Opinion

The Battle

Lots of proclamations and predictions out there. Lots of certitude expressed at a time of the greatest uncertainty. My take here: Everybody calm themselves on making predictions especially considering most never saw this crash coming and certainly not the event that triggered it.

Fact is humanity is now involved in a major battle. A health battle, an economic battle, a financial battle, and a monetary battle.

The odds are humanity will well survive all this and move on as it has done for thousands of years so no panic on that front. But reality is too that the long term ramifications of all this are totally unknown.

Hence the Wall Street Journal declaring a new bull market and the end of the bear market after a ferocious rally this week may well end up being pre-mature:

I’ll leave technical comments for my upcoming Weekend Video, but suffice to say this rally was very much technical based. We talked about it in advance in Month End Rally, we gave support levels to consider before the low in Fear and we gave the rally historical context in 1929 Redux, and tracked the rally’s progress in Monster Move.

That’s about as good as one can do in predicting anything in this unpredictable environment. And technicals help greatly in navigating this jungle.

But celebrations may be far too premature.

For one, the health battle is ongoing and has not yet reached its peak, nor is there any clarity on how this virus will behave not only in 2020 but beyond.

The economic battle is real and hard. Yesterday’s job claims, historic as they are, are not the end but the beginning:

A sudden shock to the system, the extent of which remain unclear. Yes hope it being temporary all you want, but we can’t know the long term ramifications yet.

So yes Congress did the right thing to intervene and is still in process of approving the biggest stimulus package in history dwarfing the stimulus packages of 2009:

This too is just the beginning. These measures will help in the short term, but will be meaningless for many who will face unemployment for longer than a month or two.

While these wounds will eventually heal the monetary battle will leave scars for years to come. The Fed’s balance sheet now slated to double to $9 trillion – $10 trillion. Helicopter money.

So yes, this too is just the beginning:

But the historical context being profoundly disturbing and best masked by veiled humor that brings tears to the eye:

I know nobody wants to deal with consequences now. We have to win this battle in the here and now. But I keep asking, where is this is all going, and what will the ultimate consequences be?

Don’t want to end on a downer but I am reminded of the great Johnny Cash cover of Hurt:

What have I become
My sweetest friend
Everyone I know goes away
In the end
And you could have it all
My empire of dirt
I will let you down
I will make you hurt

Oh and it is going to hurt. And the long term financial consequences will be dire. Already impossible to solve in the years preceding this crisis the structural problems have just become worse. Much, much worse. And nobody has any solutions to this. We will win the health battle, and we will overcome the economic battle in the near term and growth will reemerge, but the financial and monetary battles that are unfolding here may end up making our global financial system an empire of dirt and it’s going to hurt. We hurt ourselves.


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Categories: Opinion

26 replies »

  1. That Johnny Cash cover of Trent Reznor’s “Hurt” is just so amazingly powerful, but bleak and dark in its despair. So apropos of the situation here, the song is about heroin addiction and what it does to a person. The financial markets’ heroin, free money, has caused immeasurable pain, and has changed the robust economy into a drug addict.

  2. Sitting here looking at my retirement in cash and wondering if I’m supposed to just relent and join this idiot parade or watch inflation eat it all.

  3. Gold sir. GLDI is an auto covered call writing on GLD ETF that gives 12% a year last I checked (while limiting GLD upside of course)

  4. Sven, keeping it real. As a former accountant, I like your technical approach and not reaching for predictions in these uncertain times. Well I guess all times are uncertain aren’t they. I enjoyed your tweets as well are articles like this. Regards.

  5. Fact is humanity is now involved in a major battle. A health battle, an economic battle, a financial battle, and a monetary battle.

    ALL OF THE ABOVE BATTLES OBVIOUSLY HAVE SOMETHING IN COMMON:
    Each of the “battles” given are rooted in mans inability to govern himself.
    Each of the “battles” cannot be resolved until mans innate greed and propensity
    to dominate one another is overcome.
    We are involved in spiritual battle for the minds, heart, bodies, and souls of mankind.

    Until man’s fallen DNA is re-written with a higher “Spiritual DNA” nothing will change.
    Daniel https://knowingforyourself.com

    P.S. You wrote: “most never saw this crash coming and certainly not the event that triggered it.”
    I did…there were several ways (a biological epidemic was one) to know it was coming in one form or another.

