The coronavirus is just the latest in a long series of issues successfully brushed off as irrelevant because all that mattered was that stocks went up.
By Wolf Richter for WOLF STREET.
“Complacency” – brushing off big issues as irrelevant or nonexistent because they don’t fit into the buy-buy-buy scenario – has a way of serving up a surprise tab just when the party is hopping at its wildest.
Today, we’re seeing a little of it. Already on Friday, some fallout had hit stocks, following a mild down-day on Thursday. As of early afternoon today, over those three days, the S&P 500 index has dropped 4.8% and the Nasdaq 5.8%.
It’s as if it had suddenly dawned on the hyper-inflated stock market that it is in fact hyper-inflated, and that there are in fact big issues out there that had been known about for many weeks, and some of them for months or even years, but that had been successfully brushed off as irrelevant and had been successfully banished as nonexistent.
Nothing mattered because stocks kept surging higher. Despite the freight recession that spread across 2019 and is still getting worse, with shipments plunging at the fastest rate since 2009, and with railroads laying off people massively amid dropping revenues and plunging earnings, Union Pacific’s shares, upon the news, hit a new high. These issues predated the coronavirus.
The auto industry in the US has seen declining sales volume, as measured in number of vehicles delivered, since 2016. This is a huge industry. But no big deal. In the largest market in the US, in California, new-vehicle registrations have dropped 5.5% in 2019, bringing the drop since 2016 to 9.5%. Across the US, new vehicles sales have also fallen for the third year in a row, to below year 2000 levels.
Subprime delinquency rates have exploded in auto loans and credit card loans starting two years ago, and now subprime credit-card delinquency rates spiked to an all-time high, and subprime auto-loan delinquency rates spiked to the highest since the peak of the Financial Crisis.
These developments are not new; they just reached a new high. But the market decided that they didn’t matter, that nothing mattered.
The entire US shale-oil-and-gas sector has been getting crushed again, but no problem. Manufacturing output has been declining for most of last year. But no problem.
Brick-and-mortar retail – particularly “mall stores” such as department stores – has been getting wiped out store by store, chain by chain, this time not by problems in the economy but by a structural shift in how Americans shop by switching to ecommerce, which is booming. Thousands of big stores are getting shuttered every year, with big chains, such as Sears Holdings, getting liquidated, along with innumerable smaller ones. But no problem.
Mall properties have declined in value, but not by much, and most mall REITs hung in there, as investors figured that this whole concept of the brick-and-mortar meltdown was overblown and that it would somehow go away.
Sector after sector has run into problems over the past few years, but it didn’t matter because stocks would just go up and up and up, and so who cares if these companies lose money forever, or burn cash forever or are outright doomed. So long as stocks go up….
Now comes the coronavirus outbreak. It’s just the latest issue. It’s a big issue for Corporate America, and it’s a horrible issue for China. This became clear in January. But US stock indices kept wobbling to new highs while the economic and business issues caused by the de-facto economic shutdown of much of China were just blown off as irrelevant because they didn’t matter as long as stocks go up.
Apple reached a new high in mid-February despite the clearer-than-daylight problems in China, with demand for iPhones in China collapsing, with Apple stores closed, with iPhone factories in China shut down. It just didn’t matter — until February 17, when Apple announced what everyone knew already, but had blissfully brushed off: That it had huge problems in China, and that both, demand for iPhones and its supply chain of iPhones in China had collapsed. Since the February 12 high, shares have dropped only 8.6%, including today’s 4.4% drop (as of early afternoon).
And then suddenly it matters at least a little bit, as complacency turns into confusion among stock jockeys. This wasn’t supposed to happen. Stocks were guaranteed to only rise. That was the deal. Nothing else mattered. And they’re frazzled. How come all this crap suddenly matters? How can Tesla’s ludicrously-priced stock suddenly drop 7.5% out of the blue?
The whole auto sector is getting crushed – component makers and automaker. Here are some samples, as of miday: GM (-5%), Ford (-3.6%), Honda (-3.9%), Toyota (-3.4%), Delphi Technologies, the former component maker of GM (-3.9%), Visteon, former component maker of Ford (-6.5%), American Axle (-5.8%), Lear Corp (-5.3%), Veoneer, maker of automotive safety and electronic components (-7.4%), Adient, maker of seating and other automotive components (-4.8%), Cooper-Standard Holdings (-3.1%), Modine (-5.5%)….
Auto sales in China, the world’s largest market, have come to a near-standstill due to the coronavirus, after having already plunged 13% in 2018 and 2019 combined. GM sells more vehicles in China than in the US. China is also the manufacturing hub for components used by assembly plants globally. And those components are not being manufactured because the factories have been shut down. This has been known since January.
But it didn’t matter because nothing mattered because stocks always go up. Until they don’t. The sudden turnaround of the stock market is confusing our coddled traders. How could this happen? Didn’t the Fed guarantee that stocks would never fall?
Then there’s QE-4, that $400 billion in liquidity that the Fed threw at the market between mid-September and the end of December. The market kept hyping the certainty that it would last forever. But it suddenly stopped at the end of December. And the Fed’s balance sheet has been essentially flat since then, turning from Big-Fat QE into No-QE:
And that shift from Big-Fat QE to No-QE too has been known since January 1 because the Fed posts these numbers daily and weekly, and I report on it regularly, but the market just brushed them off, preferring to believe the misbegotten stories in the financial media about endless trillions of dollars still being created in repo liquidity.
So here we are. The drop in the market is still just a dip in the overall scheme of things. But the evil smell of reality has caused the market to puke today. That doesn’t mean that a new bout of complacency won’t set in. It’s always surprising to rational observers how long and to what ludicrous extent this complacency can be driven.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
The 10 year 3 month Treasuries yield curve has inverted again. Darn that pesky yield curve inversion!
More ZIRP and QE out the wazoo!
But wait! Without all those cheap goodies from China, what’s going to happen to prices of durable goods? Inflation out the wazoo coming also?
ZIRP, QE, and more inflation, what’s an investor to do?
That is what I have been wondering too. Money printing when you can rev up actual production (in China) kinda sorta works in the short term. But Money printing when China is closed and one can’t rev up any production easily … won’t that just create some terrible inflation, and not the kind that is easily swept under the rug by the usual preferred Fed metrics?
Only in assets but that’s not inflation, it’s “elevation.”
But that is what I am saying, its “only in assets” as long as some real world “levers” can be pulled and more stuff can be made. But if there is a “wealth effect” from inflating or “elevating” assets and pulling on the “make stuff in China” lever doesn’t do anything then doesn’t all that inflated “wealth” translate into “stuff inflation” when no more stuff gets made? As in “this time is different [its worse].”
May be part of what is driving gold.
No, not more inflation for those who believe the Ministry of Truth – just more hedonics and other statistical manipulations.
I hope Wolf doesn’t mind, but I’m compelled to re-post a relevant twitter thread I just discovered by Oren Cass. According to his research, how to put this delicately… official inflation numbers are dirty poop.
https://twitter.com/oren_cass/status/1230505649794166785?mc_cid=92a1db46a0&mc_eid=b71d3df985
Of course the economy has run out of steam. The bloodbags have all been leeched dry.
Thanks, that thread on inflation is illuminating.
Amen. Inflation has always been under-counted by the modification of the most commonly used CPI. However, while it was really confined to assets that the recipients of the Fed cartel’s gifts (by QE commissions, ultra-below-FMV-interest rate loans, allowed front running, etc.) desired in the past (e.g., real estate), the gravy train of cheap consumer goods from China is coming to a long term stop.
As long as the prices of consumer goods, HDTVs, computers, etc., kept getting lower and lower (due to technological improvements facilitated by US taxpayer spending and due to the cheap, slave-like labor conditions of Chinese workers, who are not even allowed to form labor unions) inflation was imperceptible. Nonetheless, the price of food (e.g., of burgers from fast food restaurants) and necessities kept going up and up at rates above the CPI.
