R.I.P.: Requiem for a Bull

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For the longest bull market in history… it is a time to die.

For the Dow Jones, aged 11 years and two days, the soul quit the body yesterday afternoon.

Immediate cause of death: coronavirus disease (COVID-19).

Underlying cause of death: irrational exuberance.

The sickness was brief, acutely brief — a mere 19 days.

Only in November 1931… in the teeth of the Great Depression… did the index plunge from record heights to bear market depths in so short a space. Such was the violence of the death spasm.

Both S&P and Nasdaq joined it in the morgue this afternoon.

And so the flags over Wall Street flap at half mast today… and the black crepe is up.

Yet as we have argued previously:

The stock market is an ingenious device constructed to inflict the greatest suffering upon the most people… within the least amount of time.

In Memoriam…

The eulogies have already come issuiwwng…

Linda Zhang is chief executive officer of Purview Investments. Says she, a pearl of sorrow coursing down her cheek:

This bull market will go down in history as the one that nobody believed would last this long… What destroyed us in 2008 was overleverage. What brought us to where we are in 2020 is too much hope, sky-high valuations.

Doug Ramsey is chief investment officer of Leuthold Group. This fellow labels the late lamented decade the “steroid era” of the stock market — and identifies the supplier:

It was the most hated bull market — people said that early on. I think in the middle of the decade people [got] on board. Certainly in the last year they became believers. I’d also call the whole decade the steroids era because of all the help out of the Federal Reserve. I think it certainly did get a lot of help from the Federal Reserve. This was the steroids era of the stock market — the Fed propped it up.

Will the Federal Reserve attempt to blow life into the deceased? And how long can you expect the bear’s market to run?

Possible answers below.

But the exuberant, marauding bears desecrated the corpse this morning — before the Dow’s body was cold…

Another 15-minute Trading Halt

Within minutes of the opening whistle… the poor Dow Jones plunged another 1,700 points into eternity.

The S&P plummeted 7%, overloading the circuits and tripping the breakers — for the second instance this week.

For another 15 minutes the markets suspended breath.

Why this morning’s fresh stampede out?

The President Fails to Inspire Confidence

Apparently the president’s fireside chat last evening inspired little confidence. It failed to indicate a government response equal to the crying need.

Fifteen minutes after this morning’s halt, markets reopened for business. They should have remained closed…

The rout promptly resumed.

The market — meantime — places 83.4% odds the Federal Reserve will hatchet rates to between 0% and 0.25% next week.

That is, to financial crisis levels.

But dare we ask… is the worst over?

“You Likely Have not Seen Anything Yet”

“You likely have not seen anything yet,” wails Eric Parnell of Global Macro Research:

A potentially great fall lies ahead. Unfortunately for investors, conditions for the stock market have the potential to get worse, much worse, in the intermediate term. And all of the king’s policy horses and all of the king’s policy men may not be able to put this market back together again when it’s all said and done…

In short, you likely have not seen anything yet when it comes to today’s stock market.

After years of policy stimulus, stocks are trading at record-high valuations and bond yields are at historic lows. It is only a matter of time before reality returns to global capital markets.

But the coronavirus may merely be the tip of the berg that has gashed this Titanic down deep…

Think Lehman Bros.!

Phoenix Capital’s Graham Summers, introduced here this week, argues the bulk of the berg is invisible:

Now, let’s talk about the REAL crisis that is hitting the financial system…

[Global] debt-to-GDP is north of 200%. Leverage is higher today than it was in 2007. And the world is absolutely saturated in debt on a sovereign, state, municipal, corporate and personal level.

However, everything was running smoothly as long as nothing began to blow up in the debt markets [or] credit markets.

And despite a few hiccups here and there, the debt markets have been relatively quiet for the last few years…

Not anymore.

Someone or something is blowing up in a horrific way “behind the scenes.”

The Fed was FORCED to start providing over $100 BILLION in free money overnight back in September 2019. And even that massive amount is proving inadequate…

[Two nights ago], the Fed was forced to pump another $216 BILLION into the system.

You don’t get those kinds of demands for liquidity unless something is truly, horrifically wrong.


