An Epic Battle is Brewing
An Epic Battle is Brewing
As the formation for the New Genesis Economy continues to develop, an epic battle for the ages is brewing. In one corner you have the Government and the Federal Reserve’s immense monetary and fiscal stimulus, and in the other corner you have a fire breathing dragon of economic catastrophe and disaster. Ding ding ding……..
There is no doubt that without the massive stimulus programs being thrown at the economic crisis, the economy would be at a complete collapse. The battle rages on whether it will be enough to put America back to work, and revive the credit markets.
The Feds’ “do anything necessary” stance has taken the worst-case economic scenario off the table, and a test of the March 23rd stock market lows along with it. We are all wondering what the recovery will look like. Some say a “V”, some a “W”, while many insist on a “U”. I just heard a couple of new ones; a checkmark “✓” and a “double V”. I always thought that it would be a W, but I guess the economist are going a little stir crazy with the rest of us.
The biggest question for me is the credit markets. If the banks free up lending, the economy will be fine. The problem we face right now is that they are all tied up with the PPP (Paycheck Protection Program) and other federal assistance loans. The government is reportedly paying the banks 5 points per loan, so it’s no wonder they don’t care about traditional lending practices.
Boots on the ground has always been the critical litmus test. In 2008 I got alarmed when construction workers walked off the site in masses, leaving projects in whatever state they were on that day.
Today the opposite is true. Every construction site I see is booming, and every contractor I talk to has more work than they can handle. My pool service guy, who also builds pools says this is the best economy he has ever seen. That was a surprise to me, to say the least, but it shows the real disconnect.
People are shocked by what has happened, and human nature is to assume that it will spill over into everyday life and the economy for as long as the eye can see.
Part of what we are witnessing is the revolutionary conversion, the Genesis, to what many call the new “gig” economy. That is the transformation from the old style of doing business to the new. This would have probably taken a decade or so to occur, but the crises has accelerated that. It is painful, but it will make America much more efficient in the long run.
The main piece of the pie are the banks. When they get back to providing everyday loans and credit, which is the lifeblood of our economy, I will become much more bullish. My best guess for the longer term is that we will get a “U” shaped economic recovery which very possibly will be a “V” shaped stock market recovery.
In the short term, the market likes to climb the proverbial “wall of worry” and there is much to worry about. I expect stocks to rise through earnings season and then correct when we hit the “post-earnings nap season”.
Although the game-changer, which should not be discounted is the massive monetary and fiscal stimulus (don’t worry, I’m not going to say “Don’t fight the Fed” again). If you throw enough money at a problem, it can be fixed, and Congress is throwing around trillion-dollar stimulus packages like they are Mardi Gras beads.
I remain very optimistic, naturally with an air of caution.
“Invest for need, not for greed!”