Now, the prices of consumer goods and necessities will spike, albeit prices of gasoline and some few consumer goods may not spike, while the US remains largely uninfected. Unfortunately, as some people have told me happened in Italy, we may be alright for a long time, and hear governmental assurances daily, then (as the infection spreads from other countries to the US) suddenly the government may announce that your city has been quarantined; your kids’ schools are closed; you can only travel to hospitals or supermarkets once every few days, and you have to stay home otherwise.
Then, all of the companies that borrowed so much that any slight disturbance in their cash flow would render them legally insolvent (unable to pay current debts with available, liquid assets) will be closing or frozen, at best. Of course, that includes the banks and financiers, which have been engaging in derivatives gambling with little hindrance since 2000.
Nevertheless, without massive governmental help, companies in main street, regular, productive, beneficial, non-parasitic companies will also fold. E.g., unless it receives some forgiveness, how will a certain car maker make payroll and pay ongoing bills for months of work suspension, despite the force majeure clauses that may protect it if it cannot deliver the cars that were already ordered for many months.
Of course, that is exactly what is going on already in China. Now, the question is will we face the same? I am afraid that I must predict that we will, sooner or later, this year, unless summer truly stops the infection somehow, even though Singapore’s warm weather did not, apparently.
I’m afraid only the small businesses in main street, small tourist outfits etc. will suffer. The bigger companies with loads of debt will get even cheaper loans or payment exemptions. You can see this in China, in Italy (government plans under consideration) and I’m sure ECB and FED are working on a plan to use this for shuffling even more money to their well connected players, and get even more control over the economy.
Today I heard that one of the main electronics webshops in my country is reducing advertising and increasing prices because they expect a strong reduction in product shipment from China etc. and want to increase product stock. I’m sure our Ministry of Truth is already working overtime to turn this into future lower CPI, somehow :(
Seeing the 30 yr yield under the CPI readings….crazy.
I am reminded of the Fed’s third unmentioned mandate to “promote moderate long term rates.”
Moderate means “not extreme” neither too high or too low.
So, the Fed ignores two of their three mandates.
They promote an inflation rate that slices 22% off the dollar (at 2%) over ten years.
They do not promote “moderate” long rates.
In a system of checks and balances, who checks the Fed?
Not crazy at all, this seems to be “the new normal”. In Netherlands the CPI last year was 2.6% while mortgage rates are 1.0% (10y fixed) or 1.5% (30y) and treasure rates are negative for most of the duration.
In addition to that we also have significant wealth tax, so savers in Netherlands lose about 5% purchasing power every year even if you believe the official statistics.
Probably the same is coming to the US sooner or later.
The black swan has landed.
Yep. This is the Black Swan we have been talking about since Nassim Taleb codified the idea in his book. The interesting think is that most investors don’t see the black swan yet! They think they are seeing a white swan that says ‘Go higher, and higher young man’!
Stephen:. Black Swan meet Red Swan!
Everybody was looking for a black Swan!
looking for a black swan, but they got a black bat instead ;)
Had a bird by the name of enza. Open the window and influ enza. (children chant 1918).
A black-swan is a random event,
The virus is a slow motion train wreck that began in November (2019), and just now in the last few days its starting to create a panic in Italy & South Korea.
Wolf should touch on the fact that now 2nd time in a week “Fidelity” has gone to zero-balance for its customers, meaning they can’t trade, or sell I should say, now that is a ‘black swan’ a random even that just puts terror into the mind of a pensioner.
Most of Italy is fine, its just a few “chinese city’s” in Italy in lockdown, I can remember in Pratu some +20 years ago, the entire city near Florence was ‘Chinese’ so that Gucci could have “Made in Italy”, even though the product was 100% made by Chinese peasants living in an Italian city. Now of course there are these “chinese citys’ all over Italy, and I’m hearing their all 100% infected, that’s what happens when people live 10 to a room, and stay within their closed community.
So far there have been only a very few cases in Italy south of the Gothic Line, all of them in Rome and all traced back to a group of Chinese tourists from Wuhan. This outbreak has apparently been contained.
The largest outbreak by far is centered around Codogno, not far from Lodi. It’s particularly worrysome because this is an area with lots of logistic hubs and trucking companies.
The two other outbreaks are in Turin and around Padua. So far Tuscany has not been touched.
Nobody has a clue where these three outbreaks originated: the postulated “Typhoid Mary”, a man who had been to Shanghai on a business trip and was supposedly an asymptomatic carrier, turned negative to four different tests.
There are plenty of small Chinese communities here in the North but no “Chinese cities”, let alone “Chinese peasants”, and they don’t live in special quarters. While there are all sorts of funny rumors about them (funniest one: when a Chinese immigrant dies is body is “disposed of” in secret and his identity sold to another immigrant) I am yet to hear about them being “100% infected”.
I was able to log onto Fidelity and sell some stock last night. Maybe it would have been a problem if I had tried to do the transaction during the afternoon hours. (Pacific Time)
Reminds me of those very happy marriages “made in heaven”…maybe even renewal of vows and congratulations by the Bishop…that make the rest of us bumblers feel bad.
Then after the “shock” we learn of the realities behind the icky poo.
AI and algos do not compute, can not judge measure account for these events.
But they can sell at the market….
Err. Thankyou Mr. Doom Porn.
This distortion caused by an inefficient Chinese healthcare system is completely overblown and ridiculous.
There is little danger from this extremely hyped virus and more just a ‘Fake News’ blitz from establishment media for god knows what ends.
The economy is in a sweet spot right at the moment and set for a decade of boom times.
Frankly I find this reaction to a harmless virus in the backblocks of Communist China hysterically funny!
They’re are definite buying opportunities right now that you all would be a fool to pass up.
Get into they market while the traders are having a tantrum and reap the benefits later.
hysterically funny comment :)
is the White House posting on Wolf Street?
Yep. It will particularly be aggravated because our government and others, e.g., the Japanese, are now more concerned about saving face, keeping economic costs down, and appearing competent rather than actually being competent. I love how the US government is not testing extensively but is claiming that the virus is not spreading in the US.
How can they possibly know given the large number of regular flu cases? Even persons with few symptoms may spread the virus like Tiphoid Mary. How does that alleged knowledge exist with a virus that allegedly has a potential incubation period as long as 24 days?
See https://www.medrxiv.org/content/10.1101/2020.02.06.20020974v1; https://www.businessinsider.com/wuhan-evacuees-coronavirus-quarantine-but-might-be-too-soon-2020-2
Of course, now we are exposed to the virus coming in through Japan, since the current, Japanese government is much less competent than the Japanese PM during Fukushima, who ultimately seemed to be the only one on the ball while the others panicked despite his ridiculous plumber suit. The current Japanese government decided to save face after negligently creating a coronavirus incubator on the cruise ship and now faces having to trace dozens of contacts of any released passengers that turn out to have coronavirus: they supposedly did not even test all of the patients before they released them!
This is not rocket science. Quarantines were used even during the black death epidemics hundreds of years ago: if you want to be protected, you have to stop ALL persons from likely infected zones from coming to the US or quarantine them after they arrive for LONGER than the anticipated virus incubation period.
The planet gets a chance to catch its breath before the plunder resumes. A pause in the mad hyper-consumptive destruction of our life-support system. Good.
As a former member of Greenpeace and a member of the Sierra Club, I do agree with the sentiment as to our planet needing certain, effective, dramatic measures to stop its self-destruction: meaning humanity’s self-destruction via climate chaos (since the cessation of the Atlantic conveyor may cause freezing, not warming), pollution, and wastage of limited resources. However, the massive deaths of those in societies who do not have enough political or economic power to get into hospitals or get prioritized for ventilators, is not any help.
I predict that relatively few of the communist leaders will die and few of the ultra-rich and banksters, because they will coerce their way to use the limited number of ventilators, oxygen bottles, etc. They can also leave for other places for months, as the Chinese communist leaders did after the initial infections. The poor cannot.
Indeed, those of the ultra-rich who are cynical, selfish, and evil (and there are many, trust me) will welcome the likely decimation among the elderly poor that is coming: it will reduce the pressure to force them to pay their taxes that they have avoided paying for decades through foreign shell companies, swiss/foreign bank accounts, etc. This is not a time to rejoice; it is a time to grieve for the coming global, injustices and tragedies suffered by the innocent poor.
