Friday Follies – America Heads to the Beaches

Show Me The Way To Go Home Jaws Gif - Decorating Ideas"Come sleep on the beach

Keep within my reach

I just want to die with you near

I'm feeling so high with you here

I'm wet and I'm cold


But thank God I ain't old

Nothing is planned, by the sea and the sand"Who

It is, as noted by Linette Lopez "The Perfect Storm of Stupid" in which, for purely economic reasons, we are risking the lives of Millions of Americans to get business back up and running for Memorial Day Weekend.  She notes that China's economic rebound has been led by manufacturing and industrial sectors while the country's service sector, especially when it comes to transportation and leisure, is still pretty dormant.  That is bad news for the US.  Most of our economy is made up of small and midsize businesses in the service sector.  Consumption is what we do.

Manufacturing will not lead America out of this economic malaise; it simply isn't big enough.  The coronavirus pandemic has hit our economy exactly where it counts: in services.  we have in the market is an unholy mess. We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors has the ability to make the biggest waves. It's very stupid — people are going to drown.

Meanwhile, I've been discussing my own experiences in Florida this week as you are hard-pressed to find people wearing masks down here and the hotel my daughter is staying at (she drove down) is now about 1/3 full and the restaurant we ate at last night (I know!) was half full with the staff wearing masks but none of the customers doing so.    

This has been going on since last weekend and every day people get braver and braver but, meanwhile, do you see that spike in new infections. …
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Faltering Thursday – Rejected at S&P 3,000 Again

I get it.

It's hard to get back over the 200-day moving average so we're not going to read too much into this early failure but it is worrying that we're heading into a 3-day weekend as tensions with China rise and the virus is raging in countries that have re-opened so that MIGHT be considered a set-back on 2 fronts that have moved the market up this year.   

If we were to zoom out to a monthly chart of the S&P 500, we could throw out the spike down to 2,200 – as it quickly reversed – but that would leave us with a 3-month, 20% move down to our Must Hold Line that, so far, has only resulted in a weak (4%) bounce with repeated failures at the 5% line.  

According to our 5% Rule™, which is NOT TA but just math, consolidating below the weak bounce line means we are more likely consolidating for a move down than up.  That would be a move down below our Must Hold Level at 2,850 and back down to test the -10% line at 2,565.  It's the same kind of bounce and weakovery that we had back in late 2018 – and we didn't need a virus then to plung 15% in 3 weeks in the second leg down.

All we've done in 2020 is double the scale but the computers are running the same algos they ran then.  A one-month drop, a 2-month recovery and then they pull the rug out again (Thanksgiving weekend) and now we're heading into Memorial Day weekend all complacent again.  I spent a lot of the Webinar yesterday warning about this so I won't re-hash it all – let's instead look at a good hedge to cover it:

 

IN PROGRESS

 

 

Red Badge Wednesday – Trump Says He’s Honoring Us With 1.5M Infections

He saw that it was an ironical thing for him to...You can't make this stuff up.

Well, Stephen Crane did when he wrote "The Red Badge of Courage" in 1895 and we know Trump didn't read it (because it's a book) but apparently one of his writers did and they brilliantly gave Trump a new way to spin the World's highest rate of infection (and these are the non-fictional words of the President of the United States):

"By the way, you know when you say that we lead in cases, that's because we have more testing than anybody else.  So when we have a lot of cases I don't look at that as a bad thing, I look at that as, in a certain respect, as being a good thing because it means our testing is much better.  So I view it as a badge of honour. Really, it's a badge of honour."

When you have to say "really" right after you say something, you KNOW the thing you said sounded like you were joking…  Clearly, to the rational mind, testing doesn't cause infections.  Countries that get the virus under control with less than 1.5M cases tend to do less testing.  As the US infection rate hits 3M, 10M and 20M – I'm sure we'll do a lot more testing while countries that drop to a dozen cases a day will do less testing – BECAUSE THEY DON'T NEED TO!  Holy cow – it amazes me that I actually have to put this kind of stuff in writing but, amazingly, a huge number of people don't understand the logic – including the President. 

“At times he regarded the wounded soldiers in an envious way. He conceived persons with torn bodies to be peculiarly happy. He wished that he, too, had a wound, a red badge of courage.”

