Lion of the Blogosphere

S&P 500 down 7.6% today

Since February 6th, I’ve been warning to sell stocks.

How much lower can the market go? Quite a bit lower. In 2007-2008, the S&P 500 was down more than 50% from it’s peak, and that was only because of overlending, and not because of an external black swan event that has nothing to do with the business cycle. So stocks can go a lot lower.

Written by Lion of the Blogosphere

March 9, 2020 at 4:12 PM

Posted in Uncategorized

60 Responses

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  1. “I didn’t know people died from the flu.”
    – Donald Trump, 3/6/2020

    Jack

    March 9, 2020 at 4:29 PM

    • MEH 0910

      March 9, 2020 at 10:22 PM

      • If his grandfather died in 1918, he “did not know him” did he, as that was 28 years before he was born

        Pete M

        March 10, 2020 at 8:20 AM

      • Trump’s grandfather looks like a cross between Eric Trump and Ted Cruz.

        Maryk (the g-loaded guidette)

        March 11, 2020 at 8:12 PM

    • Rich people are generally healthier than most. They also enjoy the best healthcare possible including access to high end resort/spas. The healing power of money is very real. Since Trump is the wealthiest man to be elected president his milieu is significantly above yours.

      redarmyvodka

      March 10, 2020 at 2:28 AM

      • It is mild and humid in here in DC today and very humid in Mar-a-Lago. Trump will be fine. Very sorry, haters!

        Dan Hess

        March 10, 2020 at 2:05 PM

    • I also didn’t know anyone who died from the flu. And I still don’t. I’m sure this was President Trump’s meaning.

      NWS4EVR

      March 10, 2020 at 11:07 AM

  2. As further proof that stock market investors are ignorant schmucks, the plummeting price of oil was another factor behind the selloff. Now, while cheap oil will give the oil industry a good lusty corn-holing, for the remaining 99% of the population it’s a big economic boost.

    Peter

    ironrailsironweights

    March 9, 2020 at 4:33 PM

    • Global economy was clearly melting down months ago. Hence the major central bank rate cuts and emergency repo market interventions. The Chinese were rolling up a regional bank every other week. Key manufacturing and shipping indices were crashing months ago. A worse-than-normal-flu is a gift from god to the politicians and executives, who can now blame all the economic fallout of a very bad recession on it.

      If I had any remaining doubt that Trump is a moron it has been confirmed over the last month. All he had to do was dance the dance many national governments are doing, and he could have blamed the unemployment and increasing poverty on “out-of-left field” flu. But he couldn’t keep step and tried to be roughly honest. What a dope.

      bobbybobbob

      March 9, 2020 at 10:09 PM

      • Watch Trump get re-elected.

        Andrew E.

        March 10, 2020 at 9:27 AM

  3. Where is the bottom, do you think? You called the drop, which you deserve yuge credit for, but the real test of prognostication is finding the reentry point. Personal I think it’s 3 months away AT LEAST as we are in for all the downstream bad news to pile up from shit like a 60% drop in iPhone sales in China.

    The recovery is really hard to time since the downturn effects the supply side as well as the demand side.

    Jack

    March 9, 2020 at 4:50 PM

  4. I think 2008 was worse because the whole financial system was threatened. This is a supply side disruption that may cause a recession…
    With that said I see another 10-15% drop, so overall 30-35% drop, which is typical event every 7 – 10 years historically over the last 75 years.

    Uman

    March 9, 2020 at 5:37 PM

    • The amount of leverage in the financial system is incredible. With revenue streams and thus the ability to service those trillions in obligations in jeopardy, I’d say the financial system is plenty threatened.

      Wang Hu

      March 9, 2020 at 9:13 PM

      • I agree with Wang Hu.

        It should never have reached a point where we’re discussing that. But the impotent response has made it necessary. Everything this administration has done has been to prop up the market. To that end, they’ve ignored the real problem which is the government’s impotent response. If this administration wants to turn this around then they need to stop worrying about the market and switch their focus on testing and quarantine.

        destructure

        March 9, 2020 at 10:59 PM

  5. TWO external black swans. Last two weeks were corona virus, but today was an oil shock. A war in the middle east could be worse for the world economy than Corona.

    ack-acking

    March 9, 2020 at 5:38 PM

    • The oil shock only happened because of low demand in China. It’s only one black swan.

      Lowe

      March 10, 2020 at 8:21 AM

  6. This has the potential to get incredibly bad. As someone who works in healthcare I can tell you that there is very little spare capacity to handle any kind of surge, especially in busy urban hospitals. I’ve worked in several emergency departments, and they’re overflowing with volume at baseline. Even worse, inpatient beds are almost as heavily utilized and there is often a battle between the inpatient hospitalist teams whose service is completely full not being able to accept new patients from the ED and the ED itself needing to admit patients in order to free up ED rooms to see the next patient in the waiting room.