How’s that short position from new years looking?
Funny thing is, so far it has wobbled up and down and has essentially gone nowhere :-]
It has not gone nowhere. Even if you sold short at the day’s low on Dec. 30 you are now in the green, well done sir.
But…
“if your 409K is only up 50% what are you doing wrong?”
Our leader has set the benchmark quite high (70%, 80%, 90%) so most of us have some catching up to do, time to start using those levered etf’s.
Wolf, are you short the entire market or specific companies? I’m short 4 stocks this morning and added a fifth today. Sold all my long holdings in the IRA’s this morning too. Also long GOLD and GLD. Cash trading account is up 60% YTD.
I like shorting companies that have crap balance sheets that I think will bk in the next recession. WLL finished last quarter with no cash on the balance sheet. GE has a balance sheet that no one understands and refuses to respond to my e-mails accusing them of holding tens billions in Off Balance Sheet financing. If you remove the insurance reserves from their working capital, they are a bankruptcy waiting to happen. BA has negative $8.6B of stock holders equity and a plane that won’t fly and just paid a $1.1B dividend they can’t afford. Spirit AeroSystems SPR is the fuselage manufacturer for the MAX and should be on life support soon. Today, I added AAL, negative $10B in working capital and negative $118m in stockholders equity. If anything close to what is happening to Cathay Pacific happens to American Airlines, they’ll be back in bankruptcy yet again.
By the way, this is the BEST article I’ve read on Wolfstreet ever. I think the everything bubble is finally popping!
911truther,
I’m short the entire market via SPY (3/4) and QQQ (1/4).
Wolf,
That is an interesting mix of shorts – I might have done the reverse (I’m simply out of the mkt as I’ve found it too difficult to time the concentrated crashes and everything is too overvalued to remain long).
There is probably an entire post in which stocks/indices to short and the tools available to do so.
I’ve found a paucity of ETF shorting tools for the most overvalued stocks – some of the broad based indices have some downside exposure but usually with enough stable stocks mixed in to really making shorting of questionable worth.
Even the Russell 2000, with a large fraction of unprofitable companies and riskier tech, still has a fair chunk of fairly valued equities.
It is almost like the ETF biz, with 2000 plus choices, is studiously avoiding the creation of an ETF focusing exclusively on shorting the highest PE equities.
I’m not sure why, but I can come up with some theories…
Of course, there is traditional one off shorting but that is riskier and more expensive.
I am not sure as to your positions. However, if the coronavirus is not stopped by the warmth of summer, and infections in warm countries indicate that it will not be stopped, you will make a bundle if you shorted the right ones of a very large number of stocks: e.g., Disney.
I hope that you did not short 3M or other manufacturers of medical equipment. They will make a bundle.
S&P 500 PE ratio is 30.6 now. Even with today’s downturn. There is still a lot more reality that needs to be priced in.
Yep, the historical SP 500 PE has been showing overvaluation for about 5 *years*…but that just brings us back to Wolf’s question – why fall today?
But the same can be asked of all those other days when indices fell more than 2 pct – only to be recouped to even more irrational valuation levels.
What makes such days special, besides panic?
Is there a scientific reason that P/E ratios should fall within a certain range?
When long term PE averages are exceeded by over 40 pct in the era of ZIRP (the interest gutted fixed income mkt being a primary alternative to the overvalued equity mkt), yes, there is a relationship.
Lower interest rates motivate investors to exit the fixed income markets for higher/traditional returns in the equity mkts.
DC driven ZIRP (running to one extent or another since 2002) is an extreme example of this.
On the rare occasions when DC has tried to step away from the ZIRP addiction it created, the equity markets have cratered if not collapsed.
Short answer No. Just as there’s no scientific way to price a stock.
It’s not science.
Robt,
Science in the sense of physics, no.
But there are historical metrics and historical relationships, and as those get out of line, the probability of a regression to the mean increases.
As I mentioned, ZIRP has unprecedently (but semi-logically) distorted these relationships.
But, in the end, the high PE valuations are more “brittle” because the underlying business economics are less and less there to justify them. At a minimum, a real world fall in sales/profits would leave companies with less to buy their own overpriced shares – a large part of share demand.
Markets can stay illogical longer than a shorting investor can stay liquid…but they don’t stay illogical forever.
For the last 5 or so years, stocks have been overpriced – but that is almost entirely attributable to ZIRP…the business growth economics are nowhere near enough to justify them.
The only thing real about the stock market is dividends and bankruptcies.
> What makes such days special, besides panic?
The corollary to postponing a market correction when a correction should logically be happening, is that the correction will happen when it’s illogical.
Let me take a stab at why…..
Bernie Sanders sweeping the Nevada primary…probably going to knock out Biden soon and Bloomberg trying to figure out why he can’t buy his way into this election year. A Bernie Sanders win is definitely very disturbing to the financial world generally and specifically to the health care monopoly.
(Caveat: I’m a non-partisan voter)
And, yeah….the virus. Definitely. Supply, supply, supply (chain)….take one of those out and you have a Yuuuuuge “gap”.
This is not good.
This is very serious.
Early afternoon Monday, Tuesday 2-25-20 futures down +1000 dow again.
The timing does suggest a Bernie bust-out…which at many levels is silly, since it wasn’t like Bernie hasn’t been a possibility for a long time, even if he wins he would still need an amenable Congress, etc.
The specific things that spur and panic markets are frequently goofy – fortunately over longer periods the mkts tend to reflect economic reality (even if negatively distorted by bad gvt policy).
And yet the net result will likely just be more accommodation which will provide a psychological crutch for an ever bigger push higher despite even bigger problems
The good news for stock traders is that, now all the blame for upcoming recession/depression will be blamed on coronavirus. The rally didn’t end because of unsustainable federal reserve policies or ridiculous highs, it was all the coronavirus. There’s no lessons to learn. Figure out how to reinflate the bubble. All will be good, after we are done dealing with that terrible coronavirus.
Stupid coronavirus wrecking all our perfectly fine-tuned and responsible financial markets.
Almost seems like it was engineered to create a deflection from the real problems Removing silver foil hat now
The timing might turn out to be very convenient for those benefiting from the fed policies, but, no way to know until it all happens. It might be a wild start to a chaotic decade.
“Happy Days Are Here A-Gain”
That’s what the dah playas are singin !
The Chinese have been warned repeatedly about the dangers of eating exotic animals. Also simulations of the devastation caused by every kind of disaster are run all the time.
how long have you been saying there is a recession/depression coming? always wrong, never in doubt? We have had a fantastic bull market that you sat out and missed untold gains.
gary, if the market drops precipitously, just make you come back for a share of that crow that you are trying to feed to Wolf.
gary … paging gary … hope you are hungry …
EVERYTHING WAS SO HAPPY AND WONDERFUL BEFORE HE GOT THAT SEXY SECRETARY…
OK, Mr. Lahey.
Gov’t can’t control fear.Fear of going to the mall,of getting on
a plane ,of going on a cruise, of going to a golf course. They will
need to do what they don’t like to do which is to depend on
the elites.That right .They need the medical establishment
to fix this.
Of course this won’t affect Real Estate, I’m sure we’ll still see lots of people at open houses once the Virus hits the USA big time…
And even MORE Chinese buyers looking to get out while the getting is good.
Ask me about investing in pre construction condo’s on the Salton Sea, a sure thing!
‘FREE PLAGUE MASK with EVERY OFFER TENDERED !’
edit: FREE ’15th CENTURY’ PLAGUE MASK …
Fix: mandatory vaccinations, even if those vaccinations don’t work at all.
Just like how ever more QE has goosed the stock market even though it makes the real economy worse.
NO .. WOLF …IT IS BECAUSE GLOBALISM IS DEAD ..STONE DEAD
and the GLOBALIST SHARKS ARE UNPREPARED FOR IT
THEIR PRODUCTION FACILITIES ARE STILL IN CHINA and SURROUNDINGS
ITS OVER WITH LABOURSHOPPING , PAYING PENNIES ABROAD SELLING FOR DOLLARS AT HOME ; and STASHING THE TAX FREE PROCEEDS SOMEWHERE OFF-SHORE … FROM NOW ON THEY WILL NEED THEIR INDIGENOUS PEOPLE .. WHOM THEY HAVE SPIT ON AND BETRAYED FOR DECADES…. IT IS A WHOLE NEW BALLGAME BECAUSE WHO WANTS TO BUY MATERIAL STUFF WITH LIVE CORONA VIRUS STICKING TO ITS SURFACES ? ….. GLOBALISM IS DEAD .. WOLF !
