Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Markets, Mania, and Meltdown - a Brief Synopsis of the Past Month

Stock-Markets / Financial Markets 2020 Mar 12, 2020 - 10:28 AM GMT

By: Andy_Sutton

Stock-Markets

The past month has been one of nearly continuous turmoil in the financial markets”. That might well be the understatement of this still fairly new century. Keep in mind that during the past 20 years, we’ve had 2 significant recessions (according to the Bureau of Economic Analysis), a complete meltdown of the .com mania, the inflation of a real-estate bubble and its subsequent bursting, the halving of US financial indexes, and the bankruptcy of names like Lehman Brothers, and AIG to name a few. Throw in a massive bailout, a fusillade of rescue programs like TARP, TSLF and the resulting blowout of the federal reserve’s balance sheet. This is within the first 10 years. Keep that in mind.

The second ten years have featured D-E-B-T – on all levels. Governments of the world, states and provinces, local municipalities and parishes, students, consumers, homeowners. In short? Pretty much everyone. That debt has driven the economy for the past decade. Globally. Many will think this is just an American problem. It’s not. Misery loves company, right? Not so fast. In this brave new world of interlocking economies and financial systems, a failure on the other side of the world can cause problems in our own back yards.


Entire countries have gone bust and have had to go hat in hand to their representative central bank. Remember Portugal, Ireland, Italy, Greece, and Spain? Don’t forget the tiny island of Cyprus and its king-sized banking crisis, which led to a bank holiday and eventually a bail-in. Wait, we just talked about a bailout. What’s a bail-in? We penned a serious of articles on this topic back in 2013. Read them here. Keep in mind that this is very non-exhaustive and brief summation of some of the more important events.

Which brings us to the present. Yesterday, 3/11/2020, the ENTIRE yield curve for USGovt bills, notes, and bonds was under 1%.  That’s not a typo. There is rampant talk of negative interest rates here in the US. This phenomenon is already happening in Germany – the powerhouse of the European Union and several other easily recognizable nations. Moves in the bond market that generally take many months are now taking days. If you’re planning on retiring and living on the interest of your bonds, you might want to rethink that strategy. Many of the people we communicate with regularly have themselves or know quite a few people who have gotten a 20% haircut or more on their equity investments since the beginning of the year.

Much of the more recent activity has been blamed on the emergence of a new Coronavirus. The fear alone that has been imparted by the mainstream – and even alternative media is bound to have some kind of impact on the global economy. Economists are already clamoring for cash payments to citizens as a means of ‘stimulating’ the economy. In the US we’ve done this twice previously in the past two decades. Both were credited with averting nasty recessions. Both went directly on the federal budget deficit here in the US. Debt has indeed become the answer to all that ails most economies the world over.

The gyrations and volatility in financial markets have been enough to give even seasoned investors a serious case of whiplash. In the past 10 trading days the Dow Jones Industrials Average here in the US has had its two biggest down days – EVER – in terms of the number of points lost. Sandwiched in there are some of the biggest up days – EVER – again, in terms of index points. Oil crashed over 20% in a single day. Gold has broken out and is once again around/over the very important $1650 level. Silver is probably the bargain of the century to this point. Throw into all this a major year in terms of the political arena. And no, we are not breaking our tradition of focusing on policy. The policy provides the answers. The names only serve to muddle the issues.

As we write this evening of the 10th of March in the year 2020, it is quite possible and likely that the economic and financial foundation that we all rest on has begun yet another metamorphosis into something completely different than we’re all used to. Contemplate the concept of negative interest rates alone. Such a ridiculous move would take several hundred years of investing philosophy and modeling and flush them directly down the toilet. Again, this is likely an understatement. The US went from a national debt around $14T during the 2012 campaign season to a level of $23.5 trillion in the early part of 2020. In 1986, America reached the $1 trillion mark. Any stimulus will go right on the tab.

Many people are electing to stay home for fear of contracting COVID-19 and with all the uncertainty that exists regarding this virus, we refuse to pass judgement. Since consumers are responsible for nearly 70% of US Gross Domestic Product, even a month’s cessation of vacations, cruises, flying, going shopping and all the other activities that fall under consumption, we could easily see a sizable dent popped into Q1 GDP. Or the money might be spent online, and it might not affect GDP that much at all. The situation in China can only be guessed. Sadly, national governments have a growing aversion to the truth even when lives are at stake.

In summation, we cannot and will not make any ‘predictions’ regarding Q1 GDP, consumer spending and the balance of trade. Given that oil has dropped precipitously, that drop will translate into lower gas prices at some point and that will lower that portion of consumer spending, which will negatively affect GDP. This reality makes a strong case that we should be measure growth in units rather than dollars wherever and whenever it is practical to do so. The best advice we can give is gather as much information as possible and try to avoid making decisions based on emotion. Seeing the Dow Jones Industrials Average lose over 2,000 points in a single trading will unnerve even the savviest of investors.

Living off the interest from investments, for all purposes, is not going to be feasible for the foreseeable future. Our economies are hooked on low interest rates. That is helpful for the borrower, but lethal for the investor. It forces investors with shorter time horizons into the riskier equity markets. This situation represents a clear and present danger to the standard of living for millions of people in America alone.

This is not all gloom and doom, however. Again, like 2008, we have a chance to endure the economic pain necessary to down regulate our debt-laden, consumption-oriented economy into something that doesn’t need trillions of borrowed dollars each year just to keep plodding along at a snail’s pace. We have an opportunity. Will we avail ourselves of it? If the talking points coming out of the television and Internet media outlets is any indicator, we will most likely not take this opportunity, opting instead to kick the proverbial can down the road ensuring that the pain will only be worse for the next generation when they are forced to deal with it. We challenge not only America, but the rest of the world to put down the credit cards and take a step back. We did it here in the US during 2010. We can do it again. But will we?

Stay tuned and stay well.

Sutton/Mehl

By Andy Sutton

http://www.andysutton.com

Andy Sutton is the former Chief Market Strategist for Sutton & Associates. While no longer involved in the investment community, Andy continues to perform his own research and acts as a freelance writer, publishing occasional ‘My Two Cents’ articles. Andy also maintains a blog called ‘Extemporania’ at http://www.andysutton.com/blog.

Andy Sutton Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in