MAY 29, 2020 – We have come a long way since the stock market bottomed on March 23rd and the Fed released an infinite amount of liquidity. For 6+ weeks, the stock market traded in a narrow 10% range. Then this week it finally broke above 25,000 on the DOW and has achieved the higher end of the rally targets.
Public sentiment has gone from the world ending in late March to bullish extremes that exceed the February all-time highs. As I noted in March, the rally would wipe away all fears and it has. Even Millennials have been turned on to day trading. Gamblers with no sports to bet on but horse racing have also turned to day trading. Robinhood is trending as they say nowadays. Heck, even yours truly opened a Robinhood account to buy bitcoin with. In a matter of minutes I owned some bitcoin. Amazing how easy it is nowadays to open an account an invest. Er, gamble.
I am glad I am on the sidelines still. Corporate earnings will continue to decline the rest of this year. Economic recovery will be in the shape of a Verizon swoosh that will take 2-3 years to see us get back to within say 20% of the prior peak. But, with QE Infinity, asset prices might continue higher.
In the major 1973-1974 Bear Market, stocks dropped 45% while corporate earnings went up. Regardless of what the Fake News Media tells the masses, there is no relationship between stock prices and underlying corporate earnings. So, there is a chance this time around while earnings fall, stock prices may continue higher. We shall see. I am content holding my dividend stocks that are yielding 5%-8%. If the prices go up, great.
As for real estate, it will be in to next year before we have an ample number of transactions to analyze. Price discovery was made in April. The market is just waiting for sellers to face reality and buyers to realize they won’t be getting major steals. There is already some evidence that the price declines have begun to shrink. As we move along the Verizon swoosh, we get closer and closer to recovery and thus prices slowly rise.
Also, there is talk that investors seeking any kind of yield in a zero percent interest rate environment will see that real estate cap rates of 4% and 5% and 6% and higher are exceptional. There is literally TRILLIONS of dollars on the sideline waiting to be invested. If some of it pours into real estate, cap rates will decline and prices increase.
The last 7 months of this year will be interesting to watch.
One last thought is in regard to what the stock market is forecasting. As it projects out 6 months into the future, what has it told us. First, something MAJOR is to occur around September. What will that be is the question we should be focused on. Possibilities I can think of…..the USA and IRAN get into a military conflict…..VP Biden drops out of the race due to a scandal or there being a true mental health issue (I am not saying there is one…..brainstorming things that would be a major shock is all)….or Trump dropping out for any reason (health or political). We shall see what happens at the end of the Summer.
Also, six months out puts us past the November Election and the market is apparently happy as can be with the result of that event. A Trump victory is the most obvious explanation for the stock market rising over the past 2 months. If Trump loses, the market appears to be saying the two houses of government will remain split between the parties and thus gridlock will remain. The stock market does not seem to give any chance to the Dems sweeping everything.
As a reminder, the DOW figure to watch is 23,377. A close above that on October 31st suggests Trump wins. Below that, he loses. In February, when we were above 29,000 this figure didn’t seem pertinent. Then we got down to 18,100 or such and again this figure was out of range. But, now it has been in play constantly. We are 5 months away from decision time. A LOT will happen in that time.
I will close with my newest pet peeve:) I must have a million of them by now, lol. I am so, so sick of companies airing commercials about how great they are for helping people out during this crisis. People hate people that brag about themselves. Companies need to STFU and just give back as they can and they will get recognition from those that receive their generosity and word-of-mouth will take care of the rest. But, we’re Amazon and we are so great for giving this amount and we’re Apple and blah blah blah. Save the money you spend on commercials patting yourselves on the back and spend it on the people and entities that need help.
On the subject of commercials. Do people actually buy something because they see a commercial? I have never done that. Do people actually click ads that pop up on a website? I have never done that! In fact, I cannot remember ever seeing an ad on Amazon or Facebook or Youtube or Dropbox or anything. I have used every website for free for 20+ years now and never once clicked an ad or really I cannot even recall seeing an ad. I have always wondered how Facebook and Twitter and YouTube make money. Oh well, label me clueless:)
ADD JUNE 4 – Oh gaws, does every company and organization need to put out a public memo saying they aren’t into racism. Geez, I didn’t know that. I was certain that Apple and others have in their Personnel Handbook that that are into being racist. This news is truly shocking to me. I am so glad they made this announcement. Time to go to the porcelain altar. What a bunch of loser lemmings.
Oh, one other item. Please do not listen to the Fake News Media and politicians that will be saying this Fall and Winter that the increase in COVID-19 cases is because we opened too early. When you hear such, just say BS! Those increases will surely happen. Our re-opening (I am so happy to be in South Carolina – we were last to close and first to open….you don’t mess with our liberties in the South!) is well planned and needed and will not be the cause of the second wave …or possibly a third wave next Spring. But, I guarantee the Fake News Media and let’s just say it out loud, the Dems, will blame any increases on reopening too early. Of course, they won’t be talking about the majority of cases now and then being in their jurisdictions.
I would place a bet that in 5 or 10 years there will be evidence that more people will have died from the lockdown than from the virus itself. The damage to the income and wealth generation of Gen Y will far exceed what the virus cost us. Poor Millennials/Gen Y, they just weren’t meant to have a good existence on this rock. But, when you are the first years of The Dark Ages II, you know you will have a brutal time of it. But, not near as bad as generations 100 and 200 years from now.
I will talk about real estate and stocks down the road as things perk up. We are just past the period of chaos. Now we live out the long, slow recovery. Which can still have some downside here and there in various sectors and markets. Not everyone is going to be seeing improvement.
Thanks again to everyone that is sharing information with me. I really appreciate it. It has been very beneficial over the past 3 months for sure.
Please stay safe. Over 330 million Americans have NOT got COVID-19! Quoting the title of one of my favorite rock songs by Halestorm, Here’s To Us!