Destruction of globalization is something that most of the financially oppressed peoples of the world are waiting for. However, it takes many blows to kill a multi headed hydra. This is but one battle, not the war. And it will have to be a literal war as history seems to show us… now to fix that caps lock key….
Some of us have been waiting for starving Indonesian workers to have unions ever since Gerald Ford put the kabosh on East Timor.
Waiting and praying…
The young who buy that fast fashion and shoes and phones…their integrity was stolen for a bowl of potage.
Sadly overpopulation, globalisation, erosion of sense of community and the disenfranchisement of local populations in terms of managing their local affairs and resources has turned most humans into a powerless commodity that can be shopped on a global marketplace.
As individuals who have meaning to those who live around us and power to influence our local environment, our importance and independence is almost nonexistent, as ownership of our local resources lies mostly in the hands of megacorporations whose interests are defended by the power of states that ostensibly serve us…
As a consequence ever more people become converted into serfs that owe their future to the rentiers, and are not allowed the luxury of building any independent security that would allow them the luxury of an adequate platform from which to defend their interests.
This is a good deal of what is on Amazon — all made in China and covered with virus. Though, at least on EBay I can filter what I’m going to buy by region or country.
To think that someone might have sold lab test animals to the wet market down the street. Such ethical standards.
Oh Come On ! WHo doesn’t like sticky proteins .. ??
such ethical standards, we wouldn’t do that in the US or EU, isn’t it?
;(
Very likely the actual origin of this virus; has to be some reason Xi and his folks jumped SO much assets into fighting it as soon as they had the truth of its origin. (after local docs were jailed to make them be quiet )
Besides the vast military medical response, that looks to be at least a rehearsal, at worst, preparation for what is coming next, the social manipulations of the population, even as extreme as they appear to us in USA, are now labeled helpful but inadequate, so those actions too might best be described as a ‘beta’ effort.
It will take another four months, or so, to rise to at least epidemic levels in many countries, and IMO, at least a couple of years for the reverse engineering to reveal origin to satisfaction of objective observers.
Objective and knowledgeable observers that can check the real facts? Good luck finding those ;(
Cotten of Arkansas, et al, will answer all your questions, and provide further information. He appears to be one of the current leading expert on this.
Harder to keep the scam going once a Western nation (Italy) is under contagion. They might just report the real numbers and hit the markets in the face with a shovel full of reality.
in Netherlands authorities still say that Italy is “far away” and it might just pass unnoticed ;( Never mind that lots of Dutch tourists are pretty close to or in Italy at the moment.
Don’t scare the sheeple or some important people might loose money, which is way worth that health problems for the general population.
I’m curious to know what madame Gucci from the ECB is going to do to keep “investor” spirits up, some more savers bashing probably.
nhz:. I have heard from good sources, the ECB’s feathered serpent God Gucci, will sacrifice a live “saver” tomorrow at the top of the Mayan pyramid to the Monetary God’s, to ensure the sun rises!
When asked, Gucci said, she will do whatever it takes!
When asked if there might be a shortage of savers to sacrifice, she said there should be no shortage of savers!
Wes,
“Feathered serpent god” – Nice.
It is all in the little details.
I thought their “ serpent god” was LaGarde
To be fair, though, no one ever expects a falling (American) stock market in a presidential election year. Sure, 2008 happened, but “it will be different this time” … meaning “the same as it ever was.
As I recall, in 2008 President Bush, who didn’t have the Fed covering his back, tried a little fiscal ‘helicopter money’ with his tax rebates I think the whole $600 per taxpayer rebate amounted to some $160 billion. A few months later, when Lehman went belly up, we were looking at a $700 billion Tarp program and trillions in QE and none of that went to ‘people’.
The Fed was cutting rates from a higher level than now, but that mess was simply unvoidable.
Yeah ! For only 200+ years ….
In the bigger picture, we’re but a speck of a nation, in as far as sovereigns go .. historically speaking.
‘Take Care .. Bottle-Neck Approaching’
Stock aren’t inflated – they’re “elevated.” Inflation is under control. Inflation is always under control. just ask the Fed. But sometimes we do have elevation problems.
And they’re not hyper elevated, just mildly elevated.
Powell himself has said to be true, so we know it is.
But what is important, is not that folks are dying, but that assets prices are falling.
The Fed is supposed to make asset prices go up. Everyone knows this from our President on down.
Nobody cares about people dying from the flu. That always happens. But asset prices don’t always go down because they’re not supposed to, and the Fed’s job is to make sure they always to up.
To fight the flu…err…declining asset prices, the Fed needs to do a surprise, Not surprise rate cut, and Not QE, QE.
That is what everybody wants and needs right now, to cure the flu. I mean asset declines.
“The Fed is supposed to make asset prices go up. ”
Really?
Promote maximum employment
Promote stable prices ( they don’t)
Promote moderate long rates (they don’t)
SO what is made clear in listing these mandates is the agreement under which the Fed wields their special powers. But two of three are ignored.
Yet we are to believe in the unmentioned mandate “to make asset prices go up”. Peculiar arrangement.
Something else to think about… business travel in the US if (once?) COVID-19 hits the shores.
If we start seeing some cases here in the US in real numbers, I would be willing to wager those ‘essential’ business meetings in NYC or elsewhere, may be done via Skype instead. If you start to see a serious reduction in business travel for any length of time, the knock on effects could be interesting. I would expect all sorts of travel to be severely curtailed. I’m certainly going to hold off on scheduling my annual trips to Hartford and NYC for a little while longer.
The Fed’s “liquidity” injections may not be able to hold this up forever it seems.
Covid has already arrived. And Wolf pointed out that tourist travel is already down in S.F.
Now wait for the other shoe to drop.
It dropped this week when Tehran grudgingly disclosed 50 deaths. Assuming the 50 had healthcare, that implies number of infections of between 2500 and 100,000. Porous borders to Syria, Afghanistan, Pakistan, Iraq, Turkey. Italy has a lot more cases than have been detected.
All of SW Asia is probably being infected.
Then India and N. Africa, Europe via Greece.
So, the other shoot has dropped, we just haven’t heard the kabang yet.
India, which did not report an illness which in 2006 killed 2000 people, only has 3 confirmed COVID-19 cases… in a country with open sewers in its major cities.
If you believe that I have a bridge in Brooklyn to sell you.
And Trump today appeared before crowds of 500,000 yelling (and coughing) Indians. Brilliant move. The stealth way the Deep State gets rid of him?
And the Chinese sent a trade delegation to his WH long after the epidemic in China had already begun and they knew it.
How would Iran get hit so hard, so fast? Or are they just ahead of the curve in reporting? (or just wrong, incorrectly reporting other deaths as Covid?) Iran doesn’t have a “porous border” with China, and there’s no word of outbreaks in any of Iran’s neighbors. Nobody walks from Wuhan to Teheran these days.
Well, look on the bright side … our military troops might finally be redeployed back home .. All of them !
The dark side is .. that they’d probably bring back some crawlies on the return ..
Pandora’s funny that way.
> How would Iran get hit so hard, so fast?
I laughed when I read of conspiracy theorists trying to correlate countries with Covid with countries that have displeased America’s spooks, because at this point basically all countries have displeased America‘s spooks!
The end of January was a more subtle drop in the markets with a full “recovery” in February. One the drops won’t rebound, the trouble is no one knows when the dead cat will appear.
The entire system feels like it is being managed by Madoff.
Black Swan ?? – oh! you mean sh*t happens – tell me something new.
Maybe the Feds balance sheet has been flat , but some entity has been a massive buyer of 10 y and 30 y bonds. Rates have declined from 1.92 to 1.36 on the 10 year and
From 2.39 to 1.82 on the 30 year
While Wall celebrates the lower rates, the other side of the coin of lower rates is much lower expected growth in the future.