But we suppose that is why the Federal Reserve answered the klaxons this afternoon, dripping icy sweat…and rounded into action…

QE4 Is Here

Shortly after 1 p.m., it announced it is hosing in a staggering $1.5 trillion of liquidity today and tomorrow.

Between September and December it expanded its balance sheet at a rate unseen even during the financial crisis.

But the flow was but a trickle compared to the torrent on tap:


What is more, the Federal Reserve will conduct purchases across a “range of maturities.”

A full range of maturities includes longer-dated Treasuries. Thus it can no longer deny it has resumed quantitative easing…

Its purchases since September centered exclusively upon shorter-term Treasuries. Since QE targeted long-term Treasuries, it could throw out a smokescreen of deniability.

But no longer. Thus today we declare the onset of “QE4.”

The Rescue Doesn’t Hold

The drowning stock market seized upon the life ring thrown its way. And it rapidly made good half its losses on the day.

But it began to lose its purchase on the ring, on life… and resumed its slide into depths.

The Dow Jones finally settled at 21,200 by closing whistle — a 10% loss on the day — its worst since Black Monday, 1987.

Perhaps history will label this date “Gray Thursday.”

The S&P hemorrhaged an additional 9.51% on the day; the Nasdaq 9.43%.

The Leaders up Are Leading the Way Down

Are ruptures within the credit markets why stocks continue plunging, Mr. Summers?

This is why the markets are failing to rally. It is why every major central bank is out talking about launching new aggressive monetary policies. And it is why the Fed is privately freaking out.

Below is a chart showing [a proxy for] the credit markets (black line) relative to the stock market (red line).

As you can see, the credit market led stocks to the upside during the bull market. And it is now leading stocks to the downside. Credit is already telling us that stocks should be trading at 2,600 or even lower.


This is a real crisis. And from what I can see, the Fed can’t stop it anytime soon.

The Fed’s One Option

But if the prospect of rate cuts and additional QE cannot hold the line… does the Federal Reserve wield any options at all?

So what could stop this?

A globally mandated intervention in which the Fed and other central banks start buying corporate debt.

However, in the U.S., the Fed CANNOT buy corporate debt…

It would need authorization from Congress to do so. And from what I can tell, no one is even suggesting this.

I don’t mean to be a fear-monger, but this is a very dangerous situation.

We would have to agree. It appears a very dangerous situation.

But how long can you expect the bear’s market to endure? The answer in one moment.

But first… will the Federal Reserve actually attempt to reanimate the corpse?

Perhaps not.

The Fed Wants to End the Market’s Dependency

As our own Charles Hugh Smith claimed in a recent reckoning, it has grown fearful of the monstrous bubble it inflated.

But it did not wish to shoulder blame for draining the air out.

Thus the coronavirus has done it a great service by seizing the sharpened pin.

And it may not wish to risk blowing another bubble. Do we speculate?

No. Here former Dallas Federal Reserve President Richard Fisher speaks for himself:

The Fed has created this dependency…

The question is do you want to feed that hunger? Keep applying that opioid of cheap and abundant money? The market is dependent on Fed largesse… and we made it that way…

But we have to consider… that we must wean the market off its dependency on a Fed put.

The question is worth considering. But how long can you expect this bear to run amok?

Here is the answer, says history:

Roughly seven months for the S&P… and perhaps nine months for the Dow Jones.

Of course it could end sooner. But it could also end later.

More tomorrow…


Brian Maher
Managing editor, The Daily Reckoning

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Bull Market — or Bear Market Rally?

This post Bull Market — or Bear Market Rally? appeared first on Daily Reckoning.

After “the sharpest rally since the global financial crisis recovery” — Goldman’s phrase — has the stock market peaked for the year?

Today we weigh the evidence… and hazard a conclusion.

The major averages jumped over 20% from their Christmas Eve bottoms.

The Dow Jones catapulted over 4,000 points valley to peak.

The S&P, 450. And the Nasdaq, some 1,250 points.

VIX — Wall Street’s “fear gauge” — plunged from a menacing 36 to a kittenish 13 by March 1.

“The bull is back,” gloated the financial press. “The bears are back in hibernation,” they exulted, putting out their tongues at skeptics.

