The stock market continues to be the world's biggest Ponzi scheme.
183
I wonder what toilet paper is trading at right now?
135
Leverage juices gains during times of economic expansion, yet magnifies losses when contraction takes over. See the 3x oil ETFs for an example of the market carnage these products induce.
To me, it appears that the broad declines across stocks, bonds and hard commodities indicates a coming period of deflation, led by a drop in consumer demand (see coronavirus) in conjunction with the ongoing oil price war between KSA and Russia. Though, I would appreciate an economist's take on this.
46
@BMU Why would you appreciate an economist's take on this? Your analysis seems as sound as any comment here and economists are always wrong.
I don't remember the reason but Bernacke had something against deflation. Tell me again why that would be a bad thing... especially in oil prices
16
@Dennis Byron
During the depression we had deflation. Prices got cheaper cause no one had any money to buy anything.
43
The end is here. No place to turn. The centre cannot hold ...chaos is upon us and certainty is eclipsed.
Get used to this.. this.. uncertainty in this digital age, nihilism by the numbers, nothingness is coming and we cannot escape. Today is a good day to die, before the deluge occurs, real soon.
43
This market has been over-priced for several years. Bogus tax cuts that simply enabled share buybacks inflated prices to ridiculous P/E's.
Heck, many of the high flyers don't even have any E's!
The virus has merely provided to catalyst to trigger a long overdue sell-off.
The "Stable Genius" has engineered his biggest bankruptcy yet. He's not only tanked the US economy -- he's taking the whole world down.
What a market wizard!
271
Fed is going to pump 1.5 TRILLION dollars into the economy? Well wait a second here. What kind of evil socialism is that? All we here incessantly from media - like the NYT - and political pundits - from the NYT - is how evil socialism is and Bernie is the next worst thing to Satan. Please, tell us again how evil socialism is, huh.
198
The question shouldn't be "can we stop a coronavirus recession" but how do we survive one.
Nobody should go on a cruise or to an arena. Certain economic activity ought to pause, and I applaud those industries recognizing this and suspending operations.
That will impact our economy, but there are things we can do to mitigate collapse.
Declare a federal holiday for a month, through Easter, to quote this president in his perception of a different crisis, "until we can figure out what the hell is going on."
The government should pay people to remain in their homes and put food on their tables to avoid contracting the virus.
We're looking at interest rates close to zero for the foreseeable future. Reset the prime rate to 3% and insist all institutions automatically refinance all existing loans and lines of credit.
The biggest failure of our response to the '07-'09 financial crisis was, while we understandably took extraordinary action to prop up the system itself, we didn't do enough to directly aid the average person.
One way to protect against illness is reduce stress, including financial stress. Nobody should literally get sick from fear of losing their home or where their next meal is coming from as we tackle this.
Angela Merkel anticipates 70% of Germans could get coronavirus. If you think what I proscribe would be hard for government and business, think of the lasting human and economic cost if 238 million Americans get this virus and over 9 million perish.
82
Could it be financing our Federal debt, which has exploded since 2017, has finally sucked up enough money out of the financial system to endanger it liquidity?
53
I'm not even particularly surprised by this. Before this started, you had an overvalued market with lots of "pile on while times are good" money, you had interest rates that were historically low for a mature bull, plus repo stimulus. Treasury yields were low, deficits were high. Then a global pandemic appeared which will cost an untold amount of money, and will last for an unknown length of time. Simultaneously, geopolitical issues threatened the functioning of the energy supply (most oil producers can't function at these prices.) And all this happened while a terrible leader who lacks the ability to reassure the public was leader of the Western world. The future is opaque, people are afraid, and confidence in the system is low.
So what can you do? Go to Treasuries and lock yourself in to essentially no returns? Stay in equities and watch your portfolio lose significant value in the near term? Go speculative to something like gold or bitcoin that doesn't produce anything? Or go to cash, wait for this to sort itself out somewhat, and then buy back in.
Given those options in this scenario, holding is probably the wisest course of action, but doing so requires a detached, unemotional mind, which a quick glance at the VIX will tell you people lack right now. If I'm afraid, and I'm emotional, and I'm given those options, I'm going to cash. And that's what people are doing.
Once faith is restored, once fear is assuaged, it will change. But not until then.
52
With a fraudster and bankruptcy hack dictating monetary policy from the white house as if the Fed is a casino he owns, and a Fed who must follow his imbecilic dictates or it's off-with-their-heads, can there be any wonder that markets suddenly appear in the midst of a real-life terror? It was guaranteed to happen. Hope all those trump sycophants are happy with their 401Ks now!
105
When private equity giants like Black Rock hold $13 trillion in global assets, the average investor in the market is a minnow to be swallowed up in the outgoing tide. Who knows how much and what U.S., European and Asian securities are getting sold, manipulated or traded in a crisis like this? It is like putting your life savings in a black box, without a key to open it, wondering if there will be anthing there when you finally pry it open.
42
What is the Tehran and Chinese Stock Exchange doing. Food for thought.
7
The Viagra Effect: It’s the Economy Right?
Maybe this plummet in the market should be called the “Viagra Effect”. The market has been artificially stimulated by tax cuts for the well to do. This money has not been plowed back into the actual economy but instead has been used to extend a market run that does not represent the actual economy. Now it’s time for profit taking. The Corona Virus just hastened the process.
You can not run an economy based solely on speculation, you actually have to produce wealth.
And the Viagra Effect: Read the disclaimer on the package. If the stimulation lasts too long, you feel over stimulated and that’s very uncomfortable. Now I wouldn’t know anything about this except to say that the disclaimer says you have to see a physician if it lasts over a certain amount of time (you know, you’ve all watched the advertisements).
Any way you look at it, that’s a downer.
Hopefully we can get this under control before we see permanent long-term damage.
32
Here’s what’s weird... the thought I’m having. The thought that oligarchs and corrupt officials in Trump’s circle have purposely and illegally pushed down the confirmed virus numbers via manual tricks and blocking maneuvers to buy themselves some time to allow their bend accountants and brokers to liquidate their stocks into safe havens. A kind of highest level and evil form of insider trading that kills mass Americans to save some millions here and there. That’s weird... that I’m thinking such thoughts. Can’t be normal.
117
Wall Street is just another casino. And we all know Donald Trump’s track record with casinos, right?
66
Why is it always money? Seriously, no one ever talks about the people who died.
58
"Well Donnie- here is another fine mess you've gotten us into." Give a fool, who has broken everything he's touched, our economy and you expect something different? We should have gotten wise after W. You can't trust republicans with more than their lunch money. They'll vote themselves a trigantic tax break which only benefits republicans and the rest are like just like Ollie talking to Stanley .
82
Could it be that the stock market has little or nothing to do with the common folk's day to day living?
35
The author is writing only about two issues, but underlying issues could be more in number. There is no discussion on DEFAULTS meaning Banks are safe. What about derivative market? Is it really cool? Take an average of 5-Day Vix and take a ratio of this number with that of 3-Month average Vix, it shows the same trend as in 2008 crisis and DotCom era showing a lot of spikes during the recent period.
Half of Corporate bonds are BBB rated, but they are mostly Junk. Is there anything else??
8
If you want the stock market to recover ask Trump to go and say hi to Ted Cruz.
28
Many people are saying "Typhoid Trump". Keep shaking hands donny.
42
Republican policies are failing, just like every other time they tried the same thing for the last six decades.
Doing the same thing over and over and over again and expecting a different result is the definition of insanity. The Republican party is insane.
67
This too will pass.
16
I went on the comment section of the FOX news web site over a year ago and warned them Donald Trump would do to America what he did to Trump Casino, Trump University, Trump steaks etc. I wonder if they will be brave enough to wear a MAGA hat in public.
33
Trump didn’t want people to see his his school marks because they were all “Fs”, the same grade he is earning as President.
49
With the GOP running the entire country and courts, what could go wrong????
36
Sending thoughts and prayers.
27
Trump has been "running" the U.S. economy like he ran his casinos. Invest in a lot of phony (marketing) baloney (hype) and leverage cash flow by borrowing. Then, when that cash runs out, declare "bankruptcy".
In this case, he's let the govt borrow to the hilt -- and is left without any tools in his box. So we're seeing a scramble.
I'd guess that the bloom from the big tax cuts that has inflated the market is off the financial community's rosebush. As they awaken, they finally might say that it's time to get this idiot out of the White House... and turn the heat up on Trump and the GOP.
Hopefully, if they do, it is not too late to avoid a major depression. The problem is that there are going to be huge one-time losses in revenues (e.g. sporting events, concerts, B'way shows, cruises -- damaging them and all their supporting infrastructure in the travel and concessions and parking and taxi/Uber/Lyft businesses) that is mostly gone forever. Hang on, folks .... we're in for a fast downhill fall!
27
This is called the Trump effect. Also known as white privilege. If Obama had precipitated a crisis like this & then bungled it up can one imagine the reaction?
51
Debt has exploded. Yes, everyone is desperate to raise cash. This is a fire sale on assets, as it begins to dawn on even the richest that putting a willfully ignorant, corrupt sociopath in the White House might not have a happy ending.
45
Another book by Michael Lewis is in here somewhere.
40
This is really because we have a Commander in Chief who is neither. He's incompetent, unfit and uncaring. Now his base will truly suffer for it. We all will.
31
A wildly irresponsible column. Stating that “something strange is going on here,” and intimating that deep, dangerous market fault lines are being exposed, helps nobody.
There isn’t anything going on in the market that can’t be explained by “the stock market is falling dramatically and leveraged equity investors are having to sell assets in other markets to meet margin calls.” Explains gold’s weakness, explains ETF versus underlying disparity, explains bond market weakness.
Not helpful to raise unfounded marketplace credibility concerns.
35
Something about "living in interesting times" while keeping "your head when all about you are losing theirs" come to mind...
12
'Fasten your seatbelts. It's going to be a bumpy ride."
11
This drop is not just because of the virus, the virus was just the trigger. The incompetent self serving trump leadership in Washington nagged the Fed to lower rates when it was exactly the wrong thing to do, so now they have much less room to move. (Incompetent bankrupts always think borrowing free money is the solution to their problems.) The actual weaknesses are multifold, the market is not stupid, it knows that the trump/gop tax law with its explosion of government debt was a disaster at some point. Idiotic 'trade wars' which have gained nothing, phony, disruptive and pointless renegotiation or dropping out of trade deals, next to zero investment in education and infrastructure, almost all of the trump/gop moves have weakened the economy and the country. And the naive cupidity of the trump supporters to think they would benefit from the incompetent's moves, amazing. The only beneficiaries are the oligarchs who have won another round by increasing their percentage of the pie.
46
Trump bubble has bust!
15
So we should buy everything, is what you're saying?
1
It’s called too much greed, followed by cowardice.
15
Maybe more people will now finally start questioning how great the global economy with all its entrapments really is.
7
Three blind men and an elephant.
7
Wake up! The "real" game is being played above. Forget capitalism, work ethic, patriotism, blah blah blah...that's all lies.
The real game is power. It always has been. Are the American people ready to have their moral high ground veneer removed?
Our military imposes its will on the rest of the world to ensure our comfortable lives. It's never been moral. The "real" power knows that.
Are you still okay with your military and your comforts now that you know you're not really the good guy? A lot of us are not.
14
Sheep shearing gone out of bounds...
2
Congratulation Mr. President. Finally, you have begun to succeed in the third part of you mission. Having gone far in so dividing America to make it ungovernable and impotent abroad, you are well on your way to make it broke. Having failed with your trade wars and tariffs, your response to the Corona virus has totally freaked out Wall Street. Great Work.
Your master Putin must be so proud
38
Neil, you and your readership should reread your 2014 article.
https://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html
The everything boom or maybe the everything bubble is now bursting, and this is what it looks like.
7
Maybe we can thin out the narcissistic herd on Wall Street.
Open the windows above the 5th floor.
17
I don't think the answer is too difficult.
In the face of a pandemic, a climate urgency, and leaders who are not in their position because of excellence but because of their media sellability everything is overpriced.
From cruise company stock to bonds issued by idiotic governments.
12
There is absolutely “nothing weird” going on. Every time Trump opens his mouth, markets sink because he is transparently unfit.
21
Investors are acting like there is only one roll of toilet paper left on the shelf. Panic begets panic.
8
Now in Europe a pilot.case against.big tech is brewing. And it s not the usual privacy hot.water.
The.good part is that the trillions will go to the people.
Could go. Will go ?
Mah?
Folks are heading for the hills because they have absolutely no faith in Trump and his band of idiots/sycophants to get America out of this pandemic; his brilliant economic advisor Larry Kudlow told Americans to buy the dip after the initial decline a week and 20% points ago. They keep telling us to be calm and this will pass. It can pass but not following their suggestions. Instead, Trump needs to (1) apologize for his mishandling of the situation (2) let Dr. Fauci show America the "flatten the curve" plot so Americans know that the administration understands the problem and how to fix it and (3) take the 40 billion in national emergency funds and provide free, same day coronavirus testing to all of America. Do all 3 and the markets will immediately start to recover.
17
What is going wrong is ...finally...the realization that our leader is the Wizard of Oz.
There is NO leadership in this time of crisis.
NO one is in charge.
The leader's ideas are shallow and stupid....and he has no idea how shallow and stupid he is.
We do....and the market is in free fall.
That said...I started nibbling today. Hope springs eternal...or was that greed?
12
Ooh, just waiting for Kudlow to let me know when it's time to buy in again!!!
12
There is no solid ground, Grasshoppers. Welcome to a post-truth Wally World with a president at the helm who has a brain the size of a walnut.
19
Reality Check whats actually about to unfold is one world government Federation Of Earth. Wall street will cease to exist as we know it.Amazing anoth planet will be given time to heal an life will go on.History will mark this era in time as turning point all nations end there absessions with arms mass destruction an use techolgy to improve life of all forms life.
5
Waaaah? Trump is mismanaging money? I’ve never heard of such a thing!!
14
Of course it's not all dTrump's fault alone.
He is the one who is in charge however he has enough incompetents around him in the white house and oval office to further bolster his ego and idiotic approach to governance.
Next time ,if there is a next time, be more careful whom you vote for; certainly not some fool man or women with 5 or 6 bankruptcies under their belt.
14
The socialist Fed just socialized all of the white rich “risk-taker” people losses with $1.5 trillion. Dreaded socialism everywhere.
30
Stop trying to sow panic Mr. Irwin. looks like you are simply trying to show how smart you are and perhaps be on record about something that MAY happen so that people will look back and see how smart you were...just stop.
We have enough to deal with right now, that you don't need to make things worse with articles like these.
3
Welcome to the Trump economy. As with all things Trump, it's all make-believe, or as the thug himself calls it: FAKE! As befits a fake president.
16
im gonna withdraw all my money in the saving account, banks failed in the past, seems history could repeat itself......yes theyre insured, but can you wait for your money?
i cant.....my bills keep coming, virus, markets, or 45......now if everyone did this, im sure there would be negative outlooks.....remember too big to jail?
ive lost enough in my 401K, not losing my cash too.....
or maybe i should talk to a financial adviser/specialist first?
2
The rapid-paced routine of daily life is winding down, creating space for inner reflection. The year 2020 is symbolic of harvest-time. Have any of you noticed the effects of your choices in the past decade coming to fruition? With the recent events of the decline in our monetary system, and a virus that reminds us of our mortality, perhaps we can take a break from the stockpiling of money and material objects. I suggest collectively bring our awareness to the most treasured gifts a life can offer, our relationships with each other.
14
I'm no expert in finance, but even I have been seeing experts in the financial area the last year or so expressing worry over what was underlying everything. And 11 years of a bull market. And incompetent right wing populist weak leadership right throughout the world, Australia, Brazil, UK, and the US to name some. All round recipe for disaster. It had to crash sooner or later and my fear was it would be huge. This time I'm not convinced it will bounce back like last time, too many things going wrong in the world, on top of weak leadership, with climate change etc. All it needs is a crash and then a bunch of natural disasters due to climate change and holy cow this is going to be bad. I've been making my money in my retirement fund while I could, but was ready to hit the button to move into cash as a matter of urgency, and that was last week. I was lucky I didn't lose too much money, it could have been thousands, devastating my fund. I am one of those ones that went to cash quick as a flash, I'm so glad I had that option, a lot of peoples' funds don't allow them to do this. I only hope it does recover, but I'm fearful. Trump is only going to make it worse, the most incompetent person alive to deal with Corona and financial disaster. I miss Obama so much right now.
18
I would hope those that support republicans for tax breaks and Wall Street favors think long and hard about supporting and donating to republicans. Actions have consequences.
10
I worked in a bank for about twenty years as a low level peon... I know nothing about markets, but remember a term one of my CFA co-workers used to say infrequently enough...But I'll always remember the phrase.
Catch a Falling Knife.
That is what we have now.
A Falling Knife.
9
It's not that complicated. The safety nets have been continuously cut by Republicans, frequently with reluctant Democratic acquiescence, since Ronald Reagan was President.
And despite CONSTANTLY having to pay the price of it, Republicans only want 2 things, more and more tax cuts for corporations and the super-wealthy, and deregulation of, well, everything other than a woman's right to her body.
The 1987 crash, the dot-com bubble, the unpreparedness for 9/11, for Katrina, the housing / banking crash of 2008, Hurricane Maria, and now, Covid-19. However, when Ebola hit, we WERE prepared.
In the last two weeks, the long overdue note came due in a big way. Trump has been bragging about how well the economy's doing and BOOM! Almost all the gains of his Presidency are gone. If the Dow doesn't stabilize in the high 19,000's (where it was when he was inaugurated) it's next stopping point is the high 17,000's--when Wall Street celebrated his election. IE, EVERYTHING will be gone. And, now, the jobs are going in the transportation, entertainment and hospitality industries. Sports, movies, Broadway, cruise lines, Disneyland (and, I'll bet Disneyworld) are all shutting down. No multi-billion NCAA. ALL the unemployment gains will be lost as well.
The price of 40 years of Republicanism capped off by the worst President in our nation's history, worse than Tyler, Buchanan, Grant, Harding, and Dubya Bush. Far, far worse.
37
We have been oversold everywhere: stocks, bonds, real estate. A big asset bubble waiting to pop. Either COVID-19 or the Russian oil war would have easily popped the bubble; instead we got both. Double whammy.
8
And just how many businesses has Trump seen into bankruptcy; his father isn't around to bail him out now. Unfortunately, it's our country economic health that has been brought to it's knees; not just one of Trump's many dissolved business ventures.
13
We know recently Putin is holding out to drive U.S. oil producers bankrupt. Could Putin and corrupt oligarchs be manipulating in the background through complex financial instruments, to take down the American economy?
14
I was hoping to read that the "weird" thing that was happening was that executives at Goldman Sachs were offing themselves en masse. But, sadly no.
8
The problem with a stock market driven economy is that it's all based on a desire to make a bunch of money without really doing anything. Instead of you doing the heavy lifting, your money does is for you.
There is zero difference between a smart gambler and a smart investor. None. And their overall contributions to our society, as a whole, are equal, in that, by doing no real work, society obtains no real benefit what-so-ever. Unless you still believe in the historically disproven GOP fantasy of "trickle-down" economics. In which case, I have a unicorn I'd like to show you.
Then again, who wouldn't want to make a huge pile of money without actually having to do anything? If that isn't the New American Dream, I don't know what is.
BTW: I can only feel so much sympathy for people who decided to bet their entire retirement fund on 17 black. If you're going to gamble with your money by playing the stock market, then don't cry to the rest of us when it doesn't pan out. You want real security? Work hard, save your money, and don't gamble.
11
A whole lot of words to say this:
The market is an enormous gamble. It has always been a gamble except for those on the inside who manipulate the reports and numbers and get in and out before the great unwashed get out of bed. By the time the ordinary person hears of a good stock, it's no longer a good stock because very wealthy insiders have pumped it up and dumped it.
Never forget that a major appeals court ruled that insider trading wasn't really so bad. Guess what's happened since that ruling. Anyone not privy to insider info who buys stocks needs to reevaluate their choices.
The DOW had NO REASON to approach 30,000. None. Zero. It was pumped up so the desperate chumps would invest, then the insiders dumped their holdings while the chumps stood around wondering what happened. This has happened dozens of times over the years. It just happened again. And it will happen in the future.
Here, let me summarize the entire article for you:
THE ARTIFICIAL BUBBLE AND SCAM THAT WAS THE DOW APPROACHING 30,000 BURST.
The good news is that the 80% of the country who are too busy trying to figure out how they're going to feed their family and pay their bills and get health care on the garbage wages they get are not invested in the market.
17
I suppose it is Dark Matter at work causing internal ripples in the underlying market.
It is more likely human greed of the worst kind.
8
You cannot treat a financial disease until you have diagnosed it correctly. The problem is not that people or banks have to pay 1% more in interest than they can “handle”. The problem is all these unregulated entities that have leveraged themselves way beyond reason, and now are selling at fire-sale prices because of margin calls. Every fire-sale depress prices and precipitate another round of margin calls – and around and around we go. We just have to let this fire burn and hope that those who have their fingers in it will learn their lesson (not likely since they mostly are burning up other peoples money). Eventually society will learn that free markets and financial traffic don’t work, unless properly regulated - - I hope.
10
Not surprised at all. Every time there is a big crisis the investigations done after the damage is done to average people we find that the traders were deliberately engaged in deceptive activities , the crash of today is remembering the 1987 lies and the realities of doing nothing for decades
Warren highlighted the vampire capitalism of Wall Street but no one listened to her during this campaign season. So we are on this unregulated roller coaster that a child president with no meaningful process and crooked Wall Street will destroy this democratic country.
Thank you for an administration of complete ignorance. Golfing, fund raising.
Truthful government truly matters
15
Some French guy a long time ago said people who live in a democracy get the government they deserve. We voted our “values” instead of our self interest so we got what we asked for.
6
All of this is proof that we do not, in fact, have a healthy economy. What we have is a predatory economy where the wealthy and powerful prey on the rest of us. And now it appears that there is a more powerful predator in the financial ecosystem: a virus named COVID-19 and its ability not just to spread illness rapidly, but also to spread fear and loathing under widespread conditions of uncertainty.
Proof positive that we need greater restrictions on financial markets that have become increasingly complex and difficult to control during these periodic times of crisis.
Welcome to the bust, folks! It’s time to put regulation back in its place with serious democratic reforms of capitalism.
I don’t think Bernie will get the nomination, so Biden will have to step up to the plate yet again. At least he’s got some experience in handling financial crises!
Vote Blue! Dump Trump!
14
Considering that Trump is completely incapable of managing this crisis and will only continue to make the situation worse, he should call President Obama, a man who successfully guided the nation out of an even more difficult situation.
9
This is the end result of crony capitalism, our biggest banks and corporations want independence to make profits and for their executives to pocket the bulk, while throwing a few crumbs at the investor. When their bets go wrong, they expect the taxpayer, treasury and the Fed to bail them out. Citibank has been bailed out multiple times, during the S&L debacle, during the Argentina default, during the great recession. Chrysler corp has been bailed out multiple times. GM, Goldman-Sachs, Morgan Stanley, Bank of America, AIG were all bailed out. If you are a habitual gambler and there are no consequences for your mistakes, why won't you bet it all in the hope of the big payday?
11
Neil, maybe yields rose because they’ve hit levels not seen ever?
2
I have made a small fortune buying assets in times of panic, most notably real estate. If you wish to invest for income (and I see no other reason to invest money) then this is your moment. This is an irrational downturn, but ripe for the buying. This market will move up violently and quickly.
5
I am still beating myself up for not having the guts to buy onto the market when it hit bottom at 6,000 back in 2008 or so.
I will not make the same mistake again.
2
What is happening beneath the surface is that the markets have absolutely no confidence that our leadership has any idea what they are doing or even fully understand the scope of this crisis.
When your home basement is flooding, you don't call the fire department for help. You call a plumber. When you have a pandemic, you don't convene a session with bank presidents. You sit down with the nation's leading medical professionals. This president seems to believe and behave as if lower interest rates will solve everything. Lower borrowing costs won't lead to greater immunity from the corona virus.
