Testy Tuesday – 11,000 and Bust on the Nasdaq?

Happy 11,000!  

That's right, only 4 months ago the Nasdaq was at 6,771 and now we're over 11,000 this morning, up 62.5% in 4 months.  OK, so we fell from 9,000 in January so we're "only" up 22% for the year and that's normal in such a booming economy with people out frolicking and shopping and fully employed with bonuses and rasises for everyone, right?  

No, this is so wrong,  actually.  Last year, without the virus and with the tax cuts and with the Fed and with the China Trade Deal – the Nasdaq was at 8,000 but, since last October, we've one crazy and popped 37.5% overall and we gave it all up in a flash crash in March and now, despite the fact that the virus (remember the virus) is much, much worse than it was then, we're up much more than that now. 

Will the virus be cured?  Yes, probably by March we'll have a vaccine and certainly we'll have treatments that lower the damage done by the virus – hopefully it will be more like pneumonia or bronchitis – something people get and get treated for routinely.  Still, that's not the case yet and ignoring the economic risks that lie ahead is insane.  To a large extent, this is simply a reaction to all the money that's being thrown at the problem but that money can't all stay in the market because the problem is long-term and expensive – and it will suck that money right back out.

Speaking to CNBC’s “Managing Asia” anchor Christine Tan, Piyush Gupta said government stimulus in many countries is helping businesses tide through the current difficult period. But when those measures come to an end, many companies may not survive, he explained.

“Do you keep putting money … using public finances to support companies or do you let creative destruction happen a la Schumpeter? This is going to be a real challenge particularly in the SME space around the world, I suspect this will be a big, big challenge next year,” he added.

“I think you will see more stress on the financial system in the later part of this year and next year without a doubt. And that’s just because the fallout of the macroeconomic shock has still to filter through the financial system at this point in time, I think it will come,” he said.

As noted by VOX, the US hasn’t fixed the coronavirus problem, so the question now is whether the government tries to prop up the economy while it (hopefully) tries to do that, or whether it leaves the economic problem as unaddressed as the public health one.  One of the most pressing points of concern is the extra weekly money to the unemployed, which is set to expire at the end of the month. As Vox’s Li Zhou recently laid out, if the program is allowed to expire, some 33 million people who have been kept afloat by those benefits will take an enormous hit. Congress is still haggling about it, and the outcome remains uncertain.

The issue stretches far beyond unemployment. Much of the money given out through the Paycheck Protection Program to keep workers paid has been spent, and many small businesses were locked out of those loans altogether. There is evidence people are already hurting. An estimated one in three people in the US missed their housing payments in June, and while we’ve seen a recovery in the aggregate unemployment rate, for Black workers, that progress hasn’t been shared.

“We already know that family food insecurity has increased dramatically with the pandemic and is racially disproportionate. Missed mortgages and rent payments, even with the CARES Act, are substantial,” Logan said. “If there’s no additional support, we will see a significant number of household balance sheets go to immediate insolvency.”

Come on folks, you know this is ridiculous.  Just be careful in your trading – we are living on borowed time – in more ways than one!

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"It seems you're having some trouble
In dealing with these changes
Living with these changes 
The world is a scary place

Madness is the gift, that has been given to me" – Disturbed

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