• Podcast

    Sven Henrich: Did The Coronavirus Just Infect The Markets?

    One thing's for certain: the market's long period of exuberance is over
    by Adam Taggart

    Tuesday, February 25, 2020, 12:48 PM

Is the coronavirus the pin that will end the 10 year-long Everything Bubble?

Quite possibly, cautions Sven Henrick, technical analyst and lead market strategist for Northman Trader.

For too many years now, the financial markets have been conditioned that “dips don’t last”. Confident that the Fed will always provide the liquidity needed to push assets higher, investors have come to believe that risk doesn’t matter.

Well, covid-19 is exactly the kind of unexpected exogenous shock that central banks are powerless against. No amount of intervention by the Fed, the ECB or the PBoC will slow the spread of the virus, or force-start factories idle from workers quarantines.

So, what to expect from here? In terms of damage to market prices, we haven’t seen anything yet, predicts Sven.

And today’s failed recovery is a sign that the previously-bulletproof market ‘exuberance’ of the past decade is now losing out to ‘fear’.

Combine further spread of the virus with continued de-celeration of global trade, then “all bets are off” warns Sven.

Click the play button below to listen to Chris’ interview with Sven Henrich (44m:45s)

Then, if concerned by the market risks Chris and Sven address, consider scheduling a free consultation & portfolio crash audit with Peak Prosperity’s endorsed financial advisor:

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Transcript

Chris Martenson: Well, everyone, to this Featured Voices podcast brought to you by Peak Prosperity. I'm your host, Chris Martenson. And it is February 25, 2020.

Yesterday, stock markets around the world finally caught up to the risks and realities that the coronavirus pandemic presents to corporations, the global economy, earnings and all the rest. And the DOW fell more than 1,000 points. It was a really rough day for equity markets everywhere.

Look, we don’t have a lot of time to squeeze into today’s podcast, so we're going to just jump right in. We’ve got Sven Henrich back on. Sven’s insights can be found at northmantrader.com. Also on Twitter using the handle @northmantrader, all one word, northmantrader.

Sven is founder and lead market strategist for Northman Trader. He’s been a frequent contributor to CNBC, Wall Street Journal’s Market Watch, and is well known for his diligent technical, directional, and macroanalysis of global equity markets. Can’t think of a better person to have on this morning.

Sven, welcome back.

Sven Henrich: Hey, Chris, how are you?

Chris Martenson: Good. Good. As I told you before we started recording, I'm alert and watching things like a hawk. Sven, the markets tanked yesterday. Why?

Sven Henrich: First of all, let me just say that the market has been on an incredible run since the Fed just went absolutely hog wild on liquidity injections when they started responding to the repo overnight funding crisis. And, as a result, you know, we’ve have what might be described as a global blow off topic if you will.

I mean equity prices exceeded far above any fundamental basis of the economy. In fact, if you look at some of the larger GDP indicators, last week, actually, the NDX tech and the S&P made new all time highs. The market ended up with a valuation of 158.9 percent above GDP. That’s higher than it was during the tech bubble in 2000.

And there's a number of other indicators you can look, for instance sales, all those type of things that point out to an extremely highly valued market that comes at a time when obviously earnings have been slowing down dramatically in 2019.

And this whole notion was that we were going to have this big reflation trait into 2020, right, because Central Banks are intervening left and right, and center and all this liquidity is going to get the economy going.

What happened, what was really interesting, the tail end of 2019 while markets kept rallying, the bond market could not confirm the rally at all. We had weakening in the yields all along, and that happened before this whole coronavirus situation occurred.

And so in response, markets just kept going on this massive liquidity run ignoring everything. Ignoring the bond market previously; we were ignoring the coronavirus previously, and so we got to extreme high technical extensions, and those were ready to crack. I’ve been writing about this the last few weeks how the rally was continuing to narrow ever smaller participation. It was basically held up by five stocks, right, the big five tech stocks.

And then finally it cracked. It finally got a trigger, and so we had a massive reversion yesterday. For example, the DOW, even the S&P basically gave up all its gains in 2020. And so this is what happens. You get far extended, a trigger happens, the technicals of building and the run up to this, right, you got all these diversions that don’t seem to matter until they do, and they finally mattered yesterday. And so we had this big crack and kind of a flush out – an initial flush out I would call it – of the excess that has been building.

Chris Martenson: I want to talk about that initial flush out, but to back up a bit, you talked about this great reflation that had happened, and it started with the Fed intervening in the repo markets. That was back in September, August and September of 2019.

