/ Terry’s Columns / Unemployment Soars, Stocks Rise?

Unemployment Soars, Stocks Rise?

By Terry Savage on May 11, 2020

How is it possible that unemployment is soaring, GDP is crashing, major retailers are going bankrupt, the word Depression is used regularly, a pandemic still rages — and yet the stock market is making headlines on the UPSIDE?

The glib answer is that the economy is re-opening and the market is looking ahead, past the current morass and into a rebound that will bring the economy back to life. Supporting this theory is the Fed’s outright promise to create enough new money — at least $5 trillion — to keep things moving in the right direction. Everyone knows the first rule of the stock market is “don’t fight the Fed.”

Since the Dow made its low of 18,213 on March 23rd, the market has rallied to 24,400, and is poised to move higher. Just for perspective, the all-time high for the DJIA was at 29,568 in January, less than four months ago. And the Nasdaq Composite Index is back in positive territory for the year.

So, is that all there is? Call me a skeptic. The pain I see out there in the real economy tells me that the recovery won’t be so simple. I never “time” the market, but I do want to warn against rushing back into stocks in the naive belief that this economic crisis will soon be behind us. This rally could be a “trap” like no other, if confidence doesn’t return or if there is another wave of Covid 19 cases.
There’s a reason I created the term “chicken money” — money held safely in cash equivalents — especially for those who are not in a position to risk all of their nest-egg in stocks or bonds. Holding chicken money requires self-discipline — and especially so when your only reward is not interest accumulation but capital preservation. Nuff said.

The “Real” Economy. And what is going on out there in the real economy? Well, first, there is evidence that even the best-intentioned government attempts to direct the economy are fraught with unintended consequences. The stimulus program is a case in point. The $600 weekly addition to state unemployment benefits gives many workers more money than they made in their jobs. So when the boss gets a PPP loan, which requires putting employees back on the payroll, workers aren’t thrilled. And the PPP program itself is now so burdened with additional rules that many small business owners are choosing to reject the grants/loans completely. There is plenty of money left over if you’re still looking.

As unemployment rises to more than 14 percent, states have been inundated with filings, causing systems to break down. Of course, the actual unemployment offices are closed. Amazingly, some states are allowing beauty salons and tattoo parlors to reopen, but aren’t calling back government workers to process claims!
The Cares Act provided unemployment benefits for the self-employed, the professionals and gig workers and sole proprietors. But at least a dozen states still haven’t allowed them to file because they aren’t set up to process 1099s as a basis for granting benefits.
Millions have yet to receive the benefits they deserve — and need to pay rent and buy food. The sight of family cars lined up at food banks is heartbreaking, while farmers leave produce in the fields to rot and slaughter their livestock because the food chain is breaking down. And kids who depend on school lunches go hungry.

All, this while the stock market is making headlines on the upside? Something doesn’t click here.

Allow me to show you something unbelievable, happening at the hands of our government.
Once again my website has gone viral — as millions of families who are the poorest of the poor, received stimulus checks for the parents, but not their dependent children. These are people who receive SSI (supplemental security income) on cards each month. At first, the Treasury and IRS were going to make them file at a “non-filers” site to get their benefits! These are people who may not have homes, much less computers. The plan was amended; they would get their stimulus payments on cards, but would have to register their children. Which they did. But this past week the payments went out — without the $500 per child they expected.

And here’s a sample of emails and blog posts I received:
“My husband and I filed under the non-filers portal April 15th. We both received our 1200 payment but did not receive funds for our 5 kids. We entered all of their SS numbers as instructed. Apparently NONE of the non-filers have received their funds for their children. The IRS is not addressing this problem so we are all left in the dark. Do you have any info on this?”

Why does it matter so much, you think? How about this one:

“Hi Terry, I’m a single mom of three kids one of which is disabled with cystic fibrosis, she’s 4. I did the nonfilers, was accepted on the 14th, but didn’t get the $1500 for my kids. I need this money asap, I need to get my car fixed. Please for the love of God help me. What do I do, I don’t file taxes, don’t make enough money to do that and I can’t wait til next year to get the money.”

That last reference is to a spreading rumor that if people didn’t get paid for their dependents they’d have to wait until next year! My media contact at the IRS has not given me a response yet. Fingers crossed I can report that there will be a “second pass,” with stimulus benefits for dependent children arriving on their SSI cards soon.

So this wasn’t intended to tug at your heartstrings. I feel bad for kids now unsure they can attend college (read the latest column on my website for tips on that). And I worry about families who can’t pay the rent or mortgage (see last week’s column also online) — and aren’t quite sure there’s a job waiting for them — as a restaurant server or retail sales clerk –when the economy does open up.

I don’t care how much money the Fed pumps into the economy, this is not a recipe for either prosperity or a lasting bull market. And that’s The Savage Truth.

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