With most of America and parts of the rest of the world on lockdown in an attempt to slow the spread of COVID-19 coronavirus, international markets and Wall Street investors suffered stunning losses even with the Federal Reserve lowering interest rates essentially to zero and promoting a heavy dose of quantitative easing Sunday night.
The world awoke to a different place on Monday, one in which social distancing was preferred over social networks, toilet paper was more valued that commercial paper, and sheltering in place triumphed over going anyplace.
US indices encountered the worst point losses ever and the largest percentage declines since the 1987 crash which sent stocks reeling by 22 percent. Back then, there were no "circuit breakers" as are in place today, so the waves of selling were allowed to just continue until trading ended.
Monday's journey into the depths of despair began with futures going limit down (-5%) prior to the opening bell, after the Fed panicked and sent the federal funds to 0.00-0.25%, and launched a massive bond-buying binge, otherwise known as QE. None of that helped. In fact, the Fed's emergency actions, coming right before a planned FOMC meeting on Tuesday and Wednesday, sent a signal that all was not well and that liquidity was at the top of the Fed's agenda.
Having credit markets seize up, as they did in the 2008 rout, would be an economic disaster in itself, exacerbated by the effects of trying to tame the coronavirus, people out of work, events cancelled, life, as it used to be known, utterly changed, but for how long, nobody knows.
When the opening bell rang on Wall Street, trading was halted almost instantaneously, with the S&P 500 declining seven percent, setting off the first circuit breaker for the third time in the past two weeks. After a fifteen minute pause, stocks reopened, collapsed below the seven percent mark, but never made their way to the next circuit breaker, at -13%, until after 3:30, when the circuit breakers are effectively "turned off" in the final 25 minutes of trading.
As President Trump spoke at the White House, stocks continued to tumble into the close, saved by some spirited short-covering minutes before 4:00 pm ET.
Elsewhere, markets in Europe and Asia were likewise battered, with just about the entire world's markets already in bear markets and likely to fall further. The dangers for stocks are varied, but essentially fall into three areas. First, supply chain disruptions stemming from China and elsewhere grinding production to a halt. Second, even if corporations have goods or services to sell, the virtual lockdown of more than half the global population is causing a demand shock. Third, having employees working from home or furloughed will wreak havoc on underlying corporate structures and the general economy.
If the severe measures being taken now don't contain the spread of the virus in two to three weeks - in itself a damaging amount of time - and quarantines are put in place for longer, the economic effect could be devastating, no matter how much money the government wants to throw the way of the corporate class. It is individuals that are being most adversely affected. Federal government plans don't include any relief for the people who contribute 70% of GDP. The government will instead seek to bail out large corporations, figuring that if they are kept afloat, jobs will be saved, which is, of course, hogwash, because there will be nothing to stop cash-strapped corporations from laying off employees by the thousands.
With bars, restaurants, night clubs, and casinos being ordered to shut down, layoffs have already begun. On Monday, New York State's unemployment website crashed as thousands rushed to apply for benefits. Americans have been living hand-to-mouth, paycheck-to-paycheck for decades and now they're expected to ride out an economic shutdown at home, with their kids and spouses and no income for weeks, maybe months. The federal government should be making plans to offer relief to individuals in the form of direct payments, forbearance on loans, mortgages, and credit cards. Giving money to businesses is not the most efficient way to ease the pain and suffering of families and individuals. Direct assistance would be more beneficial, but, from the squabbling already firing up on capitol hill over the federal government's relief package, it's unlikely that any significant money will find its way down to the family or individual level.
So, with markets due to open Tuesday (up slightly) within minutes, looking ahead for any positive news is a fool's errand. The Fed meeting Tuesday and Wednesday is now a non-event, and Thursday's first look at new unemployment claims could be an eye-opener, though next week's will probably be more impactful.
There's a good chance for a bounce today, but all rallies should be sold into at this point. No sense in catching falling knives nor beating dead horses.
At the Close, Monday, March 16, 2020:
Dow Jones Industrial Average: 20,188.52, -2,997.10 (-12.93%)
NASDAQ: 6,904.59, -970.28 (-12.32%)
S&P 500: 2,386.13, -324.89 (-11.98%)
NYSE: 9,567.53, -1,284.45 (-11.84%)
Tuesday, March 17, 2020
Saturday, March 14, 2020
WEEKEND WRAP: Cancel Everything Else, But Stock and Bond Markets Will Remain Open
Despite Friday's massive rally, this past week was one of the worst on record for Wall Street, as the Dow lost another 10 percent and the NYSE Composite, the broadest measure of equities in the United States, dropped more than 12 percent, below levels last seen in late 2016.
With all the major indices ensconced in bear market territory (-20%), which the Dow entered on Wednesday afternoon, Friday's jaunt to the upside was more short-covering and a boatload of pent-up, falsely-placed optimism than anything positive, manifesting itself in the final 27 minutes of trading while President Trump was declaring a national emergency over the COVID-19 crisis, the outbreak declared a global pandemic by the World Health Organization (WHO) two days prior.
The week in financial markets was literally one for the record books, with record gains and losses recorded on all US indices, Friday's meteoric rise becoming the largest one-day gain on the Dow, NASDAQ, and S&P 500, just a day after the biggest point losses. Market volatility has been off the charts as well, as the VIX has remained at an inflated level over the past three weeks, rising as high as 77.54 on Friday before coming down through the week-ending rally.
