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The Most Painless Depression In History

May 08, 2020 1:02 PM ET31 Comments
Clif Droke profile picture
Clif Droke


  • This isn't your grandpa's depression thanks to a rapid policy response.
  • "Smart money" investors are focused on the economic rebound ahead.
  • Leadership in select consumer retail and info tech names is good news.

The "Second Great Depression" that many commentators believe we're now headed for will almost certainly be the most painless economic downturn this nation has ever seen. At least, that's my takeaway based on an assessment of several key leading economic and stock market-based indicators. Here, I'll make the case that massive transfer payments and central bank stimulus will keep the U.S. economy on a relatively even keel in the coming months, while reducing consumers' pain. We'll also examine some of the top performers - including select consumer retail, info tech and entertainment stocks - as I make the case that investors should focus most of their attention on these market leaders.

As far as equities are concerned, the worst of the coronavirus crisis ended about six weeks ago. Since then, informed investors have been busy discounting the recovery phase that has already begun and will likely continue for the rest of the year. Indeed, the market so far likes what it sees as "smart" investors have already shed their pessimism and are positioning themselves for an economic rebound.

While the collective attention of most investors is on the plethora of bad economic news being released on a daily basis, smart investors are focused on what's likely ahead for the U.S. The latest employment numbers are unquestionably abysmal, but that's yesterday's news, and the stock market has already discounted it. The most likely explanation for the new bull market in the S&P 500 Index (SPX) is the realization among the smart money crowd that lockdowns will soon be over, and the U.S. economy will likely bounce back more strongly than most pundits anticipate.

More than a few analysts and economists have proclaimed that the Second Great Depression is upon us, but if this is a depression, it's almost certainly going to be unlike

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (31)

Things NOT true:
1) The average unemployed person receives $1,000 per week.
2) To go back to work, the unemployed will require at least $25 per hour.
TRUE things:
1) People who lost their jobs lost their health insurance.
2) Food banks are over whelmed by the increase in unemployed people who need food.
3) Walmart pays some employees less than a living wage, which requires the taxpayers to subsidize Walmart's payroll by providing aid to the working poor.
4) The workers in Amazon warehouses are paid less than $25 per hour.
After the first few paragraphs where it was mentioned “key leading indicators”, I was expecting more info on those but the article was based on stock prices as a reference, which in my view are out of sync with the economic reality out there. Even with unemployment benefit, ask the 30M unemployed how they are doing these days!

Senior Gold Miners (GDX): Up 23 %
S & P: Down. 13 %

What's the author celebrating?
Some of the world governments that have dealt well with the Virus are preparing for another round of infections in the fall, capitalism requires optimism, and patience too.
Lance Brofman profile picture
One of the unfortunate events and circumstances that contributed to the Covid-19 tragedy, was a complacent belief on the part of many in the world, that the United States was the de facto “center for disease control” for the entire world. Many thought that America could and would eradicate any possible pandemic that occurred, or at least, prevent it from significantly impacting the developed countries. That belief was not unreasonable given events that happened in the prior epidemics. In 2014, President Obama poured significant resources into the successful fight against the Ebola outbreak. These resources included the 101st airborne division.

The confluence of the rise in populism, with its’ disdain for intellectual elites and science in particular, combined with the rise of authoritarianism, turned what could have been only a nasty novel virus outbreak into a catastrophe. There are various countries that demonstrated that there was nothing inherent in SARS CoV-2, which meant that hundreds of thousands of deaths in the first world were inevitable.

