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    From cruise lines to chipmakers, eager retail traders are dipping into beaten-down large-cap stocks in anticipation of a V-shaped recovery. They’ve been conditioned by the Federal Reserve to buy every market dip regardless of the cause or the state of the economy. Sadly, they don’t see that the coronavirus crisis will alter consumer habits for years to come.

    Newer investors probably don’t realize that historically, bear markets don’t have V-shaped recoveries. On average, bear markets in the Dow Jones Industrial Average have lasted for 206 trading days. If you included weekends and holidays, that would get you closer to 250 days.

    These newcomers to the markets also most likely don’t know that there are bear-market rallies embedded within the long-term downturn. Each head-fake suckers in new traders who think that the bear market is over. They’re sadly mistaken, and it’s their money that feeds the bear until the suckers finally throw in the towel – and that’s when the actual market bottom occurs.

    Investing legend Carl Icahn understands this, and he’s cautioning eager traders that it’s time to be “extremely careful.” He explained that “Short-term, you may have some big downdrafts,” which fits into the model of counter-trend fake-out rallies within a longer-term bear market.

    Icahn based his cautionary outlook on the idea that the economy isn’t going to quickly or easily return to normal, regardless of what the Federal Reserve might have us believe. “It’s not like turning on a spigot,” Icahn explained, referring to the idea of reopening the economy.

    Courtesy: CBS News

    The fact is, even if all of the stay-at-home mandates were suddenly abolished tomorrow, consumers aren’t ready to leave the house and be among strangers. As you can see in the chart shown above, the vast majority of people wouldn’t attend a large event or get on an airplane, and most of them wouldn’t go to a bar or restaurant.

    The same is undoubtedly true of cruises, movie theaters, taxis, you name it. Governments can “reopen” economies all they want, but in reality, the only people who can resurrect an economy are the consumers themselves.

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      Besides, even if consumers wanted to get out and shop, they won’t have the financial wherewithal to do so. Untold numbers of people are out of work, and whatever stimulus money they’ve gotten will quickly be spent on necessities, not airplane trips or luxury cruises.

      My conclusion from all of this is that the “recovery” will be slow, fitful, and disorderly. Social distancing will replace trust among the populace, and that alone will destroy many smaller businesses to the point that they will either get acquired by larger companies or they’ll just fold altogether.

      Courtesy: Lohman Economics, Bloomberg

      And yet, startlingly enough, the stock market has recovered more than half of its downturn. The chart above shows the striking divergence between the S&P 500 stock-market index and the level of consumer comfort. But without comfortable consumers, there’s no economic turnaround.

      If anyone’s measuring the recovery in weeks, I recommend that they extend their time frame to months or even years. Plus, we need to replace the terms “return to normal” and “the new normal” in our vocabulary with something truer to reality, like “the new abnormal.”

      One thing we can say with confidence is that there are investing opportunities here, even if they’re not necessarily in Dow Jones stocks. The world’s combined public and private debts are approaching 300% of the global GDP. Governments are flooding banks, businesses, and citizens with fiat money.

      As business and investing legend Amir Adnani points out, “The stimulus committed by central bankers in 2020… exceeds the total cost of WW2.” And as Mr. Adnani explains, the right strategy for investors is clear and simple: if you have gold or silver, “you hold on to it.” After all, no pandemic has ever prevented precious metals from increasing in value over the decades and centuries.

      If you don’t have gold and/or silver already, that’s okay because you can still take a starter position in precious metals and shares of mining stocks. Hard assets can easily retain their value despite the discomfort and disorder in the economy – if anything, they’ll do better than ever.

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