No kidding, it absolutely makes some sense to us that amid what you already know about the coronavirus and its impact on the global economy, as well as the frightening data points charted for you below, that global stocks are holding near their all-time highs and may (as in maybe) very well continue right on through them in the weeks to come.
Click each insert below to enlarge (shaded areas highlight past recessions)…
Well, that’s clearly what I’ve done to this point!
Okay, so, again, despite my cherry-picking enough bad stuff to make a point, why do I say it makes sense that stocks could continue their march higher? Just one more thing before I answer.
I actually have two questions for you: 1. Does it make sense to you? I mean, amid all of the evidence that you just perused (and I left out the corporate debt mess that I’ve been illustrating herein for months), do you think stocks can indeed march higher from here? And 2. Assuming you do, do you believe that you, or any prudent investor, should attempt to participate?
As for why I say yes to #1, I’ll analogize:
The reason I believe stocks can continue setting records is akin to the same reason I expected certain bulked-up MLB batters back in the late-90s to hit home runs at a single-season pace never seen before, or since. Their secret lied in the secret sauce that had them all “bulked up” to begin with. The risky thing — aside from being illegal — was that while the injection of steroids into their systems gave them the super human strength and speed needed to consistently knock baseballs out of the park, health care professionals tell us that they were playing with fire — with their lives, or their longevity, if you will — when it came to their internal organs.
You see, in economic terms, the first slug of charts above would be the under-the-surface stuff — the economy’s internal organs, let’s say — that goes unnoticed by most stock market fans. The second grouping is the stuff they do see as they frequent the malls, the restaurants, the new subdivisions and so one. The steroids would be the injection of liquidity by most central banks these days; the resulting low interest rates, the increased borrowing at the consumer, and, especially, at the corporate level, and so on. The fact that the under-the-surface data is no longer responding to the juice — at least not lately — calls into question the true underlying health and longevity of the bull market from here.
Take a look at the bulked-up balance sheets of the world’s 4 heaviest hitters (this — via assets these central banks have taken onto their balance sheets and out of the system, in exchange for cash/bank reserves — represents the degree of stimulus they’ve injected into their respective economies) and how fast they’ve piled on the mass the past few years:
Again, I ask question #2 above. Do you believe that you, or any prudent investor, should attempt to participate? Or, let’s say, to participate in unbridled fashion — as if everything under the surface is in perfect shape?
Neither do we!
And if we happen to manage your money, rest assured that given the present under-the-surface reality, we’ve zero interest in swinging for the fence at this point. That is, we’re content for the time being to lay low (compared to our game plan from the bottom of the last collapse to late last summer) and to string together a few singles here and there while working to keep your portfolio’s innards healthy and strong so we can confidently reengage when the game is legitimately back on: I.e., when the risk/reward setup once again makes sense.
“Every time a bubble bursts, a bull market collapses or a silver bullet fails to work, we hear people bemoan their error. The skeptic, highly aware of that, tries to identify delusions ahead of time and avoid falling into line with the crowd in accepting them. So, usually, investment skepticism is associated with rejecting investment fads, bull market manias and Ponzi schemes.”
“Investment success requires sticking with positions made uncomfortable by their variance with popular opinion.”
Thanks for reading!