Saturday, April 11, 2020

Between A Rock And A Hard Place

All of the bad choices over past decades have put the corporate status quo at dire risk. But you can't tell the zombies that, they still think that depression is "temporary". Historians will say that the Coronavirus hid latent economic depression, until it was too late. The cost of this election will be measured in trillions of dollars and bodies buried. We know one thing for certain - Trump will make the right decision. For him...

The economic waters have never been murkier. Everyone is on their own to figure this all out. Trump is between a rock and a hard place. Which means someone is about to go under the bus, and it won't be him:

Unfortunately, as long as the economy is in shutdown mode, no amount of "stimulus" can reach the real economy. The economic multiplier from these stillborn stimulus packages has been quarantined.

As I predicted, Republicans are blocking additional assistance to the middle class. The small business "CAREs" act is generally a fiasco. Debt collectors are looking to hijack much of the middle class stimulus checks. All of these bailouts to date have been entirely inadequate.

Here below is my latest attempt to capture the sequence of events over the coming several months. I see a second market crash arriving any time now. The stock market is now 15 months overbought, and some are even calling this a new bull market. However, more sage observers such as Art Cashin are predicting an 'L' shaped recovery. Meaning no recovery.

It's a busy chart I admit. The underlined events are the ones that have not occurred yet. On the lower deflationary portion (blue), I detect a growing move among alt-libertarians to defy the quarantine. After all, there is no social distancing in riots. The total lack of support for the middle class will be fuel on the fire. Officially lifting portions of the quarantine by summer will have little effect. Faith in central banks will collapse. 

The only true reflation will come on the first Tuesday in November. Or not. Between now and then, it's all deflation. 

On the healthcare side, we see that this virus preys upon bad consumer choices. Specifically the lifestyle risks of obesity, diabetes, high blood pressure, smoking, drinking, heart disease, and cancer are all top ten complicating risk factors.

For those big believers in "consumer choice", the carbon tax is due:

Getting back to the casino, what was once deemed a strength for stocks is now a key liability, in the form of stock buybacks. Not only are government bailouts prohibiting stock buybacks, but now balance sheets for these companies are severely impaired. Going into an economic depression.

The bailout paradigm shift is indeed coming:

“On Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not. People are.”

These economic cyclical sectors can't be bought for more than a trade until the economy comes back online AND the middle class bailout arrives:

The first economic data is coming through, and it's not pretty:

In summary, it was a great week for bailout "capitalism". Just don't expect the sugar high to last:

Will the stock market hit a new low later this year, lower than where it stood at the March low?

I’m convinced the answer is “yes.” 

there were no fewer than six bull markets between the 1929 stock market crash and the end of the 1930s"

Sentiment also points to a lower low for the U.S. market. That’s because the usual pattern is for the final bear-market bottom to be accompanied by thoroughgoing pessimism and despair. That’s not what we’ve seen over the last couple of weeks. In fact, just the opposite is evident — eagerness to declare that the worst is now behind us"

Taking all of the above into account, here is a hypothetical wave count based upon the 1929 analog.

Take this with a grain of salt mine.