Is America Already Waving The White Flag?

We are now in this war. We are all in it- all the way. Every single man, woman, and child is a partner in the most tremendous undertaking of our American history. We must share together the bad news and the good news, the defeats and the victories—the changing fortunes of war. — President Franklin Roosevelt, Dec 1941 Fireside Chat 

…the one who doubts is like a wave of the sea, blown and tossed by the wind… Such a person is double-minded and unstable in all they do.  – Book Of James 1: 6-8

This afternoon I was hit with a wave of fear after internalizing the mixed messaging coming out the White House and certain news outlets.

Less than two weeks after declaring war on the invisible enemy that has invaded America, President Trump and many in his sphere of influence are talking about picking up and going home.   Not exactly your Greatest Generation.

Debate Needs To Had

For sure, the debate as to whether the cure is worse than the disease has to take place.  What are the consequences of not taking the medicine?    We’ll stick to the economic issues and leave the moral and ethical for others to debate.

Welcome To Sparta

We are very concerned, however,  a “spirit of Sparta” is taking hold or surfacing in America (see the video above).   Where those considered “unproductive citizens,” such as the elderly,  are expendable and doomed to a similar fate to what those experienced in ancient Sparta, who were marched off a cliff to premature death.



If the economy is “reopened” next week, will the stock and bond market bubbles reinflate?   Will the unemployment rate move back to below 4 percent?   

Very unlikely.  False hopes and false choices will result in disastrous consequences. 

If people are afraid that the invisible enemy is still among us,  the economy has zero hope of recovering and the country should prepare itself for a long drawn out recession or even depression.  Forget about productivity, which is the ultimate driver of long-term economic growth.

Only if most of the public has confidence COVID-19 has been dealt a fatal blow can a robust economic recovery even be considered a possibility.

The Day Will Come

There will come a day, hopefully sometime soon, to start thinking about getting back to work and reopening the economy but not until the inflection point in reported case growth curves, i.e, the second derivative starts to turn negative.   

The planning should begin now but pulling the trigger before the slope of the growth curve (first derivative) turns negative could be one of the biggest policy mistakes in the history of the country.   


True Economics

          Updated chart



                 Source:  Dr. Constantin Gurdgiev @GTCost

Ignorance and denial will not shield us from this ugly curse that has fallen upon the world.   Spending needless energy on this debate only distracts from the important priorities of winning the war on COVID-19, limiting its long-term economic damage, and strengthening the social safety net for most vulnerable.

We suspect, however, something more cynical is trumping rationality.  Politics.

Why Do We Still Listen To These Clowns?    

We are baffled by those who once labeled COVID-19 a hoax,  no worse than the common cold, and its containment was airtight still have any credibility and continue to influence national policy.

Just say no to herd immunity.

Let us not surrender.

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It’s Time For Capitalists To Help Save Capitalism

It looks the lock down in much of the country is going to last a bit longer than expected.  Small businesses account for a large portion of U.S. GDP and employ almost half the U.S. workforce.   Most of these companies won’t be able to survive such a protracted downturn.

Every American needs to step up and answer their call to duty to get us through this dark night.  The government’s finances are now extremely strained and it is impossible for the taxpayer to bail out every business and worker. 

Rent Holiday

Landlords need to seriously consider granting their small business tenants a long-term rent holiday, as in up to one year. 

It’s not only the patriotic thing to do but it is also in their best interest.  Imagine the value of the real estate holdings if, say, 4 out of 5 store fronts become vacant and a large portion of commercial real estate is left empty. 

The commercial real estate space was already in bad shape and what we labeled the New Rust Belt.  


It can either be voluntary or by fiat as an addendum to the economic packages now being considered in Congress.   Some landlords will be strapped and their creditors will have to workout another extend and pretend deal.  It’s much better than the alternative.

Let’s go, America.

It’s not like we are being called to storm the beaches in Normandy.  This is easy.

