Tuesday, April 07, 2020

We're all okay, until the day we're not

The surface shines, while the inside rots.

- Rise Against "Audience of One"

This accurately sums up many of my thoughts on the past decade in the US where excessive debt masked many fundamental flaws in our economy (and I'll take any chance to expose more people to the band Rise Against). 

Today was a very interesting day in the stock market as an overnight explosion higher (up 3.5-4%) took stocks from the initial technical level of 2660 for the S&P 500 straight up to their next stopping point 2750-2800.  However, a funny thing happened on the way to collecting your 10% rally in 24 hours - stocks felt the weight of gravity all day and drifted lower throughout the day.  There were two late attempts to rally stocks at 3:15 and 3:45 both of which failed and guess where the S&P 500 ended up after all of those moves.....2659.41 or basically still 2660.  It remains to be seen if this become a floor or ceiling for prices, but it is very evident people want to see good news and may be convinced to jump the gun on every bit of positive news about the virus.

For perspective, stocks remain about 10% higher today than they were 15 months ago but the economy has been shutdown for 3 weeks and 10 million Americans have already lost their jobs.  Soooo.....

Also, take a peek at this chart....

What this demonstrates is that earnings estimates are slowly starting to fall while stock prices have rebounded sharply (up 20-22%) in 2 weeks. 

Okay, everyone put on your 3rd grade math hats - when you combine a rising numerator (price) divided by a falling denominator (earnings) the resulting quotient Price/Earnings ratio is going to go up.  At noon today, we were back to near peak valuation of the stock market back in February.  My point to those looking to buy the bottom in stocks is that this denominator (earnings) is likely to keep falling sharply throughout the year.  Thus, you have to be comfortable that everyone is going to pay more for stocks later this year than they did at the stock market peak in February or you need to accept that prices may eventually be lower.
I don't think unemployment gets as bad as this prediction but even it is 17-20% it still would be historic.  You don't have to be a student of US history to know that the other years on this chart - 1932, 33, 34, 35, 37 and 38 were not great years for the US. Many of these jobs will immediately return but many will not and people need to be careful to not to assume that we will instantly return to February 2020 employment levels.

via CNBC and the Balance
I've been concerned with two second derivative impacts on our society as we deal with prolonged lock down - mental health and child welfare.

Many children live in homes that are not safe environments but the daily trip to school gives them a respite from these issues.  I imagine that social welfare agencies are being overrun by cases right now and with social distancing in place, I imagine case follow-up is a challenge.

Today, I saw this quote from a story in the indystar out of Indianapolis which is the first hard statistic I've seen that detail the mental strain that the lock down is placing on citizens.

"During the "lockdown" Indiana's 211 mental health hotline has gone from 1,000 calls a day to 25,000. This is only the tip of the iceberg of the lives and destruction we're supposed to pretend don't exist"

If you know someone that might need to talk to someone don't hesitate to reach out or maybe find a professional to check in on them.

via www.indystar.com
Stat of the Day:
The Fed's balance sheet expansion in just the past three weeks equals 2 full years of US military spending. 

via @NorthmanTrader
This is a staggering example of what small businesses are expecting from February to March 2020. This would be materially worse than any recession in the past 35 years.
via @KeithMcCullough
This NY Times article covers something that I believe may be our new normal - we may have to cycle through various periods of suppression and lifting travel restrictions and social interaction until a vaccine or immunity appears.  This means 12-18 months of opening and closing different parts of our society.  An outbreak in Florida - shut down Disney - or an outbreak in Boston maybe the marathon gets postponed and Patriot's day is cancelled.

"We must all prepare for several cycles of a "suppress and lift" policy — cycles during which restrictions are applied and relaxed in ways that can keep the pandemic under control but at an acceptable economic and social cost.'"

Daily Dose of Humor:
via @HenpeckedHal
"I don't care how poorly they do, I'm giving my kids straight A's cause I'm not repeating this @#$% again next year."

via @portmanteauface
"So far I’ve gained 20 pounds of pure muscle. It used to belong to pigs though, and something got lost in translation."

via @picklerudd
"My family crest is an Oreo being dunked in Nyquil"


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