The human species is always trying to invent some sort of virtual reality, because the real thing is not good enough for them. I suggest that those who eschew God-given reality in favour of this last crack fantasy begin to gain an appreciation for what is real, before it's too late.
The fact that U.S. stocks are now negatively correlated to GDP should come as no surprise to anyone who has observed the steady progression of central bank Disney markets during the past decade. It's Japanification gone global - The concept that true market price discovery would be far too jarring to the fragile population. The inconvenient truth would trigger a panic in the old age home. The overriding mandate of central bank based "capitalism" is to protect people from their own asinine mistakes. For anyone who doesn't believe in fairy tales, it's a padded cell in an insane asylum. The next step in this progression is to shut down trading altogether and mandate that the S&P 500 goes up 12% per year like Bernie Madoff's Ponzi fund.
Of course U.S. GDP in 2020 will be far worse than the IMF-predicted -6% we see below. And take out the asinine amounts of MMT stimulus, and REAL GDP would be far worse yet. One year hence, somewhere around -30% of GDP will likely be the annualized downside if the 1930s are any guide.
However the populace at large is too drugged on monetary euthanasia to face the monumental challenge at hand, which is why we have achieved the FULL virtual simulation of prosperity.
Picture a virtual "economy" in which the actual economy has been shutdown and replaced by Amazon and its network of automated warehouses. No need to leave the house ever again. Order everything online.
In this de facto scenario, one might expect the stock market would implode, however, now only five mega cap Tech stocks are needed to give the impression of a "market". These handful of stocks now over-represented in every passive market index can be easily algo manipulated via the S&P futures and a steady stream of printed money. Meanwhile, these companies have fully supplanted the real economy with the virtualization of everything. A growing trend that went into hyperbolic overdrive during the lockdown. Benefiting the few among the virtualized knowledge workforce at the expense of the many in the real economy. However, only the former have a voice in this shutdown. The working class have no voice in anything. In the American tradition. It's the one thing that both political parties can agree upon.
One would think that mass unemployment could become a point of frustration among the masses. However, that problem can be easily solved by printing money and sending checks out to the masses. A process that has already started and yet is in its earliest stages. Over time this free money bonanza will grow by leaps and bounds, although it's currently at a temporary political snag ahead of the election. A bit of non-social-distanced rioting over the summer should clear this last hurdle of GOP intransigence by November or sooner. As long as everyone remains at home and otherwise never has human contact again, the economic multiplier that could lead to inflation will remain ZERO. And in the meantime, the bills keep stacking up.
Boredom taking over? No problem, for that we have unlimited streaming television, and of course video games so kids can kill their friends online all day.
Sexual frustration? We have sex robots which are approved for COVID safe sex.
All of human life now virtualized. What's not to like?
In order to capitalize upon the dystopian Brave New World I just described above, Jim Cramer put together a portfolio of stocks called the "COVID 19 index".
What else?
“There are just so many obvious winners and obvious losers. Please don’t make life difficult for yourself by owning the losers”
There are actually very FEW winners under this lockdown paradigm and a huge number of losers. Noticeably absent from the list: banks, autos, homebuilders, mall retail, hotels, airlines, casinos, and of course small businesses which are the backbone of the REAL economy.
As realists it's our sole responsibility to ask what could go wrong. By the end of this year, U.S. debt to GDP will surpass 100%. However, Japan's debt to GDP is above 200%. So as long as the Fed is the primary buyer of U.S. debt, they SHOULD be able to keep control of the Treasury market.
The difference is that the entire world can't be Japan. Meaning Japan was stuck in a deflationary funk while the rest of the world - especially the U.S. and China - were still growing. We've never experienced global deflation across the board since the 1930s.
The other difference is that Japan reserved their monetary largesse for the supply side - buying up financial assets to encourage continuous borrowing, which was deflationary. Once the world starts printing money in massive quantities to bolster demand, reflation expectations will spike. At which point what remains of the non-defaulted bond market will implode.
That day remains months away, if not longer.
In the meantime, the last of the COVID "winners" have been making new recovery highs this week, now approaching their February all time crack high levels.
Here we see the mega caps powering to new weekly highs, while the rest of the market (gray) is rolling over:
Online retail is breaking to new all time highs today, although Amazon (not shown) peaked last week.
One would have no way of knowing that Trump ordered the lockdown to be over:
Gold stocks are rolling over deja vu of February, as record ADP job losses for April take the steam out of the reflation fantasy ahead of Friday's mega jobs report.
Healthcare is deja vu of December 2018 when it rolled over and imploded the market:
EM Currencies are languishing at 2016 levels having not participated in this virtual simulation of prosperity:
If this all sounds stupid to you it's because it is.
However it's not nearly as dumb as the people who believe in it.
At least that's what history will say.