Putting that into perspective, the VIX closed at 17.08 on February 21. On Thursday, March 12, it ended the session at 75.47, and Friday, 57.83. These are extraordinary numbers.
It wasn't just stocks that were battered and bruised during the week. Bonds took painful hits at the long end of the curve, the 10-year note yield rising from 0.54% on Monday to 0.94% on Friday. Yield on the 20-year was up 44 basis points, from 0.87 to 1.31%. The 30-year bond yield went from 0.99 to 1.56, an enormous, 57 basis point move in just four days.
Shorter duration offerings were bought, sending yields in the other direction, which helped steepen the curve and iron out most of the inversion. Top-to-bottom, the curve was at a mere 73 basis points on Monday, increasing to 128 by Friday.
The most perplexing trade had to be precious metals, which were whipsawed to unforeseen levels as the week wore on. Gold, which had rocketed to 1683.65 on March 6, plummeted to 1529.90 on Friday. Silver fell from a high of 18.78 on February 24 to a close Friday of 14.69. That puts the gold:silver ratio at a record, 104.15.
Closings and cancellations were all the rage late in the week. The NBA canceled their remaining regular season games, as did the NHL. The NCAA cancelled the annual Men's and Women's basketball tournaments and all the major conferences canceled the remainder of their championships. Major League Baseball suspended all Spring Training games and pushed back the opening of the regular season temporarily by two weeks, from March 26th to April 9, at the earliest.
Broadway shows were cancelled in New York, as were any gatherings of 500 or more, throughout the state. California banned gatherings of 250 or more. Disney closed all of its major resort properties, including Disney World in Florida, and halted production on a number of films in progress.
More than 46,000 schools had announced closures by week's end. In Europe, Italy closed its borders, followed by Spain on Saturday. Just about any kind of social activity involving an audience has been shut down indefinitely. DollyWorld in Tennessee closed its doors on Friday. Augusta National postponed the Masters golf tournament and did not specify a date for when it would be held.
For many people, the cancellation of sporting events, shows, and theme parks leaves them with little to do. All cruise lines are on hiatus and President Trump imposed a travel ban to and from Europe and included Great Britain and Ireland on Saturday.
Shopping for essentials seemed to be on the mind of quite a few. Stores like Costco, Wal-Mart and other large grocery chains (Kroger's, Wegman's) saw some shelves emptied quickly, especially the staples, bread, milk, and toilet paper, which was apparently the hottest commodity on the planet this past week. The Players Championship, which was halted on Thursday due to darkness, never got the second round started, cancelling the event and dividing half the prize money evenly among players.
What will continue is the pursuit of money and all its derivatives in equity, bond, and commodity markets, as of this writing. Markets should open Monday as scheduled, though floor traders at the NYSE will surely be screened upon entering the building. Most trading is done electronically, and many traders are working from home instead of offices on Wall Street, throughout Manhattan and in New Jersey and Connecticut.
The Fed has promised as much as $1.5 trillion in repo operations and probably more will be needed. Additionally, the FOMC meeting this Tuesday and Wednesday promises to be of paramount interest, with expectations of another 75 to 100 basis points cut to the federal funds rate, bringing it effectively to the zero bound. The Fed executed an emergency cut of 50 basis points on March 3rd, bringing the overnight lending rate to 1.00-1.25% The Bank of England cut its main bank rate to 0.25% with a 50 basis point slash on March 11.
As the economy weighs the impacts of COVID-19 on the business community and global economies, the threat of recession looms large in all developed nations. With markets turning decidedly bearish since the spread of the disease expanded out of mainland China, companies are looking at major disruptions to business and first quarter earnings. If the crisis is an extended one, second quarter results will also be impacted to a greater degree than they already are.
Estimates for US GDP in the first quarter were already low, teetering around 1.5 to 2.0 percent and that will certainly come in lower than expected, but economists believe the hit to the second quarter (April-June) will be even greater, with some calling for a GDP decline of three to four percent.
With all that's gone on over the course of the past three weeks, nothing is for certain as the market searches for a bottom. While it's nearly assured that Thursday's knee-shaking rout will not prove to be the ultimate drop point, it brings some interesting perspectives to light, particularly, what if the virus does actually peter out with the onset of warmer weather and all this emergency preparedness turns out to be major overkill in addition to being a major buzz kill?
If conditions begin to improve rapidly, the impact to the second quarter would be minimal and first quarter results might actually be skewed positively due to all the panic buying by the general public. That would certainly wrong-foot any number of investors, sending alternate shock waves back at the bears.
Opinion is still out on how long this state of emergency will exist and whether measures will become more severe in coming weeks remains to be seen. The outbreak in the United States has not been particularly alarming, with 2,569 cases and now, 51 deaths, though those numbers continue to accelerate and probably will exceed 8,000 and 200 over the coming week. Most cases are mild, but lack of testing due to fumbling incompetence at the CDC and being slow in preparing overall might cause the numbers to spike.
Whatever the case, the money people will carry on, Washington will bail out anybody and anything with freshly printed greenbacks and the deficit will soar even further into the stratosphere. The global economy has reached a point of no return and is rapidly applying the principles of Modern Monetary Theory (MMT) to a system that has basically be dysfunctional since October 2008.
