Prime for All Time Highs? - Trading Journal (08.01.20)

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On Friday markets mostly closed higher from its lows although SPY and Dow were still in negative. Yet all indexes are near all time highs while Nasdaq made all times in early June and remains in striking distance to surpass this. There is a lot of head wind up against the real economy and the big key one will be consumer spending. The reality is there are more than 10 times the people who have lost their jobs compare to the worse in 2008. With the government stimulus package of $600/week to unemployed and central banks providing infinite QE the stock market in general has remain positive.

What I can not lose sight of is all these high evaluations on stocks are predicting a perfect recovery for the US, but reality says otherwise. A chart Warren Buffet tracks consistently is shown below. It measure's the country's GDP and compares the Wilshire 5000 market cap. For those that are not aware Wilshire 5000 are US companies that are trading in the US markets. Since March lows the market cap has risen but the GDP has fallen.

This is a divergence between Wilshire and GDP is because of the initial stimulus and support from governments and central banks. Now US is going into August and needs another fiscal policy to help support the current economic collapse because the current one has pieces that have or are expiring. From unemployment benefits to revoking landlords ability to do evictions. The money support can only be done for so long before it does not work.

The drop in quarter 2 GDP is worse since the great depression. There is truly a uphill battle for the economy to recovery. In the stock markets there is more potential for a draw down now more than ever with all these divergences.

If in fact money will be printed infinitely there is no doubt inflation is coming. As of now, stocks, bonds, and commodities are all up but not all are telling the truth. If I can figure out what that truth that would be great.

Posted Using LeoFinance



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