The Most Dangerous Unknown for the Stock Market Right Now

“God, grant me the serenity to accept the things I cannot change … courage to change the things I can … and wisdom to know the difference.”

Every investor should keep a copy of Reinhold Niebuhr’s “Serenity Prayer” in sight these days.

The stock market is beyond our control. We’re missing the key ingredient: reliable information.

Investment skills are based on experience of similar situations. As an investor, you can only be in control if you have reliable information about the likely future.

That’s why we hang on every word of quarterly earnings reports and eagerly await the latest unemployment and gross domestic product (GDP) figures.

They may not be 100% accurate, but they help us tip the balance of “known” and “unknown” in our favor.

Today, every responsible person tells us it’s impossible to predict the economic future.

The balance between the known and the unknown has been turned on its head.

Of course, we know some things for sure.

The problem is that the most important known of all may come to a premature end.

And once you accept that, you can protect your investments by taking a few simple steps … steps that recognize the importance of the unknown.

What Washington Giveth, Washington Taketh Away

The second most important fact in the current U.S. economy is the fiscal stimulus provided by the Coronavirus Aid, Relief and Economic Security (CARES) Act of March 27 this year.

The first most important fact is that it may end.

The CARES Act was the biggest fiscal stimulus ever enacted by Congress. It was equal to 10% of GDP.

Here’s how it was distributed:

Nearly $1.5 trillion was allocated to payments to Main Street Americans in: augmented unemployment insurance, the Paycheck Protection Program and one-off stimulus payments.

That’s a huge amount of money.

You can see it reflected in this incredible jump in the measure of M1 money supply from March onward:

Turn Your Images On

But the CARES Act assumed COVID-19 would be brought under control quickly.

The economy would go into “suspended animation,” temporarily slowing or stopping to preserve its functions for a few months, until the virus dissipated. Then we’d resume normal activity. If businesses didn’t have to close and workers didn’t have to lose their jobs, the reasoning went, then our economy could quickly return to its previous trend … as long as the virus was under control.

Unfortunately, that hasn’t worked out so well:

Turn Your Images On

Fiscal Stimulus Works…

The logic behind the fiscal stimulus in the CARES Act is simple.

When the economy is performing below capacity for some reason, government spending can boost it to full capacity. The economic activity stimulated by government spending will generate taxes to pay for the stimulus over time.

This Keynesian framework dominated U.S. policymaking until the late 1980s. But, the Reagan Revolution brought it to a halt.

Because raising taxes was a no-no, Congress continued to run deficits. But, Washington became increasingly hostile to government spending on everything other than defense. Eventually, even the Democrats under Bill Clinton — the last administration to run a budget surplus — joined the austerity choir.

We can see the result of the anti-Keynesian trend in U.S. recessions.

Until the end of the 1970s, recessions were generally short and sharp — over within about 18 months.

Under the more fiscally conservative Reagan and George H. W. Bush administrations, the recession lengthened out to about two and a half to three years.

With the 2001 recession, the time needed to recover began to lengthen. It took four years to recover all of the jobs lost in that recession.

Recovery after the 2008 financial crisis took seven years:

Turn Your Images On

But Only If It’s Used

The next chart shows why fiscal stimulus matters.

Stimulus after the 2000-01 recession was small but lasted long enough to claw back lost jobs in about four years.

By contrast, after the 2007-09 recession, stimulus ended quickly. Congress refused to approve spending or increase the debt limit.

Eventually, they passed a budget sequester bill, which led to the five years that government fiscal policy actually held GDP growth back.

The result was a slower recovery than following any previous recession:

Turn Your Images On

The far right-hand portion of the chart shows the huge spike in fiscal stimulus from earlier this year … along with projections of the impact on GDP if it is not extended.

And that’s precisely the problem.

With the recent dramatic rise in COVID-19 infections, if stimulus isn’t extended, the economy is almost certain to go even deeper into a recession.

The signals from Washington are all over the place.

Senate Republicans are reluctant to extend or renew stimulus.

The White House tells us the crisis is ending, which makes it hard for them to argue for more stimulus.

House Democrats are submitting stimulus plans they know won’t pass, so they can blame Republicans for the results in the run-up to the November elections.

Meanwhile, American consumers have embraced stimulus with gusto.

The chart below shows the relationship between searches for common personal-consumption items and the level of the S&P 500 Index. You can see that people’s confidence to spend perked up when the stimulus was passed in late March.

Now you could argue that the stock market’s rise is driving consumption expenditure. But given that only a minority of better-off Americans own stocks, it’s a safer bet that stimulus gave consumers the confidence to spend, which helped the stock market:

Turn Your Images On

The Most Unknowable Unknown of All

Bulls like to say the stock market is forward-looking. Stock prices are based on where we’re headed, not where we are.

Normally that’s true. But now, all of us are feeling our way blindly through unfamiliar terrain.

Thousands of companies have retracted their earnings guidance for the rest of this year. Economic forecasters say they can’t predict what’s going to happen next … “It’s up to the virus,” they say.

My take is that investors are discounting the most dangerous unknown of all … whether Washington will continue to stimulate the economy.

If it does, the economy and stock market may avoid a lengthy period of decline. If not, we could see things get a lot worse … and quickly.

I can’t imagine anything worse than having to depend on politicians and bureaucrats in Washington to determine the fate of my stock portfolio.

But here we are. That’s why I’m following my own advice, and you should too:

  • Take regular profits.
  • Hold plenty of cash to grab opportunities at the dip.
  • Load up on stabilizing assets like gold and bonds.

And above all … don’t bet the farm on what Washington may — or may not — do.

Kind regards,

Ted Bauman Signature

Ted Bauman

Editor, The Bauman Letter

Previous Post
Next Post



Greetings! Very helpful advice on this article! It is the little changes that make the biggest changes. Thanks a lot for sharing!


