“Hell Is Coming”

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We sense that we are among unrealities…

It is as if some hinge, deep within the national psychology, has suddenly given way.

The daily rites of life are suspended. Businesses, schools and arenas the nation over have gone dark. Travel is hopeless…. and borders are sealed shut.

Unemployment claims are piling up. Treasury Secretary Mnuchin has suggested they may ultimately scale a depression-level 20%.

San Francisco residents are under house arrest, confined to barracks 24 hours of the day. Emergencies and food shopping provide the only officially sanctioned furloughs.

(Our spies report large numbers of lawless who are flouting the ban.)

Rumors are on foot that other municipalities — New York City included — will follow.

USNS Comfort — a hospital ship — is presently plowing a course for New York Harbor, under presidential orders.

An identical vessel steams for the West Coast.

You Can’t Even Go to Church

Locally, a blanketing hush has fallen over the city of Baltimore. Residents have abandoned the streets. Dining and ale houses are shuttered.

Those who hazard a public appearance approach one another with suspicion… as if every stranger has a gun in his hand and murder on his mind.

Even the churches have suspended their Godly operations, their flocks scattered to the winds:

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Even in wartime a fellow can take refuge in the comforting arms of God. But not when a pestilence is loose.

Yet the trees near our office are in blossom:

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And old Washington keeps his reassuring watch over the city:

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And we shall remain chained to our post… bound in solemn duty.

Three Years of Gains Wiped Out

The stock market went to the devil again today.

The Dow Jones slipped into the 18,000s today. It “recovered” to 19,899 by closing whistle… a 1,338-point loss on the day.

The S&P shed another 130 points; the Nasdaq 345.

Thus all market gains since Mr. Trump assumed his office are eliminated — three years of gains into the furnace.

“We’re only about halfway there,” hazards one trader. That of course being the bottom.

Gold, meantime, absorbed another slating today, down $30 and change.

But the 10-year Treasury yield went shooting in the other direction…

Yields vaulted 27% to 1.266%.

The reason is the promise of economic “stimulus” (more on which below).

The “Coronavirus Investment Summit”

Jim Rickards predicted the coronavirus scourge in early February, before markets caught the fever.

Wrote Jim in an email dated Feb. 5:

The real infection rate and death rate may be 10 times the official statistics… If you want to see how bad things can get, study the “Spanish flu” pandemic of 1918–20. Over 50 million dead.

And while the stock market was thundering down, Jim’s readers enjoyed the opportunity to nearly triple their money with one of his recommended trades — in one single day.

“Hell Is Coming”

We presently confront a springtime not of growth and life but of sickness and death.

And the carefree days of summer will likely yield to the careful days of summer… heavy with the mighty fear of a miniature bug.

The president — after all — let slip the other day that fortunes may only swing in August.

“Hell is coming,” shrieks Bill Ackman of Pershing Square Capital. He continued:

We need to shut it down now… This is the only answer… America will end as we know it. I’m sorry to say so, unless we take this option.

What precisely constitutes “this option”?

Chaining down the entire economy for 30 days. All gears of commerce must wind to a complete and immediate 30-day halt. More:

The hotel industry and the restaurant industry will go bankrupt first. Boeing is on the brink, Boeing will not survive without a government bailout… Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown…

Every hotel is going to be shut down in the country… If we allow this to continue the way we have allowed it to continue, every hotel company in the world is done. No business can survive a period of 18 months without revenue.

Will the president heed this fellow’s counsel?

“Wartime President”

Mr. Trump has now declared himself a “wartime president.”

And he has pledged to invoke the 1950 Defense Production Act (Pub.L. 81–774) — “in case we need it.”

The Defense Production Act is:

An Act to establish a system of priorities and allocations for materials and facilities, authorize the requisitioning thereof, provide financial assistance for expansion of productive capacity and supply, provide for price and wage stabilization, provide for the settlement of labor disputes, strengthen controls over credit and by these measures facilitate the production of goods and services necessary for the national security, and for other purposes.

“Other purposes,” of course.

From bull market to wartime economy within the space of one month — if you can believe it.

A journalist once asked British Prime Minister Harold Macmillan what could knock his plans off the course.

