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Worst US Jobs Report in History was Worse than Investors Think, but the Dow Loved it!

The Dow Jones (DJIA) last week ignored the worst US jobs report in history as if it were of no concern because investors hope the coronavirus crisis is here on a short-term stay.

Some argue in the market’s defense that the Dow has already discounted bad jobs reports. I say investors have not even begun to fully factor them in. Investors are running on testosterone and pretending these historically savage reports will quickly fade.

While the latest rise in unemployment is not new news, it is old news that has largely been denied.

For example: the Dow initially began to recover because the crisis was supposed to go away in May. The number of new cases was supposed to be way down by now, and jobs were supposed to be starting to return.

That was nonsense at the time, and it has clearly been proven wrong now.

Graph of new coronavirus cases in the US
Source: Wikipedia

This graph shows the coronavirus has barely slowed its assault on the US. That means re-opening risks rampant new infection that could send the US through this whole unemployment cycle all over again.

It’s unwise to simply ignore that strong possibility. Even Dr. Anthony Fauci says it is “inevitable” the virus will return in the fall, and it may not even go away in the summer:

Instead of dropping when that reality became obvious, however, the Dow rose because investors chose to believe the coronacrisis has merely postponed its departure until June. After all, it’s hard to catch a flight out these days.

The Dow embraced the horrid jobs report on Friday by shooting up 370 points by mid-morning. By the end of the day, the Dow made a moonshot above 450 just for fun because the horrendous jobs report was so ecstatically exciting.

It only took Credit Suisse Chief Economist James Sweeney one sentence to explicate what this says about the U.S. economy: “This might be the worst macroeconomic data report in U.S. history.

The Dow shot up because investors are choosing to believe that unemployment will soon improve, but the unemployment rate will have to improve to being as good as it was prior to the coronacrisis to justify valuations that were already overpriced before the virus slaughtered American jobs.

Besides ignoring the worst job report in history, investors have chosen to ignore a full week of the worst earnings reports in history and the most dismal forward guidance on earnings. In fact, forward expectations are so dismal most companies are not giving any guidance, which is also historic.

The Dow rose in spite of rapidly rising bankruptcies, rapidly falling corporate credit ratings, rising mortgage defaults, etc. on the basis of hopes in a phantom vaccine that may not even be possible to achieve.

If investors are going to tune out all of that as mere noise that goes against what they want to do, what does the biggest flush of a jobs report in history matter? Just more noise that would spoil the party.

How Bad Was It?

Taken at face value, the jobs report wasn’t as bad as economists feared.

Nonfarm payrolls fell by 20.5 million in April and the unemployment rate rose to 14.7%, both post-World War II records. Economists had been expecting a loss of 21.5 million jobs and the unemployment rate to surge to 16%. The “real” unemployment rate, which includes workers not looking for jobs and the underemployed, surged to 22.8%.

That is, however, as bad or worse than most of the Great Depression:

Records were not kept during the Great Depression by the same measures used now, and present records leave many out. That makes an exact comparison in employment statistics impossible…. Unemployment remained above 14% from 1931 to 1940…. During the Great Recession, unemployment reached 10% in October 2009.

Unemployment that is “greater than the Great Depression” ought to be worth greater consideration. Moreover, the latest jobs report doesn’t even count the last half of April.

As Dreadful As The US Jobs Report Was, The Truth Is Far Worse

Real unemployment is actually far more distressing than this report reveals and more dire than the Dow is willing to believe, and it is far from being temporary.

First of all, unemployment numbers would be worse then they were during the Great Depression if calculated as they were during the Great Depression.

At its peak, the Great Depression hit a 25% unemployment rate:

Shadowstats, a site that recalculates unemployment as it was historically measured (without the government’s goal-seeking adjustments), states that the unemployment rate is actually around 35.7% if calculated by historical methods.

To be counted among the U.S. government’s headline unemployed (U.3), an individual has to have looked actively for work within the four weeks prior to the unemployment survey conducted for the Bureau of Labor Statistic (BLS). If the active search for work was in the last year, but not in the last four weeks, the individual is considered a “discouraged worker” by the BLS, and not counted in the headline labor force…..

unemployment graph based on US jobs reports recalculated by Shadowstats.
Source: Courtesy of Shadowstats.com

Bad Jobs Reports Will Not Be So Soon A Thing Of The Past

Second, not everyone is on the Dow’s “this too shall pass” bandwagon:

Danielle DiMartino Booth asks in tweet if layoffs in the US jobs report are really temporary as claimed.
Source: Twitter

Re-opening is going to happen incrementally. Since New York started re-opening, the number of new coronavirus cases has started creeping back up.