But as the sage Lao Tzu warned:

The light that burns twice as bright burns half as long.

This light is flickering… and fading.

Today the major averages posted losses for the fourth consecutive session — their worst span since December.

The Dow Jones gave back another 200 points today.

The S&P surrendered 22; the Nasdaq, 84.

So we ask:

Was the historic bounce a mere spasm of a dying beast — a “bear market rally”?

Financial journalist and analyst Mark Hulbert:

Rallies in excess of 20% during bear markets are hardly unprecedented. In each of the 2000–2002 and 2007–09 bear markets, for example, both the S&P 500 and the Nasdaq Composite rallied by more than they have recently — only to eventually succumb to the bear market that remained in force.


During the bear market that lasted from March 2000–October 2002, for example, the S&P 500 experienced a rally in which it rose 21%; in its biggest rally during the October 2007–March 2009 bear market it gained 24%. Both rallies were larger than the one this benchmark has experienced since its Christmas Eve low.

Morgan Stanley subscribes to the bear rally theory. It has been “selling the rally” — not buying.

Returning to Goldman, its analysts believe the market’s recent highs could well be the year’s highs.

It appears there is justice here.

Before its recent slippage, the S&P was already up some 15% on the year.

A 15% annual gain for the S&P is pretty handsome.

Its average annualized return stretching 90 years is a workmanlike but unspectacular 9.8%.

And over the past 20 years?

You may wobble at the answer:


Yes, it is true — 2017 turned in a 19.7% gain.

And 2013 yielded a wondrous 29.6% return.

But these years we find at the margin, far beyond the general.

Also in recent years:

2018’s 4.4% loss. 2015’s 1.4% gain. 2011’s 2.1% gain.

If the S&P can scratch out a 15% gain this year, it would be a job jolly well done.

Especially, that is, in context of unfurling economic conditions.

As we have documented to the verge of exhaustion, growth is winding to a halt.

GDP trends in the wrong direction. The consumer sags and groans under record debt. Retail stores close at alarming rates. Construction wallows.

Et cetera, et cetera.

Yesterday’s reckoning, in summary:

Debt delinquencies are at unprecedented levels, bankruptcies are soaring, retail stores are closing at a record pace; this is the worst economy for farmers since the early 1980s, exports are plummeting and a brand-new real estate crisis has now begun.

Meantime, unemployment is beginning to slink higher… like a choking vine.

The Federal Reserve evidently agrees.

Why else would it suddenly transition to “patience”?

Before December’s near-bear market Jerome Powell was implacably and resolutely determined to raise interest rates and hack the balance sheet.

But the market read him a severe lesson… and Mr. Powell saw the light.

Unfortunately it could be the headlight of a locomotive barreling toward him…

Monetary policy runs to a lagging 12–18-month schedule.

The combined effects of previous rate hikes and balance sheet gougings may finally be working their mischief.

Powell could cut rates once again — fed funds futures suggest a nearly 20% chance of a rate cut by next January.

But recall the 12–18-month policy lag.

Like Custer at Little Bighorn, reinforcements would not arrive in time.

And as we have explained previously, recession almost always follows the first rate cut after a hiking cycle.

By then… it is too late.

We cannot be certain recession will come calling this year.

But we hazard the stock market will not end 2019 much above its recent highs — if it ends 2019 higher at all.


Brian Maher
Managing editor, The Daily Reckoning

The post Bull Market — or Bear Market Rally? appeared first on Daily Reckoning.

What Happened to the Bear Market

This post What Happened to the Bear Market appeared first on Daily Reckoning.

From valley to peak in the space of one month…

The bears were poised to claim final victory in late December… and black crepe was unfurling over Wall Street.

The major averages lost nearly 20% from their early October highs. The Nasdaq in fact tumbled into an official bear market.

Who could say where it would stop?

All things good must end — unlike some things bad — and 10 years is a plenty handsome run.

But a hero stepped forth at the fatal hour…

“Not on my watch!” thundered Jerome Powell.

Through the canyons of Lower Manhattan he rode, atop his barreling white steed… down Broadway, left on Wall… and through the doors of the New York Stock Exchange.