What is the Kudlow-meter showing?
“I just think, in general, I would be very careful to put too much emphasis on what bond rates are doing,”
Larry Kudlow – Feb 2020
“I’m looking for faster growth: I think we’re going to get 3% this year,” he added. “The trade deals will help, the Fed changed policy — that was very, very important.”
Larry Kudlow – Jan 2020
“There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.”
Larry Kudlow – Dec 2007
Yeah, even if the Chinese economy is in a coma we are going to force all those Boeing 737 Max planes and other junk down their throat. Trade with China is going to be great, and we are soon going to start the same awesome negotiations with all our other customers. Buy the dip!!
He always sees “green shoots”. I think it’s left over from the Reagan days and afterwards, when he lived on booze and RX opiates….worse than acid flashbacks, for sure.
RE:”in a long series of issues successfully brushed off as irrelevant because all that mattered was that stocks went up.”
https://www.nber.org/erp/ERP-2017.pdf
At the end of that report-Appendix B reference charts list all the relevant numbers to compare with the 2019-2020 numbers on what counts regardless of the stocks ups or downs. A quick total of totals review.
Corno caused GDP to stall in February. A slowdown from January was expected, but not this much. That basically means we are on the opposite end of last year when the economy was reaccelerating after the shutdown. So the market longs are getting squeezed.
March could be even uglier.
FEAR-The media will be working hard to dampen the impact of FEAR that investors could lose their life savings and home as the wealth effect of a rising stock market fade’s. All my retired friends are heavy in the market many day trade and have drunk the easy money cool-aid. Unlike the stock market losses in 2000 and 2008 they will not have enough time to rebalance their portfolio’s or leverage up to make up the losses as time is running out for them.
I wouldn’t care if they had to economize and move in with their kids EXCEPT that many of them are supporting their kids and grandkids lifestyle…not just affluence but school fees, dentists, credit card balances, and even rent & utilities…and of course, the eternal student loans.
Maybe Hilton Head here could build tiny houses on their endless golf courses…or even God Forbid, relax the rules banning children in their gated compounds.
Well, they can always move into the basement with their kids and try to rent the upstairs to hardworking immigrants.
You still have the Trump Put and the Fed Put and the China Put, and the Election Year Spending Put, QE4, QE5, and QE6: QE in Space, parts of the world still have positive bond yields – that’ll end soon, coordinated fiscal stimulus, and the dip buyers snatching up Tesla at $850 and Beyond Meat at $110 and Chipotle at $900 and bitCoin at $9,500 with all of their sideline money. The bull market is fine.
“QE6: QE in Space”
LOL!
Where is my “This Is Fine” meme…I know I left it somewhere?
Politico article this morning: “hundreds of vacancies in public health care facilities due to Trumps budget cuts over the last 3 years.” Uh Oh.
But it didn’t matter because nothing mattered because stocks always go up. Until they don’t…………
Wolf, great article as usual. Bet you actually enjoyed writing this one! Many thanks for your excellent perspective.
A/C in SD,
I enjoy writing just about every article I write. It’s a lot of work — though some are a lot more work than others — and if I didn’t like doing it, I wouldn’t do it :-]
Ya but you don’t take kindly when someone challenges you eh Wolfy :)
Maybe you should go in the direction of the MSM and remove the comments section.
And at the same time change the name of the blog to Mr Know It All!
Bradley Pitt,
Wow. We’re old friends. This is really amazing. You made me smile. I finally figured it out.
You’re Paul in the real world, and I even know your last name from our contact many years ago, but won’t divulge it here. You’ve been reading my predecessor site T-Pit since about 2011, probably just a few months after it first started. Thank you!! You’re probably one of my most loyal readers!!
If I remember right, you had (and may still have) a fairly big website in Hong Kong and other cities in Asia but now live somewhere in NZ.
Over the years, you have been posting comments under various names, recently under Willy Winky, among others; a year or so ago under Rat Fink, and a few years ago under Thomas Malthus, and before then under Peepot, and before then under your real-name initials PL, and perhaps others in between. And that’s only on WOLF STREET. But you also posted on T-Pit
We’re truly old friends :-]
And yet, over the years you kept posting the same everything-will-collapse-and-everyone-will-die comments, usually related to the price of oil, but now to the coronavirus — and each time you get mad at me when eventually I end it.
Recently, you’re also using a VPN, it seems, which makes it much harder for me to put it all together unless I spend a lot of time on it. And since I don’t spend any time chasing this stuff down, I’m usually pretty slow in figuring it out.
But because you’re posting similar types of comments, and because of your style, and your obvious first-hand ex-pat knowledge about Asia and your obvious intelligence, and your incisive writing, and because of the way you get mad at me when I block your everyone-will-die comments, you eventually set off memories, and I start looking, which I just now did :-]
So it seems this is a cat-and-mouse game we’ve been playing for nearly a decade. This is truly amazing, and I really appreciate your coming to my site for all these years. Cheers!!
Thank you for all the work you do. Every article is appreciated.
No mention of Fed tapering REPO. As long as traders were buying stocks, not shorting them, free money was automatic. Would Fed create a liquidity crisis to punish traders hitting the bid? No money for you!! Now we administer the loyalty oaths, refill the punch bowl and see who is buying. They cannot, under any circumstances tolerate a market decline.
Another day like today and Wolfie will be seriously in the money :-)
Almost finished my new 500 sq foot glass greenhouse. Topped off staples in case this takes a rapid bounce to worry. My son was going to build a spec house this spring/summer and the only advice I gave was, “Good timing, we should know by then the effect of the virus on our economy and housing market”. My sister is leaving for Maui this Wednesday and all I asked was, “Do you think this is a good time for air travel?”
I don’t see how this virus and economic contagion will stay limited to China? So many are complacent. Granted, one has to carry on and be optimistic, but Maui this week? All it takes is one hotel infection and quarantine arrives for my sister who is pushing 70. And yes, they have stock investments.
A group of 39 Roman Catholic tourists went from South Korea to Israel. 18 of them are now testing positive for the virus. Where did they get it? In Israel? At an airport? A passenger from another country coughing in their plane? Nobody knows yet.
I left out the part where they returned to SK.
Does she happen to know about the Japanese tourist who spent a few days hangin out, a week or so ago …who supposedly had come to Hawaii ill with Covid 19 .. ??
Polecat:. Last I heard this person returned to Japan but was never tested. Shortage of test kits?
Here in Italy we’ve had four separate outbreaks so far. Only the one in Rome has a known origin (a group of Chinese tourists from Wuhan) and has been contained.
But the rest are all of unknown origins and they appear to be unrelated to each other. The one near Lodi is especially worrying because the area is a logistic hub for many retailers, starting from Ikea and seems to be spreading.
To give an idea how serious things are all medical exams not considered “urgent” have been cancelled at least until March 9. That’s to both have more medical personnel on standby and to reduce crowding in waiting rooms. Our healthcare system here in Lombardy is the best in the country by a fair margin so that’s kinda of a blessing in disguise because we have the infrastructure and staff.
And if you don’t hear from me anymore it means I was spectacularly wrong. ;-)
The big problem right now is Africa. How many millions Chinese work there, coming and going as they please? Addis Ababa is nicknamed “the city that China built” for a very good reason: at any time there are tens of thousand of Chinese financiers, civil engineers, technicians etc working in the Ethiopian capital. They come and go as their employers see fit: health controls at the airport are minimal or inexistant and in spite of the ultra modern skyscrapers (not very tall actually: rolling blackouts and very tall buildings don’t go hand in hand) Addis Ababa still lacks anything resembling an adequate healthcare system.
If Covid-19 gets there it may take weeks for the outbreak to be discovered and months for it to be contained.
Let’s hope this thing blows over quickly.
Alas, it probably won’t blow over, given the failure to stop international travel two months ago.
Timeline:
March-April, self-sustaining contagion everywhere.
May-July, peak contagion.
August and later, decline in cases, and a nervous wait to see what the winter of 20-21 brings.
It may mutate to become less virulent,and we should hope for that. Indeed, pray.
