Sangai Investments

Maximum Unemployment For Maximum Stock Market Returns

Are you a little befuddled that with every record-breaking unemployment claim, the S&P 500 surges higher? After 6.6 million jobless claims on April 9, 2020, the total number of jobless claims in 2020 stands at roughly 16 million or 10% of the working population.

With a once working American population of ~158 million, I’m now wondering how many Americans will have to file for unemployment before stocks stop rallying.

Is the inflection point at 30 million unemployed? 50 million unemployed? Or how about 100 million unemployed?

Record-high unemployment claims

Nobody knows for sure, but what we do know is that stocks rally after dismal unemployment figures because investors expect the Fed and the Government will provide even more monetary and fiscal stimulus. The worse the numbers, up to a certain point, the more monetary and fiscal stimulus.

Given I’ve got plenty of extra time to think and write during the lockdown, I thought it might be interesting to see what life would be like under maximum unemployment of 70%. 30% of the American working population still needs to work in order to run the government, provide food, shelter, clothing, energy, and technology. So let’s just agree that 70% or 110 million people is the maximum unemployment level.

Given we already have 16 million registered for unemployment, at a rate of 6 million unemployment claims a week on average, we will get to 110 million unemployed in 16 weeks, or by July 30, 2020.

Similar to Governor Gavin Newsom’s bold proclamation on March 19, 2020, that 25.5 million Californians will get coronavirus by May 14, 2020, I will make the assumption that by July 30, 2020, 110 million Americans will find themselves unemployed if lockdowns extend until then. This is a possibility since the decision of how long we should shutdown is being made entirely by extremely wealthy people who are getting paid either way.

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