Coronavirus (COVID-19) Crushes Stocks, Commodities, Oil, Gold, Silver; Crisis Appears To Be Accelerating

(Simultaneously published at Downtown Magazine)

As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.

Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.

What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.

Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.

Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56

The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.

Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.

Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.

On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.

Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.

While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.

Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.

Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.

Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.

With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.

It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."

If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.

Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.

If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.

That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.

Presently, everything is up in the air, including the virus and the world's finances.

At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)


For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)

Nothing Has Changed Except Prices of Stocks; Silver, Gold Still Being Punished

The start of the week was another one of those sessions that made little sense in the grand theme of things, unless you're one of those poor, misled types who believe the Fed and central bankers are working for your benefit, not their own, and can magically pull rainbow-belching unicorns from their nether parts.

The rest of us just marvel at the machinations of the market amid the worst economic crisis since the Great Depression and laugh or cry, depending on our moods and personal situations.

Volatility is the trader's friend, but an investor's nightmare. Stocks jumping around, up and down, without regard to fundamentals - exactly what's been happening in US equity markets since mid-July - does not make for a friendly investment environment. Your money is just as easily chewed up whether you are long or short. Only the best investors, or those with inside knowledge, like our hedge fund and banking friends running the computer algos on Wall Street, will survive. The small investor literally has no chance of turning trades into profits as the deck is stacked against him or her by the big money players.

So, we watch and wait for Europe to implode, the US government to shut down, or the massive federal debt to either be defaulted upon or paid off (yeah, that's a good one!). Sooner or later, all the debt will bury all the assets of stocks and investors will be left with worthless paper. Or it won't. One never knows what Fed Chairman Ben Bernanke, President Obama or the insipid, asinine congress will do next, but one thing's for sure, if it's the congress or the president, it's not likely to amount to anything, and even Bernanke's magic touch seems to be a little less deft these days. Confidence is what makes markets, and almost all confidence has been destroyed by decades of borrowing and spending without control, lying to the American people (it happens in Europe, Japan and China too) about the state of the economy while the ringleaders of the criminal banking cartel walk freely.

One item from the weekend was interesting. It seems the Federal Reserve has put out a RFP for a Social Media monitoring system. This is nothing less than an attempt to quell negative public opinion (maybe they can start with Rep. Ron Paul) about the workings and dealings of the Fed. Since the Fed is a private bank, their snooping and interloping is pretty scary stuff, considering they are running the ship that creates monetary policy for the US, and, to a degree, the entire planet. You can read the RFP here.

From the Salon article linked above:

Federal Reserve Bank of New York has issued a "Request for Proposal" to suppliers who may be interested in participating in the development of a "Sentiment Analysis And Social Media Monitoring Solution". In other words, the Federal Reserve wants to develop a highly sophisticated system that will gather everything that you and I say about the Federal Reserve on the Internet and that will analyze what our feelings about the Fed are. Obviously, any "positive" feelings about the Fed would not be a problem. What they really want to do is to gather information on everyone that views the Federal Reserve negatively. It is unclear how they plan to use this information once they have it, but considering how many alternative media sources have been shut down lately, this is obviously a very troubling sign.

Are you worried? You shouldn't be, so long as you say nice things about the Fed, like, "they're the greatest central bankers ever!"

See, not so bad.


Dow 11,043.86, +272.38 (2.53%)
NASDAQ 2,516.69, +33.46 (1.35%)
S&P 500 1,162.95, +26.52 (2.33%)
NYSE Composite 6,940.81, +170.08 (2.51%)
NASDAQ Volume 2,018,322,875
NYSE Volume 4,553,576,500
Combined NYSE & NASDAQ Advance - Decline: 3898-1762
Combined NYSE & NASDAQ New highs - New lows: 16-431
WTI crude oil: 80.24, +0.39
Gold: 1623.50, -33.70
Silver: 30.73, -0.20

Note that the New highs - new lows are still screaming "SELL" every day. We are in a trough and the stocks can't seem to get out of this range. The best guess is that the next move is down and into bear market territory, at least that's what "old reliable" new high - new low data is saying.

The precious metals were shoved all over the map again today. In Thailand, the silver futures exchange was shut down via a circuit breaker when the metal traded down more than 10% in the opening minutes. The CME announced higher margin requirements on both metals. Odd, because they are already down so much over the past week. This is the global banking cartel at its worst.