“His fingers twined nervously about his rifle. He wished that it was an engine of annihilating power. He felt that he and his companions were being taunted and derided from sincere convictions that they were poor and puny. His knowledge of his inability to take


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Toppy Tuesday – Here Come Those Tears Again at S&P 3,000

"Baby here we stand again

Where we've been so many times before

Even though you looked so sure

As I was watching you walking out my door

But you always walk back in like you did today

Acting like you never even went away

Well I don't know if I can

Open up and let you in baby

Here come those tears


Here come those tears again" – Jackson Browne

Trump says there's a vaccine?  

Seriously, that's why we're rallying?  How many times does Donald Trump have to lie to us before we stop believing him?  We WANT to believe there's a vaccine, we WANT to believe that a Hydroxycloroquine a day will keep corona away but we KNOW (at least most of us do) that that is bat-shit crazy – yet that's what Trump was promoting yesterday – along with his miracle vaccine.

“My concern would be that the public not hear comments about the use of hydroxychloroquine and believe that taking this drug to prevent Covid-19 infection is without hazards. In fact, there are serious hazards,” said Dr. Steven E. Nissen, the chief academic officer of the Miller Family Heart, Vascular & Thoracic Institute at the Cleveland Clinic.

Dr. Scott Solomon, a professor of medicine at Harvard Medical School, said Mr. Trump’s decision to try the drug was up to him and his physician. “But what is irresponsible is the example he is setting,” Dr. Solomon said.

Dave Brown on Twitter: "Tomorrow's @Independent cartoon... #Trump ...Mr. Trump publicly embraced hydroxychloroquine as a “game


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Monday Market Movement – No News is Good News

Nothing happend this weekend.  

Unlike last weekend, we didn't escalate our Trade War with China or actual wars with other countries and there were no new major scandals in the White House (that we know of yet) and there were no rogue scientists telling us we were re-opening the country too soon so the markets are in a great mood this morning and I'm in a great mood this morning as my daughter drove down from NJ to Florida to see me and I spent a very nice weekend hanging out at the pool in an 80% empty hotel (having her stay at the house still seemed too risky to me).

Not to advertise this particular hotel but the Opal Grand in Delray Beach has a lovely pool and is right on the ocean for just $175 night and parking was pleasantly free and, because I'm a local, we got 30% off that price so $122.50/night.  I felt safer there than I do in the rest of my town, which is as full as it ever was this time of year (off season) with MAYBE 2% of the people wearing masks.  The hotel has no restaurants open but they are selling food in the lobby. 

Having just done it – I highly recommend taking a mental break and simply going somewhere else for the weekend – even if it's just a hotel in your own town.  I checked out all the hotels in town and this one wasn't crowded and used to be a Marriott and is clean and nice (half is being rennovated) so it's no less safe to go to this hotel than the supermarket, probably safer but what a treat just to be somewhere else for a couple of days – even just a few blocks down the street from my house!

I even bonded with other survivors of the Viral Apocalypse – just like humans do when they encounter each other in zombie movies:  "Where are you from", "What's it like over there?" "How did you make it here?", "What do you think will happen next?"  My horror story of walking 4 blocks to get to the hotel didn't compare to the guy who sat in the middle seat on a packed plane (I gave him a…
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Fickle Friday – Market on the Road to Nowhere in the Month of May

S&P 2,850.

That line is like a magnet and, halfway through the month of May, right where I predicted we'd be when I was on Bloomberg on March 11th (see: "Thursday Failure – Trump Shuts Travel, Provides No Solutions, No Stimulus – Market Tanks (again)" for the recap).  That prediction was not for political reasons – it was based on our assessment of the VALUE of the S&P 500 based on what we knew regarding the virus, the stimulus, the political and social environment.   You know – Macro Analysis.

There's been a ton of BS thrown around as the virus and our Government's response to the virus, has become such a political issue that I can't even say the President is doing a bad job without getting death threats.  My job as an analyst is to tell you what's really going on – whether you want to hear it or not – anything less than that wouldn't just make me bad at my job, it would make me dishonest.  