That really jammed things for a bit, but, you know, thinks started to weaken a little, and coming into January, you know, it was kind of topping it looked like to me. I’d love to get your impression of that.

But what amazed me was around January 31st, this is went the coronavirus news is really hitting. And from there the S&P climbed over 200 additional points to hit those all-time new highs you just talked about in the face of obvious and increasing coronavirus issues.

Was the market just completely ignoring the coronavirus issues and feasting off of Fed liquidity, or did something else happen there? How do we explain that?

Sven Henrich: To really keep it simple, stupid, as one would say, just look at the Fed’s treasury holdings and their repo activity. The pushback into treasury bills was so aggressive. It was more aggressive than we saw in 2009. In fact, as of last week, they Fed’s asset holding in treasury bills buying was just $14 billion shy of the all-time highs.

So remember, in 2018, and to me this is kind of the big macro-story all together. We have ten years of intervention, and the Fed tried to basically taper a little bit to try to normalize, right. They started to reduce their balance sheet, and they were able to do that when the US tax cuts came and it provided all this additional liquidity with buybacks by companies saved a lot of money in taxes, and they pushed a lot of these savings into corporate buybacks.

So they were able to do this for a little while, but then it blew up in their face in Q4 of 2018. We had this big 20 percent correction. And then, obviously, they were forced to go right back into it. It started with the job owning in the early part of 2019. Then we had three rate cuts, all of which were sold initially, by the way.

The markets did not really take off until the Fed announced it’s what they claim to be not to be QE but was really very aggressive buying of treasure bills. And then, on top of that, that repo program that was being accelerated.

And guess when the first week was when they started tapering that repo program? It was this week to last week. Basically, you know, we still had last week when the S&P and NDX made new all time highs still on this very narrowing path. We still had big repo operations.

You know, I’ve been Twitter fighting with one of the Fed governors on Twitter. You know, there's so much denial going on in terms of what is – do these liquidity operations have any impact on equity prices?

I'm fascinated because for weeks and weeks and weeks what we’ve seen is no matter where the market opens up, either down or up, in most cases up because we’ve been running on overnight up gaps. Before the market opened the Fed conducts its repo operation, and even last week we still had some big maybe repo operations: $60, $60, $80 billion. These are short term liquidity, the liquidity provides, at very least, it provides a psychological boost to traders who say the Fed’s in and so we can buy anything we want.

And so you see every morning this massive ramp up in stocks. Guess what happened on Friday? On Friday, they had the smallest repo operation in all of 2020. It was only $26 billion. And markets tanked. The support just simply wasn’t there.

So if you look at the market in context of ignoring the news, for example, from the coronavirus, as it did in January – we had that little dip, but we still had these massive liquidity operations. And then all the sudden things started to slow and started to kind of fall to the wayside with the larger market not participating. And then all the sudden you have a reduction in liquidity, and then you get the news of this virus spreading globally. Boom.

Then you had the trigger. And the lack of support that was built in this market with all these overnight gaps have that effect that we saw yesterday. It was a complete flush out.

Chris Martenson: That’s fascinating.

So what I'm wondering though is who’s doing all this buying? So I read some news last week that in the face of all this liquidity, of course, you know, stocks are going up – you mentioned the big five. So Amazon part of that. Amazon is just climbing and climbing and climbing. And we find out that Jeff Bezos harvested $4.1 billion, sold $4.1 billion of stock into that. Well, somebody paid $4.1 billion. Who is that, Sven, who’s doing all the buying?

Sven Henrich: Well, look, you have on the one hand you have asset managers that need to catch up. You know, you have the FOMO effect basically.

I mean, look, the reality is because the market is so skewed in favor of just a few stocks, you know, all these hedge funds underperforming. This has been kind of this absurd message that the Fed inadvertently sent to the market. If you're hedged, you're underperforming. If you protect yourself, you're underperforming. If you're not in a few key stocks that are outperforming and you diversified across the universe, you're underperforming. So you're always kind of trailing the index. Even Warren Buffet is trailing the index. It’s a really challenging environment.

The second part is last year – and you may have noticed there is a lot of the retail trading companies have gotten away with commissions. There's been quite a few anecdotal information as of late that retail has really been jumping on the wagon here, especially when you look at coops and volumes and so forth. So there's a lot of retail that has participated in this and has been chasing some of these stocks, and you see this really unhealthy behavior where they chase Tesla to the moon or space or what have you. I mean, absolutely vertical chart.