Mr. Powell announced he was “prepared to adjust policy quickly and flexibly”… and that he was “listening carefully” to markets.

He further pledged to announce a halt to quantitative tightening “if needed.”

“We wouldn’t hesitate to change it,” he reassured the assembled.

Powell was huzzahed and hoorayed through all of Wall Street… and tall glasses were hoisted in his honor.

Thus the “Powell Put” was christened.

Markets now know Powell is behind them if the bears draw too close…

As they knew Yellen was behind them… and Bernanke before her… and Greenspan before him.

The Dow Jones has recaptured some 3,000 points since its Dec. 24 bottom.

The S&P has put on a similar show, and the Nasdaq has nearly clawed out of its bear market.

Have underlying economic conditions brightened vastly to justify the upswing?

Not by our liver and lights…

Does not a Federal Reserve about-face mean it spots trouble ahead? Why else would it back off?

Growth is trending in the improper direction.

Q4 GDP 2018 numbers have yet to be released, yet they will likely slip beneath Q3’s.

Meantime, the New York garrison of the Federal Reserve published its U.S. household debt and credit report yesterday.

It revealed a record 7 million Americans are at least 90 days behind on their auto loans.

If further revealed that private debt scaled a record $13.5 trillion in last year’s final quarter.

That same Federal Reserve Bank of New York gives a 21% chance of recession within the next year — its highest reading since 2008.

A Bloomberg survey of economists has it at 25%… the highest in six years.

Finally, JPMorgan estimates a 35% chance of recession this year — up from 16% last March.

Do we place our stock in the speculations of Ph.D.-ed economists?

We certainly do not.

But why else has the stock market had its run… if not for the heroics of the Hon. Jerome H. Powell?

It’s the splendid unemployment numbers, you say.

Unemployment struck a 49-year, 3.7% low in September. It rose to 3.9% in December… and 4% in January.

Fine numbers all, a swell show by any account.

But the trend is higher…

And according to data from the National Bureau of Economic Research, unemployment often bottoms nine months before recession.

If unemployment scraped bottom in September… you may wish to keep a weather eye on June.

We, of course, hazard no formal prediction.

Perhaps the global economy justifies Wall Street’s renewed rambunctiousness?

It is unlikely.

China wallows, Japan dozes, Germany verges on recession, Brexit overhangs Great Britain as a sword overhung Damocles of old.

Further examples abound.

Meantime, the United States-China trade deadline is two weeks out.

One day a deal seems likely. The next it does not.

“Uncertain” is the word that leaps to mind.

Yet Wall Street is presently having itself a moment.

When that moment fades… we cannot say.

There is even renewed talk of a “melt-up.”

One source is Dario Perkins, managing director of global macro at TS Lombard.

This fellow likens today’s market to 1998 — the years preceding the dot-com mania — and its subsequent collapse.

Analyst Mark Kolakowski, summarizing Perkins’ stance:

“Like today, many parts of the world were in distress.” In response, “the FOMC shifted from a tightening bias to an emergency rate cut in a manner of weeks.” The principal effect, he says, was a two-year melt-up, or sudden surge, in stock prices that eventually led to the so-called dot-com crash, in which the S&P 500 dropped by 45% and the Nasdaq Composite plummeted by 78%…

Perkins predicts that the Fed may cut rates in the second half of 2019 as U.S. exports weaken and delayed effects of previous rate hikes take full effect. 

Again, we offer no specific prediction. But melt-ups are followed by meltdowns.

Regardless, the market gods will not be forever duped and put off.

As we have claimed before:

One day, however distant, there will likely be hell to pay…

And it won’t be the bears doing the paying…


Brian Maher
Managing editor, The Daily Reckoning

The post What Happened to the Bear Market appeared first on Daily Reckoning.

REVEALED: 3 Wild Market Predictions for 2019

This post REVEALED: 3 Wild Market Predictions for 2019 appeared first on Daily Reckoning.

A new year is upon us.

It is time to ring out the old, as Tennyson counseled — and ring in the new.

So today we retrieve our crystal ball from mothballed storage… and gaze for previews of 2019.

Is this finally the year of the bear? Or will the bulls roar back to life?

Are we months away from recession? Years away? Or days away?