5
Why are the markets even still open? Every other human construct in the world, including many of the businesses being traded, is hitting the pause button. Why should the markets be any different? After the big drops of the past weeks we get the message that this pandemic is bad for all types of business, but leaving the markets open is just adding insult to injury. It isn’t good for anyone, so why let it do more damage? Just shut them down.
6
This November we need to pick a president who cares about the United States and the American people. What we are seeing in the markets today is largely the result of having one who clearly cares nothing for either.
7
Ironically, the stock market has no direct bearing on the lives of at least 42% of American adults (% of people with no retirement savings.) A lot of them are Trump voters whom the steroid economy has passed by. Can America still take a punch? I guess we'll find out.
3
Gaia decided that to save herself from human irresponsibility she needed to curtail activity.
8
New investors, imo, add a layer of 'weird'.
Given all the money the GOP President and Congress recently handed to corporations, can someone explain to me why they would possibly have a cash crunch??
9
So here is the elephant in the room Would we be better off letting the virus do it’s thing regardless the number of dead rather than crash our markets and destroy who knows how many. The virus is going to do its thing CDC, Trump or god pontificating. The virus has to run itself out. We had small pox for thousands of years and we moved on... the current scenario is better?
3
Trump has given too much tax relief to the mega rich and the mega rich corporations. At the same time he's tripled the national debt. If Trump could produce a rational plan to attack COVID-19 the market would react positively. He probably isn't capable of that. His bumbling public address didn't inspire confidence. The key to economic stability is attacking the virus. Financial bandaids won't stop the virus.
7
This is a buying opportunity.
Wait and see.
3
As usual, it will take a Democratic president to clean up the mess left by yet another Republican tax cut made for the benefit of their donor-class puppeteers. This is what happens when "leaders" like Reagan, Bush II, and Trump buy into the "voodoo economics" decried by Bush I until he also drank the Kool-Aid. Here's are the facts (for those who still care about reality):
https://www.politifact.com/factchecks/2019/jul/29/tweets/republican-presidents-democrats-contribute-deficit/
6
An inept, incompetent, ignorant, egocentric, and corrupt President leading the nation blindly and irrationally in service to himself and his re-election... what could possibly go wrong!
While this is in essence a medically emergent crisis, its effect on the economy will be profound and deserving of cogent and critical remedy. Trump having already badgered the Fed to reduce rates for his political advantage, we have scant room remaining for further reductions. The Feds primary job now is to promote financial liquidity and keep the economy from seizing.
As to the medical aspect of this pandemic, it would be reassuring if the Administration took a back seat to the NIH and CDC experts and mobilized the military for possible deployment to aid states and municipalities in need. We are critically sort of medical supplies and medications needed in a pandemic.
At this juncture expecting cogent action from this administration seems hopeless as Congressional Republicans, who know better, have devolved into bobble-headed yes-men when Trump spouts his babel. They have not only politicized their response, they have attempted to use a crisis to further their political agenda. To their shame they have done all this at the expense of American lives.
6
Good. Go. Neoliberalism is dying, good. Economic anarchism and social liberalism are down. Good. Time for a more responsible economic system that thinks of our ancestors and our children, even if this means nations collapsing and reforming.
4
Weird ? It’s called the beginning of a Depression.
Thanks, GOP.
9
What’s breaking down? Really? How about the breakdown of humans, who religiously believe that market swings upwards are good - and that downward swings are bad? That greater productivity and growth is good - and contracted consumer spending is bad? Global warming and market growth move upward together. Obesity and market growth move upward together. Social media fed ignorance and market growth ... ya... so, all this blind faith and frantic obsession with “the market”... f the market! They (global markets) should have closed 2 weeks ago. Yes, it has happened before (WW I) but that’s besides the point. Are markets so sacred? In the short term - what do markets produce that we rely on to survive? Healthcare? Food? All this talk for the past decade about innovation and improving life... smartphones and tablets? Have they (and their software/media) made my kids lives better? Have they improved relationships? Honest hopes and expectations? Or steered people indoors and into echo chambers? Which are now full of hyper panic because humans are drowning in info, but have lost their ability to understand others and think critically. Well, Apple investors love iPhone addicts, Netflix loves bingers ... etc, etc... What’s breaking down is this: our understanding that markets do not control our future. We should be able to shut them off when what happens in them risks the collapse of the “financial system”. We humans need to check ourselves big time. Accept or actions and vulnerabilities.
8
There are excellent publicly traded companies out there. I don’t understand the notion that every business is a Ponzi scheme
So Trump gets on TV and solves the problem by cutting flying between the US and Europe??? That will do nothing to change the course of the virus in the US and it will do a lot to severely damage many economies, including that of the US. No wonder the stock market has voted two thumbs down on our terrible administration.
7
I’ve been saying to anyone that will listen that the stock market and employment has been built on a house of cards. And when the recession hits, not if, there will be a little in the tank, no cushion, to deal with it. We didn’t expect this curveball, but the result is the same, a recession. And we have no tools.
Issues like money for infrastructure are now a joke. Complete utter fiscal irresponsibility.
By the way, why did the administration so miserably fail to have testing available to everyone. We have known about this for several months. If everyone was tested, we would know exactly who and where we can go. This is a complete screwup of epic proportions.
Never forget... Trump or supporters!
12
A deep lack of confidence in the leadership of this country, starting with Trump, but extending all those who back him unthinkingly.
Does shrinking the federal government give stability in the long run? Trump and his gang can give all those tax breaks, etc., but then you throw in a wild card like covid-19, what happens?
It's clear that there is a much greater crisis looming because for some reason, testing is being "withheld." So, there is a crisis looming, a largely hidden crisis but we know it's there. Will it suddenly burst forth like the creature in the movie 'Alien?'
We know it won't be small as more and more people die from "flu" really untested covid-19. But how widespread already we don't know. Up to a million deaths are some estimates? But also disability unlike the flu and longer term.
More and more businesses will go belly up as people stay home from shopping and workers at places like Amazon get sick. We're still at "normal" more or less. And what about Wall St workers? Congress? Shut downs loom.
If the markets don't like unpredictability, what do they do when there is deliberately hidden unpredictability? We all know that's what's happening. All kinds of things go bonkers. If we had solid leadership and a solid government right now that would help stabilize. But that won't happen, as we well know.
6
Please stop using sports--and esp. football--metaphors to describe finances. It is unnecessarily excludes large swaths of interested readers and especially women.
6
Whenever toilet paper supplies are low , there is demand for paper cash. This is the principle of natural resource substitution.
7
the markets have ripped the benefits of the crazy man economic policy. It was like stealing money from a drunken sailor. Now, we are in crisis but they do not trust his leadership. This is what is all about: lack of leadership. A sociopath cannot provide that.
5
How important is credibility and trust in the president, especially at a time of national crisis and emergency—
You can't put a value on it or overstate it.
And it's missing.
7
I wonder if these repeated financial crises are a result of an everyone wins a trophy culture?
Speculating in the stock market and it goes down too fast, got you covered: the exchanges have circuit breakers.
Financial collapse in 2008, the Federal reserve has you covered: $4 trillion+ injected into the markets.
Lousy management? Got you double covered, weak boards and leveraged stock option compensation (boosted by borrowing to do stock buy backs, also undeserved trophies of stock appreciation).
4
GOP crashes economy and Dems restore it. Rinse and repeat.
10
Is it a coincidence that Conservative is often abbreviated to Con?Like convict and confidence trick.
7
Times like this (and 2008) I am so glad I am invested in only 1 stock and not diversified like everyone tells you to do.
2
It looks like President Trump's address to the Nation did nothing to calm the Stock Market.
2
It's not that complicated. Nobody trusts POTUS.
7
Sanders supporters wanted the purple people to realize how rigged the game is, but they were unwilling to stick their necks out.
Now the coronavirus is forcing the hard stop we wanted and the masters are not happy. They would rather everyone ignore the virus, get back to work, and accept the casualties as the cost of doing business. It's a prolonged national strike and it will unravel the lies.
Once the unraveling is complete, can we please work together to build it back honestly this time.
7
'...something strange happening just beneath the surface..."
Whew doggies! That's a real head-scratcher.
Something that is not just beneath the surface is the make-believe "great economy" of your Fearless Leader. It floats on free money and when that punch-bowl is withdrawn, you get liquidity problems fast. Then, it's all sellers and no buyers.
The whole financial infrastructure freezes up. (Does the name Lehman ring a bell?) Grinds to a halt. Consumer spending - and sentiment - evaporates. The "fundamentals" are another go-go Trump fantasy. (But one thing he knows is debt - as in other people's money.)
You've got an anti-scientific, illogical, not too bright, bankrupt X 4, conspiracy peddling, smoke-and-mirrors captain piloting a rudderless anti-government ship of state.
7
"Something weird is happening on Wall Street, and not just the stock sell off". And yes, "At some point, the weirdness can be as important as the final score in terms of understanding what is likely to happen in the future".
Neil Irwin taps into something important here. "The volatility in markets in the last few weeks reflects the deep uncertainty about the near future of the world economy. But for now it is being compounded by something strange happening just beneath the surface, creating ripples like the ones that are evident in this tumultuous week".
People who don't pay attention to the little shock waves flickering below the water's surface, will be dashed to pieces by the tsunami these little flashes portend. Weird is a good thing to notice. If something doesn't make sense within the context of what you think to be true, you need to challenge your preconceptions, not dismiss or denigrate the weird.
The weird in this context is connected to the thing people don't believe the stock and bond markets are connected to - the real world whose rules are inviolate. I'm thrilled that the weirdness has rippled to the surface in this artificial place.
As Leonard Cohen so wonderfully put it, "There is a crack in everything. That's how the light gets in." I think the light is getting in through the cracks in this behemoth of a system we have allowed ourselves to be captivated by. About time!
5
"Consider the most basic two types of assets: stocks and bonds."
What about the even more basic type of asset: COLD HARD CASH? It does not do well in up markets, but it is rock solid in down markets.
Here is a term we may (unfortunately) come to use in the near future: Deflationary depression (as in the 1930s).
That happens when people expect the price of goods, and hard assets like real estate, to go DOWN in value over time.
Nobody is making much money.
Jobs are scarce, if available at all.
Nobody wants to part with the cash that they do have, because they expect the price of [whatever hard asset] to be lower tomorrow than it was today, and they are not sure when, if ever, they will make another dollar.
People only buy absolute necessities, and then just enough to get by.
After things get bad enough, the few folks with cash buy up some plum assets at pennies on the dollar, because the sellers do not have enough money to cover their costs (such as real estate taxes or payments on a mortgage), and it is better to bail out than to go into bankruptcy.
Between the financial problems and the serious heath issues, I think this is going to make 2008 look like a walk in the park.
Just sayin'.
7
I was so glad to read this article! I've had 100% of my investments in corporate bond funds and CDs for the last 11 months, waiting for some Black Swan event to tank the equity market. Sometimes frustrating, sometimes exhilarating, but the movements in both the equity and bond markets made sense to me until this week. I don't understand the drop in funds holding highly rated corporate bonds. I'm looking forward to seeing them recover if and when market rationality returns!
1
There are at least 2 forces spinning out of control. The first one is the algorythm computer trading where automated trading models point in the same direction, up or down and feed upon themselves. Maybe the SEC/NYSE should step in.
The second and potentially more worrisome are the market-makers, if they see funding constraints they will continue to price downwards in an effort to stop the flood. This might explains the Fed's desperate measures to add liquidity.
2
Here we go again, another 1.5tn poured into the 'market'. At some stage the casualties of all this will need to understand that the financial industry has been on government assistance for more than a decade and that situation won't change by itself. The scam certainly hasn't changed, this is another massive wealth transfer coming after the tax cut and last last great bailout of the wealthy. Would Biden do any differently?
7
Two big parts to the market losses. Coronavirus and oil prices. The coronavirus was inevitable, but made much worse by Trump's hollowing out the CDC and an administration that cannot tell the truth. The oil price drop? Manufactured by Trump's best friends, the Saudis and Putin.
13
The often heard argument that Bernie’s nomination would adversely impact the stock market is now definitely off the table.
25
Thanks for pointing out that things are looking weird, because it helps understand what's wrong with our perspective.
If you look at the reference to the biggest percentage point drop on the major averages, the reporters tell us it was since 1987.
In 1987, there was no internet. Algorithms didn't trade stocks. AI didn't analyze markets. You couldn't even get immediate trades, and the average price of a stock trade at retail was probably more than 20 bucks. We were all getting our daily papers as paper.
We hadn't had the Great Recession, or TARP. Ronald Reagan managed a basement operation trading arms for drugs for money for hostages held by Iran, and yet we still let him get away with it. We let Nixon get away with his crimes, too, setting the precedent that at this point we think needs to change.
What we ought to look at things differently now. What we need to do is look for whether the underpinnings of civilization remain stronger than the apparent urge to anarchy and destruction. Is Hate triumphant? Are our institutions helping us survive and flourish or blocking us from being the best we can be? These simple questions could be applied then to see that we would continue to make progress back in 1987 - and we did.
What's our answers today? Even after considering all the changes since 1987, these same two questions really matter. And the answers to them start with each one of us. And individually, we have to change the answers if they are wrong for our futures.
8
Housing market will be next. Portfolios and 401Ks are on average down 20% in just one month. Housing prices in some markets have topped their pre-Great Recession highs. Layoffs are coming in many areas of the economy nationwide as people hunker down, stay home.
8
The worst is always there is no faith about system integrity and sustainability.
After many variations of economic crisis , I believe faith eroded severely.
2
Zero, zero analysis of the global economy.
Reality is... the coronavirus brought the Chinese economy to a sudden halt: empty stores, restaurants, factories, hotels, airports. And, after China, South Korea and Italy...
The impact has been catastrophic, worldwide. Massive fall in demand for everything (oil, raw materials, services) sent global prices down. The inability of OPEC and Russia to agree on an ordered cut of oil production caused a price war. Stocks of companies in many sectors collapsed.
The good news is... China is slowly emerging from the crisis. The bad news: the rest of the world is just beginning to feel the pain.
8
Thank you Mr. Irwin. It's about time someone wrote about that. I had been asking why just such a thing was happening especially bond prices have been also falling.
And why were so many big players selling at once?
The initial sell-off was too quick and too deep given that so little information was known about what would happen in the US.
3
I can't answer all the questions Neil Irwin raises But I do think I have an explanation for why bonds aren't selling all that well. It's not only because they pay next to nothing in interest, but also because if Trump gets his way, bond-holders themselves will have to pay the government for the privilege of investing in bonds. This is called a negative interest rate, and I understand that Germany and who else in Europe? are already doing this. And Our Leader has twittered that we ought to do it too.
2
@mlbex I appreciate your take to consider a life that isn't always about more and more growth. It would be interesting to measure and make note of the decrease of pollution and other environmental factors during this world slow-down.
And I couldn't help think of the extreme push of developers and some local governments to make cities like Los Angeles more dense. More density will not do anything for the health of cities like LA that already have a massive population.
8
The price of Gold is the most troubling indicator to me.
When inflation fears rise, and dollar valuations start to collapse, Gold always goes up because there is a limited, finite amount of it - unlike paper money that can be printed up on a moments notice.
So, the fact that Gold is not up 20%+ points is really startling, and very paradoxical. The sell off means that investors what to limit their risk exposure, but if dollars, pounds, euros, etc, start to collapse, then all that hard cash in safes across the world is going to collapse right along with it.
So the fact that a hard commodity like Gold isn't through the roof right now makes absolutely no sense to me what-so-ever. Then again, I studied philosophy in college. Not economics.
9
@Chicago Guy; Look for information about the gold market and how there is much more trading of gold than there is gold itself. Few people that have positions in gold actually "own" the shiny stuff, most people have a portfolio that states they own gold not that they have a pile of it in closet.
From Financialsense.com
"the sellers of gold and silver investments don’t always possess all the gold and silver their clients are led to believe that they possess."
5
@Chicago Guy,
Perhaps investors have finally realized that limited availability of a resource (e.g., gold) does not make it intrinsically valuable. If it did, then Beanie Babies and Cabbage Patch Kids would be worth big bucks.
Gold is useful for making dental crowns, jewelry, wedding rings, and a small subset of electronic components. But you can't eat it, wear it, build a house from it, or make a bicycle out of it.
The only useful feature of gold as a monetary currency is that it cannot be counterfeited. That was very useful in the past, but it no longer amounts to squat.
Still, I am, like you, surprised that the gold bugs have not driven the price of gold into the stratosphere, there to lure the unwary into purchasing blocks of the shiny stuff.
3
@Chicago Guy Is any of this because so much gold that is held is not actually physical gold but 'paper' gold?
6
We don’t need sports analogies to understand that fissures in the economy have been coming for some time. The Fed has been propping up the repo market since the fall to the tune of hundreds of millions a day. Credit card debt and delinquent payments are way up as are auto loans and student loans. Output is down, yet the money bet is on Michael Bloomberg and his friends making a mint out of these events.
9
We need a ten point plan to save capitalism. Warren would be the perfect person to propose this.
The first point would be to demand that Trump resign, from a massive lack of faith
My dream ticket, fwiw, was Warren for president and Bloomberg for VP.
7
I have no training in economics or finance, but could the problems with the stock market now be related to an unsustainable global economy that began in the 1990’s?
6
Yes; indeed something is happening on the Wall Street and it is not just the stock market. But, it is questionable whether it should be called "weird". Actually, it may prove to be quite "normal".
In the last three and half years, the US stock markets have come close to a major correction several times. But every time a significant "dip" was on the horizon, the next day Mr. Trump's patrons intervened, injecting billions of dollars into the markets, forcing their indices to go back up.
Mr. Trump has been urging his followers to invest in the markets. Many of them have invested all their savings - plus as much as they could borrow - into the markets. Keeping markets up has been important to Mr. Trump as it translates into happy supporters and plenty of votes for him in the next election.
A market crash, on the other hand, means supporters' loss of faith in Mr. Trump and his policies; hence apathy toward voting and his re-election.
It is no secret that, to get re-elected, Mr. Trump needs more than his own supporters' votes. It seems that Mr. Trump's patrons have just concluded that he is unable to get any meaningful support beyond those of his fervent believers. In their view, Mr. Trump will lose the next election, regardless of how high - or low - the markets will be at the time or how happy - or unhappy - his main supporters will be.
That view has led Mr. Trump's patrons to stop supporting the markets, allowing the markets go wherever market forces take them.
12
This disconnect, with investors selling both equities and safe havens, may simply reflect a belief that the market perturbation is a temporary crash reflecting an unusual external (non-financial) influence. In such a scenario having assets in cash, ready to spring back into the market at a perceived bottom, makes sense, more sense than parking your dough in safer low-yield securities. Of course this assumes that the economy is sound, and that the stock market will rocket back as soon as the all-clear siren is sounded and the consumers come trouping back and people start flying, cruising and working again. If this is correct then an investor can make a lot more money that if they put their cash in something like gold. If it’s incorrect then it’s still not a huge deal, since you can always buy back in to either bonds or stocks when things look favorable. It could also reflect an end to the current bubble, in which case the turn-around will be slow and painful.
5
I lost my job on 2/6. By the middle of the following week I liquidated half of my portfolio. I didn’t try to time the market. I did what I had to do. But I see structural economic issues that will make it difficult to get back in
4
I’m far from even being somewhat savvy about stocks and bonds, but I’m very well versed in skepticism, and I have a funny feeling that some folks are manipulating and taking advantage of the situation. But who am I to say?
9
And they’ve got the best, brightest and most awesomely powerful algorithms to help them. It’s “just business”
6
I agree, active traders love volatility and are laughing all the way to the bank. The more they short stocks the lower it gets and the more money they make. Shorting equities should be made illegal especially for the next several weeks
8
Monday, October 19, 1987 - It was probably high noon when I noticed my supervisor, an economist and chairman of The Municipal Assistance Corporation for The City of New York, pacing the floor, out of his office and onto my territory in plain sight.
Never an alarmist. but a cautious and responsible financial visionary, he was taken unaware by the unexpected stock market fall. Preparing to be asked some sharp questions by the Press, he needed some answers, with no plans to shut the door in its face.
Perhaps it might be worth revisiting his opinion on this state of affairs at the time, although times have changed under this uneasy current and unclear policy of governance.
Remembering now the impact of this recession, and in the path of its aftermath, how it took some of our rural regions across the nation, more than two years to recover.
7
I've read that something like 80% of daily trades are automated. Perhaps we are simply dealing with a cascade of trading algorithms gone awry. As an application developer, very bad things can happen when your code is generating the "expected results" -- and those results are wrong!
9
Good stocks will recover. Listen to Warren Buffett. Keep them and relax.
9
I am taking my whole paycheck that I get tomorrow and putting it into an All -US index. It's what i wish i had done in 2008.
7
Cash is king. Does it make sense if people pay minimum due on credit cards instead of full statement balance even though they have money? It doesn’t make sense unless you feel you may need the cash in future. In this panic, people are holding on to the cash. I am sure there will be an increase in the number of people paying minimum payment only. A sudden spike in the number of minimum payments only is a marker of panic. They may start pulling money out of banks and keep it under mattresses if this continues too long. Trump is not exactly a President you can trust. So, no stocks, no bonds and no gold. There is nothing unusual going on, just a human behavior.
5
@Kodali I already cleared every last dollar that wasnt needed for immediate needs out of the banks over the last 2 weeks, completed it yesterday.
1
It's the lack of leadership. People want a leader who brings everyone in in a disaster, the world looks to the leadership of the US as well. At some point Trump will have a meltdown and won't be able to handle this, the republicans need to step in and do what's right for the country even if that means Pence taking over for awhile
7
@Missy This is a big part of it, there is not one world leader ANYWHERE stepping up to the mike to take control. I have never seen anything like it and Im old.
2
He is horrible. I feared for the day when he would face a bona Gide crisis and would fail miserably. Why is he president? The people didn’t vote for him
3
It's probably not an accident that the price of Bitcoin has been slumping dramatically recently. Today it experienced what cryptomarkets call a "flash crash". So if you're looking for a culprit as to why global markets seem to be short of cash suddenly, there's the animal right there.
Also remember that a large part of the Russian economy is Bitcoin mining. Perhaps as much as 10% of their electrical consumption goes to feeding the computers that generates this "cash". If the rug has suddenly been pulled out from under Russia's major export, oil, then anyone can imagine panicked clerks running around the Kremlin tried to scare up money.
5
I strongly dislike the term "mommy trap". Motherhood should not be considered a trap, but a blessing to nurture the young souls who will carry on after us. I personally believe that the Creator caringly looks after all of his/her creation, but especialy the mothers and their children.
4
@Michael Then why did the Creator allow Donald Trump to become President of the United States ?
7
An inflated market blown sky high by corporate tax cuts cannot end well...and it isn't.
There's a helium shortage in the world except when it comes to financial hot air balloons.
13
This is the result of an incompetent president playing to his reelection audience backed by an enabling Republican party that knew better, but decided to play along for their own benefit and not the country's.
In addition, China hold a majority of US bonds so I would look to what China is doing. Possibly as a result of their free falling economy and partly due to a payback for Trump's tariffs. Trump and his financial crew are incompetent and we are reaping the results of their actions and inactions.
9
And the US debt just keeps getting bigger. The US economy is looking like Trumps Casino’s before they go bankrupt.
12
No mention of the fact that stocks were incredibly overvalued? I saw a report that the stock price to projected earnings growth ratio was 18.4 at the start of the year. Stock prices were going up up up based on... what? The idea that the Fed would cut their rate yet again in a booming economy (which they later did)? That Trump would find MORE regulations to gut? That another tax break for corps and the wealthy would pass?
It was all delusional behavior, akin to a drug addict doing everything they could to keep those sweet sweet rally juices flowing in their veins. Anything was bound to make that speculative bubble deflate. COVID-19 just happened to be a particularly harsh reality check.
That said, I am shocked that bond prices are going down. Smacks of a cash crunch time. Banks and hedge funds that had 200-1 leverages are suddenly having their tab called. Bar's closing for the night, gents! Time to settle up and close out.