  6. 1) this market was sooo overdue to correct. I saw the latest marketcap to gdp had nearly corrected to 100% from 160…in one month. Anything could have caused it. It was bound to happen…another ovservation…these extreme gdp to marketcap stretches occurred under Clinton in the 90’s and Obama in the 2010’s…and Trump just took it to a whole new level of silly.
    2) There is no getting around the destruction of currency that this reaction has created. You cannot flood the engine with this much fuel without leaving a mark. We cannot grow out of this mess. It is too much. If we could, we would have, but we haven’t…
    3) I wonder how painful this will be for the various defined benefit liabilities this will cause. I mean, the shutting down of the economy is starving the tax flow….AND debasing the currency. It has to hurt these obligation machines. Immediately.
    4) Who knows exactly how or why the virus started. The data in my state looks ridiculously suspect. We simply are not showing the cases or the deaths of anything remotely close to pandemic. We have high population concentration. We are not a particularly sheltered state, we were very late to close things down….so why only 11 deaths and only 300 cases to date? Makes no sense. (oregon)
    5) Thanks for your work!

  7. Re: “When debt can’t be paid back, money vanishes. Money isn’t capital, but it represents capital when it is functioning. When it isn’t functioning, it stops being money. Now the whole world realizes that the debt can’t be paid back, will never be paid back… and that’s the jig that’s up.”

    This is a feature of our monetary system. Money, whether in the form of currency or credit, is always created in an interest-bearing environment. So the monetary system and the underlying economy that it lubricates must either keep growing (to create the money needed to pay the interest) or crash. When it is growing, creditors earn interest. When it crashes, creditors seize assets. In all cases, creditors come out on top, in the first instance in a win-win environment, in the latter case in a zero-sum game.

    This system functions, in the end, to enable the creditor class to strip the wealth generated by the working classes for themselves. The fact that we allow this to continue is a sad commentary on both our intelligence and our courage as a people.

  8. Emotions drove this market into the stratosphere, and those very same emotions are now scarred will not heal in a few days, a few weeks, or even a few months no matter how quickly this virus goes away. People are going to change their habbits and purchases, in ways that none of us fully understand yet. I would guess that savings rate will increase at some point, as most know this virus will come back in the Fall of 2020, and we will be lucky to get a short window of reprieve over the Summer months.

    Speaking of emotions, having owned a product design company at one time in my life, it is not fair for the President to be slamming the ventilator efforts of GM (too slow, too much money, etc). Throwing up an assembly line and moving from cars to ventilators is a monumental task, one in which a stable genius should understand. Engineers are logical by nature, usually intelligent, and simply need more time to get everything into place and have a quality product that is going to help people, not fail and kill them instead. Very few undstands the degree of difficulty in designing and manufacturing all the materialistic things that 99.9% of the population takes for granted on a daily basis. Nobody gets into their car in the morning and praises “the engineers”…LOL, but they sure will complain if it doesn’t start…

    Folks be careful out there, control those emotions or someone else will control them for you. The Bill Ackmans of the world will wihip your emotions to death with “Hell on Earth” statements to turn $27 million into $2.6 Billion (fact), and then tell you a few days later to buy everything not nailed down. Fraud will be rampant, so it is refreshing to have someone like Sven who is a no bullshit, straight shooter (about 1-3% of the population from my experience). Thanks for the free market analysis Sven, and for being honest at a time in which many are playing people’s emotions to enhance their profits…

    Good luck with all your investments!

  9. ah – but did we not forget probably the BIGGEST battle – the CREDIBILITY battle….vs those who govern AND those who tell us what is truth?

  10. GOLD AND SILVER will be good for a short while,THEN when they bring in the micro-chip and the mark of the beast,, ALL YOUR GOLD AND SILVER will be worthless,IF your not one of the FAT,LAZY AND STUPID AMERICANS who understand chasing money will get you a free trip to hell,YOU’LL spend that money on something you can trade with..AMMO,it will be the NEW MONEY because very few will have any,and AMMO will be something everyone needs badly..REMEMBER YOU WERE WARNED whats coming,The BIBLE hasn’t been wrong yet….