At the Close, Friday, March 13, 2020:
Dow Jones Industrial Average: 23,185.62, +1,985.00 (+9.36%)
NASDAQ: 7,874.88, +673.07 (+9.35%)
S&P 500: 2,711.02, +230.38 (+9.29%)
NYSE: 10,851.98, +791.21 (+7.86%)
For the Week:
Dow: -2679.16 (-10.36%)
NASDAQ: -700.74 (-8.17%)
S&P 500: -261.35 (-8.79%)
NYSE: -1500.06 (-12.14%)
With all the major indices ensconced in bear market territory (-20%), which the Dow entered on Wednesday afternoon, Friday's jaunt to the upside was more short-covering and a boatload of pent-up, falsely-placed optimism than anything positive, manifesting itself in the final 27 minutes of trading while President Trump was declaring a national emergency over the COVID-19 crisis, the outbreak declared a global pandemic by the World Health Organization (WHO) two days prior.
The week in financial markets was literally one for the record books, with record gains and losses recorded on all US indices, Friday's meteoric rise becoming the largest one-day gain on the Dow, NASDAQ, and S&P 500, just a day after the biggest point losses. Market volatility has been off the charts as well, as the VIX has remained at an inflated level over the past three weeks, rising as high as 77.54 on Friday before coming down through the week-ending rally.
Putting that into perspective, the VIX closed at 17.08 on February 21. On Thursday, March 12, it ended the session at 75.47, and Friday, 57.83. These are extraordinary numbers.
It wasn't just stocks that were battered and bruised during the week. Bonds took painful hits at the long end of the curve, the 10-year note yield rising from 0.54% on Monday to 0.94% on Friday. Yield on the 20-year was up 44 basis points, from 0.87 to 1.31%. The 30-year bond yield went from 0.99 to 1.56, an enormous, 57 basis point move in just four days.
Shorter duration offerings were bought, sending yields in the other direction, which helped steepen the curve and iron out most of the inversion. Top-to-bottom, the curve was at a mere 73 basis points on Monday, increasing to 128 by Friday.
The most perplexing trade had to be precious metals, which were whipsawed to unforeseen levels as the week wore on. Gold, which had rocketed to 1683.65 on March 6, plummeted to 1529.90 on Friday. Silver fell from a high of 18.78 on February 24 to a close Friday of 14.69. That puts the gold:silver ratio at a record, 104.15.
Closings and cancellations were all the rage late in the week. The NBA canceled their remaining regular season games, as did the NHL. The NCAA cancelled the annual Men's and Women's basketball tournaments and all the major conferences canceled the remainder of their championships. Major League Baseball suspended all Spring Training games and pushed back the opening of the regular season temporarily by two weeks, from March 26th to April 9, at the earliest.
Broadway shows were cancelled in New York, as were any gatherings of 500 or more, throughout the state. California banned gatherings of 250 or more. Disney closed all of its major resort properties, including Disney World in Florida, and halted production on a number of films in progress.
More than 46,000 schools had announced closures by week's end. In Europe, Italy closed its borders, followed by Spain on Saturday. Just about any kind of social activity involving an audience has been shut down indefinitely. DollyWorld in Tennessee closed its doors on Friday. Augusta National postponed the Masters golf tournament and did not specify a date for when it would be held.
For many people, the cancellation of sporting events, shows, and theme parks leaves them with little to do. All cruise lines are on hiatus and President Trump imposed a travel ban to and from Europe and included Great Britain and Ireland on Saturday.
Shopping for essentials seemed to be on the mind of quite a few. Stores like Costco, Wal-Mart and other large grocery chains (Kroger's, Wegman's) saw some shelves emptied quickly, especially the staples, bread, milk, and toilet paper, which was apparently the hottest commodity on the planet this past week. The Players Championship, which was halted on Thursday due to darkness, never got the second round started, cancelling the event and dividing half the prize money evenly among players.
What will continue is the pursuit of money and all its derivatives in equity, bond, and commodity markets, as of this writing. Markets should open Monday as scheduled, though floor traders at the NYSE will surely be screened upon entering the building. Most trading is done electronically, and many traders are working from home instead of offices on Wall Street, throughout Manhattan and in New Jersey and Connecticut.
The Fed has promised as much as $1.5 trillion in repo operations and probably more will be needed. Additionally, the FOMC meeting this Tuesday and Wednesday promises to be of paramount interest, with expectations of another 75 to 100 basis points cut to the federal funds rate, bringing it effectively to the zero bound. The Fed executed an emergency cut of 50 basis points on March 3rd, bringing the overnight lending rate to 1.00-1.25% The Bank of England cut its main bank rate to 0.25% with a 50 basis point slash on March 11.
As the economy weighs the impacts of COVID-19 on the business community and global economies, the threat of recession looms large in all developed nations. With markets turning decidedly bearish since the spread of the disease expanded out of mainland China, companies are looking at major disruptions to business and first quarter earnings. If the crisis is an extended one, second quarter results will also be impacted to a greater degree than they already are.
Estimates for US GDP in the first quarter were already low, teetering around 1.5 to 2.0 percent and that will certainly come in lower than expected, but economists believe the hit to the second quarter (April-June) will be even greater, with some calling for a GDP decline of three to four percent.
With all that's gone on over the course of the past three weeks, nothing is for certain as the market searches for a bottom. While it's nearly assured that Thursday's knee-shaking rout will not prove to be the ultimate drop point, it brings some interesting perspectives to light, particularly, what if the virus does actually peter out with the onset of warmer weather and all this emergency preparedness turns out to be major overkill in addition to being a major buzz kill?
