Initial and continued claims for unemployment benefits is, by far, the best concurrent indicator for the economy’s health. Both are extremely high and seem to have stabilized at around 10 times higher than their previous levels (see charts below).
What does this mean? That even after opening up after the lockdowns, businesses are still laying off a huge number of people and most of them are very weary of rehiring. In other words, the economy is most certainly NOT currently in a V-shaped recovery. For comparison, the highest level previously reached for continued claims was 6.8 million during the 2008-09 Debt Crisis, when the most that real GDP dropped was around 3.5%. If claims remain elevated, by this measure alone we’re looking for at least a 10% contraction going forward during 2020/21.
Now, the stock market has already bounced back in V fashion, apparently discounting a faster than ever economic rebound. Or... is something else happening? I will use just a single chart to illustrate: Shopify has zoomed almost 300% in just a few days during the pandemic.
The company is currently capitalized at $101 billion, i.e. around 60x REVENUE. Forget P/E, there are no Es, the company is losing money.
So, what gives?? My thesis is that a few million millennials got a few thousand dollars into their hands and decided to punt with it. What companies do they know and use, which “new ideas” and “new paradigms” do they think they understand better than everyone else, Warren Buffett included? Why, everything Internet, of course... and wouldn’t you know it, similar chart patterns and nosebleed ratios can be seen across the entire “tech” sector, from Facebook and Amazon all the way to Spotify and Google. Throw in a religious belief in the Fed as Saviour Of All and you get an enormous bubble..
But, what the millennials clearly do not understand is that the “real” economy is about earned income (wages) and spending, and more specifically, disposable discretionary income - the part that remains after paying taxes and necessities such as mortgage/rent, food, transport, health, etc. This is where the economy makes it or falls flat on its face - on the margin, not on the whole.
It does not take a genius to figure out that with a huge number of unemployed, earned income and the propensity to spend on non-essentials is sharply curtailed. And, yes, it WILL affect the earnings of every company out there, Internet or not.
One more point, learned from decades of experience: in stocks, most money is lost by those who buy on the rebound and not on the initial sharp leg down. That’s when the sharps unload by the bucket..
Initial Claims For Unemployment Benefits
Continued Claims For Unemployment Benefits
What does this mean? That even after opening up after the lockdowns, businesses are still laying off a huge number of people and most of them are very weary of rehiring. In other words, the economy is most certainly NOT currently in a V-shaped recovery. For comparison, the highest level previously reached for continued claims was 6.8 million during the 2008-09 Debt Crisis, when the most that real GDP dropped was around 3.5%. If claims remain elevated, by this measure alone we’re looking for at least a 10% contraction going forward during 2020/21.
Now, the stock market has already bounced back in V fashion, apparently discounting a faster than ever economic rebound. Or... is something else happening? I will use just a single chart to illustrate: Shopify has zoomed almost 300% in just a few days during the pandemic.
Shopify Inc.
The company is currently capitalized at $101 billion, i.e. around 60x REVENUE. Forget P/E, there are no Es, the company is losing money.
So, what gives?? My thesis is that a few million millennials got a few thousand dollars into their hands and decided to punt with it. What companies do they know and use, which “new ideas” and “new paradigms” do they think they understand better than everyone else, Warren Buffett included? Why, everything Internet, of course... and wouldn’t you know it, similar chart patterns and nosebleed ratios can be seen across the entire “tech” sector, from Facebook and Amazon all the way to Spotify and Google. Throw in a religious belief in the Fed as Saviour Of All and you get an enormous bubble..
But, what the millennials clearly do not understand is that the “real” economy is about earned income (wages) and spending, and more specifically, disposable discretionary income - the part that remains after paying taxes and necessities such as mortgage/rent, food, transport, health, etc. This is where the economy makes it or falls flat on its face - on the margin, not on the whole.
It does not take a genius to figure out that with a huge number of unemployed, earned income and the propensity to spend on non-essentials is sharply curtailed. And, yes, it WILL affect the earnings of every company out there, Internet or not.
One more point, learned from decades of experience: in stocks, most money is lost by those who buy on the rebound and not on the initial sharp leg down. That’s when the sharps unload by the bucket..
No comments:
Post a Comment