Pretty much from the moment Donald Trump began speaking during an ill-fated address to the nation on Wednesday evening in the US, it was apparent that global equities were doomed.

To be sure, news flow on Tuesday and Wednesday indicated that lawmakers and the White House were nowhere near consensus on what, exactly, to do when it comes to crafting an economic relief package large enough to convince the market (and, much more importantly, the public) that elected officials are on top of things when it comes to responding to the coronavirus outbreak.

Seen in that light (and considering Trump’s somewhat spotty record when it comes to Oval Office addresses), it probably shouldn’t have come as a surprise that the president failed to pacify nervous traders.

And yet, the bottom fell out.

We are, quite simply, in the midst of one of the worst stretches for US equities in history. Monday and Thursday will go down as two of the most spectacularly bad sessions ever. The S&P fell 9.5%, the most since 1987.

Every sector fell at least 7%. We’re near GFC territory on the VIX.

Thursday was the worst day for European shares in history. It was also the worst day for Italian bonds on record.

The ECB upped QE and enhanced its liquidity measures, the Fed injected nearly $200 billion during the US morning and unveiled massive new repos during the afternoon. In addition, the Fed rolled out a plan to essentially convert the $60 billion in monthly T-bill purchases for reserve management purposes into outright QE.

But, as noted, none of that changes the fact that entire sections of the global economy are set to be shuttered as part of the COVID-19 containment effort, nor does it do anything to guarantee that corporate entities facing existential crises will ultimately make it out of this year intact.

It is entirely possible that risk parity has begun to deleverage in earnest. The specter of that has haunted markets for years.

I talked about it at length early Thursday in “The Treasury Market Is Broken. ETFs Are Cracking. Risk Parity’s ‘Footprints’ Have Been Spotted“. The title speaks for itself. Prior to the Fed’s intervention, the Treasury market was malfunctioning, and that was manifesting itself in various bond ETFs. The entire “thing” (so to speak) was coming apart at the seams. Consider this, from Bloomberg’s Ye Xie:

To get a sense where we’re going, I spoke with Julian Brigden, a hedge fund consultant at Macro Intelligence 2 Partners. This was before the Fed operation. The first thing he relayed was the speculation he heard on why Treasuries sold off yesterday: A. Middle East oil countries unloaded bonds to generate capital and balance their budgets B. Re-insurance companies were raising cash to prepare for potential claims from industries damaged by the coronavirus. But more importantly, he said what we’re really witnessing is de-risking from risk-parity funds and other similarly leveraged investment vehicles.

Ultras slid into the cash settlement for a second day, suggesting dislocations in the Treasury market aren’t likely to abate.

On Nomura’s estimates, “collective risk parity ‘de-grossing’ [has been] larger and faster than that experienced during the 2013 ‘Taper Tantrum'”.

On the virus front, France said it would close schools and universities from Monday, the NHL followed the NBA in suspending games, NASCAR barred fans from attending races, Canadian Prime Minister Justin Trudeau is in self-isolation and New York declared a state of emergency.

I could go on. But, instead, I’ll just show you the updated visual which tells the story better than I can:

In an “insult to injury” moment for the White House, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said America’s testing system for the virus is “failing”. “The idea of anyone getting it easily the way people in other countries are doing it, we’re not setup for that”, he told Congress.

Trump rejected a Democratic proposal for relief measures. “There are things in there that have nothing to do with what we’re talking about”, he said Thursday, while meeting with the Irish prime minister. “It’s not a way for them to get some goodies”.

The Senate will be in session next week, Mitch McConnell said.

In another sign of the worsening global economic malaise, Caterpillar machine sales tumbled 11% in February. That’s the largest decline in years.

Shares are down an astonishing 38% in 2020.

Boeing, meanwhile, crashed again (no pun intended). A day after collapsing some 18% on news the company was drawing down its term loan, the shares dove another 14%.

The stock is down 51% this year. Let that sink in.

Meanwhile, Google and Amazon are out of the $1 trillion club, leaving only Apple and Microsoft. A few more weeks like this one and you cancel that club’s meetings altogether like so many sporting events under virus protocol.

Oh, and in a testament to the jitters in the high grade market, investment grade bond funds saw $7.27 billion in outflows in the week through Wednesday, Lipper said.

That is a record.

It looks as though it’s time to finally exorcise all our post-crisis demons.

The bottom line, for now anyway, is that it’s not clear what the circuit breaker will be that stops the downward, de-risking spiral.

Well, other than the literal circuit breakers which, for US equities, have been tripped twice this week overnight, and twice at the cash open.


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11 thoughts on “1987

  1. And with all of this, I cant notice that AAPL closed at 248$. Down almost 10% today, yes. But it was at 220$ around 3 october 2019, that is when the last & most absurd bull run started. So after all this carnage AAPL is still around up 15% from the October “bottom”, which was actually not a bottom but a very small sell-off.
    Does this mean something? SP500 closed a 2480, ca 6% from the 2018 bottom (2346); at the time, AAPL bottomed at around 150$. So, what happens if AAPL goes down to 150$, that is to a P/E of circa 15?

    1. I am still looking for capitulation and I never ignore a glance at the FAANG group for signs… Waste Management and John Deere also indicate that a bottom is a ways off yet….H….talks a lot about the unlimited resources of the Fed printing presses but that topic does not meet my idea of Objective Criteria…20-20 tells all….

    2. Apple is sitting on a massive cash hoard (mostly overseas). I doubt that its stock is heading back to $150 per share because Apple can continue share buybacks indefinitely.

      1. The massive cash hoard is around $200bl, or circa 50$ per share. Neither cash nor buybacks will play much of a role in the next days, there are greater forces at work.

  2. “Ill fated address” indeed.

    Trump has gotten away with lying to the American people about all sorts: N Korea is no longer a nuclear threat, the press is the enemy of the people, Mueller was a hoax, Impeachment was a hoax. Republicans have shilled for him. His administration has sugar coated, walked back, covered up, misrepresented. And everyone moved on because none of the lying and bombast has ended up mattering.

    Well, Donald Slump is learning fast that he cant lie about things that are consequential to the relationship between the big-swinging-d**ks on wall street and their money.

    “Everyone can get a test who wants one” and “we’re going from 15 to 0 very quickly, its like a miracle, it disappears” will go down as the dumbest things to ever be uttered during a crisis. (With “i’d prefer the 22 not come on shore because I really like where our numbers are” as a close third.)

    Of course today he’s splurging his twitter with “handy guides” to staying sickness free. What a joke.

  3. I do not allow trump into my living room so I obviously did not watch the speech. However it sounds like it may have marked the beginning of the end for the MAGA VIRUS.

    1987 I was helping Daryl and Roxanne paint their neighbors house during the day and mourning the loss of our decades old rock and roll station to a country channel on a cheap jam box while drinking cheap beer.
    9too me
    Exhausting day executing dry powder, having a not cheap import N/A that still manages to hit the spot and listening to digital files on my 1981 amplifier and my self restored vintage speakers.

    One of these days I am going to design a “Fire the Maga Virus” slogan and copyright it; in fact i just did.

  4. Stefano- that could be possible- I’ve seen a recent repricing of AAPL @ $150-$200, First to sell gets the best price 🙂

  5. How much money has to leave the market before all the cash parking spaces are full? Is this how the economy expels all the cheap liquidity that has been injected since 2009. If so, then the rebound may not be much more than sideways once the bottom has been found.

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