The world with stimulus and no earnings
In the 1st half of 2020, we have seen many events that will no doubt be in the history books and likely taught at various levels in the generations to come. Some of these books may be about illnesses and diseases, populations, vaccines, and health advisory or medical journals. Some will be on commerce, buyer behaviours, mass hysteria, and psychological components about the heard. And we will certainly see examples in economics and how economies operate through challenging times.
The last time we had a global crisis was the GFC, studies on the what, how, who, where, and when, are still being conducted today about the implications of monetary policy in trying to stave off recession. I’m sure that the pandemic induced crisis we are currently living in will likely have the same studies occur, it is within the human nature of curiosity to understand how we end up in any given scenario, this one is no different.
Some of the immensely amazing things that we have seen in the past several months have been mind-boggling: Negative oil futures, Stock crashes, Stock recoveries, industry decimation, supply chain disruption, riots, protests, pandemics, declassified documentation, trade wars, toilet paper frenzies, the list just keeps ongoing. It’s no wonder why we have seen some of the highest volatility and trading volumes ever seen, the world while topsy Turvey has been rife with opportunities.
The most recent of these events has been the revelation of the Federal Reserve Bank of America and Chairman Jerome Powell’s relentless assault on a subdued economy. Overnight we heard from both, they have been quite dovish in the recent announcements and last night was no different. The indication that Stimulus will continue to flood the economy indefinitely with no expectation of easing interest rates until well into 2021 and potentially even 2022 has been warmly accepted by many but also criticized.
The US National debt levels are at the extreme, and many hawks have not been excited about this notion of increasing debt even further. Powell has defended the FED’s stance, saying that dealing with debt is something you can do in a strong economy but not a weak one.
In one boat, I somewhat agree with that statement, but it very much feels like the over-leveraged part-time property mogul, full-time yoga instructor, whose online e-commerce business is valued at $2m with net revenue of $5. Probably an exaggeration, but none the less my point is obvious, the capability to service the debt while taking more debt on is a very dangerous cycle.
And yet we are still seeing the $NASDAQ hit all-time highs, the S&P 500 eradicating its pandemic induced losses, and of course an ongoing pandemic in denial. Of course, we can’t forget about a stock market that’s not reporting on earnings season, surely one bad report is all it would take, but there aren’t any to review. Let’s take Boeing (NYSE: BA), for example, nearly up more than 150% since its March 2020 lows and is effectively leading the Dow Jones, imagine the price jump if someone actually ordered a plane…move over Amazon.
So aside from the insurmountable stimulus packages that are being delivered via the FED, what is causing the highest prices in the NASDAQ and the S&P 500’s recovery? Hope? Company innovation? Tech dependence at home? What are your thoughts?