12
We're heavily weighted on individual, investment grade & muni bonds and are up 2-3% this year. Didn't make as much during the past few calliope years, but sure is comfy now. Ahhhh!
4
There may well be a monster lurking beneath the surface here. My serious concern with this sudden drop in stocks is for the chain reaction that this could set off in the derivatives market. The market for derivatives consists of a myriad of insurance products that in total far exceed the entire value of the stock market or even the total GDP of the world economy. The danger has long been that a sudden black swan event could engender conditions that the clearing houses and counter parties would be unable to cover with their resources. The derivatives market is much bigger now than when AIG had to be bailed out to pay counter parties during the last financial crisis. Baby Godzilla has grown a lot since then.
4
There's a lot of shaky corporate debt out there, after many years of very low interest rates and steady growth. Maybe some of those overextended corporations are selling what they can to avoid defaults. If the Republicans in congress had not prevented the appropriate fiscal stimulus for so long, the stress on monetary policy might have been avoided, but they had a different agenda--suppressing growth under a Democratic administration.
5
The economy seized up today, with the cancellation of all sorts of events. Entertainment, sports, education, and travel was all cancelled today. Nobody is spending any money any more as of today. This is not 2008, I'm afraid it is 1929. Except that a lot of people will be sick. Mark the date March 12, 2020, the day the economy stopped. A date in history.
13
I’m afraid you are right. The markets are seeing the writing on the wall: lots of unsold goods, crashing corporate balance sheets, sudden upsurge in unemployment, unpaid corporate debt, resulting in a massive liquidity crisis.
10
Its been a long time coming. The GOP has rigged things so there's nowhere else to make a decent profit in saving. Neighborhood banks that paid a decent rate for savings are long gone. Interest rates have to stay low low low because, thanks to Reagan and the GOP going forward, we owe so much money that a reasonable rate would bankrupt the US government and many corporations. And we've optimized and outsourced all manufacturing and supplies to maximize profits for the idle shareholders and their offspring, which is now painfully displayed by our lack of being able to address the Coronavirus.
13
Let’s not forget that we had some dems running the country. We are all responsible.
2
Its been a long time coming. The GOP has rigged things so there's nowhere else to make a decent profit. Neighborhood banks that paid a decent rate for Savings are long gone. Interest rates have to stay low low low because, thanks to Reagan and the GOP going forward, we owe so much money that a reasonable rate would bankrupt the USA. And we've optimized and outsourced all manufacturing and supplies to maximize profits for the idle shareholders and their offspring, which is now painfully displayed by our lack of being able to address the Coronavirus.
6
Its been a long time coming. The GOP has rigged things so there's nowhere else to make a decent profit. Neighborhood banks that paid a decent rate for Savings are long gone. Interest rates have to stay low low low because, thanks to Reagan and the GOP going forward, we owe so much money that a reasonable rate would bankrupt the USA. And we've optimized and outsourced all manufacturing and supplies to maximize profits for the idle shareholders and their offspring, which is now painfully displayed by our lack of being able to address the Coronavirus.
4
It is time to recognize that our largest banks are creatures of the State, and not independent agents that can maximize profit at the expense of society.
That means the the Federal Government in times of national crisis has the right and obligation to nationalize or otherwise directly intervene in the operation of the largest banks when the health and well being of the financial system is threatened. This goes beyond mere safety and soundness. These Federal powers should not be confused with nationalist expropriation of an ordinary corporation or industry. Federal intervention in the financial system has happened before - in the Great Depression, the Fed takeover of Continental Illinois, the de facto Fed takeover of AIG, the FDIC closure of countless small banks in the 1980s, the over 500 closures of S&Ls in that period and actions taken in the 2008 financial crisis.
Modern day CEOs, traders and investment bankers at the largest banking institutions simply just don't get it, and are playing games with the health of our economy, arguing that regulation is the problem and deregulation is the solution. The management decisions at the largest banks need be fully subservient to strong Federal guidance. Furthermore, banks must stop being complicit partners with hedge funds and other actors in the shadow banking world. Some of those shadow actors will fail, with consequent large losses to investors in that sector. The Fed needs emergency powers to regulate them as well.
10
Oh but they do get it! They make money through their shenanigans and get bailed out every time. Nobody goes to jail.
11
I'm definitely not an economist, but I've long been troubled by the disconnect between the financial markets and the real world. As one commenter noted, there's more casino-like behavior in today's markets than old fashioned investments based on companies' performance. I wonder whether financial players have been lured by the availability of really cheap money and gotten themselves so over leveraged that this market drop has them scrambling for cash from all sources. If so, this won't end well any time soon.
23
Another variable: China and Japan each own over $1 Trillion USD in US Treasuries (combined, about 1/3 of our deficit). If they decide they're cash poor and if they're willing to absorb a decrease in exports, they can call in their markers. Goodbye low interest rates. Goodbye low prices. Goodbye value of the USD. Will Trump ask Deutche Bank to bail us out, since that strategy worked for him before?
20
I have been predicting for a long time that the structure of ETFs might lead to trouble. The Authorized Participants are allowed, but not required, to arbitrage the difference between the NAV and the market price. This is not like the old days, when a stock specialist was obliged to make a market in a particular stock.
The Authorized Participant model relies on economic incentives. When the market price of the ETF falls below NAV., the AP institution will make money by buying ETF shares, turning them in to the sponsor, and then selling off the underlying securities But what happens when the Authorized Participants either have no liquidity, or are scared to death? We are finding out.
This model has never been thoroughly tested in a wild market, but the SEC has authorized thousands of ETFs to be created and traded.
6
@Jonathan Carl Icahn has been saying this also about ETF's. And not only recently. All the way back when people thought Trump's presidential campaign was a joke? He was talking about it then, too.
Fink's job is to make money for Blackrock, and he's done a fantastic job at that, but the ETF phenomenon is...troubling.
4
If enough banks and corporations feel pressed by their own liquidity, it could herald a general liquidity crisis. The Fed’s policies of ultra-low interest rates and continuous expansion of the money supply pumped the stock market with debt. Consumer, corporate, and government debt is higher than it was in ’08, at a time when the coronavirus is impacting key segments of the economy such as hospitality, entertainment, oil, trade, and supply chains. Two-thirds of Americans are living paycheck to paycheck, many with no assets at all, so a prolonged recession could lead to social disorder.
9
Markets are predicated on confidence and credibility, little more. For the last few years asset prices, across classes, have been based on other than sound financial valuation principles. The party was too hot to sustain, and the air is now going out of the balloon. But, just as we did after the Great Recession, we'll soon forget the lessons. Happens every single time.
7
The only way to fix this is to focus on the root cause which is the pandemic, and a criminally clueless administration whose first response is to lock truth away from the citizens.
Throwing around money & interest cuts does nothing to solve the problem. This is not a sell off rooted in financial issues so trying to apply financial cures will not help. It will only further bankrupt us.
16
The last few years have seen low interest rates, tax cuts for the wealthy, increasing stock market values, and a huge increase in the national debt. This is all smoke and mirrors and was bound to come home to roost. Trump and the Republicans are driving our country into the ground.
30
Stocks & Bonds going in the same direction? Did investors borrow money for their stock portfolios? If so, there will be many shirts lost today.
5
I don't play football and have never watched a game so I couldn't understand this article.
7
@Bo Lang Jameis Winston was playing quarterback.
There’s a line in F. Scott Fitzgerald’s short story, “Babylon Revisited,” where the main character acknowledges that he ‘lost it all’ not in the collapse that brought the the roaring 1920’s to a screeching halt but in the boom that preceded it.
5
I think the sooner we get out of the denial and disbelief; the sooner we embrace and engage with what is happening; the sooner we will stop writing sensational stories like this which freak people out.
4
I think the only thing we can count on is Trump making a bad situation worse it should be.
7
Help! The robot stockbrokers have taken over! Where is the emergency manual override?
6
Hence the great comfort one feels knowing that Drumpf is making appointments to the central bank (like the reliable and brilliant Judy Shelton ... not!). Hopefully, all you financial wizards who voted for and have supported Drumpf because you love your tax break windfalls and/or his xenophobic trade policy and/or his anti-PC clown act will be thinking about what having genuine competence in key governmental positions--indeed, what having a government per se--is all about.
16
Speaking of something weird, last night one of our local tv stations ran a segment about a big spike in gun sales right now. Maybe folks intend to kill the virus with a 12-gauge? Or defend against armies of infected zombies invading their neighborhoods?
Actually, they're worried about a meltdown of society and the ensuing chaos. They intend to protect their families. A sign of the times.🆘!
14
@Mark McIntyre
They intent on defending their toilet paper stock piles to the death.
6
Trump is the problem. Was from day one and now we can clearly see his irresponsible governing in full effect.
12
It’s pretty simple. Complete incompetence of the Trump administration. The GOP enablers. Markets do not like uncertainty, lack of transparency, corruption and lack of competent leadership.
16
oof, maybe some analogies that don't involve sports, please. the comparison to football game strategy completely lost me. that's quite the assumption that your readership could relate to this.
7
Oh let’s not forget the 13.5 trillion in credit card debt by American citizens
7
Simply stated, markets decline when there are more sellers than buyers. At this point most people are not liquidating their holdings, but at the same time they are not increasing their exposure to “risk assets.” ( Risk assets include common stock and corporate bonds. ). Thus, when a seller goes to the market, there are few buyers. This is concerning, but not a reason to panic.
2
Our economy is WAY too fragile. (My first use of all-caps here on the times.)
Of course I'm worried about the Coronavirus, but let's think about some other things that we're not prepared for:
The electricity grid gets hacked and shut down.
The internet gets paralyzed.
The telephone system gets hacked.
We are attacked by designed viral agents that are much more fatal than this Coronavirus.
10 million people living on our coastlines are forced to flee inand.
A nuclear accident, or war?
There are general principles of security which apply to most of the above, and one thing that is for sure is that none of them remotely resembles the globalized, over-leveraged Ponzi economic system we live in now.
That's why I am in favor of the "revolution." We are not even close to being in the right ballpark.
Every house or community should be producing its own electricity - at the very least. Maybe water, too. It's simple.
Food should be grown locally.
Water quality should be guarded like Fort Knox.
Young Americans should be educated about sustainability and self-reliance.
Trillions wasted on making war and war-fortunes should be put into "plowshares" and sustainable, local systems.
To all those who think moderation is the way... Good luck. We're in an extreme state of unsustainability now. A little shift and we'll still be in effectively the same place.
29
The whole world of high finance has been operating as a fantasy casino, with huge paper profits that were more of a score-keeping mechanism than a reflection of real value. So when it turns out that the instruments in which all that score-keeping was invested lacks actual value, voila, illiquidity.
It isn't bogus mortgages and bad insurance bets this time, but this looks a lot like 2008 all over again.
Turns out that the barbarians of Wall Street were able to dismantle regulations that would have prevented this from happening in the name of some free market ideal that does not exist on Wall Street.
Plus ca change, plus c'est la meme chose.
19
This article ignores the likelihood, or at least possibility, that markets are being manipulated to drive down certain assets, especially stocks and some commodities, so the big bucks folks can then swoop in and pick them up for a song. This has happened before, though sometimes the game is played in the opposite direction as when silver was controlled by one family, who was able to raise the price astronomically and then unload it a huge profit.
Especially now with the globalization of finance, markets are even more opaque, existing minimal regulations close to irrelevant.
As to the effects of COVID-19, I would offer the following regarding the U.S. Can America get it together to very quickly produce in mass quantities what is needed to cope with an emergency and what is needed to prevent an economic meltdown ?
Yes. All you have to do to verify that is check out how quickly we ramped up to provide the planes, tanks, and other armaments needed to fight World War II and how the suddenly very distorted economy was held together. The difference between then and now is the informed leadership by F.D.R. then, and the lack of leadership -- let alone informed leadership -- by Trump now.
Let me add another difference noted by Commenter Luke A from Brooklyn: "Today we lack a lot of the industrial capacity we had at the outset of WW2 unfortunately."
6
A product of plummeting yields worldwide perhaps? Most people I have talked to have been heavy in bonds and under allocated equities in their portfolios for sometime now. Yields approaching zero pushed money into stocks to 1.)hedge their bond assets (usually the other way around) 2.)chase stock dividend yield. VIX is very high and is pushing volatility algorithms to sell. My guess is there are investors selling some of their bonds before yields reach 0 and rotating them into equities and other assets, but you don’t see that reflected in equity prices when VIX is 70 . VIX and algos rule everything in the equity space. We are just along for the ride.
2
What this market madness exposes so clearly is that we have a controlled system that works in a particular way. The Fed and government intervene to protect the market system and the wealth of those with money. All well and good, but who protects people with little to no wealth, which is to say, most Americans? Twenty percent held 77 % of total household wealth in 2016 according to Brookings research.
What this crisis exposes is the hypocrisy of many conservatives and Trump. They will viciously rail against government intervention and regulations when markets are good, but they're desperate for government intervention to protect their wealth when markets are bad.
12
@James
Yup, socialize (!)the risk.
3
@James
I am not wealthy, but I saved what I could living frugally all my life. I drive a rusty 20 year old car! A lot of folks retirement money is in the stock market casino. It’s not all millionaires money.
1
Wait. I thought "markets" were always smarter than government. I thought deregulation and privatization was the way to go about everything. Capitalism works best for everyone -- the fat cats, the middle-class and the low-wage worker -- until it doesn't. Then Big Government aka "socialism for capitalists" has to step in and prop it all up. It's always fun to watch how quickly the capitalists turn into socialists.
23
Good information is worth more than cash right now. Let’s get some.
6
@John Harrington
But that's the entire problem - how would you know it's good info?
2
So Financial Market for Dummies? There is nothing of use in this article....couple of phrases and terms described, but nothing that could be considered other than general info and (expert?, because they wrote a book) opinion. So there is a cash crunch, yeah usually happens when market s go down. Investors don't want to realize losses through sale when markets are irrationally negative.
3
It’s no mystery. “ The Markets “ are the last to realize what an utter disaster Trump is, and the realization hit suddenly, and HARD. Florida Fritz has finally hit the skids.
NOVEMBER.
5
Ah yes, the stock market: a Ponzi scheme-meets Vegas-meets thoroughbred racehorse trading.
Never in the field of human finance has so much been owed to so many by so few.
7
“The budget would cut Medicaid and the Children’s Health Insurance Program and also wring savings from Medicare despite Trump’s repeated promises to safeguard Medicare and Social Security. It takes aim at domestic spending with cuts that are sure to be rejected by Congress, including slashing the Environmental Protection Agency budget by 26.5 percent over the next year, and cutting the budget of the Health and Human Services department by 9 percent. HHS includes the National Institutes of Health and the Centers for Disease Control and Prevention, which will see a budget cut even as the coronavirus spreads -- although officials said funding aimed at combating the coronavirus would be protected...”. — Esquire magazine 2/10/20
“The volatility in markets in the last few weeks reflects the deep uncertainty about the near future of the world economy.” — this piece
Trump’s next budget includes cuts in Medicare, Social Security, EPA, and the CDC.
Wall Street has gauged it accurately...we’re all gone die! Well, maybe more of us than expected.
To those who survive until November 2020. Republicans out! At all costs.
12
Every once in a while
The biggest player (The Government)
Needs to have cash on hand and not growing Deficits
1
Right now, we need an algorithm to figure out where to install the soup lines and who to staff them.
8
Since 2008 we have experienced a lack of aggregate demand (affordability).
Now it's becoming a lack of real demand - usury's worst nightmare.
4
Republicans have gutted the government and its funding by giving massive tax increases to the wealthy for the last 40 years and now wonders why the economy is shot. After 40 years of doing the same thing over and over and over again and expecting a different result, isn’t it time to label Republicans as certified insane?a republican. after 40 years of doing the same thing over and over and over again and expecting a different result, isn’t it time to label Republicans as certified insane?
7
I don't understand all this questioning and doubt. The Trumpublicans have said they will consider extending the income tax filing deadline. What more can anyone want? Problem solved, virus stopped.
5
If Trump wants the stock market to smooth out he should resign immediately.
7
It's bigger than the markets. The emperor had no brains and no one expected it to hurt.
10
The “something weird “ that’s happening on Wall Street, and in the rest of the world, is the gasping in disbelief that Trump is still president.
11
Quants, microtrades, flash crashes, a system designed by geeks who graduated from high school after 2008. Katie bar the door.
5
Many comments reflect either self fulfilling prophesies of gloom and doom, compounded by the geniuses who claim the recession was coming. Worse yet, the virus would have hit the markets under any president. All this does is give Trump another opportunity to showcase his ignorance and lack of leadership and communication skills.
This is how markets behave in times of uncertainty, particularly in an unprecedented black swan scenario. Just read the disclaimer on any investment about past returns meaning nothing. This is very, very serious but not the end of the world. The money not being spent now will be spent later, we just don’t know when and how bad the damage will be.
2
Now, if I'm understanding this correctly, if worse comes to worse ... the Fed will pump money into the Markets in a, top down solution to fix the financial sector? What does that do for the common person who will be extraordinarily impacted?
Maybe a paradigm shift of putting all that money into the hands of the people ... all the people, who will spend it (bottom up) and stimulate the economy? I mean, didn't we bail out the Banks and Investment Companies after they crashed the World's Financial Markets? And all the Regulations and Stop Gaps that were enacted to prevent another collapse were done away with or watered down.
New thinking is needed ...
10
@Gene -- "What does that do for the common person who will be extraordinarily impacted?"
The same as last time. The rich will get much richer. We will be ruined.
11
I can't imagine this will be a popular sentiment, but the dumbfounded surprize we are experiencing reflects a profound spiritual emptiness that round-the-clock obsessing over money and economics makes inescapable. Crisis like these, which the planet entertains periodically, have the ability to profoundly reset a society's values, remove the distractions from the things that life is really about. I hope that is the silver lining in this, an opportunity to think deeply about the ways we choose to live and the things we value most.
13
Perhaps the market's "mysterious" movements and tanking are in part driven by the rapidly increasing odds that a Democrat will assume the presidency in 2021.
That would fit the pattern of the past 40 odd years: GOP presidents and their party crash the economy by robbing the Treasury to benefit the few, then brazenly attack policies by Dem successors that might benefit the rest of us.
10
The president boasts that everything is under control because of his beautiful leadership and to drive in the point restricts people coming from Europe. He also hints at subsidies.
But the people are more concerned about whether the US will turn into northern Italy. Basketball courts and Broadway are shutting down. He says, trust me, the tests are coming.
We have heard that before. Has he done anything resembling what the Koreans have done testing tens of thousands a day?
Previously the markets stared at Covid 19 and coughed up a 20% retreat to Monday. The latest 8% retreat only hours after his speech was a direct reaction to his incompetence.
Another GOP administration ending with a recession. And the nation seeks another Dem administration to fix the country.
7
Wouldn’t the oil situation be inflationary, pushing yields higher?
@Theresa -- No, a massive price drop in a raw material component to most activities is deflationary. It allows a drop in prices, or an increase in profit margins.
It might eventually act as a stimulus. If so, it might cause so much stimulus that could become inflationary. However, that is a second order effect, and very far from certain to happen.
3
@Mark Thomason thanks Mark
So if I read into some if what is being commented here, we are heading for Venuzula territory. The Treasury will print more money to the point that a loaf of bread will cost $500. Is this risk a viable possibility or are we all panickin unnecessarily? Which in of itself a self fulfilling prophecy.
1
Heaven forbid: maybe it's time to consider an economy that isn't so fixated and beholden on speculative forces?
One that has real resilience and sustainability in an increasingly uncertain and dangerous world?
Of course it's hard to make a killing in an environment like that, so my Magic 8 Ball says 'Signs point to no' on that kind of change.
God I hope I'm wrong.
5
I suspect many investors would be angry should one day they found out that Trump and family were shorting the market? I'm sure that's not the case.
4
Capitalism but especially globalism, have failed, yet again. Their vast sums of money assures that they will never face the regulation they need. When government is corrupted into not doing its’ job, this is the result.
4
Why would anyone want to buy Tbills when Trump has done everything to destroy our dollar and our debt pays less than 1%? I guess that will be inviting when Trump gets the negative interest he wants on his loans? It doesn’t help the rest of us.
1
That sinking feeling came to me way before the market started crashing - even before COVID-19 showed up. I got that sinking feeling one late November night in 2016!
That sinking feeling should bottom out soon given how incompetently the genius in chief is rapidly making matters worse faster than anyone could possibly imagine. Weird, but not surprising.
1
Something "weird" has been happening on Wall Street since Nov., 2016. I believe we're seeing a return of Tulip Time (aka tulipmania) that devastated the Dutch Tulip market in 1637. I've been wary for the past two years wondering when the Trump Bubble was going to burst (I lived through the era of "irrational exuberance") but it has. Hard. The real tragedy is that a simple-minded arrogant, narcissist is going to be indirectly responsible for the death of Americans. And the destruction of the dreams of those late-stage Boomers poised on the edge of retirement and still struggling to help their kids through college.
6
Maybe they've noticed how much debt the US is issuing and factoring in a real risk of default. Particularly if the virus substantially impacts our productivity.
It's not easy to default when you can print money, but Trump is the master of default.
2
Its really simple. If you don't like this type of situation don't invest in stocks. And if you do invest in stocks and lose, tough luck, that is what happens with stocks--I mean sheesh if it only could go up, then that is what is called a rigged game or a ponzi scheme. And to get those really fat returns you are risking your principal much more. Win by the sword lose by the sword...
Saying that, I agree with other posters here that interest rates should have been much higher the last few years, and the low rates tempt people to invest in stocks because they don't get much return at all in savings. Longer term, we need to raise interest rates and help people who want to save. And for the people who invest in stocks, that is your business, but don't expect a rescue when they tank--you go in with eyes open that that could happen!
5
Yes, when a car goes very fast and an accident happens, the accident is going to be bad.
Trump accelerated the fake economy (the stock market, that is) by allowing the bad boys to repatriate their overseas dollars and then to buy back their shares.
6
A number of people are selling everything and building up cash (mostly in dollars) and plan to jump in and buy when things get low. If you can't "Buy low, sell high" then you can "Sell low, buy when lower".
1
Singapore pumped about $5B into their economy.
Equivalently, that would be about $240B for the US. But, compared to Singapore, we're a disorganized mess, so we might need a lot more.
2
The answer is Panic over the pandemonium caused by the spread of the worst contagion in perhaps a century and no one has cogent plans for solving this situation. Chaos is at hand. Dim Donnie has not been much or any help. When no answers appear to relieve the psychological stress, anything is possible.
2
Fed has been misdirecting credit for 11 years now, why did investors think that there would be only positive consequences from this asinine policy? Here is what is going on. After the 2008 crash, a great deal of wealth had been destroyed and the investor was badly burnt and nursing their wounds, sitting in risk free securities. Unluckily for the investor, the Fed had at its helm, Ben Bernanke, a scholar of the great depression who had unfortunately drawn all the wrong conclusions. General Ben fired up his QE engine, started hoovering the treasuries and giving the hapless investor freshly printed cash. This cash was like a hot potato, since cash pays 0% interest, the investor would buy something with a positive coupon and dump the cash on the next in line and so on. As Ben Bernanke was conjuring up more and more cash, yields started dropping throughout the world and the economy started roaring ahead. In the hunt for yield there were no credit pariahs. If you had a pulse, you could borrow money, often at interest in the low single digits, no questions asked, no need to have a viable business, multiple defaults okay, bad credit-no credit everyone approved! Now thanks to Ben Bernanke, the global investor has all their money tied in risky, opaque, hard to sell securities with no buyers. In this dry tinder environment, Cornonavirus has arrived like a fire, everybody wants liquidity, but there are very few things that can be sold, and almost no buyers.
2
It's a crisis of confidence, beginning with the White House, then the banks, then corporations Our country is a house of cards and the chickens are coming home to roost.
1
Mostly because there isn't much liquidity in this fake market you call the NY stock exchange. In all their glory the FED takes away interest on money trying to force people into the market. The ultra rich that basically runs the market regardless of the sweet talk we hear otherwise, demanded it. They also managed to get/steal/force payroll into the market. So they now have it like they want it totally.
