It’s a tough call to make this early. Why, the coffee is barely moving the needle, so far. Do you want to attempt to “see the future” based on recent past events, or does it work better for you starting with history? Like I said tough call!
Before we begin: THIS IS NOT FINANCIAL ADVICE.
If you don’t have some experience investing, get expert help before you lose serious money. Also, remember our belief is that “Leverage Kills.” On Wall Street, financial axe-murder are a kind of sport. And, since EVERYTHING’S A BUSINESS MODEL” you don’t want to go Shakespeare on us. “A foo and his go are soon poo…”
1929 – It’s In Our Faces
Think long and deep about what lining up the 2008 Housing Bubble with the market breaks of 1920-21 does here in (what’s vastly-overstated as) Modern Times.
Study in particular the dashed lines. Then ask yourself: What’s out there that could result in a 1929-like collapse here in “Modern” times? I don’t sleep much, anymore, because my list scares the living shit out of me:
- God forbid Donald Trump becomes incapacitated. BUT he has made – in our view – a classic judgment error thinking of CV-19 as a “political problem” and not a “medical problem.” With him not wearing a mask, however…
- Then there’s the safety and health of the vice president. Who, we have seen without PPE, as well. And that could conspire to put (gulp!) Nancy Pelosi in succession order…
- CV-19 is not slowing down. People didn’t totally lock-down. And we’d offer that in many states, people were going back to work and social settings too early. While in other states, people went to riots (which the crooked media sold as “protests”) and that is fueling an increase now and may in coming weeks add to the disaster.
- CV-19 will pass 8-million confirmed cases today or tomorrow. Over 433-thousand dead – but that’s only if you didn’t see the mobile crematoria in Wuhan…
- Then, there’s the whole cyclical market collapse potential.
Which, since we’re tracking that closely, gets us to…
1929 Vs. 2020: Line ‘Em Up!
This is where a lot of people will – in my view – get sandbagged. Because since we didn’t replay “precisely” skepticism abounds. Let me lay it out for you with two green circles that may be close to correct:
Methodology: This chart (and comparison) is based on an equal-dollar weighted aggregate of multiple indices. I began this 20-years ago because the retail stock sellers were almost Pinocchio-like in their ability to “lie their way through” the collapse of the Internet Bubble in 2001-2003.
Not to mention that going into the Stock Collapse in the early 2000s, we also had a massive “fear-mongering” event. You do remember the Twin Towers and 9/11, right?
The Larger Historical Rhyme
Most will miss the “CYCLE OF HISTORY” but please consider – as I do – that the Internet Bubble Implosion (and $5 to $8-trillion in losses, depending on who’s counting) was a latter-day spin on the Knickerbocker Banking Panic. From Wikipedia:
“The Panic of 1907 – also known as the 1907 Bankers’ Panic or Knickerbocker Crisis – was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops.“
Now, compare not the specific timeline events, but rather the flavor and size of declines, to the March 2000 period when the Dotcom Bubble began to blow-up:
“On March 10, 2000, the NASDAQ Composite stock market index peaked at 5,048.62.
On March 15, 2000, Yahoo! and eBay ended merger talks and the Nasdaq fell 2.6% but the S&P 500 Index rose 2.4% as investors shifted from strong performing technology stocks to poor performing established stocks.
On March 20, 2000, Barron’s featured a cover article titled “Burning Up; Warning: Internet companies are running out of cash—fast”, which predicted the imminent bankruptcy of many Internet companies. This led many people to rethink their investments. That same day, MicroStrategy announced a revenue restatement due to aggressive accounting practices. Its stock price, which had risen from $7 per share to as high as $333 per share in a year, fell $140 per share, or 62%, in a day. The next day, the Federal Reserve raised interest rates, leading to an inverted yield curve, although stocks rallied temporarily.
On April 3, 2000, judge Thomas Penfield Jackson issued his conclusions of law in the case of United States v. Microsoft Corp. (2001) and ruled that Microsoft was guilty of monopolization and tying in violation of the Sherman Antitrust Act. This led to a one-day 15% decline in the value of shares in Microsoft and a 350-point, or 8%, drop in the value of the Nasdaq. Many people saw the legal actions as bad for technology in general. That same day, Bloomberg News published a widely read article that stated: “It’s time, at last, to pay attention to the numbers”.
The Replay Calendar
It’s REALLY simple. Pay attention here while I lay out the case:
- 1907 = Knickerbocker Crisis –> 2000 = Dotcom Bubble Burst
- 1920 = Major Market Panics –> 2008 = Housing Bubble Peaks
- 1929 = Great Crash, Depression –> 2020 = (pending)
Obviously, the Fed is committed to “papering over” the crisis. That’s why we continue to play the “short side” very cautiously. Wading in short for a day or two (like last week) and then scampering to cash after bagging some lunch money.