Todays drop in the market is a small awakening to the complacent, but just wait until the corona virus reaches our shores in mass and they have to cancel the NFL and college football seasons. Now that will be a wake up call for the masses as well as the investor class.
1) Coronavirus//Burnie ==> bs.
2) What was suppose to happen have happened today.
3) Take a support line on the weekly SPX from Dec 24 2019(L) to Aug 19 2019(c).
4) This line was breached todat. Its only Mon not the end of the week.
5) This support line will be tested, sooner or later, from below.
6) SPX is building a cause.
I got bounced out of the market on long dated covered calls in Jan. With dividends I made 12% and still left 10% on the table for the contract owners.I will not jump back in . I still think Dow 30k+ is in play but I can’t pull the trigger. I did buy SQQQ last week even though I feel that the QQQ will track with the Dow and Dow 30k is in play . I am as Spock would say , illogical . On the brighter side my wife’s timely intervention has insured delivery of my “Heck ” mug. I will need it.
If you can’t pull the trigger then you don’t *really* think Dow 30k is in play. You just want to be able to say you were right either way.
I pulled the trigger by buying SQQQ which shorted the Nasdaq 100 . My money is now on the down side. I can dither about the logic but my money is committed to only one way.down.
Ah sorry shows my ignorance, I did not know that’s what the SQQQ was.
$5.2 Trillion in cumulative stock buybacks has got to stand for something, doesn it?
It means many CEOs won’t invest in the very companies they run. They’d rather juice their stock prices so they can cash in. They probably know something Mr. Market does not and could be taking him for a fool.
I say that they be cuffed to their shareholders, who bear private (nobby) clubs .. to keep em in line.
“No Juice for YOUUUU”
Try the old witch trick with the CEO’s : chuck ’em in a pond:
If they float, they are liars and frauds.
If they sink, they are liars and frauds.
A bit different to the ‘witches’, some of them were released as innocent…… :)
People opposed me when I commented the coronavirus crisis is a black swan.
People have predicted doom and gloom for decades. Eventually a correction happens. Less than 3000 dead and fear spreads. A 2018 tsunami killed 230,000. They buried their dead and the stock market continued its long climb.
The S&P 500 was 339 in 1990. It went up nearly 10 times in 30 yrs. The S&P 500 dividend yield is above the 10 yr treasury yield.
Today some municipal bonds were rising in value. Gold bugs celebrated.
Who cares whether or not someone opposed you?
David cares, and so far as David is concerned, that’s enough. He may well turn out to be right.
“Bring Out Your Cred!”
David:. Most gold bugs are not celebrating!
Since the last $100 rise in gold, gold stocks have fallen!
Gold stocks simply do not believe this spike in gold will last!
Exactly right. The mining stocks are never wrong. GDX should be pushing $40 but it’s stuck at $30. The spike in gold is temporary.
Yeah, sure it is Just like QE and zero rates was temporary I guess Believe what you want and miss out on the greatest gold bull run ever
Frederick:. If you own gold you won’t miss out! The problem is the timing!
The big question is. Can you live and stay solvent long enough to benefit? My Father died before he could benefit (40 years). I suspect I will die before I benefit (another 20 years and counting or 60 total years). Now it will be up to my 2 children to see if they live long enough?
Gold stocks are a whole different game than gold! There is company risk, plus takeover risks, plus all mining risk, .plus earth quake risks, plus gov nationization risks, plus central bankers risks all added at no extra charge!
Sadly, I own both! I come from a mining family! I should know better!
@WES:
Agree, I like gold as a hedge against rampant central bank money printing (have been following from about 2005, with a few trades along the way) but the problem is timing. The general public still has about zero exposure to gold, I really don’t think they are going to buy in droves after the recent huge price increase unless there is an all-out campaign by MSM and governments for herding the little people into gold (no-money-down zero-interest loans for investing in gold, anyone?).
What I see is exactly the opposite, EU authorities have been doing everything they can over the last ten years to make investment in physical gold and gold stocks next to impossible.
The real production cost of gold is still near $1100-1300. Anything above that is speculation; if we get a surge in inflation the current $1600-1700 might be right, but I doubt it given the cost of energy which is a major factor for gold production. I think GDX etc. are looking at fundamentals and because of this doubting that this surge will stick, at least in the short run.
The CDC says that 80,000 Americans died from the flu in the 2018-2019 season. 80,000. Nobody blinked. Nobody said a word.
Doesn’t matter what the CDC said .. it’s the implied threat that matters now ..
Yippykiyayyyyy !
Roddy:. Does a 9% coronavirus death rate ring any alarm bells?
Estimates for death rate are all over the place, ranging from way below 2% up to 18% (the highest I have seen in a scientific publication). We don’t know how many are infected and (for now) asymptomatic, if only because of a complete lack of testing in most countries and the way authorities are gaming the numbers.
Flu deaths are just anual background noise, like car crashes, falling over the cat, etc.
No economic or social impact whatsoever.
The Wuhan virus can generate a huge number of very dangerous cases with a greatly elevated mortality rate compared to flu in a very short time-frame.
That’s the difference.
I’ll preface my remarks first by saying I’m Irish and I live in Ireland. The preoccupation with share/stock prices only rising is not helped in anyway by President Trump’s constant referring to rising equity values.
However, share/stock prices have become completely and utterly disconnected from the commercial and operational performance of many listed companies. And this disconnect is being compounded because of the political statements of President Trump which refer to higher equity values. Of course, Trump can say whatever he wishes – but his comments about higher equity values doesn’t help.
Paul:. Well, recently Obama has also been taking credit for the great economy too! I say let them share the prize!
On a side note, despite being mostly English, some of my ancestors came from Ireland! None came in happy circumstances!
One, a tenant farmer, was displaced by the English with sheep! The other was displaced for being on the losing side of a clan vs clan dispute!
Both got one way tickets to Quebec City, before settling in Ontario!
CBS News reports that Senators will attend a classified closed briefing on the coronavirus Tuesday morning, tomorrow, at the U.S. Capitol. Representatives from the Department of Health and Human Services, Centers for Disease Control and Prevention, National Institutes of Health and State Department will also be at the briefing.
One could easily assume these agencies will be complaining that their appropriations have been cut, compromising their ability to manage a pandemic, and are due to be cut some more in the new budget. Numerous online articles describe this situation in some detail.
Just as concerning is that the US, unlike other countries, lacks a national health care system. Instead, it has a hodgepodge intended to maximise profitability while making it difficult to access health care.
Together, these two situations suggest that the US is far less able to manage a pandemic than I believed it would be in my own initial assessments. Given all the other shocks the markets have successfully sustained in recent years, it once seemed reasonable to suppose they could weather the emergence of the coronavirus just as handily.
That would be a mistake. Despite assurances from the administration, it seems unlikely that the pandemic is ‘under control’ and will ‘disappear by April’. I’ll believe the CDC over the DOTUS, for reasons which should be perfectly obvious.
Now is not the time for Mr. Market to panic. In view of all the negative news over the last couple of years, he should have done that a long time ago.
The CDC is presently able to track the COVID-9 virus to the infectious individual. Overseas, I get the feeling that Korea, Italy, and China are losing the ability to find the source of the virus. When the CDC loses the ability to find the sources of the infection, the disease should be on the way to being a world pandemic. Question of the day: What bar did you catch your cerveza beer virus in?
Hey … Dude ! What’s with the big Beak … ?? Well, Ok ..
Here, Hold My Corona !
Cesqy:. So far CDC says 8,000 people in California are self quarantining themselves!
Why are they not being tested?
Why are there still thousands of Chinese still travelling to Canada and the US via 3rd countries but not being quarantined
There are simply not enough test kits to test this many people in Canada or the US.
That is why both countries are asking people to self quarantine themselves!
To cover up for the lack of test kits!
I made lots of $$$ off this put. :) I’m buying a brand new Toyota Corolla….I’m not upgrading to the power windows though. I’ll get the manual windows one to help with exercise.
Tony:. The funny thing about power windows is either the buttons or the motor fails! The buttons cost as much as the motor!