Also, Apple. Apple has, you know, basically doubled from the lows in 2019 – remember in January 2019 they had a big revenue warning. And the stock has experienced the largest market cap expansion of any stock in history ever. I mean, it was absolutely fascinating. And they just chased these stocks up into ungodly valuations and overbought. So no surprise that we're finally seeing a reaction, whatever that’s the final reaction we’ll see.

Chris Martenson: I don’t know about the final reaction. I think Apple lost three or four percent yesterday off of those massive all time, you know, sort of highs you’ve talked about.

But Apple has been warning – and I want to get into the supply chain issues here very quickly – you know, they’ve got a lot of exposure to China. They’ve got their Foxconn plants over there. We have all these stories which are so massive they're hard to get our arms around. Thirty percent of Chinese people are back at work, leaving seventy percent who aren’t. But that’s just the first order of effect.

The second derivative we don’t know how many factories have to supply the factories and supply the components to Foxconn. Like that’s just too complicated to really unravel right now.

But we do know that Apple’s very, very highly exposed to that. Do you think that three or four percent off their stock price yesterday, that represents a fair risk adjustment given what I just talked about?

Sven Henrich: Well, you know, we’ve all been trained by Central Banks, basically, and it’s been successful up to this point, to ignore all bad news because nothing ever matters. Dips don’t last, right. I mean, this has been kind of this risk perception has been altered for that reason.

And so there's an ingrained Pavlovian reflex to say, you know, virus, whatever, who cares? Ebola, who cares? It just doesn’t matter. It goes away. And so far that’s been correct, and the world has been really lucky. If you talk about viruses, for example, right. I mean, we’ve been in this world where we’ve had incredible medical advances, and viruses can be contained like SARS or Ebola is obviously not transmitted by air or what have you.

But the underlying thread has always been what if we have this mostly most overpopulated world ever if you get a virus that actually is much more difficult to contain, what is the impact? And I don’t think anyone’s really thought that through in any shape or form.

And to the extent that what was promised to be a short term virus that is contained is actually not such, as we are now seeing as it’s spreading into Italy, Iran, and South Korea. We really don’t know. And if you listen closely to the World Health Organization, the WHO – they came out yesterday and said we really don’t know how it is transmitted, and we don’t know how to combat it yet.

I mean, you hear, obviously, some pharmaceutical companies are trying to come up with a vaccine, and I hope they do. I don’t think any one of use wants a pandemic. But the fact is we don’t have any clarity at this point how long this is going to take.

And we're seeing multiple economies, big economies on the globe, already on the verge of recession. Germany had zero percent GDP growth in Q4. That was before any coronavirus even hit. So Germany’s in trouble. UK is in trouble. France is in trouble. Italy in trouble. South Korea is now in trouble, and, of course, China is in trouble.

So to the extent that you even think that a company like Apple, which is massively internationally exposed, can have little impact on that, I think that’s a fantasy.

Chris Martenson: Yeah, I would agree. And, you know, I'm getting – in my position here I get a lot of emails from people explaining what the supply chain issues are for them. And here’s one thing that sort of emerged. Almost all of them – some people have just gotten their money straight back from orders they’ve placed in China. There's like hey, we're not even going to tell you when we're going to fill your order; here’s your money back – which is very unusual.

And if people are getting any sort of a promise that hey, we think we can get to your purchase order by x, June. Everybody’s being told June. And, of course, so many people have gotten the June response that it feels a little bit like a CCP message to me. It’s across fabrics, electronics, chemicals – it’s kind of June.

So to me, if you get out into June – you know, we already had that big Bloomberg article yesterday talking about how there are five million Chinese firms that have only 30 days cash on hand. And after 30 days it gets to be real trouble. Last I checked we're in February. So March, April, May, June. That’s four months away before potentially the cash could start flowing.

This feels to me like something that printing and shoving money into the markets just can’t overcome, but the Fed’s going to try, right?

Sven Henrich: They're all going to try and we see that already. The market started to – and this is hilarious – yesterday – actually, last week on Twitter I asked how much market pain they're basically willing to deal with before they start to cut rates again. And already yesterday the markets started pricing two more rate cuts in 2020, and there was even calls for rate cuts now before the March meeting.

This market continues to be so dependent on Central Bank intervention it’s almost pathetic – well, it is pathetic at this point I have to really say. The notion of free marketplace, discovery, normalization of rates and balance sheets, I think that ship has long sailed now.

