Wild Times in the Land of Confusion

Now, did you read the news today?
They say the danger has gone away
But I can see the fire’s still alight
They’re burning into the night.
Oh, Superman, where are you now?
When every thing’s gone wrong somehow?
Men of steel, these men of power
Are losing control by the hour.

   — Genesis, “Land of Confusion”

These words from Genesis’ song kept echoing in my mind last week as I watched the stock market rally from its recent bottom.

Now, I want to be clear: I don’t mind the rally. My subscribers made money on the way down, and they made money on the way up.

Heck, this week alone, Supercycle Investor subscribers just banked another 91.5% on Abbott Labs (NYSE: ABT) calls, on top of the 27% they banked on the first round of Abbot calls.

But can it continue for much longer? Probably not.

I’m glad we rang the cash register when we did, because the men in power are losing control. And Superman is nowhere in sight.

See, White House officials, led by President Trump, have been talking about May 1 as a potential restart date for the U.S. economy. And Wall Street bought into that, hook, line and sinker. This optimism, along with the Fed and Treasury firing off their free money cannons, is a big part of why stocks rallied so strongly from their bottom.

The Bad News Keeps Coming

But anyone with a working brain could tell you that May 1 is hopelessly optimistic. Some states haven’t even topped out on their “Coronavirus Infection Curve” yet.

Beyond that, the economic fallout is creating a ripple effect that will haunt the markets for some time. Building permits for new single-family homes has dropped 50% and car sales by 75%. Retail overall is suffering, falling 8.7% in the last month.

Even sectors you wouldn’t expect have been negatively impacted. For example, a pork plant that produces 4% of America’s pork shut down due to employees testing positive for COVID-19.

Many of the employees are poor, some are in the country illegally and most don’t have insurance. The CEO says their closure is just the tip of the iceberg, as workers at meat plants across the nation continue to get sick.

By the end of this week, 25 million Americans will have filed for unemployment benefits since the sudden pandemic crash in mid-March. That wipes out all 22 million jobs created since the end of the last recession in 2009.

Forecasts are bad and getting worse. Many economists expect gross domestic product (GDP) to drop by more than 30% in the second quarter. Some, like JPMorgan, are even MORE pessimistic — calling for a drop of 40%!

So, does Wall Street really think this can all be undone on May 1? If so, they’re dreaming. They are, indeed, in the “Land of Confusion.”

Like Having Germany and Japan Vanish!

In fact, the International Monetary Fund (IMF) on Tuesday said the COVID-19 pandemic is causing the worst economic downturn since the Great Depression in the 1930s. The IMF says the global economy will shrink by 3% this year before staging a partial rebound in 2021.

World output over the next two years will fall $9 trillion short of what was expected before the crisis, according to Gita Gopinath, the IMF’s chief economist. It’s as if both the German and Japanese economies simply vanished.

What, did you think the relief packages rushed through Washington would save the economy? It wasn’t a bailout, and it wasn’t a rescue. It was the fat cats taking care of themselves first, last and always. And they’ve left regular folks holding the bag … again.

For example, the “men of power” in the Senate added a tax provision that will cost taxpayers nearly $100 billion this year alone. Nearly 82% of that tax giveaway will go to America’s millionaires and billionaires. In other words, people who didn’t need a bailout. That’s according to analysis by the Joint Committee on Taxation.

The relief checks being mailed (electronically or otherwise) to Americans are pitiful compared to what they need.

So far, Wall Street has been able to float higher on dreams of a fast recovery and a flood of free money. Maybe that free money will take it further. But what happens when the “reopen” date for America is pushed to June 1 … or July 1?

Let’s look at a chart of the S&P 500 Index …

You can see that the world’s most widely followed equity index is running into resistance at the 50% Fibonacci retracement level, a common support and resistance level used by Wall Street technicians. Even if stocks can continue to chug higher from here, more overhead resistance is close.

I think it’s time to look at bearish positions again. But there’s no rush to buy. Wait for the rally to fail before you act.

When things DO roll over, I’ll be recommending inverse funds like the ProShares Short S&P500 (NYSE: SH) and select put options as ways for my subscribers to protect themselves and profit from the next leg down.

Whatever your views on the market are, you should prepare just in case the bear cavalry makes another charge down Wall Street.

All the best,

Sean

About the Editor

Supercycles aren't daily occurrences. They happen in stages and can last for years. Sean Brodrick identifies them early and mines for the most financially sound stocks within them. And he taps into the powerful Weiss Ratings, along with our proprietary AI Performance Booster, to help him do it!

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