If you want an honest, balanced assessment of where we are now – here's the Mayor of Los Angeles – one of the smartest guys I ever met – giving his assessment of how we stand as cities struggle to re-open:

Also on Wednesday, Garcetti said on ABC: "I think we have to all recognize that we’re not moving beyond COVID-19.  We’re learning to live with it."  “We’ve never been fully closed, we’ll never be completely open until we have cure,” he added.  That's why we got more aggressive with our hedges on Tuesday (ahead of Garcetti) as the S&P approached 3,000 and we did the math and decided that would be a p/e of over 35 on the S&P – a bridge I did not feel even irrational investors and trade bots were willing to cross.

That post became part 7 of our Portfolio Protection Workshop and I strongly urge you to re-read that series over the weekend as we may be approaching another major down leg as the World will hit 5M infections next week and the US alone will pass 1.5M infected as we are still getting 25,000 new cases each day
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Thirty Five Million Thursday – 2 Months of Rising Unemployment

Unemployed New Yorkers Demonstrate Photograph by Everett35M people have lost their jobs in 60 days.

The way stores and restaurants are opening, with limited customers allowed in and limited seating – getting back to normal isn't normal at all. “We have a situation where people and families in every part of the country are facing this unprecedented crisis, and they are looking for relief,” said Congresswoman Pramila Jayapal yesterday, where she co-sponsored a bill with Josh Hawley (R-MO) to guarantee incomes during this pandemic.  “This is a proposal with broad support that should be taken seriously,” she added. “What are we waiting for? Are we waiting for unemployment to reach 50 percent?

The only reason we're not seeing people marching and protesting like they did in the Great Depression demainding Government Support is because they can't leave their homes.  35M people is 10% of our country but it's 20% of our work-force and we didn't start from zero unemployment – this is a dire situation and things are starting to unravel and, once again, we are being met with a big ball of dysfunctional incompetence from the Administration. 

See, I didn't say TRUMP Administration so you can pretend any Administration could have F'd America over this badly.  The Hoover Administration was about as incompetent as the Trump Administration.  In fact, with promises of high tariffs and low taxes – you can see that Trump pretty much just copied Hoover's playbook – including kicking off the country's second Great Depression:

Political Ad for Herbert Hoover called "A Chicken for Every Pot"

Losing the jobs couldn't be helped, they are a  result of the Lockdown Policy which was a rational response to the virus but the WAY we are losing the jobs should have been helped.  Wages in the US are $6Tn per year or $500Bn per month and you can see what kind of money the Government is throwing around so the question is – why couldn't they simply throw some at the workers?  Just give the workers $1Tn while they take two months off and there is ZERO damage to Consumer Spending Power which, in turn, drives the economy.  

Of course there would be some things consumers wouldn't spend on, like Retail, Restaurants, Travel and Live Entertainment but then we could have compensated JUST those industries and it would have cost half as much as we have spent on this ineffective mess of a bailaout already.  

 

IN PROGRESS

 

 

Which Way Wednesday – Powell and PPI and $3Tn More Stimulus

Marius Bitcoin ???????'s tweet - "A $3 trillion relive bill. What ...$3,000,000,000,000!

Will it be enough to buy a rally this morning?  If not, we have Jerome Powell speaking at 9am and you know Powell doesn't speak before the open unless he's going to boost the market, lest he face the wrath of the President.  We also get the Atlanta Fed Report at 10am and there's a 30-year bond auction at 1pm that should go well becuase, despite the low rates – people are still terrified.  

The US is already running a $3Tn deficit in Q2 and no country in history has ever had to borrow so much money in such a short period of time so jacking that number up to $6Tn is concerning – especially as it would put Trump's accumulated deficit up over $13Tn – addding 66.6% (of course) to the National Debt in just 3.5 years since he took office.

Of course we have to spend money in a crisis – that's not Trump's fault (though the extent of the crisis is) but it's not like we were starting with a budget that was under control.  Spending $6Tn would be fine if we knew FOR A FACT that this would be the end of it but we haven't cured anything, we haven't prevented anything, we haven't even got a plan for riding this thing out.  The Administration, at the moment, is pushing for "Get back out there and try not to die."