Many communities have cancelled all public events throughout the summer. That’s a lot of lost summer jobs. Theaters are not re-opening this summer. Sports events aren’t coming back this summer. All of those events help juice surrounding businesses like restaurants.

Restaurants may find wary customers do not return in sufficient numbers to make it profitable to re-open. Others will go out of business before they’re allowed to re-open, as the re-opening rules vary from state to state.

Airlines aren’t going to snap back, nor are crowded hotels. Cruise ships won’t be bringing tourists into port this summer.

All of that will result in more small businesses that just cannot weather all of this. They didn’t get any bailout relief because big businesses quickly sucked up all government funds, so they’ll close. Those jobs won’t be coming back.

Many colleges are not planning to fully re-open even in the fall. That will be a job hit for college towns.

With all that lost local tax revenue, local governments will have to restructure to balance their budgets. That will result in new losses in government jobs.

Even JPMorgan says employment will take years to come back:

J.P. Morgan Chief Investment Officer Bob Michele predicted it will take 10-12 years after the pandemic for U.S. employment to get back to its pre-coronavirus level, insisting it won’t be as simple as turning the economy back on.


Others present a rosier picture of a mere one to two years from now for employment and business to get back to where it was, but the Dow says investors believe, against all odds, it will happen much sooner than that because that’s what they want to believe. All other data are to be discarded.

And that’s how the Dow came to ecstatically embrace the worst US jobs report in history — worse than any unemployment news during the Great Depression:

This has to be the most heartbreaking day in the history of the job market…. We could get back to the same level … by 2021 or 2022…. The market is willing to bet it will get lucky:

The stock market is more delusional than any market in history

But the bulls believe that’s a good thing.

Whatever calamity comes from such delusions of grandeur, this parade of lunatic investors will fully deserve every ounce of pain they get, for they are the ones creating it with their unbridled greed and bullheaded optimism that chooses to ignore every negative economic fact known to humankind.

The rise of the stock market will not save the economy, which is going down for a long time. There is no short road back to total jobs recovery as we move on to the phase where the knock-on effects are all permanent damage — the damage of irreparable business closures, permanent loss of those jobs, shutdowns in parts of the oil industry, business and personal loan losses and then home foreclosures.

In March, April and May the damage was to the jobs report. By June it will likely start to appear as a significant rise in credit delinquencies (missed payments) that become defaults as they hit the ninety-day mark. Then the foreclosures may start to begin in July. By August or September, we move to bank closures — maybe in Europe or South America first, but causing contagion that eventually reaches badly weakened banks in the US, too, before year’s end.

While the government is trying to create safeguards against those second and third waves of economic damage, we saw how effectively the government’s first programs worked with $20 billion loan/grants going immediately to massively wealthy businesses while mom and pop were left to go out of business. That’s still far from fully rectified.

The shutdown to this point was somewhat voluntary. The startup is an entirely different story. You can, apparently, make people stop doing business overnight, but you cannot make business happen … even if you demand businesses re-open.

(This article was originally published on CCN.)

Fiercest Economic Collapse in History is Best Month for Stock Market

It was the best of times, it was the worst of times. April closed as the best month for the US stock market since the V-shaped recovery that followed the Black Monday stock market crash of 1987. April also delivered the deepest, broadest economic collapse of any month in history.

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Wall Street Bulls Battle the Bears in Mother of All Recessions

FedMed proved dead awhile ago with the whole Bulls team looking dead on the field, until Team Trump, the owner’s club, joined Coach Powell. Then Powell’s coaching team upped its game; and, finally, the Wall Street Bulls revived. “Big deal!” the Bears now yell. “Let’s get back to playing ball!”

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If Bulls Had Wings They Could Fly; Without Them They’ll Die!

Today the bulls did it it again. This market remains deeply entrenched in denial, soaring even as unemployment soars higher toward the grand summits of the Great Depression and with certain knowledge that many jobs will not return.

