Market Analysis

Straight Talk #5

In this week’s edition of Straight Talk Guy Adami, Dan Nathan and I are diving into the surprising jobs report, the hot topics of the widening wealth gap and social unrest, the Fed’s role in all of it, the implications of the widening rift on our society, the risks of a building record rift between asset prices and the real economy and we also offer a heartfelt discussion of the reasons of why we do what we do, offer our often contrarian and critical opinions.

Markets closed the week at a red flag screaming 151% market cap to GDP. There is no history, none, that shows valuations above 150% market cap to GDP are sustainable. None.

But this is what you get when you have a market that treats a phase one trade deal as something better than the trade volumes that were in place before the trade war ever started. This is what you get when a market treats phase one Covid vaccine trials as an actual vaccine already in place. This is what you get when a market prices in a perceived uptick in employment from a total collapse as an economy already having returned to full employment. This is what you get when a market perceives the injection of trillions of dollars as a substitute for actual growth in the economy.

This is what you get:

A financial asset bubble the likes we have never seen before. Asset bubbles happen at the end of a business cycle. Now we have one with nothing, absolutely nothing, on a extended proven growth path and the global economy still in a recession.

What bubble do we have in store for when the economy actually emerges from the recession?

Fact is the China US relation is frayed, the phase one trade deal in shambles in terms of actual volumes. There is no vaccine and while we’ve had a slowing of infections of wave 1 of the virus it is still ravaging in places such as Brazil and Mexico and back on the uptick in countries that have reopened their economies. The jury is still out.

And employment?

Companies continue to make layoff announcements and more are to come.

There is little doubt the trillions in liquidity injections by the Fed and other central banks have juiced asset prices to levels that pretend to convey that nothing has happened.
New all time highs on the Nasdaq in the most vertical and aggressive “V” shaped rally ever.

$SPX back to levels last seen during the fleeting January 2020 lows when GDP growth was expected to be 2%, earnings growth deemed to be 5%-8% and unemployment at 3.5%.
Markets pretend that nothing’s happened and things are back to normal:

But they aren’t. Far from it, but that’s the illusion purposefully propagated by central banks. Millions unemployed with permanent job losses on the horizon but American billionaires having increased their wealth by $565B since March 18. This is America.

George Carlin once said: When you are born to this world you get a free ticket to the freak show and if you are born in America you get a front seat. Welcome to the freak show that works for fewer and fewer people.

No, the market is not forward looking its blindly chasing liquidity and by doing so has blindly gone vertical and embraced an, in my view, unsustainable path of historical valuations overly reliant on overnight unfilled gaps:

A path that keeps building risks of future gap fills to come, especially in context of ever tightening price patterns not only on the market charts, but also the $VIX:

The building disconnects and the societal rifts are subjects dear to our hearts. For out latest perspectives please join please join Guy Adami, Dan Nathan and I in this week’s edition of Straight Talk:

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34 replies »

  1. Sven’s comments is an accurate synopsis of what has been, and continues, to take place in the markets……dangerous times! Really enjoyed listening to and watching episode #5. I look forward to it each week so I hope you continue.

  2. Really hope you’ll keep on posting these candid conversations, especially for the sake of retail investors who can benefit the most from straight talk. Your conversations call to mind this nugget of wisdom: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” – Arthur Schopenhauer

  3. Hi Sven,

    I’d really like you three (musketeers?) to attack the two major underlying false premises:
    1) The lockdowns were necessary.
    2) The Fed stimulus — as it was executed — was necessary.

    Regarding the first, preventative measures such as masks, distancing, nursing home lockdowns, etc. could have been implemented uniformly without shutting down most of the economy. The distinctions between essential and non-essential were arbitrary and regular personal exposure within the former (especially supermarkets) negated any possible benefit from the denying the latter.

    The second is at least in part a consequence of the first. Assuming a downturn regardless, any Fed printing should’ve been directed straight to the public… and then let their spending determine which businesses survive.

    Both the lockdowns and the nature of the stimulus were ultimately political decisions driven more by political agendas than public benefit, IMHO. The banquet of consequences will go far beyond what those short-sighted politicians ever imagined.

  4. Have enjoyed the last five discussions. While all of you are of similar perspective, like the fact that you at least try to devil’s advocate.
    Couple of topics you might consider:
    1) impact of decreasing support to current US administration – what additional false support can be brought to bear thru the election (manipulated US economic data (ala unemployment really “3 points” higher) that creates additional economic turmoil;
    2) impact of Biden election; and
    3) impact of constitutional crisis that somehow enables martial law.

