V-Shaped Recovery? More Like A W…

Dow is a hair away from 24,000 as I write this.  Nasdaq a shade over 8,500.  We’re back to being closer to the top than the recent bottom.

Today’s action felt like it’s really, truly going to be a V-shaped recovery… that we should be back at our old highs in no time at all.

But… b-e-w-a-r-e.

Because it was just a few weeks ago that it felt like the crashing would really, truly never end.

And that’s what happens during a crisis… the mania swings in both directions.

Don’t get me wrong:  We have a lot going for us in this crash.  Oil is really low… and that’s my #1 requirement for an advancing economy.  Companies headed into this crisis with a lot more going for them, too (i.e., real growth, real revenues, and real profits).  And lots of technology companies are going to absolutely thrive in this crisis, for example, Amazon, Netflix, DoorDash… anything to do with the cloud… and so on.

And, critically, the government has backstopped everything with TRILLIONS in bailout money.  (“Oh, yeah, that.”)

But let’s call a few spades spades here:  THE ENTIRE WORLD JUST STOPPED!  That’s going to affect many, many more companies than will benefit.  Stocks ran up waaay too much before the crash, too, so even without a crash, they needed a 10-20% correction just to whack them back in line.  And — most significantly — no one really knows when we go back to normal.

This last point is the key.

This V-shaped rally — where stocks go straight down, then go straight back up, forming a “V” pattern — is almost entirely predicated on us getting back to normal soon.

As in, investors already know this quarter is going to be a disaster, but they think they might have the next one in the bag.

But what about the next quarter?

If I’m the CEO or CFO responsible for offering public company forward guidance… in this environment… there’s no way I’m touching that with a 10-foot pole.  That’s a guaranteed lawsuit just waiting to happen.

So, unless I’m one of the handful of companies that are crushing it during this crisis, there’s no way I’m going to be even the slightest bit optimistic about the future.  Because everything is uncertain.  How long this will last.  What the 2nd wave looks like.  Or the 3rd.  Or if people really are developing immunity.  And so on.

So I either give the biggest low-ball guidance in history — or what is happening more and more — I simply refuse to offer any forward guidance.

That’s when the next shoe drops.

When analysts and investors see this negativity… then try to understand this negativity… then realize they’re now really, truly flying blind… that’s when the rug gets pulled out from under them…

… and the market, too.

Because that’s not going to feel like “soon.”  That will, for a period, feel just like FUD (Fear, Uncertainty, and Doubt).

It’s inevitable.

Because mania is inevitable.

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Great Bitcoin Quote

On the 31st anniversary of “Black Monday” — where the Dow dropped 23% in one day — I have to share a great “sign of the times” quote.  I can’t find the source right now, but it went something like:

     ‘When the Dow drops 23% in one day, we call it “Black Monday.”  When Bitcoin drops 23% in one day, we call it Monday.’

;)

All That Wall Street Panic Because A Number Was Misinterpreted?

Last week was quite a ride on Wall Street.  Unbelievably, the Dow traveled 22,253 points in one week — approaching 1x its own index value — I’d say that’s the definition of a wild ride!

Everyone is speculating about the trigger.

Other than the obvious reason — which is healthy markets aren’t supposed to go up 100% of the time like we have — two factors seem to have kicked things off.

One had to do with a short squeeze on an ETN (Exchange Traded Note) that tracks the inverse of volatility.  The issue itself was rather harmless in that it did not directly affect underlying securities like some ETFs (Exchange Traded Fund) can.  What wasn’t harmless, though, was it is a leveraged asset… which meant when the pendulum swung, it caused a pretty big short squeeze… which meant that people probably had to sell other assets — like stocks — to cover.  So, ultimately, it’s plausible that these did have some affect in the market last week… selling pressure is, after all, selling pressure.

The other — which people consider the bigger culprit — was a reported surge in hourly earnings reported in last Friday’s (2/2/18) jobs report.  While that signals a healthy economy, which of course is good for the stock market, it also signaled that interest rates might start rising… which, ironically enough, is actually historically good for the stock market, too, at least during the initial rising phase.

But, in last week’s case, people got flat out freaked out.  Hence, the wild ride.

But, it appears that no one asked why hourly earnings surged.  From ZeroHedge:

Well, not so fast, because as a closer look at the data reveals, the only reason why average hourly earnings rose, is because the total weekly hours worked posted a relatively steep decline, dropping from 34.5 in December to 34.3 in January, a 2.9% drop from the 34.4 last January.

What economists (and Wall Street analysts!) should care about is actual earnings power… and average weekly earnings actually declined from December to January.

Seems like no one wanted to let facts get in the way of a good panic.

 

P.S.  Investor sentiment is always the biggest wild card in the deck.  But, weekends are good circuit breakers in that regard.  More and more folks are coming to the conclusion that a lot of what is underpinning the market is still intact.  Readers of my blog know I track the price of oil… and oil has not only been behaving, but has been declining… which I believe bodes well for spending… which bodes well for corporate profits… which bodes well for the market.

Who’s Better For The Market, Democratic or Republican President?

CNBC did a fascinating analysis of who’s better for the stock market, a Democrat or Republican.

Below are the visuals.

While the initial conclusion here is, “Democrats are better for the stock market”… I believe what these charts actually show is what happens when the Republican party abandons its long-standing partyline of being fiscally responsible.

That is to say, while it may have been helpful to the military complex, dragging us into needless and endless and massively expensive military action is simply bad for business.

I think the charts below prove that in spades.