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Stock Market Bulls Delusional in Face of Great Depression

Monday was nothing but a dead-bull bounce … after bounce … after bounce, which means there is plenty of punishment to come. Pure testosterone drove the market’s rise, fed by nothing but the weak premise that New York’s drop in the coronavirus death rate for a single night meant the worst is behind us.

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Riding on the Bull Train

I don’t like just preaching to the choir. So, as I work on articles on this site, part of my mission is also to comment on articles on permabull sites to vainly see if it is possible to pound some sense into them. While I know it is not, the following is an amazing example of how bullheaded they can be.

I spend a lot of time at that, too, because I’m on a mission, not just asking for patronage to create a website (though creating the website to supply you with articles about where we’re headed and what we really need to do is the biggest part of my mission). I comment in those other places because I hope there will be a few readers there that will become converts to rational thought. I’m not sure there are, but making converts is the only hope there is for getting out our endless rinse-and-repeat recession-recovery cycles.

I assure you, doing so is without reward.

An exercise in futility just to test how deep economic denial runs

Here is how stock-market permabulls ride the bull train into an utter train wreck. The guy below has endlessly ridiculed me when I’m on his site for saying the market was going to crash and then for pointing out how badly it was crashing. He’s still telling his 25,000 bullheads to stay the course in stocks. I present the following as an example of how extreme the Permabulls are and how irrational. I do so in hopes that it supports my argument over the years about how DEEP our society is in economic denial.

(My comments within his quotes, which start from his most recent article and work back toward the first days when the coronavirus hit the US, are highlighted in brackets. This was written right after he commented about the punishment I was taking in the form of ridicule for my bearish views. Remember, this guy has about 25,000 followers!)

First, for amusement, here he and his follower (one man representing the many in this case) are trying to climb the S&Polish escalator when it is going down:

For the most part, each quotation below is a summary of one article. (And I’m not whining about being ridiculed. I just think it’s quite ironic and almost funny.)

My written response to his ridicule of me for being bearish

Here are summary quotations (of the kind you like to do [from my articles to criticize them out of context]) from each of your articles during the present crash all the way back up to the top of the escalator from which you’ve fallen as you counseled your readers to remain invested in stocks, starting with this article:

Now that we have seen a 30% decline in stocks [as I said you would], the guessing and speculating on declines of 40% to 50% will begin [as I’ve also already said is likely]. Despite the mania over the virus … let’s not lose sight of reality…. We do know that history tells us that great wealth is achieved when some can take advantage of situations just like these. They should be looking long and hard at slowly buying in at these low levels as they build a portfolio that they can look forward to when they eventually retire. That is how an individual builds wealth over time.

Keeping it all in perspective, we put the pieces together to weather this storm of FEAR…. When it comes to investing, my strategy does not include speculation or emotion… Speculation, fear and overall emotion trump ANY other view presented, including facts…. So it’s back to what successful investors do and what has helped in reaping the lion’s share of this 11-year bull market. Watch the price action…. The S&P 500 experienced its first 10.0%+ correction since December 2018 and the fastest 10% decline from record highs in history. Perhaps it also was an extremely overbought market that simply needed to pause and nothing more. That fact has been overlooked by many due to the virus issue. [Still just a correction of an overbought market and “nothing more?” Still just a pause?” Is that still a “fact?” Then enjoy the rest of the pause because it’s going to be a looooong one!] … ALL during this BULL market, I viewed such pullbacks as buying opportunities, emphasizing solid fundamentals that remained supportive of the equity market…. Remaining confident during last year’s trade-related pullbacks paid off handsomely as it was best to stay with unwavering conviction…. That same strategy applies today. Unfortunately, the potential complications surrounding the coronavirus are more unpredictable and have made investors much more emotional. My concern isn’t with what I foresee as potential global economic impacts. For sure there will be many. My concern lies with the uncoupling from reality that the never-ending fear rhetoric is adding to the storm.

