It just can’t get bad enough, and I can ‘t write fast enough. The headlines at the end of the week are now stunning, so I’m going to share several of them along with some quotations from the bawling and dying market bulls. In just one week, this has become the fastest stock market plunge since the Great Depression! So, if you have a bull you love, save his bullish butt by nailing upper-story windows shut.
Over six-trillion dollars in market value has been shredded, and safe-haven US-treasury yields have sailed off the edge of the market bull’s flat earth into a realm they have never before seen! Never before seen! The ten-year bond dropped to 1.12% during the day on Friday. The two-year took the sharpest weekly plunge in yields it has taken since 9/11, ending below 1%. It’s now the worst start to a year for stocks since 2009. (Remember how all the permabulls were going on about how this market had plenty of room to run?)
The superlatives go on and on.
Let me redraw the bath for you
I ended Thursday by updating Thursday’s article as quickly as I could with the following comments just to catch up with how much more the market had fallen in the time it took to write and publish the article: (I include them here again in case you read the article before I added them.)
When I started writing this article, everything above about the market was accurate…. However, I cannot research and write fast enough to keep up with the daily dives in the market. Today, the US stock market plunged for what MarketWatch says is the largest one-day point drop in the 130-year-plus history of the Dow!
Guggenheim’s veteran Scott Minerd called this day “possibly the worst thing I’ve ever seen in my career” and noted “the Fed is fairly impotent in this environment.” That’s from a guy who went through the dot-com bust with the market and through the Great Recession. Minerd added that the present situation by itself is likely to subtract 1.5% – 2% from US GDP growth. That would be in addition to the decline that was already in the works for this quarter, putting the US fully in recession by all remaining measures if Minerd turns out to be accurate.
It is the first time ever that the S&P has plunged into a full correction from a market peak in six days.
And today the bath became electrifying!
And then it got worse on Friday. The Dow has now lost more than a third of all its gains from the Trump Rally that began the day after Trump was elected:
When was the last time you saw a market crash that looked that straight down? That’s three years of bullheadedness knocked down by a third in just one week! Put another way, all stock gains since December 2017 have been destroyed.
The bellowing bulls are finally running scared, while those of us who shifted timely out of stocks are watching the bull run for entertainment and feeling like we should feel bad for them because they have families, too. The frightened bulls are now already pricing in three interest-rate cuts by their savior, the Fed, in whom they trust. If the Fed hears their prayers from its Ecclesiastical temple (the Eccles Building), that’ll give us six cuts since we started diving into recession last summer. (So, again, tell me the Fed’s first three “insurance cuts” were not because we started moving into recession.”)
With that said, here are some headlines and short quotes that capture the heat of the week now that it is finally over:
This Friday headline captures where we began the week. Seems like a long time ago now:
Stocks … Head for Worst Week Since 2008
The spreading coronavirus threatens to derail the global economy. The virus outbreak has been shutting down industrial centers, emptying shops and severely crimping travel all over the world.
It is that rarest of occasions…. We are being told by well-known voices on Wall Street NOT to buy this particular dip in stocks…. Either COVID-19 is going to spread …. and economies will go into lockdown as supply-chains are badly hit; or governments are going to lockdown anyway.
“Well, it’s certainly a full panic. I’d say of all of them that I’ve seen or been through, it really reminds me of 1987…. When it happened, it didn’t really matter what caused it. It was all about the collapse itself. It was all about the market falling without any noticeable bottom, and it was a combination of fear and programmed trading. And I would say we’ve got exactly the same thing again today.”
The breadth and intensity of this coronavirus-fueled stock market selloff has some strategists scratching their heads.
Of course it does because they all thought this wasn’t supposed to happen as they repeatedly bellowed in unison like a mantra, “the economy is strong.” None of them could see the truth about how shallow the US (and global) economy really is.
They still believe it is fundamentally strong when it is fundamentally riddled with fault lines. That’s how blinded they are by their schools of thought. They still believe earnings (artificially jacked up by nothing but stock buybacks and slashed corporate taxes) are truly OK. They cannot comprehend the truth because of their own denial. Brokers believe what they need to believe to sell their book. Investors believe what they want to believe to charge ahead with adrenaline pumping in their veins. The commentariat believe what they’ve always said, lest they have to admit they were always wrong! And all of them say in unison …. (you got it), “No one could have seen this coming!“
The S&P 500 index remained on track for its second-largest weekly percentage decline since 1940…. MSCI’s gauge of stocks across the globe shed … a weekly loss near 11%, its second largest on record.
And then the expected happened:
The Dow is down 16.3% from its recent peak on Feb. 12.
Not that part of the article, though the headline and percentage drop were worth capturing as a synopsis, but this part:
“The fundamentals of the U.S. economy remain strong,” Powell said in a rare, written statement. “However, the coronavirus poses evolving risks to economic activity.
PowThere he goes, doing as I said he would — already blaming the Fed’s failed recovery on the coronavirus while still claiming the US economy, riddled with chronically falling statistics as it is, is fundamentally strong.
