'No Mas!'

I pledge never to predict the stock market again. Sometimes I feel that a rat in a maze has more sense than I do. Shock a rat a time or two, and they’ll stop trying to take the cheese. But not me. I keep thinking logic and actual economic conditions will be reflected in the stock market — and I keep getting shocked.

 I’ve long understood that Wall Street has morphed into a pseudo shell game for the rich. Yet it’s still amazing that the collective investor community can continually reap profits when the average citizen meanders from one financial crisis to another. Money can’t buy love — although even that’s debatable — but it sure can buy Washington. And Wall Street has bought and paid for our political system.

 I get that the Federal Reserve has flooded the country with free money. Yet I remain dumbfounded how the various financial indices can hover around all-time highs when the real economy is clearly headed for troubled times.

 The talking heads on CNBC offer myriad reasons for stocks like Tesla to trade at prices that make it the world’s most valuable car company — despite often building fewer cars in a year than GM builds in a month (and at a marginal profit I might add).

 One explanation is momentum trading: Investors invest simply because a stock always seems to go up. There’s nary an attempt to reference economic fundamentals. Many tech stocks have now become “momentum” trades.

 Another rationale is that financial markets are forward-looking. Wall Street understands that the economy may be sluggish for the next year, but they’re so smart they’re looking beyond this whole COVID thing.

 It’s like gas prices. Ever notice that when oil prices rise, the price at the pump increases the next day? But when oil prices decline, it can take weeks for gas prices to react. That’s because oil companies are also forward-looking. They look forward to profiting from the dips.

 There’s one final Wall Street tenant that I love: it’s called multiple expansion. When stock values begin to outstrip all financial logic, multiple expansion is the go-to explanation.

 A stock multiple is the stock price divided by earnings. For example, a stock trading at $100 with company earnings of $20 has a multiple of five. Every industry has an “accepted” multiple that companies in that industry should approximate.

 The exception: When stocks go well beyond levels driven by economic fundamentals, Wall Street invokes multiple expansion. The “acceptable” multiple goes from 10 to 20. Thus, companies can see their profits cut without suffering a decline in stock value. It’s quite magical.

 Forgive me, but every so often, I need to vent about Wall Street. Now let’s talk about the world that you and I live in. I previously indicated that there wasn’t a snowball’s chance in hell that we’d see “V” recovery. Although the financial shills continue to propagate that myth, their conviction wanes by the minute.

There was a “surge” in business activity as the economy reopened. Shortly after I went to Jordan’s Furniture to buy a sofa and the place was mobbed. There was a waitlist to talk to a sales rep. Can you say, pent-up demand? Two weeks later, salespeople were readily available.

Employment also surged in May and June. Duh. That’s what happens when you throw 20+ million people out of work in the blink of an eye. But the incline section of the “V” became a bit less steep in July as employment slowed.

As of this writing, the PPP money and additional unemployment benefits had run out with no new agreement to extend them. Now there’s a real shock: politics trumping the welfare of the country. We’ve never seen that before. President Trump did sign some smoke-and-mirrors executive orders that will yield little real assistance.

As the weather cools, the restaurant industry will experience more headwinds, and as I expected, major venues remain unlikely to reopen this year. College football is in jeopardy, and although major league baseball and basketball have resumed — sans fans — the only beneficiaries are the players, coaches and owners.

Major bankruptcies seem to be a daily occurrence, and Yelp reported that 55% of the 132,500 business closures that it has recorded are now permanent.

Thank God the Russian brain trust has developed a vaccine. Trump’s boot-licking of Putin may finally pay dividends. It was a brilliant strategy Putin employed that only required one minor tweak: use Russian citizens as human guinea pigs. It’s good to be a dictator. Don’t be surprised if our illustrious president attempts a similar move.

Keep in mind that a vaccine will not be an economic panacea. Vaccines are not 100% effective, nor do we fully understand how this virus may adapt to one. An effective treatment that keeps the at-risk population from being hospitalized could be significantly more beneficial. Make COVID-19 flu-like, and people may begin returning to some normalcy. Having both is the ideal scenario.

By the way, I was also in error about the second wave. Mostly because the court jester occupying the White House hasn’t even managed to abate the first wave. Getting a handle on this will likely require a regime change.

Good news: Regime change is on the horizon. Expect the Republican Party to be eviscerated and lose control of the Senate. Normally, having the Democrats fully in charge would not have me doing the happy dance. But even they can’t screw things up more than Trump, although I suspect they’ll make the effort.

I do expect the Democrats to better handle the pandemic. I also expect them to mend the international fences that Trump has bulldozed. Hopefully, that will mean returning to a hard line with Russia but will also include maintaining a strong stance on China, which is the one bright spot of Trump Administration.

Unfortunately, don’t expect any economic miracles. We will experience continued improvement at the margins. However, it looks like it will be at least 2022 before we can hope to return to what was pre-COVID normalcy. T