If conditions begin to improve rapidly, the impact to the second quarter would be minimal and first quarter results might actually be skewed positively due to all the panic buying by the general public. That would certainly wrong-foot any number of investors, sending alternate shock waves back at the bears.
Opinion is still out on how long this state of emergency will exist and whether measures will become more severe in coming weeks remains to be seen. The outbreak in the United States has not been particularly alarming, with 2,569 cases and now, 51 deaths, though those numbers continue to accelerate and probably will exceed 8,000 and 200 over the coming week. Most cases are mild, but lack of testing due to fumbling incompetence at the CDC and being slow in preparing overall might cause the numbers to spike.
Whatever the case, the money people will carry on, Washington will bail out anybody and anything with freshly printed greenbacks and the deficit will soar even further into the stratosphere. The global economy has reached a point of no return and is rapidly applying the principles of Modern Monetary Theory (MMT) to a system that has basically be dysfunctional since October 2008.
At the Close, Friday, March 13, 2020:
Dow Jones Industrial Average: 23,185.62, +1,985.00 (+9.36%)
NASDAQ: 7,874.88, +673.07 (+9.35%)
S&P 500: 2,711.02, +230.38 (+9.29%)
NYSE: 10,851.98, +791.21 (+7.86%)
For the Week:
Dow: -2679.16 (-10.36%)
NASDAQ: -700.74 (-8.17%)
S&P 500: -261.35 (-8.79%)
NYSE: -1500.06 (-12.14%)
Friday, March 13, 2020
Global Crash: Stocks Battered Across All Markets; Central Banks, Governments Prepare to Die
It's likely that March 12, 2020 will go down in history as the day global markets were dealt a fatal blow.
After weeks of volatility, with stocks moving radically up and down - but mostly down - capitulation had arrived as equity indices around the world suffered historic losses. In the United States, stocks started the day badly, down seven percent within minutes, triggering a market circuit-breaker, shutting down the exchanges for 15 minutes.
Upon reopening, stocks languished in the red, major indices down more than eight percent, the Dow Industrials falling nearly 10%. At 1:00 pm ET, the Federal Reserve announced that it would inject $500 billion in a three-month repo operation at 1:30 PM ET. It also announced a further $500 billion in a three-month repo operation on Friday and another $500 billion in one-month repo operation for same-day settlement.
The promise of $1.5 trillion in ready liquidity quickly sent stocks higher, but, just as an attempt to sooth markets with a 50 basis point rate cut last week had failed to quell the selling, this exercise in money printing ended up in tatters as well, stocks plummeting shortly thereafter back to session lows and beyond.
By day's end, the carnage was widespread, with the Dow, S&P, NASDAQ, and NYSE Composite indices all suffering the largest point losses in history, and the greatest percentage declines since the 1987 crash.
While the focus was clearly on effects that the spread of COVID-19 will have on the business community and corporations in particular, it was also evident that efforts by central bankers were not going to solve the market's problems this time around.
As has been the case for the duration of the 11-year bull market, which ended abruptly on Wednesday, Thursday's trading was about as grim and gloomy as had ever been seen, even worse than the fateful days of October, 2008, when Lehman Brothers failed and markets seized up in a paroxysm of distress, anguish, and fear.
While the Fed's largesse at this juncture may ease some of the immediate pain, it is unlikely to solve the underlying issues in the global economy, which are, in the main, disastrous levels of debt in corporate circles, households and governments. As the Fed believes every crisis to be a call for more credit, the world is drowning in what has become an avalanche of debt that will never be repaid. They system is readily drawing itself into a vicious death spiral. Every new dollar that the Federal Reserve, European Central Bank, Bank of Japan, People's Bank of China or other central bank entity will be washed down the tubes as quickly as it is put to use.The world's banking entities and governments are about to find out that they cannot bail out every corporation, every household, every state, city, or county that suffers from unwieldy debt overburden.
The market meltdown of March 12 is the beginning of the end for the global fiat money system. Backed by nothing but faith, all currencies are about to suffer the same fate: being expunged forever into the trash heap of failed economic ideas. Central bank intervention can only offer temporary relief, but it cannot continue on this course of action each time there comes a crisis. In the end, all central banks will fail, many governments will be overthrown by its own people or the sheer weight of indebtedness upon them.
The world is about to change in dramatic fashion. Money will vanish. Corporations, which have binged on stock buybacks for the better part of a decade, are bout to suffer a powerful hangover and have possibly poisoned themselves to death. All the time corporations had been loading up on cheap money, financing massive stock buybacks, no thought was ever given to how the balance sheet would look when the stock would be reissued to the public. Companies which bought back their own stock at, say, $90 per share, are looking at offering fresh issuance at $40 or $30 per share. Worse yet, when they issue new stock, there may not be ready buyers, as investors have been put off by the fragility of the market, massive losses in portfolios, gross wealth inequalities, and an evolving liquidity crunch.
Corporations will be caught upside-down and many will be earn the moniker of "zombies," wherein their present income is not enough to service ongoing debt. There will be massive numbers of bankruptcies, first by small businesses, then by major, publicly-held corporations. The economy, in major developed nations, will cease to exist in any reliable fashion.
