Its Over, page-2365

Black Monday indeed...as the US markets are now on the brink of a bear market with a fall from peak of about 19% (closer to 19.5% at S&P500 lows).

The US markets started with a circuit breaker and after a 15 min pause, it fell modestly and climbed thereafter, so the breaker did help somewhat but by the end of the day the S&P500 ended at 2744 exactly where it began on the day , down 7.6% while DJIA was down slight more by 7.79% and Nasdaq 7.29%. All in all, it was carnage and particularly noteworthy was the humongous volume traded surpassing or close to GFC levels. This itself is ominous signal that there is a lot of blood on Wall Street....counter party risks soon? credit defaults?

If you are like me, dumbfounded what caused this? A stoush between Putin and the Saudis over production cuts leading to a price war - at the time when the Saudi prince MBS was exerting control over the kingdom ordering political arrest of his dissenters , seems to suggest that this stupidity of a price war (which is shooting Saudi's own foot and Russia as well) smacks of something related to politics?


This Monday crash and what we saw yesterday on ASX was not brought about by the COVID-19 although it was already in very fragile condition. It was the oil price crash , but why did the oil price need to crash? Given that both Putin and MBS are Trump's good buddies, why couldn't Trump step in to prevent this? After all he said he alone could do it. Could there be a possibility of both "gentlemen" (or rather thugs) changing their mind and revert to civil discussion and send calm back to the oil market, when Trump could just pick the phone as he always does and talk to his mates? A very reasonable prospect, this is a controllable event and would Putin want to jeopardise Trump's re-election? Or hey perhaps it was all orchestrated together to bring down the market while they short to kingdom come and then reverse course and make money on the long end....this to make up for the COVID-19 fall which wrong footed the insiders. Of course this is all conjecture and speculation but it was something that didnt have to happen and when something is unsustainable, it usually is.. it would be matter of time Russia and Saudi can agree again.

Now notice that the US indices just fell short of enter bear territory. Once it does, all mainstream news would be carrying the headlines Wall St enters Bear Market, and if that happens there will be no return. How convenient was that? In Dec 2018, the US markets also stopped short of entering a bear market, also in the 19% range.

The ASX will fall big today but selling into the first bell usually results in succumbing to the worse price of the day. That's why I had cautioned market participants here to not wait for this day to sell because it usually is too late. And if my observation or rather conjecture above is accurate, this oil "crisis" may come to nothing and a swift market rebound could be in the offing perhaps within this week itself. Either those guys would get back in talks to resolve the dispute, or the Fed comes into action, in an already highly oversold market. DAX and CAC are already in a bear market and ASX will join them today possibly.

But dont let the above positivity from me lull you in thinking that the worse may be over. IMO It is not. Firstly the COVID-19 is likely to become a nationwide epidemic in US and that would cause a serious damage to consumer spending, the C is 70% of the US economy, Secondly the WHO could call a global pandemic in the month ahead, Third, we don't know if the damage has already been done in the credit market which may have already triggered counter party default risks as well as potential downgrading of substantial amount of investment grade bonds into junk status ....the worst is ahead of us...but a relief rally could be coming very soon and one that more market participants will sell into (the final exit opportunity).

And you have to ask, where is the Fed in all this? No single word! We all like to hear how significant is an oil price crash to the US economy? Does that not help the US consumer who runs on petrol like drinking it? But of course this is not looking at the big picture. US is now a producer of oil and it does impact its economy, but enough to cause a recession?, which is what the US market seems to be starting to impute one? OK its oil price crisis + the virus, but is that enough to tilt the economy into one , Mr Powell? No, seriously I like to know the answer to that too.  

So is this the Big Kahuna I have been talking about for so long (2 years)? Actually I believe it started back then in Feb 2008 that the seeds of destruction was already sowed then, we only had opportunities for short term trading/investing within that period, but IMO we are seeing the pathway to the Big Kahuna already in motion yes - its when the credit market gets into a systemic collapse that we will see the Big Kahuna, we got near one but each time the Fed could come to the rescue- can it this time?

If you recall all that I have said on this thread":
1) Always BE AHEAD OF THE CURVE
2) Doing Nothing is Doing Something - you sat on your lovely paper profits in the recent run up -gone
3) Assumptions are Fluid, Not Static- dont assume and get too complacent on anything - especially market darlings
4) Avoid Everything Debt- highly leveraged businesses, businesses that depend on debt for lifeline, businesses that deal with debt (yes banks, APT , ZIP) , margin debt
5) Avoid Chasing Yield- going for high dividend plays like banks and Telstra and losing capital, not a good proposition
6) Avoid Falling Knives microtechs (enough said)
7) Citing John Hussman work on very low suboptimal returns in equities in this decade - most people will soon lose interest in the equity markets altogether - the end of animal spirits and you could be left holding stocks that literally does nothing when held over a 10 year period (just look at the banks )
8) Fragility and Optimism are a Hairs Breadth- how quickly we saw optimism turned to fragility

If you now think it is too late to do anything, think again. Everyone's position is different. A rich guy can sit and hold and even in the worst of the worst, he/she may be down 60% but he may still have ample cash to live on and retire. This is different for someone who uses his house money or borrowed to gamble or money to retire...

Ideally we make Choices by being Ahead of the Curve , good luck take care and all the best!
Black Monday... Part Two

by Zero Hedge
Mon, 03/09/2020 - 16:31



At its lows today, this was the market's biggest down day since 1987 (by the close the biggest since Oct 2018)!

