The more I read and observe the clearer the message: Nobody knows anything. And by that I mean nobody truly knows how any of this will turn out and I think this point needs to be driven home more clearly.
Tons of projections of this, that and the other. Just stop. I happen to think there are times to simply step back and not make grand predictions. For us that’s ok because we focus primarily on market technicals and that’s an ever evolving picture that offers us pivot points to decide when and where to get engaged in.
But on the macro? Give me a break. Nobody knows anything. Everybody is just guessing.
Exhibit A: GDP forecast for Q2:
Ok great. How’s that helping anyone in trying to value companies, cash flow, revenues, earnings? It doesn’t. -9% is a completely different planet than -40% and so is everything in between.
How does one qualify central bank and stimulus intervention? It changes every single day. Today the Fed cranked out an international repo program. Global central banks unite I guess. Also today Donald Trump tweeted about a $2 trillion infrastructure program. Who knows if it will happen. The Fed already increased its balance sheet by $1.3 trillion since the same time last year and may well be heading toward $9 or $10 trillion balance sheet position within a year. Last week they added $600B, basically all of QE2 in a week.
These are insane numbers thrown around, all on top of the $2.2 trillion stimulus package just passed. What’s the deficit going to be? I guess it depends on whether GDP drops by 40% or 9%.
Give me a break. How do you make any forecasts that have a predictive meaning whatsoever in this environment? Other than a lucky guess, the answer is nobody. Why? Because nobody knows anything.
Which is really no surprise because because nobody knew anything to begin with:
Crude to below $20
10 year to below 0.4%$SPX to below 2,200$VIX to 86
…had predicted nobody on Wall Street. Not even close.
So take all predictions with a huge grain of salt.
Never stop thinking for yourself.
— Sven Henrich (@NorthmanTrader) March 30, 2020
What are the long term consequences of $4-$5 trillion in Fed intervention and perhaps $4 trillion in fiscal stimulus (which is short hand for more debt)?
Nobody knows. The MMT crowd will tell you it won’t matter because debt doesn’t matter.
Well, we can all take a stab at a joke here:
By the time this crisis is over.
h/t @satoshidisco pic.twitter.com/LqnCHiSIoY
— Sven Henrich (@NorthmanTrader) March 31, 2020
What irks me more than anything is the hypocrisy of it all. Yes I could whine about politicians that once pretended to care about deficits but now no longer do, but that serves no purpose.
But the hypocrisy of Janet Yellen today is something else:
“We’ve dumped rates into the gutter for the past 11 years and now we’re complaining about too much corporate debt” – Fed geniuses. pic.twitter.com/N4VYzFQs8C
— Sven Henrich (@NorthmanTrader) March 31, 2020
Give me a break. For years the likes of me have been warning about the debt explosion and the consequences of which. And now one of the key enablers (may I even say architect) of the entire cheap money construct that enabled all this debt explosion in the first place is now warning about high levels of corporate debt being possibly a bad thing?
Too little, too late, and now they’re telling us all it’ll be fine. More debt. Yea, that’s the solution. It’s worked so well so far.
Coronavirus? Sure we can hope for the best and I, like everybody else, am hoping we will soon see the peak and it’s over by the summer and we can all recover. And while Italy and China and South Korea appear to be slowing the US, the UK and others have yet to reach their peak. And what does slowing really mean? That the virus is disappearing or just held at bay by our social distancing measures? If that’s the case then it may as well come back as soon as we relent on these measures. Do we have a cure? A vaccine? No, not yet. Yes we can hope for the best and that one will be developed, but but it may also not come in time for the next season, if this virus turns out to be seasonal. And if that’s case we get to do this all over again next year. But many will have immunity? Sure, if the virus doesn’t mutate.
Lots of unknowns, lost of uncertainties and lots of predictions. My view fwiw:
If half predict a strong and quick recovery and the other half predict doom and gloom we may just end up in an extended period of massive chop, uncertainty and wide price ranges.
— Sven Henrich (@NorthmanTrader) March 31, 2020
So treat all predictions by anybody with a huge grain of salt. Nobody knows anything.