Prior to all of this unfolding over upcoming months and years, the world has first to combat the nemesis that is COVID-19. As the day wore on, the news flow became worse and more terrifying with each announcement. During the day, the NBA suspended all games, as did the NHL. The NCAA cancelled the annual college basketball tournaments, and with that, "March Madness" became "March Numbness" for college hoops fans. Late in the day, Major League Baseball (MLB) announced that is was suspending Spring Training at various facilities in Florida and Arizona, and announced the the opening of the regular season would be delayed by at least two weeks. Originaly scheduled for March 26, the timetable was pushed forward to April 9th, at the earliest.
The states of California and New York, where outbreaks of coronavirus have been spreading rapidly, announced bans on large gatherings, California limiting the size to 250 people, while New York will allow only crowds of 500 or fewer. Other states have closed public schools, issued various warnings, and are preparing for large-scale outbreaks. Literally, there are too many stories of cancellations, bans, and preparedness responses to cover in this article.
Overnight, Disney (DIS) announced that it was closing all of its theme park operations, including Disney France, and the massive Disney World park in Orlando, Florida.
The news is unlikely to be cheerful as the week draws to a close. Millions of Americans will spend the weekend doing something other than watching sports on TV. People around the world are frightened, many already infected (in excess of 135,000 worldwide), and over 5,000 have died. With the virus nearing what should be its peak stage, almost all economic activity has ground to a halt. Congress continues to work toward a plan for assistance to hospitals, states and localities, but, as usual, they're doing more arguing for political gain than providing actual service to the American people.
It's become all too real, all of a sudden. It's not about to end any time soon. Brace for economic and societal impact.
Here is a glimpse of the carnage done to markets on March 12:
At the Close, Thursday, March 12, 2020:
Dow Jones Industrial Average: 21,200.62, -2,352.60 (-9.99%)
NASDAQ: 7,201.80, -750.25 (-9.43%)
S&P 500: 2,480.64, -260.74 (-9.51%)
NYSE: 10,060.76, -1,116.52 (-9.99%)
After weeks of volatility, with stocks moving radically up and down - but mostly down - capitulation had arrived as equity indices around the world suffered historic losses. In the United States, stocks started the day badly, down seven percent within minutes, triggering a market circuit-breaker, shutting down the exchanges for 15 minutes.
Upon reopening, stocks languished in the red, major indices down more than eight percent, the Dow Industrials falling nearly 10%. At 1:00 pm ET, the Federal Reserve announced that it would inject $500 billion in a three-month repo operation at 1:30 PM ET. It also announced a further $500 billion in a three-month repo operation on Friday and another $500 billion in one-month repo operation for same-day settlement.
The promise of $1.5 trillion in ready liquidity quickly sent stocks higher, but, just as an attempt to sooth markets with a 50 basis point rate cut last week had failed to quell the selling, this exercise in money printing ended up in tatters as well, stocks plummeting shortly thereafter back to session lows and beyond.
By day's end, the carnage was widespread, with the Dow, S&P, NASDAQ, and NYSE Composite indices all suffering the largest point losses in history, and the greatest percentage declines since the 1987 crash.
While the focus was clearly on effects that the spread of COVID-19 will have on the business community and corporations in particular, it was also evident that efforts by central bankers were not going to solve the market's problems this time around.
As has been the case for the duration of the 11-year bull market, which ended abruptly on Wednesday, Thursday's trading was about as grim and gloomy as had ever been seen, even worse than the fateful days of October, 2008, when Lehman Brothers failed and markets seized up in a paroxysm of distress, anguish, and fear.
While the Fed's largesse at this juncture may ease some of the immediate pain, it is unlikely to solve the underlying issues in the global economy, which are, in the main, disastrous levels of debt in corporate circles, households and governments. As the Fed believes every crisis to be a call for more credit, the world is drowning in what has become an avalanche of debt that will never be repaid. They system is readily drawing itself into a vicious death spiral. Every new dollar that the Federal Reserve, European Central Bank, Bank of Japan, People's Bank of China or other central bank entity will be washed down the tubes as quickly as it is put to use.The world's banking entities and governments are about to find out that they cannot bail out every corporation, every household, every state, city, or county that suffers from unwieldy debt overburden.
The market meltdown of March 12 is the beginning of the end for the global fiat money system. Backed by nothing but faith, all currencies are about to suffer the same fate: being expunged forever into the trash heap of failed economic ideas. Central bank intervention can only offer temporary relief, but it cannot continue on this course of action each time there comes a crisis. In the end, all central banks will fail, many governments will be overthrown by its own people or the sheer weight of indebtedness upon them.
The world is about to change in dramatic fashion. Money will vanish. Corporations, which have binged on stock buybacks for the better part of a decade, are bout to suffer a powerful hangover and have possibly poisoned themselves to death. All the time corporations had been loading up on cheap money, financing massive stock buybacks, no thought was ever given to how the balance sheet would look when the stock would be reissued to the public. Companies which bought back their own stock at, say, $90 per share, are looking at offering fresh issuance at $40 or $30 per share. Worse yet, when they issue new stock, there may not be ready buyers, as investors have been put off by the fragility of the market, massive losses in portfolios, gross wealth inequalities, and an evolving liquidity crunch.
Corporations will be caught upside-down and many will be earn the moniker of "zombies," wherein their present income is not enough to service ongoing debt. There will be massive numbers of bankruptcies, first by small businesses, then by major, publicly-held corporations. The economy, in major developed nations, will cease to exist in any reliable fashion.