Anytime its convent like now, with plenty of reasons to put the blame, they steal the profits and do it all over again. Anyone that claims different is insane. Having followed the market since the 80's, the market goes where it wants. Ignores news but uses that to pretend to care. This virus is bad but its only affecting a small amount of people, far as actually being sick. The media went insane like always and now the over-reacting is everywhere. Not downplaying it at all, but that is the facts. Plus most all get over it.
Its now really easy to cash in from that fake high for that ultra rich crowd, again. But the losers are the average person in the market, forced to go into the market in the first place. Strange how the news or CNBC never reports all the fraud companies on Wall street, or mention the people that invest that goes bankrupt from it. Naa, lets just report how great it is and steal more money while at it. I'm sure some great so called "professional traders" roll their eyes and will make soundbite responds.
1
Sounds an awful lot like way too much leverage may be at work here. When it's good, it's very good. Now, it's awful.
1
Who shorted and won big in this market? Is that data reported/knowable by the SEC? Any usual suspects?
3
Isn't it that we have been selling the future for the present for 50 years and they know now will be the time when that comes home to roost? The realization that all was faked on low interest and tax cuts for the wealthy and corporations who propped up the "market" as if they really had something new to sell. The fact that no real investment has been made. The fact that the "consumers", those very wonderful sheep who not only allow themselves to be sheered, but skinned, have been at their peak consumption for some time. And the fear that in hard time these same consumers might actually realize that all that plastic fuming garbage made in China is not really going to make them happy, and so they will be less the mindless consumers in the future.
Or maybe not. Not sure any Wall Street people actually think that deeply.
2
Sounds like people who bought on margin need to sell stocks to make payments.
1
What we're seeing is faith in the system disappearing. Capitalism is great, until it isn't. Unregulated capitalism - vulture capitalism - is a nightmare that we're in now. We took all our safety nets and gave them to the wealthy who don't need them. Sorry, people, but we do need a new system, one that embraces capitalism but also embraces democratic socialism - a system doesn't have to be all one or the other. However, our "leaders" have no vision at all and can't possibly come up with a hybrid system like this. We have exactly the wrong people in office at exactly the wrong time.
12
You know, from the beginning of this crash, something has never quite added up. Of course, I get the truly frightening possibility of a worse case scenario regarding Covid-19, even the most likely progression is pretty grim and even some of the radical public measures being taken. But looking at some of the particularly bad flu years in the past couple decades, the number of deaths, hospitalizations and infections, as they compare to a likely course of this virus, I don't see the economic panic as commensurate.
Yes, there is a great deal of unknown threat in Covid-19. But there is always such a threat around the several flu's that go around every year in that it can easily mutate at any point. And I have not seen any big reaction in the market for previous flu pandemics, even at a much smaller scale.
2
@Bob COVID is a catalyst, but what's falling apart is the house of cards built up over the past few years by attempts to artificially stimulate an economy which would have been stronger and more stable now if someone currently in the WH had left it the H alone.
4
Lets be honest, buying stocks on public markets is not investing....it is speculating. This is especially true with stocks that don't pay dividends. Investing is when you provide money to a company and the company makes a product, or provides a service. After the a companies IPO, buying a stock in a non-dividend paying company is simply speculation.
4
What's afoot is the terrible, but utterly inevitable, consequences of program trading. During the past 20 or so years sophisticated electronic order routing has been mated with algorithm-driven decision-making software ("algos") towards various goals. Some of these "robo" systems enable smaller investors to get some of the benefits of having individually "managed" portfolios that their assets might not otherwise afford. Other systems are aimed at "risk-management" whereby relationships are continuously monitored and modulated between a variety of financial instruments to make a more "efficient" portfolio.
This all sounds lovely...until these systems enter into frenzies of event-driven panic selling that happens so fast and at such volumes that it can't easily be stopped. In its own way its as if one system's rebalancing actions triggers a viral reflexive outbreak that ultimately acts like a kind of nuclear reactor China-syndrome. That's what we're seeing right now, bigger and worse than ever, triggered indirectly by the coincidence of a public health disaster and an oil price war. It's hard to project where this will end but it cannot continue for long. These firms are going to have to pull the plugs on these systems soon.
9
The virus is real, the markets are not. So far reality has come in a form that is easily ignored when the bulls rages. Living beyond our means, leveraging those borrowed means to add ever more theoretical means to our portfolio of "assets" has been going on far too long and is now inherently unstable.
Donald Trump's excellent economy is based of this system. Doubling down on a losing hand works until the hand is called. Guess what? The hand has been called by the player who is ultimately the only arbiter of what is real and what is not. Mother Nature is that player and we've been in La La Land thinking we could outplay her.
It's not the this virus will be the end of all of us. It won't. Some of us will die, most of us will survive, but unless we learn something about how this works and adjust our thinking, the system as we've built it will most certainly die.
Is there time to change before it all comes crashing down? We'll see what happens when this all settles down. If we continue on our path as before, we're doomed. This pandemic is nothing to what awaits us if we don't wake up.
16
First of all, a whole country, and a whole world built on borrowed money, made people believe that constantly living as governments, and individuals, within our means, was old school, and the idea that there was anything wrong with living on just making payments, and never paying anything off, was the new normal, it wasn't. So the wealth, the McMansions, the 4 vehicle families, etc. was just a mirage, and the lessons of the downturn, that bailed out the country, from the top down, instead of the bottom up, with this sustained effect more on the service industry, and lower income working people, will be hit hardest, as they need those jobs, to keep paying their high rents, their mortgages, their car payments, etc. The rich will always ride above the downturns, etc. with their millions, and billions, but the rest of society, hopefully, they learned important financial truths during the recent downturn, not to be overextended, pay things off, etc. Since this type of virus doesn't seem to be dissipating with warmer weather, as they have that in Singapore, and even Europe isn't in a cold spell, then this coronavirus could be with us easily the rest of the year, and next year as well. That is new territory, as even my 99 yr. old mother was born the year after the, "Spanish Flu," ended in 1921.
13
There are a number of large non=bank institutions that have been leveraged to their eyeballs to increase their gains. There are also a number of quant hedge funds whose algorithms are not prepared for this (and they too are highly leveraged to enhance their gains). They have all over-learned the game of buying on dips for the past four years and are now likely facing margin calls, investor withdrawals or difficulties rebalancing as they all held the same assets and are now headed for the same narrow doors simultaneously.
As others have already noted, sensible long-term investors should be fine.
10
What's happening?
Our current financial system is working per specification.
One more boom to bust panic cycle that historically, and reliably, transfers wealth to those who least need it.
20
Companies are trying to get cash to have for expenses while there are no customers.
8
The cause for the current crisis is utterly different from the rubber-band snap of sobering up from the previous decade of "fits of gidiness" by capitalist speculators that exploded the bubbles in 2008. Today there is an "objective" extra-economic factor that brings inexorable pressure on capitalism: Covid-19. Revenue and wages are collapsing, actual trade is violently contracting. Actual work is not able to be performed. A massive wave of deflationary pressure is building. Unless the government is going to just print billions to compensate for missing wages and sales, there is no monetary measure that can 'prime the pump.' There will be no pent up wave of demand from lost wages and revenue, to be anticipated or speculated off of. It's going to be a new and far more brutal world.
7
Why is it automatically assumed to be a cash crunch? The collapse of stock and bond markets is a function of the exhaustion of further "anticipated profits" as the speculative bubble of fictitious capital deflates. The decade plus of stagnation and contraction of world trade continues, as further gains in productivity cannot be sufficiently wrung from the wretched lives of billions of workers and farmers to provide any basis for capitalist stability. The unanticipated Covid-19 crisis is destabilizing world capitalism at a moment of great vulnerability. Working people will be made to pay in lives and misery for the cruel cuts in social and medical resources by the capitalists, who are incapable of any consideration other than profits.
20
Since the market is run by algorithms and not human being, perhaps these anomalies are the result of faulty technology and not just human fear.
5
This artificially inflated market in the U.S. is a product of global excess cash.
W had enjoyed the "buy on the dip" mentality.
"Wise heads' explained that the cash was "sloshing" in search of an upward trending asset, which turns out to be upward trending because of the "slosh", perhaps not for underlying value.
Repricing may be in order, and it may be a rude awakening, or more ominously- a novel virus like assault on the world's financial structures.
2
This article ignores the likelihood, or at least possibility, that markets are being manipulated to drive down certain assets, especially stocks and some commodities, so the big bucks folks can then swoop in and pick them up for a song. This has happened before, though sometimes the game is played in the opposite direction as when silver was controlled by one family, who was able to raise the price astronomically and then unload it a huge profit.
Especially now with the globalization of finance, markets are even more opaque, existing minimal regulations close to irrelevant.
As to the effects of COVID-19, I would offer the following regarding the U.S. Can America get it together to very quickly produce in mass quantities what is needed to cope with an emergency and what is needed to prevent an economic meltdown ?
Yes. All you have to do to verify that is check out how quickly we ramped up to provide the planes, tanks, and other armaments needed to fight World War II and how the suddenly very distorted economy was held together. The difference between then and now is the informed leadership by F.D.R. then, and the lack of leadership -- let alone informed leadership -- by Trump now.
28
Investing in stocks is just risky. It never held any allure for me. It's why we came up with Social Security. It's still the best deal out there, unless this administration tries to take more of it away.
4
@Carolyn Egeli Which it will. Republicans have always opposed SS and Medicare and make no bones about wanting to eliminate both of them.
Even gold is down. There is no safety
This is looking like a Crash along the lines of 1929-1932. Stocks would not sell at any price in late October '29. What people don't seem to recall is that the Market continued to fall for almost four years after that, until bottoming at 44.11 on the Dow, 90% off the September 1929 high of over 400.
7
As unsettling as current news may be, what the markets most dislike is unquantifiable risk. Covid19 is statistically elusive. Government responses and economic impacts unpredictable and uncoordinated. Short term sentiment in the market as voting machine - terrible. But longer term it is these dislocative events that create great opportunities for investors as well. Solid blue chip companies thrust down in price by general market pessimism, forced liquidations of mutual funds and portfolio rebalancing. The reason many asset classes may be acting perversely is because the stock market is looking like it will offer attractive bargains if the economy rebounds in a few months. I would want to have cash for that, wouldn’t you?
3
The challenge is, Trump. He has used the circuit breakers in the market to prop up, "his" economy. This has had the effect of inflating the Wall Street bubble and in effect, turning the market into a Ponzi scheme where, the later investors were driving the "profits" of the first investors. While the headlines look good, the underlying premise has been, invest because the market is going up, up up! However, the underlying basis is shaky and a tremor the size of CV19 has shaken confidence. If I am in a business which sells things to people, and the people I sell things to are in a potentially life threatening situation, making money available to for me to sell things doesn't make the people I sell things to not be in a life threatening situation. The underlying flaw in the current approach is to address this as a liquidity issue, when the core is people are scared and scared people don't do the things people who are not scared do. In a time when people are looking for leadership, instead, we have a decision maker who denies everything [unless there is someone else to blame it on] and plays golf. Which puts the future in doubt.
42
It appears that stock asset pricing in the digital age has a problem with reality or is corruptible. What is happening is that wealth is simply being removed by the inability of asset pricing software to manage buy sell imbalances. The 8% trading stop is far to great for an overpriced market. It's the large allowed volatility built into the pricing algorithms. And it's been firing off for days now. Good luck fixing the problem because to much capital i.e. money has simply evaporated. That is not how the stock market is supposed to operate. As an immediate action set the stops at 3% and cease trading when it hits. The volatility currently allowed does not appear to be correlated to short seller volumes, this would be a huge error in trading software.
4
Margin calls? We have had a booming stock market for many years, and I do know that when markets crash, margin calls have resulted in suicides. If much of the market growth was financed on margin, margin calls can cause asset dumping.
3
Not 'can cause', but rather 'has caused'. The proof had been in gold dumping in order to cover such losses.
The simplest explanation is money is leaving the financial system. It could be investors keep money as cash. It could be deleveraging. Or it could be money leaving the US all together.
I'm most fearful of the last scenario. It means the outside world is losing faith in the US. I imagine if I were a wealthy Chinese with a mansion in Arcadia, CA, I might feel that mansion is useless to me because the US government could arbitrarily prevent me from entering the country. Or is I were a Saudi holding treasuries, the US government could just levy a tax when I sell.
Now even Europeans don't feel like they have reliable access to the US.
13
We have so little control of our 401k in the stock market.
Why we dont have the option to cash it immediately?
Instead plummeting while others mostly in wall street cash in at any time.
We can rebalance all we want but still diving down, not even bonds are stable.
1
@Jos Most 401ks have a some form of near cash equivalent... a stable value fund, in very short term bank or insurance notes. But the time to increase your position in that was last month, if you had a crystal ball. What you have control over in your 401k is your asset allocation, and whether it matches up to the time horizon for when you will need a portion of the portfolio to be liquid, example of this would be a target date fund. In some ways, you have more control than a wall street mutual fund, because you have a choice about when to sell, whereas a mutual fund must honor redemptions, and often have to sell shares to meet those calls.
2
I would interpret that as the market being in a pure speculation phase, where assets are sold to have the cash on hand when the irrational panic that has gripped the world subsides, then take advantage of the undervalued assets.
So the last thing anyone would want to do under those circumstances is park the money in long-term bonds.
As I wrote 2-days ago and was hammered for here: The bankers know how to make money, they sell short, because they bet that the panic has not seen the end of the day yet.
Either way, this could make 2008 look like a picnic.
5
The rise in treasury rates while equities sell off is pretty easy to understand: they're the last liquid securities most traders are still holding. They need to liquidate those treasuries as the rest of their positions tank to make margin calls.
6
@Neil Irwin: Thanks! Could you follow up on how liquid those cash accounts are, and how stable? The New York branch of the Fed intervened in the repo market just a short time ago, so how safe are our money market accounts?
1
When stocks and bonds are going down simultaneously it means a large amount of money is being cashed in either for unforseen expenses or because investors have lost confidence in both investment instruments, perhaps both.
8
I have been watching CNBC and obviously CEO's and CNBC analysts keep comparing the current self off to the 1987 self off, which basically was a one day affair with no underlying identifiable cause. This is not the case with the current month long sell off, where uncertainty about the overall effects of the CV are still unknown.
The major uncertainty is how many individuals are actually affected, and since this remains the great unknown, consumers are withdrawing from the market in droves, specifically within the travel, hospitality industries, as well as industries dependent upon mass gatherings(e.g. Sports, Theaters, and Malls).
The resulting withdrawal of the consumer in the aforementioned industries will have a cascading effect resulting in mass layoffs for individuals directly employed by those industries as well as employees who have a tertiary connection to those industries.
The corresponding reduction in cashflow and industry losses may result in corporations with a large number of junk bond debt will be unable to meet their debt payment obligations, ultimately defaulting on their corporate bonds(e.g. small to medium size oil companies, and possibly some airlines).
1
How is this 'something weird' when the US gov't has allowed the federal budget to be highly leveraged, we're lumbered with an eternity of debt, and so many stocks consist of obscure and structured layers it is hard to untangle, it is just surprising that *stuff* hasn't hit the fan before now.
11
@Lev Especially, where the Administration has worked so hard to conceal and manage the extent of the underlying epidemic. Markets hate uncertainty.
It's a reminder that markets are not perfect (among other things, complete information does not flow instantly to all participants, and buyers and sellers do not find each other instantly), and the participants are not perfectly rational.
3
Let me suggest a different hypothesis.
The last 3 plus years have a been a sort of sugar high for the economy with a tax cut stimulus increasing corporate profits and markets which have responded with increases out of all proportion with real underlying growth.
This sugar boom has been manifested by a booming stock market and steadily increasing employment but... it is not backed up with any real increase in GDP,especially durable goods, and any real increase in worker productivity or efficiency.
In short, it is a hollowed out balloon, like its titular head, Trump. It is without any substance to back up the growth in stock asset value. Buyers are not strapped for cash, rather they don't see anything of lasting value to buy.
The markets will drop until the traditional values of price/earnings and value reassert themselves.
Then we can start over hopefully with a new President who is substance rather then phantom.
57
My concern is that in the meantime what will happen to the housing market. If in the short term those employed in those industries that could be affected by a downtown will see layoffs, the housing market could collapse as there will be excess inventory and no buyers, not taking into account the investor. Are we potentially facing another residual affect of what took place in 2008?
3
Spot on assessment. I feel the same way about the markets. If not CV then something else would've crashed this overblown market. All Trump does is pour gasoline on the fire.
1
Is it possible that wealth individuals who have large taxable paper gains from the end of 2019 are now needing cash to pay taxes due and are thus forced to sell into a down market?
5
Not likely, or this would be an annual phenomenon.
@ws you do not pay taxes on paper gains. Only when you sell for a profit. And even then the tax on capital gains is tiny
1
@ws, in a short answer: NO.
People are digging in for the long haul, starting to understand just how devastating this virus could be to life as we've known it, not for days or weeks, but for months and years. Stocks and gold are not going to help people get through; what folks want now is hard currency and tangible goods. That means cash, food, medicine, and other necessities of life.
12
Gold is considered to have more "substance" than cash. Cash is fiat, and its value is based on people's prognosis of the state that issues it.
1
@Kristin
Holding cash when the Fed has been pumping more fiat into the system, and promises to accelerate this activity, seems an especially bad idea. As that cash chases fewer available tangible goods, prepare for a massive devaluation of the dollar and other world currencies.
1
@EW - I hear you, and don't necessarily even disagree, but for now, for the vast majority of people, cash is the way that they are able to access the necessities they are starting to understand they will need.
2
The markets are not acting strangely if you take thee view what is happening here is different than any other previous global event. That traders and analysts cannot reference similar situations to inform their decisions i this situation.
Covid-19 is a classic DISRUPTIVE event just as when individual industries are disrupted which by definition means the old rules do not work as a new paradigm struggles to emerges to deal with the new reality. In his case all industries and all markets are being disrupted in a way never experienced before.
Rewe entering a NEW world. We will find out.
1
I was hoping to retire soon, and have been too busy with multiple tasks to watch my mutual find retirement accounts. Whoops.
In this current situation, things look bad right now but I'll do what I did in 2001 and 2007--wait it out and just keep working.
Here is a difference from 2007 and 2001. During the last few years, I have almost gotten 100% debt free. That makes the situation so much less stressful than before. Fortunately I enjoy my work.
22
Wouldn't there be some correlation between stocks and bonds when you factor in redistribution? With the stock market back to early 2017 levels, that's a lot of value wiped from the books. Then if you have a financial plan of say 67-30-3%, a lot saved in bonds is going to be sold to balance your portfolio back to the plan you've set.
Of course, if people are panicking, like it appears they are, then they may not have the wherewithal to realize the bond sell-off is a natural reaction to markets losing several trillion dollars as [most likely automated systems] try to keep everyone's portfolio balanced as planned.
1
@Brian, the problem I see with your theory is that I doubt it's small market (retail) investors who are doing this moving of the various markets. The problem may just be turning over decisions to computers...
2
I imagine that if Trump and Pence resigned, making Pelosi President, the markets would respond favorably. Waiting until next January for trustworthy leadership will have serious consequences for public health and financial health
37
A little more regulation and perhaps more accountability after 2008 could have gone a long way in preventing what’s happening now. We never seem to learn.
16
The situations are not analogous. Exactly what regulations would have prevented this?
@Zamboanga No single regulation but keeping investment firms from acting like the stock market is merely a casino would help.
Re-institute a modern version of Glass-Steagle and not watering down all the safeguards put in place after 2008 would be a good start.
5
@Bluebird
It’s not that “we” don’t learn, it’s those people that get elected that are doing what’s right for corporate America, like the absurdly low interest rates that prevailed long after they were necessary. The problem with the Fed is that it’s run by bankers who’s first priority is corporations, now corporations have more debt on their books than they had in 2008. Which means the tax payer is probably going to be on the hook to once again bail out trillion dollar corporations. It’s the republican way, if any party is socialist it would be the republicans...
2
I think it's more basic. When your health and safety are at risk, the financial markets become irrelevant--silly even. They are artificial constructs that will not help you survive day to day when systems are collapsing around you. So all the old rules no longer apply, indeed they become meaningless.
4
How many -- people and corporations -- have gone deeply into debt because borrowing has been cheap, only to find the things that they went into debt to buy are suddenly evaporating. But the debt remains, and they need cash to service their debt.
I hate to say it, but this looks to me like a death spiral for the economy.
The Democratic slogan should be, "It's time to put responsible people back in charge. Vote Blue no matter who."
50
@Andy Beckenbach, I remember vaguely something from a Tom Clancy novel I read years ago. There was a horrible market crash and after all the drama was over and whoever the Tom Clancy hero was in that novel (I think it was the former CIA intel guy who became President after the Capitol was blown up by a terrorist suicide pilot with a plane loaded with explosives that he dive bombed into the building) was finished taking care of all the bad guys, the President said let's just turn back the stock market and pretend all of that bad stuff never happened. And voila, it was so! Well - why wouldn't we be able to do the same...
Capitalist American financial markets have been collapsing regularly for various resons since the 1830s. Every boom is followed by a bust. High paid experts hazard guesses as to what exactly caused the catastrophe or what in Adam Smith's name will happen next. But nobody really knows. This is the anarchy of the capitalist market . . . . This is why America needs Socialism and a planned economy designed rationally to benefit all the people.
18
@Red Allover
Who would do the planning and how would the plan be enforced?
1
Global Coronavirus disease (COVID-19) pandemic tests human capacities
A crisis that demands we come together now as a global community (not at 350ppm or after the next great flood, but now); when we are indiscriminately threatened – rich or poor, black or white, Middle Eastern or Asian or Mexican or American – living on this large ship, Earth, has always been a process of grasping at straws. It’s just a question of how we respond to the severity and the immediacy of the need to help and care for each other that determines how successful we will be keeping the ship afloat and the passengers both safe and peaceful. It’s not a question of who’s got more money. It’s not a question of who has more bombs. It’s an elemental question of how much capacity we have to muster our compassion, sympathy, generosity, and humanity. ~ cjzurcher
5
@cjzurcher.com, how can we help each other on a country to country basis when we can't even help ourselves within our own country?
Because this is not a financial crisis. It is for the most part out of people’s hands what would happen next. East Asia have been relatively successful in managing it but Europe and the US haven’t. Not the mention the undeveloped world which clearly don’t have the testing kits nor ventilator to manage this outbreak.
It could all end in a month when EU and US bring it under control and that’s that, a 10% hit on GDP and a few thousand lives. Or it could spread uncontrolled in India, Egypt, Nigeria that lead to the collapse of their economy, government, society and create refugees numbers in the hundreds of millions that bring the virus with them.
Society in the US is also breaking down. Poor communication from White House and CDC and Democrat politicians attack on everything the Republicans do is sawing chaos. There is also huge increase on hate crimes against Asian and I feel soon the wealthy as many low income families lose their jobs. Closing schools also mean thugs are free all days. Money always flows out from the unstable to the stable.
4
@AmateurHistorian - "It could all end in a month when the EU and US bring it under control." That is a bafflingly optimistic assessment of what is going to happen here. Much more likely is the following: The government continues to fail to roll out testing at anywhere near adequate levels, and our numbers remain artificially low. We therefore fail to take the necessary measures to shut down all non-essential businesses, mandate work from home wherever possible, and essentially put the entire country under quarantine.
And as a result of that failing, the cases here explode. Testing or no, it becomes clear by, say, mid-April, that we have hundreds of thousands of cases. The health care system teeters on the edge of collapse. Hundreds, or even thousands, die because of an inability to get treatment, for coronavirus or any other serious illness.
I don't want to be alarmist, so I won't talk about the challenges such a scenario will soon begin to present to supply chains for food and other necessary goods, but I will say that if I were going to put money on the outcome based on our government's performance thus far, I would bet on the U.S. becoming a cautionary tale.
5
@AmateurHistorian
"Democrat politicians attack on everything the Republicans do is sawing chaos"
OMW! It's not the Democratic critiques that are sowing chaos, it's Trump and the Republicans. With very few exceptions, virtually all the Democratic "attacks" on Republican misguided actions are grounded in reality and right on target.
