Market Update: Maximum Stupid

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Argh…today’s update is hard to write with a cool head.

As the historic and unprecedented carnage wrought on the economy in both size and scale by covid-19 becomes clearer, the markets blithely march higher. Prices are simply completely disconnected to the reality of the situation.

Today’s case in point: the April unemployment rate was released this morning. 14.7%!

<img class=“aligncenter size-medium” src=“https://imageproxy.themaven.net/https%3A%2F%2Fimages.saymedia-content.com%2F.image%2FMTcyNDA0OTgwNDI5MzY2NjU5%2Fnonfarm-2020-05a.png?w=1240&q=20&h=868&auto=enhanced&fit=crop&crop=focalpoint&fp-x=0.5&fp-y=0.5&fp-z=1&fp-debug=false” alt="“April unemployment rate” width=“1240” height=“868” />

And we already know this number is far below reality. April’s rate only reflects 20 million jobs lost; the latest tally is over 33 million.

Minneapolis Federal Reserve President Neel Kashkari estimates the current true unemployment rate is closer to 24%(!!)

So, what’s the reaction of the markets to today’s worst-ever-by-far-in-history unemployment print? They rally, naturally:

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Since rebounding sharply from the March lows, the markets have re-entered a manic melt-up phase where no news is so terrible it can’t send prices higher.

The NASDAQ is green on the year now, for crying out loud. How is that even possible since, between then and now, GDP has fallen by 30%???

In an attempt to makes sense of these increasingly non-sensical markets, we’ve once again asked the lead partners at New Harbor Financial, Peak Prosperity’s endorsed financial advisor, for their latest perspective.

In the below video, we discuss the current melt-up, what history tells us comes next, and why seasoned successful investors like Warren Buffett and Paul Singer are currently selling stocks and buying gold:

Anyone interested in scheduling a free consultation and portfolio review with Mike and John can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

SCHEDULE YOUR FREE CONSULTATION

This is a companion discussion topic for the original entry at https://peakprosperity.com/market-update-maximum-stupid/

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We know the market is crazy and everyone who has resources is rushing to safe havens. But the market and the economy have little or nothing to do with each other at this point. If the point of PP is to counsel wealthy investors, then good job. If it has much or anything to do with the other 80-90% of us, maybe we can talk about the effect on the real economy and the majority of the world’s ‘other’ folks? If so, New Harbor aren’t the only voices we need to be hearing from. Thank you.

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I have suggested that as well. Below is an interesting podcast. Mr. Hanson suggests that for the President’s briefing ge includes:

  • Chairman of The Joint Chiefs
https://youtu.be/KqCudv-JQ2o  
4

Hi - this weekly update is one of my favorites! As someone planning on moving from the US to another country (Japan in my case), occasional analysis on other countries would be awesome. While many countries are experiencing similar dynamics, the ups and downs that affect the asset transaction decisions can happen at different timing, and that creates additional complexities to those planning on shifting assets from one form to another and cross borders & currencies at the same time. So any help navigating that would be super helpful. Thank you for all the great work!

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Rafa, it’s apropos you bring up Japan. Stocks are merely a place where people park their money, and in ZIRP conditions there is simply no other valid option for investing in something that creates wealth but profitable companies. Japan is the classic example here: print money to the moon, nobody cares. What they care about is wealth creation, and I’m not so sure the US couldn’t produce it’s current wealth using 1/3 of it’s labor force. GDP is a BS measurement for real wealth; books have been written on this. We simply don’t need the labor force to generate wealth anymore.
As the Fed(s) flood the market with free cash and ZIRP, this hidden inflation must drive stock or asset prices higher over time, and often with little warning, quickly followed by inflation. As someone once said: inflation is always and everywhere a monitory phenom. When this thing gets loose, I want to be in stocks, RE, or PM. There is no other safe place to park real wealth.
It really bothers me to read posts where the primary thesis that the author “knows” what the price of stocks “should” be. There are a million factors, and we don’t know half. So rather than pointing and shrieking, we are better off trying to learn from what the market is telling us. Because if we can’t predict what is happening ahead of time, we are the sucker at the poker table.

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I completely agree with the economic assessment from Mike, John and Adam. The market is way way way overpriced. However, it has been overpriced for the last ten year or so. And every time that serious problems appeared in the economy, the market price went up. It is not different now. Market participants have come to the realization that the FED and the government will prevent any financial collapse by infusing more currency into the system. If the market collapses, congressmen will lose their investments, rich people will suffer greatly, pension plans and 401k will go bust, etc, etc. So, they will choose to print. Stagflation will follow. This is (in my humble opinion) the only way out. By the way, stocks (particularly small cap stocks) did well in the 70s. Obviously, PM and other hard assets did much better.
 

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I don’t understand how stock could go down or drop precipitously if Fed is buying them and pumping up market. Wondering if someone could explain this to me? Thanks.