“Events, dear boy, events,” came his supposed response.

The president has been washed over by events.

Emergency Relief

Meantime, the administration proposes to write Americans checks — $500 billion worth in total.

The first would go in the mail April 6 — pending congressional approval of course. The second batch would go on May 18.

The specific amounts will depend upon a family’s income and number of children in residence.

“Millionaires,” we are told, are ineligible for relief.

Meantime, we are informed the Senate has the votes sufficient to expand paid leave and unemployment insurance.

The bill has already cleared the House of Representatives. Off it goes for the president’s signature once the Senate pushes it out.

But what will the rest of us purchase with the money we are to receive?

“The. Party. Is. Over.”

Our colleague Byron King laments we have “silent spring” on our hands, “courtesy of one too many imports from China.”

And the shelves may run thin by summer:

My maritime friends tell me that over the past two months, over 260 large cargo ships — 10,000–20,000 containers and more per each one — were canceled or sailed partly loaded (from China). Out of over 4 million containers that “should” have shipped, 2 million — about 50% — never made it.

What you see on the current shelves — the Chinese stuff — all showed up last fall and early winter. Looking ahead, those missing containers of Chinese goods will compound future shortages of all manner of things.

Expect to start seeing the effects in April, May and June.

Concludes Byron, with dreadful emphasis:

“The. Party. Is. Over.”

We hope he is mistaken. Yet we fear he is not.

We do not care one whit for this new America. Please, 1,000 times, please, return us to the former America — botched as it may have been.

But if our choices are reduced to death by coronavirus or death by hunger… we opt for the virus.

The end comes much faster.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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“Close the Whole Thing Up”

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“If this doesn’t work,” wonders Seema Shah, Principal Global Investors central strategist…

“What will?”

“This” is of course the Federal Reserve’s desperate harum-scarum yesterday afternoon.

Mr. Powell and crew knocked down rates one entire percentage point. The federal funds rate now squats between 0% and 0.25% — zero essentially.

And so as a dog returneth to its vomit… the Federal Reserve returneth to zero.

The scoundrels of Zero Hedge label it part of the “the biggest emergency ‘shock and awe’ bazooka in Fed history.”

But we are not shocked. Nor are we awed.

Our only surprise is the scheduling — our hazard was a return to zero later this week.

Yet the business was so urgent, all hanging in balance… it could not even wait for this week’s formal FOMC confabulation (now canceled).

Not Just Rate Cuts

We were further informed yesterday that quantitative easing (QE) is commencing anew.

The Federal Reserve will purchase “at least” $500 billion of United States Treasuries — and $200 billion of mortgage-backed securities — $700 billion in all.

We are betting high on “at least.” This merely represents the opening installment.

The Federal Reserve is also extending fresh ratlines — our apologies, swap lines — to foreign central banks.

That is intended to maintain dollar liquidity against the global coronavirus delirium presently obtaining.

Greg McBride, Bankrate chief financial analyst, in summary:

The Fed is dusting off the financial crisis playbook, returning to bond buying, coordinating with other global central banks to provide access to U.S. dollar liquidity, cutting interest rates to zero and opening the Fed’s discount window to ensure the flow of credit through banks to consumers and businesses.

“It’s really great for our country,” gushed the president.

But is it? Did yesterday’s “shock and awe” bazooka blast score a hit?

It did, yes. A direct hit — to the wrong side.

Shocked and Awed…

Stock futures went careening last evening, so shocked, so awed were they. They promptly went “limit down.”

The future arrived this morning at 9:30 Eastern. And markets remained shocked and awed…

The Dow Jones plunged nearly 10% from the opening whistle. The S&P and Nasdaq followed in lockstep.

Once again the breakers tripped… and trading was suspended 15 minutes.

“The central banks threw the kitchen sink at it yesterday evening, yet here we are (with deep falls in stock markets),” yelled Societe Generale strategist Kit Juckes.

“This is what panic looks like,” hollered Patrick Healey, president of Caliber Financial Partners.

Yet we are not surprised. Markets can see the beads of perspiration forming about Mr. Powell’s forehead. Markets are flighty birds easily frightened.

