What the Heck’s Going on in Global Stocks?

The NIRP Rout

In Japan, the Eurozone, Denmark, Sweden, and Switzerland, where central banks, in their infinite wisdom, have imposed negative interest rates supplemented with harebrained bond-buying schemes, bond prices have soared to where many government bonds and even some corporate bonds are trading with negative yields. Given this amount of liquidity and the free-for-all in corporate borrowing, stock markets in those countries should be booming, which had been part of the plan.

Alas, they’ve gotten hammered: almost all NIRP countries’ major stock market indices have gotten shoved, some deeply, into a bear market.

US stock indices, in this unsavory crowd, are the cleanest dirty shirts, with the S&P 500 down 3.0% and the Dow down 3.7% from their peaks in May 2015, and the Nasdaq down 8.3% from its peak in July 2015.

The small-cap Russell 2000 is down 11.6% since its peak in June 2015. Small caps are powered by rocket fuel on the way up. When that fuel is burned up, they come down hard. They tend to lead larger cap stocks on the way up and on the way down.

The Russell 2000 trailing 12-months price-earnings ratio is “nil,” as the Wall Street Journal puts it mercifully. So despite endlessly rosy projections of “adjusted” pro-forma fictional earnings in the future, aggregate earnings for the past 12 months under GAAP were either so minuscule that the P/E ratio would be something near infinite, or they were negative, in which case the P/E ratio would be negative. Hence the merciful “nil.”

The 12-months trailing P/E ratio of the S&P 500 is a dizzying 23.9, up from 22.8 a year ago. The historical median is 14.6!

And a word about recent IPOs. The USA IPO index by Renaissance Capital (now at 205.8) has dropped 23.7% since its peak in April 2015, and has thus qualified for the elite group of indices in a bear market.

On December 31, 2015, the index closed at 225.4, a number it hasn’t seen since. On February 11, it closed at 171, down 22% year-to-date at the time. Then it bounced, only to lose its grip again starting on June 8: it has since dropped 5%.

The index tracks the largest US-listed stocks that recently went public, currently 64. It imposes a 10% cap on large companies, such as Alibaba. Stocks stay in the index for two years after their IPO date. The top 5 components by weight: Alibaba (9.9%); Synchrony Financial, the GE spinoff (8.5%); Citizens Financial Group, the Royal Bank of Scotland spinoff (7.8%);  Mobileye, an Israeli driverless-car software company (4.8%), and JD.com, a Chinese e-commerce company (4.3%).

So here’s our updated Bear Market Tracker. The five US indices in it are marked in blue. The S&P 500, the Dow, and the Nasdaq occupy the top three positions – the world’s cleanest dirty shirts. The IPO index is stuck in a bear market, right between the glorious NIRP-country indices:


We define an index as being in a bear market when it’s down 20% from its cycle high. “Cycle high” is kind of a rubbery concept and some arbitrary decisions are required: the Russian RTSI in USD has been zig-zagging lower since its high in 2011, which is the cycle high used in the chart. However, for the Nikkei, which peaked in 1989 and has since fallen over 60%, we used the cycle high of June 2015.

A note about currencies: stock indices that are measured in a local currency that has lost much of its value, such as Argentina’s peso, are useless. When a currency loses 40% of its value in a year, a stock index increase of 25% only looks good on paper. In reality, it’s a devastating decline. So we excluded currency-crusher countries from the list. However, we included Russia’s dollar-denominated RTSI.

The biggest losers in the NIRP rout: Spain’s IBEX down 29%, Italy’s MIB down 30%, and the Euro Stoxx 600 Banking index down nearly 40%, an indication of just how troubled European banks have become, and how good NIRP has been for them.

In a fascinating twist, and a sign of how hopeless the NIRP situation has gotten: there isn’t a lot of central-bank hand-wringing anymore about the dismal performance of their respective stock markets, though originally, driving up stock market valuations and creating that infamous “wealth effect” while pushing investors into every riskier (loss-prone) assets, has been bandied about as policy goal by the ECB and the Bank of Japan.

Now that investors have followed central-bank exhortation to seek refuge from NIRP and QE in risky assets, equities have swooned, and these investors have lost their shirts. Meanwhile, central banks have conceded that they’ll let stocks go to heck, no big deal.

