Initial jobless claims for the week ending March 21, 2020, were a record 3.28 million.
That's 11.6 times the week before, when 281,000 claims were filed, and 4.72 times the previous record of 695,000 Americans seeking benefits way back in the week ending Oct. 2, 1982.
But that didn't stop the Dow Jones Industrial Average from soaring 1,351.62 points, or 6.38%, to 22,552.17 yesterday.
Is that crazy?
NO - and yes.
When you put this rally in context, it looks one way. But we cannot forget what's coming for us...
Initial jobless claims for the week ending March 21, 2020, were a record 3.28 million.
That's 11.6 times the week before, when 281,000 claims were filed, and 4.72 times the previous record of 695,000 Americans seeking benefits way back in the week ending Oct. 2, 1982.
But that didn't stop the Dow Jones Industrial Average from soaring 1,351.62 points, or 6.38%, to 22,552.17 yesterday.
Is that crazy?
NO - and yes.
When you put this rally in context, it looks one way. But we cannot forget what's coming for us...
Don't believe anyone who tries to tell you that "demand destruction" resulting from the impact of the novel coronavirus across U.S. and world economies isn't going to result in a global recession.
They don't know the facts.
In fact, President Trump recently declared a state of emergency and as the virus spreads to all 50 states in America and infection rates around the world increase, demand in the U.S. and globally isn't just going to decline, it's going to be destroyed.
If the coronavirus isn't corralled and eradicated in the next three months, the U.S. and world economies are headed for recession, according to economists.
And if the virus isn't contained and killed off and infection rates haven't leveled off in six months, depression becomes a possibility.
There are two separate demand effects to consider...
strong>Some major media outlets are trying to plant in your head that a "manufacturing recession" in the United States will sink the economy and the stock market.
A New York Times headline from this summer pushed the idea that a manufacturing recession will infect the economy: "U.S. Manufacturing Slowed in August in Latest Sign of Economic Weakness."
The Los Angeles Times got on board shortly after, in October: "Manufacturing Is Now Officially in Recession, Despite Trump's Vow to Boost Economy."
CBS then upped the fearmongering, confirming the manufacturing recession as a fact and making it sound viral: "U.S. Manufacturing Is in a Recession. What Does That Mean for the Rest of the Country?"
The problem is that it's all fake news. It's another narrative created by the media to scare you. Believing it can distract you from what's really going on - and stop you from making money.
I entered the corridors of Wall Street as a twentysomething greenhorn in the late 1990s.
I had a mentor at a big hedge fund on Lexington Avenue, who told me if you can't explain even the most complex markets with "a few graphs and a crayon," then you aren't serving your clients.
Most of our clients, many of whom made their fortunes outside of the trading pits, didn't have the time or patience to be impressed by financial "Masters of the Universe"-types spewing out fancy acronyms and bragging about the latest "arbitrage play" in some asset-backed security packaged by a Big Six bank.
Instead, clients wanted to see the big picture, the current picture, to better understand the probabilities of the future picture in common-sense clarity.
Such blunt speak appeals to instinct and sanity.
More importantly, it can mean the difference between keeping and growing your wealth in the worst of times, or losing everything.
And because every investor - not just the ultra-high net worth folks - deserves that same respect and that same actionable moneymaking, capital-preserving intelligence, I've gathered up some charts that show "with a few graphs and some crayon," the sheer size and full financial impact of what's about to happen here.
Make no mistake: The pros I know from my days managing money on Wall Street know this is coming.
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The financial news networks have their hands full.
That's why today, I want to talk to you about something they're missing...
You see, the buyback corner of the market has been serving up record-breaking numbers lately.
Now, I know that "buybacks" may not sound like the most exciting thing in the news right now – but the truth is, they're extremely important for the overall market.
And this could be the one catalyst we're looking for to rally the market higher.
I'm hoping to heck that the recent bone-jarring losses in the stock market aren't hurting you! If you have followed my advice, you're sitting pretty. While all about you are losing their heads amid the noise and strife, you took your money home and let it hug you.
If you haven't taken my advice, but you've been in the market for the better part of the past nine years, there's still time to harvest the massive gains that you've accrued. Then you can rest easy through the difficult times that lie ahead.
In light of the Fed's actions Wednesday and Fed Chair Jerome Powell's words at his press conference, the overwhelming weight of the evidence continues to show that capital preservation is the name of the game.
As we've been over many times, it's not about rates. The arguments about the Fed's pace of rate increases are pointless. This is about the shrinking supply of money in the system versus the increasing demand for it. When money is in short supply, investors liquidate assets to raise cash. The Fed has made sure that money is in short supply, and has made clear that it is not about to deviate from its course.