Prior to all of this unfolding over upcoming months and years, the world has first to combat the nemesis that is COVID-19. As the day wore on, the news flow became worse and more terrifying with each announcement. During the day, the NBA suspended all games, as did the NHL. The NCAA cancelled the annual college basketball tournaments, and with that, "March Madness" became "March Numbness" for college hoops fans. Late in the day, Major League Baseball (MLB) announced that is was suspending Spring Training at various facilities in Florida and Arizona, and announced the the opening of the regular season would be delayed by at least two weeks. Originaly scheduled for March 26, the timetable was pushed forward to April 9th, at the earliest.
The states of California and New York, where outbreaks of coronavirus have been spreading rapidly, announced bans on large gatherings, California limiting the size to 250 people, while New York will allow only crowds of 500 or fewer. Other states have closed public schools, issued various warnings, and are preparing for large-scale outbreaks. Literally, there are too many stories of cancellations, bans, and preparedness responses to cover in this article.
Overnight, Disney (DIS) announced that it was closing all of its theme park operations, including Disney France, and the massive Disney World park in Orlando, Florida.
The news is unlikely to be cheerful as the week draws to a close. Millions of Americans will spend the weekend doing something other than watching sports on TV. People around the world are frightened, many already infected (in excess of 135,000 worldwide), and over 5,000 have died. With the virus nearing what should be its peak stage, almost all economic activity has ground to a halt. Congress continues to work toward a plan for assistance to hospitals, states and localities, but, as usual, they're doing more arguing for political gain than providing actual service to the American people.
It's become all too real, all of a sudden. It's not about to end any time soon. Brace for economic and societal impact.
Here is a glimpse of the carnage done to markets on March 12:
| ^GSPC | S&P 500 | 2,480.64 | -260.74 | -9.51% |
| ^DJI | Dow 30 | 21,200.62 | -2,352.60 | -9.99% |
| ^IXIC | Nasdaq | 7,201.80 | -750.25 | -9.43% |
| ^NYA | NYSE COMPOSITE (DJ) | 10,060.76 | -1,116.52 | -9.99% |
| ^XAX | NYSE AMEX COMPOSITE INDEX | 1,564.90 | -210.79 | -11.87% |
| ^BUK100P | Cboe UK 100 | 8,969.78 | -960.32 | -9.67% |
| ^RUT | Russell 2000 | 1,122.93 | -141.37 | -11.18% |
| ^VIX | Vix | 75.47 | +21.57 | +40.02% |
| ^FTSE | FTSE 100 | 5,237.48 | -639.04 | -10.87% |
| ^GDAXI | DAX PERFORMANCE-INDEX | 9,161.13 | -1,277.55 | -12.24% |
| ^FCHI | CAC 40 | 4,044.26 | -565.98 | -12.28% |
| ^STOXX50E | ESTX 50 PR.EUR | 2,545.23 | -360.33 | -12.40% |
| ^N100 | EURONEXT 100 | 788.87 | -107.28 | -11.97% |
| ^BFX | BEL 20 | 2,701.00 | -447.40 | -14.21% |
| IMOEX.ME | MOEX Russia Index | 2,286.40 | -206.48 | -8.28% |
| ^N225 | Nikkei 225 | 18,559.63 | -856.43 | -4.41% |
| ^HSI | HANG SENG INDEX | 24,309.07 | -922.54 | -3.66% |
| 000001.SS | SSE Composite Index | 2,923.49 | -45.03 | -1.52% |
| ^STI | STI Index | 2,678.64 | -105.08 | -3.77% |
| ^AXJO | S&P/ASX 200 | 5,304.60 | -421.30 | -7.36% |
| ^AORD | ALL ORDINARIES | 5,370.90 | -418.40 | -7.23% |
| ^BSESN | S&P BSE SENSEX | 32,778.14 | -2,919.26 | -8.18% |
| ^JKSE | Jakarta Composite Index | 4,895.75 | -258.36 | -5.01% |
| ^KLSE | FTSE Bursa Malaysia KLCI | 1,419.43 | -24.40 | -1.69% |
| ^NZ50 | S&P/NZX 50 INDEX GROSS | 10,333.27 | -540.33 | -4.97% |
| ^KS11 | KOSPI Composite Index | 1,834.33 | -73.94 | -3.87% |
| ^TWII | TSEC weighted index | 10,422.32 | -471.43 | -4.33% |
| ^GSPTSE | S&P/TSX Composite index | 12,508.45 | -1,761.64 | -12.34% |
| ^BVSP | IBOVESPA | 72,582.53 | -12,588.60 | -14.78% |
| ^MXX | IPC MEXICO | 36,636.70 | -2,041.85 | -5.28% |
| ^MERV | MERVAL | 38,390.84 | +233.89 | +0.61% |
| ^TA125.TA | TA-125 | 1,194.69 | -79.46 | -6.24% |
At the Close, Thursday, March 12, 2020:
Dow Jones Industrial Average: 21,200.62, -2,352.60 (-9.99%)
NASDAQ: 7,201.80, -750.25 (-9.43%)
S&P 500: 2,480.64, -260.74 (-9.51%)
NYSE: 10,060.76, -1,116.52 (-9.99%)
Thursday, March 12, 2020
Dow Reaches Bear Territory, Down 20% From Record Highs
Wednesday, at 2:18 pm Eastern Time, the Dow Jones Industrial Average sank into bear market territory on an intraday basis when it broke below 23,654.72, officially marking the end of the 11-year bull run since the Great Financial Crisis of 2008-09.
