Yesterday was one of those days in the stock market that we are likely to remember for a very long time. At 8:30 am, the U.S. Dept of Labor reported that 20.5 million people in our country lost their job in April as a result of the forced shutdowns related to the coronavirus pandemic. Investors cheered sending the SPX up 1.7%, closing only down 9.3% on the year and down just 13.6% from its all-time highs made in February. Excuse my French, but that is just bat-shit crazy when you consider the likely outcomes for the pandemic induced-recession and just how much good news the market discounts at current levels given the level of uncertainty on the health crisis. I have had no shortage of very smart and successful investor friends say to me “DAN… don’t fight the Fed, do you see how low net exposures are from institutions and how much cash retail has in money markets… Main street lending hasn’t even started, and we are likely to have therapies and vaccines much sooner than most think??” My response is simple, you are now in the consensus. Now I am not being contrarian for the sport of it, I sincerely can’t understand how so many smart people are ignoring what seems fairly obvious to me.
Yesterday I had the pleasure of debating this very question with my friend, and the star of CNBC’s Fast Money program @GuyAdami and the illustrious @NorthmanTrader aka Sven Henrich. Sven posted our talk to his YouTube channel, enjoy:
We will be sure to follow up this discussion and hit on a topic that Guy brought up and Sven expanded on, something that has little do with financial markets, but is a byproduct of the Fed’s routine bailouts of capitalism, the issue of widening income inequality. It is a truly sad state of affairs if we have not been yet, everyone one of us in the days/weeks/months to come will be or know someone close to us, who has lost their job, wages cut and will be forced to change the way we live. The disconnect between the stock market, and what it is saying about a potential economic recovery in the near term, and the likelihood that we will not be faced with further disruptions from the coronavirus is nothing short of delusional in my opinion.
I have made this case on numerous occasions on these pages and on CNBC, in the weeks prior to the pandemic hitting our shores we were not preparing for the worst, merely hoping for the best, given what is likely to be a very deep, and possibly long recession (not to mention the terrible human toll), all Americans should now be preparing for the worst and hoping for the best.
And yes, the illustration below of job loses might be the worst monthly print ever, and they will look better going forward, but the U.S. economy that is largely driven by our consumer, who is likely to see discretionary spending hampered for quarters if not years to come as the unemployment rate is likely to be in the high single digits for the foreseeable future, more than double the 60-year low print made in January. As Sven mentioned in the video, low-end jobs that are in the service sector where the last added, were the first to go, and are not likely to come back anywhere near Jan and Feb levels. But, higher-paying jobs in corporate America, the ones where the people are on Slack and Zoom all day from home now are going to face a very sad reality in the summer and fall, that their employers thought it to be bad optics to fire people during a health crisis, but a lower revenue environment and efficiencies realized during work from home will cause a good bit of “redundancies”, especially after the payroll protection conditions are met and are in the rearview mirror for many small and medium-sized businesses.
Sorry, I can’t be more positive, if you want economic optimism just listen to the 99% of the pundit class, they are in lockstep at the moment with the Financial Industrial Complex and they will have you believe that this will merely be a blip, I suspect it will be a bit of a blob.