The shocking answers anon.

But before we chart the way ahead, let us first take stock of where we stand today.

Stocks concluded the year with their worst December since the Great Depression.

Both the Dow Jones and S&P came within an ace of tumbling into bear markets — a bear market defined as a 20% fall from the most recent height.

Only a fevered Dec. 26 rally kept the bears officially at bay.

But what was responsible for the Dow’s 1,086-point leap?

The folks at Phoenix Capital sniff a rodent:

“Someone” took advantage of the extremely light holiday volume to ramp markets higher via indiscriminate buying…

This was a clear and obvious buying program made by “someone” who didn’t want stocks to officially enter a bear market by falling 20%. One of the key “tells” that this was manipulation is that underperformers like banks and homebuilders didn’t lead the rally.

Normally during real market bottoms, the underperformers turn first and rally hardest as REAL buyers and value investors put in REAL buy orders.

That didn’t happen. Both sectors lagged on the bounce.

But who might this “someone” be? And why the hijinks?

We’ve put our agents on the case.

In the meantime one fact remains, clear as gin:

Global stock markets hemorrhaged $12 trillion in 2018.

These were the largest losses since 2008 — and the second largest on record.

And so markets stagger into 2019 bloodied, battered, bandaged… like Napoleon limping home from Russia.

The new year began this morning where the old one ended, with stocks in retreat.

Weak manufacturing data out of China and Europe came out overnight, confirming the global economy is grinding to a crawl.

Stocks later rallied on rising oil prices. Our friends the Saudis are reportedly cutting exports, lifting energy stocks.

The Dow Jones, S&P and Nasdaq all scratched out modest gains by the closing bell.

But what will determine the fate of markets this year?

Analyst Adam Shell in USA Today:

“Market returns in 2019 will hinge on Fed interest rate policy, whether the economy can continue to grow and avoid recession and whether the U.S. trade fight with China can be resolved.”

Just so.

But doesn’t hinge No. 2 pivot upon hinge No. 1? And is either truly independent of hinge No. 3?

What are the odds of them all swinging in the right direction this year?

The Federal Reserve has given every indication it will proceed with additional rate hikes this year — at least two.

Incidentally… rate hikes are not generally considered antidotes to bear markets.

Peter Boockvar, CIO at Bleakley Advisory Group, says forget the technical definition of a bear market.

Stocks are already sunk in one — and will be for a good long time:

“We are in a bear market, and a bear market is not just going to end in a couple of months considering the 10 years of a bull market.”

Assume for the moment a bear market is upon us.

When might it end?

From our trading desk weighs in Greg Guenthner of The Rude Awakening:

The first half of 2019 will feature negative headlines about the trade war, rising rates, a stalling housing market and an economic slowdown that will contribute to wild swings and bear market action. Trade war fears and other political shenanigans dominate the news cycle and stocks will suffer.

So much for the first half of 2019. What about the second half?

But when the worst-case scenarios don’t materialize and the last seller turns out the lights, stocks will bottom and a new rally will begin, leading to a strong fourth-quarter performance.

We are not convinced.

So now we come to our own jaw-dropping predictions for 2019 — predictions guaranteed to knock you to the floor…

Prediction No. 1:

In 2019 the stock market will rise. Or fall.

Or — or — it will end the year precisely where it began.

Prediction No. 2:

Bitcoin, gold, oil, United States Treasury notes and all remaining assets will rise, fall, or hold steady.

Prediction No. 3:

The economy will expand in 2019 — unless it contracts.

Bear in mind… the economy may do neither.

There you are — three thundering predictions for 2019.

And remember, fortune favors the bold.

What’s your big market prediction for 2019?

Let us know: dr@dailyreckoning.com.

Below, Robert Kiyosaki shows you his 2019 outlook. Is this the year the bubble finally bursts? How should you approach this year? Read on.


Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: 3 Wild Market Predictions for 2019 appeared first on Daily Reckoning.

Jerome Powell Better Get “Real”

This post Jerome Powell Better Get “Real” appeared first on Daily Reckoning.

The stock market resumed today where it ended last week — with bears pressing the attack.

The Dow Jones broke below the 24,000 mark today for the first time since March.