They have conceded that central banks, in effect, can’t prop up stocks if speculators don’t believe the message, and speculators have stopped believing the message in the spring last year. So now central banks are focusing on manipulating the bond markets and other asset classes, such as housing, that depend on this nearly free capital. And stocks, for them, have apparently become a lost cause. And those gullible investors, like savers before them, are on their own in their misery.

In the US, the yield on the 10-year Treasury note fell to the lowest level since November 2012, after more Fed flip-flopping in face of lousy job gains, terrible exports, puny investment, and Brexit fears. So, the Fed’s post-meeting statement said, “growth in economic activity appears to have picked up.” Really? Read… OK, I Get it, the US is a Service Economy, but this Looks Terrible

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  44 comments for “What the Heck’s Going on in Global Stocks?

  1. VegasBob says:

    Negative interest rates are an illogical absurdity that can only exist in the fevered brains of over-educated academics who are wholly lacking in common sense.

    When central banks ‘buy’ bonds or other assets, they are effectively printing up counterfeit electronic money to pay for the bonds or assets.

    The problem with money-printing is that there is no shortage of money. The world’s central banks have printed up over $20 trillion of counterfeit electronic money over the last 20 years. The result of all this money-printing is massive inflation in asset prices, and the primary beneficiaries of this inflation are already-wealthy asset holders.

    As for stock prices, the reason stock prices drop under a NIRP regime is that NIRP provides only one major market signal. That market signal is DEFLATION.

    In a deflationary environment, it makes no sense for business to attempt expansion, because the business will be able to expand in the future for a lower cost. Moreover, First World demographics suggest a declining population in the future rather than an expanding population. That suggests declining demand in First World economies which also implies future deflation as well. Unfortunately, poor Third World countries will not pick up the economic slack simply because they cannot afford to do so.

    Regrettably, the mindset of those in charge of the world’s central banks is not likely to change any time soon. It will take another major financial crisis to force central bankers and their sponsoring governments to change course.

    The reason is because in the private sector, failure is normally met with restructuring and/or bankruptcy. In general, executives will not receive larger annual bonuses for expanding their business failures (though failed executives are paid handsomely when they are terminated). In the world of government, failure is almost always met with budget increases and even bigger doses of failed policies, because “we didn’t do enough to ensure that the policy would work when we tried it before.”

    • Dan Romig says:

      Yes, you sure stated the bleak picture of current affairs accurately!

      If one could turn the clock back to the end of 2008, and let those ‘Too Big To Fail’ have what they deserved instead of TARP, we’d have gotten a kick in the as$ for a while, and then a return to growth and sanity.

      The global economic system cannot work with NIRP.

      • Petunia says:

        If they would have let Bear Stearns fail they wouldn’t have needed TARP.

        • d says:

          And if they had of bailed out Lehman’s they may have staved the whole thing off until O bummers second term. When we would have had a proper double dip recession as O bummer and his admin’s would never have been able to stop it at that point.

          O bummer is now going to palm of the impending Financial disaster to whoever and walk away smiling.

          There would actually be some poetic justice in trumpty dumpty winning, and the whole lot collapsing around his ears faster than he could comprehend it.

          He could be a great one term fall guy for decades of economic mismanagement.

    • jack carpenper says:

      The note of resignation regarding management of debt internationally is in avoidance of the question: how does this end? History tells us that that when specie becomes corrupt the answer is invariably barter. It has several variations, but precious metals usually play some roll, printed money becomes totally useless. The government must as a rule abandon its debt and set weights and measures for exchange. Greek history is replete with tales of the reorganization required. More recently Africa & Argentina have experimented with barter systems. But in all cases the economy becomes smaller and a few tradesmen become the local captains of industry. Think it over since the current system is headed that direction. Most of all, work on your mind set and reorganization of your life style. It is coming, plan a little.

    • EVENT HORIZON says:

      None of this can occur if GOLD is used as money.

      Actually, let me state that very clearly. GOLD is MONEY.

      We call can argue, fight, set off IED’s, beat each other up in parking lots, but the closest thing we can use for money is GOLD.

      It is not perfect, you can’t eat it, yada yada yada, but it is the best thing on planet Earth that can be used a real MONEY.

      None of this nonsense can happen if we use GOLD.

      Real MONEY has intrinsic value. You sell a cow for food and the person buying it either gives you a food item equal in production value (labor) such as a certain number of bags of wheat, OR he gives you an item equal to the labor in raising the cow or harvesting the wheat. The best thing on Earth is GOLD, and second is SILVER, and third may be COPPER. But you get worthless paper printed by a Private bank owned by Private Families.

