Financial Utopia or Something Else?

Sometimes the noise gets so loud that it is impossible to think clear and reasoned thoughts. In this ever-changing landscape, how should one invest? Here is John Top’s thoughts on the market.

The Real Teflon Don, the Ever Permissive FED, and the Unstoppable Dow 

Sometimes the noise gets so loud that it is impossible to think clear and reasoned thoughts. 

This is what’s happening today.

Technology has empowered the media beyond their wildest dreams. Thanks to the creation of the mobile phone – everyone is now a reporter. See something wrong? No problem, start videotaping it.

On the surface, this seems like a great idea. Think about it. Everyone can now hold everyone else responsible for their actions. This is great. Or is it?

What is the consequence of a world where every single human imperfection gets magnified through the application of technology? Are we all under surveillance by each other? All the time?

In the past few weeks, we have gotten a small taste of living in a world that is a reflection of the omnipresent surveillance state. Why should we be worried about Big Brother watching us when we have each other!

So, where does this leave political leadership? In the US, the President has been under constant attack since gaining office. The Radical Left continues to throw political mud against the White House 

Wall, hoping that something – anything – sticks. They have tried the “Russia Hoax,” impeachment, scathing criticism of the public policy response to the coronavirus, and now the highly inflamed topic of “systemic racism.” 

Yet, through it all, the President has endured. Some of us remember a New York mobster, John Gotti, who had the nickname of “The Teflon Don.” The press loved this larger than life criminal figure who defied the odds of going to prison until the odds caught up with him, and that is where he landed.

It is an obvious question: Will Trump’s luck run out before the election? Will the Radical Left find the Holy Grail of Political Destruction? If not, it will not be because of a lack of effort.

Ok, I get it. There are a lot of moving parts pulling society one way and then the other. How does this square with the economy? Why is there such misalignment between Main Street and Wall Street?

Main Street is struggling with a prolonged shutdown of its businesses, which has resulted in zero revenue. Now, there is an understandable trepidation about re-opening. What if the customers do not come back in the pre-covid numbers? 

What then?

Wall Street has already discounted the fears of Main Street. Nowhere is this more evident than in the performance of the stock market, which has demonstrated a V-like bottom. Ivan was very bullish for this to happen – I was not. He based his optimistic outlook on a simple, well-worn adage: “Follow the FED.” 

My analysis of the situation, on the other hand, was that the FED was merely providing a form of bail-out by extending credit through an unprecedented event: the complete shut down of an economy, except for services deemed essential. It seemed to me that paying people not to work, combined with adding debt onto more debt wasn’t a solution; it was going to add to the problem.

This brings us to the question of leadership. What is leadership? We have all heard about how heroes get their medals. They do something which shows the rest of us that they are acting selflessly. 

Examples are many: jumping into a river to save a child, donating an organ to a stranger, and other such acts of bravery. Well, leadership is just like that. A leader says, “Follow me”, and others fall in line.

Like him or hate him, Trump is a leader. He makes decisions. His supporters would argue that most of his decisions are the right ones. Detractors find ways to find the weakness in those same decisions and try to paint them as the wrong ones. For the most part, they have had a strong and consistent ally in the media, except for a few outliers.

The actions of the President, combined with those of the Fed, have resulted in a wave of investor confidence. This is why we see the DOW and NASDAQ at or near their record highs. Political leadership inspires confidence. The FED has basically said they will spare no quarter (or dollar) to continue to “Make America Great Again.”  

Political bias aside, as for sure there are Left-leaning Democratic investors, the recent performance of the stock market may be telling us something about the political outcome in November. It is a tall order to ask voters of all stripes to get off the economic train that has resumed a positive direction, and that is picking up speed. Good luck trying to get passengers to switch.

Right, now I am convinced. My worries are dissipating like the morning fog on the southern California coast. 

But wait, how come I still have that lingering feeling that despite the way the stock market has rebounded so sharply? 

My fear has not completely given back to greed.

Remember how, for the past decade, fear had taken a long, long holiday. This is vividly reflected in a 10-year chart for most major stock indices.  

Which brings us to today. Fear is visceral, greed is not. The sharp decline of global stock markets told us that something was wrong – really wrong. This invoked a measure of fear. That fear does not go away overnight, and it certainly hasn’t gone away yet.  

Sure the stock market has recovered, but have we recovered?

I think we are hopeful that the worst is behind us and are slowly starting to consider a better future.  

For myself, I wonder if the stock market has become the ultimate “rigged game” comprised of large players preying upon the mostly passive investment by smaller ones. 

Of course, the Fed is siding with the large players. The small players must fend for themselves. This is why I am still uncomfortable about the future, despite the stock market telling me to “forget about it” like a scene out the TV series, the Sopranos.

When you can make the bullish case for the future and are still worried about something that you can’t quite put your finger on, maybe that is the time to step back and take a break from the action.  

The golden canary in the financial coal mine is starting to sing a louder tune these days. I hear this tune loud and clear despite the incessant noise that surrounds it. Gold bugs, the world over, would boldly assert that their long wait is finally over, and a new golden age is upon us.

So as far as a financial utopia and another ten years of greed over fear, I am not there yet. 

But, just as Ivan notes in his latest article: “facts are facts” and in reply to various responses to it: “don’t shoot the messenger.” 

Maybe the “fact” is that you really can not fight the Fed – so long as people have faith in more zeros on a dollar bill, the game is alive and well…and will continue!

-John Top

Ivan: Thanks, John, for another glimpse into your views. While I was a heavy investor during the recovery, I do stand by a previous prediction that we will see a second wave of the coronavirus hit, and more volatility will ensue – especially leading up to the US elections in November. Furthermore, what the Fed gives, it can take. I don’t ever presume that the so-called Deep State that Trump appears to be fighting isn’t somehow ingrained within the Fed. Or, perhaps, the Fed does not care who wins or loses that fight – it is king. I certainly am not going all-in, nor am I going all-out – not yet.

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