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18 March 2020

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Deap

What have we all been doing to stop this hysteria NOW!

I got myself kicked off a local blog because I kept trying to cool things down with facts, comparisons and reason. Got accused by the moderator of politicizing, spreading conspiracy theories and misinformation. Poof - I was permanently cut off. But they took my subscription money anyway.

So I tried. But the "progressive" agenda was too strong and too much in control in even our local local media. But this is California, did I expect anything else? The "party of science" does not like getting called out in fact they are the party of superstition, shamanism and scapegoating.

BillWade

I'd like to see a huge rally tomorrow and then close the markets till this passes.

j. casey

Right on, Colonel. This ongoing bloodbath and the machine-driven trading is a horror show.

BillWade

Well, now the NY Stock Exchange won't be using floor traders for the foreseeable future, it will all be electronic - wonder what chaos that will bring.

Rick Farmer

The problem is that the market cap of many companies IS zero, or should be. Boeing and the airlines in particular haven't just spent most of their cash buying back shares to boost their price over the last decade, they've actually borrowed money to do it too! The wipe-out of the last few weeks wasn't some black swan event, they were all bugs in search of a windshield. Many of them are going to wind up in chapter 11 either way.

LondonBob

The Fed should have the let the market correct back in the winter of '18, but they inflated things even further. I would think the scale of the collapse and sense of panic means we should see a bounce here, but this is a liquidity squeeze and maybe there is even more distressed selling to be done than there is willing buying yet.

This is far larger crisis than 2008, the steps taken by governments and central banks are unprecedented, the old system has died, what comes next?

Jack

Sir

With epic bailouts in our immediate future maybe the financial markets will anticipate?

Shutting the markets would only deprive clearing of securities from weak hands to strong hands. Only those leveraged and unable to make the margin calls have to liquidate. Long term investors with capital can take advantage of better pricing.

The machines also took the market up & up when the momentum was north. Maybe we can do something about the fractional second holding period of securities.

Upstate NY'er

Only equity markets or also bonds, commodities, derivatives?
Computerized trading only makes the result arrive faster.
And other factors contribute to sell offs - margin calls, portfolio managers getting out before it gets worse, short sellers.
All these transactions - executed at light speed - create churn which creates more light speed transactions.
Closing the markets would likely set off a true panic.
People need to get at their money.
There is also a significant workforce that operates the markets and they like to get paid.

turcopolier

UpstateNYer

Let me know what money you have left when you "capitulate" and sell.

Vegetius

We all Keynesians now, Sir.

turcopolier

jack

When your stuff is worth next to nothing, let me know.

turcopolier

Vegetius

I always was. People here are confusing my dislike of a pervasive regulatory and police state with something else. Jefferson was against territorial expansion until Napoleon offered to sell us the Louisiana territory. reality intrudes for people with common sense.

Eric Newhill

It's a fire sale at this point - Yes. The markets should be closed ASAP before the damn Chinese and various oligarchs, internal and external, buy up the entire country and emerge as ultimate victors after the virus panic is lifted.

akaPatience

My husband's not with me on this but I agree with you Colonel about Automated Trading likely being a culprit that's helping to wreak havoc in the markets, but I also agree with BillWade -- wait until there's a big rally AND THEN close it down!!!

All levels of government continue to exert controls during this pandemic -- why shouldn't something be done to ease the bloodletting in the markets???


Jack

Sir

Why do you believe it will permanently be zero? That’s a serious question. Unless one needs immediate liquidity or the margin man is calling, folks can wait until this too blows over.

During the dotcom crash many tech companies were trading 80-90% below their highs. Companies like Intel, Microsoft, Oracle. That was the time to buy. Similarly in this case either the leverage is flushed out and there will be a great opportunity to acquire great companies with solid balance sheets or even more leverage will be piled on and that may pose an opportunity to acquire those companies the computers like. The high beta stocks.

I’m not worried. As a Depression era kid I’ve lived through many a turbulent period in financial markets. We seem to have an episode every decade during the last 4 decades. During the last one in 2008 there was also a pervasive sentiment that the financial world would end. It didn’t and neither did the credit excesses that led to it in the first place. More leverage was piled on. This time it doesn’t look to be any different with massive central bank balance sheet expansion and even more massive debt fueled federal government spending in the works.

I’m already deploying capital. Nibbling at energy company securities and cash generating tech companies. My plan is to buy every Monday until I get to a full position in every security I want to own. Of course financial assets are a small part of my overall portfolio where real assets are the majority.

BillWade

The president hinted at something from the FDA in the works, he'll reveal it tomorrow. If it's good news, I expect a market rally like we've never seen before. If it's so-so news, a bit of an uptick and that lukewarm pot of water I'm sitting will get just that much hotter.

turcopolier

jack

What is "immediate?" I let my self constructed trust plow everything back into the portfolio and have never taken money from it. It is to go to causes that would drive the communist trolls here mad. Do you really think that further massive destruction of market cap will not massively injure the economy?

Jack

Sir

By immediate I mean the next 3-6 months.

“Do you really think that further massive destruction of market cap will not massively injure the economy?”