  11. Sven,

    I have been suggesting via these forums for a few weeks that China has been lying about the virus deaths, with the data from Italy almost statistically confirming their lies this past week. China has a culture which does not frown upon lying to each other to prosper, which is very much human nature to be honest as we all lie 60-200 times a day from analysis, and those of us who do not lie enough are either seen as NOT politically correct and often times seen as too blunt and abrasive and/or “negative”. You are too blunt Sven, and that is why I read your analysis…you seem have difficulty lying, and that is rare. How you ever got onto CNBC being honest…perhaps for the shock factor? LOL

    So MSM questioning on the possible China lies have hit Bloomberg today (first major source as I have been searching for articles about China false death statistics for weeks):

    https://www.bloomberg.com/news/articles/2020-03-27/stacks-of-urns-in-wuhan-prompt-new-questions-of-virus-s-toll?srnd=premium

    So why would China lie? Because they can get people back to work quicker, look like they are leaders in the eyes of the world by stopping the virus better than anyone else, stop a possible revolt on the mishandling of the virus outbreak by angry citizens/labor slaves, be prepped to release a vaccine to the world and be our savior, etc. China propaganda central is going to use this pandemic to grab power both domestically and internationally. Logic dictates these actions as high probability outcomes. In summary, I would be careful via “Ackman’s new bull market” on China “recover statistics” alone…

    Good luck in all your investments!

  12. Hey Sven, free money ain’t what it used to be, lol. I stand convinced by your technicals, you and Mella have been calling this one as right as anyone could, take a bow.

    I found it hard to believe what markets did earlier this week, did they not comprehend how COVID-19 was going? Still, they were determined to make it to 2600 SPX – as you fortold – regardless of reality. I admit to failing to take full advantage of the ups but I’ve more than made up for that on the downs this last week.

    Back to the virus. In USA incidence is still ACCELERATING up, unlikely to peak within 3 weeks, and testing is still inadequate. Watched Cuomo’s briefing today, he’s a realist and doesn’t bullshit much. USA will be above 200,000 incidence in about a week, peak probably occurs with incidence above 500,000 let’s hope it declines fast thereafter, deaths peak about 2 weeks later than incidence, ultimate US deaths this phase 20,000 at best, could be much more if intensive care gets overloaded.

    Stocks best case in next 3 months: SPX 1800 holds.

    • USA incidence tops 100k, doubling in less than 3 days. It’s getting very horrid. I have insufficient data to know if increased testing (which is still inadequate) has significantly contributed to this acceleration or whether it’s due to increased transmission. Regardless, USA must lock down hard, now, just 24 hours delay could make things much worse; else the healthcare system will be overwhelmed and very many folks will die.

      USA has mishandled this so, so badly. Much worse than any other country so far.

  13. To see your entire portfolio vanish in a crash and then the stock market rise like it hasn’t for 90 years must be soul destroying even for the most diehard trader.

  14. Per CNBC: https://www.cnbc.com/2020/03/27/coronavirus-pandemic-could-inflict-long-lasting-emotional-trauma-ptsd.html

    “The scale of this outbreak as a traumatic event is almost beyond comprehension,” said Yuval Neria, the director of trauma and post-traumatic stress disorder at the New York State Psychiatric Institute and a professor of psychology at Columbia University Medical Center.

    Neria, seeking a precedent to point to, said that not even the Sept. 11, 2001, terrorist attacks or World War II were adequate comparisons, as the anxiety those events caused was at least limited by geography. In this case, he said, “there are no boundaries.”

  15. Per CNBC: https://www.cnbc.com/2020/03/27/coronavirus-pandemic-could-inflict-long-lasting-emotional-trauma-ptsd.html

    But estimates of a v-shaped recovery aren’t factoring in psychology, according to Peter Atwater, a behavioral economist at William & Mary who studies consumer decision-making.

    “You can open it up. But this is not a field of dreams. You can build it, but they might not come,” Atwater said. He predicted that as a result of the crisis, emotionally scarred consumers are likely to spend less and save more — a type of “Great Depression mindset.”

    “There were no skid marks — the car went straight the into the wall,” Atwater said. “That sense of vulnerability will be quite lasting.”

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