And what telegraphs fear more than a “shock-and-awe bazooka”?

The shock and awe deepened throughout the day…

Another “Worst Day Since Black Monday”

We grow weary of repeating it. But the Dow Jones once again suffered its mightiest whaling since Black Monday, 1987.

The index gushed another 2,997 points today to close at 20,188 — giving back another 12.93%.

The S&P lost 325 points, or 11.98%. The Nasdaq, 970 points and 12.32%

And so additional trillions of stock market wealth vanish into the electricity, lost.

Losses accelerated towards day’s end. Why?

Late this afternoon the president said the “worst of the outbreak” could stretch into August.

Fear gauge VIX went skyshooting to 83 today — within shouting distance of its record 90 from October 2008.

And so we return to our opening question:

“If this doesn’t work… what will?”

Alas, the question is easier asked than answered…

“Just Close the Whole Thing up”

One CNBC host even suggests shuttering Wall Street. Shrieks Mr. Scott Wapner:

How are folks supposed to focus on trading stocks when they’re dealing with nervous kids out of school, spouses working from home and scrambling to keep up, all while managing their own anxieties? Just close the whole thing up and start again later. It’s the right thing to do.

It may be the right thing to do or the wrong thing to do. Regardless, it has been done before.

The stock market was suspended 10 days during the panic of 1873 — and four entire months at the outset of the First World War.

Examples abound. Most recently in October 2012 when a hurricane, Sandy by name, closed the market two days.

But now the Federal Reserve confronts a different variety of hurricane…

“Very Serious Trouble”

“The Fed is now in very serious trouble,” gulps Graham Summers of Phoenix Capital — whom we recently introduced to you, our reader.

“Put another way,” he continues…

The Fed has gone truly NUCLEAR with monetary policy… and the market is STILL imploding…

The Fed can do NOTHING to stop this. No amount of rate cuts or stimulus from the Fed will make people want to go out and spend money if the country is on lockdown/facing a health crisis triggered by a pandemic.

The country is indeed verging upon a lockdown of sorts…

National Lockdown

The Centers for Disease Control and Prevention has recommended that all sizable gatherings and events be “postponed” for the following eight weeks.

New York, New Jersey and Connecticut — home to a fair number of Americans — have taken aboard its counsel.

All gatherings of 50 persons or greater thus are banned.

We remind you that restaurants frequently entertain crowds exceeding 50. As do other dens of vice including drinking establishments, casinos, theaters, concert halls, ballparks, gymnasiums and houses of worship — to name some.

Houses of ill repute, we assume, must ration admission ruthlessly… else court the wrath of the law.

New Jersey residents are now confined to barracks between 8 p.m. and 5 a.m. All travel is “strongly discouraged,” save in emergency.

Other States Follow

Meantime, Illinois bars and restaurants will close to the public beginning tonight. Their doors will not reopen until March 30.

Delivery and takeout services are available, however, as they are in New York, New Jersey and Connecticut.

Washington state has followed their example. As has the great state of Michigan. As has our own state of Maryland.

Massachusetts has exceeded even CDC’s draconian limit of 50. Gatherings of 25 or more are presently forbidden in this, the cradle of American liberty.

Meantime, over 30 million students in at least 31 states are exiled from the classroom. The Ohio governor has suggested his state’s may not come back until autumn.

Even the Supreme Court of the United States will no longer hear arguments — until early April at the earliest.

Do not forget, six of nine justices are aged 65 or above. And the coronavirus harbors a savage antagonism toward the elderly.

Thus a grateful nation is insured against a potential holocaust of justices.

A Ban on All Air Travel?

And now… rumors are on foot that a complete ban on domestic air travel is under active consideration.

We have assigned our men to investigate.

Regardless, the airlines are suffering damnably. Delta Air Lines claims conditions are worse than even the Sept. 11 afterblow.

“The speed of the demand fall-off is unlike anything we’ve seen,” laments Chief Executive Officer Ed Bastian.

The airline has gutted operations some 40%. And 300 planes are tied down to the tarmacs.

Meantime, all American cruise liners will remain tied up to the piers for 60 days.

A bailout of the air and cruise lines is on the way — depend on it.

