This article by Bill Blain was brought to my attention today, and it summarizes quite nicely just how disconnected the US Stock Market is vs the Corona Virus.
These two paragraphs say it perfectly:
I’m not a medical expert – but I’ve got the experience to spot an economic shock hitting markets. This is not speculation about a virus that might be slightly worse than the flu. This is about economic damage.
The fact stocks and bonds have pretty much discounted Covid19 has been the action of a market high to the rafters on bubbles, implausible valuations and the expectation central banks will do anything to support markets.
We're at a point where investors and traders believe unironically that printing money can do anything from solving climate disaster to containing a pandemic. Central Bankers themselves are behaving as though they believe this.
As Abraham Maslow famously said, "if all you have is a hammer, everything looks like a nail."
Well these days inflation is that hammer, and those sitting at the source of the inflation are so high on delusion that it's nearly contagious. Maybe they're right? Maybe it's a new paradigm and we're entering a new stage of world economics where perpetual motion is a real thing and demand is an antiquated notion.
Of course, you have to be dumb as a hammer to believe this.
As Jason over on WallStForMainSt discusses in this following video, and as I've argued here in the past too, we are sitting in the late 1920's all over again. It's not just the modern day equivalent of shoe-shine boys giving stock market advice that's a classic warning sign, but the fact that the global economy is moving into deep recession and possibly depression, and the US markets once again are being flooded with foreign investor money. As Jason points out, the Dow back then had a massive blow off top because of the flood of foreign money, and we're seeing the same thing happening now. Jason's remark that Trump may end up being like Herbert Hoover is pretty apt, considering the tariffs and all.
There's a lot to be concerned about. Before the Covid19 spread became public, the world was already on the tipping point of economic depression, but the crack smoking US Markets weren't paying much attention. Now that the official numbers coming out of China have been proven false about the spread of this virus, You would expect US Markets to react violently. But, they're not.
As Jason points out, the rest of the world is fleeing to US Markets and ironically pushing them up on the bad news, and the worse the news gets the more foreign investors flood into US Markets. This behavior mirrors the late 1920's before the great depression, and given how human nature is obligated to repeat stupid behavior, the end result is pretty much written in Stone. Bernie Sanders or someone equivalent will end up being the next Roosevelt, and even the staunchest conservatives in the US will likely welcome free food and government bailouts for the people when they realize they have nothing of monetary value left to be conservative about.
But, we won't know if this is the future until it happens. For now, the smart money is taking profits and the dumb money is being shoveled into the roaring furnace that is the US equity markets, and once the entire thing collapses the majority of the money put into US Stock markets will remain in the coffers of large corporations and the 1%, with the rest being used to buy up stocks once they bottom out.
Such is the way of the credit cycle. Thanks for dropping by.