How about your uncoupling from reality in thinking those fears that the entire world is gyrating in are not going to destroy the stock market that was built on tinder, and how about your total unreality regarding the bedrock fundamentals? Back to you, going further back in time:

While the “virus” is now called a pandemic, what we have on Wall Street is a ‘panicdemic’. While it is extremely difficult, keeping the situation in perspective is a must now….. Congratulations to the “Top Callers”. After hundreds of S&P highs that were set in this bull market, 47 of them in the last 13 months, they finally got it right. [And you were still getting it wrong by counseling everyone to stay in stocks! Can’t even get it right when you say the top callers were right.] Their losses have to be staggering…. [Right now, yours are staggering!] But here is their opportunity to put a drop in their buckets. I hope they don’t fumble this away by using illogical theories. [And, so you counseled your readers to stay in, and you and those who follow you poured OUT several more buckets.] The S&P 500 closed the week at 2,711 and is off 19.9% from the all-time high, but dropped by 26+% on a closing basis and is in a bear market. The entire move took four weeks to take place. [And that, which was already in, is what you called AFTERWARD a mere “correction” and perhaps a needed “pause.” Yet, you had also said the very same thing before:] The ‘FEAR’ component of the current market action gives me pause. Unfortunately, the potential complications surrounding the coronavirus are more unpredictable and have made investors much more emotional. It is the explosive FEAR component associated with this virus selling that is more concerning…. Facts tell us until proven otherwise, this time frame should be viewed as a CORRECION in a BULL market trend. The next few days will determine if the interim lows set in this correction will hold. That commentary was the same commonsense approach that correctly called this bull market for 6+ years while reaping huge rewards for investors.

Interim lows in a correction, huh?

“This” Bull market still in?

That was the same repetitious and devoid advice you gave days before:

Thoughtfulness not ‘panic’ is what is required now… ‘My concern isn’t with what I foresee as potential global economic impacts. For sure there will be many. My concern lies with the uncoupling from reality that the never-ending fear rhetoric is adding to the storm.’ I was hoping my worst fears would be avoided. That is not the case. It can now be said that this crisis can be much bigger than a financial crisis because the social distancing mandates are both a supply and demand shock we have not seen before. [It almost looked like you were catching on and were going to change your position, but then see all your quotes above to know you doggedly stayed the course all the way down … and are still falling, in spite of the fact that …] I heard a comment this morning that was simple and to the point. ‘We have never seen anything like this in our lifetimes.’ The stock market agreed and began sending everyone a message. [But you apparently didn’t get the memo because you took a lot more punishment:] No sense in debating what is going on, that statistic says it all. The obvious conclusion that everyone came up with, avoid equities at all costs. [Yep, that would have been the obvious conclusion, but you missed it entirely because you are so in touch with reality:] Now that we have seen a 30% decline in stocks, the guessing and speculating on declines of 40% to 50% will begin. [It seems like YOU are the one who is as repetitious as a broken clock!] “Let’s not lose sight of reality. Making blanket statements on how to approach this event will be the norm now. For the most part, they will be wrong. We do know that history tells us that great wealth is achieved when some can take advantage of situations just like these. [Broken clock!] We respect the price action on the way down just as we respected the upward price action for the many years during the Bull market…. The only thing being bought was toilet paper. Stocks were back on sale at the outset and stayed that way until the close…. We are witnessing moves that occur in a year take place in a day…. The VIX closed at a record, surpassing the 2008 financial crisis highs…. Common sense never goes out of style, it will be required to navigate this BEAR market, just like it was needed in dealing with the previous BULL market. Either way, using common sense is the only way to cope with the present situation.

And your uncommon sense told you and everyone who follows you to stay in for the ride, which is now outlined in all the comments above this last one. One would have thought everything you said in that last article might have been a clue. Then you could have gotten out with half the fall, but no way. Down the escalator you continued to roll and all your followers with you, laughing all the way about how much fun banging your head was.

Intermission for comedic (or painful) relief:

The worst part about falling down a stock market that you believe is an escalator up, is that you can fall forever because it keeps creating new steps underneath you.

And now back to our regular programming:

You claim it’s time to deal with the facts of the bear market, and then tell everyone to stay in … same advice you gave in the bull market, now applied to the bear market as though a single thin idea applies to all situations.

I don’t find that to be common sense at all. Your advice at each new waterfall amounted to, the market looks about to plunge again, so use your common sense and take the next ride over the falls! It’s the most absurd thing I’ve ever read.

