I Believe in The Stupidity of The Stock Market
The comments below are an edited and abridged synopsis of an article by David Haggith
Haggith believes the stock market has become even stupider, so he’s investing in it.
“Why would I risk betting on stupid? Because stupid is a pretty safe bet right now. The only caveats to all of this for the next month or two will be if the flow of superficial good news from reopening causes the Fed and government to rapidly back down on the support the market is fully dependent on (unlikely) or if the coronavirus returns this summer with a vengeance due to reopening, instead of waiting until normal flu season (unpredictable but not too unlikely).”
“To keep all of this in perspective, realize that the economy’s steep climb from record job losses is just the completion of the first V in a W or in square-root symbol. If a square-root symbol, even that will ultimately fail… when we fall back off the other end.”
“Don’t mistake the shape of the stock market, which may well be a full V, for the shape of the economy; but do know that the market has always corrected back to the economy in the past, and the economy is in deep trouble. That is where the Fed is particularly dead. Even if it pumps up stocks, it can’t save the economy because its earlier recovery plans, which it is now replaying, created a lot of the economy’s trouble in the first place, and those plans have about run out of gas.”
“So, the market is stupid because it is actually betting on the V… I’m betting… that the reopening yields enough record good news to feed the delusion until the stimulus funding starts to dry up and the knock-on effects of the shutdown start to show up and the virus eventually returns or the repo crisis returns in full force.”
“The return of the coronavirus in full force could be extremely soon with so much social narrowing and mixing during the George Floyd protests that are taking us back into the Civil War, which have made it OK for Democrats to doff their masks and gather together in the thousands. Give that a 2-week gestation period.”
“While I try to surf the wave of peak stupidity in the belief that this month and, at least, part of next will provide plenty of surge to keep the wave going, I will be looking for the end of the reopening surge as the point to jump back off…”
“As for that repo crisis, now that the Fed is turning down the QE tap to a mere 50% higher flow than under QE3, the Repocalypse has already returned. The latest Fed overnight repo trade saw over a $100 billion in takers. Apparently 1.5x QE3 isn’t enough to keep markets liquid in Bozoland. It may be the bond market’s turn to go down before the stock market makes it next dive.”