TradeSmith Daily

April 2020

Wall Street Analysts Need to Throw Away Their Models

April 1, 2020John Banks

It almost feels inhumane to be focused on markets right now. After all, the United States is headed into its worst crisis in 75 years (since World War II), if not the Great Depression (1930s) or the Spanish Flu aftermath of World War I (1918). And yet, retirement nest eggs still matter, and savings still matter. So, the stock market still matters, too. Pandemic realities aside, we’re concerned by growing calls for a stock market bottom. The proliferation of Wall

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How Systemic Breakage and “Flattening the Curve” Helps Explain the Real Economy Crisis

April 3, 2020John Banks

We’ve been trying to find ways to explain, in simple terms, why the market has not bottomed and the economy won’t bounce back quickly. We feel the need to press this point because so many analysts are going the other way — and we feel strongly they are making a mistake. For investors, it could be a very costly error to bet on “the bottom” here with committed capital in a big way, or to make decisions that assume a

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Transmission Failures Will Sharply Limit the Impact of the $2.2 Trillion Stimulus

April 8, 2020John Banks

In the halls of Congress in Washington, D.C., there is already talk of another mega-sized rescue package. This one could be heavy on infrastructure, or so the rumors go. Depending on how things play out, this new package could land in another month or two. On a more immediate note, Treasury Secretary Steven Mnuchin wants to add $250 billion to the $350 billion allotted to small-business loans. Senate Majority Leader Mitch McConnell backs the idea. Congress wants to spend more

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A Pandemic Silver Lining: The Birth of a Whole New Monetary System

April 8, 2020John Banks

We’ll be the first to admit, TradeSmith Daily has not been cheerful lately. Our preferred style is blunt and straightforward. We aren’t big fans of making things soft. Because of that, we’ll never be mistaken for a baby squirrel drinking a dandelion smoothie in a sunbeam. With that said, it has indeed gotten grim around here — even for us. Some of you have asked, in a friendly way, if there are aspects of the current moment to feel excited

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The Federal Reserve Took Another Big Step Toward “Japanification” of the U.S. Economy

April 10, 2020John Banks

On Thursday of last week, the Federal Reserve made another surprise move. It caught markets by surprise, sent gold stocks through the roof, and accelerated the Japanification of the U.S. economy. What is “Japanification,” you ask? It’s the process by which the U.S. economy starts looking like Japan’s economy, which has been stuck in the mud for three decades. The Bank of Japan (BOJ) has thrown everything but the kitchen sink at the problem, and maybe the kitchen sink, too,

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Simplistic Messaging is Making the J-Curve Worse

April 14, 2020John Banks

On March 5 we said, “America is Entering the Coronavirus J-Curve.” The J-Curve concept is used in economics, geopolitics, and venture capital. The basic message of the curve is that “sometimes, things have to get worse before they get better.” For a longer description with examples, you can revisit the original piece here. We are revisiting that piece because, just over a month later, the J-Curve is now in full effect. (When the original piece came out, there were 177

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Why the Big Airline and Hotel Companies (and Others) Should Be Allowed to Fail

April 15, 2020John Banks

It is conventional wisdom by now that the major players in the airline industry, the hotel industry, the gaming industry, and multiple other industries hit hard by the pandemic should be “rescued,” meaning, the government should send them tens of billions. But what if that logic is wrong-headed? What if a better path — with better results for the economy — would be letting them all fail? Chamath Palihapitiya, a billionaire venture capitalist known for blunt talk and controversial views,

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The Problem With Starbucks, or, Why Retail Ain’t Bouncing Back

April 16, 2020John Banks

Complacent market bulls got mugged by data this week. It wasn’t pretty. But before we address the data, let’s back up a bit. Wall Street has a contingent of smug optimists who (still) expect everything to bounce back quickly. From where we stand, this viewpoint is almost bizarre. Its very presence inspires armchair psychology hypothesizing. Is it magical thinking? Data blindness? Devotion to Norman Vincent Peale gone wrong? Perhaps it’s a reliance on “gut feel” ill-served by novel developments (no

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