Don't blame the messenger!
@AmateurHistorian
You’re blaming democrats for the chaos and misinformation around the Covid-19 virus, that’s rich. It’s not the democrats that are telling people that the U.S. is Covid-19 proof, is Trump and company, the democrats aren’t telling people that anyone who wants a test can get one, that’s the republicans. It’s clear that your idea of history, isn’t the history that is being written as we speak. Trump is proving how inept he and his enablers truly are. The republicans day of reckoning is coming, and 8 months isn’t soon enough to get them out of positions of power. They will lose the Senate, and the White House, the democrats are going to expand their hold on the house. I truly hope that those who’ve so willingly lied to the people about the seriousness of the Covid-19 virus, that they get sick, not enough to die, but enough to suffer as they’ve been so willing to let the citizens of this country suffer.
1
That the reality looks unreal, as carefully explained by Neil Irwin, is a reflection of the unreal nature of our President and his presidency.
Nancy Pelosi pretty much negotiated a deal with the Secretary of the Treasury. Then the White House, which authorized the negotiation, backs off, mostly because Trump hates Pelosi.
This is what a government of whim looks like in crisis. A worldwide lack of confidence in our President means a growing lack of confidence in the U.S. as a safe haven. That's the most unsettling development yet in a Presidency apparently bent on national suicide.
I suggest the Treasury Secretary give us a national wake up call by resigning if Trump prevents a deal between the administration and the House Democrats.
15
It's all the companies hitting their revolving credit lines while they can, drying up liquidity in the credit market. Fed needs to step in now with assurance they will back up the banks, which have money, so there's no need to panic and hit every revolver you've got.
1
@Ron Garrett
So while corporations have been raking in record profits, been handed a huge tax break, that means most of corporations don’t pay a penny in taxes, some even breached the one trillion dollar market valuation. They’ve squandered their capital, buying back their own stock, enriching themselves and taking equity out of the company, why. Because time and time again the tax payer is on the hook to bail these companies out. These companies put less and less back into the economy through taxes, and take more and more equity out. Take Proctor and Gamble for example, they pay out in dividends what they bring in, in revenue.
Many of these corporations have more debt on their books than they did in 2008, because cheap money was all the rage, corporations could borrow vast amounts of cheap tax payer money and not have to worry about paying it back, because the tax payer will be forced to bail these corporations out, even though these corporations have raked in billions in profits. So why should we bail out corporations that pay zero in taxes, have raked in billions in profits and repatriated billions of dollars stashed in tax havens. Corporations should be self funding, they shouldn’t be bailed out with tax payer dollars, since tax payers don’t benefit from bailing out corporations. No one bails out the citizen who’s job was lost due to no fault of their own. Corporations benefitted enormously from the last tax payer bailout, yet millions lost their homes.
6
No stocks, no bonds, no gold. Sounds like eveybody are so scared that they are going all cash.
6
It seems that whatever actions Trump takes are designed to create more panic and make the market drop even more.
Given that Trump and his buddies are probably aware of the moves Trump will make vis a vis coronavirus/the economy, I hope some investigative journalist is looking into whether the Prez and his pals are shorting the market to benefit from this turmoil.
11
I agree and understand that much of what’s happening with declining markets is the sum of Trump’s bad financial policies coming to their ultimate conclusion.
What I don’t understand, am not clear about: why would there not be a potential upside, given the short term nature of the virus challenge? Once the worst is passed, the virus peak begins to decline, won’t there be some kind of bounce as businesses ramp back up? Thoughts?
1
Whatever policies are chosen to fix markets, don't break politics in the process. Not this time. Policy makers would be wise to consider carefully whether what they propose threatens a repeat of 2007–2008.
It will do the nation little good if the price of making markets look normal is destabilization of an already-tottering political system. Please, no more political catastrophes like the ones which directed trillions to shore up Wall Street, while doing nothing to help ordinary Americans. That blunder still wreaks havoc in the nation's politics today. No more of that, we can't stand it.
10
It's a variant of a liquidity trap compounded by the stock buy backs etc that were the result of QE 1, 2 and 3. The entire market is a balloon in a vacuum, Covid19 is the pin.
4
This is a completely honest question. What would the market look like if wealth were being liquidated and reinvested in cryptocurrency or foreign property?
2
The very fact that the lives of millions of nonplayers on fixed incomes and unknowing players with 401(k)s depend on the entirely fear-based choices of players in the stock casino is an existential national security crisis, on top of all the other existential crises we're in.
FDR tried to fight this with his "Fear Itself" words. Bernie tries to fight this with FDR's policies. Americans appreciate neither.
13
@SR
*Most* Americans appreciate neither, but millions of us do!
1
Looks like markets have lost faith that the Fed is committed enough to keeping NGDP on track to "do what it takes." With supply disruptions, days lost from work and economic costs of "social distancing," real output will fall and if nominal output is not to fall with it, the Fed will need to engineer higher inflation which will require substantial QE of longer terms assets.
The Fed faced a similar problem in 2008 and failed miserably to act decisively enough, not even enough to achieve it's supposed target of a 2% p.a. increase in the price level, much less to keep NGDP growing.
Every day that passes without a policy announcement makes it look more likely that it intends to fail again.
2
I don't find the current market situation weird at all. People are pulling out of all markets, equity, debt and "alternatives" and hoarding cash due the remarkable level of uncertainty. They're shoring up their future by hoarding soon-needed cash.
8
A.I. flash-trading? Lacking data from precedent situations, machine learning starts taking wild guesses. Just a wild guess on my part.
4
This crash was coming, with or without the coronavirus. People's incomes are stagnant. While there are more jobs, they pay less and normal Americans have to work two or three of them. Healthcare premiums and costs are at an all-time high and deductibles are so obscene that people just can't go to the doctor. Consumers are being bankrupted by "surprise billing." College costs are basically unaffordable for the middle class.
Trump's "beautiful stock market" was all smoke and mirrors, gassed up by a tax cut that benefited corporations to buy back their stock, and the one percent to keep more of their millions.
190
Here’s some irony. Impeachment. Acquittal. Election year. Global pandemic. Saudis & Russia flooding the market with oil DELIBERATELY. Market tanking. Coincidence?
A lot of this is inflated wealth. After the bailout and crisis in ‘08 stock prices continued to go up because companies were buying their own shares. Now they’re leveraged against themselves and those who need cash or who will retire in the next one to two years will pay the penalty. Companies should be regulated on buyback of shares.
I feel like I’m in a low budget apocalyptic movie that’s getting released straight to DVD/streaming.
Buckle up folks.
38
Mr. Irwin, have you considered that there might be a Russian aspect to this volatility?
Has anyone considered that the Russians and other villainous players might be both betting against our country and causing problems with the market?
These people wouldn't be content with merely influencing our elections. They would also find it delicious to bankrupt our people and country.
This is one for the ages.
5
Fear on so many levels is driving world stock market instabilities and another global recession. Its not just the pandemic but a lot of it has to do with the top 2 percent being in control in the vast majority of the world's wealth along with the prevalence of illiberal governments spouting up all over the world causing massive economic and social inequities, including the United States.
We are living in a house of cards.
4
The author uses the word ‘investor.’ That does not describe trading today where machines flip stocks after holding them for milliseconds. Speculation is not investment.
23
Wierd, fascinating choice of words - old English wyrd 'destiny', of Germanic origin, originally meant 'having the power to control destiny'.
None of this seems mysterious to me. The president peppered his administration with a who's who of Goldman Sachs and gave away the farm to his wannabe billionare political friends in a single tax cut. Remember the gluttonous grins on the faces of McConnell and Mnuchin that day? I do. And people wonder why the resulting deficits cast doubt on stability. Economists are nothing if not gamblers. If stocks, Treasury bonds, and gold are all in low confidence territory it is because beneath the Republican veneer of fiscal conservative posturing the system was mortaged to the hilt... in exchange for nothing.
23
"All this suggests that major financial players are experiencing a cash crunch, and are selling whatever they can as a result."
I would posit that people of means are selling whatever they can not out of duress, but simply to get into cash so that they can buy more when the market bottoms . . . like 2008, the people with cash are going to make even more.
11
Lest we forget, the Trump business model is to drive your business into the ground, declare bankruptcy, walk away without losing a dine, and buy the gutted remains for pennies on the dollar.
40
@Mack
Yep, also known as the Goodfellas model. Bust it out until there is nothing and then burn it to the ground.
1
Excellent article, with suggested explanations instead of dogma. So imagine: you are at substantial risk of being laid off soon. Your 401K just tanked but you can transfer some from bonds to money market just in case. You know about the penalties that will cause but, hey, your credit cards are around 12,000 and car payment of $500/month. You can do monthly minimums for a while but not on the car loan.
You are not too worried about the virus in terms of your family's health, except for your mother-in-law in assisted living (and, the truth be known, you think the virus would save everybody a lot of grief if she goes quickly now).
You are smart enough to know that this climate stuff is a huge problem for your kids. You know that a sustainable economy, US and world, would have fewer old people who now spend half of the medical costs in their last 6 months of life. It would start with a world-wide pandemic that only kills old people. It would then kill off a lot of poor people, in places that still have high birth rates (anyplace with a middle class now doesn't have a high birth rate). The world population would level off at 5 billion, instead of its current trajectory toward 10. Consumers like you would still be able to buy more than they need, as is human nature.
6
@Emory The mother-in-law. Ouch. Poor old girl.
You are not kidding this is weird. I was sure this event would be sending alternative assets like gold and crypto through the roof. But it as if there is no value in anything that, well, really has no value... I have never seen my net worth get hit this hard so fast, but oddly, I am not that broke up about it.
12
Cash crunch? After everything corporations have been given by this Administration?
2
Maybe it just means people are pricing-in a long overdue recession.
The WHO have blood on their hands: they refused to call for travel bans. Even a week ago, they were saying stigma was a bigger problem than the virus!!!
5
If there is a cash crunch it would mean that there is a lot of worthless ill-liquid debt that could not be redeemed at any price. What we see now is the wealthy having no place to park their cash.
1
Why is this so hard to comprehend? Our financial system has none of the regulatory controls in place to protect from the same patterns that have routinely caused crashes!!! The Glass Steagall Act. Does no one understand we choose greed over common sense. It’s clear to me. Wall Street hates government regulation but are eager for government bailouts when they’ve created an environment of instability. Warren’s ideas are dismissed yet she’s been dead right for years. Richard Wolf as well.
48
Yesterday I flipped on Trump with a bunch of bankers of unknown name or origin all saying they had tons of cash and are ready to lend to small business. Around the table these heads assured the president they had lots of cash and no problems lending.
Then today I see the headline that one point five trillion are allocated to banks by the Fed.
Not again. This while our fearless leader decides to suspend Payroll Tax payments to Social Security by workers?
Now THAT'S WEIRD.
17
He wants the payroll tax cut so that people forget about the problems of the world. Also so that when he goes to one of his rallies he can boast about getting people more money in their paychecks, less the ones that have been laid off from their jobs.
Lest we forget, the payroll tax (FICA) funds payments to retirees. That’s how it is set up. The Social security trust fund will dry up all the faster.
If the trump party remains in power, they will then throw up their tiny hands and sadly “have” to slash social security payouts.
@Kate
Payroll tax cut is the first step in privatization. Claim it is insolvent and shut SS down..
1
This is just good old fashioned panic.
2
I should have realized there was a financial crisis as soon as Trump said there wasn't one.
20
Wall Streets actions will be more devastating than the virus itself.
3
Welcome to late stage capitalism... who would have thought that the guy that bankrupted a casino, let that sink in...a casino, would hastened the decline of modern capitalism. [ insert sarcasm emoji for those unfamiliar ] Endless growth of a finite system is a mirage.
14
The problem is very simple. The market system was arbitrarily constructed for efficient service to its masters, and it had been beholden to lies and deceptions wielded by power and greed for too long.
Market efficiency is a dilemma. The first two problems are noted above. Who does it serve and how is it constructed to serve them efficiently?
The third and underlying problem is this: The market today has become disconnected from its foundation, the basic fundamentals of market system efficiency. The basic fundamentals are labor and production. The key to efficiency there is to secure the interconnections between the two at every critical level. This requires regulated market redundancies of labor and production structures at basic levels to ensure continued market operation and human activity.
We are now seeing where weak connections in the layers placed on the basic foundation have been exposed.
We’ll have a few years of clean up work to fix the problems when this is over. Let’s hope we’re up to the task.
5
A financial system that is geared for the wealthy to make money, regardless of the market direction, is in trouble and now the Fed will come to the rescue, a replay of the 2008 fiasco. Meanwhile, unsuspecting retail investors that have been socking their money away in their various retirement accounts are getting crushed, again. What's in your wallet?
3
Big institutional investors and the grotesquely rich (Warren Buffet's) have bid up the markets exponentially to make themselves even more grotesquely rich.
The result is management of major companies in every sector have their unconscionable salaries and stock grants tied directly to stock performance, which in turn is tied to bottom line profits. There are two ways to make profits: raising pricing and cutting costs.
Boeing was only one example. At Boeing, out went the quality and safety controls (the basis of Boeing stock value for decades) in order to increase profits. Then, followed the "regulatory capture" of the FAA with the fawning assistance of members of Congress.
Everybody wins, supposedly: institutional stock investors ratchet up stock prices in all major sectors of the economy, management everywhere do well as a result, and ordinary people with retirement 401K's are also happy with the stock prices inflation.
But, the 737Max problems burst the bubble for all investors in Boeing. However, the fired CEO walked away with a $60 million golden parachute. There is now always a clause in every CEO employment contract guaranteeing that no matter what the CEO might do wrong, he or she will profit enormously. Since CEO's have absolutely no personal risk in their efforts to increase stock prices, what wouldn't unscrupulous CEO's not be capable of doing?
Investor pundits are now warning people with 401K's not to sell; that would be bad for institutional investors.
11
@David Lockmiller
The New York Times reported today in its Business section in a story titled "Boeing Said to Add Another Fix to 737 Max to Appease Regulators."
According to the article,"[t]he wire bundles were so close together that, in rare circumstances, they could cause a short circuit and lead to a catastrophic failure."
At the time, the Boeing design and quality control teams did not consider this "rare circumstances" possibility of "a short circuit that could lead to a catastrophic failure" to be enough of a problem to implement a fix.
According to the article:
"Boeing has argued privately to regulators that the likelihood of such a failure is remote.
Boeing had hoped to avoid having to uncover and separate the wiring, but concluded that global regulators’ insistence on it might further delay the Max’s return, the source said."
I wonder if FAA safety inspectors would have raised safety concerns . . . had they been on the job at the time.
Perhaps members of Congress should give some consideration to lax enforcement of government regulations in general, as a matter of public safety.
1
Big institutional investors and the grotesquely rich (Warren Buffet's) have bid up the markets exponentially to make themselves even more grotesquely rich.
The result is management of major companies in every sector have their unconscionable salaries and stock grants tied directly to stock performance, which in turn is tied to bottom line profits. There are two ways to make profits: raising pricing and cutting costs.
Boeing was only one example. At Boeing, out went the quality and safety controls (the basis of Boeing stock value for decades) in order to increase profits. Then, followed the "regulatory capture" of the FAA with the fawning assistance of members of Congress.
Everybody wins, supposedly: institutional stock investors ratchet up stock prices in all major sectors of the economy, management everywhere do well as a result, and ordinary people with retirement 401K's are also happy with the stock prices inflation.
But, the 737Max problems burst the bubble for all investors in Boeing. However, the fired CEO walked away with a $60 million golden parachute. There is now always a clause in every CEO employment contract guaranteeing that no matter what the CEO might do wrong, he or she will profit enormously. Since CEO's have absolutely no personal risk in their efforts to increase stock prices, what wouldn't unscrupulous CEO's not be capable of doing?
Investor pundits are now warning people with 401K's not to sell; that would be bad for institutional investors.
2
It is more than likely that we are headed for a more severe repeat of the crisis of 2007-2008. I use the word "repeat" not because there are no novel features of this current debacle, but because, as happened then, the 0.1% were bailed out by the 99%, and this is the most likely result, again, in this situation.
6
@mlbex Exactly! Nature cannot sustain continual growth, whether it’s plants or animals or humans, unchecked growth destroys the ecosystem. The economy is, of course, the same.
Your comment makes the most sense of anything I’ve read recently. I would love to live in a society that is honestly working toward that.
It gives me hope, in these desperate and depressing times, that there are people out there who think and feel as I do.
Thank you!
2
Setting aside price/earnings ratio of the market for a moment...
Stock values are ultimately based on the discounted value of future earnings. Given very low interest rates, a dollar 5 years from now is worth very close to a dollar now. Therefore, if you believe price earnings ratios are correct, then for the market to fall this much you have to believe earnings are going to be affected a very long time into the future.
Your welcome.
3
The cash crunch hypothesis grabbed my attention, even though it's near the bottom of the article. I hope to see additional analysis on this cash crunch. Thanks.
6
So maybe the corporate tax cuts that were used to buy back stock instead of investing, in any meaningful way, in employees is backfiring? No one (and by that I mean everyone) saw this coming. We’re probably on target for the presidency to change hands so Democrats can clean up yet another mess while the GOP scream about fiscal responsibility, even though they’ve been as silent as church mice since depleting the treasury by handing out money to Amazon, Netflix, and other multi million/billion dollar corporations. I’d like a retirement fund bailout, please, but am instead, as a worried consumer who wants to save money, being urged to spend money to keep the economy moving. (Sigh)
24
This market volatility and price settlement confusion are the results of an unwinding of staggering amounts of debt. Nearly all institutional investors have borrowed to juice returns. Why not with interest rates so low?
This may be the black swan scenario that lays bare the intrinsic ineffectiveness (or fraud) of a 12 member committee determining interest rates.
Allow markets to determine borrowing costs and economic signals can be sent clearly by market participants.
4
I have been making an attempt to avoid focusing on a single individual, that human being named Donald J. Trump. I'm old enough to remember FDR, and the comfort that he gave to this child and the country.
In the late 1950s the U.S. Treasury decided to no longer keep Silver Dollars, so they were selling them by the barrel out of their building on the D.C. Mall, the cost being it's nominal value, and people were grabbing them, as they could never be worth less, and only appreciate as collectors items.
My point is that there was confidence that our monetary system, our government, the continuity of the U.S. and yes, the world would continue. Fiat money was fine, as long as every country was responsible and joined the system, with the US taking the lead.
Now we have our cell phones, which are secured by the password kept in our declining brains, as the software and formats change on a daily basis. And we talk about "winning" --- political parties, candidates, countries, social economic classes, and races, ---- who will win and who will lose.
One person can do so little.
8
The markets are reacting to uncertainty of how long the virus will impact the economy. It looks like a long time.
No amount of traditional economic remedies or travel ban is going to change that uncertainty.
The only thing that will calm people and the markets is a rational government response aimed at the medical problem. That means an immediate, massive, all-out government mobilization to manufacture test kits and supplies for the medical community, including field hospitals.
And even then we are in for 9 miles of rough road. At least we will have some comfort in knowing the government is aiming its resources correctly and doing all it can.
6
@Dan88 You actually think that is going to happen at Trump's direction? Did you see the fear in his eyes last night? He has no idea what to do so he talks about money money money.
The market has been due for a fall without the virus. The debts like Used Cars, school debt, credit cards, oil fracking, and not to mention the Republican give away to corporations and billionaires. The Republicans want to attack Social Security, Medicare, and Medical. Just to mention the Administration is using powers created by the ACA, Obama Care, to carry out their emergency orders at the same time they're in court arguing that the ACA is unconstitutional.
16
As an average joe, I can’t say looking around me that the economy was doing that much better over the past 10 years. So when I heard people talk about this amazing economy I felt that it was built on shaky ground.
56
Talk about a market correction! I guess Bloomberg, Bezos, Gates and Buffett are no longer billionaires. For many people none of this matters until the consequences affect our food supply and access to health care. Then we will really have a problem. The market will bounce back -- eventually.
9
@PeterW
Joke!
In the last few days Buffett had his big annual meeting of Berkshire Hathaway where he revealed they are sitting on 248 Billion dollars in cash. After the most profitable quarter in their history.
4
With Trump's huge deficits through spending increases and tax cuts, and demands demands for interest rate cuts--all at the wrong time--it becomes more and more obvious how he managed to bankrupt his businesses. He could not have anticipated COVID-19, but he could anticipate that some black swan event could occur. It seems every GOP presidency ends in disaster and the mess is left for a Democrat to clean up.
65
So glad our entire world wide economic well being is based on
1.the emotional status of upper class entitled bros
2. That ever schemes and scandals that they engage in to off load their risks on the other guy
3. The deep desire of the political class to protect these peoples interests
4. Algorithms.
33
Cut the military, restore the wealth tax and focus on keeping paychecks. Directly if necessary through unemployment system.
34
The best time for workers' 401-k's and 4023-b's has been the Trump administration.
He didn't just cut taxes, but has been working with Congress all the way through to cut back on the jungle of over-regulation.
Under presidents unwilling to supervise the executive bureaucracy, we end up with gov't regulators competing with each other in shutting down workplaces, mines, and energy sources.
This was the craze that ended up with water puddles on farms being designated as ''wetlands'' and such.
Trump has been on top of that garbage, and most presidents just refuse to be bothered to look.
Wow, have you looked at the numbers lately? Back to around where they were when Trump took office. It's like saying the rocket flew high and that was good as you watch it plummet to earth.
4
@L osservatore Facts are stubborn things. The explosive rise in stock prices was 2-3 standard deviations of P/E ratios from historical norms once the Down pushed above 20K. Like giving a diabetic child cotton candy for lunch, these markets were driven by cheap capital, deficit spending, and tax cuts. The FED has no more bullets in the chamber, and so this downturn will likely be as bad, if not worse, than 2008. And, no surprise, that crash was created by 'financial products' created to sell garbage debt to unwitting investors, insured by corporations who willfully overlooked the risks.
Some folks never learn.
5
@L osservatore
Thanks for pointing this out, because you have just underlined the principal reason why Trump will probably fail to get those workers’ votes this year - unless, of course, the virus miraculously disappears next month, as he hopes. He has crowed about the rising stock market every chance he had, and he did everything possible to keep the money flowing into the bubble - regardless of whether it made economic sense to do so. Now the coronavirus is popping that bubble about ten months too soon for Trump’s reelection chances. Workers are not going to be happy to have their accounts back at the level of 2010 or worse - losing half or more the value of their retirement savings! And if they get laid off or laid up with the virus, they might have to sell off some of those devalued stock funds just to keep food on their family tables. From that perspective, deregulation is irrelevant to the current eco-medical situation; if anything, dealing with the epidemic is going to lead to more government regulation, not less.
1
It seems clear that in all areas of consequence in American life, Donald Trump is the wildcard that makes things unpredictable. As I see my U.S. Treasury Bond account tank even as my equity index accounts on a freefall, it's clear to me that investors around the world are losing faith and credit of the American government. The timing of this is uncanny. Will the American voters remove the greatest source of uncertainty and incompetence from the White House in November, or will Trump's base put him back in power to torch whatever faith, credit, and assets this country has left? It took centuries for the American government to build its reputation, Donald Trump took less than four years to lose it.
68
But we have a great businessman running the country. What could go wrong?
14
@Dan B
Are we finally going to discuss his multiple bankruptcies?
4
Is there something funny going on or is this a continuation of the last rout? That was when we were introduced to the binary, risk/on or risk/off world. Money was either invested or it wasn’t. When you have bond funds behaving like stocks, it was explained that no longer were there safe harbors in modern financial storms.
Until a few months ago I owned a safe and sane muni bond fund, no leverage, boring. In the old school, with interest absolutely cratering, the value of higher yielding bonds would increase. But not so. The chart for that security emulates the stock markets though less severe. Are there evil forces about or is it just, “run for the hills!” ?
1
@G Spelman It is over-leveraged financial interests selling anything with a good bid to shore up their margin calls and collapsing investments. These folks are amoral, and will sell anything with a strong bid (i.e. safe bonds, gold, etc.) to salvage themselves.
Result = everything tanks until they are bled out of the system.
These vultures are part of the problem, not the solution.
