International Forecaster Weekly

Randomness of Thought

We are in the middle of the greatest economic/banking experiment the world has ever seen. To think we get out unscathed is wishful thinking.

Bob Rinear | May 27, 2020

Just off the 3 day Memorial day weekend, (which was very special for my wife and I) there are things swirling around my head, that I just want to mention. Random thoughts, pontifications if you wish.

It has now been estimated that somewhere north of one MILLION new trading accounts were opened since the beginning of the nationwide lockdowns. Well, it makes perfect sense in a warped sort of way. Think of the tens of thousands of people that travel to Las Vegas, Atlantic City, The Sun, etc, to gamble their hard earned dollars away. Well, all that’s been taken from them. Vegas has been shut down. AC is shut down.

So, to recreate the “thrill” of the gamble, they’re opening trading accounts and trying their luck in the biggest casino of them all, the stock market. I suspect some of the markets move higher is indeed because of these newly formed stock geniuses, tossing their gambling money into the ring.

How’s that going to work out? Well if the years 1995 – 2000 are any indication, not so very good for the bulk of them. Remember that savage tech run up of the late 90’s? It seemed that stocks only went up and everyone and his brother decided to be a stock trader. I remember vividly, speaking at an investment group in Boston in 1999, how deceived people were about how this all works.

People were selling their businesses, and quitting jobs to be stock traders. I tried to explain to them ( about 60 people in attendance) that the tech market had lost all resemblance to reality and that it would not end well. I thought I would be boo’ed off the stage. They were convinced that this market could go up and up and up for ever, I guess.

Well 2000 – 2003 proved to those very people that stocks can indeed go down. Many lost everything they had. This is what scares me about all these newly printed stock traders today. They’re getting involved at the very time that the powers that be have decided to make saving this market, their highest priority. It looks like the market only goes up.

Yes, we’ll probably see all new highs. The momentum is there, the Fed cash is there, the FOMO or fear of missing out is there. But I ask the same question that I asked those tech investors so many years ago in Boston. “Will you know to get out at the top?” The answer of course is no. Many will get taught an important lesson, that being “markets can stay irrational longer than you can stay solvent.”

Moving along, a lot of the nation is opening up and that’s a very good thing. But I have a feeling that just when everyone is starting to think that the worst is behind us, the dreaded ‘second wave” will show up. It does NOT matter if the virus actually does show up or not, they’ll tell us that infections are on the rise and we have to shut back down. Don’t forget, the numbers we’ve been told about how many people are infected, have been elevated for monetary purposes. Hospitals get more money from Uncle Sam if a cause of death is Covid, instead of a heart attack. So they’ve proven they can indeed fear porn us into lockdown.

I have a video I’d like you all to see. Even if you’re not a facebook user, you can click the link and see it. It’s a Doctor is Dallas talking about the hoops she’s got to jump through to help her patients. It is a very powerful 12 minutes. I do wish you’d take the time to watch it.

Again, do NOT get me wrong about this thing. It was created in a laboratory. It has many strains. The worst strains are horrible things. It is a biological weapon, created in a laboratory, and it can kill you. The lesser strains aren’t nearly as dangerous. But it’s sort of Russian Roulette as to which one you might get. However, this country has endured bigger outbreaks and while yes, a lot of people died, they didn’t shut down the country. This time has to be the same. Some people will get this and die. But many more will be crushed by the loss of job/income/business/middle class status, etc.

Sailing ahead, I ponder what the US looks like over the next several years. How do young people date? It’s hard enough in a “normal” world, I can’t imagine it in a Covid fear world. But a bigger question is this: What is the state of the economy in say 3 years?

For now, the Central banks of the world have turned on the printing presses as never seen before. Not once. Ever. It is working to keep the 1-10% who own stocks happy. But what about main street? How many of the 40 million jobs lost are going to be there for them to go back to? And if they’re there, will it be at the same pay rate with the same benefits? Or because of uncertainty, will they be forced to accept less pay, with less hours?

One of the constants of this world, is that the Rich will always be with us, and the poor…of which there’s multiudes more of, will always be with us. But what about the middle class? When you see people in a miles long line to get food out of a food bank, and they’re pulling up with Mercedes, and Audi’s, you ask, what’s that about? Are they so greedy they want to rip off the food bank?

No, not at all. What’s happened of course is that so many folks in the upper middle class are living paycheck to paycheck also. It’s just that theirs was a bigger check than some others. But when the shut downs hit, they had no savings either.

I have tried to approach this nightmare without causing undue panic. People are in enough trouble as it is. But frankly, our future is terribly uncertain. The quadrillions in debt cannot be paid. What happens to them? As companies try and bring their supply chains closer to home, how will they make up the difference in pay scale? In other words, you have a workforce of say 100 people working your factory in China. You want to bring it home. But in China, you pay the people 5 Yuan and a chicken. In the US, they want 17 bucks an hour and bennies. What do you do? You cut staff. You install robots. You offer low wages.

And speaking of China, make no doubt, we’re in a cold war with them and we have the possibility of it going hot. Now once again, you have to understand my position about China. I have no beef with the Chinese population. I have a big beef with the Chinese communist party. I simply don’t like evil and they’re evil.

Is it possible that we get into a shooting war with China? It is possible. I certainly hope it isn’t probable, but lets face it, the US is openly blaming China for this global nightmare. Their economy is in the toilet, no one wants to go there, Companies are looking to move to India and Mexico. They’ve got tremendous fiscal problems over their one child policy and their social security system. Desperate people do desperate things.

In the US, people are wondering why there’s been no inflation other than in food. There’s several reasons. Inflation and its effects work in two ways. First off, what is inflation? An increase in the money supply. Well we certainly have boatloads of that. So we should be seeing inflation, right? Nope, not yet. See the money supply means nothing if it isn’t moving. Right this second, if you gave some poor old lady in a Nursing home one BILLION dollars, it wouldn’t do much good. She can’t go out and spend it, she’s locked in. There is no VELOCITY of money. It’s the exchange of all that inflated supply that causes price inflation.

So the lockdowns have helped the Feds contain inflation, because no one can go out and spend it. But there’s also no inflation because so many people have so little to spend. People with no jobs aren’t big consumers. We’ve got 40 million of them. Globalization, such as keeping your headquarters in the US and acting like an American company, while farming out your production to China, has kept a lid on rampant inflation. But that’s going to change to some extent in the future.

There’s going to be inflation. Not this year, maybe not too much next year. But as broken supply chains refuse to get fixed, supply is going to get really tight. You know the old sayings, when supply is low, prices get high. When the velocity of money improves, and there’s no supply of goods for that money to buy, prices will increase.

The biggest wild card in this whole situation we find ourselves in, is the election. It’s pretty obvious that Trump needs a substantial increase in the economy to run on. It’s also obvious that Powell, Mnuchin, Kudlow and the other mutants are willing to “do what it takes” to get the economy up and running by November. But then what?

I mentioned Marc Faber so many years ago saying that the Feds were going to print so much and buy so many assets they would “own it all!” and they sure are on the road to that. Right now they hold a bunch of Hertz debt. Hertz just went bankrupt. Who’s ultimately on the hook for all this? Look in the mirror.

I had a lot of quiet time this weekend and my head filled with all manner of questions, ponders, what if’s, etc. This is just some of the things that surfaced between sips of bourbon by the pool. We certainly live in “uncertain” times folks, but one thing I’m sure of is this: We are in the middle of the greatest economic/banking experiment the world has ever seen. To think we get out unscathed is wishful thinking. I suspect I’ll have spectacular things to write about for the next several years, things no one could have imagined. Buckle up, folks, this ride “ain’t” over.