Fearless Dr. Fauci is more loyal to truth than to Trump - al.comWhile the Trump Administration is rushing to get the economy opened back up, Dr Fauci was testifying to Congress yesterday that this is a terrible idea:

“There is a real risk that you will trigger an outbreak that you may not be able to control,” Dr. Fauci warned.  That could result not only in “some suffering and death that could be avoided,” he said, “but could even set you back on the road to trying to get economic recovery.”

We have met the moment and we have prevailed,” President Trump declared on Monday.  Now, I know everyone is now an Epidemiologist but the guys who actually went to…
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Toppy Tuesday – Pressing our Hedges (Just in Case)

S&P 3,000 – woo hoo! 

That's right, we're almost back to where we were last Summer, 50% higher than we were 4 years ago (that was 2,000 Foxies!) and 100% higher than we were 7 years ago (1,500).  In 2013, the earnings per share for the combined S&P 500 were $110.98 so we divide 1,500 by $110.98 and we get a price to earnings ratio of 13.51.

Then we take 2016, when the S&P earnings had bounced back to $101.08 and the S&P was at 2,000 and…. Ha, ha – I fooled you Foxies! – $101.08 is LESS than $110.98… just seeing if you could do the math there.  Anyway, we divided 2,000 by $101.08 and we see the P/E shot up to 19.78 – those are nose-bleed levels of valuation – even in a strong growth environment.

Still, the growth expectations were justified as Corporations no longer have to pay taxes or worry about destroying the environment and, in the golden age of Trump, earnings shot up to $140 per share last year and the S&P hit 3,400 – still with a p/e of 24.28 - as if this growth will go on forever.  Why, to keep that kind of growth up you'd have to PAY corporations tax money on top of the profits they make.

Guess what?  That's what we're doing!  The Goverment just borrowed $6Tn, mainly to give to large Corporations while gutting what few remaining regulations we had left AND they let 30M jobs be destroyed, loweing the cost of labor for the rest of this decade AND they lowered Corporate Taxes even further.  Mission accomplished indeed! 

With the S&P 500 back near 3,000, we can now divide 3,000 by 24 to see if we think we're at a realistic level of optimism.  3,000/24 for the Foxies is $125 and $125 is $15 less than $140 and $15/140 is 10.7%.  So, in order to be paying 3,000 for the S&P 500 companies as a group, we have to believe that this Global Pandemic did not disrupt corporate earnings by more than 10%.  How stupid is that?

 

IN PROGRESS

 

 

Monday Market Momentum Fading Fast

And down we go again!

That's OK because last Monday we gapped down 200 points and spent the rest of the week gaining almost 1,000 points and April 27th opened down from the Futures but then we recovered and gained 1,000 points.

With all these 1,000-point gains you would think we'd have made huge progress but not really – we're still hanging around the same 2,850 line on the S&P 500 that we were at last April and the April before that.  There was no virus in April of 2018 or April of 2019 but there also wasn't $6.7Tn in stimulus floating around so, if we are to consider 2,850 the fair value for the S&P 500 – the question is will the stimulus be more or less or exactly enough to counter-act the economic damage of the virus?

Of course, it's not just the United State's $6,700,000,000,000 contribution that matters as the S&P 500 derives more than half its revenues from the rest of the World so their pain is our pain in these circumstances.  Europe has pledged to do whatever it takes and China will be having their delayed, annual People's Congress next week and the PBOC has already promised to provide more economic support (China at about $1Tn so far). 

https://www.zerohedge.com/s3/files/inline-images/TSY%20net%20issuance.jpg?itok=WFW02LosOf course, if we are going to be counting on a long-range recovery to justify paying pre-virus prices for stocks that will clearly NOT be making pre-virus money this year – then we should also be taking into account the damage that is being done by the US (and other nations) racking up a $4Tn Deficit in 2020 – and that's ignoring $4Tn added to the Fed's balance sheet and a very likely additional round of stimulus that's coming.

Does it matter that our Deficit has increased by $7Tn in 4 years (now over $25Tn!) and is projected to run another $3Tn in each 2021 and 2022, or does it really no longer matter how much money we print?  If it doesn't matter, then why aren't we fixing Social Security and Medicare, among others?  The CBO projects the Highway, Pension Benefit Guaranty Corporation Multi-Employer, Medicare Hospital Insurance, Social Security Disability Insurance, and Social Security…
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