Category Archives: Investing

Is the Panic Worse than the Virus? by MN Gordon

Here’s an answer to the title question: if it isn’t now it will be. From MN Gordon at economicprism.com:

The Great Panic of 2020 is already one for the history books.  Yet the damage has only just begun.  We suspect the stock market crash, economic destruction, and forfeiture of freedoms will persist long after the coronavirus hobgoblin has been put to bed.

With respect to the stock market, the modus operandi of the last 11 years is being stood on its head.  Rather than ‘buy the dip.’  The new divine mantra is ‘sell the rip.’  Here’s why…

If you recall, the U.S. stock market commenced a multi-year swan dive in autumn of 1929.  About that time, the economy also commenced a decade long Great Depression.  Given the rapid and relentless stock market carnage over the last month, and the prospect of a lengthy depression, a closer look is in order.

From September 3, 1929 to November 13, 1929, the Dow Jones Industrial Average (DJIA) lost 48.9 percent.  Then, as rarely noted, it rallied 48.1 percent through April 17, 1930.  This had the adverse effect of luring the buy the dip crowd back into the stock market just in time for the next massacre.

The 1929 through 1932 bear market, as noted by Pater Tenebrarum, was like a rubber ball bouncing down stairs.  With each bounce, even the most savvy of investors were given another chance to lose their money.  Taken in sequence, the repeated bounces provided many opportunities to lose money over and over again.

In the end, the bounce up between November 13, 1929 and April 30, 1930, turned out to be the ultimate sucker’s rally.  The DJIA subsequently crashed 89.2 percent from its initial peak, along with the hopes, dreams, and aspirations of an entire generation.

Such a colossal collapse could never, ever happen again, right?

Well, if it happened before, by definition, it could happen again.  Hence, if an interim bottom is put in over the next several weeks, and the DJIA attempts to retrace towards its February 12 all-time closing high, take this as a gift.  An opportunity to sell the rip.

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Market Crash: Is It Over, Or Is It The Revenant? by Lance Roberts

Don’t be too eager to jump back into the stock market. From Lance Roberts at realinvestmentadvice.com:

If you haven’t seen the movie “The Revenant” with Leonardo DiCaprio, it is a 2015 American survival drama describing frontiersman Hugh Glass’s experiences in 1823. Early in the movie, Hugh, an expert hunter, and tracker, is mauled by a grizzly bear. (Warning: the scene is very graphic)

In the scene, the attack comes in three distinct waves.

  1. The bear attacks, and brutally mauls Hugh, who plays dead to survive. The attack subsides.
  2. The bear comes back, and Huge shoots it, provoking the bear to maul him some more.
  3. Finally, Huge pulls out his knife as the bear attacks for a final fight to the death. (Hugh wins if you don’t want to watch the video.)

Interestingly, this is also how a “bear market” works.

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The Great American Shale-Oil Bust Turns into Massacre, by Wolf Richter

There is carnage in the oil patch. From Wolf Richter at wolfstreet.com:

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out this statement: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

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Very Deflationary Outcome Has Begun: Blame the Fed, by Mish Shedlock

Central bank inspired asset price bubbles eventually pop, and popping bubbles are deflationary. Today the 30-year bond yield dropped intraday to .6987 percent, which certainly suggests deflation. That may be the low for yields, but the economy is going to follow the stock market and that also suggests deflation. And look whats happening to the oil market. Watching the Federal Reserve’s balance sheet, people have been expecting inflation since the last financial crisis. Wouldn’t it be just like markets if we got debt deflation and depression instead? It might mean we don’t get that new high in gold many are now predicting. From Mish Shedlock at moneymaven.io:

The Fed blew three economic bubbles in succession. A deflationary bust has started.
Flashback January 6, 2020

Ben Bernanke Just Won’t Stop Making a Fool Out of Himself

Former Chairman Bernanke says Fed Has Many Tools to Deter Recession.

Dear Mr. Bernanke

Please do yourself a favor and stop making a fool out of yourself.

