- Jim Rickards: We ain’t seen nothing yet
- A “moving target” stock market
- Gov. Cuomo’s about-face on legal weed
- Homebound Americans’ penchant for pot
- The incredibly shrinking CalPERS
- FDA approves “MacGyvered” ventilators
- A valuable rule for telecommuting — and life?
- Bitcoin analysis from a Bay Area reader… Another reader says he’s not one for conspiracy theories, but… And more!
“The global financial crisis of 2008 and the dot-com collapse of 2000 do not adequately describe what is happening today,” says our macro authority Jim Rickards… breaking it to us gently?
“Weekly unemployment claims will skyrocket from about 200,000 per week to 3 million per week starting in a few days,” Jim notes. [We’ll get our first read from the Labor Department bright and early tomorrow.]
“Overall unemployment will soar from 3.5% today to 10% in a matter of weeks (equivalent to the worst depths of the 2008 panic), and then to 15% and possibly even 20% by May (equivalent to the Great Depression, 1929–1940).”
Furthermore, Jim believes the U.S. economy will retract by 10–20% in the second quarter of 2020. “To put that in perspective,” he says, “even during the worst recessions since the end of World War II (1974, 1982, 2008), quarterly GDP only dropped by about 4% or less.
“Again, the proper analogue for understanding what’s happening is 1929 and the Great Depression,” Jim says.
For one thing — generally speaking — the stock market does a decent job of repricing for surprise disturbances. “The repricing can be positive or negative, but the stock market gets to its new level and proceeds from there,” says Jim.
“Despite some inefficiencies and overshoots,” the market can adjust for “shocks such as natural disasters (Hurricane Katrina, Superstorm Sandy), acts of terrorism (9/11) and political shocks (Trump’s election in 2016).”
In the case of the coronavirus pandemic: “The stock market has struggled to reprice for the new circumstances,” Jim says.
“The stock market [is] trying to hit a moving target. The news is bad, but no one knows exactly how bad, or how long this will last.
“As updates come in, all signs suggest that coronavirus infection and fatality rates are going up faster than most realize.
“The duration of the pandemic could be much longer than initially expected,” says Jim. “And if we’re wrong about that, it’s because things will be worse than the worst forecasts, not better.”
Oy… We think it’s appropriate to reiterate what we said yesterday: Got gold?
To the markets today, where the Dow’s extended yesterday’s historic rally — the Big Board’s up another 1,000 points to 21,700. The S&P 500’s added 75 points to 2,522, while the techie Nasdaq’s gained 113 points to 7,531.
Looking at commodities: A barrel of West Texas crude is selling for $24.16 — up $0.25 — while gold’s lost some traction, down 1.7% to $1,633 per ounce.
As for flagship crypto Bitcoin, it’s down $92.50 to $6,710. More on Bitcoin later…
The reason the market’s perked up? Word came this morning of the federal stimulus package; of course, nothing’s set in stone as neither the Senate nor the House has officially rubber-stamped the spending bill.
It’ll be curious to see how the market fares tomorrow when jobless claims come out…
At a press conference Monday: “Gov. Cuomo of New York said he expects lawmakers to proceed in pursuing the legalization of marijuana, despite the coronavirus outbreak,” our pot stock observer Ray Blanco.
You might recall Gov. Cuomo thought marijuana was a “gateway drug” as recently as 2017. How times have changed…
“I can’t even begin to tell you how big this is,” Ray says. “New York legalizing recreational marijuana will be a huge boon to the economy,” he continues. “And… cannabis positions across the board will see a massive spike when it happens.”
From a political perspective too, full legalization in New York is the sensible thing to do. “A recent poll of New Yorkers showed that they were in favor of legalizing 58 to 38 — the highest it’s ever been,” Ray says.
“There’s a lot of hope out there for the sector,” Ray says, noting that many shelter-in-place states are keeping cannabis dispensaries open for business.
“[Lobbyists] have pushed states to keep shops and dispensaries open for medical patients that need it for therapy. Recreational businesses too are being kept open for ease of purchase for these individuals,” says Ray.
Across the board, cannabusiness has seen a sharp uptick since the pandemic has kept many Americans homebound. “For instance,” says Ray, “tökr, a Los Angeles-based cannabis delivery service, saw an increase in sales of over 250% in mid-March.”
Ray sees a silver lining: “This sector took a beating in 2019… but with the pandemic and self-quarantining, recent news could prove extremely beneficial to the pot market.”
Onto a different pot…
“The pot of invested money used to pay for hundreds of thousands of California public employee pensions has shrunk by $69 billion as coronavirus has squeezed global markets,” says an article at The Sacramento Bee.
The California Public Employees’ Retirement System — otherwise known as CalPERS — had a total balance of $335 billion last Thursday, down from its record high of $404 billion just one month ago.
The fund “administers pensions for about 1,500 local governments around the state, as well as California state employees,” the article says.
And like the emblem on its state flag, CalPERS has been a bear, notoriously underfunded — particularly in 2009 when the pension fund locked in a negative 24% return.
“During the Great Recession, the [CalPERS] dropped from 101% funded to 61% funded,” The Bee says. At last count? “The system was about 70% funded in July, meaning it had about 70% of the assets it would need to pay all its current and future liabilities.”
And a return rate less than 7% — plus or minus — will mean state agencies, local governments and school districts will have to kick in more money to keep annual pension payments of $24 billion showing up for 700,000 Californians.
Even if the system simply breaks even for the fiscal year ending in three months, CalPERS would drop to 68% funded. Negative returns? The pension fund’s CEO Marcie Frost says she hasn’t run the numbers on that…
“The Food and Drug Administration (FDA) is easing up on some regulations so that ventilators can be manufactured and implemented more quickly to respond to the spread of COVID-19,” Reason reports.
