As most of you know, we began this crisis in a financial bubble.

The Fed lowered interest rates while the stock market was at all time highs. A 20% dive in the stock market in September resulted in the “Powell Pirouette.” The Fed chair managed to reassure investors that he was willing to do whatever it took to restore the stock market, please the President, and ensure a Trump victory.

All of this resulted in a 34% vertical move in the stock market back to all time highs. One of the most ridiculous moves in stock market in history.

Cheers

CEO’s, for their part were using 105% of cashflow to do stock buybacks at lofty valuations.

Bob Iger from Disney (DIS) earned $771M during this time. He was so appreciative that he left the company a day after the coronavirus became a national emergency. What a guy. Now, many of the CEO’s from the airlines are seeking federal money or bailouts in spite of their buybacks.

Stock buybacks were designed as a strategy for companies that were undervalued to use their capital in a strategic manner.

Not anymore.

And since Warren Buffett has popularized this strategy, it’s disappointing that he is so quiet on this issue. Would it be so hard for Mr. Buffett to have raised the alarm that stock buybacks at 105% of cashflow is a dangerous practice that represented greed and short term thinking. I think not.

So, it is strange that as we have the worst unemployment since the great depression, that the financial media would be so sanguine about the current situation.

Barron’s proclaimed that, “Home Prices are likely to hold up just fine” 

which echoes the Wall Street Journal,  “Why Home Prices Are Rising During the Pandemic.”

“The economy is shrinking, businesses are closing and jobs are disappearing due to the coronavirus pandemic. But in the housing market, prices keep chugging higher.”

Really? Are they joking?

First of all, lets be clear, there is no real estate market right now.

In order to have a real estate transaction, one needs a number of connected parties including real estate agents, buyers, lawyers, appraisers, escrow officers, loan officers, etc…

So, common sense dictates that the real estate market is currently frozen.

The question is where will the clearing price be for real estate when we the market is unfrozen. When we have market forces at work. There are thirty million Americans out of work.

Yes, they are receiving financial help from the government for now. But that is likely to end or be greatly reduced. We have $25 Trillion in debt right now. California and New York are begging for financial relief to the tune of Billions of dollars.

When the dust settles, people will need to re-evaluate their financial position.Very sophisticated investors like Warren Buffett and Sam Zell say that things have changed and compare today's financial realities to the Great Depression. 

I’m sure the real estate market is just like the Nasdaq (QQQ), which is only 5% off of all time highs.Of course, the Nasdaq and the public markets are supported by low interest rates and Fed Policy. The Federal Reserve has $6T to purchase whatever they want and this gives markets great confidence that the Fed will backstop foolish investments. Perhaps.

More likely, the financial media are young journalists who have little experience in real markets.

The only Recession they’ve seen was followed by the longest Bull Market in history. Not an actual bull market. More akin to a Fed induced bubble where Fed Chairs were afraid to normalize rates and upset investors.

It kept going and going.

In September the market had a correction when it believed that Jerome Powell was serious about normalizing interest rates. As we discussed previously, that ended with lower rates and stocks at all time highs. The Fed saves the day again.

So, financial journalists have never seen an economic scenario that can’t be saved by cutting rates. Rates are at zero right now. NIRP is a desperate, radical step that has never worked, yet the financial media says little about its dangers. Warren Buffett gets plenty of airtime on CNBC and never mentions it.

We have 30M unemployed.

And before that, the financial media was promoting strong job gains without acknowledging that the majority of job gains of the last eight years were bartenders and baristas. All work has dignity, of course.

But the economy is pretty fragile when its growth consists of college educated graduates (with significant debt) underemployed working these jobs. The government job statistics reflect the mentality that a job is a job.T he reality is much different.

Now, many of these bartender / barista jobs are gone.No one knows when they will be back.The temporary job that many took which was beneath their skill level just to pay the bills is gone.

Right now, It’s hard to get a job driving for Uber (UBER). This creates a financial drain on the whole economy. Parents that need to continue supporting children will force them to postpone retirement. All of this has a cascading effect.

Most of this hasn’t even played out yet. We’re in the first inning in economic terms.

The reality is no one knows.

For the financial media to be so bullish and confident speaks to their ignorance.

And It’s hard to watch.