- (For what it’s worth) Something’s happening here…
- Jeremy Grantham: the market and low-grade pessimism
- The tech canary in the coal mine?
- “Lies, damned lies and [unemployment] statistics”
- The most expensive parking space in the world
- Why the “serious people” want you to blame the furriners
Do you ever look at the financial headlines and tell yourself, “Something doesn’t feel right”?
It’s nothing you can put your finger on, really. Just a hunch, an intuition, a spidey-sense, that the market is due for a hard fall.
This week especially, a feeling like that is understandable.
There’s the crazy ramp-up in shares of the theater owner AMC Entertainment — the second time the WallStreetBets crowd on Reddit has made it happen this year. It’s so crazy that yesterday in an SEC filing, AMC said outright: “Our current market prices reflect market and trading dynamics unrelated to our underlying business.”
Then there are the ever-changing dynamics in Washington with the corporate income tax. The proposals change by the day — and so would their impact on company earnings.
And there are jitters in the junk-bond market — often an early warning sign of trouble for the stock market. “Rising inflation worries” says the Financial Times by way of explanation. We think that’s probably overblown, at least for a few more months… but frequently, asset prices are moved more by perceptions than by reality. Madness of crowds and all that.
But such pedestrian events can’t bring the market crashing down, can they?
Oh yes they can, says the investing legend Jeremy Grantham. “It won’t take bad news to bring this down,” he tells the Australian Financial Review this week. “It will take a slightly less optimistic outlook than we had last week.”
We’ve been keeping tabs on Grantham’s media appearances throughout 2021. Why wouldn’t we? This is a fellow who bailed from Japan’s epic stock bubble just before it burst in 1990. He anticipated the dot-com meltdown in 2000. Along with a few other outliers like our own firm, he said the mid-2000s housing bubble would end in tears.
Asked by Bloomberg in February whether it was time to sell everything, Grantham said, “I suspect selling everything would work out just fine.” During a podcast interview he said, “We’ll be rather lucky to have this bubble last until May.”
Well, here we are in June — and while Grantham’s time horizon has necessarily shifted, his outlook has not.
He still sees parallels between now and the run-up to the dot-com crash. The most speculative assets come back to Earth first. Only later does the rest of the market follow suit.
Back then, highflying tech stocks fell 30% while the broad stock market kept rising. But in time, what he calls “pessimism termites” ate through everything. Result? The beams and support walls gave way and the S&P 500 collapsed in slow-motion — down 46% across two years.
At the risk of mixing fauna metaphors here, what might be the canary in the coal mine this time?
Ahem…
Tesla peaked in late January. It’s down 30% since.
In the event a “slightly less optimistic outlook” starts taking down the market as a whole, you might wish to consider taking protective steps now.
It’s never too early — who knows, this coming Monday could be the next Black Monday of market legend — but you don’t want to be kicking yourself once it’s too late.
Our own Alan Knuckman is sold on a strategy he calls “disaster insurance.” I perked up when he first told me about it because as you might already know, Alan is something of a perma-bull.
But he believes so strongly in this disaster-insurance trade… that he’s put $10,000 of his own money into it.
You, however, don’t have to put down anywhere near that much to get the benefits in the event of a steep market downdraft.
Just a few hundred bucks could, depending on how everything shakes out, deliver you as much as 40X your money — more than offsetting the losses elsewhere among your holdings.
The strategy is so intriguing I sat down in a studio with Alan so he could tell you in-depth how it works. Watch it right here. Then whenever the next Black Monday comes, you’ll be ready.
In the meantime, the major U.S. stock indexes are rebounding from yesterday’s losses, unfazed by a disappointing job number.
The wonks at the Bureau of Labor Statistics conjured 559,000 new or revived jobs for the month of May — less than the 650,000 expected by the “expert consensus” among dozens of economists polled by Econoday.
That’s two straight months the number has missed expectations. On the big chart from Calculated Risk depicting the job losses and recoveries from every recession over the last 75 years, here’s where we stand…
Click to enlarge
Hmmm… two takeaways we see…
- First, just mentally extending the red line into the future, the job market won’t fully recover until, oh, maybe the spring of 2023
- Even now, the job losses are worse than every other postwar recession except for 2007–09 and 1948–49.
The job number is doing nothing to tamp down the talk about the $300-a-week bonus unemployment payments discouraging people from getting back to work.
Reinforcement of the thesis comes from the labor force participation rate — the percentage of working-age adults who are either working or looking for work. The number ticked down last month from 61.8% to 61.6%.
With fewer people counted in the labor force, it’s easy-peasy to shrink the official unemployment rate. It fell three-tenths of a percentage point in May to 5.8%.
Thus the real-world unemployment rate from ShadowStats — accounting for all those working-age people who’ve departed the workforce as well as part-timers who want a full-time gig — jumped big-time last month, from 25.5% to 26.0%.
But again, the stock market is shaking off the job figures, perhaps because weaker-than-expected numbers translate to later-than-expected tightening by the Federal Reserve.
At last check, the Nasdaq is leading the way today, up 1.4% to 13,803. The Dow is the laggard, up a third of a percent at 34,676. The S&P 500 is up two-thirds of a percent to 4,220.
Gold has recovered a fair chunk of yesterday’s sell-off — up $21 at last check to $1,891. Silver’s back within 20 cents of $28. Crude is setting more two-year highs, up 50 cents as we write to $69.30. Bitcoin languishes a hair above $37,000.
