Jim’s Extra! Of the 3 reasons I think the re-opening economy will disappoint, the biggest is state budget cuts
I remain a skeptic about how fast a re-opening of the economy will actually produce economic growth. For 3 reasons.
Yesterday’s rally in the Standard & Poor’s 500, which pushed the index back over 3,000, sent the forward price to earnings ratio–that is the PE based on projected earnings per share for the stocks in the index–to 23.36. That’s the highest level for the forward PE since 2002.
This morning what I saw in photos and videos from this past Memorial Day weekend was a country rushing pell mell toward re-opening the economy without a thought for safety amidst a still uncontrolled coronavirus outbreak. I saw photos of crowds at beaches, on board walks, outside restaurants, and at church services with potential virus carriers (aka people) packed cheek to jowl with hardly a mask in sight. Looking at those pictures, I shuddered at the probability of a new surge in the virus in roughly two weeks, the commonly understood incubation period for the virus. Wall Street viewed the same pictures a I did but what traders and investors saw was evidence that the economy was headed toward a resurgence of growth. Those weren’t disease vectors crowding the boardwalk, they were consumers coming out of shelter and buying.
China isn’t the only story out there with market moving potential but it is the “ripest.” We won’t have anything but anecdotal accounts of the collapse of social distancing at events across the country this weekend and we won’t know how much in retail sales the economic re-opening actually produced this weekend for weeks yet. Say two to three weeks to see if the growth in the number of of official reported coronavirus cases accelerates. Say about the same time to get retail sales numbers that reflect any of the opening. But in the case of China we’ll know stuff this week.
The number of borrowers who stopped paying their home loans jumped by 1.6 million last month, according to data from Black Knight, a real estate analytics company. The national mortgage delinquency rate rose to 6.45% in April, up from 3.06% in March. That’s three times the previous single-month record increase set in 2008 during the financial crisis. That crisis, you’ll remember, began in the mortgage sector.
Another 2.4 million workers filed initial claims for unemployment last week–but take the data with a grain of statistical salt
According to the Department of Labor another 2.4 million Americans filed initial claims for unemployment in the week that ended May 16. That puts the total from this report at 38.6 million initial claims for unemployment filed in the last 9 weeks. The two-month total is now equal to all the initial claims filed during the Great Recession. Economists had projected 2.4 million initial claims for the week. The total number of continuing claims–the total number of Americans receiving unemployment benefits–rose to a record 25.1 million for the week ended May 9. That sent the insured unemployment rate–the number of people currently receiving unemployment insurance as a percentage of the total eligible labor market–to 17.2%. Maybe.
I can think of two reasons to buy shares of Barrick Gold (GOLD) now. Either one alone would be enough to justify a “buy.” First, sentiment is shifting among investors toward the idea of buying gold as protraction against currency depreciation.