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Yesterday the S&P crested 3,000 for the first instance since March 5.
The same S&P outdistanced its 200-day moving average — a “bullish” portent.
Yet its reach exceeded its grasp…
The bears, rousted and alarmed, launched an afternoon counterraid.
They threw the overextended and outweaponed index back beneath 3,000… which ended the day’s jousts at 2,991.
But as the chart men will remind you…
The S&P’s initial probe above the 200-day moving average rarely holds. The second assault often does.
Did today’s assault succeed where yesterday’s failed?
Yes Under covering fire from the Federal Reserve… it took the terrain.
For that fire is heavy. That fire is accurate. And that fire is sustained.
The S&P ended the day at 3,036.
The Fed’s “Bazooka” Is Responsible
Even JPMorgan head man Jamie Dimon concedes:
The Fed’s liquidity, bringing out the bazooka, is propping up stock prices (as well as all other asset classes).
Where the S&P would sit without “the bazooka” covering its advance… we do not know. But we hazard it would languish far beneath 3,000.
We further hazard the Dow Jones industrial average would average a great deal less than its present 25,548.
And so the reputation of the Wall Street man as a rugged and swashbuckling fellow, as a sort of daredevil carving his own way through constant peril… has died the death.
He is now perceived — justly in part — as a man on the dole, as a man on public relief.
The Federal Reserve clears his way. It bazookas all resistance. It mends his erring ways… and insures him against loss.
“Heads I Win, Tails You Lose”
The Wall Street man collects all his winnings in flush times.
Yet when a fate is against him, when he faces hardship… the Federal Reserve lifts his losses from his hands… and slips them into taxpayer pockets.
Thus he is perceived almost as a man in possession of stolen property.
He has certainly enjoyed a good steal… and he has certainly enjoyed a long steal.
“Heads, I win,” he seems to say to our hapless taxpayer. “Tails you lose.”
Is this justice?
Real Capitalism
We are heart and soul for the unchained capitalist system.
If a man speculates successfully in the combats of the free and open market, he has our loudest applause.
He confronts danger from all directions… and often sees off odds that would make us quail.
He earns his money. And the better he speculates the more he takes in.
If he fails, he fails in an honest system of profit and loss. He hangs upon his own hook. And he enters the business knowing it.
This is the way it should be. Alas, it is not the way it is.
Fake Capitalism
As much as we are heart and soul for the unchained capitalist system… we are heart and soul against the corrupted capitalist system…
That is, we are against the rigged deck, we are against the tilted game board, we are against the loaded die…
We are against thumbs on scales, we are against artificial winds at backs, we are against referees who pick sides.
That is, we are against the system that presently obtains.
That system has put Wall Street back in funds… or largely so. America’s billionaires — for example — have fattened $434 billion since March.
The bright-siders insist the stock market has come barreling back because the economy will come barreling back.
The market is merely “discounting the future,” they croon.
Yet we find ourselves severely at outs with this assessment. We gaze ahead and see a discount vastly reduced…
42% of Job Losses Could Be Permanent
Some 40 million Americans presently wither in unemployment, idled, hands in pockets.
Economist Nicholas Bloom — a Stanford man — estimates 42% of them may remain in unemployment.
Their jobs will never return.
We do not know if 42% will prove the correct figure. It appears precious high to our notion.
Yet we wager the true number will nonetheless reflect a calamity.
Even a 20% figure leaves 8 million Americans permanently idled.
Meantime, we learn today that Boeing is cutting out 12,000 positions. It further projects “several thousand remaining layoffs” in the months to come.
That is because it fears the airline industry will not recover for years.
We project the same for the travel industry in its entirety. And for other industries currently knocked flat…
Six Feet Apart Means Six Feet Under
How, for example, will the restaurants come back if they must choke the inflow of eaters?
Restaurants generally go along on the knife’s edge, on profit margins truly slender. Most cannot endure a diminished customer flow.
Six feet apart — to draw upon our co-founder Bill Bonner — means six feet under for the restaurant business.
We can think of two capital Baltimore restaurants that did a brisk trade. They were constantly thronged with patrons.
Yet we are informed that neither will reopen once the present siege lifts. They are permanently killed.
We are certain many more will follow.
And the restaurant industry, like the airline and travel industries, touches other industries.
Like a great ship sinking beneath the waves… when one goes under it tugs mightily upon those close by.
Extend the dilemma nationwide and you will find an economy in hard shape.
Where will the next batch of jobs originate?
Don’t Count on the Jobs Coming Home
Some believe millions of offshored jobs will come swimming home. That is because the virus has rubbed the shine off globalism.
We must produce essentials ourselves, they insist. Global supply chains are too fragile. Hacksaw one link and the entire chain is undone.
We cannot tie our fate to hostile China, for example. We must brew our own medicines and stitch our own surgical masks.
But the jobs originally jumped the ocean for this reason: Business costs were lower across the ocean.
Business costs remain lower across the ocean. And business costs will remain lower across the ocean.
Wages are often a slender fraction of American wages. Occupational safety regulations scarcely exist. Neither do environmental regulations.
China’s Losses Will Be Someone Else’s Gains
How many American businesses will repatriate operations if it places them at a competitive disadvantage?
Precious few, we hazard.
They may quit China (many already have due to rising labor costs).
But China’s losses would likely become Vietnam’s gains, or Malaysia’s gains, or Indonesia’s gains.
In brief… we do not expect millions of jobs to make the swim home.
The Fed’s Bazooka Did Nothing for the Economy
The Federal Reserve’s bazooka may give the stock market its cover. Yet for the economy overall… its bazooka has proven a mere pop gun, a spitball blaster, a shooter of blanks.
It has done little but load the economy with cheap debt. Much of it, unproductive debt.
Total United States debt eclipsed $75 trillion even before the virus blew in.
For a decade and more the economy hunched along, weighted down by this overloaded cargo of debt.
As we recently noted:
GDP growth did not attain 3% one year during this past decade. From 1996–2005 — conversely — GDP exceeded 3% seven years of the 10.
Meantime, even heavier debt loads are heaping down. The economy will squat even lower in the water.
It is an economy headed for the doldrums. We sincerely hope it can avoid the shoals…
Regards,
Brian Maher
Managing editor, The Daily Reckoning
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