      The last thing of any value is a piece of papyrus with ink stains on it: Federal Reserve Notes. For some reason, the public has been bullshitted into accepting printed pieces of linen as “value”. Fools.

      • Agnes says:

        The problem with gold and silver(and I am a freak about silver)is that we have had fiat for so long that no one knows how to value stuff without using it(“moral hazard”). I once was so pissed off at my employers that I was negotiating to be paid in silver, so many ounces/week but they decided to give me a raise instead.

  2. Petunia says:

    The movie, Wolf of Wall Street, has been playing on tv for the past month. Watching even five minutes of this movie would make me sell all my financial assets. Maybe I’m not the only one who feels that way.

  3. Wow – I finally arrived at one of these posts early… Wolf, thanks again for pulling together some really powerful data. I gotta ask a question. . With numbers like this, why dollars being removed from the table of all the indexes above the bear market line in the list above…? I mean looking at it, – to me it’s a look at the future for those above the line..? Or am I wrong…?

    I have to also add, that me and the wife inherited a nice nest egg from her father. He was wise enough to put it in a managed account at a nice investment company, and we met with them twice now….Nice guys that sit in a room with a big big big tv watching CNBC stock cheerleaders all day… Good gains for 10 years but not the last 2. It lost just about 2%. Feb. I decided to have them liquidate, and hold cash till possibly election day… or should I say dooms-day. I read this and other market -world market news all the time, I think a really big crash is coming. Why is it all of wall street is not so nervous…? And our investment guys think we were wrong to sit out….. Still not recovered over Dec. 2015, or 2014.

    One more thing… Wife sells Avon, I listen to the Quarters, and in really bad places like Brazil, they don’t seem to do as bad as the economy seems to be. Does Brazil and some of those countries under the line have a substantial underground economy….? What I would expect is for Avon’s Q’s to reflect a seriously hurting economy in those markets. And they are always down, but not so far as the graph above….

    Thanks, Have a great day everyone.


    • Petunia says:

      Brazil and Israel sell the most dangerous beauty products out there. Your hair can fall out from the chemicals in the hair products and the eye makeup can make you blind. Avon has good quality products for the prices and they are known to be safe.

    • Thomas Malthus says:

      I am partial to physical gold.

      I dumped some extra cash I had in early 2007 into coins and Chinese taels.

      I put it in a strong box — and wrapped that in heavy plastic — then at night I went out into the forest with a shovel — and I buried it.

      I don’t worry about the fact that there is no ROI — although I did buy at 700 or so therefore have done ok…

      The theory behind this is that the global economy IS going to implode.

      Gold will be the last man standing — although the scale of this implosion might mean that cans of beans are the last man standing — so why bother investing in things are are most definitely going to collapse into worthlessness….

      I am not so keen on holding a lot of cash — I already have quite a bit of toilet paper crammed into the 20 foot container out back.

      • Mike Earussi says:

        Try buying loaf of bread with a gold coin and see what change they give you. The main problem with planning on using gold as a currency or dollar substitute is it can’t handle small purchases easily. I would be far more inclined to “hoard” silver coinage instead of gold as the more practical alternative to paper money.

        • Thomas Malthus says:

          A loaf of bread?

          I was planning on buying the entire bakery….

          That said — I have come 180 on this since reading this piece by Tim Morgan a few years ago … I doubt PM will be helpful.

          THE PERFECT STORM (see p. 58 onwards)

          The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.

          But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.


      • Agnes says:

        And darn, you went to look at it and you lost it, right?

        • Thomas Malthus says:

          Ha ha….. now wouldn’t that be a catastrophe!

          The X spot is grown over with vegetation so I am pretty sure it’s down there…

          Actually I’ve got a few X’s including some in a safe deposit box and some with a family member… all the eggs in one basket is risky!

    • TheBloomIsOffTheRose says:

      In bad economies, purchasers of Avon products may want to assure the success of friends, family and neighbors who sell Avon, over other merchants.

      Bad economic times also recruit more women into prostitution, a survival mechanism but also a way to continue paying for tuition for example. In itself a reason for increased sales but in addition, perhaps the ladies of this profession also like to keep sales in the “family”

      Brazil is known for its beautiful, highly groomed women. Could some have traded their preference for luxury cosmetics for lower-priced Avon in these much tougher economic times?

