For instance, since peaking in January of 2018 (13,657.02), the NYSE Composite, the broadest measure of equity valuation, is lower by 12.20 percent, though it did make a new high January 2020 (14,183.26).
The Dow Jones Industrial Average of 30 blue chip stocks followed a similar pattern, peaking at 26,616.71 in January, 2018 - and rallying significantly since then to a high of 29,551.42 - the current price of 25,827.36 shows just how much of a toll the coronavirus and subsequent governmental actions have taken on the industrials.
The NASDAQ and S&P 500 have fared better. Close to its all-time high, the NASDAQ closed out the week at 10,207.63, a massive 25.50% gain from the August 2018 high of 8133.30.
The S&P finished the week at 3,130.01, a measly rise of 6.43% when it reached a then-all-time-high of 2940.91 in September of 2018.
Obviously, being in the riskiest, most prone to speculation stocks has been a winning formula.
Can the winning on the NASDAQ continue without worry of second slump this year? It was less than four months ago when all markets were battered, the NASDAQ dropping to a low of 6641.32 (March 23). Investors with the most extreme risk profiles made fortunes. A gain of 53.70 percent in a span of just three months was the reward for those lucky enough to buy exactly at the bottom and sell right at the top (10221.05) just over a week ago.
With the close of the second quarter, it's time to look ahead, with a focus on the major banking interests in the United States. Bank stocks have generally been pretty well beaten down since the crash in March and most have not recovered to any great extent.
Bank of America (BAC) cratered to 18.08, and closed out this week at just 23.29, not much of a rebound. JP Morgan Chase (JPM) bottomed at 79.03 and closed Thursday at 92.66. Citigroup (C) dipped as low as 35.39. Thursday's close was 50.55. Wells Fargo (WFC), possibly the most vulnerable of the big banking interests, fell as low as 22.53 on May 15, closing out this week at 25.34.
Overarching the activity of the Fed-infused institutions are some fears from the extent of forbearance on all manner of loans, from credit card debt to car loans to mortgages. Many individuals have not made payments on loan balances since April or May and the dearth of revenue has to be taking its toll on the banking balance sheets.
Beyond the revenue decline and potential that people and companies in forbearance (which only delays payments and does not forgive them), the banks have to manage millions of loans (secured and unsecured), some of which will surely end in default, the banks eventually forced to write them down. Thus, it's a safe assumption that the banks will be reporting major loan loss reserves when they report in less than two weeks.
Atop these huge issues is the risk taken in Collateralized Loan Obligations. The banks are out on a very shaky limb there.
How bad is the CLO market? Depends on who you ask. Banks will tell you that they only invest in AAA tranches of CLOs, so their risk is minimized. Companies that are on the receiving end of loans and are placed into tranches - from AAA all the way down to junk, CCC, CC C, C- - give an entirely different perspective.
It cannot be understated that CLOs consist primarily of loans made to companies which have exhausted all other forms of borrowing. They are undeniably the worst credit risks.
There are signs that the CLO market is too big, too unregulated, and risks collapse as oil companies, under pressure from falling crude prices, and retailers, shutting down in droves due to the coronavirus and lockdown edicts in most US states, are leading the lower tranches into default.
As the credit market unwinds (this all takes time... months, years) banks will be under pressure to increase their loan loss reserves, as they showed in first quarter financial reports. Loan loss reserves are likely to be magnitudes higher when second quarter results for the biggest banks are turned out in a few weeks (all the majors, BAC, JPM, GS, MS, WFC, C, from July 13 - July 17).
Another threat to big banks comes from the recent spike in COVID-19 cases in Texas, Florida, California, Arizona, and Georgia.
Bank of America Corp., with $618 billion in deposits across those five states, as per 2019 data; Wells Fargo & Co., with $467 billion; JPMorgan Chase & Co., with $420 billion, and Truist Financial Corp., with $140 billion are the biggest lenders at risk.
Keep a close eye on banks this earnings season and beyond. The risk of systemic collapse is growing by the day. If the coronavirus scare increases over the next few months, banking collapse would not be such an unfathomable outcome, no matter how much the Fed manages to prop up the major instituations.
Crude oil, that engine of progress and the grease of economies, continues to bump up against the $40/barrel mark for WTI crude. Reaching a high of $40.72 on June 22nd, WTI approached that apex, cresting at $40.65 on Thursday before settling down to $40.32 on Friday.
Investors in precious metals were witness to one heck of a week as silver blasted through $18.00 a troy ounce hitting a high of $18.40, and gold rocked close to $1800 ($1790), though both were tamped down on futures markets as the week progressed. Gold finished up at $1774.40. Silver closed at $18.02 on Friday, July 2nd.
While the futures (paper) markets continue attempts to suppress price advances in precious metals, the physical market continues to spin higher with no abatement in the size of premiums charged by dealers and acceptable to savers. The most current prices for selected items on eBay (as we have been now tracking for three months) are presented below (shipping, often free, included):
Item: Low / High / Average / Median
1 oz silver coin: 25.95 / 31.95 / 29.01 / 28.99
1 oz silver bar: 24.45 / 33.00 / 29.00 / 29.45
1 oz gold coin: 1,853.82 / 1,976.95 / 1,897.92 / 1,892.50
1 oz gold bar: 1,853.57 / 1,941.42 / 1,869.76 / 1,861.50
Bonds rallied moderately over the four-day week, but only on the long end. Yield on the 10-year note went from 0.64% on the 26th of June to 0.68% on July 2. Over the same period, the 30-year yield advanced from 1.37% to 1.43%. The entire complex steepened from 125 basis points to 130, not a significant move, though the curve is shaped considerably differently than six months ago, and quite a bit steeper. On January 2nd of this year, 1-month bills yielded 1.53%, a massive change from Thursday's 0.13%, and the 30-year bond yielded 2.33%, a range of merely 80 basis points or 0.8% from trough to peak. That's flat.
The current composition of the treasury yield curve can be considered better aligned toward investment, though not by general banking standards. Taken into context, the curve, on July 1, 1994 (a much better period from an economic standpoint) was steep and healthy, with the range from 3-month (4.32%) to 30-year (7.62%) a stunning 330 basis points. The 10-year note was yielding 7.34% at the time. On can only imagine the wreckage that would be brought about today with those kinds of yields.
While savers would be adequately rewarded for frugal habits, corporations and governments would be smashed into oblivion with massively higher debt burdens. This comparison illustrates just how far afield the Fed has gone to preserve fractional reserve lending and the dramatic slowdown in the velocity of money. Considering the current economic climate, it is difficult, if not impossible, to imagine interest rates ever returning to a healthy or normal condition.
The Fed has created money out of thin air in the trillions of dollars and painted themselves into a corner of insanity that ultimately ends with the destruction of capital and currency on a cataclysmic scale.
What's not being reported by American mainstream media is the extent of flooding in China and India caused by recent heavy rains at what is just the beginning of the monsoon season.
This is a story which bears attention. the loss of lives due to flooding and potentialities for malnutrition and starvation due to crop loss - especially rice and rapeseed - is alarming.
On that sour note, this weekend is a wrap.
At the Close, Thursday, July 2, 2020:
Dow: 25,827.36, +92.39 (+0.36%)
NASDAQ: 10,207.63, +53.00 (+0.52%)
S&P 500: 3,130.01, +14.15 (+0.45%)
NYSE : 11,991.52, +89.97 (+0.76%)
For the Week:
Dow: +811.81 (+3.25%)
NASDAQ: +450.41 (+4.62%)
S&P 500: +120.96 (+4.02%)
NYSE: +387.10 (+3.34%)
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