Monday was a terrible day in the stock market. The S&P 500 had a new closing low for the year. It briefly touched a new intraday low. In my book, this is a bear market, despite the media nonsense that it's only a bear market if it's down 20%. By the time the market averages are down that much, many mutual funds and individual stocks will be down more. Would you want to sit through that?
I hope that you followed my advice earlier in the year and took your money home and let it hug you while everyone else was feeling the pain. If you have, great!
I'd accept these gifts gratefully and take advantage to lighten up big time. Bear markets typically last 18 to 30 months, and this one is just starting. I see no reason why it might be more benign than is typical.
If you're lonely, in dire need of a lunch date, or just happen to have a few million dollars lying around, you could try your luck at scoring the most successful investor in history.
The "Have Lunch with Warren Buffett" auction happens once per year, and the most recent winning bid reached as high as $3.3 million when all was said and done. Instead of being a meaningless opportunity for rich people to throw money around, the auction raises money for GLIDE, the favorite charity of Buffet's late wife, which is geared toward serving San Francisco's homeless population.
Some pretty cool things have happened to those who bid up for the meal. Ted Weschler, for example, paid about $5.3 million total to win the auction two years in a row. He now picks stocks and manages over $10 billion at Berkshire Hathaway Inc.
I have to admit it would be cool to have lunch with Warren Buffett. I would even pick up the tab for his signature steak and hash browns at Smith & Wollensky, or any other steakhouse of his choosing.
But while GLIDE may be a great cause, it could never inspire me enough to pony up the kind of money these rich Buffettologists are paying just to say they had lunch with their idol.
Yes, Warren Buffett is still the most successful investor and businessman in American history. He and right-hand man Charlie Munger have transformed Berkshire from an investment firm into an enormous collection of businesses. Very few people on the planet could make that transition with the same level of success.
Although I won't shell out $3 million to share a steak lunch, I've long been brewing over many questions I'd ask him if I had the chance.
They concern issues that the Oracle of Omaha needs to get straight, for the sake of individual investors like us.
And honestly, three of them in particular may come off as a bit crass...
It's been a whirlwind of a few months.
I'll be honest: I am not comfortable with this market. Last Monday, the Dow swung more than 1,500 points in one day.
From the month of October, the Dow has swung more than 11,000 points. That's a 41% swing from the top to the bottom. That is a staggering amount of volatility, and I don't think the market is done yet.
That being said, I've received tons of questions from my readers about everything from the role of high-frequency trading (HFT) to what I think about Warren Buffett's bullish stance on the banking sector.
I'm always interested in hearing your feedback, and if you didn't get a chance to ask me something before this issue, you can send me an email here.
Here's what inquiring minds want to know...
When most of us think about inflation, we think of the prices of the things we buy regularly. The government supposedly measures that in the CPI – the Consumer Price Index.
I think that, intuitively, most of us experience a higher level of inflation than the government reports.
There's a reason for that. The government doesn't measure inflation – at least, not as it's classically defined. The classical definition is a rise in the "general" level of prices. That should include all things that are bought and sold – that have prices.
The CPI doesn't do that. It measures a narrowly defined and statistically manipulated basket of consumption goods and services. And the government does its best to suppress the inflation rate of those items. That's because the CPI was never intended to measure a rise in the general level of prices. It was intended as a means for indexing the cost of labor contracts and government contracts in eras of high inflation.
Given that purpose, government statisticians have habitually looked for ways to get these numbers to understate actual inflation. They use hedonics to substitute lower-priced goods for higher-priced goods when prices are rising because, in theory, consumers will make that switch. But if we wanted to measure general inflation accurately, wouldn't we survey the prices of the same goods over time?
Then there's the biggest trick of all...
As grade-school students, we were taught that the Earth's crust sits upon a series of tectonic plates which float independently on the Earth's mantle. The boundaries of these tectonic plates, called faults, are where most of our planet's seismic activity takes place.
Perhaps the most famous fault line in the world is the San Andreas Fault in California. It's classified as a transform fault, meaning the two tectonic plates are grinding past one another in opposite directions. When the plates shift, a large amount of rock-mass displacement releases an incredible amount of energy, which we experience on the surface in the form of earthquakes. While not nearly as earth-shattering as convergent faults (tectonic plates that collide), the people of southern California will tell you that when those plates grind against one another, the resulting earthquakes can be incredibly jolting.
With the market reversing course seemingly with every new headline, we've been experiencing our own kind of seismic activity recently. A series of external market events, both positive and negative, have created a fault line straight down Wall Street. As a result, investors have felt the shock waves – in fact, recent charts of the broader markets have looked a lot like a seismograph reading.