By the close of trading, the Dow also fell into bear market territory on a closing basis, finishing below 23,641.14.
Falling as low as 23,338.96 shortly after 3:00 pm, a brief attempt at a rally was undertaken, but eventually failed, leaving the market in tatters, and the future uncertain.
Wednesday night, President Trump made a brief televised appearance, outlining the government's steps to curb the global pandemic that is COVID-19, banning all travel from Europe to the United States for 30 days, beginning at midnight, Friday, the 13th of March. The president also instructed the Small Business Administration to extend loans to small businesses and to increase funding for the program by $50 billion.
These measures are being implemented to help slow the spread of COVID-19, the coronavirus that has spread globally to 115 countries, sickening more than 127,000 people and killing 4,717. There have been 1323 cases of COVID-19 in the United States and 38 deaths. The numbers have jumped dramatically over the past week, both in the US and around the world, especially in Italy, Spain, France, and Germany.
With markets opening in minutes, and stock futures at distressed levels, this evolving story will be updated.
At the Close, Wednesday, March 11, 2020:
Dow Jones Industrial Average: 23,553.22, -1,464.94 (-5.86%)
NASDAQ: 7,952.05, -392.20 (-4.70%)
S&P 500: 2,741.38, -140.85 (-4.89%)
NYSE: 11,177.29 -615.99 (-5.22%)
By the close of trading, the Dow also fell into bear market territory on a closing basis, finishing below 23,641.14.
Falling as low as 23,338.96 shortly after 3:00 pm, a brief attempt at a rally was undertaken, but eventually failed, leaving the market in tatters, and the future uncertain.
Wednesday night, President Trump made a brief televised appearance, outlining the government's steps to curb the global pandemic that is COVID-19, banning all travel from Europe to the United States for 30 days, beginning at midnight, Friday, the 13th of March. The president also instructed the Small Business Administration to extend loans to small businesses and to increase funding for the program by $50 billion.
These measures are being implemented to help slow the spread of COVID-19, the coronavirus that has spread globally to 115 countries, sickening more than 127,000 people and killing 4,717. There have been 1323 cases of COVID-19 in the United States and 38 deaths. The numbers have jumped dramatically over the past week, both in the US and around the world, especially in Italy, Spain, France, and Germany.
With markets opening in minutes, and stock futures at distressed levels, this evolving story will be updated.
At the Close, Wednesday, March 11, 2020:
Dow Jones Industrial Average: 23,553.22, -1,464.94 (-5.86%)
NASDAQ: 7,952.05, -392.20 (-4.70%)
S&P 500: 2,741.38, -140.85 (-4.89%)
NYSE: 11,177.29 -615.99 (-5.22%)
Wednesday, March 11, 2020
Record Rise on NASDAQ; Big Gains on Dow, S&P Relieve Bear Market Fears... for Now
(Simultaneously published at Downtown Magazine)
In case anybody is growing weary of the recent volatility that has sent stocks soaring and diving over the past three to four weeks, prepare for more of the same. There will be no respite in daily swings of two percent, three percent or more, as yesterday proved, as stocks staged a monumental rally in the latter part of the the session, the Dow rising more than 1000 points in the final two hours.
At the end of the day, all major indices were approaching gains of five percent. Keeping with the trend of record-breaking sessions, the Dow's rise was the third largest point gain in market history. The other two occurred earlier this month. On March 2nd, the Industrials set the mark with a gain of 1,293.96 points. Tow days later, it came close to breaking that, up by 1,173.45 points.
With an eye toward the VIX - the market's preferred measure of volatility - this kind of roller coaster ride should continue until there's resolution to the downside. The VIX has recently hovered in the 40-50 range, ripping as high as 55. Normal volatility is usually measured in the teens.
The NASDAQ and S&P also experienced massive upside Tuesday afternoon, resulting in a record point gain on the NASDAQ, up 393.58 points, surpassing the record set just over a week ago, on March 2nd (+384.80). The S&P's gain of 135.67 points fell just shy of the record mark, also recorded on March 2nd, at +136.01.
In this regime of wild swings, it's probable that some traders are going to make massive profits while others fail miserably. It's all about timing and nerves. Anybody with poor timing and a thin appetite for risk is likely to be wiped out in short order. Those who relish the thrill of the hunt and have money to burn should come out ahead in the end, varying trades between long and short, at least until the market overseers ban short sales or profiting on put options.
It may not be obvious to the general public, but where this is head seems pretty clear. The coronavirus, COVID-19, has wreaked havoc on human society, thus disrupting the normal flow of business, a trend that's only just begun. Businesses are only beginning to feel the effects of breaks in the supply chain from China, and soon enough the entire planet's trade will be paralyzed by delays, outages, work stoppages, quarantines, deaths, and all the assorted maladies that accompany global pandemics, the likes of which have not presented themselves in the lifetimes of anybody alive today.
Estimates from medical experts are frightening, which is why the numbers being released by the CDC in the United States are nothing short of a bad joke. Over the past week, the CDC has "officially" recorded anywhere between 2 and 19 new cases of COVID-19 daily, this in a country with a projected population of 333,546,000.