So too, perhaps, is a bailout of the American citizen…

$1,000 Check Every Month

Sen. Mitt Romney (R-Utah) proposes to hand every American adult $1,000 per month so long as the coronavirus rages.

Reads a press release under his name:

Every American adult should immediately receive $1,000 to help ensure families and workers can meet their short-term obligations and increase spending in the economy.

Of course, the money must originate somewhere… as the government has none of its own.

In many cases it would amount to lifting money out of a fellow’s back pocket and lowering it into his front pocket.

But crises bring forth ideas that would never get a hearing otherwise. Many are of course lunatic.

Americans would acclimate rapidly to the monthly stipend. Who would take it away from them once the all clear signal goes out?

This is an election year, do not forget, when votes go up for sale. A monthly check can purchase many.

“The Worst Is yet Ahead for Us”

But just when might the coronavirus lose its stranglehold on American life?

“The worst is yet ahead for us,” warns Dr. Anthony Fauci of the National Institutes of Health.

We hope the fellow is mistaken.

We further hope the worst is behind for markets.

But we fear the worst is ahead for the economy.

And so again we ask:

“If this doesn’t work… what will?”

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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“The Most Critical Time Since the Financial Crisis”

This post “The Most Critical Time Since the Financial Crisis” appeared first on Daily Reckoning.

“We’re faced with the most critical time since the financial crisis.”

This we have on the grim authority of money man Sven Henrich.

Last evening prepared us for this morning’s hells…

In overnight trading, S&P futures plunged 5% in four hours. The selling frenzy tripped the “circuit breakers.”

These fail-safes were installed after 1987’s “Black Monday” to prevent encores.

Thus S&P futures trading screeched to a halt, suspended… lest the fever deepen.

But the opening whistle blew this morning. And the delirium resumed precisely where it had ended…

A Trading Halt

The S&P went instantly careening. It shortly sank 7%.

Once again the violence tripped the circuits (the threshold for regular-session trading is higher than after-hours trading).

The referee called a halt at 9:34 — the first ever under existing rules — and administered a 15-minute standing count.

For 15 minutes the market fought to recapture its legs… and its wits.

At 9:49 the ban came off. Though woozied, the market “stabilized.”

But the battened and bludgeoned market could scarcely maintain the vertical.

The Worst Day Since “Black Monday”

Both S&P and Dow Jones went along, 5% down through noon. The remainder of the afternoon worked little improvement.

The Dow Jones tumbled 8% at one point this afternoon — the most since another Monday, long distant — “Black Monday” in 1987.

It closed the day down 7.79% to 23,851, a 2,014-point waylaying.

The S&P gave back 226 points on the day, for a 7.60% loss.

The Nasdaq similarly absorbed a 625-point trouncing, losing 7.29% on the day.

Thus the three major averages presently camp upon the doorstep of a bear market. One more slip… and they go in.

A bear market is a 20% plunging from recent peaks.

European stocks officially crossed over today — down over 22%. Not three weeks ago they traded at record heights.

Meantime, 10-year Treasury yields plunged to a starvation-level 0.318% this morning.

Words fail us.

“The Path of Least Resistance is Still Down”

Is the worst over?

“The path of least resistance is still down,” shouts Liz Ann Sonders, chief investment strategist at Charles Schwab.

Once again we must point our accusing finger at “passive investing.” The computers caught a fever, unloading positions at electronic speeds.

But there are few buyers on the other end to take them in.

That is why — we theorize — “corrections” have attained great ferocity in recent years.

That is also why markets have gone from record heights to bear market’s doorstep within three weeks.

But what happened this morning? Why did the bottom drop away?

Oil Collapses

Oil is the explanation most widely on offer. Investors Business Daily:

Oil prices began to collapse on Saturday as negotiations between Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, and Russia over production quotas failed. The breakdown in talks led the Saudis to sharply slash prices in the onset of another price war. The Saudis also said they would abandon OPEC’s current production curb, a move that opens the same door to other OPEC members, threatening to flood the already-oversupplied oil market with possibly more than 3 million barrels per day in additional production.

