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The growth outlook for the fourth quarter is opaque, because there is no way to determine when supply chain disruptions will begin to unwind. A reluctant recognition of higher inflation by the Federal Reserve is developing, as supply chain bottlenecks are holding up inflation longer than previously thought. There are currently 72 container ships off the port of Los Angeles which cannot deliver some 550,000 containers coming from Asia. This is due to a lack of investment in US ports over the past 10 years, as well as a shortage of qualified truckers, and may continue into 2022.. Consumers have been warned that Christmas shopping may be severely impaired by empty shelves this year.

Complicating...
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The US savings rate is very elevated at 13.6%, compared with a pre-Covid average of 6% since 2000. Americans have been saving during the pandemic at an unprecedented rate; as the pandemic abates, they will begin spending with pent up demand. This, combined with a rapidly recovering economy, an unprecedented increase in money supply, a Federal Reserve which seems committed to unlimited economic stimulus, ever expanding fiscal stimulus from the government, and a new sense of optimism about a successful vaccination program are keeping spirits high in the stock market.

The Fed has repeatedly committed to keeping the overnight Fed funds rate low, and there has been an unprecedented increase in the...

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One year ago, GDP growth was expected to be 4.8%. Instead, it’s now projected for 2020 at -4%, the largest drop in modern history. Simultaneously, world stock markets increased in value from $80 trillion to $100 trillion even as S&P earnings per share dropped by 15% last year.

This strange stock market behavior can be explained by the sheer size of the stimulus thrown at the Covid-19 crisis. Essentially, the Fed threw $4.5 trillion at the $300 billion problem of lost Covid-19 wages. The enormity of this government stimulus overcame any economic downturn, uncertainty, or political tension. Another $1.9 trillion of stimulus was announced last week by president elect Biden. Two other facto...

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Extreme uncertainty is driving investor sentiment as we approach the 2020 elections, and this uncertainty may be driven by more than the voting outcome. A view of the implicit volatility curve on the S&P 500 options demonstrates that Wall Street is pricing in this volatility after the elections and well into December. The reader may draw their own conclusions about what this means, while remembering that the stock market likes neither uncertainty nor constitutional crises.

Covid-19 has put an end to the economy’s expansion at a time when the nation is deeply in debt. According to the Wall Street Journal, “borrowing spurred by years of low interest rates adds up to $64 trillion in ...

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Investors wondering why the stock market continues to rise as we face the worst economic conditions since the Great Depression need only look at the Federal Reserve’s balance sheet, which has increased in size by $3 trillion since February.


That represents printed money which the Fed is using to purchase Treasury bonds, mortgage bonds, corporate bonds, and asset backed securities, which brings the total amount of printed money to $7 trillion. In doing so, they have driven bond yields down, which justifies a higher multiple for stocks.
This is currently the only reason for a rising stock market. Markets have become completely divorced from reality, and stocks in particular are ignoring th...

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The coronavirus has thrown the world into chaos over the last quarter, and its impact on the economy was swift and devastating. It has been a health and financial crisis like no other, with substantial uncertainty and many unpredictable variables. The peak-to-trough decline in U.S. and European GDP is likely to be more than double the decline during the global financial crisis, or roughly -10%. The stock market slide experienced between February and
March was the steepest decline in the S&P 500 ever, even steeper than in 1929.

Since 1870, downturns of this magnitude have happened mostly because of either world wars or depressions, taking on average, five years for output to regain its peak. Ou...

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Stock market indices have shrugged off Iran, and begun the year by moving higher. Unless Iran chooses to somehow disrupt the supply of oil to the West, it is unlikely to have much of an impact.

There has been consistent selling in the U.S. by retail investors in 2019. Flows have been drifting out from retail investors and into the hands of companies buying back their own shares. Assuming that there is no recession in 2020, and assuming that Donald Trump is re-elected, retail investors may experience FOMO, or a fear of missing out. Historically, the period of mid-October through May is a good period for stocks, but January is, on average, particularly good for small cap stocks. The relative pe...

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The New York Federal Reserve now sees a risk of recession at 33% in the next twelve months. When this indicator rises above 30%, a recession typically follows, although sometimes with a delay of 12-24 months.

The global economy is slowing nearly everywhere, but the U.S. is perceived by many as being in great shape, particularly if measured by the stock market. However, signs of a slowdown are looming in housing, construction, automobiles, and the industrial sector, in the latter case due to trade tensions between the U.S. and China. Purchasing manager Indicators are slowing, both in services and manufacturing, and the rest of the world is cause for concern, with Chinese, South Korean, Japanes...

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The first quarter of 2019 was the best for stock prices since 1998, to such an extent that some caution may be advised in the short term. While the stock market has been climbing, Wall Street analysts have been lowering earnings estimates for the first quarter. In fact median EPS estimates have fallen by 7.2%, which are some of the largest cuts to S&P 500 earnings estimates in years. This is a source of concern.


It’s often a good exercise to be mindful of “the dark side”, even when the market is rising. Fully 1/4 of all the Russell 3000 index, which represents 98% of all US stocks, operate at a loss. Last year, 83% of all IPOs came to the market with negative earnings. Real ...

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2019 is likely to be volatile, but it is unlikely that the U.S. falls into recession. The one thing that could change that is if the partial U.S. government shutdown lasts long enough.

The shutdown is becoming more expensive than the very reason for the shutdown. The U.S. President signed legislation this week promising back pay for Federal workers when the shutdown ends. The problem is that the American taxpayer will then be paying for services which never took place at a rate of $200 million per day, or around $5 billion so far, which equates to the price of the border wall. Economists estimate the partial government shutdown is costing 0.1% of GDP growth to the U.S. every two weeks. We are...

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