).

The simple answer is the “economy” is what is happening now, and the “stock market” is what investors expect to happen going forward. When you buy a stock, technically what you are buying is a share of the future earnings of a corporation (or a lot of corporations, if you are an index fund investor). You buy it because you think the corporation will be making more, not less, money in the future. This is why it is (generally) smart to buy stocks in economic declines. You buy the asset when it is low or undervalued, you sell it when it is high. In the current panic, a long-term collapse of the economy was priced in. That is now starting to be priced out, because people think the economy will be opened up sooner rather than later. I obviously agree with them.

There are going to be a lot of bad economic prints in the coming days. Some of them will be worse than anything America has ever seen before, because there has literally never been a time in American history where state and local governments brought their own economies to a complete standstill. Not in world wars, not even in past plagues. And now people get to see why that never happens: It’s an insanely bad policy decision.

But the Federal Reserve has dumped several trillion dollars of financial support on the markets, which should help corporations stay intact, keep people employed, and make it possible for them to go on a hiring spree when all this ends. Once Nancy Pelosi gets off her ass and passes the stimulus legislation, that will be another $2 trillion pumped into the economy, and it will keep systemically important industries like the airlines working.

The great thing about $6 trillion (or wherever we are at now) of stimulus is that it is a difficult, if not downright impossible, amount of money to hoard. Families will get thousands of dollars that they will likely put right back into their neighborhoods or use to stave off losses. And that will be money that local businesses can use to put people back to work. It’s sort of like shocking the heart of a person in cardiac arrest. It gets the electrical signals going again and homeostasis is around the corner.

All of this should support a very rapid, very strong economic recovery. The people who are technically jobless now should be snapped right back up into the workforce, a lot of them perhaps by their former employers (the Big 3 automakers, for example, do things like this routinely). I imagine a lot of small companies have essentially furloughed most of their employees so they can collect unemployment benefits – it’s a way not to allow this crisis to eat up their entire balance sheet. This is not going to be one of their happiest memories, but it’s not going to be the Great Depression 2.0 thanks to a (mostly) swift and (mostly) intelligent public policy response.

The other thing is the sentiment among epidemiologists is rapidly changing to less dire and more optimistic scenarios. Regardless of what Dr. Fauci suggests in the day-to-day press conferences – which I don’t find particularly useful, beyond that they give the general public a full display of how rabid and spiteful the corporate media has become – the entire medical community is starting to coalesce around the idea that most of the population has already been exposed to the coronavirus, which means herd immunity is already underway and fatalities for this illness in the end will probably be a lot less extreme than a normal flu season (which some of us have been saying all along).

Their sanity, hopefully, will be contagious, and Trump soon should be able to move forward on opening up the economy with the blessing of the medical community. At that point, it doesn’t matter if the media and his political rivals continue to set their hair on fire, America will be back in business.

I think you’d have to be spectacularly ill-informed to think Armageddon is still ahead of us at this point. While the media hypes up every incremental increase in the number of people whose underlying conditions have been agitated by a respiratory illness – which is quite sad, and I say that as someone who has experienced three medical catastrophes in my family in recent years – this is not the Black Death.

In fact, I think there are many opportunities for America to come out ahead in this totally unnecessary economic puke. Most Americans have gotten a dose of which politicians rise to the occasion and which politicians continue to sow hate and discord, which ones can’t set aside their personal ambitions and quests for power for five minutes to be communitarian. They’ve witnessed how unhelpful and downright antisocial the media has been. People have been reminded about the value of family and civil liberties. Heck, even corporations have made spectacularly altruistic gestures that have built goodwill.

And above all that, Americans now see why Trump has emphasized for years the need to bring manufacturing back home, especially as it relates to pharmaceuticals and health care, and the need to renegotiate trade agreements that keep our agricultural industry as robust as possible. And that alone should help us rebuild our economy to something that is better than what it was before.

Never bet against America.

2 thoughts on “Bear markets die on bad news

    1. The Federal Reserve can wind its assistance down over the course of years without anyone noticing. There will obviously be a lot of Treasury borrowing in the bond market, which sadly is just going to get rolled over and passed on to future generations ad nauseam. In a normal economy, this sort of thing would produce inflation. I don’t think that will be the case now. We had a massive demand shock in our economy, which is usually a deflationary force. So the right way to think of it from an economic perspective is as a “reflation” back to normal. Without it, we’d be in a deflationary debt spiral like the Great Depression. And once that sets in, it’s like quicksand. So I don’t think any of this is a bad idea to do, but it should have never happened in the first place. State and local governments should have waited a week or two to understand the illness better, taken actions to quarantine vulnerable populations, activate the National Guard to make sure they have essentials and to conduct welfare checks. Had they of done all of that, none of this would have necessary. But they didn’t, and now we have to act to save the country, which requires drastic measures.

      Liked by 1 person

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