FREE ACCESS May 11, 2020

MorningWord 5/11/20: Abstract or Dark Art?

by Dan

For the last couple of months, I have been dumbfounded by what I feel is a blatant disregard for realism by our elected leaders and the pundit class in America. Faced with the uncertainty of one of the worst health crisis in decades, if not a century, the lack of preparedness and foresight by one of the wealthiest and supposedly most technologically advanced countries in the world is truly shocking. Our country of ~330 million people is less than 5% of the world’s population, and despite spending more per capita on healthcare per citizen (around 18% of GDP each year) than any other country on the planet, we represent 32% of the globe’s coronavirus cases and 28% of the deaths associated with it.

I have no answers on the hard stuff, the science of a pandemic, or what it means to throw trillions at an economy to keep it afloat, but I do know that the very thing you read RiskReversal for, analysis of the stock market and its components has now crossed a chasm, one formally of fundamental analysis based on laws of economics and finance, which have all been re-written on the fly over the last two decades, and investing is now far more an art than a science, albeit an abstract art.

On Saturday, after reflecting the data of the April Jobs report, aided by my discussion with @GuyAdami and the  @NorthmanTrader -Sven Henrich Friday (watch here) I wrote the following regarding Friday’s 1.7% surge in the S&P 500; Don’t Forget What the Stock Market is Celebrating:

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.

There were a few news stories over the weekend that help sum up my views about the dour state of the economy, which is likely to be around longer than most market strategists think… I tweeted them last night, please read them if you are trying to figure out whether or not I am merely being an alarmist. This is not about the stock market, or my call on it (which you can read my play by play over the last few months here), I fairly well convinced that the higher it squeezes now the harder it will fall later because right now it is pricing it too many best-case scenarios in what I deem to be a holy trinity of crises we are faced with; Health, Economic & Political.

 

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