Hope and Confidence Are on the Downslope Now

I’ve been reluctant to give permabears the all-clear because, being one myself, I’ve seen the bull market roar back from death a dozen times since 2009, turning my smug eulogies into embarrassments. The most punitive and outrageous of the rallies was the monster that emerged in March 2020, when investors cast off pandemic fears just as global business went into lockdown. What a fooler that was! Who could have guessed that prices for nearly everything were about to soar? A friend who lives in a South Jersey resort sold his home for $1.8 million, thinking he’d be able to buy it back for half that in a year or two. Instead, six months into the Covid lockdown, the house was worth $2.4 million and beyond his reach for a buyback. He’s living in an apartment now, but he may ultimately get his wish if real estate prices collapse in the current, deepening recession. Another friend bought his dream vacation home in Naples FL for $4 million, but readily parted with it when a giddy fool came along just 13 months later and offered him $7 million for it.

It’s not as though the economy has been booming. In fact the opposite is true, notwithstanding Wall Street’s idiotic focus on employment numbers that tell us nothing. Who could possibly care about this statistical poppycock when stores, restaurants, movie theaters and countless thousands of other retail businesses have been calling it quits or are within weeks or months of failing on their own? Did Biden’s statisticians and pundits even notice last week when the most successful category-killer of them all, Amazon, said it was scaling back growth plans significantly? When mighty Amazon starts tightening its belt, you had better believe that, after two dispiriting quarters, this recession is just getting rolling.

Levitation Ruse Failed

Which brings us to the bear rally in stocks. I’ve been looking anxiously over my shoulder, waiting for a crazy-loco short-squeeze to make investors forget we are so deeply in debt that only a full-blown depression can pay us up. Bankruptcies would accomplish this in relentless waves that will make us nostalgic for today’s rampaging consumer inflation. Wall Street chose AAPL to distract us from this grim reality, but the ruse failed. Employing subterfuge and relatively small sums of cash in ways that I described here in great detail, DaBoyz levitated the biggest-cap stock in the world to within 3.7% of new all-time highs. Unfortunately, they were unable to hold Leviathan aloft indefinitely until such time as the broad averages faked their way higher against the weight of a bear market.

And now the expansive mindset needed to propagate even fake rallies has succumbed to the growing likelihood of a severe global downturn. Nor is there a way for the central banks to significantly taper their exposure to worthless paper on their books for tens of trillions of dollars any time soon. Worse still, their foolishness has finally awakened a beast they cannot control — i.e., the dollar, a market so big that it dwarfs all other asset markets combined. Investors know this and are no longer cocksure that any asset acquired today will fetch a higher price tomorrow. Their expansive mood has swung to grimly contractionary, producing a get-ready-for-winter scramble to distribute stocks and cash out of assets. Portfolio managers may be less eager to exit than individuals at the moment, but the coming tsunami of redemptions will ultimately turn the portfolio giants into wholesale sellers of shares. Sell to whom, you ask? When Black Rock, State Street and Fidelity are the sellers, hopeful talk of a bottom will be little more than fantasy. [Here’s a link to a recent interview I did with Howe Street’s Jim Goddard that amplifies some of the themes sounded above.]

Leave a Comment

  • RICHARD CHARLES September 19, 2022, 4:28 pm

    Some here may recall Stanley Salvigsen, chief investment strategist at Merrill Lynch Capital Markets. In 1986 he was voted Institutional Investor’s Top Portfolio Strategist.

    As mortgage rates climbed to the sky, he profitably sold his home in 1978 and leased it back from the buyer until 1982 after mortgage rates peaked.

    Stan started his own firm, Comstock Partners, in 1986. He advised Dreyfus Capital Value Fund to a 34.5 % return in 1987 when the market returned 2 %. He accomplished this putting 60 % into Treasuries, zero coupons, cyclicals and natural resources.

    Stan correctly called the peak in the Japanese market in 1989 that still stands today.

    Then he died of a heart attack in 1995 at 53, victim of premature bearishness and smoking a pipe.

    His Bear Market Total Return Value COMVX fund went to Mario Gabelli and returned – 12.28 % the last Ten Growth Years and : https://tinyurl.com/4pduruek

    This past year during the market decline, COMVX was #8 of 177 like funds, with a 2.20 % YTD return, 243 % turnover and just $4.46 M AUM, a contrarian’s canoodle.

    We have absolutely no idea what happens next.

    We are still dollar cost-averaging Deep Discount Capital Cycles 25 % precious VGPMX like a broken record.

    Target 144 % from 10.67 to 26 with 3.45 % Dividend, Risk to 10.35.

    HM went up five times during the last Depression, another five times with dividends.

    A bet that Credit can collapse faster than Fed Treasury seignorage can buy Treasuries, pushing on a string.

    The 100 basis point FOMC lift probability on the First Day of Fall recently halved: https://tinyurl.com/4n4bjt42

    Market could jump like Jack Rabbit with anything less than + 1 % Fed hike.

    We live in interesting times.

    &&&&&

    I recall that a Barron’s cover story at the time, an interview with Salvigsen, was illustrated with a picture of a home poised to fall off a cliff. He was a tad early, but the magnitude of the coming housing crash will more than vindicate him. I’ve long predicted that residential homes would lose at least 70% of their value — they got almost halfway there in 2007-08 before recouping the loss and much more — and that vacation-property prices would shed 90% of their value. RA

    Reply
  • mikeschurr September 19, 2022, 5:39 am

    Only a schmuck would sell their home in Naples.

    Reply
    • Larry D September 19, 2022, 3:05 pm

      For 3m, I’d be a happy schmuck.

      Reply
      • mikeschurr September 21, 2022, 7:59 am

        I’m a happy guy by nature.