And let's not forget that this administration has pushed for banks to be allowed to, once again, speculate in HIGHER risk areas.
1
Any serious, lasting, and effective structural and regulatory changes required and put in place after the 2007 - 2009 economic collapse by the Democrats when they controlled Congress and the White House have been rolled back and gutted by until recently a self-congratulatory, back-slapping happy, Republican Party. Let's see how well low regulation and no government oversight works for Trump and his Party now.
10
The most probable explanation is that the markets are now under the influence of individual psychologies due to the coronavirus (COVID 19) pandemic. According to the article: "Underneath the headline numbers were a series of movements that don’t really make sense when lined up against one another."
The pubic has never experienced a pandemic before, and nobody really knows how all this is going to work. As for linkages between different sectors, those just dissolved too. The rules of cause and effect just went out the window. New rules will soon be in place.
In terms of psychology, imagine a crowded theater where someone just yelled 'FIRE'. Those who can control their own emotions will do the best. Stay calm, and carry on.
Last week I tried to buy a bottle of isopropal alchohol to clean my leg prosthetic. The shelves were stripped clean at Target, CVS pharmacy and CUB foods. I finally found a can of paint remover at ACE hardware, and paid three (3) times the normal price. The end caps at the hardware store were full of cleaning supplies...normally low margin items relegated to the bowels of the store.
All of this while here in Minnesota, we've only seen about a half-dozen cases of COVID-19.
The new rules of cause and effect are already are emerging.
1
It's the junk corporate debt. Low interest rates and Trump's love-fest with helping the wealthy has created seriously risky corporate debt that's been rolled up - the way junk mortgages were rolled up years ago.
10
@Evelyn G
They had 200 billion tax cut this year. They didn’t pay their debts?
1
A cash crunch by the major financial players? At this point after 11 years of this kind of growth? That in and of itself also strikes me as bizarre. Everybody including presumably Wall Street has long known that Trump was unfit and inept, would be useless in the face of any real crisis, and was predisposed to oligarchy if not autocracy.
4
The financial calamity of this last week pretty much marks the end of the Trump administration. Why? Because the considerable % of 'what's in it for me?' voters, which includes probably at least 50% of the financial world, are waking up to the fact that this administration has no bigger plan in play. They over-stimulated the economy with tax cuts and low interest rates, and now there are no more bullets in the chamber, and all of the over-leveraged positions are unwinding over a period of a few days. They now have confirmation that this administration is run by rubes, and this threatens their livelihood. They will vote for Biden in the coming election as the only port of stability in this storm. Their game of over-leveraged musical chairs is over.
Where are the Tea Party fanatics, railing against financial mismanagement? -- now deservedly dying an ignominous death. Where is Rand Paul? Paul Ryan? Where are the clowns? There ought to be clowns. Don't bother, they're here.
66
We will all get through this. We have before, like the 'dirty 30's', and we will again.
In the meantime some lessons learnt from my Scottish granny that bear repeating:
* Make do and mend
* If you cannot afford it, you should not try and have it
* Use it up, Wear it out, Make it do, Or do without
* A right, proper dish of Skirlie-Mirlie will warm the coggles and save money. Here is our family recipe for it:
2 cups cooked turnips
2 cups cooked potatoes
1 tablespoon butter
1 half cup of milk
Fried or toasted bread
Pepper and Salt to taste
Mash vegetables. Melt butter in pan and add milk. Heat. Add vegetables. Add S&P to taste. Serve on fried or toasted bread. Wash it down with a pint of your favourite. This is a recipe that is traditional in and around Aberdeen, Scotland, but many Scottish-Canadians have been eating this for donkey's years.
16
@On the Salish Sea
When you say "Or do without." Do you mean food, rent, or medical care, or maybe all three.
1
@On the Salish Sea Replace the neeps with carrots and it's my family's receipt. Very tasty too. Think I will make some tonight.
3
@hiuralney Oh, for sure. Carrots with you tatties also works well. Having it with a pint of your favourite may help to keep the virus away.
1
Lack of liquidity in the market for Treasuries and trouble getting repos is "shadow bank run" territory.
Last time, there were enough liquidationists in USG financial policy positions to let things run their course. Maybe we learned something from the experience.
This article is NOT helpful to the small individual investor. In fact it is harmful, because it sets up an expectation that the sky is falling.
There is ALWAYS weirdness in the markets when they are volatile... and it is NOT always the same weirdness. Day traders, and large block traders and program traders need to be concerned about such weirdness because it makes short cycle trading very risky and chaotic. Small investors however should NEVER be playing the short cycle trading market for profits.
Honestly, if the market could recover so strongly and persistently for so long after 2008, it will do so this time around as well. It will just take time for the triggering uncertainties to subside and investors get back on their daily trading patterns... while small investors should ignore it and ride it out.
The only thing I would not be doing right now is putting cash into investments until the market shows that it has bottomed out.
Note: these sorts of down cycles tend to feed on themselves for a while... a lot of it could be secondary effects from margin calls.
6
I am an individual investor and I appreciate this article. I changed my portfolio two years ago to use the "Risk Less and Prosper" approach for my near and mid-term investments. I don't think the sky is falling. But even weird events often have major, precipitating factors. I would like to know what they are.
2
Oops there goes my retirement account, down 10% in a week, invested in one of those managed funds set at "conservative" and "retire within three years." I can't imagine folks' accounts that are set to "aggressive." Maybe I'll live thirty years in retirement (starting in six months) for this week's losses to recover.
3
Virus was simply the catalyst that has put the world in a global recession. This will then burst the bond bubble and that's when the fun will start: bond defaults, bankruptcies, negative %'s, etc.
Winston Churchill: "This is not the end. It is not even the beginning of the end. But it is perhaps, the end of the beginning."
Think worst than '08.
12
Curiously the options market has gone bizarro world. Call options $30 out of money are selling for $4 ? When they were in the money by $1 a month ago they were selling for $3. (For those not familiar with options this can be summed up as "crazy")
Obviously a volatility bubble fueled by panic and paralysis.
What a time to have Default Donnie at the helm.
9
There is a different narrative that might offer explanation: The market height was based on exuberance, and a major correction was inevitable, just waiting for a trigger. It just happened that it was a health threat that engendered panic and fear. The gyrations may well represent changes predicted by Taleb in "The Black Swan."
In any instance, the markets are clearly voting on the quality of leadership coming out of Washington.
7
People are going to cash to maintain liquidity, stop loses, and protect what they have today. Instead of the the traditional flight to bonds / gold, they are so nervous about volatility they choose cash. Believing it is better to forego return than risk their asset. The question with this strategy is; how will the purchasing power of cash fair?
1
What is happening is not all that weird; it has looks like a real or anticipated liquidity crisis. In the long term,consider the following assumptions; 1) the pandemic is real and will cause unknown disruption and economic loss before being over;2) the market has generally been up for the last decade making a lot of money for a lot of people; 3) markets will invariably correct at some point and at some point be oversold, making stocks cheap and a long term winner. In the short term the market is driven by fear and greed. We are nearing the height of the fear stage. While the greed side is acting out of fear of losing more money or profits. I would expect that while the market may go down 30 to 50% from it's recent heights. I would also expect that if starting in the next 3-6 months a person began buying into the market, that in 5 to 10 years it will turn out to have been a very good investment.
9
@LB
Buy in with what? What if the Big Boys are all hedged to the hilt.
"A winning team that scored lots of points despite not gaining much yardage, with an opponent that did the reverse."
That sounds like every game the Chicago Bears ever won.
Jokes aside though, I'm not too concerned about the anomaly yet. Two days is hardly a trend. The murmurings about fiscal stimulus probably have markets running in strange directions. The question is what happens to markets when the economy truly does crash. It will.
A rush to cash suggests people are expecting the tide to go out. Many are wearing fewer clothes than appropriate. However, there's a corollary to this assumption. Buyers are rushing for cash because the expect to buy low. They see stock markets plummet. They want liquidity on hand to buy at the trough.
Self-serving and unhelpful perhaps but not unnatural. We're left wondering whether things are truly haywire or just unusually greedy.
4
During the last year or so, Trump would offer negative news about trade talks. Stocks would fall. The next week he would say a deal was imminent, even if it wasn't true. Rinse and repeat. I'm pretty sure a lot of his cronies received this news on the golf course. I could not believe that stocks continued to rise and rise, even after his impeachment. The Republican Party looked vastly incompetent, but the record highs continued. What we are seeing this week is that incredible incompetence that permeates this administration and this party. We still don't have a real testing protocol. Virtually every other country has done better, but Trump wants to hide the true number of infections. This will lead to a global recession and massive unemployment. This reality show is not very amusing anymore.
23
Ahem, who exactly would want a Treasury Bond today?
Firstly, the US has a leader who is undermining the economy of the United States in any way possible: screaming and threatening its central bank, issuing travel bans that make no sense against allies w/o consultation, running record deficits, imposing tariffs, and blurting demagoguery ("foreign" virus, it was the EU's fault, it was the Chinese, it is the Democrats...)
Then our GOP leader in the House objects to giving extended unemployment benefits capped at a few hundred dollars to those losing their jobs by the thousands, yet is all for free BILLIONS for banks from the Fed, and takes cheap shots against the persons actually doing something (Pelosi and McConnell)
And THERE is a VIRUS scourging the land. And our leader is worrying about tax deadlines and loan guarantees for the cruise industry while people are going around untested because there are no tests, infecting others, while the grocery stores become empty, etc.
Anyone wanting any treasuries?
22
Selloff is rational. Fear trumps greed. Or perhaps it fear of Trump's greed.
4
I think we’re seeing panic at one level, but also manipulation at many others. Is this pandemic of, essentially, sniffles really worth this hand wringing better served by hand washing?
It’s just Trump doing what Trump does best - running an enterprise into the ground.
157
Yet another example of money going to those who deserve it least. I love how they couch the language to make it seem like less of a payoff....."The programs were meant to pump liquidity into various corners of the financial system." In other words, they sent cash to bankers who didn't have enough. Free money, but only if you are a rich banker. I know, "if there is a run on the bank...." blah blah blah, incredibly, the banks keep finding ways to overextend themselves, making huge profits when things are good, but then crying for help when things go bad.
Why doesn't the fed pump money to folks who actually need it, like the middle and lower classes instead of rich bankers who vacation in Monaco!
10
House of cards and always has been.
13
The end of a gamble you played with Trump.
17
In 2008/9 I had some confidence adults were managing the economy. Firstly Hank Paulson to whom Dubya delegated the entire mess and then the combo of Obama/Geithner/Bernanke clearly knew what they were doing and which tools to use. Now we have an idiot at the helm who thinks he's a financial genius; he's supported by mediocrities like Kudlow and Mnuchin; and he's at war with the Fed. It is scary.
118
Trump to Dow Jones:
"PLEASE clap."
10
The opposite of irrational exuberance is not rational prudence, but irrational despair. We are in a highly volatile period with certainty that the situation is bad, and uncertainty about how severe and persistent the bad situation will be. The markets right now are inefficient and only better information, and some unknown amount of time, will be effective as a remedy. Meanwhile, some added liquidity, targeted aid to distressed consumers, small businesses, state and local health resources, and workers would help. A speedier and more competent federal response to the public health challenge would be very nice too.
1294
Ever gone to your boss whining about some problem and (s)he responded, ‘ don’t give me problems, give me solutions’? This comment is great for the simple fact that the author offers at least some solutions. Surely the Fed is not so hamstrung that it cannot address this with strong and decisive action?
43
@Neil In 2016 when we finally accepted rational prudence the voters and our electoral college and finally the GOP opted for political despair and irrational exuberance.
Perhaps this time we will accept rational prudence and political hope.
61
@Neil said, "A speedier and more competent federal response to the public health challenge would be very nice too."
It would be nice but I am not holding my breath. the crazier the world gets, the crazier Trump will get. And instead of controlling him or ignoring him the people around him, and the GOP leadership are going to wreck the country trying to keep Trump happy. The inmates are running the asylum. The next Democratic administration is going to have a huge mess to clean up. AGAIN. And this time they better not let the GOP off the hook. There needs to be investigations, indictments, and convictions. Many of them.
360
Good article. Many investors have know, for some time, that the market is inflated by historical standards and would eventually have a correction or “reversion to the mean”. Prudent investors would have invested for the long term and rebalanced their portfolios often enough for the level of risk they could handle. Appears that time has come, or happened as it would be. Time to ride this thing out.
523
@A Centrist
"Time to ride this thing out."
Very true. The way to make money is "buy low, sell high." The reverse does not work well (and yet, there will be numerous examples of that reverse over this crisis).
18
@A Centrist
The way to deflate an overinflated tire is to use the valve to let some air out rather than driving a nail into the tread. But investors hate a valve they do not control and cannot influence to boost their particular investment class, so they have managed to act together to hide or jam the valve or otherwise render it inaccessible.
Riding the thing out means losing less than others and vacuuming up what they had to abandon. It rests on the faith that the downturn will not be severe enough to revert to the mean and then keep going until some sort of minimean is reached.
Venezuela probably has some prudent investors who are riding things out. A prudent investor's goal is to be one of them rather than bringing the nation's or world's economy back. Prudent investors work for the common good only incidentally, via the Invisible Hand. And the Hand sometimes takes a break.
12
What is the "mean" value under the extra-economic pressure of Covid-19?
7
It appears to me that what is happening is investors taking their money out from everywhere and not investing it in another market but preferring to sit on cash for the short term. Is someone checking inflows into money markets, as there are no safe havens at this time? The strength that was built into the economy after the 2008 crisis was squandered in the past 3 years both by the government as well as the Fed. Instead of slowly pushing the interest rates up and selling hoarded assets the Fed chose to sit tight and reduce rates pandering to calls from the President. Now the Fed is left with no ammunition to fight the crisis. Instead of slowly plugging the deficit and reducing debt, the administration's choice was to increase the debt and juice up the markets squeezing the last drops of energy left. Now the chickens have come to roost. The investors in 401k, pension funds and others who need the money soon will pay for this misadventure. Investors who have time or the wherewithal to ride it out will survive and thrive. We have seen this movie before. We need people at the helm who can run this country responsibly.
3396
Hoped to retire next year and open a job for a youngster. Oh well.
130
@Jay and in a double whammy, a lot of those same investors who can't wait it out are also the people most susceptible to the virus, i.e. people on pensions and 401ks. retirees have something like a 5-10% fatality rate from it :(
89
That’s what I was thinking too. It’s what I’ve done personally.
46
The thing I don't understand is why don't we raise tax rates on the high incomes and wealth of the rich instead of cutting payroll taxes and such? First this cut poses long term problems for those dependent on SS and medicare by reducing the money paid into the trust funds. Second it also explodes an already bad deficit and third it helps those who are well of more than those who need it. Tax financial transactions, raise income tax rates on the upper brackets, increase the capital gains tax rate, restore the inheritance tax. Pay for the needed spending instead of taking from the SS trust fund then coming back in two years and claiming we need to cut SS.
32
@DRTmunich
They are using the event for theirs personal gain and political goals.
2
There are too many powerful lobbyists who'd never let that happen.
1
@Mathias because the rich control the lawmakers, and they won't allow that to happen.
1
Oh great there goes my retirement account— my IRA invested cautiously, like millions of others, only in the stock market because of very little real other choice. It may be that all I’ll have left is my meager social security (meager due to the “mommy trap” I fell into ) (but those grown up kids are doing great, thanks). The very same social security that conservatives constantly threaten— now with Trump’s imbecilic “tax holiday” proposal. Yeah that same social security that conservatives would have long ago liked to have given me the “choice” to invest in the stock market. Yay. So I could once again watch it all tank because the markets are doing something “weird.” You know what’s weird? While all of us cautious investors watch our retirement plummets.. there are traders, short sellers, profiteers, getting filthy rich, right now.
1983
@Suzanne
Unless you are very near retirement, it does not matter. It's all paper losses, and temporary, unless you panic and sell.
Now.. if you were within 5 years of retirement, it would already have been prudent to be shifting into safer investments.
For retirement funds in 401Ks and IRAs... you invest for the long term, incrementally over time, and you stop looking at your investments during a market panic. Nothing of value is gained by worrying about it, because markets go up and markets go down. The only amazing thing over the last decade is that we went over 10 years without a market correction in the form of a recession.
112
@Chuck
A) This may not be temporary at all.
B) Suzanne's argument is not against dips in the stock market, which we all accept, but rather WEIRD AND EXTREME dips in the market, which could have been mitigated/ avoided through prudent policy making and executive action, the latter of which is lacking.
193
@Chuck Some of us *are* very or already *in* retirement. We matter too.
218
Since the last major meltdown, the markets have changed their character and market moves seem more independent of news than in the past. One reason why I stopped day trading as a retirement hobby. This all seems to be coming undone at present but there are still big, anomalous moves. But as for stocks and bonds falling together, the one thing that comes to mind is a loss of faith in the fiscal integrity of the US. With the bankruptcy king in charge and an unprecedented go it alone approach -- I would not have believed that so many things could become broken in such a short time. I had hoped that an election could fix this... but am no longer so sure of that.
1211
@Greg Latiak Count your blessings that you stopped day trading- an activity that has been shown to be a money-losing pursuit over the long term.
8
@Greg Latiak
'I would not have believed that so many things could become broken in such a short time.'
Yes, it is amazing it happened so fast. But Trump came into office with exactly that smash and grab purpose: get rid of anything Obama and Democrats did, as fast as possible, and give as much money as possible to the rich, because 'after all' they deserve it. Trump has nearly broken our country; we can only hope the election comes in time, and that he doesn't have a deal with Putin to take us over in exchange for canceling his loan.
195
@Greg Latiak
My international bond is behaving the same ornery way - it's going down as well.
5
I am a psychologist not an economist so the points I make here are speculative and not necessarily informed by economic theory. First, if big money has become overleveraged over the last however many years because borrowing was cheap, leading to a "cash crunch" now, Wall Street once again getting bailed out by the government by making borrowing even cheaper, seems wrong. It would be an example of covert socialization of risk by big finance. At some point, it might be better to make Wall Street pay for their decisions and not resort to act of God or too large to fail justifications.
20
If you know what "war" is, you understand what we are lacking. First, the enemy must be met with overwhelming force. The virus is somewhat invisible, but not invincible. So, we are clearly lack both leadership and courage. The virus must be decapitated. The virus will win if we make this a war of attrition. It will cost us the confidence that our government can ever protect us. Financial markets nor economies work in those nations in the world.
We are creating an economic depression due to lack of confidence. There is no "value" in a business that has no future.
This was predictable as an outcome under the regime of Trump. It is as plain as it was when any authoritarian wannbe actually gets control of the levers of power.
I agree with everyone calling for immediate nuclear weapon response in medical terms to the virus.
Waiting for this to happen from the top is folly.
I encourage State Governors to meet and simultaneously announce a uniform halt to all commerce and most movement.
I urge the Joint Chiefs of Staff deploy the regular armed services to erect quarantine facilities and testing field hospitals.
Even though the current casualty rate does not match wars that I have seen and studied, this war is far worse. The casualty is the future of the formerly richest nation composed of the greatest people on the face of the earth.
Trump must be removed from office by any means necessary. That will mean that Republican Senators must summon their devotion to country first.
2
At one point last fall it was reported that 30% of the NYSE was owned (?) by foreign investors . Globalism in action.
About the same time, Paul Krugman was writing about the "confidence fairy."
Now we read about the sudden collapse of the price of oil in a tug of war (irony there) between Russia and Saudi Arabia. And also it seems, the cost of coal-generated energy plants exceeding the costs of bringing solar and wind power on line.
Can someone explain if and how these factors are related to current financial market volatility: stocks vs. bonds?
4
The stock market is rigged. Consider that as the true reason it is hard to explain it with any good, logical explanation.
6
Americans (and global financial traders) who invest in our financial markets do so with the presumption there is honest and correct reporting of market trends, company earnings and revelations impacting share value, and government oversight and regulation. What if there has been a corrupting influence on one or more of those three legs of the stool?
What I would point out is over the past 3.5 years how POTUS Trump has periodically come out with remarks which boosted the stock market, and if you were Trump (or one of his closest Wall Street allies or mega-funders) you could benefit short term by going long or shorting your stock holdings. Think about this for a moment - if the "herd mentality" followed Trump's commentary and watchdog, Steve Mnuchin and SEC, turned their backs on such behavior, then there would almost be an artificial elevating of the stock market - something really NOT THERE based on the underlying economic performance. This might be further bolstered by playing with the employment numbers, trade deficit data, economic reporting from various sectors. Furthermore, if the REALITY of disaster trade policies were overlaid on the this scenario, then it could be the time for reality finally broke through.
5
Stimulus. Response.
Stimulus: Donald Trump is a con man who does not know how to govern, much more stir the nation in the midst of a global pandemic.
Response: Wall Street is no longer buying the con and wants Trump out of the White House so that a real leader can take his place.
Trump is done.
And he knows it.
That deer in the headlights look last night speaks volumes.
64
People no longer trust government. How much will a Treasury Bond be worth when trump bankrupts the USA?
11
No big mystery here. It's just that the Trump Taint has reached the world's economic system. Trump wrecks everything he touches; now it's the stock market. No relief till we eject the source of the infection in November.
20
The only way to bring back stability is to ensure people keep their jobs and paychecks coming in.
Americans need direct support, not loans.
10
Cash is king. When we are headed into a deflationary liquidity trap. Why get a negative real rate of return when with holding cash your dollar or better still Swiss Franc will go up in value in terms of what it can purchase every day.
US bonds are also no longer the safest instrument to buy given the disarray and incoherence coming out of the US government. And what if the Chinese start selling their US securities because they need the liquidity back home.
Quantitative easing is meeting the law of diminishing returns. With the Chinese government this time around unwilling or unable to bail out the US over-leveraging their highly unbalanced capital accounts.
10
One explanation involves many enterprises being over leveraged, not as a company but as industry standards. An example is fracking.
If they hit a price drop industrywide, they have no flexibility, and it is a whole industry not just one company.
This is part of what happened with the derivatives financial crisis.
Some of these industries are linked. Fracking again as an example is linked to the lenders who loaned them too much based on lease "assets" that have value only when the industry is doing well. When the price crunch comes, not only can the industry not pay, but also its security no longer has value. So suddenly the lending industry has the same problem as the fracking industry.
We have an oil price war at the same moment as a coronavirus business activity/demand crisis. Both are massive dumps on the supply side.
Wide price crashes (deflation) are always dangerous, and more so in the face of excessive leveraging that left financial reserves anywhere in the system.
If this is true, it is 2008 all over again.
11
What's going on is a charlatan President who was handed an expanding economy and instead of tilling the rudder decided to punch the gas. Now he has no tools to staunch the bleeding and it is obvious to the world that this emperor has no clothes. No one has any faith in his ability to actually lead. It is going to be a long, hot summer.
2573
@Beyond Karma You summed up the entire situation in a single paragraph. I'm going to memorize it and repeat it to the occasional Trump acolyte that I chance upon. The ones that say "well, Trump's good for the economy". Thanks!
126
@Beyond Karma
Trump and his economic advisers like Larry Kudlow believed their own lies that the Obama recovery had been lackluster because of his policies and tax rates, and claimed Trump's would be "like rocket fuel for the economy."
In truth, Obama handed over the keys with the tank already full of gas, so Trump and the Republicans just doused the whole vehicle with their "rocket fuel."
101
@Beyond Karma
It's tragic. When he assumed the Presidency, Trump was in a position to re-build this country's infrastructure and invest in the future. Instead, he gave a giant gift to those who need it the least, by mortgaging the future. And a whole lot of people, out of greed and hatred, helped him do it.
242
At least Americans can take comfort knowing that this is all being managed by the cool, calm and intelligent leadership of Donald Trump.
25
Two observations: 20 years from now when the seas are rising and the storms are howling, this will be a footnote.
And, Wall Street takes your money and their experience and makes it their money and your experience.
29
It could be, of course, that even Americans secure in their portfolios, who could dismiss the inane tweets and policy turn-abouts coming from our erratic but very stable genius, are now running scared, having realized that the self-aggrandizing, often-bankrupt bon vivant they elected is actually what he always was -- a sad bumbler.