Oil prices had already sold off for three straight weeks, losing more than 37% as global markets grappled with the potential impact upon demand of the coronavirus outbreak begun late last year in China.

Crude oil hemorrhaged 25% today — its heaviest rout since 1991. It has come all the way down to $30.93. And oil stocks took a savaging today.

Two “Black Swans” Converge

Thus two “Black Swans” pooled their mischiefs… and came swooping in this morning.

These nightmare birds are the coronavirus and oil. Combined they account for this sudden terror.

So argues Seabreeze Partners Management president Doug Kass:

Over the weekend one old Black Swan (coronavirus) and a new Black Swan (substantially lower energy prices) joined forces in the pond as the collapse in yields and energy prices is serving to crater global equity markets this morning. In scope and rapidity, the accumulated declines in bond yields and stock prices are unprecedented…

There will be enormous fallout where large bets have gone wrong — ranging from bond, equity, commodity and VIX positioning.

Adds one Chris Rupkey, chief financial economist at MUFG Union Bank:

[Stock market investors] want out. Big-time. The sky is falling. Get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard.

A Minefield of Debt

The energy sector is soaked through with debt. A fair portion is “high yield.” That is because it is, as the professionals say… risky.

Many of the big banks hang on the other end of it. Bank stocks absorbed some of the heaviest slatings today — not coincidentally, we hazard.

What if losses pile up in the energy sector? Defaults could go barreling through the credit markets.

And woe to ye of earth and sea once they do…

Nordea’s global chief foreign exchange strategist Martin Enlund:

If “unforeseen losses” show up in the high-yield sector (very energy-heavy), it might damage the credit cycle… and if the credit cycle cracks, forget about buybacks, mergers and acquisitions and the S&P’s current valuation.

Buybacks are the chief gimmick behind the market’s gorgeous multiyear spree.

Who will buy if the corporations do not? Who will pick up the standard… and carry forward?

The questions nearly answer themselves.

Next we come to a central actor in the drama unfolding before us — the central bank.

Heading Back to Zero

What can you expect from the Federal Reserve in the days and weeks ahead?

Its recent “emergency” 50-basis point rate cut came thudding down… like a zeppelin of lead.

But of this you can be certain: More is ahead.

Goldman Sachs chief economist Jan Hatzius is convinced the Federal Reserve will hatchet another 50 basis points at this month’s FOMC meeting.

It will proceed to another cut in April, says he:

We now expect a 50bp cut, in part because the bond market is already priced for a large move and the FOMC will likely be reluctant to risk further tightening in financial conditions by refusing to deliver. We are also penciling in a final 50bp cut at the April 28-29 meeting.

At which point rates would hover between 0–0.25% — all the way back to post-crisis lows.

Remember “Normalization?”

And so Mr. Powell’s previous designs to “normalize” rates now appear a cruel, cruel jest.

We never believed he would succeed. The market is so entirely dependent on abnormal interest rates… it would collapse without the backstop.

He attempted to pull it out gradually after he came on duty. But he put it back after December 2018, when the market wobbled badly.

Now it is riveted into place and reinforced with cement.

But recession menaces — greater than at any point in years.

And like a blunderbuss artillery man who squanders his ammunition ahead of the main action… the Federal Reserve is blasting its remaining “dry powder” ahead of time.

As we razzed last week:

The Federal Reserve will be reduced to scraping powder off the floor. If recession swept in tomorrow… it could scarcely fire off a cannon.

Monetary policy is a spent cartridge, an empty shell casing.

Central banks will be forced ultimately to surrender command to the fiscal authorities.

Prepare for Fiscal Policy

“Helicopter money,” Modern Monetary Theory, some variant of the two, these we will see.

Depend on it.

We opened today’s reckoning with a lament from analyst Sven Henrich:

“We’re faced with the most critical time since the financial crisis.”

And so we conclude with Mr. Henrich:

The constant subsidy of markets and the economy has led us to the largest credit and asset bubble in our lifetimes and the architects of the monstrosity have left themselves weak and depleted. They are now begging for fiscal stimulus from governments that are traditionally slow to react. The big bazookas will come, the question is whether it will be too late.

That is our question as well.

More tomorrow…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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