I’ll take staying home, washing my hands, and pitching in wherever possible over taking incoming any day.  Be thankful.

No free riders.

Time for everyone to step up.


See article here.


See article here.

Small Businesses Are The Anchor Of The Economy



Source:  JP Morgan

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Should Trump Rename The 1918 Spanish Flu The Kansas Flu?

What works for China works for Kansas, no?

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What A Real Bear Market Looks Like

We’ve created an S&P/Nikkei analog to compare how the current bear market is performing relative to the first month of trading after the Nikkei stock index peak on December 29, 1989.  Japanese stocks have been in an uber 30-year bear market.

At today’s close, the S&P is down 28.55 percent, 24 trading days after the February 19th closing high.  This compares to the Nikkei, which was down only 3.21 percent on the 24th trading day after its closing high.  It took Japanese stocks 62 trading days to register a similar decline, which marked a short-term low and sparked an 18.54 percent bounce lasting  45 trading days (or 9 weeks).   Similarly, stocks may be able to muster a short-term bounce right here but it will likely be met by heavy selling and not be as vigorous  as the Nikkei’s first bear market bounce.

Not Your Father’s Bear

This current bear is not your father’s bear market as the global economy has effectively shut down, unprecedented in the modern economy. There is still great uncertainty and the days are about to get much darker.  Moreover, the bursting of multiple asset bubbles, including stocks and bonds,  has caused a mass deleveraging, which, in part, explains the S&P’s rapid descent since the February high.

Multilateral Solution 

While the rest of the world is leaning on each other during this global crisis, the U.S. is becoming increasingly isolated simply due to the President’s colossal  failure of leadership.


See here for the Reuters article.

Also The Guardian,

Experts say that, while these humanitarian efforts are real, they have political ends that deserve attention. In a phone call with the Italian prime minister, Giuseppe Conte, this week, Xi said he hoped to establish a “health silk road” as part of China’s global One belt, One Road initiative, which has come under criticism from countries wary of expanding Chinese leverage and influence. —  The Guardian 

In the short-term many more Americans will die and the long-term consequence will be disastrous for America’s global standing.  Maybe that is why the market now tends to sell-off when Trump takes to the dais and issues tweets such as this,

It doesn’t take the algos long to adjust.



This morning, he referred to COVID-19 as “the Chinese virus.”

In doing so, he was retreating, like a child to his blanket, to the kind of degenerate culture-war squabble in which he feels most secure and his supporters most aggrieved. Here’s the gullibility test: When you read “the Chinese virus,” are you most offended by Trump’s insistence on racializing the pandemic, or by the administration’s cowardice and incompetence, which may kill hundreds of thousands of Americans and have already decimated the economy several times over? — The Atlantic 

Good God, this is how wars start.

Only Multilateralism Can Save Us

The current crisis is even more deserving of a multilateral response, because it presents challenges above and beyond those previous threats. In what amounts to an economic perfect storm, the pandemic has combined with preexisting recessionary pressures, the broader disruption to global trade, and a new and somewhat unexpected complication: a sharp drop in oil prices.  – Anne Krueger,  Project Syndicate

Beware Of The Bottom Callers

It’s disheartening, in our opinion, to see some calling a bottom here in stocks and that “long-term” investors should start buying.  We are not surprised, however.

It is difficult to get a man to understand something, when his salary depends on his not understanding it. – Upton Sinclair 

At the close this morning, the Nikkei is still down 57.47 percent from its December 1989 high.

We are not saying the S&P is going to replicate the Nikkei’s performance but we are saying bull markets and V-shaped recoveries are not an entitlement.



