How Am I? Not So Good

In last week’s Lund Loop newsletter I wrote the following.

On a completely theoretical - take this with a grain of salt basis - I feel like we’re now in that phase where the government is going to be proactively intervening in the markets - think Financial Crisis.

I also suspect we’ll see central banks and governments co-operate on a fiscal stimulus package, probably announced early in the week, maybe even Sunday night.

And almost like magic, that’s exactly what happened last Sunday night, proving once again that the Fed reads the Lund Loop

However, there was a glaring omission in the one, two, three, yes, count em, three stimulus packages announced last week.

There was no allocation of funds directed towards finding new superlatives to describe this market – and I’m completely out.

Way back in olden times – eight days ago – when I wrote this tweet, it was the truth.

Since then I could’ve written it again many times over and still been telling the truth.

Up until two weeks ago, I think I only remember seeing one limit day in the futures – and now there have been six? Seven? Eight?

Who knows? I don’t even know what fucking day it is anymore. I’m not doing good. More on that later.

The frequency of limit days recently even has some traders questioning if they matter anymore. (The Wall Street Journal)     

So how bad of a week was it?

Monday was the third worst day ever for the S&P 500, the second-worst for the DJIA, and the worst day on record for the Nasdaq.

Oh, and the VIX broke. Well, not exactly, but close.

The old VIX hit record levels on Black Monday in 1987, but the new VIX, the revamped one they created in 1990 and which we use now, hit its all-time high this past Monday.

As of this writing, the death toll from COVID-19 in the U.S. stands at 260, and though in a country of 327 million that still doesn’t seem like a pandemic to me, it’s now a moot point.

We are acting like it is, and damage has been done, both to the economy and the stock market.

By some estimates, we’re going to see 3 million unemployment claims in the next report – four times as many as the previous high of 700,000 back in 1982.

We’ve panicked. And it’s hard to tell what that will cost us in the long run.

In the short term, the question is, what metrics will we use to decide to sound the “all clear” – and who will make that call?

It’s anybody’s guess but I have thoughts on how things might play out.

Right now, the quarantine experience is like when the power goes out in your house on a rainy night. At first, it’s kind of cool.

You get out the candles, grab some blankets, and everybody gathers in one room. Maybe you even build a fire and make indoor smores. It’s different, but fun.

But if the electricity is still out two days later, it’s not so much goddamn fun anymore.

The longer the quarantine goes on, the more restless the population is going to get. Especially as we get past the first two weeks – and the first missed paychecks.

At some point, people are going to want to go back to work, open their businesses up, and take their chances interacting with other human beings again.

As a rule, we don’t talk politics in the Lund Loop – but there is a political angle here related to a restless population suffering from cabin fever.

So put aside your party affiliations for a moment and imagine the mindset of the vast centrist masses as I unpack this theory based upon objective data, human nature, and political self-interest.

On Friday morning, a poll was released that found 55% of Americans approve of the way President Trump is handling the coronavirus crisis. (The Hill)

One week ago that number was 43%, meaning his approval rating has jumped 12% in just seven days.

How much have you seen Joe Biden during those seven days?

Every day, multiple times a day, Trump is out there with his team telling Americans what steps are being taken to combat the virus and what he is doing for the country.

Yeah, I get it. I know all the arguments you’re making in your head right now about how this is BS and he’s just covering his ass, etc.

But like the markets, we don’t care about the narrative, we just care about the facts.

During the last week, he has sucked up all the air from the Democratic party. He’s up there daily on TV looking “presidential” to a significant part of the population.

And during that same time, two Democrat governors have shut down California and New York - 22% of the United States’ GDP.

When the quarantined masses have finally gone stir crazy, who do you think they are going to view as standing in the way of getting things back to “normal?”

My point is, it’s in the best self-interest of both parties to get things up and running as fast as possible.

As testing rolls out nationwide we will no doubt see new cases of COVID-19 spike, but as long as the number of deaths doesn’t spike, politicians from both sides of the aisle will be heavily incentivized to lift restrictions.

If that starts to happen by the end of the initial 14-day quarantine period – which I admit is pie-in-the-sky optimistic – the stock market could rocket higher, [said in a Trump voice] like nothing we’ve ever seen before.

But the longer it takes to get things back to normal, the more damage will be done, and the longer it will take for the economy and the market to recover.

I think - despite the government stimulus packages - we could go about a month at most in shutdown mode before sustaining permanent economic damage.

One thing is for sure, generations from now they will still be debating the wisdom of the shutdown - though some are starting to question it already. (The Wall Street Journal)

Next week should be very interesting. If the market doesn’t stop going down, first look for a short-selling ban.

That’s more of a psychological move because, at this point, it ain’t short-sellers who are keeping the market down. But if that doesn’t help, closing the markets for a while is probably on the table.

Good times, huh?

Okay, let’s get to those charts…

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