44
Economy is clearly crashing because it no longer is sustained by Mike Bloomberg's ad buys.
25
Thank. My first smile in days.
3
Something weird is happening. People are now seeing the emperor has no clothes. Everyone can see it but him.
30
"Everyone can see it but him [Trump]"
Well, everyone but him and his base. In the case of his enablers (Fox News and radio, and Republican elected officials and party [dys] functionaries, it's more a case of willful denial--motivated by the obsession to obtain and retain as much of the glitter and illusion of immediately attainable power as possible in the moment--much like alcohol leads one to believe that all is possible, the world loves you, and everyone else is wrong.
4
Wall Street is realizing America has no leader to place our confidence in.
40
the last three years have been a potlatch of greed...w much of the massive tax cuts going to stock buybacks (not investments), used to boost stock values, used in turn as bonuses to senior execs, a kind of strip mining of corp value across many sectors. the money spent on that has just now evaporated, w firms and the govt are all now insanely leveraged. no trust in govt bonds or the stock market... that's where we are.
"hire" a guy known for bankruptcies and expect bankruptcies...
51
Herd mentality.
What happens today is much more benign vs. 2008 when the folly and stupidity nurtured for years, erupted as a volcano.
Today we have the stupid virus around but the economy is much, much better than 2008. This is completely a 'vis major' situation. The 'only' thing we need to address is the corona and that will come along soon, why wouldn't it, with so many trials ongoing and so much attention of the population?
And we should really reply somehow to that 'oil war' meant to destroy a strategic industry in USA, intentionally or not.
1
The explanation is simple: the Saudis, Chinese, and Russians are taking their money out of the West, because the financial system has been used against them. The ignorant fool is playing his role of limiting any effective response.
No one ever measured how much we need their money; now we’ll know. Most likely, short interest is hidden behind impenetrable layers of corporations, except for Putin who likes to show off.
6
whatever the outcome of this market, vote Democrat.
43
Somebody is making a lot of money that’s for sure
9
I will not be surprised if the S&P falls back to its 2010 level (about 1200).
Because the bulk of the post-recession "recovery" has been on Wall Street, not Main Street. Apart from some increased profits based on increased "efficiency" (such as increased roboticization of production and fewer human employees), the main driver of Wall Street gains post-2008 has been stock buy-backs, creating stock pseudo-profits. And Trump's fiscal mismanagement strategy has all been based on pushing more and more capital into the system, creating a real stock market souffle. Now a virus has pulled open the oven door, turning that souffle into a messy glob of scrambled eggs.
Yes, it was all a beautiful mirage. That's why it is fading so rapidly and in all directions. Some of us could see this coming, though no one could anticipate that a virus would be the trigger.
Forgive me for a brief feeling of shadenfreude; I'm just so happy that the roof is falling in on Trump. No one could be more deserving to have his face covered in egg.
79
@Duane McPherson But much of that time since 2010 was under Obama. I was overjoyed when he was elected, but as those of us who saw The Big Short saw, he didn't follow up on cleaning up Wall Street.
5
@Dogwood,
I agree: Obama's economic team all came from Wall Street and behaved accordingly. Obama missed a great opportunity to set Wall Street straight in his first months in office. Why? Obama is a moderate Republican at heart; he did everything for Wall Street and very little for distressed homeowners.
But Trump's economic policy has focused obsessively on one thing and one thing only: the stock market indices. Had Hillary Clinton been elected, she would have leaned in favor of the economic status quo, but she would never have behaved so stupidly, recklessly, and heartlessly.
IMHO, Trump owns this mess.
2
Trump has seen collapses like this before. He’d just declare bankruptcy (6 times???) and move on after sticking his contractors for their bills and letting them take the beating!
Ah...but Trump can’t declare bankruptcy here and take the easy irresponsible way out. For once in his life the buck stops with the President (as President Truman said) and he’ll have to face the consequences of his ignorance and ineptness for all the world to see.
It doesn’t matter if you are a Democrat or a Republican. Come November we all know we can much better than “this” in the Oval Office!
23
@SAH
Trump may not be able to file 'personal' or 'business' bankruptcy, but he can declare the country bankrupt and offer us up to the highest bidder.
@JD Athey
Heh! He wouldn’t hesitate a split second if he could personally make a couple of bucks out of it!
Time to fund big builds. National high speed rail anyone?
3
@HS ---Big Oil will see to it that it doesn't happen.
The virus doesn't trickle down. It floats up.
4
Hello! Let’s be honest and call it what it is... A US stock market “BUBBLE” of which Coronavirus simply triggered the bubble burst...
11
Interesting that so many readers complete understand what is happening and what should be done about it.
5
Thank you for making things worse for everyone Wall Street.
1
I don't think it's all that strange. The ripples we're seeing is the corporate debt bubble nearing its explosion point. Before the coronavirus pandemic, I believe Jerome Powell said our economy was already in "unchartered waters" with the low interest rates and t-bill indicators flipping in a time of a good economy. Now that we've sailed into those waters, utterly unprepared, I think we're about to find out what's in them: a giant waterfall with the bottom nowhere in sight.
7
Reputation is everything.
Treasuries not trading...Would you trust your money to The Donald? This is the administration that breaks agreements and bullies the world with the power of the $$$. We have the bankruptcy king at the head of the ship. The epitome of arrogance and ignorance.
Look at the handling of the virus here in the US! Its been an executive failure to cut red tape, get massive testing and reduce transmission through containment and quarantine.
Congress needs to act fast with a real fiscal stimulus policy that shores up small people, not just the big guys. Sick leave, unemployment money for everyone effected by the virus, shoring up small companies who employ most people.
The world financial system needs to be kept up and going...at all costs. Its infuriating to see the rich be rewarded for their hubris, but if they go down, we all go down.
Hopefully, when its done They will get the spanking they deserve, unlike 08.
1164
@Sharon. Re: “Treasuries not trading...would you trust your money to The Donald?” I remember early in his presidency he actually told his staff, “I’ve got a great idea for saving the government a whole lot of money. We’ll pay back treasury bills at ninety cents on the dollar.” That was back when he still had some rational people on his staff and they convinced him it wasn’t a good idea.
75
@Sharon Eat the rich; they're not good for anything else, like Steve Tyler sang.
Further, for our current economy, yes, the financial system needs to be kept up and going. Perhaps it's time for a new economy?
20
@Sharon Quoting you: "Hopefully, when its done They will get the spanking they deserve."
Oh, I do hope so. It was a monumental failure of Obama's to refuse to charge Bush and accomplices for their crimes. Obama said "we need to move on," and I was horrified. You can't let criminality off scot-free without sending a signal that crime pays, to the tune of millions. Failing to push back on Bush set the stage for Trump & McConnell and all those thieves.
Yes, I will be lobbying anyone who will listen for these criminals to be charged with the consequences of their misdeeds.
65
I believe it might be a flight to cash. Have there been increases of purchases of short term CDS, commercial paper, BAs? If this is the case, it just ties into feelings of nervousness on the part of fund managers about withdrawals, and it's where they might be placing new deposits until they feel the market has bottomed out. In times of crises fund managers are trained to stay short term in order to avoid risk as much as possible. And this definitely classifies itself as a crises. There are high quality short term instruments on the muni side as well that can be utilized to avoid long term interest rate and stock market risk.
1
If we set aside Bernanke's quantitative easing, the Fed's attempts to help market participants usually fails and often makes things worse by artificially lowering the price of risk.
The economy was a false economy. Things were propped up by a tax cut for the wealthy, the Fed keeping rates artificially low and quantitative easing. While Biden is “decent “ compared to Trump he will follow the same economic philosophy. It’s a shame it has taken a pandemic to demonstrate the point.
5
Not to be a conspiracist, but I hope the U.S. government is taking a closer look at the possibility of Russian cyber-espionage within U.S. financial markets. A Pandemic combined with the oil sell-off fiasco would make for the perfect cover. They can influence U.S. elections, so why not U.S. financial markets.
11
For every seller, there is a buyer. Wait and see if Goldman Sachs, Morgan, hedge funds make profits this quarter and next. Some folks are making millions off this crisis. There is a ton of algorithmic trading and these folks know when the computers are selling or buying. They just do the opposite. For sure, earnings are gonna be way down, but no way should the markets have fallen this far this fast. It's rigged.
9
Sounds more or less like a run on the banks, depression style.
3
What we have here is a crisis of confidence. The “thousand pound gorillas” in the market knew deep down that the current administration lacked competence, but so long as most everyone went along with the “all is well” program, no one panicked. Now that the general incompetence of the current administration has become inescapable, and now that our dysfunctional foreign and domestic relationships are so obviously polarized, it’s become obvious that a patch here and a scrape there, what Trump is capable of, will not suffice. To be clear, giving Trump more power is not a way forward. Those of us in steerage hope that the the crew try to save the ship rather than heading for the lifeboats.
11
S&L, LTCM, too-big to-fail, QE ad infinitum and now coronavirus: How is it our garden of economic plenty, the spender of modern competition, always seems to need bailing out? And always at the top?
Perhaps the system is designed poorly; prehaps it's designed to fail and bail?
Cue the Friday after-hours press conference in Manhattan. Bailout script please.
4
Trump is the reason this market is falling, not the virus. His policies lead the market to nearly double in three years. And now it looks like his re-election is doomed for the first time in his Presidency. And Biden will raise taxes and bring back regulations and keep the tariffs. This will mean disaster for the American economy. The Stock Market in November with Biden as President will fall below 1600. Good luck.
Maybe because the whole system is put together with spit, wattle and daub..? Held together with hope and mostly the wrong sort of prayers. weakness is its heart. many of us on the outside have always questioned its weaknesses, seeing them when insiders look the other way. gold and such investments were never really stable. propped up, like any specialty item, by only a few willing to invest. kinda like collectibles...worth nothing to non collectors.
2
Those paying attention to the comings and goings in the US money policy and maneuverings have just decided to cut the strings on the national yo yo. Sadly it seems this is the time when the best place for excess cash is in the old coffee can in the back of the kitchen closet. I just moved a bunch into my coffee can stash.
Markets have been overpriced for a long time and the virus may be the impetus for a big time correction. You can't make money when nobody can get to your product to buy it.
2
Money is make-believe. This isn't kooky-talk, it's reality. "Money" has value because a sufficient number of people agree that it does, no other reason. Same with gold. What has actual value are necessities: food, water, clothing/shelter. The global economy has made the movement of necessities (plus other "goods," of course) very efficient, but "the economy" doesn't change the fact that you can't eat money. Reality *always* wins in the long term. Human civilization in the 21st century is largely based on make-believe. The coronavirus is real. It doesn't care about our fantasies.
The point being, it would ultimately benefit us all -- long term -- if the "stock market" and the rest of our silliness simply ceased to exist. I personally hope that civilization collapses, because it seems to me that our species is beyond hope. We are destroying the only planet we'll ever know... *for money*. Think about that.
Godspeed, coronavirus.
8
@FSM
If Money is make believe, then can i have yours? No? Why not?
Money is a great tool when managed properly.
One of the stated goals of the commie revolution in Russia was to get rid of 'money' they couldn't do it.
Read "Money the Unauthorized Biography" by Felix martin. Its $10 download and well worth it.
Then talk to me.
1
History will provide the final analysis of current conditions and events.
What we can be certain of though, is that hubris and incompetence will play a large part.
10
I don't understand a lot of this type of event and I read to educate myself a little bit. But it makes me think, if everyone wanted to pull out of their hedge fund or 401K would there be enough money? Or is most of that money just numbers on a paper?
5
@C. Bernard
Econ 101. If everyone is selling, then no one is buying; and the price goes to ZERO. That is when Cash is King.
2
Journalists are emotionally sensitive and anxious professionals. It’s what makes them good at asking tough, persistent questions and making keen insights. It’s not a good quality for calming fear.
It wasn’t too long ago journalists wrote breathlessly about the economy overheating. It’s not their job to look much farther passed their nose. They attract eyeballs through urgency. The first version of the story is the most boring but likely the most accurate.
The tariffs were an answer to an overheating economy until the financial writer zeitgeist decided it wasn’t.
Then the economy began to heat up from the tariff agreement and a great retail season. Now Covid-19 has thrown cold water on that at a time when it may have needed it as well.
I think it’s too early to hit the panic button here. One thing not being talked about is the feeling that the disease spread is temporary and that in a few months there’s a very good chance both new cases and deaths will have plummeted drastically. Pent-up demand from this 2-3 month super slow-down will help the economy snap back from this very real but very temporary massive economic challenge.
2
I think I know the underlying problem.Out of fear of our President ,Jerome Powell has been frantically working day and night to keep the economy from coming undone. At night for many weeks Powell has been shoveling billions of dollars into banks overnight coffers. Most banks close at three PM except for deposits and check cashing. Just try and get a loan after three. The only people who aren't sleeping late at night are foreigners in different time zones..shady characters.
During the day Jerome must feel like the walking dead, but he still must answer to the President by lowering interest rates.
So much money has been printed and disappeared into banks overnight, interest has gone to near zero, the stock market And the bond market are tanking,along with gold and bitcoin...well the dollar itself may be worth much less. We must stop Jerome from working night and day.
S&L, LTCM, too-big to-fail, QE ad infinitum and now coronavirus: How is it our garden of economic plenty, the splendor of modern competition, always seems to need bailing out? And always at the top?
Perhaps the system is designed poorly; perhaps it's designed to fail and bail?
Cue the Friday after-hours press conference in Manhattan. Bailout script please.
1
Remember that feeling in the pit of your stomach as the rollercoaster is ratcheting up the steepest slope of all, and the front car is beginning to curl over the top?
8
'America First' is Trump's strategy. Unfortunately the world's economies are interconnected in a million different ways. If America or China sneezes, everybody else gets the flu. We're in a legitimate crisis, and this republican administration has no coherent plan to deal with it. Pitiful.
11
Mr. Market appears to have coronavirus. Safe havens are canned goods, toilet paper, and other necessities of life. Don't worry too much. Mr. Market is immortal.
Since they never really simplified things after 2008, who knows what's going on. What Churchill said about Russia also applies to Wall Street: " [it] is a riddle, wrapped in a mystery, inside an enigma."
3
The market has been bloated for years, 'juiced' for quite some time when more should have been put into deficit spending and proper economic management, so the Fed's role has been an acceptable fallback and safeguard. Plus, instead of good management, Republicans have been cutting corporate taxes, harming the non-wealthy, and starting trade wars. That, and the general incompetence that Republicans bring to government, epitomized by the mishandling of the virus preparedness, make this an eventual, albeit unexpected melee.
4
This seems irresponsible to publish at this time. The information is fine, but the gloss of fearmongering is not. Banks and hedge funds have indicated that they're not worried about the money supply. They have also indicated that they expect various debtors will be drawing down on their lines of credit, and are likely making their investing strategies with that in mind.
It is also the case that the economic shocks we have experienced in the last 20 years, except after 9-11, have been Wall Street created.
It is "weird"---to have a crisis that is not Wall Street created. This slowdown isn't Wall Street created. What we "learned" from prior financial bumps about how markets respond might not apply to a real-life global economic slowdown.
Please, there is no need to increase panic by speculating like this. Information is good, but the NYT's headlines and "hooks" designed to create anxiety are unnecessary.
1
Because Donald Trump refused to declare, disclose and divest his personal assets into a blind-trust you can't tell where Trump Organization Mar- a Lago ends and Trump Administration White House begins.
Trump Organization advantage profitability arising from his occupation of the Oval Office of the White House is what drives and focuses all of President Trump's economic and political actions and inactions.
4
Anybody else glad Trump hasn't (yet) been able to pack the Fed with a bunch of dunces? Knowledge does matter, and this time of crisis shows we need experts at the helm.
The very nature of wealth is “storing up for tomorrow”. Squirrels do it in the summer to survive the winter. What if the squirrel begins to doubt that there will be a next summer worth surviving winter for?!
This corona virus is a slap in the face of the very concept of wealth. In itself it might not have that extreme impact on people’s fundamental faith in tomorrow, as for example the Black Plague often did on local populations. However keep in mind the louder and louder rumblings of global environmental disaster and perhaps people are questioning whether too much wealth is simply a bad idea.
If you believe you will very likely not live past middle age, would you really sacrifice some immediate pleasure to top up your retirement savings?!
1
It wouldn’t surprise me that after the way Trump and Republicans are blaming the Chinese and Europeans for the virus (instead of accepting responsibility), the 10 trillion bush’s deficit, and Republicans promise of even more tax cuts, they are preferring not to buy US Treasury bills. The US is not a responsible safe haven anymore.
3
The Republican Trump cult is getting what it wished for--and more--with Trump. Serious people were fine to let Trump push through unqualified judges, trash any hope of sane immigration, asylum, guest worker policies and run the executive branch with people who could not be confirmed even by a rubber stamp Senate.
Now in the midst of achieving their ultimate goal of Republican men controlling the reproduction health of all women in the USA through anti-abortion and anti-birth control policies, they are left with a dysfunctional Trump to respond to one of governments' ultimate nightmares: a pandemic for which the USA was not prepared and the executive branch does not understand.
Yes, so good to get wishes fulfilled. Republicans, you paid for Trump; you own him and the ghost of his uncle at MIT.
8
You also have to consider the fact that with so much trading these days being done by computer algorithm, the humans may not know what's going on....
3
What the markets are realizing is the depth of 45s incompetence and mental instability. All the previous signs, which were brushed off, are now coming into focus and the financial sector is realizing who is sitting in the White House. If they had managed to address this earlier, this shock wouldn’t have come so drastically. For example, not a peep in the markets when Impeachment was taking place, even with all of the factual evidence that the president is a liar and does not serve the country but his own interests. Even with all the machines, the markets are still run by people and they are coming out of denial.
5
What this says to me is that Trump's free ride is about over. The markets are figuring out that the emperor has no clothes and that there are no real plans for anything, ranging from COVID 19 health care to creating a sound economy for everyone, not just the upper 1%.
58
I have an alternate theory. I think the big player are selling and then not buying into safeties because they believe the downturn is going to be incredibly short compared to past sell-off. This sell off is circumstantial. The over-all economy is stable and looks to remain so. They are selling risky positions and holding onto the cash so they can buy back in as the sell-off starts showing signs of it's temporary nature.
16
The concern right now is not over how corporations or funds behave, but over how nation states and their subdivisions behave. How does the market express uncertainty over how a nation state like the U.S. will perform in this crisis?
Maybe you're looking at it.
There are historical reasons for believing that a sufficient pandemic can cause nations to rise and fall, not just markets. And this one, which is the world's biggest economy by far, is falling, at least if the response so far is an indication.
3
The underlying problem is the vast accumulation of corporate debt of poor quality. In "The Seeds of the Next Debt Crisis" (in the Financial Times), John Plender writes: "A pressing question, in the light of the debt build-up, is whether the regulatory response to the great financial crisis has been sufficient to rule out another systemic crisis." The answer is no.
10
The author implies that a flight to safety should raise bond prices. It could be, however, that the threat of widespread corporate bankruptcies, as well as municipal bankruptcies, is making investors distrustful of both stocks and bonds. Hence, even with more demand for bonds,If they are viewed as high risk, their price could go down.
9
PS A corporate profit bailout will not help the economy, only the stock market. Companies will still lay-off workers if there are no customers.
Liquidity will stop the economic domino effect, and if available to corporations, small businesses and individuals, it will prevent an economic free fall.
Loans at low market rates are far more effective than purchasing corporate bonds. The latter will be ineffectual for this economic scenario.
Loans are not a bailout - they will be repaid. But this will be very effective at containing the economic fall out.
5
@David Parsons
But the fed has just about used up interest rates - I believe we're hovering around 1.25% or below at this point. Will they go to 0.0%? Will they go below 0.0%??
Agreed. But lowering rates won’t save the economy now. The Fed was normalizing rates post Crisis before Trump browbeat them into cutting rates while claiming the economy was never better.
The Fed is considering purchasing a broader basket of assets. That will do nothing to affect the actual economy in the face of a pandemic.
Liquidity is the answer for corporations, small businesses and individuals.
Corporations that are insolvent already should declare bankruptcy, but most aren’t.
Small businesses and individuals should be able to get enough liquidity, though not everyone will need it.
Instead of inflating assets held by banks, which are healthy, a direct counter to an economic domino should be employed. It will not materially increase the deficit if netted against the loan asset.
The biggest problem in the Global Financial Crisis was uncertainty nobody knew who had exposure to toxic assets that would render them not creditworthy. It’s much the same with the virus, you can’t tell whose supply lines are being choked off. A risk-unwind like we are seeing generates all kinds of weird effects. Good assets being sold to meet margin calls on leveraged bets gone bad. So not hard to imagine sales of Treasuries in this market from time-to-time.
You can’t model the risk. The main point is have the policy makers learned the lesson from the last crisis about taking half-measures. Right now the banks need to agree to forbearance on the debts of those who lose their job because of this. If cautious attitudes prevail, the impact will be devastating.
4
Way back in 1965, I used savings to buy and sell stocks for a total of eight times. Seven of my stocks increased. One decreased. After selling the shares, I broke even because the loss on one stock was as big as the total gain of the seven stocks. The guy who profited was my broker. He got a commission during both buying and selling transactions. After studying what happened, I quit buying stocks and have never returned. In the last 55 years I never entertained the thought of buying stocks again. The current market news sounds just like a repeat of the same old story. To that I say no thanks! You can have your stocks and bonds.
12
@Michael Edward Zeidler
Your mistake was buying and selling. The way to make money with stocks is to buy a real good one and not sell. Or at least don't sell for a real long time.
I know because I did the same thing.
And another thing, don't pay any attention to a broker. All they want is to buy and sell which is a bad idea.
Best wishes and stay positive.
2
@Michael Edward Zeidler I agree and it's really sad our political leaders over the last 40 years have allowed our entire economy become dependent on a system which can turn into a house of cards from a virus. Companies don't even have good systems for retirement it's all in a 401k. It always seemed like the stock market just exists for people with a lot money to make more money off of those who wield no influence over the market. I have to laugh when I see politicians, especially republicans try to push the social security system in the same direction. Just another windfall for a few and the masses get a lot less. Let's hope the masses eventually wake up before it happens. I am not holding my breath though.
1
The key to preventing businesses from failing and unemployment rising is to extend liquidity to those that need it.
Liquidity is the key - not corporate profit bailouts. This is a capitalist economy, so you don’t privatize profits and socialize losses.
Companies make money in good years and lose it in bad years. Providing market loans to large and small companies will prevent an economic disaster.
Transferring taxpayer money to for profit corporations that just received a trillion dollar tax cut is unconscionable.
With respect to individuals affected by current conditions, sick leave must be paid, and individuals should have the same opportunity to apply for long-term government rate loans to ensure renters and homeowners have sufficient liquidity in a gig economy.
Liquidity stops the economic domino effect. Buying corporate bonds does not.
133
@David Parsons
You want to loan to people who lose their jobs or don’t receive paychecks?
That’s not a solution. That’s a slap in the face.
1
@David Parsons; the academic logic is correct, but privatizing profits and socializing losses are the very principles that sustain our runaway capitalist economy.
Marx' hangman who executes the last capitalist didn't buy the rope, he confiscated it.
3
@Mathias
As liquidity is being provided to corporations, small businesses and families and individuals, there will be less unemployment.
No one is forced to take a long-tern low rate government loan.
But for people and companies that need it, it ensures liquidity to minimize insolvency.
1
Keep in mind that many investors are being faced with having to meet margin calls. The easiest way to raise the necessary cash is to liquidate the highest quality assets -- like Treasuries and Gold. That would partly explain why the rout is occurring across all asset classes.
55
As the old adage goes, markets fluctuate. But the overall curve since 1929 has remained remarkably steady. When one looks at previous crashes/corrections the slope before the drop was getting too steep. Then it recovers and starts back up the proper glide path. Obama wasn’t responsible for the recovery after he took office and Trump isn’t responsible for this correction. It was due and COVID 19 triggered it. This is plain old free enterprise in action.
