Sorry We Are Closed

Signs saying ‘sorry we’re closed’ or ‘retail space open for rent’ is becoming all too prevalent on my morning walk. Small businesses are starting to feel the deep effects of the coronavirus and I don’t think this pain is going to stop anytime soon.

The big news last week was that GDP decreased at an annual rate of 32.9% in the second quarter of 2020.

According to bea.gov:

“The decline in second-quarter GDP reflected the response to COVID-19, as "stay-at-home" orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts inactivity, as businesses and schools continued remote work, and consumers and businesses canceled, restricted, or redirected their spending.”

It should come to no big surprise that the major indicator of the health of an economy has dropped significantly. We all were locked in our homes, given free money, and started saving money. Personal saving was $4.69 trillion in the second quarter, compared with $1.59 trillion in the first quarter. 

The economy, small businesses, and its citizens continue to walk blindly into the future gripping onto the shoulder of their favorite politician.

At this same time, the stock market keeps pushing higher.

If we focus solely on the United States numbers here, we see the S&P 500 is up 24% year over year even with a sharp decline in GDP.

Value investing, for the time being, is fading into the abyss. The only thing that makes any sense is the ‘Fed Put.’

DayTrading.com explains the put as:

“The “Fed Put” is the widespread belief that the US Federal Reserve (commonly referenced as “the Fed”) can always rescue the economy by decreasing interest rates.

The term originates from the analogous comparison of selling a put option on the market. When one sells a put option, that provides the obligation to buy a stock at a predetermined price if the buyer of the put option wants to sell it to you. Similarly, when a central bank is easing monetary policy, it may have an idea of how low it is willing to see the financial markets fall before intervening with liquidity measures to help support their valuations.”

This Fed put has kept interest rates close to 0% and consequently inflated asset prices to levels that make zero fundamental sense.

I know I know! I have been writing about the Fed and inflated asset prices ad nauseam and look forward to write more about other micro topics inside crypto. Yet, I feel like I have to hammer this point home so you can protect yourself. No one is looking out for you.

Bitcoin is the hedge against this Fed put. There are only so many times you can save the market before you destroy the value of your currency. The ‘can’ should only be kicked so many times. The road can’t go on forever.

Have a great week everyone.

-molesy

As a reminder, this is not financial advice. Do your own research.

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