Bubble vision saw fit this AM to run a screen banner announcing that the S&P 500 is having its best July in ten years.
Well it might. The gamblers who operate there have apparently now completely jumped the shark, concluding that the only thing that matters is how much money Uncle Sam borrows and how much fiat credit the Fed prints, world without end.
After all, we are days away from a second quarter GDP print, which the Atlanta Fed now expects to weigh-in at negative -34.7%. There is nothing even close in the record books—the -8.7% annualized drop in Q4 2008 during the Lehman meltdown quarter being the closest approximation in the last 60 years.
That is to say, we’ve had a quarter 4X the worst, and it’s not a fading nightmare in the rearview mirror, either. A flood of new high-frequency indicators have essentially obliterated the V-shaped rebound which Wall Street dreamed was happening.
So the best July since 2010 perforce stems from the notion that the economy doesn’t really matter at all. Instead, less than a thousand Washington based legislators, Fed governors and assorted cabinet and agency operatives—who produce and invest nothing—are being capitalized at PE multiples which were not even imaginable during the genuine boom times of the 1950s and 1960s.
In fact, when the dust settles in a few week, reported LTM GAAP earnings will be lucky to post at $100 per share, meaning that the market closed today at nearly 33X. Yet what lies ahead is massive delinquencies, defaults, business failures, sweeping restructuring and layoff plans and staggering levels of unemployment in the private sector, even as the mother-of-all-fiscal calamities unfolds in the government sector at all levels.
Somewhere down in the canyons of Wall Street, however, there are still robo-machines and day-trading Robin Hooders chasing the blips (they are not even big enough to be dips) on the theory that what is patently unsustainable madness will somehow morph into blue skies shortly down the road.
For instance, in the short-run all the high-frequency “V”s are rolling over. Thus, at the dark bottom in April only 40% of small-business employees tracked by Homebase who had been on the payroll in January were still logging hours. The roughly 500,000 employees it tracks are mostly hourly workers in restaurants, retailers, hair salons and other Main Street businesses.