      • Well, Avon does taut their mantra about bringing a paycheck to women in parts of the world where they otherwise would not have one. And I am aware of the price point of Avon vs. other brands, and in a downturn Avon could do better. Same with recruiting, bad times, – hey I’ll try selling Avon.

        I am not aware of a presence of Avon in Israel though… They would be lumped into the mid-east reporting, still they do ok there.

        I am pretty confused about Brazil too. Why the Olympics, and wow it seems like quite a polar place, half the island less than dirt poor, and little pockets that are fancy tourist traps. – And one of Avon’s largest, possibly largest market. I guess everyone aspires to improve, and makeup is part of feeling better about one’s place in life.

        I don’t know about the rest of you, but reading all the doom and gloom about the market – google always feeds me “the market will drop 80% in 2016” ads on almost every other website I visit….. Very creepy !

        • Mike Earussi says:

          With Avon having such a good reputation in developing countries, I’d be worrying about someone selling fake (and possibly toxic) Avon products to unsuspecting customers. how would they be able to tell the difference?

  4. OutLooingIn says:

    Wow! All 24 global market markers bleeding red ink!

    With the top 3:
    S&P -3.0%
    DOW -3.7%
    Nasdaq -8.3%

    Gold up;
    one month +3.44%
    52 weeks +7.78%
    Silver up;
    one month +5.58%
    52 weeks +8.07%

    Nuff said.

  5. Thomas Malthus says:

    This is what the End Game involves:

    The Denver Post, on February 15th, ran an Associated Press article entitled Homeland Security aims to buy 1.6b rounds of ammo, so far to little notice.

    It confirmed that the Department of Homeland Security has issued an open purchase order for 1.6 billion rounds of ammunition.

    As reported elsewhere, some of this purchase order is for hollow-point rounds, forbidden by international law for use in war, along with a frightening amount specialized for snipers.

    Also reported elsewhere, at the height of the Iraq War the Army was expending less than 6 million rounds a month. Therefore 1.6 billion rounds would be enough to sustain a hot war for 20+ years.


    • Wolf Richter says:

      The Denver Post also said:

      “The government’s explanation is less sinister. Federal solicitations to buy the ammo are known as “strategic sourcing contracts,” which help the government get a low price for a big purchase, says Peggy Dixon, spokeswoman for the Federal Law Enforcement Training Center in Glynco, Ga. The training center and others like it run by the Homeland Security Department use as many as 15 million rounds every year, mostly on shooting ranges and in training exercises.”


      So that would be enough ammo to run these training centers for 100 years.

      • Thomas Malthus says:

        So that’s 106 years supply of bullets at 15M for target practice per year.

        Storage costs for the ammo surely wipe out any bulk deal savings.

        Also opportunity cost on all that cash over 106 years must be enormous.

        1. Can that spokesperson reference any previous purchases of that magnitude?

        2. Can we get a breakdown on the numbers involved in terms of money saved?

        3. What is the reason for purchasing hollow point ammunition forbidden even for use in war?

        4. What is the reason for purchasing large amounts of sniper ammunition?

        I struggle with the Peggy’s explanation …. perhaps you could ring her up Wolf and ask the questions above…

        • Wolf Richter says:

          What I don’t understand is why anyone would want to plan 100 years ahead with a P.O., or do target practice with 100-year-old ammo.

          Here’s another shot at it, so to speak:

          Government departments have budgets. And if there’s money left over toward the end of the fiscal year, it has to get spent or else the budget will be cut next fiscal year, and no one wants to see their budgets cut. So there were some billions of dollars left over and some guy had to stay late on a Friday night before the end of the fiscal and order something – anything really … so he picked ammo. Just a lot of it. It doesn’t really matter to him. It’s just a budget figure he has to do something with.

          There’s an old rule in US government that every novice quickly has to learn: No one in government ever got promoted by saving the government money.

        • Thomas Malthus says:

          There is the slight problem of the hollow tips and the sniper rounds….

        • Wolf Richter says:

          I figured that guy ordered an assortment of ammo. Maybe they have a ready-made formula they always order to make everyone happy, including some hunting ammo for weekends, and some sniper rounds for those guys that come in on Wednesdays. A little bit of everything. A few million rounds of this, a few million rounds of that. Maybe he multiplied the formula by 100 to use up the leftover money in the budget. I try not to ever underestimate the inanity of government procurement.

        • Thomas Malthus says:

          Throw in a few hundred thousand cluster bombs….

