The story goes that a fortune of stolen loot is buried and separate groups of motorists compete to get to it first. After a series of twists and foibles the story ends with. . . well, you’ll have to find out for yourself.
We’re certainly in our own mad, mad world of investing. People everywhere are chasing loot and the market is staying out ahead of them as it continues to grind higher and higher despite a whole host of fundamental economic reasons why it shouldn’t.
Jobless claims this week rose to 1.4 million. That’s the highest level since March and brings us to 18 straight weeks of jobless claims (i.e. people applying for unemployment) over 1 million. The current unemployment rate sits at 11.1%, the highest since the Great Depression. Thankfully, there appears (unlike in April) that we won’t get anywhere near the Depression era high of 25% unemployment.
The extra $600 per week in unemployment assistance has helped boost consumer spending, which recovered markedly since the Spring. The U.S. economy runs on consumer spending and if that dries up we’re in for big trouble.
So, what could make consumer spending dry up? The end of two rescue measures, paycheck protection program and extended unemployment benefits. If companies exhaust their PPP money and their business has not returned to sustainable levels, we could see more layoffs. If those layoffs arise, extended unemployment benefits will be essential to stem further economic downturn. It’s hard to imagine that Congress won’t find a way (most likely at the 11th hour) to agree on some form of unemployment assistance.
While rising Corona Virus cases across much of the country is the most disheartening news, I won’t dwell on that here. Further shutdowns will drive continued economic hardship.
A troubling stock market trend is one you may not even be aware of. It’s the dramatic spike in new brokerage accounts created this year.
Past market crashes have been preceded by retail investors going all-in just when markets are at or near their highs. That is happening now. Major brokerage firms, Schwab, TD, Interactive, E-Trade and others experienced record high numbers of new accounts (in the millions) created in the second quarter. Trading volume at Schwab was up 126% from the prior year. These accounts have been created by non-professional day traders who are bidding on bankrupt companies and other insanely risky trading strategies. No small number of them have replaced sports gambling (which has been severely curtailed) with stock market gambling.
Watch the movie. Have a laugh. We all deserve it.
Ron
