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    Market Update: The Battle For Control

    Which side will prevail in the markets going forward? Reality or rescue?
    by Adam Taggart

    Friday, April 24, 2020, 10:26 AM

As more data pours in showing the severe and worsening contraction of the global economy due to the impact of covid-19, it’s becoming increasingly clear that the only thing propping up today’s financial markets is the $trillions in rescue stimulus promised by governments across the globe.

Bloomberg estimates that flood to be in the range of $8 trillion — and counting.

Will it be enough?

Time will tell. But, for now, it has been enough to keep the markets elevated. As reported last week, the FAANG stock complex is back at an all-time high.

Here at PeakProsperity.com, we’ve long been critical of central banks’ upward influence on the financial markets, which prior to covid-19, distorted asset prices far higher than fundamentals justified and created accelerating inequity between the rich and the rest of society.

Those issues are now exacerbated by the abovementioned new $8 trillion, though there’s an important twist this time. The problems the central planners are trying to address aren’t easily solved by simply forcing liquidity into the system.

The world is experiencing one of the worst demand shocks in history. In America, more than 26 million workers have lost their jobs over just the past 5 weeks:

new jobless claimsBankruptcies tend to follow layoff by three to six months, so we can expect to see a tsunami of business failures over the next two quarters.

Supporting this prediction, we can already see the massive drop in demand US businesses are experiencing the initial April Purchasing Manager Index:

US PMI

The charts for Japan and the Eurozone look the same or worse.

Perhaps nothing exhibits the magnitude of the current global drop in economic activity more starkly than the price of oil, which went briefly negative earlier this week for the first time in history. While there are pinch points in the petroleum supply chain that amplify the pain when gluts like the one we’re experiencing now occur, it’s obvious to all that the sudden crash in oil price is simply due to a much lower need for it.

World economic activity is now some fraction of what it was just three months ago. (Exactly what fraction we’re still finding out).

More liquidity and loan backstops don’t necessarily translate into revenue, the lifeblood of business. And much of the global economy is currently experiencing a revenue crisis.

Less revenues, less earnings. Less earnings, fewer jobs. Fewer jobs, lower consumer demand. All of this argues for lower — much lower — stock prices.

So which side will prevail in the markets going forward? Reality or rescue?

As we’ve been doing throughout the recent market volatility, we’ve once again asked the lead partners at New Harbor Financial, Peak Prosperity’s endorsed financial advisor, for their latest perspective.

In the below video, they explain why their bias remains towards lower prices ahead, and why they expect the recent strength in both gold and gold mining shares to build from here, even if the overall markets resume their fall:

Anyone interested in scheduling a free consultation and portfolio review with Mike and John can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few weeks, we strongly urge you get your financial situation in order in parallel with your physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

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4 Comments

  • Fri, Apr 24, 2020 - 2:41pm

    #1
    wotthecurtains

    wotthecurtains

    Status: Member

    Joined: Feb 27 2020

    Posts: 25

    5+

    +1 again

    Just wanted to chime in and say I continue to appreciate this.

     

    Sometime I would be interested to hear if these guys like GDXJ at all in addition to GDX.

     

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  • Sat, Apr 25, 2020 - 7:50am

    #2
    PaulJam

    PaulJam

    Status: Bronze Member

    Joined: Dec 04 2016

    Posts: 82

    1+

    THANK YOU!

    Many many thanks for these conversations!  After literally years of urging an elderly parent to allow me to remove their investments from traditional asset allocation buy-and-hold management, I got the green light 2 days after the market started tanking in March and sold everything.  But now I'm stuck managing these funds myself, because moving their accounts to New Harbor (which I have proposed) causes too much stress.  While I hope to be able to do this at some point (I don't have the bandwidth to pursue option hedging strategies in my own management activities), these conversations help me clarify my approach and orientation.

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  • Sun, Apr 26, 2020 - 1:07pm

    #3
    Ejh237

    Ejh237

    Status: Member

    Joined: Oct 16 2011

    Posts: 33

    broken links

    Hey Adam, The links in this article look to be pointing to a gmail account vs. actual links, non of them work.

    thanks,

    eric & cindy

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  • Wed, Apr 29, 2020 - 8:04am

    #4

    Justin_McSharry

    Status: Member

    Joined: Jun 16 2010

    Posts: 6

    Inflation vs deflation

    Thanks guys as always for your sharp insights. I'd love a discussion on whether we'll see deflation or inflation (or both a la Ka-POOM). I came across this article which is the most in-depth analysis I've seen so far: https://seekingalpha.com/article/4340323-inflation-vs-deflation-tug-of-war

    The article makes a case for deflation as the ultimate outcome of our current scenario and I'd love your thoughts on this.

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