Will the Stock Market Crash Again?

So what is the glue that holds the billionaires together during the uncertainty of the pandemic? It’s $Trillions of liquidity from the Fed. The U.S. didn’t handle the pandemic but it handled the March, 2020 stock market crash. Now we have a stock market that has become decoupled from reality, unmindful of real economic data and will largely ignore Q2 earnings, massive unemployment and a small business collapse the likes of which we’ve never seen before.

Sad that the Fed thought it was helping us by flooding the markets with liquidity. It just created an even more massive wealth gap between in a winner-takes-all greed is good version of capitalism, the one the President has been trying so hard to protect. You can drain the swamp but you can’t save Wall Street. Companies like Tesla, Amazon, Microsoft, Apple — the veritable TAMA of the world — are the new FANG.

The majority of GDP in the United States has always come from consumers and the Fed’s actions have defied the logic for a system that’s lying to itself. In a worst case scenario where the virus surges further in the fall, forcing another round of widespread shutdowns, unemployment could peak at roughly 23%, according to a re-assessment by JP Morgan itself.

According to A. Gary Shilling:

“Stocks are [behaving] very much like that rebound in 1929 where there is absolute conviction that the virus will be under control and that massive monetary and fiscal stimuli will reinvigorate the economy,” he said, adding that the market could drop as much as 40% over the next year.

It’s 2020 and America will have to learn the hard way that you cannot inoculate yourself from economic pain by taking out more debt. The stock market is not behaving in a way that projects today’s reality in a probabilistic way six to 18 months into the future. The V-shaped recovery of the stock market doesn’t likely reflect the W-shaped recovery of how the virus actually has hit the American and global economies.

With nearly 15 million coronavirus cases so far and over 600,000 dead, it is realistically just the beginning of the pandemic in July, 2020.

While high unemployment rates signal the outsize potential that future economic conditions are destined to improve, the stock market hasn’t accurately predicted what the virus would do in the United States with now over 70,000 daily cases and deaths beginning to spike way worse than in March, 2020. This dis-connect should trouble us more seriously.

The word unprecedented is rarely used properly, but if anything there is more uncertainty in July than we had back in March. The Fed didn’t like the panic. The Fed injected about $1.5 trillion into the debt markets to keep them from collapsing in the face of the rapidly spreading coronavirus mania, but the economic recovery looks bleak, not promising.

FYI, the amount that the Fed just injected almost covers all student loan debt in the US.

There is absolutely NO excuse for not pausing student debt collections, planning for mortgage &rent relief, etc.

We need to care for working people as much as we care for the stock market. https://t.co/IT6qZA2gtt

— Alexandria Ocasio-Cortez (@AOC) March 12, 2020

The US consumer has proven to be the economic engine over the last decade, but they are unlikely to recover in the next 3 years, until at least late 2022. Many countries will have a GDP drop of around 10%. Essentially, the stock market could plunge between 20-35% over the next year as investors realize the economic recovery from the coronavirus recession could take longer than expected.

There’s a lot of talk these days about the return of “irrational exuberance”— the frothy stock market seen in the internet stock bubble of the late 1990s. By the billionaire class we’re seeing plain denial (orchestrated, since they profit in this volatility) of the pain of the average American worker, the women in the service sector hardest hit and the small business owners who’ve seen themselves lose everything in just a few weeks.

Is this then the culmination of greed is good American capitalism? In March, President Donald Trump signed into law a record $2 trillion federal stimulus package known as the CARES Act, while the Federal Reserve announced that it would engage in unlimited asset purchases. However the aid for front line blue collar workers hasn’t been good enough. Unemployment remains incredible, with weekly jobless claims rising by more than 1 million for 17th straight week.

Labor participation has plummeted and that American consumer doesn’t seem the same with a brimming cold tech, financial, currency and geo-political war with China that claims it has already bounced back from its Q1 decline. China says its economy grew 3.2% in the second quarter this year, rebounding from coronavirus. Meanwhile that hardly seems likely as it’s now fighting once in a century level flooding in a majority of its provinces.

The global economy hasn’t come to grips with the idea that multiple vaccines won’t save it. The stock market is a good example of this. A growing chorus of economists are now saying that we likely have a second leg down and that would be very much reminiscent of what happened in the 1930s, where people appreciate the depth of this recession and the disruption and how long it’s going to take to recover.

So yes, it’s likely the stock market will crash again. Likely in August, 2020 when mask wearing alone will be found to be insufficient to hold back deaths and the coronavirus 1st wave of late 2020, weeks before the flu season begins that will complicate the public health emergency that is ongoing.

Wall Street lives in a bubble. Stocks are also coming off their best quarter in 22 years (the “recovery” from March lows) when Q2 earnings will be so bad they will be mostly and likely entirely discarded. Guidance is a bitch though.