American Consumers Are Stronger Than Wall Street Thinks

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

For weeks, stocks have been floating on the Fed’s promise of unlimited liquidity in the face of the COVID-19 crisis.

The fuel for that optimism comes from the flow of big bailout cash. And as that money circulates, U.S. households keep paying the bills even when large parts of the country remain economically locked down.

Don’t get me wrong, there’s a lot of pain, frustration and anxiety out there. But the numbers prove that Americans are a lot more resilient, creative and adaptable than a lot of economists were willing to credit.

If this is the worst-case scenario, investors will truly see their portfolios recover quickly. This isn’t spin or sentiment. It’s just the statistics talking.

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The real fear factor when the outbreak started shutting the economy down was that businesses would close permanently and the people they employed would be out of work for years. It could have happened.

But it takes a huge, immediate and sustained shock to push the biggest economy in history all the way to zero. I never worried about whether we would come through this.

My primary concerns were more granular. I wanted to know how much of a pause the quarantine would put on economic activity, how long it would drag on and which companies would adapt to the new landscape first.

Let’s start with the last question. We’ve seen plenty of companies step up to pivot their operations and keep the cash flowing. When they can’t, the government has stepped in with support.

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With regards to duration, it now looks like the lockdown is ending quickly in many parts of the country, especially where not a lot of people got sick in the first place. From here, the economy will start to accelerate again.

Conditions are definitely not likely to get worse. And as it turns out, while the shock has been enormous, the numbers I’m seeing just aren’t as bad as the catastrophe Wall Street initially anticipated.

Stocks were priced for the end of the world a few months ago. If you’re reading this, you’re proof that the world did not actually end.

Admittedly, we’ve taken a big step back. The fact that retail sales came in this morning at 21% below last year’s level are only the latest demonstration of that.

However, a 21% decline is a long, long way from a total collapse. As a nation, we managed to afford most of what we bought a year ago, with budgets only tightening when it comes to entertainment and other discretionary categories.

That makes a lot of sense. Canceling the first few months of major league baseball alone knocked at least $1 billion out of the retail numbers. That’s only the tip of the economic iceberg. Even if people have money, they need to be able to spend it.

It turns out that people have that money. The stimulus checks have really helped. Even though Fed Chairman Jerome Powell shocked the market by calculating that 40% of lower-income households are out of work, those households are still eligible for unemployment support.

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Unemployment benefits normally run up to 26 weeks in most states and can be extended if the jobs simply don’t materialize before that point.

That gives the millions who were laid off in March until at least September to get back on their feet. Do you think the quarantine will remain in place throughout the country that long?

Maybe in the worst-case scenario, the masks will stay on. But now we know how much Americans will buy with their masks on.

It’s not so bad. We can see it in restaurant revenues from the trailing quarter and the numbers I’m seeing from hotels, the housing market and even airlines.

While they all took a hit on cash flow in March and April, cash kept flowing. In many cases, March was the bottom and then the numbers started coming up again in April.

I have a pretty good feeling May will be better than April. And after that, the animal spirits can really start flowing again.

After all, speed bumps are frequent and inevitable in the economic cycle. It’s only when the economy lurches to a sudden stop that real damage starts to accrue.

A full stop triggers a crash. Stocks started pricing in a once-in-a-generation crash in February and now they look fairly valued, if not cheap, around the 10% correction zone.

The road back won’t be smooth, but it ultimately points up. And in the meantime, my 2-Day Trader subscribers have been making money as sentiment swings.

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