Congrats to the stock market bulls! We just had the best returns in the major stock averages for the month of April since 1987! Time to celebrate?
I don’t think so.
I think we really have to question whether this rally can last. Keep in mind that as I write this on Friday morning the Dow is at 23,865. That is a far cry from the 29,398 that was the close on Feb. 14, 2020. That is still 15% lower than the close that day- after a monster rally that took upwards of 10 trillion dollars to pull off. How much capital is being destroyed that we can’t see because of defaults- particularly in the derivatives market?
In the meantime 30 million people have officially lost their jobs with as many as an additional 20 million not being counted because of the tsunami of unemployment claims that has caused a historic backlog in processing unemployment claims which is where these numbers come from.. My wife is one who applied 5 weeks ago and doesn’t even have a PIN number to check on the status of her claim.
Also, Moody’s is predicting that as many as 30% of mortgage holders could stop paying their mortgages if the lockdown lasts through the summer. Already, only 2 months into this and the number of households not paying their mortgages is up 1,496% from the beginning of March.
Many iconic companies are having their debt downgraded and many are also teetering on the brink of bankruptcy. Hertz just missed a bond payment and has until Monday to work out a deal with creditors. Just like the commercial loans that are falling behind because rents aren’t being paid- the debt payments can’t be made if nobody is renting their cars. As it is happening, the income has virtually stopped but the bills keep coming. Unfortunately, that is true for families, cities, states, companies and even the federal government- the only ones allowed to “print” money to pretend all is well. This is most likely the reason for conjuring up trillions and giving it out to just about everyone.
How much sense does it make to anyone that the “markets” are rising when the economy- what is left of it is contracting at a historically rapid pace? Only trillions of currency units conjured up out of nowhere and assets purchased with the previously worthless chits is keeping this ponzi scheme alive.
Anyone who thinks this is not a ponzi scheme please tell me what creating trillions in currency units to keep governments spending, pay off old debt with new debt and pay interest on old debt with this same faux cash- oh and for good measure use the same faux cash to buy stocks, corporate bonds, munis and who knows what else- is.
I was just thinking- how much of this newly created currency will be needed to pretend Social Security is still ok after this latest shock to the system. How deep will the cuts to FICA be with 75% of the country not contributing and far more than normal taking government assistance in one form or another?
Throw all of the estimates out. The Fed will HAVE to conjure up cash out of nowhere right now to keep the SS checks coming. The “trust funds” have been emptied and replaced by government IOUs for decades.
The economic damage is already done. This is shaping up to be far worse than the great depression of 1929-1937. First of all, the debts are not even in the same galaxy as the “printing” is unprecedented. Secondly, in the 1920s Americans had morals. Today, we could NEVER have come to this point where the entire economy is an illusion if our “leaders” had any character. These “leaders” could not have even been elected if we had a population that had morals and were informed. Of course, many who watch the major networks and think they are informed are at best misinformed and at worst totally brainwashed.
In the 1920s there was still national pride and unity. This has also disappeared so working together to get through this will be virtually impossible.
Back in the 1920s it was taboo to accept handouts. Hell, I remember being able to get free lunches in high school because we had very little and I was too embarrassed to get in line and let anyone know that my situation was what it was. Like many, I would rather not eat than accept a handout. Today? Millions are using the pretend money from the government and saying “I can make more sitting here on my couch than going back to work”. That may be true for some but the thinking is extremely short-sighted as this “free stuff” has an expiration date. There is an end of July expiration for the “extra” $600.00 but the real expiration date will come when the faux cash is exposed and it will buy only a fraction of what is needed to survive. It will be then that those who decided to take the easy way out will be exposed.
To anyone who thinks we have seen the worst of this situation I would say you really haven’t seen anything yet. Wait until fall when the real stuff hits the fan. Even if there is no recurrence of the virus in the fall (which history tells us is likely) it is likely that supply chain disruption taking place now will be coming home to roost then- particularly as many who should and could be working decide to take the lazy way out and produce NOTHING but get paid fake money to buy stuff for a while.
It is likely they will look to return to the workforce only to find that their prior jobs and millions of other jobs have vanished forever. Good luck finding a decent job then!
Those who are thinking ahead, in my opinion, should be looking at what will have value going forward. Income is at the top of the list. After that, hard assets like gold, silver, food, water, etc. not necessarily in that order. Those that prepare correctly just might be able to buy assets that they couldn’t fathom buying today- like those million dollar beachfront homes I mentioned yesterday that may be had (because of a lack of demand and surging supply because of defaults) for possibly a lot less dollars- or even if the dollar collapses and the dollar prices rise it is possible that a few ounces of gold may hold the same value at that time. This is another reason that I laugh at those who say “I can’t eat gold”. No crap! You can’t eat dollars, Yen or Euros either geniuses- gold has been used as money for over 5000 years and holds its value- unlike fiat currencies which have a 100% failure rate over time.
This is a lesson that has played out time and again throughout history and we are living it right now.
Now is not the time to give up and count on others to help you. Help yourself! Hopefully, with proper planning we can help not only ourselves but MANY others who will be in need of help going forward.
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.
Precious Metals, including gold, are subject to special risks including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss. Companies mentioned are being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk regardless of strategy.