As you concluded, “No need to guess what may occur; instead it will be important to concentrate on the short-term pivots that are meaningful. However, the Long-Term view, the view from 30,000 feet, is the only way to make successful decisions.”

By which you meant, “Stay invested in stocks! Ride this one out, boys!” And you ridicule the person trying to pound some common sense into you (for your riders, not “readers” sake) when I yell, “Get out of the boat, people! What’s wrong with you?”

So, down you went plunge after plunge. [Escalators are fun for idiots.]


And your continued advice amounted to: “Stay in the for the ride. Use your common sense and keep crashing over waterfalls because someday they’ll end and then you can spend years in recovery.”

I do expect to see some of this wild volatility diminish as these funds finally unwind their holdings.

That didn’t happen. It got worse. Much worse. But, hey, you’re the bright one.

Now don’t get me wrong, anyone new to the Bearish mode should certainly share their concerns and we should ALL listen to their thought process. The landscape has changed and they should be heard.

You didn’t listen to any of them at all, except to try to assuage their fears and counsel them to stay in the market because fearing waterfalls is for cowards without common sense. Common sense tells you to stay in the boat and GO OVER THE EDGE!

Next article [titled]:

The Trend Is Still Your Friend

I don’t even need to quote more of that one. That is what you said before you wound up having to say everything above, which came after, since we are stepping back in time. All I can add is to say, “With friends in the end like that, who needs an enema!”

Next article [titled]:

Irrationality Isn’t Always Associated With ‘Exuberance‘”

No, it’s associated with you!

“At this point in time, I will stay with the notion that the global economic pickup has been ‘delayed but not destroyed.'”

Bad notion. But you stayed with it through all of the above and are still staying with it.

And that is what it’s like to ride the Bull Train!

And it is why you deserve every pounding you get.

I spent weeks trying to talk sense into him and his readers, partly as an exercise to see how far irrationality and economic denial can go. Here is what trying to help them out is like. Here he is in person. Some people just cannot get it!

The Bailout Bonanza is Back! (Pt 2: Hedge Hogs Demand More!)

The emphasis has to be on HOG as they squeal for corporate welfare and push their snouts into the trough. One hedge hog says the government needs to bail out all businesses by paying all wages so companies that depleted all cash don’t have to pay to retain all workers:

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How Dead is the Fed?

You can only be so dead, and that’s just “plain dead.” But there is also Feddy Krueger dead. The kind of dead that keeps on happening like a demonic death that won’t stay dead. It is in that nightmarish Elm St. light that I’m going to review the Federal Reserve’s death.

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The Economy was Already in the Toilet before COVID-19 Flushed it

The economy was already heaving in the toilet before COVID-19 dropped the lid on its head and sat on it. Sales, revenue, real earnings, manufacturing, and finally the services industry had all puked. Last week, stocks got the Great Flush as the market went down with the economy.

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It’s a Bloodbath, and There’s a Toaster in the Bathwater

It just can’t get bad enough, and I can ‘t write fast enough. The headlines at the end of the week are now stunning, so I’m going to share several of them along with some quotations from the bawling and dying market bulls. In just one week, this has become the fastest stock market plunge since the Great Depression! So, if you have a bull you love, save his bullish butt by nailing upper-story windows shut.

Over six-trillion dollars in global market wealth has been shredded, and safe-haven US-treasuries have sailed off the edge of the bulls’ flat earth into nether realms bond yields have never before seen! Never before seen! The ten-year bond dropped to a nadir of 1.12% during the day on Friday. The two-year took the sharpest weekly plunge in yields it has taken since 9/11, ending below 1%.

It’s now the worst start to a year for stocks since 2009 … and best climb for safe-haven bond prices imaginable for those who moved to bond funds well ahead of the carnage. (Remember how all the permabulls were bellering just a few weeks ago about how this market had plenty of room to run?)

The superlatives for the sheer majesty of this market cliff go on and on.

Let me redraw the bath for you

I ended Thursday by updating Thursday’s article as quickly as I could with the following comments just to catch up with how much more the market had fallen in the time it took to write and publish the article: (I include them here again in case you read that article before I added them.)

When I started writing this article, everything above about the market was accurate…. However, I cannot research and write fast enough to keep up with the daily dives in the market. Today, the US stock market plunged for what MarketWatch says is the largest one-day point drop in the 130-year-plus history of the Dow! 