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Well said, nobody knows! We do know one thing though, the FED can never reduce their balance sheet, and rates are at ZERO and not going anywhere up… This should be a doozy of an ending. I mean, how do you recover from this? We only have Japan as an example, but Japan was operating in a world that was still working, so they could feed off the rest of the world somewhat. Now the whole world is in the same place. So the question is, how do you recover, millions of jobs lost, and no way to improve financial conditions for those millions of people because corporations and many businesses are going bust due to their massive debt. Baby boomers are retiring and the work force shrinking.. this will be largely dictated by demographics, and it couldn’t have happened at a worst time probably. Debt bursting along with a virus and working population shrinkage. In my opinion, everything’s gonna flush down the toilet. I think the only way market might stay somewhat up is if gold goes to around $5000..
No, not buying it! We’re definately going lower. Do you really think that the worst has already been priced? When:
a) The Government isn’t offering stimulus, but RELIEF
b) Company earnings will virtually all be materially lower due to the economic stop
c) Buybacks finished
d) We are still within 25% of inflated ATHs!!
Goldman sees “Fastest Recovery in History”:
I think what the top 20% fail to recognize is the bottom 80% are going to be devastated both emotionally and financially with 2-6 months worth of job losses and having to endure this emotional panic driven environment without any real savings. Those in the top 20% simply can not relate and/or understand as this pandemic mostly affects their paper wealth, and they will not be at risk of loosing their homes, autos, health insurance, jobs, and future over the next 18 months. Perhaps the SP500 shots up to 4,000 in 18 months, yet there is a high probability that Main Street will not see the magical V-shaped “Fastest Recovery in History”. And if over the next few months Wall Street recovers due to bailiouts and Main Street falters, it is a high probability that the November 2020 elections will not turn out like Wall Street desires. At the very least, the (M)agic (M)oney (T)rain is coming…choo choo!
I have few doubts we are heading for total collapse. Yes Sven, the hypocrisy of these central bankers is amazing. Too bad that 99% of the population doesn’t have a clue about this…Ps I enjoy your humor a lot 🙂
I have few doubts we are heading for a total collapse. The debt system is gonna unravel. Yes Sven, it’s amazing to observe the hypocrisy of those central bankers….too bad 99¨% of the population is clueless about it. PS I nejoy your humor a lot Sven 🙂
I’m a buyer of the shiny precious at $750/oz. Deflation underway, lads.
Reasons why $750 will probably not happen
1) already there is no physical supply, try buying any.
2) suppliers can hike up the price, especially if it’s in demand, and contracts can’t be filled
3) if market goes down more, there will be even more demand
4) more FED printing scares more people into buying
5) There may be less good available, so prices will have to go up. A solar panel I bought a few months ago has doubled in prices already on Amazon.
Home prices fell in 08 while metals went up.
Just some ideas.. unlimited currency injections will surely scare anyone with big money. I’m surprised they’re not scared already.
Get busy living or get busy dying. It’s a slow motion train wreck for everybody. It’s getting worse day by day week by week. This lock-down will go down in History as one of the biggest blunders mankind ever did to himself. Every day above ground is a good day. That’s all we got left is to live day by day now. Hope for tomorrow is gone.
Going out tomorrow to do some yard work.
I understand the inclination to call Yellen hypocritical, but that would require that she understands that CB actions caused the bad corporate behavior. I honestly think she and most of her colleagues are clueless about the nature of incentives on borrowers, private and public alike. They certainly never admit to such understanding in public. Sure it seems like a fundamental aspect of economics, and one that every business person understands intuitively. But these model-pushers apparently don’t model incentives consistently. They understand that low rates will push investors out on the risk curve, but somehow can’t grok the effect of underpriced risk on borrowers.
That said, I do think Powell has understood the inherent problems from Day One. In spite of that, he folded like a broken lawn chair when faced with his first inevitable challenge in December 2018. That was an unforgivable error for anyone who knew the stakes. It was way past time for markets and the economy to take their medicine, yet it would have been much less damaging then. If Powell was coerced to fold, he should have instead resigned and publicly said why rather than comply to our collective peril.
I believe it is possible for a central bank to serve an important purpose of absorbing downside and upside shocks and in regulating banking. But that’s it; their mandate should not allow them to try to steer, support, or power the economy, nor for that matter to manage price inflation. They have repeatedly proven that they cause more harm than good in their central planning functions. Fool me once, …
Excellent analysis, Sin No Moar – agree, 100%!
I was reading a book called “The History of Inflation” by Karl Paarlberg and this moment feels like it could be another chapter in that book. Along with Scott Minerd talking about the Faustian deal with the devil.