Not sure if these will ever come to a head and affect the markets, but here’s stuff that is negative but have not been reacted to:
- The forward outlook now is much worse than it was before the pandemic at the same equity prices. Market seems to be taking “better than expected” news way too far. The current rally is 100% P/E expansion. Otherwise, you would need to argue that the market is pricing in something like 50% earnings growth over the next 2 years, which is a joke.
- Virus cases are spiking again. We are now seeing a 3rd global wave (past two days have shown record number of new cases). First wave was China and parts of Asia. Second wave was US and Europe. Now, we’re seeing Russia, India, and South America getting hammered. Will this ping pong back to us in a 4th wave? Nobody knows for sure. Also, US cases have been ticking up these past couple of days. Will see in a week if reopening will cause another spike.
- Despite all the Fed pumping, these are mostly loans, not grants. As a result, we’re continuing to see bankruptcies, with Hertz being the most notable recent casualty. When these loans come due, and all the deferred rent and mortgage payments get called, we’ll see if things will seize up. Also, Fed liquidity will run out at some point. It’s kind of a catch-22. If markets are going up, the Fed is not going to do anything. Eventually, that money will run out. We’ll need another crash before they step back in. If inflation ever spikes, then the Fed is done.
- The market is acting as if US/China relations are not worsening. The crazy rally today after no immediate sanctions and tariffs is ignoring the direction things are going. Despite the lack of action, the language used today by Trump made it sound like he was declaring war. The Chinese care a lot about face and won’t simply ignore this. Hong Kong is going to become a tinderbox, particularly in June when the Security Law becomes official. The recent language regarding Taiwan is not promising either (a general said earlier today that they would use military force if peaceful annexation becomes impossible).
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.