When one in four people in this country files for unemployment in a given week, you know that it's time for the market to plummet, correct?
Then why can you have a rip-snorting rally instead? How can 40 million people be living on the dole, as they used to call it, and we are closing in on all-time highs on a host of indexes? Is that the wacky Wall Streeters oblivious to the pain of Main Street again, mocking the newfound poverty and the loss of dignity that comes with it?
It's not Christmastime, but the fingerprints of Jacob Marley must be all over this one.
Actually, it's something quite different, and we've got to wrestle with this one, not only because we are growing further away from where incredibly rich sages have slammed this rally as among the most dangerous of our time, thus scaring the heck of out of the far less rich and sending them to the sidelines, just when the market came roaring back.
I am not going to single out the big hedge fund managers who came on air and swore that Armageddon looks like a darty compared to what awaits us. I won't single them out, because I know enough of them to tell you it's by far the prevalent view. I don't know a rich person who is riding this one out, although I am sure there are some who maintain small stock positions by happenstance having had already retreated to their secret hideaways, guarded by turreted walls, Claymore mines and the requisite number of RPGs and AR 15s, America's rifle, as it's known to the cognoscenti.
But what matters is why did they get it wrong. I am going to tell you, because while they ultimately can be right, no one here is willing to settle for ultimate and I respect that. If you can make money when there is not a little but a lot of green to be harvested, it's your duty to try to get it. The rich only need to get rich once, so they can't be trusted to take risk.
We do not have that luxury.
So, why is the market going up when it should be plummeting like it did during the Great Depression, when we last had this employment number?
First, there's a new cohort of buyers who know that there was no safety net in the 1930s. The banks went belly-up, the money in your account disappeared, corporations had no liquidity lifelines and unemployment insurance didn't exist. This time we've got the Fed creating liquidity that pretty much guarantees any publicly traded company a shot a getting capital through the bond market. We've had a trillion dollars' worth of issuance, a lot of it because Fed Chief Jay Powell has studied history and knew that it was time to say it would buy high yield bonds. Just the utterance saved the day. Don't you think it's amazing that only one major company has filed for reorganization, Hertz (HTZ) , despite 25% of the country being unemployed.
Second, we are learning just how important the one-time $1,200 payouts are, as well as the $600 extra per week in unemployment benefits. Three terrific indicators I follow, the sales of Autozone (AZO) , Burlington Stores (BURL) , Dollar General (DG) and Dollar Tree (DLTR) , places where the thrifty and the do-it-yourselfers shop, reported phenomenal numbers and cited the benefits of a munificent federal government. That money, and the trillions of other dollars being printed by the feds, including the paycheck protection program is keeping us afloat. Another lesson learned from the great depression where the feds just wouldn't print the money needed and insisted that souls work for a living even if it was make-work, which it often was.
Third, it's become clear to many that many state governments, searching for whatever might or might not be right to stem the pandemic, erred on the side of extreme lockdown. Many now believe that the worst of the virus might be over and that means a business world almost back to normal.
I am not so sure this is true.
As a small business person, I know that most of the smaller enterprises rely on crowds to succeed. Their margins are too thin to thrive without throngs. But there are visions of the end of the virus dancing in a lot of buyers' heads and their view has -- right or wrong -- been the one that has made you the most money since the fear bottom in March, some 7,000 Dow points ago.
Fourth, the vaccine. It wasn't long ago that the prevalent attitude among most of the medical historians and their financial acolytes was to refuse to believe that a vaccine could be developed in any period that would be sufficient to turn this economy around. The land-speed record for a vaccine is four years for a disease called mumps, which, trust me, was painful as all get out.
But now almost every major pharmaceutical company in the world is working on a vaccine as well as a lot of large and small biotechs. That's never happened before. While Covid-19 may be sly, the scientists at these firms aren't dopes, and, more importantly, the executives are among the most cautious in the world. So, when we hear Merck's (MRK) Ken Frazier talk about the near-term possibilities of a vaccine, or Alex Gorsky's Johnson & Johnson (JNJ) talk about something workable in the billions of doses by early next year, it seems that there could be a breakthrough that no one counted on, not that long ago, except the president.
Vaccine plus vanquished virus equals victory.
That's why we have so many retailers at or near their all-time highs. That's why there are stocks of so many companies that help people work from home on a relentless drive higher. Many of the techies -- like Workday (WDAY) , with a stock up huge Thursday -- save money for companies, something that's crucial if they are going to see through this. Health care, tech, and essential retail have been standouts and they are the chief drivers since the bottom.
So, if all of these good things are behind the rally, then why don't people believe it? Why does the disconnect persist and the market's strength continue to befuddle?
I think it's because of a third "V", not vaccine, not vanquished virus -- I am counting that as one V --but the V-shaped recession. The other day Jamie Dimon, the most important banker in the world save Jay Powell, predicted what amounted to a short, sharp recession, also known as a V, or quick down and then a rapid up, something that could fit in perfectly with the other two Vs. We tame the virus, as a bridge to a vaccine and that causes a V, which brings victory, holy cow a fourth V. It could be like we're back to where we were before this scourge came to our shores.
Overnight the V, which had been considered a long-shot, became the prevalent view, which has produced a 5% return in days and put us far away from where we were when the jeremiads were at their loudest.
How do I feel about all of this? I find it phantasmagorical, because there's been so much damage and destruction already to the small and medium-sized service operations that have either been doomed by social distancing or have missed too many payrolls or debt payments, because they were not deemed essential.
So why own stocks? Because as I will never cease reminding you, we have a new economy, one based on nimble behemoth technology and health care companies coupled with a few winning retailers with tattered competition and financial technology companies like Paypal (PYPL) that are so busy taking over the world they can't be halted by a larger gulf between a vanquished virus and victorious V.
It's a new market, and a new economy, one with a ton of economically insensitive stocks and a Fed and a Treasury schooled in the history of financial panics and failures -- and who have learned from the mistakes of the past and are not doomed to repeat them.