Civil Unrest, Trade Wars, Crashing GDP, Bankruptcies, COVID-19: Bull Market? - Nathan McDonald (June 5, 2020)

June 5, 2020

As the threat of COVID-19 reared its ugly head and the economy shut down, things went south—and they went south quickly.

The markets were decimated, marking one of the most historic economic crashes in financial history as they dropped by record-breaking numbers in a 24-hour period.

However, that was a period of increased risk, of great uncertainty, nothing like we see now today—which, of course, is a period of "great prosperity" and, yes, "extreme certainty".

(Chart source, google charts)

Due to these "prosperous times" we now find ourselves in, we are bearing witness to an almost complete reversal in the S&P 500 and DOW Jones Industrial Average, which are currently going through an incredible rally, edging closer and closer with each passing day to the pre-crash highs.

If rallying markets alone are not enough to convince you of just how great our economy is or how stable of a world we live in, then let’s take a look at just some of the truly "positive" news unfolding all around us:

• Trade war tensions between the United States and China higher than ever.
• Record breaking unemployment due to COVID-19 shutdowns.
• Estimated that half of small businesses to be shut down because of COVID-19.
• Atlantic Fed estimates that Q22020 is -52.8%.
• Political unrest and protests explode across America, with over 10,000 arrested.
• Second wave of COVID-19 expected due to mass protests across America.

Oh yes, I can see exactly why the markets are heading back to all-time highs, what with all this "great" news unfolding all around us.

All of this "great" news must be why markets are roaring higher, right?

The Secret Sauce

Or... Maybe... Nah... But... Perhaps?

Just maybe there might be another reason why stock markets are ignoring anything rational, ignoring the fact that tourism is likely dead for years, ignoring the fact that entire industries and businesses have been decimated, and ignoring the fact that GDP is tanking.

(Chart source, Federal Reserve)

(Image source, economist)

Bingo! I've discovered the secret to success, the secret to making the markets move higher!

Just. Print. More. Money.

It truly is as easy as that. There is no need for financial experts. There is no need for someone to manage your money. There is no need to do anything other than sit back and ride the inflation train, as asset prices continue to move higher and higher forever.

Since the COVID-19 crisis began, we have seen government after government announce stimulus program after stimulus program, throwing caution to the wind and rapidly increasing debt levels to help keep the economy afloat and the economic engine chugging along.

(Image source, Statista)

Statista reports:

"While the U.S. has committed to the largest rescue package of any country in pure dollar terms over three congressional stimulus phases ($8.3 billion, $192 billion and $2.5 trillion), Elgin's research shows that global responses are quite different compared to economic size.

The U.S. measures work out at an estimated 13 percent of GDP and as large as that is, it actually trails Japan's measures which equate to just over 21 percent of GDP.

In Europe where Spain and Italy have endured devastating coronavirus outbreaks, the size of stimulus packages are estimated to be 7.3 percent and 5.7 percent of GDP respectively."

(Chart source, goldprice.org)

Regardless of this unprecedented money printing, there is one thing that you should never, ever do: Buy gold and silver bullion.

Precious metals have historically proven to be horrible at protecting their purchasers from the ravages of inflation, against reckless money printing run amok, by governments who simply believe that wealth can be created out of thin air.

/endsarcasm

My final suggestion?

Ignore everything I just wrote. Ignore the irrational markets, ignore the noise. See the world around you, the risks that it presents, and yes, keep stacking.

The farce will eventually end.