Second quarter 2020 came and went like a California wildfire. The economic devastation caused by the government lockdowns was swift, the destruction immense, and the damage lasting. But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.
The Dow booked its best quarter in 33 years. The S&P 500 posted its best performance since 1998. And the NASDAQ had its biggest increase since 1999…jumping 38.85 percent in just three months.
The economy, on the other hand, was severely scorched. Decades of debt had built up like dead wood amongst a forest understory. Then, at the worst possible time, government lockdown orders sparked a match and set it ablaze.
The results were predictable to everyone but the experts. Supply chain disruptions followed by retail disruptions, followed by declining sales, followed by disappearing cash flow, followed by layoffs, followed by business closures, followed by shrinking tax receipts, followed by unserviceable public and private debt, followed by mass bankruptcies, followed by riots, followed by full societal breakdown. The economic wildfire raged through so fast most people don’t comprehend what has happened. Continue reading
[Editor’s Note: This edition of the Economic Prism was originally published on July 04, 2019, as Independence Day in America Circa 2019. The themes explored within are even more relevant today. So we’ve dusted it off, made several updates, and are republishing it. Enjoy!]
The days are long and hot in the Northern Hemisphere when real American patriots spit upon their hands and hoist the stars and stripes. On July 4, the free and brave, with duty and self-sacrifice, begrudgingly accept federal holiday pay to stand tall upon their own two feet. Rugged individualism and uncompromising independence are essential to their character.
With purpose and intent, they assemble as merry mobs along the shoreline to celebrate American Independence. Freedom lovers – descendants of Buffalo Bill – gather to eat hotdogs and pitch horseshoes while downing tipples of corn syrup and fermented grain. When the sun slips beyond the western horizon and the stars twinkle bright, they hoot and holler at the brilliance of fireworks and sparkling pyrotechnics. Continue reading
The lockdown of the economy by government order is proving to be a blunder of epic proportions. Coronavirus is still on the loose. Yet, as a result of the lockdown, the economy’s been destroyed.
Take the housing market, for instance. According to a report from Black Knight, 4.3 million U.S. borrowers were more than 30 days late on a mortgage payment in May. What’s more, over 8 percent of all U.S. mortgages were either past due or in foreclosure.
The succession is real simple. First, the economy was shut down by government order. Second, about 47 million people filed for unemployment claims over a 14-week period. Third, people stopped paying their mortgage.
Here in the ‘land of fruits and nuts’ the trend is also moving in the wrong direction. In May, 6.85 percent of California mortgages were estimated to be “non-current.” This troubled-loan category is composed of mortgages with missed payments plus those formally in the foreclosure process. Continue reading
One of the consequences of expansionary monetary intervention is that it distorts the relationship between financial markets and the underlying economy. Stimulus with the supposed intent of juicing the economy has the effect of juicing financial markets. Sometimes – like now – these inflationary policies have the effect of completely disconnecting the stock market from the economy.
Investing legend Jeremy Grantham is “amazed” at this unprecedented stock bubble. He recently told CNBC that investing in the U.S. stock market is “simply playing with fire.” And he’s right.
What’s more, when you follow the money back to its origin, you find the toxic emissions of the Federal Reserve. This bubble is the Fed’s creation. The central bank has been huffing and puffing it up for decades.
For example, when Alan Greenspan first executed the “Greenspan put” following the 1987 Black Monday crash, financial markets were well positioned for this centrally coordinated intervention. Interest rates, after peaking out in 1981, were still high. Continue reading