For starters, let me point out it was indeed impossible to unwind the Fed’s balance sheet. How far did you get? And what is the Fed doing now?

Secondly, you would not know inflation if if jumped up and spit you in the eye. You and your group-think buddies never consider asset bubbles as inflation.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

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Next Comes The “Turbulent Twenties”, by David Stockman

Debt will only take you so far and it looks like global debt is just about out of gas. From David Stockman at peakprosperity.com:

The past 30 years of False Prosperity is over

The coronavirus is now exposing a far more deadly disease: Namely, the poisonous brew of easy money, cheap debt, sweeping financialization and unbridled speculation that has been injected into the American economy by the Fed and Washington politicians.

It has turned Wall Street into a dangerous gambling casino while leaving Main Street buried under mountainous debts, faltering investment in growth and productivity and the hand-to-mouth economics of spending more than you earn.

It has also left the American economy exceedingly vulnerable to external shocks. That’s because 80% of households have no appreciable rainy day funds and businesses have hollowed out their balance sheets and artificially extended their supply chains to the four corners of the earth in order to goose short-run profits and share prices.

However, this unprecedented fragility is becoming evident as public health authorities around the world aggressively move to contain the Covid-19 contagion. This will mean separating workers from their workplaces, consumers from the malls, diners from the restaurants, travelers from the airlines, hotels and resorts and much more like and similar disruptions to the supply-side of the economy.

In short, the world’s supply chains are buckling and freezing-up, thereby causing production and incomes to fall abruptly. In turn, shrunken incomes and cash flows will pull the legs out from under the edifice of debt and speculation that has been piled atop the American economy.

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Unicorns & Non-Unicorns Hung Out to Dry: As SoftBank Licks its Wounds, Startup Funding Fizzles, Shutdowns & Layoffs Spread, by Wolf Richter

Wolf Richter surveys the weird, weird world of Silicon Valley finance. From Richter at wolfstreet.com:

The out-of-money moment is here. The party is over. But it sure was fund, so to speak, while it lasted.

It’s now a near daily litany: Startups, once assured to be fed endless cash to burn, are laying off people or are shutting down entirely as funding for them dries up, and as exits for investors get tough after the recent IPO fiascos, including Casper, Lyft, and Uber, and the messily scuttled IPO of WeWorkthat has pulled the rug out from under SoftBank.

San Francisco startup Starsky Robotics, which tried to develop autonomous-with-remote-human-control-trucking technology, and which had raised over $20 million in four rounds, has laid off the majority of its engineers and office staff after investors backed out of a funding round late last year. A potential buyer with deep pockets has not yet emerged either, senior VP Paul Schlegel, whose last day was January 31, told FreightWaves.

But it’s not the autonomous-driving industry overall that appears to be cutting back: According to Schlegel, 85% of the laid-off engineers have been hired by Google’s Waymo, GM’s Cruise, TuSimple (which has raised nearly $300 million, including from UPS), and others. It’s just that this company ran out of funds and investors refused to throw more money at it.

Then there are the cutbacks and layoffs among startups in the consumer DNA testing space, which has gotten tangled up in all kinds of privacy scandals, and now a drop in demand, but which received billions of dollars in funding over the years.

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The average US couple could be facing a new tax of $180,360, by Simon Black

The potential costs of being screwed by Social Security and Medicare are substantial. From Simon Black at sovereignman.com:

Today the federal government will release a nearly $5 TRILLION annual budget proposal for Fiscal Year 2021 (which begins on October 1st of this year).

Needless to say, that’s more money than any government has ever spent in the history of the world.

And there are a few things in particular that are worth highlighting:

First– this budget proposal would create yet another trillion dollar annual deficit. And that’s simply astonishing.

Think about it: this is supposed to be the ‘everything is awesome economy’. The stock market is at a record high. Corporate profits are at record highs. Unemployment is at record lows.

If the government can’t make ends meet when the economy is this good, how many trillions will these people burn when the next economic downturn arrives?

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