Uxyhmw – natural ed pills Bnylax


priligy generic – tadalafil cheapest price cheap cialis 20mg pills


erectile dysfunction pills reviews – best drug for ed best ed pills non prescription


canadian online pharmacy prednisone – prednisone 24 mg 1250 mg prednisone


provigil dosage – provigil 100 mg provigil 100mg


6000 mg accutane – buy accutane online canadian pharmacy average price of accutane


amoxil – amoxil 500 mg generic name amoxicilin brand name


generic vardenafil canada – vardenafil 20mg online buy vardenafil online europe


ivermectin brand – stromectol price uk ivermectin online pharmacy


online pharmacy 365 pills – generic cialis soft tabs suppliers tadalafil canada drug


buy oral ivermectin – ivermectin 1 cream generic stromectol price usa


accutane in india price – accutane purchase uk accutane cream cost


buy lyrica 150mg – perscription drugs from canada online canadian pharmacy reviews


buy amoxicillin 500 mg – amoxicillin price at walmart buy amoxicilin 500

Dr Gőz Péter ügyvéd

Pretty section of content. I just stumbled upon your blog and in accession capital to assert that I get in fact enjoyed account your blog posts. Anyway I will be subscribing to your augment and even I achievement you access consistently fast.


viagra 25 mg tablet buy online – viagra discount canada sildenafil tablets online australia


online pharmacy usa – generic cialis drugs how to buy cialis online


fda ivermectin – stromectol brand stromectol 3 mg tablet price


prednisone 1 mg daily – prednisone 20mg cost prednisone pack


order modafinil online – modafinil addiction provigil 200mg


azytromycyna – zithromax pills online


furosemide nz – lasix medicine price furosemide cost comparison


buy clomid – where to buy clomid purchase clomid


generic viagra from usa – viagra 150 mg canadian discount pharmacy viagra


purchasing cialis in mexico – cheap generic cialis 5mg cialis pills online india


ivermectin buy nz – ivermectin lotion ivermectin 3mg tablets price


what if viagra doesnt work viagra wholesale ViagraCND100Mg – how much is viagra without insurance


viagra super viagra for sale melbourne – buy generic viagra in usa


viagra for sale onlkne where to buy viagra in bangkok – viagra per nachnahme


online casino real money – site casino online slots


medication for ed – ed pill generic ed pills


brand prednisone prednisone online – purchase prednisone no prescription


prednisone 2.5 mg daily prednisone pills – prednisone for sale without a prescription


prednisone 20mg tab cost – prednisone 60 mg price prednisone 250 mg


where can you buy amoxicillin over the counter amoxil for sale – buy amoxicillin online without prescription


how to get amoxicillin over the counter cheap amoxicillin – where to buy amoxicillin


ivermectin buy nz stromectol tablets – ivermectin 3


50 mg viagra – buy viagra online no rx buying viagra from canada


stromectol price in india stromectol ivermectin for humans – stromectol medication


stromectol order buy stromectol online – ivermectin online


order cialis online australia – Buy cialis now best price on cialis


ivermectin price – ivermectin buy online ivermectin lotion 0.5


ed pills for sale – ed pills cheap best otc ed pills

Thank you for any other informative site. The place else may just I get that type of information written in such a perfect approach? I’ve a venture that I’m just now operating on, and I have been at the glance out for such information.


ventolin price australia – ventolin medication ventolin 100 mcg


misoprostol cytotec buy online – cytotec for iud insertion cytotec canada


generic for doxycycline – how to order doxycycline doxycycline order online


neurontin pills – synthroid 35 levothyroxine 115 mcg


buy generic viagra from canada – viagra for sale no prescription


tadalafil 30 mg – rx cialis canada generic tadalafil paypal


finasteride hair propecia for sale – cheap generic propecia


where to buy vardenafil in canada – buy levitra online vardenafil cheap


order prednisone online canada prednisone generic – no prescription online prednisone


buy propecia canada buy propecia – buy cheap propecia


ivermectin india – ivermectin usa ivermectin 0.2mg


zithromax 500 tablet buy zithromax – zithromax 500mg


prednisone 20 mg tablets – can you purchase prednisone for dogs without a prescription deltasone 20 mg tablet price


where to get prednisone cheap prednisone – prednisone brand name


cheap propecia propecia generic – propecia prescription


order accutane on line no prescription – order accutane online australia accutane best price


where to buy ivermectin pills ivermectin for humans – ivermectin 1mg


can you buy zithromax online zithromax – buy zithromax online fast shipping

furosemide generic

lasix 20 mg price furosemide 20 mg vot Glulp

buy lasix online no prescription

lasix price at walmart furosemide cost without insurance vot Glulp

order lasix online

furosemide cost buy furosemide tablets vot Glulp

furosemide 20 mg tablet

furosemide 20 mg tablet lasix water pill vot Glulp

furosemide 20 mg price

lasix over the counter cvs lasix online no prescription vot Glulp


ivermectin side effects – price of ivermectin tablets buy stromectol

Today, while I was at work, my sister stole my apple
ipad and tested to see if it can survive a twenty five foot drop, just so she can be a youtube sensation. My apple ipad
is now broken and she has 83 views. I know this is entirely off topic but I had
to share it with someone!

my web site:

stromectol generic

stromectol medication ivermectin pills

stromectol order online

ivermectin lice ivermectin canada


doxycycline gel in india – doxycycline 100mg tablet brand name buying prednisolone online

how much does ivermectin cost

stromectol tab price ivermectin 18mg


stromectol coronavirus – buy ivermectin usa ivermectin otc

Leave a Reply

Your email address will not be published.