Won’t matter what windows Tony has, when while idling at some intersection, some poor sod asking for change, coughs through that Corolla’s permeable membrane .. a window that one can’t roll, or actuate fast enough !
Well not too sexy… but if you treat her right she will last you a long long time.
I don’t think “complacency” is an accurate term for this situation.
The huge increase in wealth among the 1% has got to go somewhere, especially with overseas stocks already tanking and bonds below inflation.
Highly liquid investors have no choice but to bet on a continually higher market.
“The huge increase in wealth among the 1% has got to go somewhere…”
When $1 is used as collateral for $42 worth of loans…
Sometimes “wealth” just goes “POOF!”.
Warren Buffett, the world’s greatest investor in history, was on CNBC today saying this is a dip and a good buying opportunity.
The Dow bull-run is still on.
Certainly subprime is contained and we are at a permanently high plateau.
Very:. I recall somebody said that in 1929!
Buffett and I quote, “You can’t predict the market based off of me.” good luck with following Buffett. You have to always think of something you’re buying…”is this on sale from my perspective or is this just a complete rip off?” I don’t know about you, but I always wait for a sale. The only quote I like of Buffett’s is “Be greedy when others are fearful and fearful when others are greedy”
Didn’t Buffett also say that the market could drop 50%? Aha, here it is: “Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater.”
That was something like a 3-hour interview with all kinds of stuff in it, something for everyone to cherry-pick. He did say that whatever happened over the new few years, over the next 20 to 30 years, stocks would be a good investment, if I heard that right.
good investment over the next 20-30 years, don’t worry about the rough patches along the way – that’s the same my bank always tells me, and probably all others from similar age for whom the investment result in 20-30 years is of almost zero value.
More likely it is going to be like my private pension plans of the nineties that promised a few million in capital on retirement, but along the way it proved to be less than 20K with lower numbers every year, because the crooks stole almost all the money for “fees”. They still predict 7-8% yoy gains and apparently get away with it.
How true: ‘Fee Vampires’, lots of them.
But, as with all vampires, you have to invite them in, or cross their threshold voluntarily……
Buffet specialises in platitudes and commonplaces masquerading as wisdom, such a joke.
Why should anyone ever listen to him?
We are not playing the same game as that old and corrupt man.
We are alive.
Wolf,
Thanks again for a nice piece.
Good luck with your short position.
Nearly every asset class joined in today’s selloff. Even the junk bond market (JNK was down 0.79%). Yet there remains one asset class that continues onward in blissful ignorance: investment grade bonds. LQD was up thirteen cents, closing at a new ATH of $131.90. Likewise, VCIT up fourteen cents, also closing at an ATH of $93.74.
Give it time and this asset class will also crumble. That’s the point at which investors should panic. Until then, this remains just another garden variety correction. Expecting the indexes to erase all the gains since QE4 got rolling. We’ll see.
Slainte!
Both Trump and Kudlow are out pushing the “buy the dip” narrative. I don’t know how companies aren’t worth “less”, and therefore their stocks should fall because 1)their markets/buyers dropping off a cliff or more accurately staying at home or their suppliers are unable to provide goods to sell. However, Greed is a powerful force, and I am sure there will be lots of buyers tomorrow in the stock market.
Dow futures are up, and rising. That was quick.
Mr. Market is either being complacent, is buying the dip, has taken his pill that lets him ignore risk, has so much money that he’s bound to put it somewhere besides the usual unicorns, or is confident the oligarchy will save him after all.
I think Mr. Market has more money than brains and only needed a bit of reassurance from dubious CNBC stock touts to jump back in.
“I think Mr. Market has more money than brains and only needed a bit of reassurance from dubious CNBC stock touts to jump back in.”
Well, that and/or the Plunge Protection Team is working double super maximum overtime on this.
They even dropped gold $50 today too!
Unamused,
No big deal on futes. They were up Monday night about the same amount and look how well that went.
See solid red across Asia tonight again. U.S. futes likely melt away in the light of day.
This is unacceptable, the markets should never drop 3%. Powell needs to do something immediately and if he fails to fix the situation by tomorrow Trump needs to fire his ass and put someone at the head of the Fed who understands how to properly manage the markets.
It’s an outrage that good Americans, many who no doubt served their country, should be made to suffer so. There is no excuse! Our brave leader will do what he can to clean up the mess with his “working group on markets” tonight in the futures market but Powell should never have let the market drop to begin with. Turn those machines back on!!!!!!!!!!!
Where is Bernanke when you need him? He has the courage to lower rates and go all in on a helicopter drop when the stock market is down 3%.
I believe the information Wolf has aggregated in this article, and some he has not, along with the worlds developed economies being on the verge of recessions has been a slow burning fire on a HUGE stack of tinder that no one seems to care about.
I further believe the winds are blowing VERY hard at this point in time and no FOMO, TINA, QE to infinity, ZIRP/NIRP madness or lower US interest rates are going to stop the financial blaze that will very soon be seen from mars.
FYI, I was a raging bull until October 2018.
Wolf,
one thing I’m surprised that you haven’t talked about at all in the last few months is gold and silver. These are natural hedges to falling equity, yet over the course of the last year, those have gone up in tandem with equity. One wonders how GLD will fare if equity takes a real haircut, say 25% or more.
Gold and silver are old hedges .The kids
prefer Bitcoin
Which makes one wonder how much value gold would gain if the internet went off the line for a day.
more interesting if the internet went offline for much longer; how do we know what our gold stack or gold/silver stocks are worth ?
How do you trade allocated gold (in vaults) without the web, or trade physical gold when there is a crisis (add some lead?)?
questions … ;(
Which makes one wonder how much value gold would gain if the internet went off the line for a day.
It doesn’t occur to most people that they are at the mercy of their ISP. Like Cosmo said, the world isn’t run by weapons anymore, or energy, or money, it’s run by little ones and zeroes, little bits of data. It’s all just electrons.
Those electrons belong to people who do not have your best interests in mind. They just let you use them.
Listened to a George Gammon podcast interview of Kyle Bass about 10 days ago. Bass said that HSBC is the custodian of the GLD ETF. Not a good thing for counter party risk is all hell breaks loose.
Well, traders better hope something takes investor’s mind off the cornovirus thingy.
Maybe some really shitty earnings or sales or forward guidance will be announced so stocks can get back to normal and rally to all time highs again.
Its probably the last Buffett 3 hours interview on CNBC.
WB horizon stretch 90Y, but not beyond.
In the last 3,000 years there have been at least x36 empires,
with an average life expectancy of 250Y.
All rise and fall for the same reasons. All have the similar structure.
Sir John Glubb PDF teach us about the last phase symptoms.
ME-ya know, that does remind me of a rhyme I heard once…
a better day to us all.
Of course it can happen. It just has to be over and done with in one day. Now they will buy the dip, like always.
The Covid-19 pandemic is a godsend to the world’s central bank, the Fed…
They understand speculative bubbles always pop, and so the Covid-19 pandemic is just the excuse they needed to let the air out of the current grossly unsustainable bubble….”
Buy-the-dip” punters are placing bets on the belief the Fed can’t possibly let the current bubble pop.
All bubbles pop. That leaves the Fed with an unsavoury choice:
Either be viewed as responsible for the “bubble bursting”
or Covid-19 to take the blame and give the Fed some cover for its self-serving incompetence.
The Fed’s reasons for preventing a market correction are interesting.
Essentially, what they’re afraid of is an inverse ‘wealth effect’. When stocks (and property) prices are high, people become more relaxed about borrowing money, and spending it. If prices fall, new caution sets in, borrowing falls, and demand suffers.
This has to raise this question: what’s so great about spending borrowed money? Haven’t we been here before? And what does it tell us about an economy that depends on a never-ending flow of ultra-cheap liquidity?
I still think the best explanation was given by Jim Rickards. Epidemiology plus Politics cascaded.
1) If SPX implode // Burnie will explode, the globalist will be badly infected
and the Pareto top 1% of wealth will lose the most.
2) US treasury will click new debt to support the unemployed and
buy SPX.
3) If the next president, on top, will add health for free and students jubilee
US debt : GDP will takeoff.