There are countries where leaders reacted to Covid-19 in the ways that the world could have expected the United States to do, prior to the rise of populism in America. These leaders who were guided by science, were from various ends of the political spectrum. These included a very left-wing leader in New Zealand and what might be called an old-school pre-Trump conservative in Australia,.."
If we include bacteria there are trillions of births and deaths taking place on the planet every day and we feel none of it. It seems birth and death are no different than the sun rising every day or a flame burning. The human body is composed of an estimated 1 trillion human cells and 9 trillion bacteria that are birthing and dying by the billions every day and we are oblivious to it all. @Lance Brofman
prices are lies - the lie of knowing the unknowable - unfortunately price is given a lot of weight - and people rely on price - only to see the price change dramatically
Stocks will have a massive correction once q2 earnings and gdp are out around early august,
along With the unemployment rate still in double digit territory. Investors will finally realize, it will take a couple years before things go back to normal. That will be the best buying opportunity during August. Be patient, let the "bulls " have their cake and swoop in like a eagle when that time comes. Only then will you be a real bull
Why would stocks wait until Aug to go down? You think the stocks haven’t realized disastrous Q2 earnings?
I didn't say that @Biocrest . I said we would have to wait until July for the stock market to go down...not August.
@Clif Droke
You are correct so far that this economic depression doesn't seem to have affected the market's stubborn bullishness. Good for the bulls so bulls take the round one in this 12 round fight. Even within the economy, the kind of jobs that have been lost so far in the services sector the adverse impact is alleviated somewhat by Federal aid at least until July 31st anyway.
What can not be undone is the depression in the overall confidence worldwide and the impact on consumption. Abject and wretched sufferings in the rest of the world especially emerging markets and Europe, that will eventually make its way to haunt the global financial system in a few months.
What I admire about you is your outlook, you seem to be a positive person who sees the glass half full whereas me, I am born a bear and always sees the glass half empty. This whole market and economy have seemed bubble to me since the early 2000s and I am not sure why.
Good for you if you are making some money by following price action till you can.
All the best and let's hope economy-wise we avoid global depression although the market is a different story so far.
I feel zero pain. He is right @learningmarkets .
theWayissimple1111 profile picture
Painless for the classes clad in bubble wrap, the upper-middle class and above...devastating for working class people around the world. Unfortunately our country is ruled by policymakers who have no concept of what blue-collar means, and the challenges and burdens facing these people. If you own stocks, Great! But if you don't, like at least 60% of America, things aren't so rosy.
OK @Mpyre... , if you are one of those in pain then cry out!
hawkeyec profile picture
Hear, hear. Sheltering-in-place has kept the lucky quarter of the country who gets to work from home more or less blind to the real world. Most of the rest will be glad to tell you this isn't painless. For one thing millions of laid off temp workers, even those employed by temp agencies, get no unemployment. And states like MO have no eviction protection. Kids of the working poor no longer in school are missing two meals a day, even when their folks have a job. While many of the 25 mil not working anymore may be getting unemployment, they aren't getting health care. When they end up fighting for their lives in an ICU, they then get to look forward to the bill for tens of thousands they can't pay. Get out and about folks. Talk to those happy few working poor and newly homeless about how they feel about all of this. The main action the government is taking with these folks is figuring out how to make sure they don't get to vote in the fall.
I feel nothing. I am retired.
mohawk71 profile picture
If unemployed Americans are seen as a collective corporate entity, then 31.5 mil unemployed Americans at approx $20k/yr is a $630 bil market cap, roughly half the size of Apple. 14.7% unemployment BEAT expectations! So, effectively, a company with half the market cap of Apple came in better than expectations, and they're heavily subsidised anyways.
kesslerblvd profile picture
The major indexes are a smoke-screen for unemployment, inflationary prices at the grocery store along with oncoming food shortages, and increased foreclosures. The have-nots are increasing in number while the haves follow along until the election is over in November.
The stock market keeps going up yuck bears!
It is interesting that many don’t care to hear bearish predictions
Some of the wiser bulls are now very bearish.
Repost this article 12 months from now
Yes the truth is no one likes to hear years as a timeline that is not comforting
But the truth is Covid 19 has opened the gates of the false bull run of the last 10 years.
Once the Fed reaches the 10 trillion mark in print and pump the reality will hit home “HOUSTON WE HAVE A PROBLEM”
The problem : worldwide unemployment is directly connected to US unemployment
The solution: create a US non global employment opportunity which is called INFRASTRUCTURE
First a nationwide high speed bullet train system that connects to all major cities just imagine this for a moment
I bet most of you could name a great top 5 list for infrastructure
Is this author 12 years old? "Painless Depression" is simply insultingly stupid for 70% of the people out there. Moreover, the "depression" is in the top of the first inning. Sophomoric idiocy.
With 53% bears out there this stock market is going higher @Illius .
No a better analogy is the Titanic has just spotted the ice berg and it is trying to turn to avoid a hit but it takes a looooooong time to turn a big ship So the iceberg hits the ship
Even after the hit there is hope but eventually even the Captain realizes there will be many losses
The Fed is the Captain now
Once the Fed realizes the ship is sinking and the water is coming in faster than they can bail it out they will stop
That is why Congress is now looking at another 5 trillion bailout and then there will be another 5 trillion but finally
It stops and there is still a 10% unemployment rate
I know this article is specific to what to expect from the stock market, but there just seems something so wrong about the headline "the most painless depression in history", when so many are experiencing incredible hardships, not just financially, but mentally and emotionally. During the great depression, at least people could freely come and go as they pleased, and do what they enjoyed, or just be with people. Until we see the return of kids to schools, restaurants, sporting events, freedom to travel, taking care of yourself at a gym, and people not wearing masks, this is going to be a depressing time for many if not most people for reasons apart from money. If you could live to be 100, who would want to live like this, no matter how much money you had?
GR Value profile picture
Most stocks are just seeing p/e's expand due to earnings forecasts falling. There is no "recovery" in earnings or metrics. Rather just valuation expansion.

Whether earnings recover in late 2020 or 2021 to prior levels is anyone's guess. The banks seem to think defaults will occur.
This rally is driven far more by retail investors and short covering than anything else, smart money and traders are just riding the cash wave adding even more upward pressure. While it could certainly continue for awhile and even make new highs I challenge anyone to find an example of a retail investor driven rally that didn't end with a crash.

My guess is this rally will ultimately be remembered as a bull trap that transferred a massive amount of govt stimulus money to Wall st and set retail investors back years.
May as well ride the wave while it lasts though...
The Gearhead profile picture
I admire the boldness of your claims. It will be interesting to see how actual future results align with them.

Not sure that your methodology supports your conclusions, though. You use an index of stocks to represent consumer spending (for middle and upper class consumers), then conclude that current prices of those equities indicate consumer spending is robust. I think an alternative explanation is that multiples are expanding. Clearly in the current environment equity prices don’t strongly correlate with current economic performance. Perhaps the equity prices suggest the market assumes decent future consumer spending will be reflected in the performance of those stocks. That’s different than claiming that current consumer behavior indicates economic strength.
I have a feeling that this post will not age well.
Robert Rath profile picture
There sure is a lot of bearishness out there as exemplified by your post. You don't normally have that sentiment at a market top.
Probably not the top or the bottom. These rallies are based on a big chunk of investors believing that the market has to go up no matter what. 2 or 3 quarters of dismal numbers will eventually sink in. I agree that at some point this post will be embarrassing to the author. What lies ahead, is not a market rebound.
Weird, somehow you do not consider your own bullishness as a contrary indicator, it's always other people who are wrong.
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