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Political Leanings Of Your News Source

Political Leanings

Hat Tip:  Vanessa Otero  @vlotero

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Why new diseases keep appearing in China – VOX

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The COVID Wake-Up Call | Project Syndicate

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What Joementum Needs To Do Now

Joe Biden all but wrapped up the Democratic nomination with key wins in Florida, Illinois, and Arizona tonight.  If we were advising him, which we are not, here is the next steps he should take:

  1.  Get on the phone and bring Bernie in.  Promise him a cabinet position as a quid pro quo (yes, a legal and perfectly legit one) to immediate suspend his futile campaign, which is putting voters and poll workers at risk of being infected by the COVID-19 virus. 
  2. Step up the rigorous vetting of the V.P. candidate and appoint her in the next two weeks.  We think Stacey Abrams is the best choice if she vets.  He owes the African-American community for saving his bacon and Abrams could help turn Georgia blue and flip a Senate seat. 
  3. Continue to act as the shadow President, even stepping it up to a new level.  The nation is in dire need of serious leadership as this crisis evolves or, at least, believing it is on the way.

Here are the latest prediction odds for Uncle Joe’s choice for Vice President.


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S&P500 Approaching Key Level

Just a quick heads up.  The S&P500 has already taken out 2750.10, the first key Fib retracement of the 400 plus percent long bull market from Mar’09 to Feb ’20, and is now approaching another key Fibo at 2351.91, which also coincides with the December 26, 2018 low at 2346.58.  We are not expecting it to hold but do not believe a test of the generational low of 666.79 is likely.


S&P_Key Levles


S&P_Key Levles_2


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A Long Way To The Bottom For Stocks

Based on the both historic price action of the two financial bubbles that have burst in the past twenty years and our favorite valuation metric — Market Capitalization-to-GDP or the Wilshire 5000 Index to Nominal GDP — stocks still have about 30-35 percent to fall before we believe the “bottom is near.”

Stock Market Valuation Is Still Higher Than Pre-GFC Peak

It is stunning that even after a 27 percent decline in the Wilshire 500, the U.S. stock market cap-to-GDP ratio is still above its pre-GFC (Great Financial Crisis) peak!

Where Is Value — A Market Cap-to-GDP of 77 Percent?

We don’t know, nor does anyone else, but a market cap-to-GDP of around 77 percent is in the neighborhood where stocks start to look cheap, in our opinion.   Caveat emptor, however, markets almost always overshoot.

Assuming a -5.0 percent Q2 contraction in nominal GDP, which is generous, and the bottom comes at the end June, the 2020 bear market decline in the Wilshire 5000 (use it as proxy for other indices)  from the Feb 19th closing high to a hypothetical June low would be between 50-55 percent, which is right in line of the recent bears.

Caveat Reader

We admit the above analysis could be very wrong and readers should take it simply for what it is, conjecture, along with every other analysis out there, by the way.  We could be wrong on the levels or the time frame or both.   Nobody. Knows. The. Future. 

Use Valuation Metrics As A Gas Gauge

The valuation metric has worked for us, and we compare it to a gas gauge to inform us that the tank is running low or high —  i.e, how much potential upside/downside there is in current prices — and not the exact spot where the market runs out of gas.   Trying to top-tick the high is a mug’s game, ask Issac Newton.

The higher the black line moves above past highs, the harder and more painful the fall, or a meaner regression to the mean.

Write that down, folks.

The question is have stock valuations “reached a permanently high plateau” as the famous economist, Irving Fisher, stated just a few weeks before Black Thursday 1929?

Believe it, if you wish.  After all, we now live in a culture and political environment where,

It’s not a lie if you believe it

To that, we say hogwash.  — GMM, Feb 17th (two days before peak S&P500)


Watch The Bond Market

Ugly price action in bonds.

Read our post from yesterday,  Some Perspective, for our view on what is driving bonds. The upshot is bonds are mispriced given the deluge of supply that is coming.   It is our, opinion that there are very few real long-term buyers of duration at sub-1 percent yields.

Watch this space, which is probably more important that the price action in stocks.


Seat Belts_Mar24

Shame on the stock pumpers.

Stay frosty, folks.


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