Heads I Win, Tails You Lose

[Money Trends with Andy Krieger]( Welcome to Money Trends! If this is your first time reading one of our issues, learn more about us [here](. And if you have any questions or comments, shoot us a note anytime [here]( or at feedback@andykriegertrading.com. Heads I Win, Tails You Lose By Andy Krieger, Editor, Money Trends If you didn’t heed my warning last week, you’ll want to read today’s essay closely… As I wrote then, it’s only a matter of time before a major bump in the road to recovery forces a reassessment and repricing of risky assets. I even pointed out the [top risks facing our markets today](. Below, I’ll show you why that repricing is around the corner for stocks… along with the most worrying warning signs the bulls are missing. Heads I Win, Tails You Lose I categorize stocks as risky assets. But judging from recent market behavior, they haven’t been behaving that way at all. However, it’s not fair to assume that investors piling into the market are ill-informed or stupid. So let’s try to understand what their thought processes might be. Plenty of thoughtful traders are trying to learn as much as possible about epidemiology. They are getting schooled on the fatality rates and hospitalization numbers. Both things could force governments to lock down again or otherwise sink the economic recovery. Ultimately, though, their thoughts revolve around whether the case count translates into a higher trend in deaths. Mortality matters! Even if I disagree with some of their assumptions, I can respect their professional approach and thoughtfulness. Essentially, these people won’t change their modus operandi unless there are catastrophic developments. They’re happy to lean on the de facto “put option” issued by the Fed (which I wrote about [here]( and continue to discount a strong economic recovery. But there are many retail traders who are less sophisticated in their approach. For them, the logic is simple… If restaurants and retail shops open up, and spending picks up, then the economy will bounce back, company earnings will improve, and stocks will rally. If things don’t open up, then the Treasury and the Fed will throw trillions more at our economic problems, so stocks will go up anyway. Wow! Heads I win, tails you lose. They truly believe the market is rigged and there is only one way for stocks to go… UP! From their perspective, we have no risk. I suppose, no matter what, we should all just go and leverage up our assets as much as possible, and keep buying as many risky assets as possible. It’s that kind of thinking that I find idiotic. That aside, I believe the professional traders who are bullish are missing a few key points. Let me explain… Bulls Are Missing These Warning Signs First, authorities don’t want the virus to spread. So they’ll almost certainly impose more and more restrictions. As a result, the healthy rebound in consumer services since mid-April now appears likely to stall in July and August. These restrictions may not come from the federal level. But if COVID-19 keeps spreading, we can be sure that the health and wellbeing of citizens will take priority over economic output at the state and local level. If the death rate starts to climb again, measures will become far more draconian. The ongoing recovery in manufacturing and construction will be less affected, but that is not the main driver in our economy. In states where COVID-19 infections are rising, we’ve already seen sharp declines in consumer and workplace activity over the past few weeks. Those states are California, Texas, Florida, and Arizona. Together, they make up about 30% of all U.S. economic output. At a minimum, we need to anticipate at least a flattening of activity in many other states. With that, the rebound will stall. And the Fed’s many warnings about enormous uncertainty clouding the picture of the economic recovery will become realized. Meanwhile, the stock market has been pushing higher since March. That recovery is not unprecedented, but it is amazing. In fact, we need to go back to the 1930s to find comparable rallies. Back then, the extremely sharp rallies preceded still sharper sell-offs. It took 26 years for the bear market – which started with the Crash of 1929 – to fully recover to new highs! Do I expect a comparably bleak future? It’s unlikely, but not impossible. It would require some very bad shocks… coupled with many more years of foolish, desperate policies from our government and central bankers. So I put it as a low probability. That said, I do expect certain sectors to suffer for years. More to come… Regards, Andy Krieger Editor, Money Trends P.S. Since 1984, I have traded through many market crises. I traded through the Plaza Accord of 1985, for example, when central banks teamed up to knock down the value of the dollar… the stock market crash of 1987, otherwise known as Black Monday… the dot-com collapse… and the crisis of 2007-2008… But in my 40 years of trading, I have never seen a stock market as mispriced as this one. If you didn’t heed the [warning I sent in February]( you’re worried about where the market is going next… [watch this](. [Money Trends with Andy Krieger]( Andy Krieger Trading 55 NE 5th Avenue, Delray Beach, FL 33483 [www.andykriegertrading.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This email was sent to {EMAIL} because you subscribed to this service. If you no longer wish to receive emails from Money Trends with Andy Krieger, [click here](. Andy Krieger Trading welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. 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