Sunday, April 12, 2020

The price of your greed

Is your son or your daughter
('s future tax payments)
What you going to do
When there's blood in the water.

Grandson - "Blood//Water"
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So much to cover tonight but I had to start with an ode to one of the many artists we missed in concert over the past month - check out Grandson on Spotify.

I don't typically do this but if you have 9 minutes take it to read this blog post in full.  It speaks to the concerted effort that is going to take place to make us all forget this period of time and the colossal way we screwed up as a nation.

Here's the link.

"And so the onslaught is coming. Get ready, my friends. What is about to be unleashed on American society will be the greatest campaign ever created to get you to feel normal again. It will come from brands, it will come from government, it will even come from each other, and it will come from the left and from the right. We will do anything, spend anything, believe anything, just so we can take away how horribly uncomfortable all of this feels."

I noticed this effort this weekend listening to sports radio of all places.  The ex-jocks who normally talk about 40 yard dash times were suddenly infectious disease experts and they took call after call from people around the nation decrying our nation's pause to slow spread of COVID19.  This is how the propaganda machine will ramp up.  You can't fight it but you can be aware of it.

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Markets and Bailouts, oh my
If you can remember all of the way back to Thursday, markets were mixed on the initial reports of just another 6 million Americans losing their jobs last week. However, in a totally unrelated move, at the exact moment that the 4th straight record number of job losses was released the Fed announced ANOTHER bailout package of $2.3 trillion for the bond market and stocks took off.  They opened up 1.5% and that's about where they ended the day.  This is an interesting point for the markets, the chart readers tell us there's maybe another 5% upside if they can keep the global liquidity onslaught coming.  However, the weight of gravity on the markets is growing and there was evidence late last week of some large participants setting up for the next move down. 

On the one hand you have an economy in complete free fall and on the other hand you have governments doing everything in their power to save the banks and the markets at your expense. 

Just a final note on Thursday's bailout of the bond market.  What has happened over the last 5 years is that corporations issued debt (bonds) to buy their stock - this reduced the number of shares outstanding and pushed up stock prices - which doesn't really make a company more valuable but it helps reward executives who are paid in stock.  Now the Fed is going to buy the bonds of these companies (possibly in violation of the law) to save these companies that made terrible financial decisions and the reward their executives.

*** Hang on for the math: 
1. Company A has 100 shares outstanding and a price per share of $10 - they are worth $1,000. 
2. They borrow $100 and use that to buy their stock (they buy 10 shares at $10).
3. The company's value should adjust for the debt (but the market never does).
4. Instead people assume a value of $1,000, but now there are only 90 shares - the new price is $11.11/share. If your bonus was based on the stock going above $10.50 you are getting a fat bonus!

Oh, you still have to pay back that pesky $100 you borrowed but NOW the Fed is going to swoop in and save the day.

The goal is to lift asset prices and hope that the wealth effect trickles down to the rest of the economy.  The best investment of 2020 might be buying discount  Occupy Wall Street shirts because I think this is going to have a huge resurgence.

Shut up and enjoy your $1200.

Oh and on the subject of stimulus - note that despite our stimulus dwarfing any other package around the world by about 10-20x remember that the bulk of the money is going to corporations - who Mitt Romney called "people" - not to you.

via @nathanlerner
Stimulus packages around the world:

UK: 80% of workers' salaries
Denmark: 75% of workers' salaries
S Korea: 70% of workers' salaries
Netherlands: 90% of workers' salaries
Canada: $2k per month
Australia: $1k per month

US: One time $1200 check that may take months to arrive

via @NorthmanTrader
"Where in this chart do you see evidence of the greatest economic crisis of our lifetimes? A recession with millions unemployed?
I submit: You don't. Not at all.
Nothing's been priced in."

That little tiny dip at the end of this chart - that's reflective of your 17 million jobs lost. 

Image

A 1931 (there's that year again...) cartoon by John Baer called "Recovery Package" seems appropriate 90 years later.

Image

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Forecast of the Day: 

Not my forecast but understand the parallels - I've argued that the US is continuing it's slow motion train crash and morphing into a Japanese style economy (slowing growth, aging population, insane debt levels, insane government intervention).  Well, that's sped up in the past 3 months and as someone pointed out that if it's the case, the Dow has a 30 year forward range of 7,500-15,000 (it closed at 23,500 on Thursday). 

I struggle with how that could be reality because it would bankrupt every major pension in the US but hey, the Fed could just add another $30 Trillion to bail them out to I suppose :/
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If you didn't see the line of cars at the San Antonio food bank this weekend go ahead and click to see the sobering photo.
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Daily Dose of Humor:

via @Mommajessiec
I’m bored, but not figure-out-what-tiktok-is-bored.

via @henpeckedhal
At what point does it stop being a nap and start being Sleep Part II?

via @elademonio
I don't need friends, I need a private island filled with dogs and donuts.

Cheers!

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