credit economy Markets stocks

Don’t Call It A Reprieve.

The underlying economic reality is stark.

I’m not sure I’d call it a “reprieve”, exactly. After all, Thursday’s swings on US benchmarks were large by normal standards, but seemed pedestrian compared to recent volatility.

The Nasdaq stuck out like a sore thumb, surging 2.3% (it was up much more), outpacing the broader market by the largest margin since the crisis years.

Tesla, Twitter and Netflix all rose at least 7% at one juncture. Gains on Wall Street faded into the close.

The Russell 2000 jumped more than 6%. As silly as this most assuredly is, the gauge has moved 6% or more in either direction in seven consecutive sessions, and eight of the last nine.

Oil rose the most in history thanks in part to Trump jawboning.

Sentiment may be getting a modest boost from the ECB’s €750 billion emergency asset purchase plan, the BOE’s expansion of QE and the Fed’s moves to expand swap lines and shore up money market funds. It’s pretty clear that monetary policymakers got the message, and the Fed has checked a lot of boxes that were unchecked last week.

But the underlying economic reality is stark. “We are officially declaring that the economy has fallen into a recession and it is a deep plunge”, BofA said. “Jobs will be lost, wealth will be destroyed and confidence depressed”. The bank sees a 12% contraction in Q2 of this year. JPMorgan reckons the economy will shrink 14%.

Data out Thursday underscored the notion that a storm is coming. The Philly Fed index plunged to -12.7, an insane 49.4-point slide from February. That comes on the heels of this week’s ghastly read on the Empire gauge.

Jobless claims jumped the most since November 2012 last week. You can expect that to continue.

Trump seems resigned to the economy’s fate. The administration said the government could take equity stakes in companies that are bailed out and prevent them from repurchasing shares. Oh, what a turn of events – just two years ago we were delivering a tax windfall to the C-suite, opening the door to another year of massive buybacks.

Cash handouts to the public (i.e., mailed checks) are now all but certain to be included in a third virus relief package, and will likely start going out within a month – or at least that’s the feeling one gets from the news flow on the Hill, where lawmakers are rushing to finalize a $1 trillion package. Treasury is pondering financing options including 50- and 25-year issuance.

AT&T is looking for a credit line, while Ford suspended its dividend and pulled its guidance. Ray Dalio warned of $4 trillion in losses for corporate America.

In a testament to the palpable sense of consternation, Lipper said outflows from investment grade bond funds in the week through Wednesday were $35.5 billion.

Finally, in a truly disconcerting development considering the relative size of the populations, Italy has surpassed China in coronavirus deaths.


3 comments on “Don’t Call It A Reprieve.

  1. Normally, a bounce in Tesla would be good news but it seems there is no longer any marginal buyer of stocks. 401ks will be liquidated, and savings purged as job losses mount. I laughed when a noted Canadian blogger was picking a bottom today, claiming that because such and such big trader was covering his shorts, it must mean the end was nigh. Well, traders don’t pick bottoms, they deal with things as they are. Earlier this week I would have agreed because well, the Fed was coming to the rescue. But the market didn’t buy it, and beyond any gyrations we may see on quad witching Friday, I am stopping all trading. ( also because I have to find more hand sanitizer and basics). Just let that sink in.

    California, one of the world’s largest economies will be shutting down until further notice. Stocks will be sold so people can eat. Possibly anarchy will erupt at some point ( LA could be described as controlled anarchy on a typical day anyway). It doesn’t look good, but perhaps a ban on puts and shorts will slow the market’s decline?

    We live in a country where about half the population doesn’t have the savings to cover a basic emergency under normal times. These are not normal times.

    • Well Bob you say that you are a trader, imagine banning puts or making half the option market not available (at least on professional side- retail uses calls) What would that do for the market?
      Puts can be sold or bought…

      • I would never advocate shutting markets or forbid short selling except under the most dire circumstances (meteor strike?). In fact I would argue that the Fed goosing the market with several months of repo QE eliminated short selling for many months and removed the natural ‘buying’ of shorts during the decline. It sure prevented me from going short earlier this year, in a market I knew was grossly over-bought.

        Many people have been hurt, and shutting the markets or other measures might be the only hope they have. Would it work? Probably not.

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