Gordon T Long

Gordon T Long

Global Macro Research | Macro-Technical Analysis 





Over the past few weeks there has been an extraordinary shift in the market’s mindset. 

We have moved from expectations of a stock market wipe-out and bond Armageddon into a full-blown expectations led rally. This is still a bear-trap rally though we still see further movement higher in the main indices as governments are pushed (rightly or wrongly) into re-opening the global economy. 

There is nothing normal about what’s happening. We are stuck in the middle of an economic crisis completely unlike anything that’s ever happened before. It’s a global demand/supply shock and more – something wholly outside any previous experience. Its a major secular shift in sentiment which we outline in this month’s UnderTheLens video.

Investors are fully aware of the scale of the Coronovirus economic damage but are still grappling with understanding the full consequences it has triggered. They are now developing investment ideas on where this crisis and prices go next as economies rush to reopen. They are also factoring in how government bailouts and QE infinity have effectively shifted sentiment away from the precipice’s edge towards temporarily a more marginally positive bias with the hope of how new virus treatments and vaccines could ameliorate the crisis. 

Markets are discounting prices for recovery. The result is a rally in value stocks:

    • Those with clear economic upside from the end of lock-down, and 
    • Those where prices over-reacted and tumbled too far as we reacted to the worst-case Coronavirus scenarios.
This time its even more dangerous because we still know so little about the virus 
and the complexity of this crisis on economic growth, confidence, investment and global economies.
    • Though we never mentioned Neil Howe in this month’s UnderTheLens video he has extensively explored generational cycles (“turnings”) in America which reveal predictable social and sentiment trends that recur throughout history and invariably result in transformational crisis (a “fourth turning”). He is a well recognized demographer and co-author of the book The Fourth Turning.
    • Fourth turnings are characterized by a growing demand for social order, yet supply of it remains weak. The emergence of the surveillance state, a perpetual war machine, increased intervention in failing markets by the central planners, greater government control of critical systems like health care and the Internet – all of these are classic fourth turning signs of the desperation authorities exert as they lose control.
    • History shows time and time again that such overreach ends in rejection of the current order, usually via violent revolution. Now that we’re roughly halfway through the current Fourth Turning and things have really started to unravel here in 2020.
    • During times of peace and prosperity, inequality over time always increases. It always increases. There are only four things which reduced inequality through history: total war, total revolution, famines, and plagues.
    • The fourth turning is to some extent an act of creative destruction. It destroys as much as it creates. We saw that in the 1930’s. We saw that in the 1940’s which, by the way, was a period of huge shift from inequality to equality in America. But there’s a broader point about inequality and this is about creative destruction. There has to be some destruction in there. You have to destroy the privileges. You have to destroy the sinecures – and that’s never pleasant. But it’s part of the process.
With 40.7 Million Jobless in the last weeks and 2.1M more filing for Unemployment Benefits last week, how exactly are Americans Doing Overall? We Analysed Personal Savings to answer this question.
TOTAL WAGES: Crashed by almost $1 trillion, down from $9.22 trillion annualized in March to $8.48 trillion in April, 
TOTAL PERSONAL INCOME:  Soared by nearly $2 trillion, from $18.7 trillion to $20.7 trillion.
HOW DID THIS HAPPEN? Simple: the government unleashed the biggest ever flood of personal current transfer receipts (i.e., government handouts), which soared from an annualized $3.3 in March to a record $6.3 trillion in April. Here, unemployment benefits were a major contributor, rising from $69.6BN to $430BN annualized, but it was the “Other” line, which exploded from $528 billion to $3.122 trillion – which consisted of various coronavirus stimulus measures – that was primarily responsible for the surge.
US SPENDING: Despite this record boost to personal incomes, US spending – that biggest contributor to GDP accounting for 70% of US output – collapsed by the most on record, sliding -13.6% … as consumers were frozen, unsure if and when things will return to normal.
PERSONAL SAVINGS: The result of this surge in personal incomes and plunge in spending, is that the annualized amount of Personal Savings exploded by a mind-blowing $4 trillion in May, rising from $2.1 trillion to $6.1 trillion
And while economists will say that consumer better start spending all those pent up savings soon to reboot the economy, we have a different question: how much of these “government stimulus” checks were already spent by the retail public to buy stocks, because as we observed last week,investing in stocks was listed as the third most popular use of government funds…


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