Last week at The 5, we reported on wrongheaded “certificate of need” laws that prohibit hospitals from even adding a single bed to a ward without policymakers’ approval, and — no surprise — the FDA has similar red tape.
But a global pandemic is cutting through some of it…
“In new guidance issued on Monday,” Reason says, “the FDA said that it will practice ‘enforcement discretion’ by allowing manufacturers of ventilators to allow for some modifications of hardware, software and materials.”
That means “devices used to help people with sleep apnea may now be legally modified to help people with COVID-19-related respiratory problems” (for any of you “MacGyvers” out there). And the FDA will permit ventilators earmarked for home use to be used in hospital settings.
The FDA’s regulatory detente will also make way for companies that have manufacturing capabilities — GM, for example — to try their hand at making ventilators. A learning curve, for sure, but the FDA says these companies “are free to do so.”
Reason concludes: “These are all welcome actions but they should have happened much sooner.”
For those working from home because of COVID-19 shutdowns, the media are replete with rules for telecommuting. We’ve seen everything from cleaning up your cluttered workspace before a Skype call to Instagram-worthy work-from-home outfits (not even kidding).
But here’s some advice that’s actually useful… Turn off your digital assistants! Yes, that means Siri, Alexa, Echo, Cortana, Watson and all the rest should be powered down.
“Can anyone really have total confidence in what these machines overhear and where those recordings might appear?” says ZDNet. “Sometimes, such speakers have deliberately recorded your conversations. To help create a better product for you, of course.”
Heh… The better to market you with…
“Then there's the recent research that revealed Alexa and her squad accidentally activate and record conversations up to 19 times a day.” And here’s a fun fact: “Research… found that ‘congresswoman’ was one of the words that made Alexa think she was being summoned.”
“Of course, there's something else you could try,” ZDNet says. “Once you've turned off Alexa, Siri or Mrs. Google, what if you don't turn them back on?
“You might feel curiously free.”
“Gold and Bitcoin are both revered by their believers as a strong hedge against inflation,” says our new reader from the Bay Area. “But when you can't sell what you want, you sell what you can. Sometimes you have to liquidate your hard assets.
“Cryptocurrency HODLers (as they call themselves) treat their cryptocurrency as a sort of savings account. Crypto’s recent price drop can be explained by a collective breaking open of crypto piggy banks.
“Some of the countries with the highest rates of crypto adoption are China, South Korea and Japan — the same countries experiencing severe economic disruption because of the coronavirus.
“The transparent ledger of Bitcoin provides more opportunities for insight than the more opaque gold market; I believe we will see more and more ‘dormant’ bitcoin begin to move as the economic crisis stretches on, exerting strong downward pressure on its price.
“That suggests cryptocurrency might be a highly cyclical asset, rather than an uncorrelated safe haven. Crypto prices will be severely depressed during recession as coins are liquidated to address bills payable only in fiat.
“Crypto prices have rallied in the early stages of recovery; I expect that to happen again once the market's fear subsides and the Fed's latest round of money printing touches off another everything rally. Likewise, the specter of QE-induced inflation will not entice investors into Bitcoin until the current deflationary spiral has run its course.
“It will be interesting to see how the crypto markets respond to an increase in circulating supply. If the coronavirus goes on longer than expected (hoped?) then this market may be far from the bottom.
“Long term, I'm very bullish on crypto, but short term I'm very bearish. Like traditional investment, rewards go to those who keep a cool head and keep a long-term investment strategy in place while others are panicking.
“Keep calm and HODL on.”
The 5: We thank our reader for his crypto market analysis… Cheers and hang in there!
“I’ve never been big on conspiracy theories,” says a longtime reader, “but sometimes the facts speak for themselves.
“It really upset me to read [Monday] how the FDA has (and is) restricting access to test kits, and then my wife shared this story…
“My wife’s friend took her daughter to the doctor with flu-like symptoms. When the test for influenza came back negative, they said she probably had COVID-19, but because the symptoms were mild they would not test her. They told her to go home and quarantine for 14 days.
“What do you think happens to the numbers when you only test the more advanced cases? The numbers look worse than they really are!”
The 5: Numbers never lie… only the people who use them?
The 5 Min. Forecast
P.S. Iconoclast investor James Altucher just recorded a special message for our readers… But it will be scrubbed at 9:30 a.m. tomorrow.
So don’t hesitate to watch this crucial message about protecting your money during this difficult market.
You’ll have to act fast; remember, at 9:30 Thursday morning, the video will be gone.
Watch this video from James while you still can.
Your editor is having weird ’80s flashbacks today, including the “Japanese miracle” of that decade. Read More
We received an avalanche of responses to Tuesday’s episode of The 5… So we devote today’s issue to our readers’ perspectives. Read More
It’s totally counterintuitive: Gold throws off no income stream, but in a world where central bankers keep their thumb on interest rates, you need gold. Read More
It’s taken prestige media — and public health officials — about a month to come to grips with a glaring contradiction. Read More
“One of the questions I’m getting,” says Zach Scheidt, “is how can the market be so strong when the economy is so weak?’” Read More
Call it harebrained or genius, Americans might be taking a TRIP courtesy of the federal government. Read More
“There’s a lot of frustration in our country,” says bestselling author Graham Summers, “because we’re seeing a severe breakdown in the social contract.” Read More
Warren Buffett’s empire is under siege in 2020… “but that doesn’t mean there aren’t good deals to be had,” says hedge fund veteran James Altucher. Read More
A large swath of corporate America is sitting out social media — with both economic and political implications — for enabling “hate speech” and “misinformation.” Read More
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