    The truth is that American healthcare has implemented the very same “LEAN” model as every other industry. Instead of minimal inventory and just in time supply chains, it’s just enough beds and just enough personnel. Great for healthcare executive compensation during normal times, but extremely fragile and potentially utterly catastrophic in any prolonged shock to the system. We may have the more sophisticated and effective system than those of countries like Italy and China, but my impression is that it is far less robust. If caseload explodes in this country you should hope you’ll not be in need of urgent medical intervention during this time, coronavirus related or otherwise.

    Wang Hu

    March 9, 2020 at 5:55 PM

    • “The truth is that American healthcare has implemented the very same “LEAN” model as every other industry. Instead of minimal inventory and just in time supply chains, it’s just enough beds and just enough personnel.”

      And, again, I agree with Wang Hu. I don’t work in healthcare but had suspected that was the case.

      destructure

      March 9, 2020 at 11:03 PM

      • I actually did a stint with a libertarian management consulting group so I know about this.

        Critical to lean is having sufficient inventory/slack for security and sudden demand issues. You assume the unpredictable which is thus treated as forecastable. Most of this problem in Hospitals and elsewhere is mis-applied libertarian management, usually by far-left weenies with agendas.

        Robert the Libertarian

        March 11, 2020 at 6:13 AM

  7. The same thing happened (the S&P 500 being down more than 50% from its peak) after the dotcom bubble burst in 2000.

    Hermes

    March 9, 2020 at 6:07 PM

  8. The whole of Italy is now under lockdown. I never thought I would see something like this in my lifetime. I’m not Italian, but I often go there on vacation.

    The only problem is that it’s probably not quite at strict as the Chinese lockdown. Let’s hope it is enough and things get better and other countries (looking at you, Spain France and Germany) implement similar lockdowns, otherwise the whole of Europe is screwed. South Korea is doing OKish at the moment, let’s hope Italy manages that too.

    PrinzEugen

    March 9, 2020 at 6:13 PM

    • **Massive** turnaround seen in China and now Japan with arrival of warm humid weather. Japan had only 3 new cases in the last 24 hours, Hubei province had only 17 new cases in the last day, previously had 1000s of cases. This is extreme improvement because of humidity.

      Dan Hess

      March 10, 2020 at 7:49 AM

    • The panic is misplaced. Case are dramatically falling as warm, moist air spreads around the world. First China, the Japan. Singapore hasn’t had a single death. Africa and South America have been safe. The world is reaching this conclusion. Some places will crash their economies through quarantines, hopefully not America.

      Dan Hess

      March 10, 2020 at 2:03 PM

  9. Some insanity going on right now with the long-term bond market. The Fed wants to be like ECB and Bank of Japan – negative rates, baby ! Except, USA does not produce much and has a ballooning debt with no attempt to balance the budget. Virus+cheap oil makes a very combustible cocktail. Layoffs are all but inevitable, massive chunks of population are living paycheck-to-paycheck with little or no health insurance. This can get very ugly from every possible angle. But once again, you were right LOTB.

    Goodstuff

    March 9, 2020 at 8:20 PM

  10. Never give investment advice.

    Mrs Stitch

    March 9, 2020 at 8:29 PM

  11. OT (from Vox day) and since we are on the topic of psychology.

    As I have repeatedly observed, no matter how outlandish their theories may be, the conspiracy theorists are reliably far too conservative, as the historical reality is almost always more horrifying than the average individual is capable of imagining or even admitting.

    https://www.thesun.co.uk/news/11098103/berlin-foster-experiments-kids-deliberately-paedos-sex-abuse-good/

    “VICTIMS of a warped social experiment in Germany where authorities deliberately placed troubled kids with paedophile foster parents are set to win compensation. Between 1969 to 2003, these homeless boys aged between six and 14 were handed over to paedos — because it was thought the vulnerable kids might benefit from their attention.

    The twisted logic behind behind the “Kentler experiment”— named after the leading sexologist Helmut Kentler who spearheaded it — was that paedophilia could have “positive consequences”. Astonishingly, in the late 1960s Kentler managed to persuade West Berlin’s ruling Senate that homeless boys would leap at the opportunity to be fostered by paedophile dads. It was successfully argued they would be “head over heels in love” with their new father figures.

    About this time Kentler was publicly lobbying for decriminalisation sex between adults and children in West Germany. The academic argued youngsters “almost always more seriously damaged” by their abusers being prosecuted than by the abuse itself.”

