This article (See Link Below “The Coming Greater Depression of the 2020s”) pretty much reflects my views better than any I’ve seen recently. It echoes the conclusion reached by economist David Rosenberg as espoused in today’s Mauldin SIC2020 conference. A big issue that Rosenberg pointed out is that the recent layoffs are perceived by those being laid off as being temporary, but in high likelihood, a much higher percentage of these furloughs could indeed be permanent. A number of retail establishments were on the verge of shutdown already, and this could represent the ‘final straw’. Most restaurants can’t survive at 25%-50% peak occupancy, even with heavy take-out business. Most consumers are going to be resistant to go out until they’re sure they’re safe.
A vaccine is still uncertain and at least a year away. A recent survey found that 52% of small business owners surveyed expected to be out of business in six months. Airline fares are going to have to go up a lot to offset capacity restrictions and then you face elasticity of demand issues. People have learned to use Zoom now and are going to less prone to travel. Remember that it took four years for air travel to get back to pre-9/11 levels.
Americans are going to save a lot more going forward and this will be a secular change in behavior that will impact the economy and corporate profits dramatically. The mentality of people could shift permanently towards having more savings & less frivolous consumption. A lot of small businesses have sprouted up to serve luxurious consumption. Remember that Depression era babies were influenced for decades.
As far as recent stock market action is concerned, this rally off the low represents just a retracement rally which should still be followed by lower lows. Legendary market technician Bob Farrell is well known for his Ten Rules for Investing. Rule #8 is that Bear markets have three stages — a sharp down, a reflexive rebound and a drawn-out fundamental downtrend. This is where I believe we are. This decline will look more like the 1930’s than the 2008-09 decline. This second protracted decline resulted in a drawdown of 86% from its secondary high after its 1st bounce.
This is a great time to be short a portfolio of stocks of underperforming companies with very bad fundamentals.