What happens if the consensus has the consensus wrong?
This morning, three of my favorite strategists came on the air and said they are bullish, in part, because everyone is so bearish. Each one took turns to talk about how those bears would get converted -- fresh cash -- as we go higher.
There's only one problem: When one strategist tells you that everyone's bearish as a prop for a bullish view, that's a listen-up moment. When two say everyone's too bearish, then you start thinking, hey maybe there's a lot of bears, but maybe too many of them have already been converted to the bull camp.
But when three big shot strategists say that there are too few bulls, you have to think, Wait a second, maybe the consensus isn't what it seems, maybe there are too many bulls for the moment, not bears. Maybe the consensus has the wrong consensus.
There could very well be too many people who like this market, or worse, are in love with it.
Maybe that's a big reason why the market fell so easily and could keep falling until we actually do have more bears than bulls.
Now these strategists and the others I know who are bullish don't just rely on sentiment. They are rigorous people who make judgements based on hard facts and there are plenty of reasons to be bullish, everything from low interest rates, to robust earnings, massive liquidity and finally, the vaccine itself. I agree all of these are a very good and can propel us higher.
But I also think they have a whistling past the graveyard tenor to them. Literally.
Let me explain.
First, it's one thing to read about the growing number of cases -- Wednesday, for example, had 142,000 -- it's another thing to realize that if it keeps growing at this pace, there's the possibility that a gigantic portion of this country is going to get the darned thing. Some are saying this most recent spike is from Halloween parties.
That's nonsense. Don't we see it's not a spike? It's a continuum.
We used to think there were hot spots, like nursing homes or places of worship. But now it's a disease that more and more are catching and not just because they don't wear masks at contagious public gatherings. They are getting it casually, by having dinners among friends or their kids coming home from school. Thanksgiving is a few weeks away. What happens then? It's like some sort of Stephen King novel where there are all sorts of ticking time bombs all over the place. No hot spots. How about hot swaths.
It's like some sort of Stephen King novel where there are all sorts of ticking time bombs all over the place. No hot spots. How about hot swaths.
Now I know many people in this country think that it can be the equivalent of a bad cold and that it's only older people and people with so-called co-morbidities who are really threatened by it. Others have seen the president get it, go to the hospital for a couple of days and come out stronger than ever.
But the president got a breakthrough drug made by Regeneron (REGN) one that you will almost certainly not get, if you catch the virus. Meanwhile, I know this is unbelievable, but even as they know how to treat it better if you get a severe case, the doctors don't make house calls. You have to go to hospitals and you need to be treated by professionals. Both are becoming increasingly stretched. Right now, we have been able to avoid a lot of death, not just because the disease is often not lethal, but also because we have figured out how to handle it better. But what if we can't handle it, because there are not enough health care professionals to handle it? Then you get into the Stephen King set up where a disease that's not thought to be all that lethal gets more and more lethal and the principal reason so many authorities tell us not to worry is gone.
What happens then?
We keep hearing that no party wants to have a lockdown. We know the lockdown we had was brutal to the U.S. economy. We basically had to pay people not to work, so they could stay home and flatten the curve. Remember that term? You don't hear much of that anymore.
This time around, there most likely won't be a mandatory shelter-in-place order given the negative political connotations. President Donald Trump often played the Democratic lockdown threat as a Trump card, so speak. It's a sure way to lose the electorate.
Instead, what will happen is, ultimately, no one will go anywhere, especially if they have to wear masks and keep distance and contact trace, something that so many don't even bother with, because they don't work or are considered feckless defenses. After a while, it will be so obvious that going to a bar or restaurant can be so dangerous if rules aren't enforced that even the most courageous or stupid will stop going to. They will hunker down creating their own de facto stay-in-place lockdown. Except, this time, there won't be any extra money from the Feds to tide people over until we get the vaccine.
Last time, very unfairly, we had a lockdown where only essential stores were allowed to be open. We could have the same thing again, except this time it won't be government-mandated and there will be no government compensation like the brilliant Paycheck Protection Program that tided over so many people and businesses until we did flatten the curve. It will be because you are sick or a family member is sick or because you fear going out because maybe you are the one that needs to go to a hospital that can't help you, one that is locked down itself.
That's not a recipe for a robust consumer or a robust economy. Try as we may to pretend we are not a service economy, that's what we are. Thank heavens the Fed is keeping rates low, and there are homes for sale and people moving to them and then refurbishing them and then needing a car to get around. That sequence is keeping this economy alive. It presumes, though, that the enterprise you work for stays in business. So far so good. How long can that last.
In that environment, many small and medium sized businesses would be challenged almost as much as they were in the government lockdown. This time, though, it's possible that public companies, especially the banks, won't be as willing to offer forgiveness. Perhaps they will have a heart and wait to foreclose or declare default until we get the vaccine. Then again, perhaps the bank examiners won't let them.
In this void, what leadership do we have?
I heard from the president today. He sent me and millions of others a campaign appeal to protect the electoral process. Just when you thought you voted and we had an election, the president's campaigning as if there's another race going on right now. Meanwhile, the Democrats don't seem to be in the mood to get any stimulus deal done. The public health leadership is in shambles. It was terrific to hear Dr. Anthony Fauci say there is light at the end of the tunnel. I am hopeful that we get good news from Moderna (MRNA) , Johnson & Johnson (JNJ) ,GlaxoSmithKline (GSL) and Merck (MRK) . In particular I would like to know that JNJ has a billion vaccines right now in freezer warehouses all over the country. I want Merck to have a pill we can take that takes morbidity off the table.
Without those, though, I can see a world where we stop traveling, perhaps forcing all of the airlines to do what American (AAL) did, offer a huge chunk of stock, or worse, get more money from the government, if there is a government. I can see bankruptcy looming for the minor retail chains and for many a mall store. Consumer spending declines when you or a family member are sick and the numbers are saying that such a result is becoming increasingly more likely.
Of course, these bear cases could go away if the president and the President-elect Joe Biden get together and plot out a way to get the vaccine to us as quickly as possible. If JNJ has all the vaccines and if the other companies pool their vaccines, and we set up schedules and marshal sites where you can get it, like public schools, which they used to give you the polio vaccine.
Now here's what, if you are a bull, you have to hope: that you know all of these things and they mean nothing to you. All that matters is that you hold old on until we get the vaccines. If you don't feel that way, though, accept that there will be pain as others take action on their fears and lower prices beckon.