The rural U.S. economy is like the economy at large — growing quickly, but still not back to 2019 levels of activity.
The Rural Mainstreet Index compiled by Creighton University economist Ernie Goss clocks in at 78.8 — a record high. Anything over 50 indicates growth. Goss comes up with the number by surveying bank CEOs in rural areas of 10 states stretching from Illinois west to Wyoming.
“Strong grain prices, the Federal Reserve’s record-low interest rates and growing exports have underpinned the Rural Mainstreet Economy,” says Goss. “Even so, current rural economic activity remains below pre-pandemic levels.”
The survey furnishes additional perspective on the job picture: Nine out of 10 bankers surveyed say that “hiring at their bank and in the area was restraining growth.”
In other words, good help is hard to find? You don’t say…
And you think American real estate prices are getting out of hand post-pandemic…
Yes, $1.3 million for a parking space at an ultra-luxe development in the district of Hong Kong known as the Peak, overlooking Victoria Harbour.
It’s a record, and not by a little: Bloomberg says the previous high-water mark was $980,000 in 2019.
“Like many major cities, Hong Kong has also developed a huge speculative market for property,” says the BBC. “In recent months, its luxury home market has seen record-breaking transactions as buyers’ confidence has returned with an easing of the pandemic.”
And while Hong Kong has a recent history of people “flipping” parking spaces, that’s apparently not the case for buyers now: “What concerns them most is that they need space to park their cars and not the money,” says William Lau, a high-end real estate agent on the Peak. “They have bought it for their own use and not as an investment,” he tells the South China Morning Post.
So wait — a $1.3 million parking space that’s not an object of speculative excess? Wowsers…
To the mailbag: “You guys are way too hung up on the ‘lab leak’ angle.
“The real reason we should all be pissed at the Chinese Communist Party and demand reparations/retribution is the fact that they covered up the existence of this virus for so long… all while simultaneously seeding the world with infected Chinese people (but locking down their own country to prevent spread within China) and hoarding PPE and buying it up from around the world they had just infected before the cat was out of the bag.
“These actions were all intentional and the CCP knew exactly what would happen if they took them.
“Love The 5.”
The 5: Careful there — you’re in danger of falling into a trap set by the power elite.
They’d love nothing more than for you to blame the furriners. That way you don’t ask uncomfortable questions about the actions of American leaders… the efficacy of the governors’ lockdowns… the epic failures of the FDA and CDC when it came to testing and PPE supplies… and last but certainly not least, the cooperation of American scientists with the Wuhan Institute of Virology.
Which, yes, brings us back to the “lab leak.” The more we learn, the more reason there is for the elites to panic.
Turns out Vanity Fair reporter Katherine Eban was on the story for months. She’s out with an exhaustive piece this week, chronicling the enormous conflicts of interest that stymied the U.S. government’s investigation into the origins of the virus.
Here’s just one anecdote from a nearly 12,000-word article. At a State Department meeting last December, orders came down: Do not look into the Wuhan Institute of Virology’s work, because it would draw attention to the institute’s U.S. funding.
“Some of the attendees were ‘absolutely floored,’ said an official familiar with the proceedings. That someone in the U.S. government could ‘make an argument that is so nakedly against transparency, in light of the unfolding catastrophe, was… shocking and disturbing’.”
Again, please marvel over the Establishment’s flip-flop from “the lab leak is racist, tinfoil Trumpery” to… well, we’ll let ABC’s chief White House correspondent Jonathan Karl say it: “Some things may be true even if Donald Trump said them… Now serious people are saying it needs a serious inquiry.”
(Always with the “serious people.” Oy…)
Here’s Guardian columnist Thomas Frank, very much a man of the Establishment, but one capable of introspection: “If it does indeed turn out that the lab-leak hypothesis is the right explanation for how it began — that the common people of the world have been forced into a real-life lab experiment, at tremendous cost — there is a moral earthquake on the way.
“Because if the hypothesis is right, it will soon start to dawn on people that our mistake was not insufficient reverence for scientists, or inadequate respect for expertise or not enough censorship on Facebook. It was a failure to think critically about all of the above, to understand that there is no such thing as absolute expertise.
“Think of all the disasters of recent years: economic neoliberalism, destructive trade policies, the Iraq War, the housing bubble, banks that are ‘too big to fail,’ mortgage-backed securities, the Hillary Clinton campaign of 2016 — all of these disasters brought to you by the total, self-assured unanimity of the highly educated people who are supposed to know what they’re doing, plus the total complacency of the highly educated people who are supposed to be supervising them.”
Question: How readily can widespread public confidence in the system be lost?
Answer: It’s how Hemingway described a man going bankrupt — “gradually and then suddenly.”
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. And that doesn’t even get into how a “moral earthquake” might translate into market action.
Really, at any given moment there are a handful of “X” factors that can send the stock market into a tailspin — which is why we’re so keen on Alan Knuckman’s unique “disaster insurance” strategy.
Again, his conviction level is so high that he’s put $10,000 of his own money into this strategy. But for as little as a few hundred dollars, you too can take out “disaster insurance” that could cover the losses elsewhere in your portfolio.
Learn more right here. And remember, it’s too late to take out homeowner’s insurance after the house is already on fire.