5
@John Vance ...what you say in true...up to now...however with he nation already deep in debt, and the added costs of dealing with the pandemic in the US (and the slowdown of the global economy resulting from it), and the misguided tax cuts benefiting mostly the wealthy, it seems the future may be a bit different...to say nothing of the immense costs of mitigating, and otherwise dealing with, the effects of climate change...
27
@Jim
I agree with everything you say, especially the tax cut. It was right out of Andrew Mellon’s playbook, along with “liquidating” those entities most vulnerable to economic declines.
The ultra-rich don’t feel this stuff, and often neither do their heirs who, as one baseball manager once said, were born on third base and think they hit a triple.
But I still have faith we can make the necessary changes. At least I hope we can because I’m retired and don’t want to bag groceries.
7
@John Vance
Obama/Geithner/Bernanke were very much responsible for the recovery. Without the actions they took to flood the market with liquidity, prop up the major financial institutions and underwrite the CDS the entire economy would have collapsed as it did in 1929-33 . No wonder they say most Americans are totally ignorant of finance. You provide the proof. LOL.
4
My guess is this is a the cash crunch. Individuals moving their 401Ks/Mutual Funds to cash forcing asset sales by funds as well as the major players getting margin calls/debt payoff triggers.
Money is being taken out of the game. FED liquidity can't offset this.
53
@RM
That’s what I was thinking with a twist - that there are enough people bailing on balanced funds that the forced liquidation of the “hedge” positions are hitting the bond market too...
2
I can think about two reasons for the sell-off.
One is the systematic allocation portfolios which are automatically managed by algorithms - if the market signals downwards, they sell automatically (and move into bonds). As far as the perceived signal is downwards the selloff will continue.
The other is the (barrier) reverse convertible structured products wich can pay a handsome continuous coupon while the market is at least stable, but the investors could easily lose 50 percent if in bad times the barrier is touched. So the investors would prefer to sell quickly now with a loss of 20-30 percent instead of losing tomorrow 50 percent.
I am very curious to learn how many trillions have been poured into these "modern" financial instruments and are they not the new equivalent of the mortgage-based securities of the last financial disaster?
11
@Alex My nephew sells these instruments at a major house in Boston. He only handles bank business, and shared that US banks are leveraged to the tune of 44 trillion.
3
The financial markets have been acting weird for some time. Interest rates have been unusually low for years, stock prices have been increasing steadily with no real improvement in corporate performance, and debt levels have constantly risen.
There is less and less real wealth in the system, with everyone relying on debt to get through the day. But the flow of money is threatened, which means that paying for yesterday by borrowing today is becoming impossible. We have been in an 'everything' bubble, where people have been able to get higher and higher prices for things which have not really increased in value.
"I am worth more because I say that I am," can only work when money is cheap and easy to come by. But money that is cheap and easy to come by has very little real value. If you are borrowing money to buy gold, than the value of the gold that you are buying is diminished.
Very little real wealth has been created over the last few decades, and much real wealth has been destroyed. This article reflects the point of view that what has been going on for some time is quite unusual, but has not been worrisome until now.
160
Nothing strange. The markets, equities and bonds, are being decimated by a total exit strategy. Businesses cannot survive if people stop buying. Restaurants, travel, retail (excluding e-commerce) will decline dramatically.
"Supply side economics" is not be the answer. Although I'm sure Trump will bet on a tax relief program as a solution. Sad when amateurs are running the government.
Until COVID-19 is shown to be in check, businesses, market and employment will suffer.
75
@Zev Yes, setbacks are normal, and they do return once the problem is over. But as we meddle ever more into free markets and free trade, and demand ever more from central planning authority that causes so much harm due to bureaucratic bungling and turf wars (witness test kits, masks and even hand sanitizer in the "richest and most powerful country in the world").
2
Could the decline in bonds reflect the beginnings of default risk?
6
It is well known that the bulk of the wealth in this world is in the hands of a small percentage. The rest of the investors are just crumbs. It’s not hard to connect the dots.
54
@Ted Siebert
It is well known that the bulk of the wealth in this world was created by a small percentage. The rest of us come along for the ride.
@Ted Siebert So covid is at least good at population reductions, reducing consumerism, leveling inequality and slow climate change. - Pollyanna
1
I would guess it's because it's a manipulation from the top of the emotions (fear) of the people at the bottom. When we look back in two months at the relatively light impact of the virus itself, the market reactions won't make any sense. Because this is a shakeout of the vulnerable, not an organic integration of real business conditions.
3
@A You say, "When we look back in two months at the relatively light impact of the virus itself, the market reactions won't make any sense." Sorry, but the math--meaning COVID-19's exponential growth--indicates there will be an enormous boot on the neck of market growth for many months, and maybe a year or more. With no vaccine coming for at least a year. We have just over a thousand case today (March 12th), I'd say that 2 months from now it will be upwards of a million cases. I would agree with your point about the "shakeout of the vulnerable", except that with the devastation of the markets that we're seeing and what's to come, all of our lives will be put at risk. We're ALL vulnerable.
19
@CFBell Roughly speaking, getting to a million cases in two months requires doubling every six days. I think we are going faster than that. Of course it will slow once we get to the point where a substantial part of the population has the disease, but I can imagine tens of millions in two months, unless our responses are effective.
@CFBell If there are a million cases in two months as you say, that will pretty much track the situation with the H1N1 virus 11 years ago... presumably the markets did not react the same way then because they had already tanked the year before????
I've thought for many years we need a total paradigm shift in the way of life of the industrialized world. We reward and incentivize production and growth as if there is no tomorrow (actually there very well may not be...but that's a different topic) and operate as if infinite resources will forever be available. The stock market is based on short term growth. There is no reward for responsibly planning for the future and conserving resources, so the human race can survive and have a livable future. It's madness. Apparently there are only a few decades until the Amazon rainforest will be irretrievably lost. That is monumental. It's all because of slash and burn to grow more and more soy for animal feed and pasture for beef. There are many other treasures in this world that are going extinct or are plundered beyond recovery. The country of Bhutan got the closest to this idea with proposing to measure their economy on a Gross National Happiness (GNH) index rather than a GNP. Will this current situation snap us out of our death spiral? I'm not hopeful.
306
@JK " Apparently there are only a few decades until the Amazon rainforest will be irretrievably lost."
I think that's very optimistic, time-wise.
12
@JK Amen, you are spot on. Sadly, our current govt wears their disdain for expertise as medals. Nothing will change with our current govt. We HAVE to vote them out.
18
@JK My thoughts exactly and to the point. The worlds future is in the hands of greed and mad men.
13
A school of fish all move rapidly in the same direction. The sudden market jaw dropping drops in the market we seen recently is the highly sophisticated workings of super high speed algorithmic trading, which in my opinion is destructive worthy of some serious policing. Of course, with this administration there is no such policing and it is the wild west with the SEC far behind the curve doing nothing.
155
@RV The lead fish in a school of fish is constantly looking around to make sure the school is behind him.
4
For years equity prices have been artificially propped up by QE and low interest rates... for anyone under 50, today is a massive opportunity to buy equities at more sober valuations. My own portfolio is getting routed today, but I'm fine with it!
11
@Tom Thumb “Thumb” is an ironic name for a guy trying to “catch a falling knife” as the traders say
2
@M Ha, I'm down to basically one thumb now since I bought back in last week : )
1
I watch from a distance, being a cash and real estate kind of person. But I also import. Great time to buy.
7
I have another take on all this. It doesn't mean everyone else is wrong; it is a complex system with many moving parts. But here's a part no one seems to be considering.
What would a more sustainable economy look like? How would the economy act if everyone did less? If people flew, drove, and bought less of everything, we'd need less fuel, fewer cars, and a whole lot less plastic. Can the economy stand this reality? Do we have to keep doing more and more of everything just to keep the engines of the economy running? Do we need inflation to subsidize speculation so speculators will continue to build housing and factories?
Factor out the virus and this is a test of how that might work. It isn't looking feasible, but if we outlast the virus then recover, we will know what to expect when we try seriously to live sustainably in the future.
922
@mlbex Appreciate this perspective and it highlights the potential to measure the impact on CO2 levels/generation of a rapid reduction in various activities that make a significant contribution daily to the increasing burden of greenhouse gases. When we get an administration that accepts the need to confront climate change aggressively, such data would be very helpful in understanding the trade-offs in taking dramatic steps which are increasingly likely.
99
@mlbex,
"...Do we need inflation to subsidize speculation..."
Where are you seeing inflation? I ask because the world's central bankers, who presumably have vastly better information than you or I, certainly have not these past twelve years.
3
@mlbex My thoughts exactly, thank you. There is no way to effectively address the existential threat of climate change other than by radically changing our economic system, a system unsustainable because it is based on the principle of "always more".
What is needed goes well beyond replacing fossil fuels with renewables: our frantic consumerism (which accounts for 70 % of the US economy) has to stop. Now.
The Coronavirus can be the opportunity to learn that it is possible to live differently. But we have to seize it.
136
Nice article, but could be improved by the absence of football analogies, for those of us who don't watch or care about American football.
463
@Susan If I were to read an article in the London Times and a cricket analogy were used, I would not be surprised. The fact that, as an American, I wouldn't understand it should not be offensive to me, given the fact that I was reading a British paper. If you choose to read an American paper, don't be surprised to see American analogies.
66
The thing is, football is much like investing: insanely complicated and attracting people who wrongly think they understand it better than the pros.
41
@Susan I actually enjoyed the football analogies. Love London, love the English people, forever grateful for the Brits who saved Western civilization from Hitler, had a wonderful visit to Scotland and England last summer and I’m currently itching to go back, but don’t knock our football. :) I thought the American football analogies worked brilliantly. Someone who doesn’t understand financial markets but understands football would be helped by it.
9
Every business has an immediate need for cash. They are selling off everything that isn't nailed down, and a lot that is.
42
@John Graybeard Many businesses have tons of debt, that is a huge problem.
3
As near as I can tell the Fed is just doing what Trump wants. No wonder it isn't working. He sure knows how to create a bankruptcy.
526
@Eero
Well I would think he's dang good at it since he's caused so many in the past with his own unique business prowess.
4
@Eero
Didn't you know that was The Trump's area of expertise! Look at his whole life's dealings....
2
Sounds like a liquidity trap. Interest rates need to go up, not down.
83
Honest question: Why don't we just shut the stock markets down for a couple of weeks? What is massive sell-offs accomplishing for humanity, outside of some rich folks getting richer buying low? Is anything of value to the functioning of societies in crisis happening as the result of trading stocks?
241
@Anne Hajduk That type of action could start an even bigger panic. The assumption is that if you buy an asset, you can sell it. Stopping sales for a few hours does contradict this, but people look upon it as a way to curb the influence of automatic trading. China did say to its population: stay home, you will be provided for. But just stopping the stock market is like putting investors in handcuffs--it promises nothing except restriction. I think what you are talking about would create the equivalent of a world-wide run to exit the US financial system the moment it reopened. People pretend investments are made rationally but they are completely emotional decisions--fueled mostly by fear and greed.
71
Naive thinking.
All kinds of pension funds and retail investors (not “rich people”) are invested in the market.
And, shutting down markets for two weeks would cause mass panic and a depression worse than a run on the banks.
28
@Alexa Ruth Couldn't agree more. People falsely assume that only the so called rich benefit from the stock market. Union pension funds, 401a, 403b,459 types of plans, social security and revenues generated from
taxes paid to wall street employees all depend on successful markets. The average "Joe" all have a stake in the markets.
13
One way in which US stock prices, US Treasury prices, and gold could all fall in terms of US-Dollar-denominated prices is if all these assets are being sold in favor of other currencies. What does the forex markets say with regard to Japan's Yen, the Swiss Franc, Pound Sterling, Euro, and perhaps most importantly the PRC's renmimbi.
Another thing I'd look into, based on the 2008 Financial Crisis, is the possible role of high-frequency-trading algorithms flooding the markets with bogus quote-hunting bids. Scott Hunsader, CEO of Nanex, had a lot of research on how these bots triggered "flash crashes" before & after 2008.
The final thing I'd look into is busted trades — that is, naked short-selling and "failure-to-deliver" rates.
38
@A. Reader
"One way in which US stock prices, US Treasury prices, and gold could all fall in terms of US-Dollar-denominated prices is if all these assets are being sold in favor of other currencies. What does the forex markets say with regard to Japan's Yen, the Swiss Franc, Pound Sterling, Euro, and perhaps most importantly the PRC's renmimbi."
The Forex markets show that the Dollar index is near recent high values ... relative to those other currencies, the dollar is quite strong, not weak. Whatever is happening is not what you posit.
1
I think it's simple. People were overextended on debt and sold to cover. Also, everyone knows that in times like these "cash is king", so they are raising cash, only to swoop in to buy when the markets capitulate, which I think will be pretty soon.
16
maybe also limit trading hours to stop the cash out buy lower scam....
1
There is a website for the CDC and a website for WHO. Those should be the sources of information, and they are. There is a lot less panic the more time you spend reading their information.
14
Pump and dump is the Republican way of managing the country's economy. All stock market crashes--1929, 1987, 2008, 2020--all happened under Republican presidents.
1533
@Imagine I don't think it's really fair to include 1929 in that. The Republican platform has changed drastically since then, and the political situation in America was quite different than today.
17
@J
Politics, like life, ain't fair pal.
Don't apologize for repubs. There is no apology that is sufficient for their sins.
121
@J Read a history book. The Business of America of Business. It's 3 Republicans in a row in the 1920s. It fits the pattern. And it's the most republican of all.
111
This is what happens when emotion overtakes judgment.
5
Trump and Friends have been doing everything possible to undo everything of value that Obama did in 8 years.
Well done, Tweeter, for helping to end the Obama bull market. Your equivocations and lies have been a HUGE help.
605
@Fred
Close... The new Dem Party and their allies in the media have tried everything they can since Day 1 to tank the Trump presidency.
They thought they could gin up a little panic about the "We're DOOMED!" new coronovirus on the scene, but they took it a bit too far and have effectively cancelled our culture and crashed the national economy.
The Dems just wanted an artificial scare, but the domestic media has done there job so good comparing us to China and Italy that they cannot undo the panic now. Own it, Dems. Own it, media. You let Pandora out of the box, and she is not easily going back in now...
Are NYT stocks up based on this artificial panic? Maybe some of the "freebie" readers today will stick around and subscribe? Brilliant marketing plan for those with no ethics. Start trying today to stuff Pandora back in that box... it will takes months or years now to undo what the media has deliberately done. Panicked and overinflated what was a basic medical emergency into an INTERNATIONAL ECONOMIC CRISIS.
Just to get rid of President Trump...
2
@Midway
So the Democrats should have supported and worked more closely with the GOP?
Just like the GOP did with Obama, right?!
37
@Midway Get real. I hardly think Italy shut down the entire country because of "the new Dem party and their allies in the media."
Last night I watched a terrified man who has never faced real adversity in his life give a speech he either hadn't read or didn't understand since it didn't accurately communicate his own administration's policies on European cargo or travel by US citizens.
Afterward I heard Hannity still saying that this virus is no worse than the flu, and one of Trump's guys saying we had 60 million cases of H1N1 and the country was just fine.
If you apply even Trump's "hunch" of a 1% fatality rate to the 60 million cases that his own guy is using as a basis of comparison, the administration is conceding 600,000 deaths. The 3% rate public health officials seem to be accepting works out to 1.8 million. Splitting the difference between the professionals and Trump, is still 1.2 million. If the potential for 1.2 million dead Americans is an "artificial scare" I'm not looking forward to whatever you consider to be a real scare.
The market professionals are giving their verdict on Trump's leadership ability in a crisis. Another day or so of this, and the Dow will actually fall below its 19,000 level on the day Trump was sworn in.
This is Trump's 3 AM phone call moment, and it's going the way many of us feared it might. That's why we need to "get rid of President Trump."
88
When the U.S. government gives giga-tax breaks to the ultra-wealthy and giant corporations during a 10 plus year bull market, thereby inflating an already bulging deficit, weird things will occur. VOTE BLUE.
593
@tazio sez
When we import an underground servant class, choose open borders and cheap labor over American interests, some bad things that once were over there are now here... VOTE RED. The coasties cannot force their poor decisions on the rest of us. #ElectoralCollege for the WIN!
2
@Midway
America's economic interest has always been based on cheap imported labor. Read a book.
23
@Ken
Ken, that is correct. All of us are imported laborers, except perhaps the natives.
4
Yes something weird is happening on wall street and I know exactly what it is. I have said that when the first precipitous decline took place around the end of February and the beginning of March. It is "profit taking" by the American billionaire oligarchs. It is a redistribution of wealth within the stock market from those whose retirement funds were invested in the stock markets and University and non profit endowments to the American billionaires who have been selling either prior to or just as the decline seems inevitable under the cover of panic selling due to corona virus.
A month ago I was at a private promotion of a fixed income annuity product marketing group and he asked a simple question. " Do you think that this stock market highs will continue to happen and your retirement portfolio continue to balloon ? He continued, If you think that it will, you go ahead and take the risk of losing your life's savings to a billionaire who is selling most of his stocks and sitting on his cash. But if you want to secure your investments, then talk to me"
Stock market is a legalized ponzi scheme dependent on faith of the regular people that their investments will grow. But it also is infested with US and overseas billionaire oligararchs who play the market to their advantage at the cost of the little gullible guys who get very little returns on fixed income or leaving money in savings accounts in the bank and are ready to take the risk for significant returns in stocks.
405
@Girish Kotwal
I would take what an annuity salesperson says about the stock market with a grain of salt.
87
@Bill R, annuity products are suckers' bait. The fees are higher (the annuities are being invested in the equities markets just like other financial securities) than index funds (especially high dividend pay out ones), etc. The Boglehead's Guide to Investing was featured in this paper and I read and bought a copy for a nephew. No one knows how long this virus will play out (six months-two years?) and anyone who can afford to be in equities markets should also be aware of re-balancing based upon age-to-retirement (voluntary or involuntary) and available cash to live on/cover obligations in a time like this. I agree with your assessment that the stock market is a ponzi scheme when there has been growth of both income and wealth of 5% for the carried-investment tax rate payers, whereas the merely affluent who actually work to earn their living has had an increase of 11% in wealth (pre-Covid Virus meltdown) on only a 1% increase in income from a generation ago. Ditto long term care insurance policies. They're more than willing to take your money, but when you need it, good luck getting it back.
17
@Bill R from a NYC Bar. Yes stock market going down was his sales pitch to sell his annuity product but the rationale for why there was a need to get out of the stock investment in real time was on the dot.
Money does not disappear into thin air it goes from someone's pocket to someone else just as taxes do. So where is the stock investments of 1000s of Americans, what I call the "loot" gone to? Figure it out yourself.
23
The observation that stock and bond prices are both falling is an extremely important one. If the reason is a cash crunch, which seems likely, it means that the major actors in the economy, financial and real, are vastly over-leveraged. It therefore means that much as I had suspected for several years now, the vaunted economic management of the Trump administration has been built on a house of cards. The roaring stock market and low unemployment numbers were built on a mountain of debt and leverage, which always - always - turns out to be unsustainable and eventually crashes down. The recovery will be very long.
1388
@Mark Exactly. It's a mini- or hidden run, being played by only those actors able to afford to liquidate everything at once.
70
@Mark Also I think boomers with inflated 401K's had confidence to spend and withdraw money which contributed to the high. The loss of confidence will result in considerably less spending and will take a long time to recover as you pointed out.
44
@Mark Trump always operated his businesses with a mountain of debt, which ended up in bankruptcy.
186
These recent market moves are truly breathtaking. The bond market seems to be predicting something between a severe recession and a minor economic depression. I believe government bond rates haven't been this low since the 1930s, if ever.
The volatility in the long term bond rate, expressed as a % of the yield-to-maturity, was almost 10% on some days, much more volatile than the S&P dividend yield. The TIPS market is mostly in negative (real) yield territory. The markets are clearly trying to find some solid ground, but are finding only quicksand.
Market historians will recall that the S&P500 P/E was 13X in September 2001, and below 8X in September 1981. It peaked at about 25X in February 2020 and is about 19X right now. Reaching the levels of September 2001 and 1981 implies a market decline 32% or 57% respectively. Market and economic conditions were much different in 2001 and 1981, but history shows just how low the (stock) market can go.
I would like to see a follow up article about "Whatever Happened to the Fed Put?"
46
@ron Maybe another article is "What Ever Happened to All the Tools for Regulators Created in the Financial Crisis"
44
@ron 30 year bond yields hit a record low. Never in the history of this country. Not sure where they're at now, but they were below 1% just a few days ago.
11
@ron,
Yes, and not only is the Price:Earnings ratio extremely high, but also the Earnings:Share ratio has been inflated by 10 years of stock buy-backs. That, in turn, makes the P/E even higher than it appears at first sight.
Long-term investors have been moving into bonds for more than a year, which is why the Treasury bond yield curve has been inverted. That's a flashing red light for a coming recession, but, not surprisingly, most pundits have played down its significance.
I wonder if they'll change their tune, now?
3
Almost all markets run on a combination of Fear & Greed. Right now, Fear trumps Greed across the board (no pun intended), and the traditional safe harbors aren't.
38
The economy is behaving as if it was a Trump enterprise. Sails along fine for a while, while the rubes pay attention to the smoke and mirrors. Then reality catches up. In the private sector, this often leads to bankruptcy or sale. In government, it leads to recession or depression. Or, in this special case, maybe an attempted "sale" to Russia. On March 9, 2020, the Russian Ambassador to the U.S. Anatoly Antonov met Secretary of the Treasury Steven Mnuchin and, according to the press release from the Russians, discussed “implementation of the arrangements reached by Russian President Vladimir Putin and U.S. President Donald Trump during the summits in Helsinki in 2018 and Osaka in 2019.” I wonder what those "arrangements" were?
837
@Frank Is this a conspiracy theory about "secret agreements with the Russians'?
2
@John
No John, it is not. Conspiracy theorists draw conclusions without any facts. Frank stated a set of facts and then offered a question based on those facts.
115
@Frank
probably in a similar vein as the negotiations with the Chinese, Saudis, among others; Widening the sale of US resources and assets to foreign controlled conglomerates.
Sadly, anti-trust and patent reform isn't nearly as sexy a sale to the GOP base compared to brutish xenopobia.
34
This is way different then the 2008 crises, which was based on too much and too many lines of credit being extended to people who shouldnt have been allowed to borrow.
This is a REAL economy grinding to a halt. This is a much more serious basis of a crises.
507
@Brian Brennan
"REAL economy"? Get real!
The US economy was "booming" because of the Trump tax cuts that gave investors a sugar high: Companies bought back stock (that means less cash on hand), the stock market exploded upwards and was completely unsustainable. Also, Trump pushed the Fed to cut interest rates to get more of that sugar high, but that is not a sustainable course in a healthy economy.
Now the birds have come home to roost. We have already used some of our major tools (tax cuts and interest rate cuts) to help grow an already growing economy and have little left to help manage things in the coming downturn.
42
@Brian Brennan
And nothing that a payroll tax reduction will fix.
People don't need money.
They need a functioning government.
54
@BrianBrennan
Yes, the real economy will take a big hit because of the slowdown, but the current fluctuations in the stock market look more like panic reactions than solid analysis.
10
There is nothing "strange" happening here. The global economy is seizing up, businesses are seeing catastrophic declines, from cruise ships to airlines, from basketball to rock concerts. Business is drying up on a massive basis. Not a big mystery that financial assets are collapsing.
Of course, Trump is certainly confused. Wonder when he will admit that the stockmarket indices are just a stone's throw from where they were when Trump took office? Could he be the third Republican president to leave office with Dow Jones average lower than when he took office?
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@Sean sadly the Republican Party is not the party of fiscal responsibility. They are the party of self-dealing.
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@Sean not with joe as the nominee
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@Sean Sadly, this may end up being true. When you have a delusional mob following you and a 24/7 tabloid megaphone like Fox News and Rush Limbaugh providing all the non stop inaccurate, trolling, crazy-talk, this is what you get. A meta ignorant population who endlessly consume nonsensical factoids vis modern media platforms.
I doubt a depression or millions of deaths will ever cause them to turn away from this nonsense.
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