Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

The Higher The Number Of Covid Cases, And The More Layoffs, The More Bullish It Is For Stocks

Courtesy of ZeroHedge View original post here.

Earlier today, Rabobank's Micheal Every laid out a big-picture case for why "we live in a pretty crazy world right now." It's safe to say that the market is not too far behind for two reasons: the higher the number of coronavirus cases, and the higher the unemployment the more bullish it is for stocks, and as even mainstream media such as Reuters now admits, we have the Fed to thank for this massive stock bubble.

As the main pillar of its report, Reuters quotes Andrew Brenner, head of international fixed income at NatAlliance who said that "COVID-19 is now inversely related to the markets. The worse that COVID-19 gets, the better the markets do because the Fed will bring in stimulus. That is what has been driving markets."

This is precisely what we have been saying for the past month when looking at the Fed's shrinking balance sheet, to wit:

… for the stock market to move substantially from this point on – since the market is now fully disconnected from fundamentals and is simply a derivative of endogenous liquidity and fund flow – Powell will need to find another justification to expand the Fed's QE aggressively, as discussed in "JPMorgan Spots A Big Problem For Stocks." Something like – for example – a second wave of the coronavirus pandemic.

And just like that both a virus cure and the virus itself are now bullish.

But wait there's more, because picking up on what Morgan Stanley said last week, when chief equity strategist Michael Wilson said that record layoffs are bullish because they mean even higher corporate profits (discussed extensively here) or as the bank puts it, massive layoffs mean "explosive operating leverage"…

… today Bloomberg echoes Wilson's argument and in "There’s a Bull Case on Stocks Tied to Rising Ranks of Unemployed" it writes that "job cuts are setting the stage for a swift rebound in profits. Conceivably, a leaner cost structure will allow companies to pocket more earnings from sales once the economy recovers, so the thinking goes."

While the theory can sound deaf to the suffering of millions of jobless Americans, there’s precedent, including the last recession, which came before an 11-year bull market. Dehumanization is already an inescapable narrative of the current rally, one dominated by asset-light, algorithmically optimized megacompanies that are soaring even as the virus lays low the economy.

In addition to referring to Wilson, Bloomberg also quotes its own Intelligence strategist Gina Martin Adams, who said that while job cuts mean lower consumer spending, they also help facilitate a swift profit recovery.

“It does sound a little callous, but it always sounds that way in recession, and it is reality — companies do cut costs to dig out of earnings recessions,” Adams said. “The reduction in expenses contributes to margin expansion for companies, which should allow for a stabilizing earnings outlook.”

Of course, mass layoffs coupled with even higher stock prices just make the gaping would across US society – record wealth inequality sparked by the Fed – even bigger as the middle class losses millions of jobs while the top 1% gets richer with every passing day.

While stock strategists are only doing their jobs pointing such things out, the scenario they’re describing accords with certain suspicions about the Wall Street value system — that the rich get richer on the back of the poor, and companies prioritize shareholder value over employee well-being. Those issues have existed for decades and have been getting a fuller airing amid the Covid-19 pandemic and George Floyd protests.

To be sure, most of the companies engaging in mass layoffs have also suspended temporarily their buybacks and dividends, but we expect that once the S&P returns to all time highs, companies will be quick to transform all those billions they raised in the bond market into dry powder to return to shareholders in the form of dividends and buybacks, leading to an even greater inequality, and even more populist anger, protests and riots. And since it is now far too late for the Fed to change direction, the only realistic outcome is social unrest and a populist uprising, which sends stocks crashing and forcing a long overdue reset on a society that has been broken ever since the Fed took over capital markets in 2009.

To Michael Shaoul, chief executive officer at Marketfield Asset Management LLC., while the pandemic has called for social responsibility, mixing that with market or economic analysis can be tricky.

“You do have to disassociate what you think about the world as a human being and what you think the economic implications and market implications are,” he said. “If you want to conflate the two, you probably aren’t going to do a great job on Wall Street, because our job is to understand what the market is doing.”

Michael is right, of course, however now that central banks basically have full control over capital markets, his job "to understand what the market is doing" basically boils down to just one thing – as Goldman explained, all investors care about first thing in the morning is whether to fight or follow the Fed. The rest no longer matters.

And as long as the Fed is injecting billions and trillions into the economy as it is doing right now, stocks will keep rising resulting in even greater inequality, until one day the tipping point will finally arrive – for either populist anger or inflation – and it all comes crashing down. 

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!