The market continues to climb and climb… Frankly, it amazes me that it continues to do so, but as a value investor, I’m not seeing much to act on since the market has bounced back from its March’s lows. I positioned long ago just to sit and wait - a trait that is in short supply in our ever faster moving culture.
People say that the market looks through the present and anticipates the future. That is how many explain the inexorable market climb. That sounds like a lot of bull to me. After the virus hit and the markets tanked, I heard many money managers and analysts saying that they couldn’t provide forecasts and “all bets were off”. So, in essence, they don’t have a clue what’s going to happen. In all due respect, no one does or has ever had a crystal ball.
The bottom line is that the economic metrics are in the toilet. Wishful thinking being practiced by the stock market is rampant. Why?
I would venture to say that those participating in the market are clueless about those who have lost jobs and are in dire straits. Seventy percent of the GDP is driven by the consumer. With about 15% unemployment, roughly only 10% of the 70% percent of the consumer spending (.7*.15)= .105) isn’t spending. Take out the business component of GDP and there is even less spending going on.
While government spending can help, sort of like priming the pump, it is not a self-sustaining spend. Businesses, in normal times, earn and spend. Consumers, earn and spend, but government cannot continue to spend because it does not really earn. Sure, government collects taxes, but, in these times those incoming revenues are much curtailed by lack of business and employment activity. The federal government can deficit spend and the fed can print money, but there are long term consequences to pursuing these avenues on a continuing basis.
The vast majority of the economy is driven by the average person since they spend most of their discretionary income just to survive. And… many of those folks are out of work. Are the ½ of the one percent going to make up the spending? The vast majority of their discretionary income is saved. They aren’t likely to spend at a level that will bring the economy out of the doldrums.
So who is driving the stock markets? The ½ of one percent? Maybe they are clueless about the pain this virus has brought the vast majority of the consuming public, so maybe they continue to shovel their discretionary income into this disconnected market while the economy sinks.
I don’t know about you, but I’m just sitting on the sidelines of the market. If the market was down, I would be looking for bargains, but at these levels, “No way, Jose!”