    Don’t be surprised when similar projects in the USA and the UK are revealed. Adding P to the ever-growing sexual rights acronym has always been the end game of the human rights movement. The wicked will never, ever stop attempting to expand their so-called “rights” until they are able to legally a) have sex with, and, b) openly murder, children without fear of consequence or reprisal.

    Once you understand that “the slippery slope” in this case is not a logical fallacy, but rather the straightforward observation of the step-by-step implementation of an oft-repeated process that has been attempted and resisted, implemented and eventually stamped-out, time and time again over the course of human history, you will understand why it should be stopped at the beginning of the process.

    map

    March 9, 2020 at 8:41 PM

    • map’s comment about the slippery slope is absolutely right. That’s going into my text file where I save worthwhile comments.

      destructure

      March 9, 2020 at 11:29 PM

      • Destructure,

        That is Vox Day’s comment thread, not mine.

        I thought the attribution was clear. My mistake.

        map

        March 10, 2020 at 1:12 PM

    • Vox Day the guy who’s saying:

      Free speech is an anti-Christian fraud, it always has been, and the West will do very well to revive and restore the historical blasphemy laws.

      http://voxday.blogspot.com/2018/07/david-cole-defends-pedojokers.html

      The funny thing about it is that any Christian denomination, Catholic, Lutheran, even Southern Baptist, would consider Vox’s racialist views far more abhorrent than actual blasphemy.

      The similarity to SJW views doesn’t end with hostility to free speech. Remember when the SJWs went after Alexander Acosta? He was with them as he saw it as the good fight against the imaginary pedophile conspiracy.

      Wubba Lubba Dub Dub

      March 10, 2020 at 12:48 AM

      • Unfortunately, Vox Day’s position on this is correct. The whole of the Enlightenment and the edifice of “rights” has been to simply weaken the blasphemy laws that protected Christianity and Western Civilization. Its purpose was to lower defenses, so that the weak can hide behind this nonsense until they gathered enough strength.

        Now, they have enough power to do away with all of these Enlightenment principles, which were, really, nothing more than a fraud. It’s not an accident that Locke was only able to write his nonsense after the successful defeat of the Muslim invaders at the Gates of Vienna.

        map

        March 10, 2020 at 1:17 PM

      • Most of these “Christian” denominations are on the verge of collapse.

        map

        March 10, 2020 at 1:31 PM

      • Now, they have enough power to do away with all of these Enlightenment principles, which were, really, nothing more than a fraud.

        The Enlightenment thinkers almost without exception had views which would be considered abhorrent by modern SJWs. If Bible camp taught you they are the same thing then you were lied to. The thing about Christians is that they feed off of modern anger at degeneracy and then use it to argue that you have to have their superstitions to fight it. If you point to places and times that contradict this which were not degenerate without believing in Christianity they’ll dismiss it, say the rot was always there and only they can see it. And if you point to pozzed churches, they’ll pull the classic commie move and say it’s not truuuueeee Christianity.

        It’s not an accident that Locke was only able to write his nonsense after the successful defeat of the Muslim invaders at the Gates of Vienna.

        And then in the two centuries after he died Westerners went on to conquer most of the world. Western civilization reached the height of its power and influence around 1900, long after the enlightenment had triumphed.

        Wubba Lubba Dub Dub

        March 10, 2020 at 10:31 PM

    • More proof that the communists were the good guys in the Cold War.

      If West Germany represented the “free world” I’ll take the Soviets plz.

      redarmyvodka

      March 10, 2020 at 2:19 AM

      • Communists were never the good guys, but communism avoided a big chunk of the degeneracy you see in the West. The Russians will still be Russian.

        map

        March 10, 2020 at 7:00 PM

    • Once you understand that “the slippery slope” in this case is not a logical fallacy, but rather the straightforward observation of the step-by-step implementation of an oft-repeated process that has been attempted and resisted, implemented and eventually stamped-out, time and time again over the course of human history, you will understand why it should be stopped at the beginning of the process.

      Gun rights advocates understand the slippery slope.

      As do abortion rights advocates.

      “Inch by inch.”

      Deplorable Prole

      March 10, 2020 at 10:35 AM

  12. Coronavirus. Ha.

    We’ve seen this scam before with global warming. It’s just a way to divert more taxpayer money to egg-head virusologists. People are panicking, running around like the world is on fire while President Trump calmly swings his five iron.

    Larry Kudlow, Director of the National Economic Council, will tell you that now’s the time to BUY.

    Vince

    March 9, 2020 at 8:51 PM

    • Markets are not rational. Now is certainly not the time to buy even if you believe Wuhan Virus is over hyped.

