Wall Street’s Back to “Full Bull”

As the bad penny returns to its sender, as the dog returns to its vomit… Wall Street returns to its bull.

That is, Wall Street is nearing “full bull.”

Thus concludes Bank of America Chief Investment Officer Michael Hartnett.

We might add a four-letter scatological conclusion to “bull”… yet our harsh Presbyterian standard forbids it.

The latest Fund Manager Survey is out. That is a monthly barometer of roughly 200 fund managers throughout Earth.

And this barometer indicates fair winds and clear skies ahead.

66% of the surveyed believe the global economy is in “early-cycle phase.” That is the highest barometric reading since March 2010.

84% expect an upswing in global growth — the highest percentage in18 years.

73% project a steeper yield curve. That is a record high reading.

In reminder, a steeper yield curve foretells higher growth ahead. A flattened yield curve indicates the opposite.

Greed Is Back

Why precisely is Wall Street nearing “full bull?” BloombergQuint:

The global equity markets rebounded on the back of improving macros, the U.S. election outcome and hopes surrounding a potential Covid-19 vaccine. Cash levels have declined to 4.1% in November from 4.4% in October and 4.8% in September, the survey of a total of 216 panellists with $573 billion assets under management showed. Cash level of less than 4% indicates greed and over 5% fear.

In March… in the razor teeth of the pandemic… CNN’s “Fear and Greed” index had plunged to 2 out of 100 “extreme fear.”

The same index presently reads 72  — “greed.” Any reading above 75 ranges into “extreme greed.”

For investors, the nightmare march through the dark, treacherous valley is over. And the wide, sun-soaked uplands are in eyesight.

“Dow 30,000 is dead ahead!”

Thus an arctic chill freezes our spinal column… and cold sweat streams down our ashen face.

It’s the Good News We Worry About

For as we have noted before: Bad news frightens us — but good news terrifies us.

Too many hopes go up, too many guards go down, too many fools go in, too many “buy, buy, buys” go out.

But when a crowd bunches together, we instinctively quicken step… and beat a course for the exits.

That is because crowds make us vaguely uneasy. Unsettled. Anxious.

This bullish crowd particularly flusters us. For it gathers around the narrative of “improving macros.”

Yet we direct you to the following photographs, taken this prior weekend…

Wall Street Feasts, Main Street Starves

These images depict thousands of automobiles, horizon to horizon, a convoy of the hungry, creeping towards a food bank in Dallas, Texas.



Are these the images of improving macros?

The North Texas Food Bank piled over 600,000 pounds of food into 25,000 growling bellies last weekend.

Incidentally, our understrappers inform us that internet searches for “drive thru food bank near me” are overloading the circuitry.

Lest doubt remain — the stock market is not the economy.

A Return to Full Employment in 2026?

Meantime, pre-pandemic unemployment sunk to record lows of 3% or less. It went rocketing to 14.7% in April (likely higher) as millions were thrown from their jobs.

Today the official rate hovers at 6.9%. Yet additional lockdowns loom — and fresh issuances of pink slips.

When might unemployment return to its pre-pandemic lows?

To steal a possible glance into the future… we look to the past recession, the 2008 recession.

United States employment did not fully recover for 76 months — over six years.

Assume a parallel projection…

Pre-pandemic unemployment levels would return in 2026.

They may return sooner than 2026 of course. Yet they could return later than 2026.

Later, because the pandemic may flatten multiple industries for years and years.

These include the travel and hospitality industry, the restaurant industry, the entertainment industry, et cetera.

It is our sincere wish that these industries emerge intact — and sooner than we fear.

Yet we are not half so convinced they will.

Each Recovery Recovers Less

Meantime, today’s debt burden sits far heavier on the economy than in 2008. And debt drags on an economy as a millstone hung about a man’s neck drags on the man.

Total pre-pandemic debt levels already ran to $75 trillion or some other enormity. And debt is piling on by the heap, by the load, by the bushel.

Headway will therefore be limited, the sledding difficult.

Here Michael Lebowitz and Jack Scott of Real Inves‌tment Advice pencil an imaginary line. This line connects the 1990 recession, the 2001 recession, the 2008–09 recession… and the 2020 recession.

The line forms a downward slope. Each recession requires more time to recover than the previous recession. And each is saddled with more debt than the previous recession:

  • The [2008–09] recession was broader based, and affected more industries, citizens, and nations, than the prior recessions of 1990 and 2001
  • The 2008–09 recession and recovery also required significantly more fiscal and monetary policy to boost economic activity
  • The amount of federal, corporate and individual debt was significantly lower in 1990 and 2001 than 2008–09
  • The natural economic growth rate for 1990 and 2001 was higher than the rate going into the 2008–09 recession.

What about growth rates to come?

Half the Previous Rate of Growth

These two gentlemen tie up to this conclusion:

“The economic growth rate going forward may be half of the already weak pace heading into the (2020) recession.”

Meantime, the Congressional Budget Office estimates:

The pandemic will hack $8 trillion off real GDP these next 10 years… and $15.7 trillion off nominal GDP.

Real GDP minuses out inflation’s false additions, of course. Nominal GDP does not.

This lost GDP — if the figures are accurate — is GDP lost forever.

What Will Never Be

It is aborted wealth, pre-murdered wealth.

It represents houses never inhabited, automobiles never driven, airplanes never flown, jobs never performed, vacations never taken…

It represents computers that will never compute, televisions that will never televise, hacksaws that will never hacksaw, medicines that will never medicate, air conditioners that will never condition the air…

It represents businesses that will never do a lick of business.

That is, this lost GDP represents a diminished national life. And potentially a vastly diminished national life if actual numbers prove even worse.

One year of slack growth, two years of slack growth, these are endurable.

Yet a string of annual slack growth is not…

The Long Run

Average real annual economic growth since 1980 runs to 3.22%.

Yet since 2009… that figure has fallen to 2.23%.

What if the pre-2009 3.22% rate held steady?

Jim Rickards estimates the United States would be at least $4 trillion wealthier today.

Extend the malaise 30, 50, 60 years, Jim says… and you arrive at a dismal conclusion:

A society that grows at 3.22% will be twice as rich as one that grows at 2.23% over the course of an average lifetime.

Assume two men. The first has enjoyed vast wealth but lost it. The second never knew wealth whatsoever.

The first man is the more pitiful of the two… for he knows what he has lost.

The second man cannot miss what he has never known.

Unless existing trends reverse, the United States may one day feel the sting…


Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The Daily Reckoning