Welcome to the “Unconomy”

Negative oil prices?

Earn more through unemployment than work?

Freedom determined by federal and state governments?

Welcome to the upside down.

Welcome to the unconomy.

Today I’m giving you a front row seat to what’s coming in the next few months. And I’ll warn you, it’s unprecedented, unusual and, in some cases, unwanted!

While no one in the world could have predicted the global, federal and state response to coronavirus…

You and I CAN look at the writing on the wall and make a few bold conclusions about our new normal.

Here are three trends you can bank on in the unconomy…

The first trend we’ll cover is called “the chop.” It’s about the markets.

If you’re reading this article, you care about your wealth, and you have some skin in the game (brokerage account, 401(k), IRA, home equity, you name it…)

The past few months have been crazy. When the markets crashed, all sorts of people came to me with stock questions —  contractors, doctors, government employees…

Oh, man. Random friends and family are asking me about the markets? That’s a seismic shift from the past decade or so!

Remember…

“The prior 10 years were easy for most investors,” says Greg Guenthner, our senior analyst and chart technician.

“All of a sudden, if you want your portfolio to go up, you’ve got to be good at picking stocks. Or for passive buy-and-hold investors, you’re going to need to be patient.”

That’s a great point, coming from the guy that sports our best portfolio during the crisis. He didn’t have a single losing trade in March 2020.

When it comes to market sentiment (figuring out if the market is going to go up or down) and picking stocks (finding the ones that’ll go up when the rest go down), Greg is my go-to guy.

“Be prepared for choppy markets for the foreseeable future… several months.”

The chop is here.

And it makes sense.

We just came off of the longest bull market in U.S. history. In retrospect, it was a decade of easy money in the markets. The “index fund” era!

But all good things come to an end.

The smart money knew we needed a pullback or a correction. Let’s be honest, everyone knew that.

Whelp, boy, did we get one!

So now the hard work begins (the stuff I leave to guys like Greg).

How do you know when to buy? When to sell? And what to buy?  It’s an art. And you better not go sailing in these choppy waters unprepared. (Think of the movie the Perfect Storm; in choppy waters, those sailors didn’t come back.)

Whipsaw moves are here to stay for a few months. There will be plenty of “haves and have nots,” too.

Three months of chop. Count on it.

You need to be a good stock picker or patient. Those are your only two options.

But that’s just the post-corona short-term market. Now let’s look at the big picture.

The second trend we’ll cover is called “the cash”… and I bet you know where this is going…

We’re looking at unprecedented stimulus, government intervention and cash being thrown at the problem.

Take a look at this chart:

bailout chart

What you’re looking at is unprecedented stimulus and cash being thrown at this short-term problem.

I’m not here to bore you with my free market talk, either.

Instead, together we can look at this unstoppable trend. Cash is hitting the market at an alarming rate.

Bailouts for companies are in the works…

Interest rates are near zero (and actually went negative earlier this year)….

And cash is being literally mailed out to the people.

Here’s some back-of-the-envelope math:

About 150 million Americans are expected to receive a $1,200 check.

That’s a cool $180 billion.

But while most people focus on that number or industry bailouts, there’s an even bigger number looming…

Part of the coronavirus response was an additional $600 in WEEKLY unemployment benefits, paid directly by the federal government.

By now, 25+ million Americans have filed for unemployment.

That’s $15 billion per week. And it’s guaranteed for 15 weeks (through July).

That’s a cool $225 billion.

If you’re keeping score at home, remember the 2008 bailout was $700 billion (that’s one of the “little” blue bars on the chart above).

And you’ve seen the news, right? In some cases, people are making MORE money from unemployment than they were when they were working.

This is a HUGE wave of cash. And a huge trend that will eventually re-inflate the market and the economy.

Remember, the markets and the economy are graded in nominal dollar terms… so when you throw cash at them, they go up. There’s simply nowhere else for the money to go.

Stimulus and government intervention fueled the market runup from 2009-2019. And the fuel is coming fast and furious now. (Once the chop is over, watch out — this market is headed up!)

The third trend we’ll cover is “the stick”… and it’s an important one.

History doesn’t repeat itself, but it often rhymes.

What we’re seeing with unemployment benefits and government stimulus isn’t new.

But the “work from home” (WFH) revolution is…

So let’s see what this revolution looks like, and forecast the future by looking at the past.

With quarantine orders across the country, we’ve quickly been forced to become a WFH nation.

Everything that can go digital has gone digital.

This all-out war on coronavirus harkens back to another game-changing trend that formed in wartime.

You know Rosie the Riveter, right?

She was the iconic symbol of WWII, representing women in the workplace. As the men went overseas, women took their spot in factories and essential jobs.

But here’s what a lot of folks don’t know…

The 1940s were just the beginning.

AFTER the war (during the ‘50s and ‘60s), women’s labor force participation rates skyrocketed. Take a look…

didn't go home

The war effort changed the trajectory for women in the workplace — it was the catalyst for a change already underway.

From that point on, the trend was unstoppable.

We’re seeing the same thing today with the WFH revolution.

There’s another more-recent example I’d like to share, too…

It comes to us from the fast-casual Mexican food chain, Chipotle. (Not quite as significant as WWII, but important…)

Last week, Chipotle announced earnings. And while the restaurant had to shutter its dining rooms, the stock popped on earnings.

Weird, right?

It’s a sign of the times. But even more telling was a comment that the CFO made about Chipotle’s digital business.

“What we have seen before Covid was that [digital] behavior is sticky.”

You see that?

In just one little corner of the market, the CFO showed his hand! Once people form a habit or get past the learning curve and go digital… they “stick” to it.

Here’s the point…

What we’re seeing in America is unprecedented.

Similar to WWII, the workplace is setting a new trajectory… and a change that was already underway is now happening much FASTER than expected.

Video conferencing, online communication, apps, software, 5G… it’s all happening right now.

And it doesn’t take a taco scientist to know that this behavior will stick.

Work from home, online ordering, online communication… this HUGE trend isn’t ever going “back to normal.”

It IS the new normal.

So let’s wrap it up. We’re in unprecedented times, with three distinct takeaways….

The chop. Pick good stocks, or be patient.

The cash. Market inflation is coming as money floods into stocks and the economy. It’s unstoppable.

The stick. We’re not going back to normal. WFH/digital is here, and this new trend is going to stick.

Welcome to the unconomy,

Matt Insley

Matt Insley
Publisher, The Daily Edge
EdgeFeedback@StPaulResearch.com

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Matt Insley

Matt Insley is the Publisher of St. Paul Research and now The Daily Edge. Matt is the in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.

Although always familiar with the financial markets, his main area of expertise stems...

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