Yes. It will because we’ve financialized the economy so massively. However, those companies that are not leveraged and have a real business would only be temporarily impacted. The real issue IMO is the massive inflation of credit that preceded it. We’ve done the same thing in each of these cycles. We never allow the bad credit and malinvestment to clear. We keep papering over the destruction of real capital by adding even more debt. This time once again just like 2008 and 2000 before we’re gonna see the federal government borrow massively and the federal reserve monetize also massively. If we’re a capitalist society then we should allow for Schumpetrian creative destruction. By constantly keeping alive those businesses well past their sell date we perpetuate the failures. Occasionally we need to clear the deadwood.

The turmoil we’re seeing in financial markets is the unwinding of speculative leverage and a dearth of liquidity. On the way up when animal spirits are rising and credit is plentiful massive leveraged financial structures are created and those who take the riskiest bets are rewarded on Wall St. Since the Grrenspan era anyway, it has become a truism that if you’ve become massively big in the scale of your leveraged speculation you’re likely to have your losses socialized. Walter Bagehot wrote in his work Lombard St in the late 1800s - in a panic lend freely to those solvent at high interest backed by sound collateral. Key words are solvency and sound collateral. The problem with our contemporary world of speculative finance is the very, very thin sliver of equity on a massively leveraged credit structure driven on the notion of moneyness of speculative instruments. One of the consequences is that corporate America has changed its management incentive structure from long term financial performance when I was a young man to short term performance of the stock.

IMO, speculative finance is in the catbirds seat. They drive the agenda. Until the last balance sheet is fully levered, they’ll keep driving us off the cliff.

The appropriate response IMO is to hold to account those who aided and abetted the gigantic credit inflation after the 2008 financial crisis. We’ve got to say no more hair of the dog that bit us. We need to stop solving debt problems with more debt.

elaine

I listened to Bill Ackman's CNBC interview today that supposedly
further tanked the market. It's posted all over the net...Ackman
wants the U.S. to close down as many businesses as possible now fora minimum of 30 days, in other words a really tight curfew across the board. I understand his reasoning, ie. better to take the bitter pill now than drag it out for a year or more & lose it all.

I'm guessing if the markets completely also shut down the short bidders would go into total meltdown. What would G Soros do?

Supposedly gun/ammo sales are rising which signals total fear.
Guess many are afraid someone will take their toilet paper, etc,@ the barrel of a gun. These are interesting times. Guess my
immediate concern is around the supply chain of pharma coming out
of China...like Jack I admit to a few nibbles (XOM & PFE), in
retrospect I nibbled way too soon but love dividends...if the Saudis & Russians don't slow down their drilling it'll be money
for nothin' & oil for free....the green energy folks are making
their move & that's ok with me

turcopolier

elaine

What is in prospect if this continues is a total melt down of the US economy and a possible civil war. If you want that be happy with sophistic BS.

turcopolier

jack

If you want to live n Cloud Cuckoo Land rather than what is right in front of your face, good for you. Please leave your money invested in equities while looking for the bottom.

blue peacock

Close the markets now!!

Col. Lang,

I am surprised coming from you. I always understood you as a libertarian leaning original constitutionalist.

Isn't greed and fear part and parcel of markets largely driven by human emotions? It says something about our human psychology that throughout the epochs there has been this fervent belief that when my assets went up it was because of my skill but when it declines it was beyond my control.

I wonder how many investors found it strange that the over past several years the Swiss National Bank conjured new Swiss Francs with the click of a keyboard, converted them into USD in the forex market and then bought Apple stock. What is the real price of Apple stock?

Is it de rigueur now in nominally capitalist societies that partial nationalization of private companies by central banks is to be cheered because the stock price went up?

different clue

Upstate NYer,

In all honesty, we could pay the significant workforce that operates the markets enough money to just sit home and pay all their bills and meet all their needs while we take the markets offline for just long enough for all of society to really know how bad AND NO WORSE the epidemic will get and be able to factor in the reality of it.

When the fear-level is down enough for all the market workforce people and the big money players to make analytical decisions about what stuff is worth, then we can bring the markets online again.

When a tolerable level of stability is restored then we can think about longer range things and stuff according to our respective ideologies.

Mathias Alexander

Closing the markets won't make any difference, they will just carry on the same when they open again because the virus is being used as a cover story for why this is happening. Banks that have gone broke aren't left to thier fate, there's your problem.

Adrestia

The stock markets were artificially high because of the stock buybacks done by companies thus boosting the stock prices. $4.5 trillion was used for this and before 1982 this was illegal!

https://wolfstreet.com/2020/03/17/after-blowing-4-5-trillion-on-share-buybacks-corporate-america-airlines-boeing-other-culprits-want-taxpayer-fed-bailouts-for-these-shareholders/


Another factor that the volatility (VIX) was kept artifically low. Everytime there was movement the central banks pumped money in the system. It has been extremely low at about 10 for a long time.

Low volatily creates a sense of false security but in reality the surpressed volatility is a time bomb waiting to explode. Since September 2019 the Fed was pumping trillions of liquidity in the repo-market (overnight lending) because the traditional lenders don't trust the borrowers (in paying back) The explosion of volatility happened during the last weeks rising to higher levels than 2008.

IMO low volatility, stock buybacks and Modern Monetary Theory (which is keeping the money-printing presses running by the Central Banks) have created a Ponzi scheme that is now deflating to normal levels. The market is always right and creative destruction is part of the capitalist system.

https://en.wikipedia.org/wiki/Modern_Monetary_Theory

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