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 global market wealth has been shredded, and safe-haven US-treasuries have sailed off the edge of the bulls’ flat earth into nether realms bond yields have never before seen! Never before seen! The ten-year bond dropped to a nadir of 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 … and best climb for safe-haven bond prices imaginable for those who moved to bond funds well ahead of the carnage. (Remember how all the permabulls were bellering just a few weeks ago about how this market had plenty of room to run?)
The superlatives for the sheer majesty of this market cliff 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 that 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 Friday the bath became electrifying!
It actually got worse on Friday when many were hoping for, at least, a dead-cat bounce. 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? Talk about sheer magnificence! That’s three years of rampaging 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 glided 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. It’s hard, though, because of how arrogant they were toward the bears during their run to the top of the cliff.
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. You don’t see all-out panics like this in markets that are sitting secure. (Look to the third graph in “The Great Melt-up Melt Down” for proof of that.)
With that said, here are some headlines and short quotes from Friday that capture the collapse now that this perilous week is finally over.
This Friday headline captures the initial blasts of the market’s demolition as 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.”
That is what markets priced to stupidity do when bad news hits.
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 believed the economy was fundamentally strong when it was fundamentally cracked to the core with numerous fault lines and danger signs. That’s how blinded they are by their schools of thought. Even now, many 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 relentlessly uphill 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 will 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.
That’s not the expected 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.
There 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 already was, 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 late Friday afternoon in praise to almighty Fed at the end of his words by giving a token all-rise upward at the end of days ,… but the move up will immediately 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 until now when faith, itself, has been shaken because the world did not do what the believers thought it shoulda. We’ll see how well their religious fervor holds up under physical testing in the days ahead.
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, and we haven’t even begun to see the knock-on effects outside of the market!
If people don’t herald the words of 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. It’s good we have him for comic relief in hours like this.
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.”
As I said, such steep failures only happen when markets rise on hot air to become priced to the peak of insanity. They can fall that quickly because their is no solid earth (no fundamental economic strength) underneath them.
The Big Apple got eaten by the bear already. Apple stock fell more than 20%
Emotional ride up, emotional ride down. It was all hot air … now being let out of a bubble so gigantic I call it 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 the market still has some hot air to be released, even according to chief investment officers. It can fall a lot more because the collateral damage to the actual US economy hasn’t even begun to happen. I’m talking about all those fault lines that can crack open in the earth and swallow the balloon just as it attempts to land. 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 the bulls have other troubles ahead. Oh, yeah, in a fragile global economy filled with fault lines, one tectonic plate moves another. Everyone with eyes open should have been able to see the peril of mountains of debt inappropriately priced for risk because the Fed killed true price discovery long ago! There is no excuse! 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 drops in government bond yields that were merely the side effect of money fleeing from stocks to safe havens, is leaving corporate junk-bonds high and dry. You see, when credit spreads between government and corporate debt start to gap open, bond investors who are fleeing into the government’s safety net start demanding more interest to refi junk bonds issued by companies that are already bathing in their own blood. Money is floating toward safety right now, not toward high-risk junk that is now becoming much higher risk. You see, with even good businesses all over the world looking like they will take a revenue hit from the coronavirus, zombie companies look far too risky to refinance when the mood is all 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 bulls’ bloodbath is over. The bulls get to marinate in their own blood a little longer before they are finally fried:
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 going 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.
Did I not say over and over that it would be the ECONOMY that would end this bull market, not the bull market the would cause recession. Ultimately, the economy will rule, and the market will not survive its recession.
You see, the market is falling apart right now because the economy is already going into recession. Revenue was already in recession. Profits are now dropping. Microsoft, Apple and several other major corporations already stated this week that their profits are declining due to the global economic wreckage. (Not just forward earnings, but current earnings.)
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 bull market built on emotions Fed with testosterone, and now it’s a dying bull having an emotional meltdown. Perhaps you didn’t know bulls can bawl.
Then let this gentleman farmer tell you: they certainly can.
This article was originally published at The Great Recession blog. It is re-printed here with permission.