      PerezHBD

      March 10, 2020 at 5:15 AM

      • Agreed.

        Andrew E.

        March 10, 2020 at 9:28 AM

  13. Lion, if longtime posters quit posting will you assume they are dead? After all, unlike letters, there’s no returned mail with ‘DECEASED’ written on it. I wonder how many here ever recall receiving such returned mail and that was their first notice of a friend’s passing?

    Curle

    March 9, 2020 at 8:59 PM

    • Maybe each of us should post every so often with a “still here” comment? Not being sarcastic, just asking. I’m almost 59 and may be one of the older people on this blog (I’m guessing), so it might be appropriate for me to do. Not that Lion really cares if I’m here or not (another issue I’m guessing on.)

      Maryk (the g-loaded guidette)

      March 9, 2020 at 9:40 PM

      • I’m still here guida, don’t you fret

        driveallnight

        March 10, 2020 at 5:16 PM

      • “I’m still here guida, don’t you fret”

        Gee, that’s a big relief. Cause see, I was kinda worried that something might have happened to you and I might have to “driveallnight” to find someone else who would refer to me as “guida.”

        Maryk (the g-loaded guidette)

        March 10, 2020 at 7:03 PM

      • I’m 80+ and do 200 push-ups every other day. An early job involved script-doctoring intern for Spartacus (I outlined the earlier Italian version for things we could use)…Old Kirk Douglas put me on a health kick…I’ll likely be around a while (long-lived ancestors likely helps)…

        Robert the Libertarian

        March 11, 2020 at 6:22 AM

    • Three people on my Facebook friends’ list are _extremely_ inactive.

      Peter

      ironrailsironweights

      March 9, 2020 at 9:55 PM

    • Didn’t Otis the Sweaty stop posting some time in 2018?

      MEH 0910

      March 10, 2020 at 4:02 PM

  14. Lion, your investment advice was solid. What should the s&p fall to before I buy in?

    Cow of 2020

    March 9, 2020 at 9:42 PM

  15. It’s important to keep in mind that the stock market is both a global indicator and forward-looking. It is a bet on what global companies are going to do in the future, not what they are doing now. The most immediate effect would be a lowering of the P/E ratio: prices for stocks fall, the P/E ratio falls. The thing is, S&P has a P/E ratio of roughly 17 times earnings, which is generally low by historic standards. This is because corporate profitability has been at an all-time high and the uncertainty of the Democrats war on Trump, the Fed, and how the trade war would turn out, has kept people out of the market and largely on the sidelines, which means the market hasn’t grown as quickly as it would have without the weight of the government on the economy.

    So, while we’ve had large increases in trading volume, especially when stock trades became commission-free, we have not had huge increases in the number of new investing accounts.

    So, the market is not selling off based on everyone being invested at all-time highs with a black swan event. We’ve had a market sell-off with a skittish public largely sitting on the sidelines. There is a lot of money that was simply sitting in cash doing nothing when this collapse happened…and it is still in cash.

    Lion called the trend correctly, especially with the after-hours report that the NYT’s kept out of the news until large investors could sell. The Nasdaq 100 was at a peak of 9,700, then another peak of 9,000, and now it sits at 8,000 or so. This is a downtrend and you should never argue with the price of a stock or an index. You trade with the trend so you can short stock or futures, buy put options or sell call options…but…with the large amount of cash on the sidelines, any change toward favorable news will rip the face right off the short-sellers as this idle cash then decides to go long (buy) into the market.

    Since the global economy is structured for mercantilism (basically exporting to the United States) the corona virus is attacking that mercantilism. This means that US GDP is going to be going up because imports subtract from GDP. Moreover, a company will take a hit to earnings over a hit to revenue, so we can expect production to be coming back to the US out of necessity. This means that the overall health of the real domestic economy should improve assuming we don’t have an apocalyptic pandemic…but if we have that, then we have more to worry about than the economy.

    The previous recessions were all caused by the Fed. The Fed jacked about short-term interest rates in 2008, which crashed the housing market. The Fed restricted liquidity in 2001 in the face of a roaring Nasdaq, which caused the 2001 market crash. The Fed rejected a pseudo-gold standard in 1987 and that caused the 87 market crash.

    For the first time, the Fed is not in the way of the market. It is neither jacking up interest rates nor is it restricting liquidity. Still, this is not a time to be going long unless you are an active trader.