    Granted this is a pessimistic series of topics, but all seem possible.

  5. Thank you Sven, Guy, Dan. Excellent discussion. Appreciate all of the insights, including the devil’s advocate arguments.
    I am one of those who believe the system is rigged – trillions have been created out of thin air to create a stock market illusion of success. Paying back these trillions will fall on the heads of future generations, people who haven’t even been born yet.
    As Sven has stated accurately, we have just witnessed the first massive financial asset bubble inside of a recession.
    Question is how long can this ruse go on? What will this ruse cost through the summer? More trillions?
    I’ve been following Sven for a year now. Learned a lot. Wish I’d started reading his analyses sooner, I would have made better decisions…

  6. “If they didn’t do what they did… things could be a lot worse right now.”

    I agree with them stepping in, but did they have to juice the market to new all time highs amidst economic ruin? And it’s “exacerbating” not “exasperating”. Potato nose.

  7. “If they didn’t do what they did… things could be a lot worse right now.”

    I agree with them stepping in, but did they have to juice the market to new all time highs amidst economic ruin? And it’s “exacerbating” not “exasperating”. Potato nose.

  8. “ what wiseman do early fools do late “ my compliments for your objective perspective on economics, political, financial and social issues. This country is plagued with financial paralysis ..
    “ brilliant money makes money 💰 off smart & stupid money 💴

  9. My macro view- I think the socio/economic/political enclave that is WashingtonDC/Wall St/central banks etc., have so consolidated their power that anything that is outside of their immediate sphere no longer has any relevance to them. The financial bailout of their friends is simply de rigueur as is the Fed keeping the equity markets afloat. It will take a major catastrophe to penetrate that echo chamber and as we have already seen nothing thus far has even put a dent in it. You can bet there will be a quantum change in the economic and financial pain level coming down the pike. It is only a question of when.

  10. Zzzzzz……same old bear thesis story from the 3 musketeers. They can continue to rant amongst themselves while SPX stares at 4,000 in the not too distant future.

    • The future is unknowable. Neither you nor the 3 musketeers know whether S&P 500 will see 2200 before 3600. For now, I anticipate a 200-300 point pullback over next 3 weeks and I positioned for it at the close on Friday. Focus on your own game — cockiness will get you broke in this game.

  11. Thank you..great insights this week. Appreciate your discussions on why you all are doing this.

  12. Well investors I have invested in closed end Nuveen Tax Free monthly dividends since 1987 the interest payments are ( escrowed ) before the municipal paper is issued hahahahahahahaha until maturity… never invest in ( unsecured corporate debt ) Senior Subordinated means ( you will lose everything ) it’s garbage 🗑 isn’t worth toilet paper 🧻 to wipe your ass

  13. Great conversation from three terrifically talented, intelligent, and compassionate men. Please keep on talking. Your thoughtful well-reasoned commentary is greatly appreciated!

  14. Frankly, Jerome Powell is a private equity guy to serve his masters (The Donald, Wall St and the 1%ers). May 2021 is what I am looking at for the beginning of the monster crash. Where price is at that point, no one knows at this point. The higher price is, the bigger the crash will be.

  15. Yes, yes, and yes. But then again this is what many were saying since 2010. In a completely ‘financialized’ market, should we expect anything different at this point? If you trade what’s in front of you, nothing should surprise you that much.

  16. Guys please dont feel bad speaking the truth. Everyday my mouth is one the floor looking at the pre market at airlines and hotel stocks keep going up for no reason. The market in general to blow up like this going up is just CRAZY. I am happy to see i am not the only one in this world thinking the same way. I really like the way a lot of truth is spoken here in this video. The FED will be the end to this PONY SHOW. Great video guys PLEASE do not Stop this helps me a great deal to understand this crazy rise in the markets.

  17. Sorry for the Misspelling, Just a little overwhelmed this week in the rise of the SP500 and the jobs numbers. I Just cant stand the market manipulation taken place here. Now what??? SP500 at 3400 plus?? Where the Hell are we going with this. The Pumping money in at this crazy rate does not help. I am trying to figure this market out and to no end its driving me bonkers. Well, I guess the damage will soon show its head that the Fed caused. Best of luck to all here.

  18. It is not actually the first massive bubble in the midst of a recession. Note that the stock market increase 50% from Nov 1929 to March 1930 (after the market crash) and then the Great Depression followed.

