E Market Briefing For Thursday, June 4

'We shall overcome' - could well have been a mantra for the stock market these past two months, as neither headwinds from valuation, from COVID-19, or from recent social upheaval, were able to deflect the S&P and Nasdaq comeback, which was of historic proportions. Ah, but by what mechanism is this extended, and what implications - without precedent - are put-in-motion, that potentially (ultimately) create a systemically destabilizing situation. 

Not even a vague recollection that all of this is on-the-back of a 'Fed Put', which establishes moral hazard (created, whether emergence is delayed until the point where the Fed has to stop buying corporate debt, or in any other way precipitates a 'day of reckoning'). Systemic disruption ultimately is a risk. That's possible if you try to finance everything in ways that primarily help big corporations, but not so much small business, which is the heart & soul of America, and customers of those huge firms too. And the result then becomes a lack of persistent growth which could offset that outcome.  

The risks to 'capital markets' and destruction of reasonable 'price discovery' are going to be real, down-the-road, partially as it allows use of excessive leverage by crazed high-frequency and hedge trading crowds (and we've seen it before). In this remark (and remember we called for this rally) I am not saying it has to unwind yet, crumble, or hit huge air-pockets right this moment. In fact I think not quite yet. But aside political madness or societal challenges, it's worth keeping-in-mind the Fed can't bailout insolvent firms in-perpetuity. That matters when you think about the next 'taper tantrum', as the Fed inevitably must chose a spot to back-off open-ended financing. 

Executive Summary:

  • A mood of 'emergence' from both the coronavirus 'and' social turmoil, seems to be sensed, even if there isn't a clear determination of either.
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Gene Inger 4 months ago Author's comment

I'm the author.. Gene Inger... I didn't see any recent comments or questions until today... sorry.. I never logged into properly before. Questions can be posed on our ingerletter.com website feedback, or we'd welcome you to join our regular daily service. During the crisis we include full MarketCast service (intraday as well as the nightly) at NO extra charge. I'll be glad to respond to questions about the service if you email me; but I probably won't see questions here. Thanks; and I appreciate the warm comments about our warning of a crash back in early February and nailing the max-fear low around March 22. Now it's a bit more dicey. Visit us.. www.ingerletter.com (you won't see a mention of the free upgrade; just subscribe to Daily Briefing). Questions? Email me: gene ingerletter.com

Isaac Pomerance 4 months ago Member's comment

Hi Gene, first of all, thank you for your article. As you mentioned in your executive summary, there as so many moving parts to the current market climate. Specifically, you mentioned that the S&P has continued to rise, as you also mentioned the belief for therapeutic drug soon. Obviously, there are so many factors at play with the "emotions" of the overall market and the S&P, but how do you see the possible effect of the therapeutic drug search not going as fast as some believe it to be?