Rapidly Rising Markets and the Other Side of More Is Always Better Sooner

Shah Gilani|August 5, 2020

U.S. equity markets, as measured by the Nasdaq Composite, the S&P 500, and the Dow Jones Industrial Average, rocketed off their March coronavirus crisis lows and are headed higher.

The Nasdaq Composite’s already been making successive higher all-time highs and is poised to break out north of 11,000. The S&P 500’s only 87 points or 2.56% from its all-time highs, as of Tuesday’s close. And the venerable Dow, bringing up the rear, is 9.26% from its February 12, 2020 all-time highs, after plunging 11,354.92 points or 38.4% at its March 23, 2020 lows.

Stocks have bounced back, even the zombies parading around as healthy companies.

The markets have been roaring higher based on fulfilling the economic, and now market, postulate “more is always better sooner.”

But there are caveats to “more,” to “better,” to “sooner,” and especially to “always.”

I’ll touch on those later in the article – and I’ll have a special request for you as well…

In the meantime, here’s what to look out for and what’s on the other side of what’s been driving equity benchmarks higher and what could happen to them if the consequences of more, better, and sooner aren’t always and forever.

More

Investors loved the Federal Reserve stepping up to the plate in March when it was the bottom of the ninth and markets had two strikes against them.

They were getting slaughtered.

Talk about more, the Fed hit a grand slam pouring liquidity out of its spigots like water rushing down the Colorado in spring.

The central bank promised to bankroll everybody, not just banks, not just the fed funds market, not just money markets, not just the commercial paper market, the entire bond market, including backstopping corporate debt in the secondary and primary markets, and junk bonds, going as far as making the extent of their support known by announcing they’d be buying speculative grade ETFs.

More came in the form of helicopter money, not just from the Fed, from Federal fiscal firecrackers, in the form of an extra $600 a week for unemployed workers, on top of state unemployment benefits. And direct deposit and mailed checks to tens of millions of Americans of $1200 and more depending on how many children you have. Free money for “gig” workers not on any payroll. And free money for dipping into any pretty please program you could tap into.

Better

Better showed up in the balances of lots of bank accounts, savings accounts, and brokerage accounts.

Better showed up in corporate earnings being better than they would have been if trillions of dollars of “more” hadn’t been thrown around. Better is manifesting itself in how zombie companies are managing to stay alive, if not thrive by selling more junk bonds to yield hungry investors who know the Fed’s got them covered.

Better is showing up in the power of newly minted, and some say blindly-betting, retail investors who’ve been driving markets higher, besting institutions and hedge funds who have to follow them into highflying stocks, generating more and better Momo, or momentum.

Better was how everyone who received forbearance, or rent holidays, felt.

Always… Until Time Runs Out

Everything more and better happened sooner that ever before. The Fed didn’t hesitate. Fiscal authorities didn’t hesitate, for a change.

It’s all good. As long as it lasts.

And that’s the problem.

Can the Fed always be there?

Yes…

At least until inflation rears its ugly head, maybe starting Q/2021.

At least until Treasury bond buyers stage a buyer’s strike, which the Chinese are already threatening.

At least until the dollar starts dropping, which it has been the last three months.

Will fiscal help always be there?

Yes…

At least until the budget deficit is 50% of annual GDP, which it’s approaching rapidly.

At least until there’s so much free money supporting so many people there’s no need to work and generate any growth.

At least until there are two Teslas in every garage and pot in every pharmacy.

At least until the U.S. officially becomes a banana republic, which will happen if whomever wins the presidency and both houses of Congress makes healthcare and higher education and a green future and universal income all come true.

Are markets always going to keep inflating?

Yes…

At least until valuations start to matter.

At least until the last fool realizes he’s holding the last tulip.

At least until all the bubbles forming start to pop, one at a time, or, “all together now.”

The problem with more, better, sooner, is it can’t always last.

Financial Futures, Balancing on Maybes

Don’t worry, there’s more stimulus coming.

There are therapeutics coming, hopefully.

There’s a vaccine coming, maybe.

Everyone’s going back to work, eventually some time in this lifetime or the next.

More retail money from more stimulus is going to lead markets on another leg higher, and spineless institutions will follow them up the cliff.

It’s all good, for now.

Enjoy it while it lasts.

Because always will most likely run out by end by the first quarter of 2021, or more likely sooner.

So much for better.

How to Fight the Zombies

Remember the zombies I mentioned earlier?

There are companies that sidle around the “more is always better sooner” postulate, that ignore the rules or play by their own. Those are the suckers that will sink your portfolio with one swipe. With the way the Fed’s been handing out cash, bailouts, and financial aid, these zombie companies have been able to fly under the radar, showing off seemingly strong financials and innovative “solutions” as their balance sheets crumble and decay beneath a flashy surface.

I have a list of much better stocks, a long list, and it’s coming your way as early as next week. These are the stocks that you’ll want to buy right now – not next month, not when you feel like it.

I’m still finalizing which stocks have made the cut, digging into income statements, checking earnings reports, cross-referencing share price… the whole nine yards. I’ll have a solid presentation when it’s done, it’ll be coming across your email as early as next week.

I’ll give you an overview today, but if you want to know about a specific stock, drop a comment below, because I’m diving deep, and I’ll hit on as many of your companies I can, and then some.

Until then,

Shah Gilani