We’ve reached the bear market. What a morning we saw today…
US markets saw a brutal opening, and yet another trading-halt, to what is now an official bear market as the 30-stock DOW slid by more than 2000 points this morning, or greater than 9%, as of the time of this writing.
Equally alarming, the VIX soared to 66, a level it has not seen since the Great Financial Crisis of 2008.
In fact, the bear market made its official return from an 11+ year hibernation yesterday, March 11, when the markets fell 20% from their February highs. But the speed and depth of the falls we are seeing today and yesterday are record-breaking and scary. This bear market is waking with a snarl.
Below, we look briefly and bluntly at “the Why, the Who and the What-to-Do’s” behind this turning point in the global markets.
Why Are We at a Bear Market?
For long-time followers and subscribers to Signals Matter, this bear market moment will come as no surprise or shock, nor will the relatively impotent efforts of the Fed to contain the slide.
The 50 basis-point rate cut initiated by Powell last week (announcing the economy was “strong” as he dove into full “emergency mode) was a desperate effort to quell a supply-side crisis with a policy designed to spur demand.
In short, essentially ineffective.
Of course, it was the Fed’s “same ol, same ol” of just throwing cheap debt at every problem, which is the policy equivalent of trying to lose weight by prescribing more pizza and beer.
No surprise there, as the folks at the Eccles Building still believe a monetary hammer is all one needs because every problem is the same nail.
Will more low rates, the kind that create housing bubbles, record-levels of earnings-distorted stock buy-backs, stupid IPO’s for profitless companies, WeWork-like immorality and just plain dumb M&A deals on wall Street save a U.S. and global economy now too debt-impoverished to handle a health crisis?
Obviously, a pandemic viral outbreak and a supply-chain shock is not the “same ol nail” of what we’ve grown accustomed to for years—namely companies binging on debt, distorting their earnings reports and a Wall-Street complicit/focused central bank telling the world that record-breaking and unsustainable post-2008 debt levels was a sensible “recovery” plan.
Maybe Powell should have considered what many of us have been warning for years: Cranking down interest rates for over a decade is not a one-way miracle solution free of any consequence.
Sure, you get a debt binge and market “buzz,” but somehow those geniuses in DC forgot the hangover-part.
Folks: The post-08 “recovery” wasn’t a “plan,” it was an experiment at best and can-kicking delusion at worst.
Well, the jig is finally up and this rigged-to-fail market, as we warned months ago, is now failing in the backdrop of an open bear market.
In sum: The hangover has arrived, as it always does after over a decade-long daily diet of low-debt gin.
There’s also no denying that COVID-19 is the straw that broke the market bull’s back, but it’s critical to understand why that same “back” was already this weak, broken and fragile in the first place.
Stated otherwise, the virus did not “bring the markets down,” it merely tipped over an already weak financial house built upon a foundation of mud, otherwise known as debt—the largest combined levels of private, corporate and government debt ever seen in the history of capital markets. And for that, we can thank the politico’s of both parties and every Fed chairperson since Greenspan.
This open debt secret has been sending clear warning signs for years, rendering our equities market, and those around the globe, as nothing more than a bug seeking a windshield, and as of this morning’s bear market open, this splatter-moment is now undeniable.
Who Brought Us to this Bear Moment?
As we expected and foresaw months ago, the very “experts” who brought us to this splatter-moment and bear market are now pointing their fingers everywhere but at themselves, emphasizing yet again the moral and intellectual paucity of the so-called “elites.”
Earlier this week, for example, Wells Fargo CIO, Darell Cronk, was bowing his head and appearing shocked by the Coronavirus’ dramatic impact on consumer spending and the sudden decline as well as future impact (“demand destruction”) these scared consumers will have on future US GDP and consumer spending threats.
What this genius banker forgot to mention, however, was that those same “demand-destructing” consumers have been tapped-out, debt-soaked and struggling for years behind the scenes of a sky-rocketing stock market.
Nor our such “financial leaders” recognizing that our pathetic GDP numbers had been annualizing at anemic 2% rates for years before the fist patient fell in Wuhan, Seattle or the NBA.
That’s because the Wall Street class was taking a carry-trade, cheap-debt handout and open-market front-run from the Fed (as well as a repo-bailout) at the expense of any Main Street “trickle-down effect” on the real economy, which DC has long-ago confused for the stock market.
But hey, expecting an honest mea-culpa from bank CEO’s, fee-hungry prime brokerage desks or Fed Governors would be akin to expecting Hollywood A-listers to admitting it’s wrong for wealthy parents to bribe college admissions officers.
In short, if no one catches on, how can it be bad?
Well, the world is finally catching on, but as usual, most of them are doing so only when forced to, that is, after the bug hits the windshield, rather than before.
What to Do in this Bear Moment?
First, it’s never too late to get informed, which means it’s critical to sell at tops and buy at bottoms, and we are nowhere near a bottom yet.
Hence, we would not recommend being suckered into buying this dip, for even if and when the markets make a sudden or volatile ride up (based upon some silly headline), the risk of further slides down in this systemically-broken environment simply outweighs any reward for assuming such risk.
Market moves are based upon clear signals from bond, stock and economic indicators which speak to probabilities rather than hunches, headlines or guesses.
Investors need to follow what the markets are saying, not the pundits and prompt-readers.
Hopefully, however, those who’ve understood that preparation is the best defense, have already been informed, and were therefore allocated to cash and other bear-proof sectors rather than over-valued stocks before rather than after this otherwise foreseeable bear market moment arrived.
Similarly, going long volatility, i.e. the VIX, before rather than after these recent volatility spikes made sense, which was a track we timely took at Signals Matter.
Today, we are well in the green as markets fall deeper into the red. This is not because we are market-timers, but simply because we track market signals.
Investors need to be wary of fantasy solutions or quick-fixes going forward. Now is not the time to assume, or risk assuming, that this is merely a viral glitch in an otherwise “strong system.”
Portfolios in the backdrop of this bear market moment need stringent controls based upon empirically clear market indicators.
Such controls may not seem “sexy,” but they sure as heck are smart, and smart can be sexy.
If you haven’t already, we invite you to subscribe to Signals Matter so that we can translate these otherwise complex and myriad signals and allocations to you with straightforward clarity and portfolio-protecting simplicity.
We’ve deliberately priced and provided our services in manner that can serve all income and investing experience levels precisely because we understood this bear market was coming and wished to protect as many concerned and good people as possible in ways that traditional advisers simply cannot match.
Our stated mission at Signals Matter is not about fee gathering, but making the most sophisticated risk management tools both Main Street simple and Main Street affordable.
Because we’ve seen in cycle after cycle after cycle… how it is Main Street that always suffers the most when Wall Street loses its moral and financial compass.
One look at the date-stamped warnings and the deep quality of our content and recommendations over the years will hopefully make this critical trust building process easily confirmed. We’ve been ahead of these markets for years and making, as well as protecting, money the entire time.
We hope, as well, that you consider what hundreds of others are saying about us and that you too become a member of our community.
In the meantime, stay informed and hence safe, as the bear market is back and he’s roaring today.