Source: Bloomberg
In a reflection of the total loss of faith policymakers among BTFDers, @Sentimentrader notes that:

This is the only day in the history of S&P 500 futures that they gapped down more than -5% and didn't close above the open.
Did the 11-year-long, almost unstoppable bull run that started on March 9, 2009, just end on March 9, 2020?

Source: Bloomberg

Here’s another stat for the record books. Total U.S. Trading volume, on a 10-day moving average basis, is now higher than during the meltdown in 2008. Volume is another whopper today, over 17 billion shares.

Source: Bloomberg

Thanks to the market perceiving President Trump's response as remaining one of "denial" of the scale of the problem, and concerns that any fiscal stimulus will be underwhelming, things were already anxious as markets opened Sunday night. But the situation was worsened considerably as both Russia and Saudi Arabia stood poised to flood the market with cheap crude (supply) in an all-out price war just as the coronavirus is spurring the first contraction in demand since 2009.
“The situation we are witnessing today seems to have no equal in oil market history,” said IEA Executive Director Fatih Birol.
“A combination of a massive supply overhang and a significant demand shock at the same time.”
Oil futures fell by about one-third in New York and London on Monday, the biggest drop since the Gulf War in 1991, before pulling back to a 20% decline.

Source: Bloomberg
Crashing below $30!

Crashing US HY Energy sector bond prices...

Source: Bloomberg
US markets were a bloodbath from Sunday night future open (ETFs showed things were uglier than the 5% limit down in futs) and stocks were unable to show any real resilience...

Early selling pressure today - judged by NYSE's advance-decline line - was at its strongest since the DotCom collapse...

Source: Bloomberg
Extreme Fear has reached its extreme-est level...

Source: CNN
The shrill cry from the asset-gatherers and commission-rakers - "TURN THE BUY-THE-DIP MACHINES BACK ON!!!!"
Chinese stocks - somewhat uncharacteristically - tumbled overnight... finally...

Source: Bloomberg
European stock markets just suffered their worst decline since Lehman... Oct 2008...
Europe is now down over 22.5% - a bear market - from highs just 3 weeks ago...

Source: Bloomberg
The selling was absolutely across the board...

Source: Bloomberg
European banks crashed to their lowest since March 2009... but judging by EU bank credit, there's more to come...

Source: Bloomberg
And European credit is crashing...

Source: Bloomberg
Gilt yields fall below 0% in two- and five-year segments, with BOE’s buyback seeing the institution buy at a sub-zero rate

Source: Bloomberg
But, Italian yields surged, rising 30bps in 2-year to 10-year segments.

Source: Bloomberg
And US markets were an ever bigger bloodbath... The Dow dropped 2019 points!!! Worst day for stocks since Oct 2008

And while China began to drop, US and Europe lead the way since the start of the Covid-19 headlines...

Source: Bloomberg
Russell 2000 entered a bear market today (down 23.5% from January highs), dropping most since Lehman...

Source: Bloomberg
Dow Transports have erased all of the post-Trump election gains...

Source: Bloomberg
S&P broke key technical support...

Source: Bloomberg
All the major US equity indices have broken below their 200DMA...

US Banks were crushed today...

Source: Bloomberg
The big banks are down a stunning 30-40% in the last 3 weeks...

Source: Bloomberg
The Energy sector suffered its biggest loss ever, crashing over 18% on the day...

Source: Bloomberg
Virus-related sectors have been destroyed...

Source: Bloomberg
FANG stocks were slammed most since Oct 2018 (and closed ugly)...

VIX exploded above 60 today - the highest since Lehman...

Source: Bloomberg
And VIX's term structure is the most inverted since Lehman...

Source: Bloomberg
Credit markets have completely collapsed (but are slightly under-pricing relative to VIX) - today was biggest jump in IG credit since Lehman...

Source: Bloomberg
Today's crash in Treasury yields was the biggest since Nov 2008

Source: Bloomberg
At its trough in yields overnight - it was the biggest yield drop in history...

Source: Bloomberg
10Y yields hit their lowest ever at 31.3bps...

Source: Bloomberg
The entire Treasury curve is now below Fed Funds...

Source: Bloomberg


The Yield curve crashed into inversion as yields plunged overnight but stabilized later - still flatter on the day...

Source: Bloomberg

Amid all this carnage, the dollar ended only modestly lower...


Source: Bloomberg
Cryptos were crushed along with almost everything else...

Source: Bloomberg
Gold managed very modest gains, copper and silver were down over 2% as crude collapsed...

Source: Bloomberg
Gold/Oil spiked to its second highest level ever today...

Source: Bloomberg
Once again oil's drop today coincided with dollar weakness and in fact, as Bloomberg details, the relationship between oil and dollar has turned on its head: The lower the crude prices are, the weaker the U.S. currency.

Source: Bloomberg
Since the turn of the century, the two have typically had a negative correlation. A strong dollar has meant weak oil prices and vice versa, partly because oil is priced in dollars. Granted, the relationship hasn’t been stable in recent years, but a positive correlation has been rare.
There could be several explanations:

• For one, lower oil prices add deflation pressure and lower the bar for the Fed to ease monetary policies.
• Second, with the U.S. a net energy exporter now, weaker oil prices reduce investment in the shale industry.
• Third, oil prices signal weak global demand, causing unwinding of carry-trade positions funded by the euro.

And finally, we wonder - has Ray Dalio lost his touch?

Source: Bloomberg
And don't forget it's also the anniversary of 1933's Banking Crisis Holiday

h/t @Not_Jim_Cramer
And in case you're wondering. The 2K analog is holding very well... implying we should get a decent bounce here before the finally catastrophic collapse...

Source: Bloomberg
The market is now demanding 3 rate-cuts at or before the next Fed meeting (on March 18th)...

Source: Bloomberg