Markets Are Choosing The ‘Blue Pill’ Of “Bliss & Ignorance”
Thu, 07/16/2020 – 13:45
The U.S. economy is not real and in a current state of “suspended animation”
The COVID rescue package has introduced significant distortions into the economy
The “Corona Capitalists,” some very well capitalized and liquid corporations, have accounted for a large portion of the loan volume in the Paycheck Protection Program (PPP)
Almost 30 percent of renters and homeowners failed to make all or some of their payments in July
The buildup of rental and mortage payment arrears is a very complicated and potentially menancing problem, threatening the very heart of capitalism, itself
Personal income is up almost 7 percent year-on-year, though wages & salaries are down 6 percent, the result of a 70 percent increase in government transfer payments
Personal savings skyrocketed from 7.9 percent of disposal personal income (DPI) in Janaury to 32.2 percent in April, providing some of the jet fuel for a rocketing stock market
The Fed’s digital printing press has financed most, if not all of the increase in the transfers and savings
Markets remain detatched from economic reality
It behooves investors to know and understand the marginal buyer currently driving stock prices
In our July 1 post, Markets Have Jumped The Shark, we wrote about how the current state of the U.S. economy is not real and feels like it is in “suspended animation.”
We now have a few data points and some anecdotal stories for you to illustrate the stanger things that are going on out there.
Suspended animation has been understood as the slowing or stopping of life processes by exogenous or endogenous means without terminating life itself. Breathing, heartbeat and other involuntary functions may still occur, but they can only be detected by artificial means. For this reason, this procedure has been associated with a lethargic state in nature when animals or plants appear, over a period, to be dead but then can wake up or prevail without suffering any harm. – Wikipedia
Capitalism, Socialism, Or Corporate Socialism?
Over the past few months, we’ve spoken to many people, some in the gig economy, about how they are doing during this economic crisis. Many are in terrible shape and in need of government support. We also sense the COVID rescue plan is seriously distorting economic incentives, which are a necessary condition for a well-functioning economy.
A couple, we spoke with, both employed in the gig economy, one a public speaker, the other, an aide to seniors, said their monthly income has never been higher. Got that? Their income has never been higher, although they are both not working and collecting unemployment.
We are not trying to be insensitive or argue that income support is not needed, but what will happen when it abruptly comes to an end? The more important question is: can or will it ever end?
Another person, who owns a restaurant, has cut his home monthly rent payments by 80 percent, and has not paid his landlord rent on the restaurant since April. He just bought a $77k new Tesla last month as he “couldn’t pass up the discount and 2.5 percent financing Elon was offering.”
How he was able to secure a $60k plus auto loan at 2.5 percent while accruing, our guess $40k in rental payment arrears is beyond our pay grade. It sounds like Elon is doing a lot of vendor financing these days.
The New Stock Jocks
Moreover, this guy has never bought a stock in his life and told us he wants to pour one-third of his savings into Tesla stock.