You see markets reacting to the job owning. In fact, last night we got the political job owning from Larry Kudlow and President Trump. They are worried about a dropping market because, you know, I keep saying the economy is not the stock market, but the stock market is the economy.

The worst thing that can happen now is an ageing business cycle where growth is already structurally slowly – it has been slowing for quite some time – and they obviously keep trying to prevent a recession by filtering ever more liquidity. But the worst thing that can happen now that they’ve created these massive extensions in markets above the underlying economy, a larger selloff would actually be the trigger that would bring about a global recession, right. So much of the asset financial values and confidence is tied up with stock markets.

So you lose the stock market, you lose the confidence, and with the confidence you lose the spending, and you get the recession.

Take Germany as an example. All-time highs here just recently, last week, and the economy is growing at zero percent or much less this year. I mean, there's just no rhyme or reason. It’s basically all the stone at the end of the day with the TINA effect from lower yields.

And I think the big question is what signal is the bond market, has the bond market, been sending for the last several months? And at some point, either the bond market or the stock market is going to be right, and there's a big, big disconnect going on right now.

Chris Martenson: So I'm wondering from technical standpoint, what technical levels are you watching? Did any technical damage get done yesterday that you would see some attempts to try and repair today? So pick an index. Where do you start? What are you looking at that seems important right now?

Sven Henrich: Well, basically focus on the S&P and the big animal, if you will. There was some damage done. But basically we just hit the January low, so they had to have support there for now. We got short term very much oversold. Business was a big flush yesterday. So a bounce here makes perfect sense. The question is what happens after this bounce?

Remember, we had a bunch of up gaps on the way up. Several of them got filled yesterday. Now we're having gaps on the other side.

Important to mention here is the VIX. It had a major breakout. Been talking about this since January that there was a breakout coming. We had that breakout yesterday. And, of course, there will be attempts to put that animal back in the box, if you will, to crush the VIX.

However, if that next bounce fails to make new highs, you know, we're looking at a more sizable retracement possibly into the 3,000 realm, maybe even a little bit below. Depends on how this plays out.

Keep in mind, this whole run up here actually was very similar to January of 2018, right, for calling the tax cuts. We had this massive jam up, very tight patterns, very little prices discovery, and suddenly something broke.

So to me the year basically now is binary, and it’s all about control. And the virus will have a large say in this as well. Central Banks will keep intervening. They will keep cutting, and they will keep printing. There's no question about that. The question to me is efficacy and the virus in context of the larger slowing economy will have a big impact.

If the virus can get contained in let’s say in the next three/four weeks, so we see a marked decrease in infections and they may even get a vaccine. I don't know if they can or not. Then you can make your case, okay, we're going to have a nice retracement, get this into let’s say a 3,000 realm roughly, 3,030, 2,975, something like that. You could have a bottom for the year, and all this liquidity will flush into the US election and we can get another run to new highs.

But frankly, if they fail to contain this thing and the supply chain, to your point, gets extended, I think we're looking at a global recession. I think then all bets are off.

And so if you see a sustained move below 3,000 on the S&P this year, then I think things could get rather hairy, and we can go back to some of the levels that we saw in 2019 or below.

Chris Martenson: Yeah, and this has been why I'm tracking the coronavirus so carefully. This is what I'm doing on a daily basis simply because I don’t think it’s – first, it’s uncontainable at this point. It’s slipped all containment. So now it’s a management issue, and there's a three body problem that the authorities have to solve.

One, the only way to actually contain it is to do what they’ve done in China which is basically lock people in their houses. Either you do that willingly or unwillingly, but that’s what you do. And that for sure will help to slow the spread of the disease.

But guess what? Then people aren’t working. That’s your second body problem. Hey, you still need to produce food. You still need to keep your economy going because that could be worse if the economy really collapses. It could be worse than actually whatever results from the virus. You got to balance those two things against each other.

But the more you put people back to work the more you risk the third body problem which is this. Which is that if it gets too out of control in an area it swamps the hospital system and then you have much, much worse outcomes, much higher case fatality rate.

So we have to balance keeping people locked away, letting them back to work, but not letting this things get out of control too much so that it swamps the hospital system. It’s a very trick thing, and I don’t think anybody alive has had to balance those before.

So to me that’s enough uncertainty that I would think that reasonable traders and investors would say that’s risk. I would like to not expose myself completely to that risk and be all in.

