Evening Note

Q1 data released today came in much worse than expectations. Even though the real COVID hit didn’t materialize until March, today’s releases confirm what of course we already knew about how tough this recession is going to be.


Among a number of other grim data points, GDP came in at -4.8%. Real consumer spending -7.6%. The consensus for the latter was -1.5%.

Of the companies reporting earnings thus far, Ford’s results and the frankness of the company’s outlook I believe accurately reflect real world conditions: Ford lost $2 billion in the first quarter with sales declining 15%. The company forecasts a staggering $5 billion loss in Q2, that’s twice what analysts had been predicting.

And then — in the face of abysmal data and (save for a tech name here and there) desperate earnings reports — there’s the stock market. Today’s premarket rally in futures indeed held right through to the close, with the Dow adding 532 points on the day.

Given the data, the fundamentals, and, yes, even the technicals, we’re not seeing anything at this juncture that remotely changes our seemingly broken record.

RealVision’s Roger Hirst echoes (big time) what we’ve been preaching herein the past few weeks:

“So far we’ve seen the first stage of deleveraging, we’re now having the bounce, and then we’ve got the reality to set in. And the reality to set in will take a little bit longer, but that’s still ahead of us. Now, there is still the difference with this vast amount of monetary stimulus plus the fiscal stimulus that may push risk assets further in the U.S. than almost anywhere else.”

“When it comes to these drugs (newly discovered COVID treatments), it’s going to take a long time, but what we’re seeing in the markets is still within the normal bounds of a rebound.”

“I look at the S&P and, as I stated before, we’re still within the normal bounds of a retracement; we’re at 62%. 40% of all of the big selloffs that I looked at since 1929 got to 62%, with a lot of them getting to 50%, so that’s normal.”

“My base case is we rollover, but that’s using the mentality of the world where active management and the individual investors were in control, not the machines and the rules-based funds that are today; but that’s still my base case.

Now, if we break higher, and eventually we could break the all-time highs, then you’ve got to say that maybe the S&P should go to 4,000. Now that sounds like a ridiculous notion, but the point is that it won’t be about valuation, it won’t be about profits, it’ll be entirely about the mechanism of monetary and fiscal (stimulus) coming through and working its way into financial assets, with almost no reflection on the underlying economy.”

Like I said, Roger’s base case is in essence what you’ve been hearing from me herein and in the video commentaries during this entire 5-week rally.

I’ll add, as I have multiple times already, that if it’s the latter, that if indeed the Fed and the Treasury can circumvent economic gravity on behalf of asset markets (and it’s possible), oh what a mess on the other side when they even hint of taking away the punch bowl. For, to get us there without the “rolling over”, without a purging of the excesses accumulated over the past decade+, we’ll have an economy that will be utterly hamstrung by bloated institutions. 


Again, imagine how the equity market, for example, will handle any weaning whatsoever of the elixir that kept it afloat during the worst economy on modern record.

Now, all that said, if indeed it’s the latter, I assure you, we won’t be complaining; we’ll be assessing, measuring, mapping and determining the best risk/reward setup across asset classes and acting accordingly within client portfolios.

Stay tuned…

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