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Last week US unemployment topped 33 million, or nearly 15 per cent of the former working population, a level that should frighten any stock market investor familiar with the 1930s and the Great Depression.
Yet US stock markets closed the week higher. The Nasdaq is only 7 per cent off the all-time high it hit in February before the coronavirus nightmare struck Main Street.
Investors are looking forward, say analysts, not backwards, although they do recall that ‘fighting the Fed’ has been a fool’s errand in the past.
It is true the US Federal Reserve has opened the spigots and money is pouring into the American economy: more has been injected in the past two weeks than in the whole Global Financial Crisis of 2008-09.
But if people actually read recent statements by senior Fed officials, they would know that the US regulator is cautioning against expecting a rapid recovery. The International Monetary Fund says this is the worst global economy since the Great Depression.
It’s also notable that investment has become heavily concentrated in a few leading stocks: Facebook, Amazon, Apple, Google and Microsoft on the Nasdaq, for instance. At no point in stock market history has such a concentration ever ended well.
US stock markets are themselves looking like lonely hangouts in a world where equity markets are mostly 20-30 per cent off their recent highs, and far more sanguine about the economic outlook.
Could it be that Americans have become too optimistic, too quickly? Or is this a state of denial because stocks have been overvalued for years?
Last weekend the world’s most successful investor, Warren Buffett, broke his silence to say he was still not buying stocks. Despite having a record $137 billion (Dh503bn) in cash and the ability to ‘buy a $30-50bn company on Monday morning’, he did not see ‘anything that attractive’.
Of course, Mr Buffett was not looking particularly chipper as the value of the Berkshire Hathaway portfolio he runs is down more than $50bn.
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His rallying cry in support of the long-term capacity of the American dream to deliver results was as good as it got, although that did not extend to airline stocks. He dumped his entire holding.
Friends have started retiring, and a number have asked me about their future portfolio allocation. My usual response is that stalling and doing nothing is probably the best approach right now.
Traditionally pension portfolios are split between stocks for growth and bonds for income with some real estate perhaps for diversification, albeit many retirees own property anyway.
But equities look poised for a further downturn. That is unless a vaccine is found for coronavirus, so that social distancing and other health interventions that make many businesses unprofitable can stop.
Meanwhile, the summer will likely deliver more awful economic data, profit warnings and pending bankruptcies followed by a second wave of white-collar layoffs in anticipation of a second wave of the coronavirus this autumn. A recovery will realistically take 18 months to two years.
Bonds are also in an awkward position. Governments, companies and individuals all over the world are now borrowing huge amounts of money. Rising debt usually means higher interest rates, and that means lower bond prices, whatever the intervention by central banks.
This could well be the end of the road for the 40-year bond bull market. March lows in US treasury yields may have been the top for bond prices. One hedge fund manager I know sold most of his extensive US bond holdings then.
So would you as a newbie pensioner want to start your retirement by buying expensively priced bonds? This could deliver the lowest possible income for your senior years.
You would definitely be kicking yourself if a few years down the line interest rates on simple deposit accounts rise. Even emerging market bonds might be a better bet than treasuries as they were in the global financial crisis.
Another thing to consider is that leading asset classes tend to change during economic crises. This could be a top for equities and bonds, for example, but a bottom for commodities.
Oil at under $10 a few weeks back seemed on the floor, and has since rebounded to $25, some say a little too quickly.
However, agriculture and industrial commodities were smashed to new lows by the recent crash and are still a good buy. Corn is at a 45-year low, and coffee has retreated.
Precious metals have already picked up, although silver has lagged behind gold’s strong performance. Higher gold, plunging interest rates and multiyear lows for commodities are all bearish indicators for the economy, stocks and probably bonds too.
Real estate prices could also drop on reduced demand. The unemployed are usually interested in rent holidays rather than buying property. But houses are generally more solid assets than highly-priced equities whose dividends and share buy-backs can be cut, or bonds that shrink in value as interest rates rise.
'Cash is king in a recession' and investors lucky enough to be in that position should be patient. Like Warren Buffett, wait for the best bargains.
Peter Cooper has been writing about Gulf finance for more than two decades