A Fresh Data Point
NY Fed Empire State Manufacturing Index is just out this morning. Not bad…I mean all things considered:
“Business activity steadied in New York State, according to firms responding to the June 2020 Empire State Manufacturing Survey. After breaching record lows in April and May, the headline general business conditions index climbed forty-eight points to -0.2. New orders were unchanged from last month, and shipments inched higher. Delivery times and inventories were little changed. Employment levels edged slightly lower and the average workweek continued to decline. Input price increases picked up, and selling prices stabilized. Firms were notably more optimistic that conditions would be better in six months, with the index for future business conditions rising to its highest level in more than a decade.”
After the data, however, Dow futures were still down 575-points…
We continue very cautious in our outlook, but here’s the grim reality of the present-day market charts: They look like the rally from the March lows is done.
Regrettably, as the disclaimers of financial-type repeat (endlessly) “Past performance is no assurance of future returns.”
And that’s the curse-of-the-charts, as well. We leave the forecasting to Future to those most qualified: Palmistry, scrying, Rune-casting, fortune-tellers. A group that properly includes the (not really) “Federal” Reserve.
A Few Things Matter
Another key point to be born in mind this week is that social movements tend to flourish at times of financial panic.
There were two big movements in the wake of the Great Crash in late 1929 that grabbed America’s attention.
One was the Bonus Army – which was engaged for a couple of years in a combative stance with the central government. WW I vets had been promised a “Bonus” but it wasn’t scheduled until several years hence. Beggared by the Crash and ensuing Depression, people wanted their due.
In some sense, we can see this as the press for black reparations (just now in ramp-up mode). Because again, government made promises and it doesn’t look like they’ll be kept. When one sees how the Johnsonian “Great Society” has failed, the reasons are clear. Regulations that financialized the break-up of black families was unconscionable. We need action on racism not more reports, says David Lammy.
Unfortunately, as was pointed out in a Directorate 153 study on the Peoplenomics site this weekend, had the central government been able to end all lawlessness in the country – and pass out free educations, and the like, we’d be in economic Depression already. Because the fact is “crime” and “poverty accounts for something over 10% of American GDP. 900-thousand sworn law enforcement (not counting staff) driving 700-thousand police vehicles… Let’s not forget Corporate profits from the prison system. Counselors, half-way houses, and these buy food from large distribution companies. Then you have “tracking bracelets” and license plate readers and judges, defenders and prosecutors, and document management companies off that. The list is endless.
America Can’t Afford to End Crime
Yeah…crime doesn’t pay. Except, it keeps the economy afloat. A built-in contradiction, wouldn’t you say?
So when terrible things happen in the news (like Atlanta this weekend) it’s yet-another case of “bad for people” but “good for business.” I digress…
Technocracy Matters, Too
In the present-day “rhyme” on events of the late 1920s and early 30s, there was also a drive to reform government. Back then it was the Technocracy movement.
“In the 1930s, through the influence of Howard Scott and the technocracy movement he founded, the term technocracy came to mean, ‘government by technical decision making’, using an energy metric of value. Scott proposed that money be replaced by energy certificates denominated in units such as ergs or joules, equivalent in total amount to an appropriate national net energy budget, and then distributed equally among the North American population, according to resource availability.“
In the modern rhyme, we see a kind of allegiance evolving between BLM on the one hand, and a multiplicity of left-wing groups spouting “anarchy!” on the other. So yes, the urban rebellion on Capitol Hill in Seattle might be classified as a kind of “son of Technocracy.”
In both historical cases, the ability of government to actually “deliver on promises” was called into question by current events and inept politicians at virtually all levels.
The current ignorance of history is what made Newt Gingrich so refreshingly interesting during his D.C. tenure:
“Gingrich received a B.A. degree in history from Emory University in Atlanta in 1965. He went on to graduate study at Tulane University, earning an M.A. (1968) and a Ph.D. in European history (1971). He spent six months in Brussels in 1969–70 working on his dissertation, Belgian Education Policy in the Congo 1945–1960.“
Unfortunately, most of what remains in Washington is a collection of lawyers – who by their very nature are not “makers” of anything other than laws (rule sets) and “judgments” (blame assigners).
All in favor of limiting congress to not more than 20% lawyers, raise your hands?
Joe Biden, by the way, is a lawyer. So, too, are the Clintons. Pretty good case, huh?
In Ure Shorts
Rioting in Atlanta overnightas Atlanta police shooting of Rayshard Brooks sparks second night of protests. (We cite the media for propagandizing: When glass breaks and fires are set, that’s a riot. Do follow this media manipulation back to its Souroses…)
Not just Grauman’s Chinese Theater in Hollywood, huh? China’s Economy Faces Another Hurdle: Darkened Movie Theaters.
Virus fallout continues: 24 Hour Fitness files for bankruptcy and closes 100 gyms.
And here’s something “fishy”: How Beijing’s second coronavirus wave triggered a salmon boycott.
Sounds like a great day to kick back, relax and pretend at being retired, doesn’t it?
Write when you get rich,