Evening Note

Wow, what a week! Ironically, there's so much going on out there, while there's not much going on out there (if you know what I mean), that I find myself late on a Friday afternoon ill-prepared to give you the kind of pithy, eye-opening data and context that would do justice to the financial market/economic circumstances we presently find ourselves in.

I.e., I'm going to give you the "good stuff" -- my macro view of the world (literally) -- over the weekend, after I organize and prioritize the data for your consumption. 

In the meantime, for this evening's note -- which I'm compelled to bring you, now that I've formed this habit, and because it gets a good number of hits -- I'll just think on paper for a few minutes and leave this one at that...

Just listened to an excellent interview with highly-regarded trader and commentator Tony Greer. Tony essentially hit on the theme that I've established herein of late; that the equity markets are completely detached from economic reality, and that it's entirely about the fact that the Fed has committed to literally unlimited money printing and the purchase of the toxic debt that would otherwise bring the financial markets to their knees.

Tony's base case is that it'll ultimately "work"; that we may come close to, or even touch, the March lows, but that the power of the Fed will keep the market from experiencing the 50+% collapse that it did during the past two bear markets, ironically, amid far less-severe economic conditions than we're currently experiencing.

As you know, Tony and I are exactly on the same page in terms of what explains the fact that the large-cap averages are down merely in the teens, while, for example, 26 million Americans (more than the population of America's 8 largest cities, combined) have filed for unemployment. Although, I'd add the Pavlovian buy-the-dip response instilled over the past 11 years as well... However, as you also know, my base case is that the market is likely to do much more than just test those March lows and establish a more friendly bottom, as Tony suggests...

Perhaps it's the fact that I'm certain of how ugly things will be -- if Tony's base case plays out -- on the other side of this when the market has to respond to the Fed taking it off of the ventilator that kept it breathing throughout the worst recession in modern history. I.e., the Fed simply cannot print trillions of dollars into eternity, and when it tries to power down the machine the market is going to convulse just when the economy is beginning to find its legs. 

The operative word in that last paragraph is "perhaps". Meaning, I have to continue to challenge my own thesis, as if I were challenging, say, Tony's. I.e., how can my base case be that the stock market will discount reality before this is over, while such a highly-respected trader/analyst thinks otherwise? "Perhaps" my base case is being subconsciously influenced by my belief in the power of the market over the machinations of the policymaker. 

Well, as a matter of fact, history is definitely on the side of my thesis, but, then again, history has never seen this kind of stimulus. But, then again, history hadn't seen the level of stimulus applied to the past go-rounds either. But, then again, the Fed applied limits to itself during those past go-rounds, and this time it isn't... Yep, it'll have to go limitless if it's going to fulfill its objective -- which is to essentially halt the market cycle: As, in addition to doing battle with the worst economy since the Great Depression, among several other things it's contending with the market's loss of the support of its only net buyer during the longest bull market ever -- corporate share buybacks! 

I.e., the fed has some monster gaps to fill! 

The good news for you clients is that I don't, frankly, give a rat’s rear-end about my thesis -- for my ego's/reputation's sake, that is. In fact, if it turns out to be incorrect -- if indeed an all-new market paradigm (one where the Fed can actually circumvent economic gravity) is to be formed from this experience -- I'm the one who needs to discover that first and make sure that your portfolios fully reflect the resulting accurate thesis as it's formed... Which is what has me/us dissecting, analyzing, interpreting, measuring and mapping the avalanche of data that flows through our system day in and day out.

Be back tomorrow...

Have a nice evening,
Marty