by David Haggith, The Great Recession Blog:

There is no easy way to say it, except to get it out of the way. My stock trade that I divulged as a matter of disclosure at the start of the week was probably the stupidest move I’ve made since starting this blog. I failed to follow my own advice.

That failure cost me a 6% loss in both of our 401Ks. Now, to put that in context, I did take my own advice earlier in the year and got entirely back out of stocks in late January and, thereby, avoided a 30%+ loss that many who remained in the stock market took.

Still, I was down 2% in one 401K and up 2% in the other (each 401K of approximate equal size), so I was flat for the year, as the third is too small to matter … until this.

I feel like trying to grow our 401Ks for retirement is a responsibility so that we are not living off our children or grandchildren when we retire. So, I thought I saw a chance to bet on the continued stupidity of the market –if it was going to be that way anyway — and make an easy 6% in about a month, then get back out and call it quits until the market got the stupidity pounded back out of it. That’s all I would call it — a bet, not an investment. Something I don’t very often do.

Turns out betting on stupid to remain stupid is … stupid!

Why on earth did I do this?

From a practical standpoint, it’s like Bill Blain just wrote:

Compare bond yields pre QE – around 5%, and today at 1%. If you ignore everything else… that means a bond returns 20% of what it did 10-years ago. Call that financial asset inflation.

It’s equally true in stocks. Investors have been forced out of bonds into stocks in search of returns. A stock that once cost $1 to yield 10%, now costs $10 and yields 1% – yet it make the same profits each year. You get the drift? Its financial asset inflation.

To get the same return from investments you made 10 years ago, you have to invest 10 times as much.. which is why most of us will never ever be able to retire. Dang!

“The Morning Porridge“

Feeling the retirement pressure is an argument many people use. While I was roundly told how immoral that is in the comments to the last article, finishing your life as a burden to your own children or grandchildren is immoral, too, if you can prevent it without doing something wrong. That doesn’t make my choice less dumb; it just explains the compulsion behind it. (The morality or hypocrisy of it, I’ll address later.)

Unfortunately, some people saw the very smallest part of my last article to be the core of it. The article was not about my stock trade. That was merely disclosure, nothing more (therefore not advisory either). The article was about how stupid the market is to believe in a V-shaped recovery, and it made clear I definitely don’t believe in that.

Writing against that was the sole actual purpose of the article. Nothing in what the article was actually about was wrong; BUT my own trade unfortunately undercut the message by appearing to run the other way, though not really because I never doubted for a minute the theme of the V-recovery being a complete delusion.

I tried to make the point that, by betting on stupid to remain stupid a little while longer, I was not in any way thinking this market was not going to crash soon. I said I believed the market would go up short-term for two reasons — one of which was foundational to the market’s move; the other of which was the driver:

The foundation was Fed and government support. Without trillions in new QE flowing into the market from the Fed, it would not have the cash it needs in order to continue up from stock buybacks that certainly were not being financed by soaring business profits being returned to corporate owners. A good part of the money was financed by owners using their business’s credit for buybacks to enrich themselves. It was financed by the government to some degree as some retail Robinhood traders used part of their government stimulus checks to buy stocks.

The driver of the market was clear by headlines everywhere: “A V-shaped recovery is coming now!” That, I said repeatedly was a false bet. I’m sad that real theme of the article got overshadowed by my own trade; but truth-be-known, I don’t invest our 401Ks for the sake of making points in my articles stronger.

I do what I think is best for the 401K and for our personal retirement future so that I am not utterly dependent on others down the road, but I felt honesty required disclosing that. I knew it was to the detriment of the article to disclose it and maybe to my reputation, as I didn’t think anyone would run right up and say, “Brilliant, David!” I was pretty sure it would be seen by a dumb move; and, as it turned out, it was.

My reasoning was simple: I believed the re-opening would give the market stupidity a sudden burst of oxygen on a very temporary basis that would enflame the delusional thinking all the more. What happens to a room smoldering with heat when you break open the windows and let oxygen in? It explodes in flames. So, my belief was that re-opening, IN AND OF ITSELF, would be filled with headline news that would feed the V-shaped recovery narrative for a month or two until the grim reality of the dawning Epocalypse began to show through the smoke. (I’m not so sure it still won’t.)

My caveat, thought, which I stated clearly more than once, was that a resurgence of COVID-19 outbreaks could easily overwhelm any superficial good news from the reopening by destroying the hope of reopening, itself. So, I stated that was essentially my stop for this trade. I would be vigilant for the first signs of COVID-19 poking its head in the form of rapid rising numbers through the headlines again (as I said I was certain it eventually would); but at the time, the virus was idling along.

I did exactly what I said I would do:

I will be looking for the end of the reopening surge as the point to jump back off or the return of the COVID surge.

Because stupid is a pretty safe bet right now. The only caveats to all of this for the next month or two will be if the flow of superficial good news from reopening causes the Fed and government to rapidly back down on the support the market is fully dependent on (unlikely) or if the coronavirus returns this summer with a vengeance due to reopening, instead of waiting until normal flu season (unpredictable but not too unlikely).

I’m betting that the reopening yields enough record good news to feed the delusion until the stimulus-funding starts to dry up and the knock-on effects of the shutdown start to show up and the virus eventually returns or the repo crisis returns in full force. The return of the coronavirus in full force could be extremely soon with so much social narrowing and mixing during the George Floyd protests

The resurgence of the coronavirus scourge came sooner than I expected, but I backed out as I said I would because the whole false narrative falls apart as soon as the number of coronavirus cases flares up. (Whether real as reported or not is irrelevant to the impact or response of the general public and overstitching investors). As you saw, that is exactly what happened as soon as the headlines hit.

I also knew that it would take a day for my 401Ks to complete any sell order I put in. They always do. So, I knew I would take a one-day loss. I didn’t know the one-day loss would be as great as 6%, but I knew it could be fairly large. However, I also believed I would have, at least a week or two of seeing the V-chasers push the Dow to reach its old heights; so, thought I would, at worst, make enough in that last hurrah to offset the loss.

The virus had other plans, and it showed back up and caused me to back out my trade before realizing any gain. (The previous days of the Dow going down were a wash with the Nasdaq going up because my stocks were about equally split; but when all indices plunged yesterday, I took the 6% loss before the sell-order cleared — the biggest lost I’ve taken because I’m generally quite conservative with those retirement accounts).

Betting on a virus to cooperate a little with your bets is as desperate as counting on stupid to stay stupid a little longer is stupid.

What I didn’t count on — something I’m saving for another article but will, at least, mention here — is J. Powell being so candid in his presser after the Fed’s meetings as to tell all investors unequivocally there will be no V-shaped recovery!

While the Fed did not pull out its underlying support, I didn’t expect Powell to pull the plug on the only narrative that was driving the market up. (Though it’s not too surprising he did since causing the opposite of what he appears to want seems to be a talent of his.) Notice how nervous Powell looked throughout his presser and how grim he sounded:

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