Guggenheim’s veteran Scott Minerd called this day “possibly the worst thing I’ve ever seen in my career” and noted “the Fed is fairly impotent in this environment.” That’s from a guy who went through the dot-com bust with the market and through the Great Recession. Minerd added that the present situation by itself is likely to subtract 1.5% – 2% from US GDP growth. That would be in addition to the decline that was already in the works for this quarter, putting the US fully in recession by all remaining measures if Minerd turns out to be accurate.

It is the first time ever that the S&P has plunged into a full correction from a market peak in six days.

The Great Melt-up Melt Down

And Friday the bath became electrifying!

It actually got worse on Friday when many were hoping for, at least, a dead-cat bounce. The Dow has now lost more than a third of all its gains from the Trump Rally that began the day after Trump was elected:

When was the last time you saw a market crash that looked that straight down? Talk about sheer magnificence! That’s three years of rampaging bullheadedness knocked down by a third in just one week! Put another way, all stock gains since December 2017 have been destroyed!

The bellowing bulls are finally running scared, while those of us who glided timely out of stocks are watching the bull run for entertainment and feeling like we should feel bad for them because they have families, too. It’s hard, though, because of how arrogant they were toward the bears during their run to the top of the cliff.

The frightened bulls are now already pricing in three interest-rate cuts by their savior, the Fed, in whom they trust. If the Fed hears their prayers from its Ecclesiastical temple (the Eccles Building), that’ll give us six cuts since we started diving into recession last summer.

So, again, tell me the Fed’s first three “insurance cuts” were not because we started moving into recession. You don’t see all-out panics like this in markets that are sitting secure. (Look to the third graph in “The Great Melt-up Melt Down” for proof of that.)

With that said, here are some headlines and short quotes from Friday that capture the collapse now that this perilous week is finally over:

The 2018-2-19 Housing Market Crash 2.0 is just getting started.

This Friday headline captures the initial blasts of the market’s demolition as we began the week. Seems like a long time ago now:

Stocks … Head for Worst Week Since 2008
The spreading coronavirus threatens to derail the global economy. The virus outbreak has been shutting down industrial centers, emptying shops and severely crimping travel all over the world.

Rabobank: Markets Need To Start Pricing For One Of Two Things – One Bad, The Other Terrible

It is that rarest of occasions…. We are being told by well-known voices on Wall Street NOT to buy this particular dip in stocks…. Either COVID-19 is going to spread …. and economies will go into lockdown as supply-chains are badly hit; or governments are going to lockdown anyway.

It really reminds me of 1987,’ says strategist Jim Paulsen about market plunge

Well, it’s certainly a full panic. I’d say of all of them that I’ve seen or been through, it really reminds me of 1987…. When it happened, it didn’t really matter what caused it. It was all about the collapse itself. It was all about the market falling without any noticeable bottom, and it was a combination of fear and programmed trading. And I would say we’ve got exactly the same thing again today.”

That is what markets priced to stupidity do when bad news hits.

Stock-market expert says what many are thinking as Dow sheds 3,600 points in a week: ‘This market is not normal’

The breadth and intensity of this coronavirus-fueled stock market selloff has some strategists scratching their heads.

Of course it does because they all thought this wasn’t supposed to happen as they repeatedly bellowed in unison like a mantra, “the economy is strong.” None of them could see the truth about how shallow the US (and global) economy really is.

They still believed the economy was fundamentally strong when it was fundamentally cracked to the core with numerous fault lines and danger signs. That’s how blinded they are by their schools of thought. Even now, many still believe earnings (artificially jacked up by nothing but stock buybacks and slashed corporate taxes) are truly OK.

They cannot comprehend the truth because of their own denial. Brokers believe what they need to believe to sell their book. Investors believe what they want to believe to charge relentlessly uphill with adrenaline pumping in their veins. The commentariat believe what they’ve always said, lest they have to admit they were always wrong! And all of them will say in unison …. (you got it), “No one could have seen this coming!

Stock markets melt on coronavirus fears, U.S. Treasury yields hit fresh lows

The S&P 500 index remained on track for its second-largest weekly percentage decline since 1940…. MSCI’s gauge of stocks across the globe shed … a weekly loss near 11%, its second largest on record.

