Three simple reasons why markets are still broken and why I lean towards the much higher probability of another move down despite FED stimulus:
1) Garbage prospects for equity earnings - earnings were terrible a long time before COVID-19 hit and this is way beyond a virus now:
-Earnings were terrible way before COVID-19
-Q4 2019 was the worst fall in EPS. growth since the 2008 Financial Crisis
-Unless governments miraculously open up the entire economy overnight, we now have the Q1 2020 earnings season coming up - hmmm...
2) $6 trillion of FED stimulus is highly disproportionate to the approx $70 trillion of value lost/being eroded:
-We'll start with more than $20 trillion of value that has been destroyed in global stocks
-Adding to it losses in all other assets (real-estate, credit, fixed income, etc.) this number is at least double equity losses: so another $40 trillion
-Adding to this: at least a $10 trillion global dollar shortage crisis (dollar shortage, forward dollars swaps and various other dollar liabilities)
- Total value destruction = 20T equities + 40T all other asset classes + 10T dollar shortage problems = approximately 70T of totally capital markets value destruction.
- You really think $6 trillion of FED stimulus and highly indebted governments can fix this tremendous mess?
3) The McClellan Oscillator has moved sharply from the most oversold levels to the most overbought levels