Money Is Cheap. Stocks Are Expensive.

As our friend David Rosenberg so succinctly put it in his morning commentary yesterday : "This is all momentum, speculation and liquidity. Fundamentals were thrown out months ago".

Meanwhile, the supply of money in the system (M2) has grown by about 25% since March:

What is an investor to do?

Beware the over-confident, upbeat advice to throw caution to the wind and jump in. Yes, a Covid-19 vaccine appears to be garnering front page headlines, offering us plenty of hope for the future, but read beyond the headlines and the experts are offering up all kinds of cautions about the early stages of trials.

Even if a vaccine is available in early 2021, there is plenty of fast flowing water tearing at the proverbial supports beneath that bridge:

1) The economy bounced back some in May and June from record lows, but unemployment remains rampant and Covid-19 new cases have been going in the wrong direction recently, which will no doubt have a not so hopeful impact on the economic recovery. Ask yourselves this: how comfortable are you dining indoors at a restaurant? Flying? Taking a cruise? Those who were employed in those industries are not coming back to work soon.

Conversing with retired clients yesterday: they are not travelling or dining out (unless it is out of doors and very Covid safe) and lo and behold, their bank accounts are growing. Savings are up. 

Perhaps see the Bloomberg article titled: At Least $1 Trillion is needed to avert U.S. Economic Disaster.

2) But what does it matter if the Fed keeps pumping money into the system? Well it matters when the momentum and speculator type buyers start to wonder when it might be best to cash in their chips (gamblers and day-traders), 'cause the cautious crowd won't (count me in) likely be buying it until they feel a better sense of value. Value matters over the long run. Earnings matter and earnings are a function of economic growth, which in turn is contingent on consumer and business confidence. An unemployed consumer is not going to be so confident. The supply of money in the system will not help the travel and hospitality industries (and retail shops) hiring plans if they are struggling to stay solvent (and how long can they hold out?).

3) The politics of an election year are going to be ramped-up as we head into November. With the sitting president trailing in the polls, expect some desperation moves to possibly un-nerve us cautious types. Looking "strong" on China relations seems to be the current focus of attention, distracting away from pandemic response and civil unrest that have not been kind to him in the polls and betting odds.

Perhaps read David Rosenberg's What Happens If The Democrats Sweep?

4) And finally, there is the debt question: Today's debt binge is tomorrows liability and that liability may put a serious choke-hold on economic growth in the future.

Caution does not sell like optimism and we all want to stay positive, but ask our retired clients who rely on their investment portfolios for their livelihood, they are thrilled with their portfolio performance so far this year.