However, the 210-point trading range in the S&P 500 is still intact...
The Wall Street–captured financial "news" media blasted us with the usual misinformation in the wake of last Friday's nonfarm payrolls report. The big guns of financial infomercialism touted the notion that the reported gain of 155,000 jobs in November "missed" economists' expectations. The consensus guesstimate was for a gain of 198,000.
Here's how a CNBC headline put it: "Job growth falls short of expectations in November: 155,000 payrolls created vs 198,000 estimate."
"Markets have high expectations for a December rate hike, but a slowdown in hiring in November appears to give Fed officials some room to slow down their hiking path next year," the outlet reported.
In the meantime, we can look at the actual data right now, make a few comparisons with years past, draw a few lines, and see reality as it currently exists without waiting five years for the seasonal adjustment process to be completed. Of course, that was the seasonally "adjusted" number, which as often as not bears no resemblance to what actually happened. The seasonally fudged number is subject to two monthly revisions, and five annual revisions thereafter as the statisticians fit the abstraction to reality over the next five years.
Withholding tax collections soared in the second half of November after a very weak start. Is the surge an anomaly, or is it a sign of a final explosive blowoff in the U.S. economy? Maybe it's both. We'll need to watch the data in the next few weeks to see how quickly this surge dissipates. They always do.
Over the years I've been tracking withholding tax collections, I have noticed that just as J.P. Morgan said about stock prices, "tax collections will fluctuate." There's a regular cycle of increases and decreases that typically runs two to four months. The surge that we just had is much larger than normal, but typical time wise. The next pullback is due to start any day now.
Now, you may be wondering what these withholding taxes tell us about today's employment report, coming soon to a TV screen or web browser near you. Unfortunately, there are too many conflicting signals in the data to draw conclusions about the November jobs report.
With apologies to Hall and Oates, it doesn't really matter anyway. You can rely on the Fed's less money, you can rely on the less Fed's money.
Today we are going to talk about the Federal Reserve.
While I am aware that a certain percentage of you have now clenched your fists in rage and are mumbling about the vast global conspiracy, the Illuminati, and the trilateral commission, and another segment of you are yelling about gold standards and the evils of fiat currency, let's table all those conversations for another day.
The Federal Reserve may not be the best way to manage our nation's money supply, but it's what we have and what we will have for a very long time to come.
Whatever you think of the Fed and their policies, you cannot debate this one thing: When it comes to collecting and distributing economic information, they are unsurpassed by anything on the planet. They have tremendous resources, and they do not hesitate to share all that data with taxpayers.
I pay very close attention to reports from the Fed for the simple reason that they have more data than anyone else. Reading the Beige Book and other informative releases from the central bank gives a much better picture of the U.S. economy than all the talking heads and pen-wielding experts combined.
We can listen to the chorus of doom and gloom or the cheerleaders who predict easy money and vast fortunes ahead, or we can pay attention to what the actual data is telling us.
The data is giving us a crystal clear overview of how banks, as well as individual and business loans, are faring.
Bull market tops are long, drawn out processes, often lasting 18 months, give or take. But they are predictable. They happen when the central bank decides that enough is enough.
I warned in 2017 that when the Fed started talking about balance sheet reduction, the process of ending the bull market and beginning a bear market would be at hand. Indeed, the Fedheads started discussing it publicly that summer, and in September, they made it official. They began balance sheet "normalization" in October of that year.
What that meant, in short, was that the Fed would begin to – literally – pull money out of the banking system and extinguish it, month by month. The Fed published a schedule of reductions that would ratchet up from $10 billion per month in October 2017 to $50 billion per month in October 2018.
Under Quantitative Easing, which was supposed to be an emergency program to prop up the financial system as it was collapsing during the 2007–2009 crisis, the Fed bought U.S. Treasury bills, notes, and bonds, and mortgage-backed securities directly from Primary Dealers. The Fed ballooned its total assets in its System Open Market Account from $800 billion to an insane $4.5 trillion.
That "emergency" program turned into a long-running scheme to inflate bubbles in the stock and bond markets. It lasted from late 2008 until late 2014. The Fed then undertook a program of rolling over its Treasury holdings and buying just enough MBS to keep its total assets at that inflated level.
The Fed got what it wanted: massive asset bubbles in stocks and bonds, plus an echo bubble in U.S. housing prices.
It decided that enough was enough in September 2017 and announced its program to "normalize" both the size of its balance sheet and the level of interest rates. "Normalize" was just a euphemism for shrinking the balance sheet.
I saw that as the death knell for the bull market. And now it's playing out.
