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April 15, 2021 | Suck it Up

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

When not doing my day job, I moderate comments on this blog and try not to throw up. It’s a challenge. Here’s a recent example.

April 14, 2021.
The beginning of the end. When two of the largest banks, JP Morgan Chase, and Wells Fargo, report earnings on the same day. Between these two banks, there is $5.1 TRILLION in assets, which is an astounding 23% of US GDP.
The world will be holding its breath to see those numbers because it will be a signal of what’s to come. And when the news of the ugly chain of corporate/personal defaults and the resulting massive holes in the big banks’ balance sheet hits…
Panic will set in… And global liquidity is going to start drying up… just like it did in 2008 when Bear Stearns and Lehman Brothers troubles became public. And stock markets will crash in a spectacular fashion… Hope everyone is liquid as of tonight. 14 hours from now may be too late.
PREPARE

Well, it’s April 15th now. Let’s review and see what happened. Bank of America hit a four-bagger. Revenue up 17%, underwriting fees tripled. Earnings were $5.1 billion, beating Street estimates of $4.3 billion.  More big gains at JPMorgan, Goldman and Wells. In total revenues were 50% above estimates and the beat on earnings was 82%. Equity trade is up. Bank deposits up. Loan loss provisions way down. “These are blowout numbers,” says my wizened buddy Ed Pennock.

Oh, and did you catch the latest US jobless claims? The lowest since the pandemic began. So the reopening trade continues, based not just on expectations and hopium, but on stats. Earnings season will be awesome. Up to four million Americans are being vaccinated daily. The unemployment rate has crashed. Biden is spending up a storm. Bond yields have tapered off again. Inflation is moderate. Consumers are juiced. Personal savings are at the highest point in decades.

So did you watch Jay Powell on Sixty Minutes a few days ago? The Fed boss was clear – the economy is fine; Covid will fade; the recovery is still in its baby stages; inflation’s no biggie; the central bank is not going to withdraw support any time soon.

Meanwhile, in case you missed it, here are some recent equity market scores. The S&P 500 has advanced 49% in a year. The Dow is ahead 44%. Bay Street has added 37%. The tech-heavy Nasdaq has returned 67%. People quivering in cash on the sidelines have actually lost money to inflation, if not also to tax.

Some folks worry P/E ratios are too high by historic standards (that is the relationship of a company’s stock price to its profits). They have a point. The numbers are elevated – but hardly a surprise. We’re at the tail-end of a global pandemic which triggered a deep recession, rapid loss of jobs, a crashing GDP and an earnings plunge. Now as the Q1 numbers stream in, mostly beating estimates, the ratios decline and stocks which seemed overvalued weeks ago now look fairly priced.

So, balanced and diversified portfolios returned more than 15% in 2019. They added just over 7% in 2020, the Year from Virus Hell. So far this year things are rocking and rolling quite nicely. Anything can happen, but most analysts look at the second half of 2021 and are forced to put on their shades. So bright.

In the entirely of my financial career, which now spans 35 years (yikes), I’ve seen the same movie repeatedly. Market advances are the norm. Market corrections are the exception. The economy expands far more often and substantially than it ever contracts. Crises are sharp and short. Recessions are rare and always brief. And now we know that pandemics always end.

But I’ve also learned fear is a far greater emotion than greed. Confidence is elusive and fleeting. Humans are more worried about losing what they have than eager to gain what they want. It’s why, eternally, grifters, spammers, charlatans and weasels use panic and scare tactics to flog their stuff – from doomer websites making money through clicks, to precious metals, cryptos, newsletters, proprietary research or ‘alternative’ investments.

Should you have fear now?

Sure, be afraid of the idiots around us who won’t get vaccinated. People who don’t understand what a stay-at-home order means. Be concerned about politicians making stuff up as they go along, or governments squandering a balanced future. Fret about polarization and detachment in society. The loss of responsibility. House lust, cats and Reddit.

But don’t worry about your wealth. Not if it’s in the right place. You know where that is.

Now, the daily cookie toss. Wish me luck.

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April 15th, 2021

Posted In: The Greater Fool

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