by David Haggith, The Great Recession Blog:
I’m pretty sure the nation’s favorite groundhog, Punxsutawney Phil, knows more about the weather than he does about markets, and I’m not all that sure he knows anything about the weather! In fact, I don’t understand the underground methods of this rodent resident of Gobbler’s Knob at all. It would seem to me that sighting his shadow should indicate a nice sunny day, which in turn should indicate spring is just around the corner. How can he scowl and crawl back into his hole on a day filled with sunshine? If you ask me, he’s somewhat of a weather permabear.
Thus, I am also not sure what it means that this sage marmot reholed himself today just as the Dow fell an ominous 666 points. Can such a cloudy day mean the spring of a rejuvenated economy is almost here? What I am sure of is that Phil got almost as much international coverage for his forecasting abilities as market analysts got today and way more than I ever garner; so, my top-hat goes off to the little feller. All the major news agencies gave him coverage (CBS, ABC, NBC, The LA Times, The Telegraph, etc.) More people gathered in Phil’s throng to learn what this Punxsutawney prognosticator predicts than I’ll likely ever see around me:
Hats off to ya, Phil. The moral of the story is that, if you’re going to be a permabear of the permafrost, at least be cute, and you’ll still be popular with the people.
Now on to the impending global economic collapse
I can no more tell you what the market is going to do on Monday than I can decipher the fathomless methods of Phil. The market, like Phil, has it own ways, and obviously the first person to understand them all will become the world’s first trillionaire. However, there is one thing that a day like Friday, after a week like this week, can show you; and that is how quickly — even when the whole world looks like economic sunshine — everything can become overcast.
Just a week ago, everyone was clamoring to catch the tail end of the great tRump Rally. Not only had we had more than a year of nearly uninterrupted upness, but the economic news at the end of the week was big-league terrific. GDP is now being forecast by the Atlanta Fed to grow a mind-spinning 5.4% in the first quarter of this year. That would be the highest leap the economy has taken since the “recovery” began! As Trump would biggly say, “I like my numbers. The numbers are HYUUUGE. Better than anyone’s numbers ever.”
The Fed’s prediction is, in fact, better than anything any EverTrumper could have hoped for from the Donald’s tax plan. Wages also cartwheeled into the air (+2.9% annualized), higher than the most optimistic economists expected (at least, on the nominal print), and jobs came in well above their most hopeful guesses (at 200k new jobs versus the anticipated 180k). So, the wealth is trickling down even as the rich get richer … or so it would seem.
And all of this happened at a time when most market tellers have been singing about how the whole global economy is humming along in harmonic coexistence. Only a few days ago, consumer confidence was the highest it has been in the history of the confidence game. Numbers have never been gathered that reached this high. Real consumer spending reached from 3.2% to 4% in a single leap, and private fixed-investment growth boiled over from 5.2% to 9.2%! These are truly Trump-sized numbers.
So, the sun came out on the economy everywhere in the world, and yet most of the market gophers crawled into their holes this Groundhog Day — everywhere in the world — ostensibly because of a little change in interest on long-term bonds … and another few nuances in other nations. Consider the statistics of this week’s global face-fall onto the sidewalk:
- The Dow’s 666-point plunge on Friday capped the worst week for stocks in two years (for all of major US indices)!
- Thus, the Dow’s scored the sixth-largest daily point decline in its nearly 150-year history.
- In fact, the day ended with the Dow’s largest overall point drop since Lehman Brothers.
- The shares that ranked among the worst were the FAANG stocks, which have in the past few years reliably been the only stocks taking the market average up whenever others declined. (Apple forecast profit expectations about one percent below where economists were leaning and showed declining sales in units of iPhone — though, in dollars, sales were up. Apple is, in fact, in its own correction, having dropped 10% from its last high. Google’s earnings per share missed expectations, causing its stock to drop 5.3 percent.)
- As a result of all this, the CBOE Volatility index rose from 11.08 to 17.31.
- The VIX (another volatility measure) also took its biggest spike upward since August 2015 when the world experienced the Chinese flash crash due to devaluation of the yen.
- It was the worst week in stocks for two of China’s major indices since 2016, too.
- And the worst for Germany since February of 2016 (the last big global plunge I predicted would come due to a change in interest rates). The DAX has fallen about a thousand points in two weeks, going negative for the year.
- The Eurostoxx Index dropped five days in a row, its longest losing streak since November.
Why? While there are various influences around the world, one answer seems most apparent above all — at least for what happened in the US: the benchmark 10-year yield rose to 2.85 percent (a four-year high), and 30-year US treasury bonds saw there worst weekly increase since the election (breaking through the feared 3% top-of-the-trend barrier and ticking up midday almost to 3.1% before settling solidly above the barrier at 3.08). This steepened the US yield curve — too long too flat — the most since the election.
Almost everyone I read in major media on Friday agreed that …
“The key for the market today is rising interest rates,” said Mike Baele, managing director at U.S. Bank Wealth Management. “The old adage is: ‘Bull markets don’t die of old age, they are killed by higher interest rates.’ That looms large.” (CNBC)
And all of this is what I have been proclaiming for, at least, a couple of years now — that the end the Federal Reserve’s fake recovery and particularly, of late, the trumped-up rally would come from the real rise of interest rates when the Fed starts real quantitative squeezing. That has barely begun, and yet it is already creating serious tremors that could signal a rout in bond funds. What has people running scared is the potential collapse of the biggest bond bubble in the history of global finance.
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