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Hello, great interview as usual. Please ask if it might be appropriate to start placing short positions at these bizarre valuations, including perhaps the use of leveraged ETF instruments.
(pulled off a double & a half with these on the first drop and started to purchase more ETF’s and short again last week)

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The market is way way way overpriced. However, it has been overpriced for the last ten year or so.
This is sort of an odd comment. We have been "overpriced" for a decade? How many years before "overpriced" becomes our new normal? Look, the Fed has been goosing the market since Greenspan at least; we are talking an investor's working lifetime here. And things change, too. The Dow dividend yield for select blue chips seems about right to me for ZIRP with an activist Fed. Sure it would be low for the 70-00, but with ZIRP and free money changes things. And based upon prices in 2010, stocks have not been overpriced, since they've gone up and up. We will know if they are overprice in the years ahead, but not today.
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It can be hard to act rational in an irrational market. Personally I stick to property where I can buy at a deep discount. It helps me sleep easier at night.

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COVID sounds so serious when the media lists the number of deaths. Why is not the same attention given to the number of deaths from unemployment. The numbers are available from previous research. I see, from the web, about 37000 deaths for each 1% increase in unemployment. Having lived in houses with someone out of work, This is easy for me to believe. One of several web sites is
https://tinyurl.com/ybg5lzd9

  • Arlen
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I would very much enjoy that as well. If the Fed can print to infinity, and buy equities using its proxies (Blackrock and all) just like the Japanese central bank has been doing for years buying ETF and what not, why would they let the stock market go down. I feel this issue is not very well covered by Adam in his videos. Anybody care to explain or share an educated point of view? We all agree the markets are completely disconnected from reality, but then again, they have been for much longer than anyone on this site would have thought possible. o, given the Fed’s infinite printing press, why can’t this go own for well… infinity?

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...why would they let the stock market go down. I feel this issue is not very well covered by Adam in his videos. Anybody care to explain or share an educated point of view? We all agree the markets are completely disconnected from reality, but then again, they have been for much longer than anyone on this site would have thought possible
Not everyone on this site! In 2009 I was horrified to watch the public response demanding bailouts & realized the rabble had taken over the Republic. The Fed would be forced to offer endless bailouts forever. So I went 25%-90% in stocks & have done this ever since. This what the Founders had so rightly feared, and how every democracy eventually implodes in a Tragedy of the Commons, with the unproductive sponging off the public and the good families no longer having children but rather importing immigrants for (slave) labor. That's what's going on now. But many forget is that the USA has tons of saved resources to plunder: lots of natural resources (coal, oil, nuclear, food), amazing military, gold. So we have a LOT of looting to do before the end. Probably an entire generation? If the USSR could last 70 years under communism, we certainly have some time. Hence, the Fed has room to pay off the corrupt elites and the unproductive rabble at the same time for a while. To stay on the sidelines of this party is insane, because inflation will eat us alive - look at health care, housing, or education costs. This inflation is not matched by the wages of anyone but the elite. This will get worse. And PM is no solution because it will likely be outlawed as it was in the '30s. So what this means for astute investors IMO is to stay in conservative, blue-chip stocks that pay dividends. These will be the very last to go. I avoid index funds, because they don't allow me to separate the garbage FANG from the quality money-making stocks. Also use stop-losses for insurance.

With all the doom & gloom it's also easy to forget that real wealth is still being created via technology today, and natural resources aren't the entire story of human wealth. Technology and intelligent simplicity has a lot to do with quality of life. As Cicero said, "If you have a garden and a library, you have everything you need".

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So according to you the market will keep powering higher?

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For my retirement portfolio, what percentage should I invest in precious metals at this time (I just retired recently) and what form should this investment take?

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So according to you the market will keep powering higher?
Probably, but who cares? Just use stop losses and get high dividend paying stocks that actually are worth the price in their own right. I think this is the "new normal" in ZIRP times, sort of like how banks used to pay decent interest with nobody thinking it odd. Today, you have to risk your money to make any money, and I think that's fair. One has to pay to play. But what isn't fair is the Fed engineered massive inflation in housing/healthcare/education and wage decline due to immigration...so we have to play. It does no good shaking my fist at the rain and pretending it's 1950. It's hard for people to grok the financial changes is our era, because we can't let go of the past. You may see the stock market going "higher and higher". I don't see it that way; I see healthcare/housing/stocks/food going higher and higher, processed foods replacing real foods and real food being unavoidable...and the stock market just matching this asset inflation. I may have doubled my NW the last decade but in reality I'm just treading water. YMMV.
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Always keep mine 10%. Physical, buried. By keeping it a set % I’m forced to sell when it’s high & buy when it’s low (sliver is great right now!) so it’s turned into quite an investment. The physical part is a PIA but I wouldn’t consider any other way, since to me it’s insurance.