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April 2020

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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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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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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This is Going to be a Long Fight

April 7, 2020John Banks

A global pandemic is about as serious as it gets, and this is going to be a long fight. Even if an “apex” comes in April, we’re only at the beginning of this thing. It’s important to be clear on this. If you look at a situation realistically, without downplaying it or sugarcoating it, you can steel yourself for the hardships and challenges ahead, and then you can focus on building and executing a plan. Once the plan is in

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Domestic Travel Bans are Highly Likely for the United States

April 6, 2020John Banks

The hockey legend Wayne Gretzky summed up his approach in one sentence: “Skate to where the puck is going, not to where it has been.” The quote has probably been used — and abused — by tens of thousands of corporate executives. But the quote is popular because it captures an important idea. To be competitive and prepared, you have to be in tune with what is likely to happen next — not what happened yesterday.  For markets as of

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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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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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China’s Coronavirus Stats Can’t Be Trusted

April 1, 2020John Banks

The coronavirus data coming out of China is manipulated, and possibly outright false. We know this, in part, because a Chinese health official has admitted as much. There have also been questions and red flags around China’s data reporting from very early on. This matters because China’s coronavirus statistics — the number of cases, the number of fatalities, and the slowing of new infections — are frequently used as a benchmark and a source of hope. It has been noted

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March 2020

The Odds of a V-Shaped Recovery are Zero

March 31, 2020John Banks

There are multiple economic recovery scenarios, and varying expectations for how long each one could take. These scenarios are often described as letters of the alphabet. A “V-shaped” recovery is the best-case scenario. In a V-shaped recovery, the economy bounces back as quickly as it fell. V-shaped recoveries are fast and vigorous. A “U-shaped” recovery is the middle-of-the-road scenario. There is a flat stretch of time at the bottom of the recovery, and then a near-vertical return to normalcy. The

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Congress Needs Remote Legislating Capabilities As Soon As Possible

March 27, 2020John Banks

Without remote legislation capabilities, there are plausible scenarios where Congress loses its ability to legislate, or even to function. Imagine a scenario where the government is frozen in place — and no new emergency bills or measures can be passed. The risk of a non-functioning government, in the midst of the worst global crisis in generations, is now staring us in the face. A surprise event on Friday served to drive this point home. If this happens at the wrong

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Is $2 Trillion Worth of Stimulus a “Nuclear Bomb” — or a Mattress in a Volcano?

March 26, 2020TradeSmith Research Team

A $2 trillion emergency relief bill passed in the U.S. Senate by unanimous vote on Thursday. The bill is likely to pass in the House, and the president is likely to sign it. The final ink is not dry as of March 26. And yet we can say, with a high degree of confidence, that roughly $2 trillion worth of aid is coming — the biggest fiscal stimulus in history. But will it be enough?  Many are impressed by the

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Self-Delusion is Not a Valid Coping Mechanism

March 25, 2020TradeSmith Research Team

Self-delusion is not a valid coping mechanism. In order to protect their capital, investors should remember this at all times. In the midst of a national crisis, citizens should remember it, too. Under normal conditions, optimism is a desirable trait. Optimists have a natural ability to enjoy life. Seeing the bright side of things is good for mental health, and it’s a form of motivation to see the glass as half full. But optimism at the wrong time, or in

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