So I think it’s going to take time for the markets to actually digest that message because it’s new. It’s subtle.

Sven Henrich: Yeah. I mean, I think we're dealing with two narratives here right now. There's the one school of thought that says okay, well, all right, we recognized all of 2019 earnings were flat and not great, so we ignored all that because the Fed was printing. Okay, so now we expect that the Q1 bounce. Well, that’s not happening either, so let’s just ignore that for now too. That’s five quarters in a row. And we're hoping, okay, this virus will solve itself, and then we're going to have this big rebound in the second half.

So I think that’s kind of the school of thought that tells some people to stay in stocks and just ignore everything again.

The issue is if this does not get contained and also that’s why I think listening to companies and warnings now is incredibly important, and companies are warning. Apple was one of them. And they ignored that too, right, remember Apple dropped. It went right back up. Well, that was a mistake.

You're starting to see dip buyers getting punished. For weeks and weeks you could buy anything, and it just went up, and it didn’t matter. But last week they ignored the Apple warning; Apple bounced, and then they got hit hard yesterday again and actually broke trend.

So to me, a market that is as highly valued as it is now with such high forward multiples that have been priced to perfection can ill afford that anything beyond Q2s or beyond, yeah, beyond Q1, Q2 is going to be impacted..

I think so far everybody’s ignored the reality of what this virus actually implies. It was just not discounted. And I think the Italy news this week and the South Korea news I think shook things up dramatically. And then we’ll have to see how this evolves in the next few weeks. I think it’s key.

You see President Trump. He says, you know, it’s all going to be solved by April. Well, okay, that’s the expectation that’s now set. And what if it’s not?

Chris Martenson: There's another subtle narrative in here that was important which for a while it looked like, for whatever reason, this virus might have been contained to Asian ethnicities, but the outbreaks in Iran and Italy just shattered that. So there's now an idea that oh, this actually is a worldwide thing, could go anywhere. Now it’s down to the containment.

You got the President being hopeful about it, but we're going to have to watch and see.

So you just mentioned really important about the corporations. Follow them, follow what they're warnings are. We're seeing lots of them. I can barely keep up with the corportate warnings.

You mentioned retail buyers as them kind of getting back in the pool and swimming around. But as we all know, corportate buybacks we a hugely important part of this overall dynamic of – hugely important. You need buyers in order to make stock prices go up.

I'm wondering what you think about – here’s what I don’t like about credit bubbles. It’s so easy on the way up, but as you mentioned, if the stock market goes down that could feed right into the actual economy in synergistic sort of – these things play off each other.

Corporations were doing a huge amount of the buying, and all of the sudden, if they're looking at a supply shock, sort of, a warning, they're going to, I believe, get conservative with their buybacks, and that would remove one of the largest, if not the largest, sources of buying. Do you agree with that? And if the corporations back off, who replaces them?

Sven Henrich: Well, I mean, this is the thing, right. You have everybody long exposed. I don't know if you saw this, but last week or the week before the actual short interest in SPY, you know, the ETF that tracks the S&P was one of its lowest levels ever. So be clear, this drop that just happened, I don’t think the market was positioned for it at all.

And to your point about liquidity from buybacks, companies ultimately are rational entities, right. And they do buybacks. You can see it benefits them and if they have access to cheap debts the can certainly financial that. If they get a big tax cut they can financial that.

But once you start talking about impact on profit margins in a big way – you know, we saw this in 2007. Buybacks stop on a dime. They have been increasing buybacks all the way into 2007 and obviously that’s been supporting stock markets as well. And then they stopped immediately, and obviously we saw what happened then.

At the end of the bull market it always looks the rosiest, and everything looks the most invincible if you will. And things get ignored like the housing building crisis was ignored back then too. It’s always the unforeseen trigger that you don’t see, and then behavior changes quickly.

We haven’t seen that behavior change yet. Certainly not at four, five percent down, but we saw some of that last week. It’s subtle at this point, but I think it’s notable. You know, all the sudden we saw some bearish patterns in the short term charts and all the sudden they worked, you know.

Last Thursday – I’ll just point this out – I highlighted this on Twitter because I thought it was really interesting. On Thursday, it was a little down, and then the NASDAQ rallied, and it built a tiny bear flat. Not a big deal you would think, right. And all of the sudden, out of the blue, came a subtle program. And everybody was like where did that come from? What news triggered this? And they were desperately trying to figure out if there was a news item that triggered it, and some attributed it to some sort of coronavirus news report.

