06-15-2020: Musings from the Thick of the Fracas

I have been positing the notion that the Fed/Gov unlimited QE on steroids has put a "floor" in this market. This morning, when it looked like the wheels were falling off this market as it tumbled well over 600 points lower in the pre-market, many investors (and you know who you are) were thinking it is time to bail out... some were even shorting.

And, then... right on que... the Fed came riding in with even more 'so-called' stimulus in the form of buying (even) more corporate bonds so that bond-holders don't get wiped out and corporations can simply say that they want more money and issue a bond that the Fed buys with money made out of thin air. It's a wonderful, magical thing going on. I heard one pundit saying that it won't be long before the Fed owns over half of all the bond debt in the world. What the Fed is doing reminds me of a bumper sticker I saw eons ago, which went something like this: "I can't be overdrawn, I still have checks left." Of course, that was back in the day when people actually wrote checks for stuff.

It must be nice to just say, "We need more money and the money magically shows up in the bank." That's the way the Fed works.

But, I digress... I mentioned that I believe this market has a "floor" in it. 'Some' inquiring minds want to know exactly what I mean by making that statement.

My guess (and it is a guess) is that both monetary and fiscal stimulus, in the form of trillions upon trillions of dollars printed out of nothing but unlimited amounts of ink, is being dumped into the economy to avoid a domino effect from occurring where the economy collapses on itself due to the COVID-19 shutdown of the economy. What surprises me the most, is the speed at which these stimuli are occurring. It makes me wonder if the condition of the economy is actually far worse than anyone knows (publicly) and all of this free money is nothing more than an attempt to stay ahead of the curve. And, guess what? It seems to be working.

We got a little sell-off last week and the start of another ugly day in the market today and the Fed jumps right in to keep the market propped up. What's coming next, a $4,000 gift per family if they take a vacation in the US? Oh... sorry... that one's already in the pipeline, I hear.

So... the real question is, "At what level will the government (one way or the other) backstop a falling stock market?" My guess is, it is not too far from where the market closed today. Maybe it's the 200-day moving average of the S&P 500... could be, but that seems a bit too tight. I am leaning more toward one standard deviation below the 200-day moving average is where the Fed/Treasury/Congress/Trump (et al), drop another golden parachute into the mix.

If I am right... and I'm beginning to think I just might be (for a while, anyway)... then every sell-off in this market could be viewed as a buying opportunity.

Now, as a fiduciary, I must hasten to add that the above, almost absurd, statement is most likely NOT true. But, it will not surprise me to see that there is more truth in it than not.

We may never know for sure whether or not this is true (that the government has put a floor in this market) because, as the great unwashed, we are not privy to the inner workings of the Star Chamber.

But, this much I am sure of... this backstopping 'floor' in the market (assuming there is one) will not last forever. One of these days the spigot of free money will be turned off. One of these days, the trillions of dollars of free money will have to be paid back in one form (taxes) or another (inflation). For now, though, buying into sell-offs may not be such a bad idea... risky... but not a horrible idea, either.

And just to be brutally clear... the above is ONLY a guess on my part, so buyer-beware if you move on these ideas... I could be completely out in left field on this.

Oh... by the way... My clients had a great day today. All 4 models were up. A good time was had by all.

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