    For a sense of where the bottom is, I would pay attention to earnings reports and employment numbers up to June. Also, gold and oil are moving in opposite directions, which is bad and the Treasury yield curve is not its upward sloping self. So, again, stay in cash or trade short while staying in front of your computer all day.

    map

    March 10, 2020 at 12:27 AM

  16. I didn’t get out because Leon advised it. And I won’t get back in because Leon advises it. I got out because the market told me to. And when I get back in it will be because the market tells me to.

    Here’s the reasoning for relying on the market to signal. If I lose 3% on a big down day then I only need 3.1% to get to even. But if I get out before the market tells me and the market continues to go up then I could easily miss another 10% of potential gains. On the other hand, once the market gives the sell signal then you need to get out ASAP. Because the market can always (and probably will) go down a lost more. Whereas a 3% loss only requires 3.1% to get back to even, a 25% loss requires 33%. And 50% requires 100%. It could take years to get back to even. So don’t ride it all the way down hoping it will turn around. Get out the first time the market gives the sell signal. I learned that the hard way in 2008. For the record, I bailed on Monday, Feb 24th. I still didn’t think a virus sell-off was warranted. But I wasn’t going to argue with the market.
    **
    Personally, I think the whole thing is very unnecessary. With adequate testing and policies, this could have easily been contained. And it’s still not too late to slow it down and get it under control. I thought if we just gave them time to mobilize a response that they would. Now, it’s looking like they have no intention of doing anything at all. I think that’s weighing down the market as much or more than the virus itself. I’m bitterly disappointed by the lack of response.

    destructure

    March 10, 2020 at 12:48 AM

    • The Lion made a great prediction on the market. In fact I’ve never seen anyone call something like that and turn out so right.

      I still have my doubts about the death toll getting past the thousands in the US. But maybe so. I don’t know.

      But I’m sure if it does go that high you’ll post about how you were telling your IRL friend not long ago that it was bound to happen.

      Lowe

      March 10, 2020 at 8:36 AM

    • Destructure,

      Remember, the markets move based on political and economic events.

      map

      March 10, 2020 at 7:01 PM

  17. Santa Clara County bans all events with more than 1000 people in either public or private facilities. This includes things like the San Jose Sharks hockey games. It doe NOT close the San Jose airport or any shopping centers.

    https://www.mercurynews.com/2020/03/09/following-first-coronavirus-death-santa-clara-county-bans-all-large-gathering/

    MikeCA

    March 10, 2020 at 1:19 AM

    • If you close Mineta all the traffic will just go to SFO. So even bigger crowds there.

      Lowe

      March 10, 2020 at 8:40 AM

  18. There are other things to buy besides stocks.

    David Pinsen

    March 10, 2020 at 3:45 AM

    • Stopped saving in stocks and the financial markets 10 years ago because it’s a giant casino, fundamentals don’t matter (way too much passive money, mutual funds, etf’s, etc.) and I don’t have the inside information the big boys do. I save in bullion even though the price is phony. People are right the system is fragile. It has been for decades and it looks like Trump will get to be the one who’s president when the inevitable transition to a new system finally happens. Thank God it’s him and not Obama (nor Biden).

      Andrew E.

      March 10, 2020 at 9:38 AM

    • David,

      Do you have something to do with Portfolio Armor?

      What is it>

      map

      March 10, 2020 at 7:02 PM

  19. I considered LotB’s sell advice, but didn’t pull the trigger. I’m only 15% invested in stocks (via conservative Vanguard blended funds), so not too painful. The DJIA was down 7.8% on March 9th, while I was down 1.5%. And I bought more Vanguard today, March 10th, but I’m thinking that was premature.

    E. Rekshun

    March 10, 2020 at 10:46 AM

  20. Since we are into calling markets, now is a great time to buy into El Pollo Loco ($LOCO). Competitively priced and healthy with a Latino population growth base which will sustain its corporate expansion across the USA over the next 25 years. Adding right now at ~16PE of great earnings.

    A Dilettante

    March 10, 2020 at 3:56 PM

    • LOL

      El Pollo Loco is a solid restaurant. I like their food especially when I’m dieting strictly. It’s very healthy. Plus I like their chicken soup when I’m sick.

      redarmyvodka

      March 11, 2020 at 3:32 AM

  21. So the market goes down over 7% yesterday and Leon posts about it. Today, the market rebounded almost 5% and he says nothing. As I said the other day, Leon is like the global warmers who point out every hot day but ignore the blizzards.

    Regardless, the market undercut it’s Feb 28th low yesterday which is a bad sign. And it quickly rebounded today which is a good sign. But we’re not out of the woods by a long shot. This kind of whipsaw action means the bears and bulls are fighting it out. And we still don’t know which side is going to win yet.

    destructure

    March 10, 2020 at 10:53 PM


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