The Rise Before the Fall?

by JDH on November 14, 2020

There comes a point in time where you look at the markets and say: “this is crazy”.

Here in Ontario, Canada, where many businesses have been in “work from home” mode for 8 months, COVID cases are at record levels: 1,400 a day, as compared to under 600 during the peak in April.  Clearly April was not the peak.  One can rationalize this and look at hospitalizations and deaths.  It is true that the peak in deaths occurred in May, at around 60 per day, and we are less than 20 now, but that’s largely because the long term care homes have the situation somewhat more under control, and most of the new cases now are in the general, more healthy, population.

Hospitalizations peaked at over 1,000 in May, and we are around 450 now.  264 people were in the ICU on April 6 with COVID.  Just over 100 are in the ICU today, and peak ventilator use dropped from over 200 in April to 67 today.  But, as we all know, hospitalizations and ventilators and ICU admittance are a lagging indicator.  Peak cases were on April 25.  Peak hospitalization was on May 7.  Serious medical intervention occurs two to three weeks after peak cases, so if that holds, our hospitals will be approaching capacity in early December.

And then comes Christmas.

Everyone is experiencing “COVID Fatigue”.  We want our lives to return to normal.

For those who have not contracted the virus, and don’t know anyone close to them who has, the prevailing description of their mental mood is “meh”.

So when the holiday season arrives, many people will acknowledge that they should stay home and not expand their bubble, but after 9 months of isolation, 9 months of not seeing your distant family, and your friends, many will say “screw it, I don’t want to live this way, I’m having my family over for Christmas”.

You can’t blame them.

And that will inevitably lead to another spike in cases, the third wave, in early January.  It will be the depths of winter, outdoor gatherings for a coffee will not be possible, we will have no choice but to meet inside, and that will keep the virus going strong until the spring.

Restaurants are closed, many permanently.

Same with gyms and bars.

Hair salons are operating at half capacity, so many in that industry are laid off.

For many companies, “work from home” means “working much less efficiently”.

And yet, on Friday, the markets, like the S&P 500, closed at record highs.

How is that possible?

There are two obvious answers:

The first answer is that the markets are a forward-looking mechanism, and are pricing in a vaccine, and in a few months everything will be back to normal, or better than normal due to pent up demand.  That seems unlikely to me.  We don’t have a vaccine, and even if we did, we don’t have a way to mass produce it and distribute it to 7 million people, so COVID will be with us for at least another year, probably two or three before it does what every previous virus has done: burn itself out.  If that’s true, the market should be crashing, not reaching new highs.

The more obvious answer is that governments around the world continue to print money, and that massive stimulus has found its way to the markets, and that, and only that, is keeping the markets aloft.

So how do you play it?

I am increasingly on the sidelines.  In periods of uncertainty, standing back, holding cash, is safer than putting your head on a guillotine.

I predicted a Trump win, and I’m still not convinced he won’t win.  My current guess is that there was massive voter fraud.  How can there not be when you let people mail in their ballots, and there is no chain of control to make sure that only legitimate ballots are counted?  The question is not whether or not there was fraud, but whether or not it can be proven, and in sufficient quantities to flip the election.  My guess is that Trump will prove it, but he will realize that America is in for a tough year or two.  The economy is teetering on the edge, so his best course of action would be to, after proving he won, concede, and let Joe take over.

Joe lasts for a year, Kamala takes over during the depths of the depression, Trump starts a media channel so he can bypass the censors in the main stream media, and he runs again in 2024.

Crazy, but no more crazy than what has already happened this year.

If that happens, you will want to sell your stock in Twitter, and all main stream media, because without Trump to bash they are all out of business.

As for gold, I’m not sure, but I assume massive money printing is ultimately good for gold.

That’s my current view of the world.

Do with it what you will.

Wash your hands.

See you next week.