And then the expected happened:

Brutal Week On Wall Street: Dow Tumbles Nearly 3600 Points

The Dow is down 16.3% from its recent peak on Feb. 12. 

That’s not the expected part of the article, though the headline and percentage drop were worth capturing as a synopsis, but this part:

“The fundamentals of the U.S. economy remain strong,” Powell said in a rare, written statement. “However, the coronavirus poses evolving risks to economic activity.

There he goes, doing as I said he would — already blaming the Fed’s failed recovery on the coronavirus while still claiming the US economy, riddled with chronically falling statistics as it already was, is fundamentally strong.

And he’ll sell it, too. It is what Trump supporters want to believe. It is what Fed supporters want to believe. It is what all the market gurus, who have vested their reputations in telling everyone how strong the economy is, want to believe. It’s what fearful people want to hear.

Powell also met the demands of investors by promising the Fed will remain vigilant and do whatever needs to be done to save them all. And, so, the market lifted its hands late Friday afternoon in praise to almighty Fed at the end of his words by giving a token all-rise upward at the end of days ,… but the move up will immediately turn out to be half-hearted faith if more viral news pours in over the weekend.

Oh, thee of little faith in Father Fed. Well, great faith until now when faith, itself, has been shaken because the world did not do what the believers thought it shoulda. We’ll see how well their religious fervor holds up under physical testing in the days ahead.

Viruses, unlike market woes, do not listen to the Fed. They are the devil’s handiwork. (Or maybe the handiwork of human beings if specially engineered.) The general populace all over the world that is afraid of viruses probably does not listen to Father Fed either. So, this ain’t over yet, and we haven’t even begun to see the knock-on effects outside of the market!

If people don’t herald the words of Father Fed, the market bulls can hope everyone will listen to the president’s own high priest of finance:

Larry Kudlow, director of the National Economic Council, called the downturn a “short-term market plunge” and said, “I don’t think at this point it’s going to have much of an impact.”

Yeah, Larry Kudlow also infamously said the Bush economy was strong in 2008, and nothing was going to have much of an impact then either. “Don’t look at those falling housing prices, People. Ignore this trembling in the market’s floor.” That Larry is such a crackup. It’s good we have him for comic relief in hours like this.

Friday to cap the worst week for Wall Street since the financial crisis

The Dow fell more than 3,500 points, far and away its largest weekly point loss ever…. Apple … briefly entered bear market territory…. “The reason it happened so quickly is because the momentum going up was so great.”

As I said, such steep failures only happen when markets rise on hot air to become priced to the peak of insanity. They can fall that quickly because their is no solid earth (no fundamental economic strength) underneath them.

By Neuroxic (Own work) [CC BY 4.0 (https://creativecommons.org/licenses/by/4.0)], via Wikimedia Commons

The Big Apple got eaten by the bear already. Apple stock fell more than 20%

Emotional ride up, emotional ride down. It was all hot air … now being let out of a bubble so gigantic I call it the “Everything Balloon.”

“…The timing of this was just the worst with respect to investor sentiment being elevated,” said Doug Ramsey, chief investment officer at The Leuthold Group, referring to the coronavirus outbreak. “I’m not sure that the market has really priced in the potential economic impact of this.

Apparently the market still has some hot air to be released, even according to chief investment officers. It can fall a lot more because the collateral damage to the actual US economy hasn’t even begun to happen. I’m talking about all those fault lines that can crack open in the earth and swallow the balloon just as it attempts to land. Here is how:

The coronavirus is making the weakest parts of the U.S. corporate debt boom wobble. Analysts say brace for things to get worse

The rapid spread of the coronavirus is dealing a blow to confidence in the biggest U.S. corporate debt boom on record, here’s why analysts think the pain likely gets worse.

And there it is — the toaster in the bath. Just when you thought this bloodbath in stocks was gory enough, you find out the bulls have other troubles ahead. Oh, yeah, in a fragile global economy filled with fault lines, one tectonic plate moves another. Everyone with eyes open should have been able to see the peril of mountains of debt inappropriately priced for risk because the Fed killed true price discovery long ago! There is no excuse! So, now the coronavirus contagion is about to spread to the credit bubble.


