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This is War

Updated: Jul 20, 2023

As many of you know, I’m not personally a big-government kind of guy, but these are unusual times, to say the least. This morning, The Wall Street Journal reported:

The Fed said it would offer through banks four-year loans in which payments can be deferred for one year to businesses with up to 10,000 employees or revenues of less than $2.5 billion. Loans through this Main Street Lending Program, which will initially fund up to $600 billion in loans, will be subject to restrictions on stock buybacks, dividends and executive compensation. Firms that have received separate forgivable loans for payroll costs from the Small Business Administration will be eligible to seek Main Street loans as well.

In addition to the Main Street Lending Program, the Fed announced this morning that it will increase the flow of credit to households and companies by expanding facilities to support up to $850 billion in lending as well as provide up to $500 billion of credit to states and municipalities.

This direct action for small businesses, medium enterprises and municipalities is simply not optional at this juncture. As for my personal political proclivities, who cares? This is war. We’re fighting with biotechnology and financial liquidity instead of fighter planes and battleships, but make no mistake about it, this is war. We can argue about what was fair and what wasn’t later, and we can debate who should have gotten what after we’ve stemmed the hemorrhage of families’ paychecks and buried our dead.

To put it mildly, I have been troubled by all the recent bullishness in the market. We just saw this morning that another 6.6 million people filed for unemployment this week; that’s more than a million more than what the consensus estimate was.

As Satori Fund manager Dan Niles said last week on CNBC, “If you go back and look at history, there are nine times that the market has sold off about 30% or so since the 1920s, so (this sort of market bounce) is pretty normal,” he said. “You get one of these every 10 years or so, and if you look at every one of them, you always get these bear market rallies.”

And I think that’s exactly what this is-- a bear market rally. Dan continued, “So these rallies kept sucking investors back in, you know, in the sense that you thought it was over and then you got worked over.”

We are bleeding jobs. 16 million jobs lost in three weeks, and those are the ones we know about. That puts us at 13% unemployment, the highest in 80 years! If the market has gone down this much just nine times in the last century and took a long time to come back every other time, I don’t see any reason to think this will be the one time that everything’s fixed in just a month. We expect a strong economic upswing when we come out of this but contend this is far too early. As we wrote here on March 22, we continue to recommend for most investors to buy the dips and sell the rallies. Especially this one.

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