It ended the day down 507 total points, to close at 23,593.

Percentage wise, both S&P and Nasdaq were hard on its heels.

We have it on official word:

Not since 1980 have the three major indexes turned in such a woeful December.

By July 1981 — incidentally — the economy was sunk in recession.

Is today’s stock market giving off a recession warning for summer 2019?

This is the question we tackle today…

Let us first sit down with the facts…

In 1980, as today, the Federal Reserve was hard at the business of raising interest rates.

Of course the economic and monetary dynamic was vastly different in 1980.

Annual inflation ran to a menacing 13.3% in 1979, the year new Federal Reserve chairman Paul Volcker came aboard.

By March 1980… inflation roared a mighty 14.7%.

So Volcker was battling to cage a tiger. And he had his whip and chair out…

Volcker drove the fed funds rate (the rate the Fed controls directly) to a tiger-taming 20% by late 1980.

In contrast — violent contrast — today’s inflation is as tame as a tabby.

Official inflation purrs at a domesticated 2% once monthly variations are ironed out.

And today’s fed funds rate squats at a lowly 2.25%.

There is simply no comparison between periods, you say.

Paul Volcker had a raging tiger on the loose. Jerome Powell has a kitten by the scruff.

And today’s interest rates are not within 100 miles of 1980’s.

But could it be that today’s interest rates are actually higher than 1980’s?

A lunatic question, you thunder, worthy of a bedlamite in an asylum.

Your objection is noted and entered into the record.

But we encourage you to get “real.”

The “real” interest rate is defined as the nominal interest rate minus the inflation rate.

Assume a nominal interest rate of 3%, for example.

Further assume that inflation runs to 1%.

In this instance we find the real rate is 2% (3 – 1 = 2).

Now consider the case before us…

Nominal interest rates averaged 13.35% in 1980.

Meantime, 1980 inflation averaged 13.5%.

Let us then apply fingers-and-toes mathematics to arrive at the real interest rate in 1980…

We take 1980’s average nominal interest rate (13.35%) and subtract the inflation rate (13.5%).

We then come to the arresting conclusion that 1980’s real interest rate was not 13.5%… but -0.15% (13.35 – 13.5 = -0.15).

Once again:

1980’s average nominal interest rate was 13.35%.

But its average real interest rate was -0.15%.

Now roll the reel forward to 2018…

Today’s nominal fed funds rate rises between 2% and 2.25%.

Meantime, official consumer price inflation (again, the distinction is necessary) runs in the vicinity of 2%.

To discover today’s real interest rate, we once again subtract the inflation rate from the nominal rate.

What do we find?

We find that today’s real interest rate ranges between 0% and 0.25%.

That is, despite today’s vastly lower nominal rate (13.35% versus 2.25%)… today’s real interest rate exceeds 1980’s -0.15%.

Shocking — but there you are.

We must then conclude that nominal interest rates lack all meaning absent the inflation rate.

There is a reason why it is called the real interest rate.

It penetrates numerical mists. It scatters statistical fogs.

It clarifies.

As explains Jim Rickards, “Real rates are what determine investment decisions.”

A 10-year Treasury bond yielding 7% might reel you in, for example.

But what if inflation averaged 8% over the same period?

Inflation would gobble your 7% yield — and a bit more into the bargain.

You would require a 9% yield just to paddle ahead of inflation.

Meantime, you may balk at a 10-year Treasury bond yielding 3%.

But if inflation runs at 2%… then your 3% Treasury yields you 1%.

A slender gain, yes. But you escape with your skin — and a slight surplus.

Your 3% 10-year Treasury, under these terms, infinitely bests a 7% Treasury if inflation is 8%.

Coming home, we must grapple with the fact that today’s real rate of interest exceeds 1980’s.

And rates will likely increase further when the Federal Reserve concludes its meeting on Wednesday.

Market odds of a rate hike presently rest at 76.6%.

Meantime, the stock market is turning in its worst December since 1980.

The economy was in recession by summer ’81.

Will today’s economy be in recession by summer 2019?

We do not pretend to know… but perhaps it’s time Jerome Powell got real.


Brian Maher
Managing editor, The Daily Reckoning

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