…Investors also pulled out a record $7.3 billion from exchange-traded funds that track the near $1.5 trillion U.S. junk-bond market over the past five days, causing these ETFs to shed 10.4% of their assets, according to Deutsche Bank data.

At the same time … “junk-bonds” that underpin the ETFs saw credit spreads gap out by 100 basis points over the same time frame, a rarity when overall spreads have been so low, Deutsche Bank analysts point out.

Turns out those massive drops in government bond yields that were merely the side effect of money fleeing from stocks to safe havens, is leaving corporate junk-bonds high and dry. You see, when credit spreads between government and corporate debt start to gap open, bond investors who are fleeing into the government’s safety net start demanding more interest to refi junk bonds issued by companies that are already bathing in their own blood. Money is floating toward safety right now, not toward high-risk junk that is now becoming much higher risk. You see, with even good businesses all over the world looking like they will take a revenue hit from the coronavirus, zombie companies look far too risky to refinance when the mood is all for safety.

The market now has shifted to “show-me” mode, with room for risk to further reprice [in part because] the rapid spread of the coronavirus beyond China prompted Goldman analysts this week to cut their U.S. corporate earnings growth expectations to zero for 2020.… Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, supply chain disruption, a slowdown in U.S. economic activity, and elevated uncertainty,

Don’t think just because you discovered the toaster in the water and see someone is about to plug it in that the bulls’ bloodbath is over. The bulls get to marinate in their own blood a little longer before they are finally fried:

Morgan Stanley Just Got More Bearish on Stocks Post Selloff

There are still some risks that the market hasn’t reconciled yet, according to Morgan Stanley…. While most strategists say to buy the dip, Morgan Stanley strategists say the rebound will be muted and one of the main drivers of the bull market is over.

But don’t worry, finance guru Jeremy Siegel says the economy will bounce back … in a couple of years.

Jeremy Siegel sees coronavirus as a ‘severe one-year shock’ to stocks but then a ‘bounce back’

Wharton School professor Jeremy Siegel said the coronavirus outbreak … could drag down earnings by as much as 30%…. Siegel, speaking on CNBC’s “Squawk on the Street” as the stock market extended its dramatic sell-off, said the odds are “overwhelmingly yes” that the economy and stocks will bounce back in the next couple of years, despite the outbreak.

Earnings going down thirty percent for zombie corporations whose stocks are bleeding out their ears like they have ebola and who are kept alive by junk bond life support! They should be able to absorb that for a year or two. Right?

Guess we know who’s getting toasted.

Did I not say over and over that it would be the ECONOMY that would end this bull market, not the bull market the would cause recession. Ultimately, the economy will rule, and the market will not survive its recession.

You see, the market is falling apart right now because the economy is already going into recession. Revenue was already in recession. Profits are now dropping. Microsoft, Apple and several other major corporations already stated this week that their profits are declining due to the global economic wreckage. (Not just forward earnings, but current earnings.)

Finally, to put a wrap on this:

Billionaire Ken Langone: Market ‘panic’ over coronavirus ‘surpasses’ reality

HM Stoops? (the name signed to 2 of the 6 illustrations on the page of the newspaper—they all seem to be from the same hand, despite this particular image is unsigned) [Public domain], via Wikimedia Commons

Of course it does. When market exuberance surpasses reality, then the market’s fall is likely to surpass reality. The pendulum swings the other way. It was a bull market built on emotions Fed with testosterone, and now it’s a dying bull having an emotional meltdown. Perhaps you didn’t know bulls can bawl.

Then let this gentleman farmer tell you: they certainly can.

Federal Reserve Monetizing US Debt Faster than its Previous Tightening

During its brief and utterly failed attempt to reduce its balance sheet (called quantitative tightening), the Federal Reserve only rolled off securities at a rate of $50 billion a month. It is now purchasing US treasuries at a rate of more than $55 billion a month:

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Dr. Fed Frankenstein Kept Alive by Zombies

Did you know Dr. Frankenstein created a monster that stays alive to this day by eating zombies? Neither did the zombies. Neither, apparently, did Dr. Frankenstein. In fact, the zombies, being braindead as zombies are, do not realize that they are also keeping alive the diabolical doctor who made the monster that is eating them.

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