  19. All we can do is get most of our money out and stay out. These markets are so manipulated and broken. It won’t take long for the breakdown to begin again. Yes, the markets are artificially pumped up too high by the Fed. Yes, the markets are all being manipulated by the Fed. Yes, a re-test of the March 2020 low is coming. Yes, Covid-19 will accelerate this autumn, second wave, and may even be deadlier than it’s initial introduction into this world. No, there will never be a successful Corona virus vaccine…………..because there has never been a successful corona virus vaccine in human history. Yes, Covid-19 will be with us on this earth forever just like Mers, Sars, super bugs etc…..The air is the air and there is nothing that can be done about it. Get busy living or get busy dying is all any of us can do. Throw away your fear everybody and know that every day above ground is a good day! One day at a time is all we really have…………accept Christ and your mortality and live what you have left and always remember that God is still in control.

  20. Great conversation. Thx!

    Not sure if a 2nd wave of COVID-19 occurs in the winter that leads to a 2nd lockdown, but definitely possible. Mr. Market does anticipate a strong rebond in the real economy and the underlying earnings or have we entered the crack-up boom? Commodities do not indicate such a boom yet.

  21. Great commentary and great video.
    I am on the same frustrated page as you all regarding the absolutely unwarranted rise in the markets–no connection whatsoever to reality. When talking heads on CNBC say “the markets have nothing to do with the economy” and the markets are forward looking and we are looking out 6 months and the economy will be booming then, it makes me, a semi-educated person, feel both dumb and smart at the same time (ie do I know anything vs how can someone make such riidiculous statements)
    A few points
    1. Jerome Powell saying he takes no responsibility for the explosion in the weatth/income gap is completely insane. He knows exactly the what the net result of his actions will be–with respect to equity prices. Just like our other leaders, if things go well, he will take credit, but this negative affect is someone else’s problem (not caused by him or related to him in any way)
    2. PPP loans–If 50% of the workforce is employed by small businesses, why was this program –designed to “save” small business — funded at a fraction of all the other programs . This program was $ 600 BILLION vs the other programs in the multiple TRILLIOINS. The program, started 2+ months ago, is still changing. Small businesses need to make decisions just to survive and they keep changing the rule book. Someone who got the funds in the 1st tranche and spent it as they should now finds out that the later tranche has more flexibility.
    Pretty funny that this program (small in comparison to the other programs) forced people to keep employees on. Most of the other programs (for much larger amounts) did not. So Sven’s point of the programs “savings jobs”, was spot on when he said they didn’t
    3. Guy said this rally is “disrespectful”. He couldn’t be more right and in my eyes, that was a very tame term. The optics are so HORRIFIC. It clearly shows the government is saving Wall St at the expense of Main St — AGAIN
    4. During the discussion all 3 of you addressed social unrest. I truly believe it is on the table and not something averted just by the Fed stepping in. As said above, the optics w/ 10+% unemployment, massive lines at food banks, and soon to be people being displaced from their homes vs the market at all time highs will leave those on the wrong side of this with nothing to loose. Just like the current protests on racial inequality, there will most likely be protests based on income/wealth inequality. Many on the wrong side will see this is just another injustice that has gone on for so long. In this case though, rioting and looting may be out of necessity vs opportunity
    5. Give Mr Powell’s indifferent attitude that now is not the time to worry about the possible negative ramifications of his actions, maybe we should just print 30 trillion dollars vs 3. We can fully fund social security, save the post office, bail out the states and with the left overs, buy the SPY and backstop the entire market. We can clean house in one fell swoop and move forward with a clean slate. Again, if we are not worrying about our actions and what can happen, lets just do it in a big way
    6. Mr Powell needs to grow a set. We have seen this president can easily bully this guy to do what he wants. We have seen Powell bow to the tweets for lower rates and switching course on raising rates (which should have been done). We will see him cave again when it comes to negative rates and god forbid there is a presidential tweet or speech that the fed should be buying stocks, that would be next (might as well take all ability to value a market out of the equation). Also, Powell sees the “tantrums” the market has when he tries to be a man. He bows down to any action that may make the markets loose a percent or 2.
    As you can tell, I believe this entire market is manipulated and based solely on Fed action. Will it go up forever, unabated? Based on current day action, could be. We may be at SPY 4,000 by year end.
    Sven, Guy and Dan–keep up the great work. Most do not want the truth, but the truth is what is needed


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