Bear Market Rally

A $2 trillion dollar stimulus package. The two-party solution: give everybody what they want and damned the deficit. Damn the reality that massive future budget cuts will slam the average American the most. As the Republicans will say after this settles, we have to reduce the deficit. As sure as rain. Just double the stimulus now. Avoid the depression. Democrats want money to go directly to the people and small businesses. Republicans want to bail out big business, and Trump has made it clear that he believes the best solution is to address corporate needs first. Congress wisely put in direct money for middle- and lower-income workers and smaller business. Both parties got what they wanted. All of it. The bill became law on March 27^th. The legislation bans companies from using bailout funding for share repurchase (a temptation when the market falls) and makes sure such funds do not wind up benefitting Trump-owned businesses… mostly (hmmm). So what?

The dust will settle. Somehow, people will get back to work (eventually), although it is hard to see why corporate America will return quickly to normal even with subsidies. Most American families will remain slammed, and that short-term cash infusion will burn off very quickly. The GOP barometer of economic success (which does not actually impact most of us in any meaningful way) is a strong stock market. They sacrificed middle- and lower-income Americans with that massive 2017 corporate tax cut, saddling them with paying back a multi-trillion-dollar deficit over the coming year – but the stock market rose. $1.5-trillion tax cut that made the federal deficit so much bigger – nearly $1 trillion last year – and that was before anyone had ever heard of CV-19. If that tax cut continues, the deficits will continue to soar on that basis alone. Oh, and Congress just pushed through that $2 trillion stimulus package, and the stock market soared again, experiencing its largest one-day gain in history.

But to hold that market, to grow that market, these are these little missing ingredients: sustainability, productivity, global stability and consumer confidence. Good unemployment numbers have to return, but so many businesses are shuttering permanently. So many people who had cash reserves have to replenish them. And so many people who did not have those reserves are mired in debt that has to be repaid.  With this contraction, how long will the market hold? If Trump cannot reopen by his own Easter weekend deadline (which I am sure he will extend with another Trumpian blame-fest), what do you think the market will do? Even after the outbreak ends, do you expect that state and federal income tax revenues, already deferred, will instantly rebound to pre-CV-19 levels? The deficit, even with the low federal reserve rates, will just be so much fatter. Reality will bring that bear market rally down fast. I suspect sooner rather than later.

Op-Ed contributor for the Los Angeles Times (3/25), Doyle McManus underscores how desperation is driving a “we gotta do something big” effort from Congress and the President, including what I believe is GOP-driven corporate socialism: “This time, almost every Republican is supporting a $2-trillion stimulus package [it passed and was signed into law on 3/27] that includes billions in loans for companies, states and citizens; help for state-run unemployment insurance programs; and direct payments of $1,200 to most adults — a measure that once would have been mocked as shoveling money out of airplanes.

“The cost more than doubled in just a few days, making it the biggest economic stimulus package in history… One reason for the GOP support is that the economic crisis touched off by the pandemic could be worse than the Great Recession, with some forecasts of unemployment soaring to 20% or more.

“But another is that we have a Republican president — and he knows that his chance to win reelection will plummet without vigorous action to save the economy… ‘Trump decided to go big, and Republicans fell in line,’ Geoffrey Kabaservice, who has written a history of the GOP, told me. ‘It raises a deeper question: Is conservatism separable from Trumpism anymore?’…

“He was the first real estate developer in New York to win a public subsidy for commercial projects under programs initially reserved for improving slum neighborhoods… In 2016, the New York Times calculated that Trump had received at least $885 million in tax breaks, grants and other subsidies for luxury apartments, hotels and office buildings…

“When he has listed priority targets for help under the coronavirus rescue package, he has often mentioned the tourism and hospitality industries. He said he didn’t know whether his hotels would be among the beneficiaries. [The stimulus package prevents Trump from benefitting from some of the bigger benefits] … ‘We have to work with the airlines. We have to work with the cruise lines,’ he said Monday [3/23].

“But those probably aren’t the right priorities. Airline companies have plenty of access to private capital markets, and several have shown that it’s possible to survive bankruptcy… Most major cruise lines are foreign owned and employ relatively few U.S. citizens. The largest, Carnival, is incorporated in Panama — although its chairman, Micky Arison, is one of Trump’s friends and advisors.

“When the first stimulus packages were proposed this month, there was a flurry of initial resistance from fiscal conservatives in Congress… Forty GOP House members and eight senators voted against a proposed bill that would require many employers to provide sick leave to their workers. Sen. Ron Johnson of Wisconsin said he worried about ‘incentivizing people to not show up for work.’… But as the crisis deepened, the only debate was between the two parties, as Democrats pushed to make the package more generous to unemployed workers and to impose stricter oversight for a $500-billion fund for corporations.”

Here’s the big problem. If this CV-19 shutdown continues into mid-April and beyond – which it is showing every likelihood of doing looking at other places that have already gone through this explosion – we have shot our wad. Business bailouts should have been in last place. Dealing with medical needs and governmental support systems, followed by attention to individual health and financial needs, are what we really could afford now. My March 21^st Tax Cuts, Guns and COVID-19 blog suggests what really needs to be done both now and after the CV-19 threat subsides.

Consumer confidence mirrors the fall in the stock market, a fact that is likely to push way past the impact of the new stimulus bill. According to the March 28^th Los Angeles Times: “The [late March consumer confidence] index saw an 11.9 percentage point drop, compared with a 12.7-point drop during the Great Recession [of 2008]… The Dow Jones industrial average on Friday [3/26 even in anticipation of the stimulus bill] ended a three-day rally by falling 915 points and is now down 27% from its mid-February high.” Real estate deals are falling out of escrow, lenders are increasingly wary as people lose jobs and income, so we can expect prices in that sector to fall as well. The recession is here and coming out of is plagued with uncertainty. A recovery is nowhere in sight.

Staggering levels of unpreparedness, austerity cuts that have sliced the heart out of our emergency medical system, were compounded with the most ineffective federal leadership in American history. From both sides of the aisle. What’s the plan, Stan? If this does not end soon?

            I’m Peter Dekom, and as the President’s approval numbers seem solid, that’s so much more than can be said for the health and financial stability of the nation as a whole.