          I hear they are very effective at dispersing large, angry crowds wielding pitchforks that do not respond to tear gas.

        • Marty says:

          Another purpose: run the price of ammo through the roof so that the hoi palloi can’t afford it. And another: business as usual or part of financial repression, i.e. shoving more and more money out to favored industries.

        • Petunia says:

          Alex Jones was running stories on these big ammo contracts last year and even before that. They have been stock piling large amounts for the last couple of years from what I’ve been reading.

          There was a big federal case in Miami a couple of years ago about some two guys in high school and college, putting in a bid on one of the contracts and winning. They landed up buying the ammo from China. Another Flori-duh story, hilarious and scary.


        • Just in time delivery so it’s used at the time it’s needed has not made it into Gov. spending theory yet hu?

      • Wolf, you appear to be struggling to find the less sinister side if this story, but you’d do well to error on the side of the more sinister since this is the government we’re talking about here. It will be great if you are right, but tragic for America if you’re wrong.

    • NotSoSure says:

      It’s amazing what the Plunge Protection Team (PPT) is willing to do to keep the markets up :)

      1.6 billion rounds should be good contribution to GDP. Keynes would be in ecstasy given the amount of broken windows those bullets will cause.

      USA, USA, USAA !!!! This folks, is what’s called an American innovation.


    • EVENT HORIZON says:

      They are buying “armour piercing bullets” which are illegal for you and I to buy. Why is that?

      What does FEMA, HUD, HLS, need bullets for? Do they expect some kind of collapse? Are they anticipating a “civil war”?

      Some of us, deep in our “tin foil” guts, feel something is coming. Do they know what it is? Anyway, my family and my closest relatives are preped. We already have our guns, ammo, food, water, Rx’s, etc.

      Do you? You have 6 months.

      • Thomas Malthus says:

        Is that a rhetorical question?

        Yes of course something wicked this way comes.

        Think about it — interest rates are at zero and cannot be raised without bankrupting the world…

        Subprime autos are over 20% of the market

        Subprime mortgages are back

        Trillions have been printed.

        We are fed lies about jobs

        The stock market is a fairy tale of buy backs…

        I could go on and on and on…

        Yet most people continue to feel as if everything is under control – things will get better…

        Frogs in a pot of hot water.

        When the high priests run out of tricks to keep the hamster running — this is going to be the great great grand mother of all collapses…

        Like Freddy Sanford used to say ‘this is the big one’

        We are fighting for our lives — we are fighting to extend civilization …

        EVERYTHING is at stake. Nobody survives this.

        Desperate men do desperate things… as they should.

        But hey – it’s not like this should be a surprise — read Limits to Growth — they said we’d hit the wall right around this time…

        Finite world – and a system that requires infinite growth — well… they are not compatible.

        Enjoy it while it lasts.

        I am reaching into my bucket for a piece of paper…. aha — Uzbekistan! Sounds like a plan.

  6. typo says:

    “The small-cap Russell 2000 is down 11.6% since its peak in June 2016”
    (typo, 2015)

  7. OutLookingIn says:

    Commodity Market Jitters

    INTL FCStone Inc has said it will charge customers 200 percent of the minimum margin set by CME Group Inc for cleared futures for gold, silver, the British pound and euro currency. Effective June 16th.
    As reported by Reuters.

    Looks like banks and brokers have gotten the “Brexit Jitters” ahead of Thursdays UK referendum vote, by charging extra margin requirements on specific futures.

  8. Uncle Frank says:

    Brexit fears ease today and a big relief rally ensues…

    FTSE 100 jumps 3.2%; poised for biggest daily gain in 10 months

    As Brexit fears continue to ease after referendum polls showed the Remain camp was gaining momentum, London’s FTSE 100 has charged ahead breaking through the 6,200 level for the first time in ten days.


    • Meme Imfurst says:

      25,000 Sterling in options sent the polls for Remain up….nothing more than Central Bank shoving their weight behind their best interests, not the UK citizens interests.
      The EU is toast, Britain is the ‘chipped beef’ to be served up to the neocon bankers on plates of gold.

      Please buy the dip, so the banks can sell their molding portfolios to you.

  9. Agnes says:

    I bet someone buying bullets got their decimal wrongly. :)

    • Thomas Malthus says:

      Given the chaos that is about to unfold… they should have bought 1.6 TRILLION bullets…

Comments are closed.