4) USD on the way to conquer 2000 x3 tops @ 120/ 21 level will turn around and lurch down.
5) If the next president will cross the border to N. Korea he will
be taken a hostage.
6) If the next president will try to accelerate China metamorphosis,
premier Xi might consider it an act of war.
If you can’t turn it over in your hand by candlelight ,and admire the fine casting and finish, it simply isn’t gold.
The milled edge of an English sovereign is quite delicious to the touch.
Never ‘invest’ in anything you can’t really enjoy.
With a glass of something nice in hand, of course. :)
Re Ag and Au… They are only real investments if you have the physical. Otherwise just a trade tool.
1) There are only x4 trading days (TD) left til the end of the month.
2) The Nasdaq is likely to end up as a low quality candle in green, black, or red colors, with a large selling tail, after market makers sent it to a new all time high on Feb 19, just 5 TD ago.
3) Feb selling tail is higher and longer than the Jan selling tail.
A lot of dumping by market makers were done in the last x2 months.
4) Today all German rates, all the way to 30Y are underwater.
5) USD is resting in a trading range, slightly lower, pumping muscles, refreshing, before USD will breach it next target : 100.38 from Mar 2015
Buying Climax.
6) When done Jan 2017(H) @ 103.81 test is next // and gold will not shine !!
The graph posted by Wolf emphasizes that the Balance Sheet is now only growing because of the $60 billion a month T bill purchases. That’s only $15 Bil per week (which is a point in the graph), so minuscule because the Y Axis (total assets) is more than $4 Trillion.
Repo itself is decreasing. It will most probably print around (only) $150 bil tomorrow for the week.
So where will the gush of liquidity for equity and bonds come from?
From scared foreigners?
When the Fed provided liquidity in Sept they were feeding a bull market. When sentiment changes they withdraw liquidity. That money is used to meet margin calls, or selling short. They won’t be party to that which is contrary to their reputation as a white knight. They blow bubbles, and they pop them.
Isn’t this a matter of the marginal effect, and psychology?
The marginal effect means that we price an entire company (or market) on activity at the margin. It doesn’t take vast sums to change the prices of very big companies or asset classes.
Put another way, if there are few sellers, it doesn’t need many buyers to support prices, or push them up.
Might there, then, be a comparative shortage of sellers? For as long as it holds, the psychology of “the Fed has your back” limits the numbers prepared to sell. Buyers, on the other hand, aren’t hard to find – “buy the dip” fanatics, stock buy-backs, and the normal flow of investment funds from savers provide quite a lot of buying activity, enough to support or raise markets with few sellers. So modest injections from the Fed can have disproportionate effects, all other things being equal.
The only way this goes wrong is if the psychology changes. If investors start to believe that the Fed won’t (or, more to the point, can’t) provide indefinite support, the result could be a stampede for the exits – and the old saying is that “when everyone rushes for the “out”-doors, those doors get smaller”.
In other words, this is a classic bubble. Everyone knows that “this time is different”, and “everything is great” – until the day when it isn’t.
+$60 billion a month in T-Bills
-$20 billion a month in MBS
-$40 billion a month in repos
= no growth in assets over the past seven weeks.
Question: How safe are stable value funds if the market takes a deep and prolonged dive?
This is a good question. The stable funds I found in the 401ks I examined are from swaps with insurance firms. My friend has a 4% stable fund from BofA. Pretty amazing since most Treasury yields are below 2%.
Alan, I forgot to say that I believe the biggest risk for stable value funds is probably COUNTER-PARTY risk because the interest rate is usually fixed. So it’s up to the party who made the promise to deliver.
How have we not been in a recession for the last 5 years. If inflation was properly accounted for we would be in negative growth. This next one they wont be able to hide.
I did a search of ETF discussion and found nothing concerning the liquidity problem.
From what I understand, there is a huge liquidity issue surrounding ETFs when the selling starts. It is much easier to buy a stock that virtually no one wants when it is inside an ETF.. You can always buy a stock that few want. Or only want because it is going up. But when the demand is for cash? And the price is going down – Who wants a Unicorn or Zombie then?
Basically once the selling starts, the broker who runs the ETF has to sell all the stocks inside that ETF and some many be totally illiquid with virtually no buyers. No buyer, no price, no price, no sale.. So to balance the demand for the cash demanded, they have to sell what they can.. So only the liquid stocks get sold which puts even more pressure on them.
This is a little different than margin sales but causes the same effect. As the market ratchets down, more people want to get out or are forced out and that causes the market to drop even further.
If the PTB can’t stop this really soon, look out below!
A new development.
https://www.bloomberg.com/news/articles/2020-02-25/jpmorgan-eyes-plan-to-tap-fed-s-discount-window-to-break-stigma
If this actually happens and the interest rate is cheap enough, then who needs the repo market?
The primary dealers can borrow from the Fed all day and buy Treasuries.
Tonight the leader of the pack will be under attack
and SPX will bounce back.
Gold and silver going down with the market today. PMs cashed in to meet margin calls?
All German rates from 3M til 30Y are in NR.
XOM @ 54.30 is the lowest since May 2005 paying 6.37%.
SLB @ 29.40 paying 7.2%, is the lowest since 2004.
Wolf, I hope your shorts fare better today, congratulations.
But just curious – do you still think that the Coronavirus is not the black swan?
Andrei,
I think we may finally get a recession, and the disruptions from the coronavirus will play a role in it. But there are many other factors that will play a role in it, including the crash of the startup bubble, which has been going on for a while and has nothing to do with the virus. A big stock market selloff is going to dampen consumer spending as well. This economy is just so ripe for a recession, with all the excesses everywhere.
But a recession isn’t a black swan event, it’s a normal part of the business cycle. If the entire financial system gets in trouble and threatens to collapse again, that will be a black swan event, as it was last time. For now, I don’t see that happening though.
The real wild card is the yield curve. McClellan’s latest oscillator shows the YC inversion forwarded 15 months, to coincide with the economic downturn. http://www.321gold.com/editorials/mcclellan/mcclellan022420.html To add fuel to that YC may be reinverting, with stocks tanking and money going into bonds the Fed has no control and needs to move out the curve on its balance sheet, after monetizing short term debt. Might guess traders are front running the Fed on that account. The recession becomes an artifice for extend and pretend. As they near ZIRP the damage to collateral manifests itself and the bonds sell at a discount at auction.
A recession – no big deal right Wolf?
Are you aware that the two ways out of recessions are
1. Reducing interest rates
2. Unleashing stimulus
In case you have not noticed, interest rates are already at record lows and pushing them lower only serves to frighten the masses. And negative rates are not effective.
We have massive stimulus in play right NOW – yet we are heading into recession.
You really don’t get it do you?
The Messiah,
Please see my reply yesterday to one of your other screen names, “Bradley Pitt,” in which I explained that we’re truly old friends, and how amazing this was. Among other things, I said this:
“You’re Paul in the real world, and I even know your last name from our contact many years ago, but won’t divulge it here. You’ve been reading my predecessor site T-Pit since about 2011, probably just a few months after it first started. Thank you!! You’re probably one of my most loyal readers!!”
“Over the years, you have been posting comments under various names, recently under Willy Winky, among others; a year or so ago under Rat Fink, and a few years ago under Thomas Malthus, and before then under Peepot, and before then under your real-name initials PL, and perhaps others in between. And that’s only on WOLF STREET. But you also posted on T-Pit.”
And I added:
“And yet, over the years you kept posting the same everything-will-collapse-and-everyone-will-die comments, usually related to the price of oil, but more recently to the coronavirus — and each time you get mad at me when eventually I end it.”
Now perhaps you’re pivoting to general economic collapse where everything collapses and everyone dies due to low interest rates.
So please locate my reply to your screen name Bradley Pitt above. It’s got a lot of other good stuff in it that you might enjoy. Cheers!
Wolf – I know you have editorial license, but removing “False” from this man’s pen name was overstepping the mark
Call me jaded but I have seen couple of drops like this the last couple of years and every time the market just power up higher and higher either in the next couple of days or weeks. As long as Fed is promising easy money and continue with signaling lower interest rate along with Trump going on the offense and over promising on trade deals this party will continue to go on.