There is nothing good that can be said about market action on Wednesday, March 17, except that it could have, and probably should have, been worse. A late-session rally brought all US indices off their lows of the day, to finish with spectacular, though not record, losses.
The Dow Industrials were down by as much as 2,320 points, the NASDAQ had fallen 648 points, and the S&P had fallen by 249 points before the late-day surge. The losses were spread across almost all sectors and stocks, some retail operations, grocery chains, and consumer favorites, such as Dow components, Wal-Mart (WMT) and Walgreens (WBA), enjoyed gains of 2.78% and 6.47%, respectively.
Oil was beaten to multi-decade lows, with WTI crude falling to $20 per barrel and Brent hitting the $25 mark.
Most of the financial carnage was caused by effects of the COVID-19 pandemic and efforts by governments and medical professionals around the world to control its spread. Worldwide, the virus has infected more than 220,000 and caused over 9,000 lives. In the United States, the numbers are growing rapidly with widespread testing becoming available. Cases are up to nearly 10,000 and 150 deaths have been attributed to the disease.
Where Wall Street and international markets go from here is plain for all to see. With financial assets having been boosted relentlessly after the Great Financial Crisis (GFC) of 2008-09, stocks are being sold off as though they had little to no value, which may, in fact, be the correct assumption.
With many companies and cities shut down indefinitely, people are more concerned about their personal health and welfare than what's in their 401k or retirement accounts. Financial stocks and airlines have thus far led the cascading declines, but they are being joined by stocks of all stripes.
Overnight, the Senate approved a bill sent by the House of Representatives and ready to be signed into law by President Trump for over $100 billion in relief to various segments of the country. The bill includes provisions for free coronavirus testing, paid sick leave and emergency leave for some individuals, food relief and enhanced unemployment benefits, which are probably going to be needed with an expected spike in new claims.
The European Central Bank approved a 715 euro stimulus package aimed primarily at bond repurchases and other assorted financial plumbing.
At 8:30 am ET, the US Labor Department updated the most recent new claims for unemployment insurance of 281,000, an increase of 70,000 from the previous week, though that number is for the week ending March 14. Claims are expected to surge to over 500,000 next week and some estimates are projecting job losses of more than three million by July, a number that is likely to be seen as conservative.
Gold and silver continue to be sold off as holders of paper contracts sell to make margin calls. The paper prices of the metals feel again on Wednesday, leaving gold at $1474.40 and silver closing n New York at $11.89.
Physical precious metal prices have broken away from the futures, with dealers charging extensive premiums as demand has skyrocketed. Silver is selling for $17 to $20 and more per ounce, with some dealers imposing 100% premiums. Prices on eBay for single ounce purchases of silver are ranging from $18 to $24 and higher.
Gold, partly because its high price holds down demand, is being sold in a range of $1580-$1675 per ounce with widespread shortages at online dealers. While the premiums for gold are still in the 10% range, they are significantly higher than just a few weeks ago. One would expect the gold price to be rising amid the buying surge, and decoupling from the paper price of the metals - which has already occurred with silver - may be imminent.
Bonds were sold at the long end of the treasury yield curve, sending the 30-year bond to 1.77% yield and the 10-year note to a yield of 1.18%, while the shortest durations, 1, 2, 3, and 6-month bills were hot tickets, ending the day with yields of 0.04, 0.03, 0.02, and 0.08%, respectively.
As Wall street steadies for another day of wicked trading, European markets are marginally lower. Asian markets felt even more pain in early Thursday trading. Indonesia's Jakarta Composite Index was down 5.20%; South Korea's KOSPI Composite was off 8.39%; the Straits Times Index off 4.73; Japan's NIKKEI fell by a mere 1.04%, and the Hang Seng, Hong Hong's index, was down 2.61%.
At the Close, Wednesday, March 18, 2020:
Dow Jones Industrial Average: 19,898.92, -1,338.46 (-6.30%)
NASDAQ: 6,989.84, -344.94 (-4.70%)
S&P 500: 2,398.10, -131.09 (-5.18%)
NYSE: 9,384.60, -678.76 (-6.74%)
Thursday, March 19, 2020
Wednesday, March 18, 2020
Stocks Gain Tuesday, Busy Fed Monetizes Stocks Amid Spreading COVID-19 Virus: Boeing Wants $60 Billion
On the heels of Monday's knee-knocking losses, Tuesday's trade to the upside was somewhat predictable, in that a dead cat bounce usually follows massive losses, so the major indices continued along their path of one step forward, two (or three, four, or five) steps back.
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
Tuesday, March 17, 2020
Following Massive Declines, Wall Street, Global Markets Brace For Recessions, Bankruptcies, Deficits
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%)
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%)
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%)
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