And he’ll sell it, too. It is what Trump supporters want to believe. It is what Fed supporters want to believe. It is what all the market gurus, who have vested their reputations in telling everyone how strong the economy is, want to believe. It’s what fearful people want to hear.
Powell also met the demands of investors by promising the Fed will remain vigilant and do whatever needs to be done to save them all. And, so, the market lifted its hands in praise to almighty Fed at the end of his words and by giving a token all-rise upward at the end of days ,… but the move up may turn out to be half-hearted faith if more viral news pours in over the weekend.
Oh, thee of little faith in Father Fed. Well, great faith till now, but we’ll see how well their religious fervor holds up under physical testing. Viruses, unlike market woes, do not listen to the Fed. They are the devil’s handiwork. (Or maybe the handiwork of human beings if specially engineered.) The general populace all over the world that is afraid of viruses probably does not listen to Father Fed either. So, this ain’t over yet.
If not to Father Fed, the market bulls can hope everyone will listen to the president’s own high priest of finance:
Larry Kudlow, director of the National Economic Council, called the downturn a “short-term market plunge” and said, “I don’t think at this point it’s going to have much of an impact.”
Yeah, Larry Kudlow also infamously said the Bush economy was strong in 2008 and nothing was going to have much of an impact then either. “Don’t look at those falling housing prices, People. Ignore this trembling in the market’s floor.” That Larry is such a crackup.
The Dow fell more than 3,500 points, far and away its largest weekly point loss ever…. Apple … briefly entered bear market territory…. “The reason it happened so quickly is because the momentum going up was so great.”
The Big Apple got eaten by the bear already.
Emotional ride up, emotional ride down. It was all hot air … now being let out of the Everything Balloon.
“…The timing of this was just the worst with respect to investor sentiment being elevated,” said Doug Ramsey, chief investment officer at The Leuthold Group, referring to the coronavirus outbreak. “I’m not sure that the market has really priced in the potential economic impact of this.“
Apparently still more room to roll, even according to chief investment officers. Here is how:
The rapid spread of the coronavirus is dealing a blow to confidence in the biggest U.S. corporate debt boom on record, here’s why analysts think the pain likely gets worse.
And there it is — the toaster in the bath. Just when you thought this bloodbath in stocks was gory enough, you find out you’ve got other troubles. Oh, yeah, in a fragile global economy filled with fault lines, one tectonic plate moves another. That’s what happens in rickety economies. So, now the coronavirus contagion is about to spread to the credit bubble.
…Investors also pulled out a record $7.3 billion from exchange-traded funds that track the near $1.5 trillion U.S. junk-bond market over the past five days, causing these ETFs to shed 10.4% of their assets, according to Deutsche Bank data.
At the same time … “junk-bonds” that underpin the ETFs saw credit spreads gap out by 100 basis points over the same time frame, a rarity when overall spreads have been so low, Deutsche Bank analysts point out.
Turns out those massive changes in bond yields that were merely the side effect of money fleeing from stocks to safe havens, is throwing cold water on junk-bonds. You see, when credit spreads start to widen, bond investors start to demand more interest to refi those junk bonds issued by companies that are sometimes already soaking in their own blood. In other words, money is floating toward safety, not toward junk. Moreover, with so many companies looking like business, itself, will take a hit from the coronavirus, the zombie companies look riskier to finance when the mood is for safety.
The market now has shifted to “show-me” mode, with room for risk to further reprice [in part because] … the rapid spread of the coronavirus beyond China prompted Goldman analysts this week to cut their U.S. corporate earnings growth expectations to zero for 2020.… Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, supply chain disruption, a slowdown in U.S. economic activity, and elevated uncertainty,
Don’t think just because you discovered the toaster in the water and see someone is about to plug it in that the bloodbath is over:
There are still some risks that the market hasn’t reconciled yet, according to Morgan Stanley…. While most strategists say to buy the dip, Morgan Stanley strategists say the rebound will be muted and one of the main drivers of the bull market is over.
But don’t worry, finance guru Jeremy Siegel says the economy will bounce back … in a couple of years.
Wharton School professor Jeremy Siegel said the coronavirus outbreak … could drag down earnings by as much as 30%…. Siegel, speaking on CNBC’s “Squawk on the Street” as the stock market extended its dramatic sell-off, said the odds are “overwhelmingly yes” that the economy and stocks will bounce back in the next couple of years, despite the outbreak.
Earnings down thirty percent for zombie corporations whose stocks are bleeding out their ears like they have ebola and who are kept alive by junk bond life support. They should be able to absorb that for a year or two. Right?
Guess we know who’s getting toasted.
Finally, to put a wrap on this:
Of course it does. When market exuberance surpasses reality, then the market’s fall is likely to surpass reality. The pendulum swings the other way. It was a market built on emotions Fed with testosterone, and now it’s a market having an emotional meltdown. Perhaps you didn’t know bulls can bawl.
Then let this gentleman farmer tell you: they certainly can.