Actual incidence of infection is orders of magnitude higher; that can be safely assumed. With the aid of the CDC, the US government has chosen to protect the economy rather than the people, a strategy doomed to fail. Without effective measures for controlling and containing the spread of the disease - as has been accomplished to a relatively high degree in places like Hong Kong, Singapore, and South Korea - via testing, contact tracking, and quarantine - it will spread virtually unchecked through a population. The evidence from the epicenter in Wuhan, China is compelling in this regard. Akin to what happened there, the US approach is dangerously close to causing a widespread outbreak in any number of cities by ignoring simple precautions and putting money ahead of human health.
What would an economy look like with 200 deaths per day, hospitals overwhelmed and people forced to stay indoors and away from others for weeks at a time? We, and some European nations are about to find out. With a population spoiled by the luxuries of freedom, it's not going to be much fun watching entitled populations melt down under the imposition of travel bans, quarantines, and other draconian measures.
As for stocks, well, their pathway will be all but assured. The Dow Jones Industrials bounced off a mark of declination on Tuesday when it bottomed out at 23,690.34. It was down 19.88% from the intraday high of 29,568.57, recorded on February 12 of this year. It was about to fall into bear market territory. The day's gains may have staved off capitulation for now, but it's coming, and soon. The end of the 11-year bull market and the beginning of what could be a prolonged bear market is at hand.
At the Close, Tuesday, March 10, 2020:
Dow Jones Industrial Average: 25,018.16, +1,167.14 (+4.89%)
NASDAQ: 8,344.25, +393.58 (+4.95%)
S&P 500: 2,882.23, +135.67 (+4.94%)
NYSE: 11,793.27, +494.84 (+4.38%)
In case anybody is growing weary of the recent volatility that has sent stocks soaring and diving over the past three to four weeks, prepare for more of the same. There will be no respite in daily swings of two percent, three percent or more, as yesterday proved, as stocks staged a monumental rally in the latter part of the the session, the Dow rising more than 1000 points in the final two hours.
At the end of the day, all major indices were approaching gains of five percent. Keeping with the trend of record-breaking sessions, the Dow's rise was the third largest point gain in market history. The other two occurred earlier this month. On March 2nd, the Industrials set the mark with a gain of 1,293.96 points. Tow days later, it came close to breaking that, up by 1,173.45 points.
With an eye toward the VIX - the market's preferred measure of volatility - this kind of roller coaster ride should continue until there's resolution to the downside. The VIX has recently hovered in the 40-50 range, ripping as high as 55. Normal volatility is usually measured in the teens.
The NASDAQ and S&P also experienced massive upside Tuesday afternoon, resulting in a record point gain on the NASDAQ, up 393.58 points, surpassing the record set just over a week ago, on March 2nd (+384.80). The S&P's gain of 135.67 points fell just shy of the record mark, also recorded on March 2nd, at +136.01.
In this regime of wild swings, it's probable that some traders are going to make massive profits while others fail miserably. It's all about timing and nerves. Anybody with poor timing and a thin appetite for risk is likely to be wiped out in short order. Those who relish the thrill of the hunt and have money to burn should come out ahead in the end, varying trades between long and short, at least until the market overseers ban short sales or profiting on put options.
It may not be obvious to the general public, but where this is head seems pretty clear. The coronavirus, COVID-19, has wreaked havoc on human society, thus disrupting the normal flow of business, a trend that's only just begun. Businesses are only beginning to feel the effects of breaks in the supply chain from China, and soon enough the entire planet's trade will be paralyzed by delays, outages, work stoppages, quarantines, deaths, and all the assorted maladies that accompany global pandemics, the likes of which have not presented themselves in the lifetimes of anybody alive today.
Estimates from medical experts are frightening, which is why the numbers being released by the CDC in the United States are nothing short of a bad joke. Over the past week, the CDC has "officially" recorded anywhere between 2 and 19 new cases of COVID-19 daily, this in a country with a projected population of 333,546,000.
Actual incidence of infection is orders of magnitude higher; that can be safely assumed. With the aid of the CDC, the US government has chosen to protect the economy rather than the people, a strategy doomed to fail. Without effective measures for controlling and containing the spread of the disease - as has been accomplished to a relatively high degree in places like Hong Kong, Singapore, and South Korea - via testing, contact tracking, and quarantine - it will spread virtually unchecked through a population. The evidence from the epicenter in Wuhan, China is compelling in this regard. Akin to what happened there, the US approach is dangerously close to causing a widespread outbreak in any number of cities by ignoring simple precautions and putting money ahead of human health.
What would an economy look like with 200 deaths per day, hospitals overwhelmed and people forced to stay indoors and away from others for weeks at a time? We, and some European nations are about to find out. With a population spoiled by the luxuries of freedom, it's not going to be much fun watching entitled populations melt down under the imposition of travel bans, quarantines, and other draconian measures.
As for stocks, well, their pathway will be all but assured. The Dow Jones Industrials bounced off a mark of declination on Tuesday when it bottomed out at 23,690.34. It was down 19.88% from the intraday high of 29,568.57, recorded on February 12 of this year. It was about to fall into bear market territory. The day's gains may have staved off capitulation for now, but it's coming, and soon. The end of the 11-year bull market and the beginning of what could be a prolonged bear market is at hand.
At the Close, Tuesday, March 10, 2020:
Dow Jones Industrial Average: 25,018.16, +1,167.14 (+4.89%)
NASDAQ: 8,344.25, +393.58 (+4.95%)
S&P 500: 2,882.23, +135.67 (+4.94%)
NYSE: 11,793.27, +494.84 (+4.38%)
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