MAY 10 – Hopefully everyone had a great Mother’s Day and is staying safe and well.
It’s been awhile since I talked about the stock market. For over a month now the DOW has been in about a 2000 point range. Quite a change from days in March where it was up or down 2000 points. All of this back and forth and the market still hasn’t been able to get up to the 25,100 target.
As I mentioned the last time I talked about stocks, we are essentially in a stalemate. The market should be declining to the 13,000-15,000 range. However, the Fed is pumping trillions into the system and this is offsetting the selling. The experts I listen to are taking the stance I am taking – stand aside and wait for a break in one direction or another to occur.
If you have had read my blog and white papers over the past decade, you know I harp on price and value being two very different things. In real estate, prices rarely reflect the current value of the underlying asset. Albeit market participants and appraisers believe sale prices are a reflection of market value. They aren’t.
I bring this up because we may be encountering a historical disconnect between the value of companies and the price of their stock. A company that was worth $100 a share before the virus hit might now be worth $80 (value is extremely slow to change for large corporations, so a 20% decline is beyond extreme). However, if the trillions being pumped into the system goes into the stock market in some amount, then that stock that may have went from a high of $150 down to $75 in March and may now be $125. And might go even higher.
Money is pouring in regardless of what the underlying asset is worth. Re-inflating prices is what the Fed did starting 12 years ago and it worked for most asset classes. They are doing all they can to make this happen again. One day the house of cards will crumble and it won’t be pretty. They might be able to avoid the end game this time, but I don’t think they will the next time things fall apart.
Right now the World’s Largest Casino (stocks, bonds, currencies) is open and gamblers are taking their position on how things will play out over the next 6-24 months. But, these are simply gamblers. True investors are still uncertain of the future and are standing aside. There are no new mergers. No new commercial real estate transactions. When Sam Zell says he is still uncertain of how this will play out and is doing nothing, that speaks volumes.
As they say, better safe than sorry. Capital preservation is key. Don’t jump into the game too early. Be patient. It is ok to miss the exact bottom and wait for the new trend to start.
As a side note, remember that this is not a liquidity crisis. That has been solved by Central Banks worldwide. This is a SOLVENCY issue. Companies will go bankrupt over the remainder of the year because they have too much debt. It is that simple. This will also apply to individuals and real estate owners. Too much debt and you are likely to go under. As they say, cash is king. It will be once again during this downturn.
And a side note to the side note….The bond market is pricing in a 28% chance of the Fed Fund Rate going negative! Some indicators suggest a drop to -2.0%!!! Everyone says negative interest rates are not coming to America. Even Fed presidents say that. The only problem is the Fed FOLLOWS the bond market. The bond market will dictate whether America goes to negative interest rates. Right now it is just starting to head in that direction. There will be more to discuss as this unfolds going forward.
Unemployment came in at 14.7% albeit the U-6 (whatever that is exactly) suggests we will see 23%+ next month. The analyst I mentioned that forecast 16.5% was a bit high. For historical perspective, we went from unemployment rates at 50 year lows to 90 year highs in a month or two. Just insane, eh.
It’s a big week for Bitcoin as the 4-year ‘halving’ occurs. Since I suggested to my friends a month ago to buy some it has gone up 50%. However, the expectation is still a 10x move from here by the end of 2021. It seems like everyone is aware of the halving and past events and have been buying in advance. Since past history has shown a 10% to 30% decline in price right after the halving, that would surely shock the newbies to Bitcoin. The public usually gets on board when it is too late and then dumps when things turn against them. I will be watching for some kind of correction between now and the end of June. If it occurs, I will hop on board and hope the 10x unfolds as predicted.
Brent Crude is back over $30 a barrel. Many oil stocks, e.g. Exxon, are up over 50% from their lows. The damage will last at least another year or two. But, oil and gas are not going away regardless of what the tree huggers wish and say. The more electric vehicles they make the more fossil fuel using power plants get built. Plus, 95%+ of vehicles will run on gas for many decades into the future. It is unlikely Millennials will live to see a serious decline in the use of oil and natural gas. There simply are no viable alternatives.
The Fake News Media likes to make the masses think oil and gas are on their way out. They do the same with meat. They even talked people in to creating fake meat. Fake meat means it is NOT meat! Fake meat is an oxymoron! But, more importantly, projections call for meat consumption to be 70 percent higher in 2050 than it was in 2010. PETA won’t tell you that though:)
I only bring the above items up because it all goes back to my constant reminder – EDUCATE YOURSELF! I think we can switch up an old joke – How can you tell if a broadcaster is lying – s/he is moving his/her lips:)
Educate yourself and then make your own decision. Think for yourself. You will be much better off in life.