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So Bad, and Yet So Good ! (?) August 15, 2020

Posted by Tom in Thoughts.
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Aug. 14, 2020 – With the price to earnings multiple at near nose bleed levels, the outlook for future profits doubtful, how can the stock market be at / near all time highs? The answer is money, and lots of it.

We all know that the stimulus programs have pumped lots of money into consumers, the unemployed and business but what about the stock market? Well, if you could borrow at near 0% interest all of the money that you wanted and could get 5-10% return in a week . . . that would be called a “good deal”. And that’s the deal that the big banks have got. The hope is the cheap money will be loaned out and keep the banks balance sheets healthy but there is nothing to stop them from “investing”.

Let’s look at the Federal Reserve data on the U.S. Monetary Base below. The Monetary Base is the sum of all money in circulation and deposits at commercial banks. (i.e. “commercial banks” = big & bigger banks)

click to enlarge

Talk about a sudden increase in the Monetary Base ! The concern is how long this can continue without some form of “debasement”; is the US dollar still worth the same to everyone in the world . . . or not? (note: the $ has fallen as of late)

There has been a lot of talk about unemployment and how the rate of new claims is slowing. That’s good, but the real issue is the continuing claims. The chart below tries to put that into perspective.

About the only thing I can gather is that unemployment is not getting worse, but it sure isn’t getting better either.

Lastly, I’ll leave the reader with a write up by John Mauldin which talks about how this economy will recover.

https://www.mauldineconomics.com/frontlinethoughts/the-second-great-depression-but-not-really

It is eye opening in that the economy will recover, but VERY Slowly, and it will not be the same economy. The service industry will not fully recover.

OK, here’s the NASDAQ Composite chart (below). We have inched a little higher last week, but the last 3 bars / days show a very narrow range on low volume. Buying = Selling and (volume) there’s not much of either; a dull market. Looks like we’re back to “wait & see” mode.

I note Money Flow is softening as well as Price Strength. Let’s take a quick look at Sectors:

I remain about 50% invested just because of concern that reality of the US economy will come back into focus. And when it does it will be a rapid adjustment. Much hangs on the new stimulus package. Without it many people (think over 31 million unemployed) will have major problems. And since the US economy is 70% based on consumer consumption, that WILL effect nearly all areas and businesses.

I am watching the VIX and Treasury Bonds for clues about big money taking a defensive position. Take Care and have a good and safe week. ………. Tom ……….

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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