But it really wasn’t that. There was a technical pattern that was already bearish and flushed. And then it built another – that rally that followed the initial drop on Thursday built another bearish wedge. This was when everybody declared oh, they're buying the dip again and everything is in the clear. No. It flushed again on Friday, and then of course on Monday we got the flush.

All the sudden I see a shift in behavior in the market, and we’ll need to see if that follows through, or if this is just another one day wonder and they're trying to rally this back to new highs. I'm somewhat doubtful that unless they get the all clear on the virus, I'm very doubtful that we are going to get new highs from here anytime soon. I think we're going to have to flush through all this.

And let me just maybe add this final point. To see all-time highs happening in the February-March timeframe is not unprecedented. There's actually two specific examples of that. One was 1937 if we want to go back that way. We also had a massive rally in 1936 until 1937, and it ended in March. And then, of course, we have the infamous 2000 example.

What’s really interesting about 2000, and I think everybody should be aware of that – we obviously had the tech bubble. What precipitated or what really gave the tech bubble its final blow to the upside? It was the Fed. It was Alan Greenspan. Back then it was not a repo, but it was concern about what might happen with Y2K. Are you old enough to remember this, Chris?

Chris Martenson: Yes, I am.

Sven Henrich: Everybody had a bunch of concerns. Every computer is going to blow up, and power stations are going to go out. Nobody knows what’s going to happen.

So the Fed, in anticipation of Y2K, in late 1999 added a whole bunch of liquidity, and that liquidity magically made its way into the stock market. Retail got on board. Everybody chased every vertical stock on the planet, and then boom it was over in March.

And the Fed ended up reducing liquidity. It pulled it back because obviously Y2K didn’t cause any damage and so everything was fine. they pulled back the liquidity and all the excess became unwound.

And this is kind of ironically historic in what we're seeing now. Why is the Fed, in September, adding a bunch of liquidity with treasury bills buying and repo, and they caused a massive asset bubble as far as I'm concerned as a result of that? And now they're trying to carefully extract themselves by trying to taper the repo and the treasury bills buying around April they say. I don’t quite trust them on that because, again, as soon as markets drop they want to do whatever they need to do to save it.

Chris Martenson: I understand that. I get that and at the same time the bull case I get it. Hey, the Fed’s throwing money into the market, and that’s always been correlated very highly despite what your Fed governor spat is going there Twitter. Despite what they say, market traders all know this that one of the best correlations here that’s out there is looking at Central Bank balance sheets and then global financial asset prices. So I get that, right.

But on the other side, on the bear side, you might say well, wait a minute. We're watching the Fed have to pour more and more and more money in on an overnight basis to get less and less and less of a return. I think we’ve a tire with a leak in it. And at some point you have to wonder if you're not going to get a completely flat tire out of that, and that’s just the nature of things.

I think the Fed goofed. I think they should have had emergency measures from October 2008 into maybe spring 2009 and dialed it back and let things get on their way. And if certain things like Citi had to go belly-up as a consequence so be it. We’ll survive that.

But now they’ve given us – Sven, my model is instead of falling off of a five foot high step ladder we're now thirty feet up an extension ladder. And I just see massive air pockets under here if this thing gets rolling. Would you agree we're a little maybe overextended from valuation, debt, all sorts of measure? It feels just really extended to me.

Sven Henrich: It’s a process of diminishing returns. And I question the whole issue of efficacy last year. Personally, I have to say I was amazed to see this liquidity run here in Q4 into the beginning of this year.

And you have to wonder, at the end of the day, how much of this was intentional and how much of this was forced on the Fed. They didn’t choose repo. They didn’t choose the repo crisis.

For you listeners, in September there was one night all the sudden overnight rates spiked, massively spiked, and they had to emergency intervene because there were liquidity issues with some of the overnight funding, and they’ve been running the program ever since.

And to this day, even today, it’s over subscribed. There's a lot of demand. And if you will, the jump in equities has been kind of the unintended consequence or side effect. So to the extent that this was forced upon them, they’ve now produced a bubble, and they don’t know how to extract themselves from it.

And at the same time, we look at the actual economy and we don’t see the effect. The effect hasn’t been there for a long time. Europe is still on negative rates. Germany is at zero percent GDP growth. The structural picture has never changed. We are in a slowing business cycle, the slowest recovery we’ve ever had.

But we have to spend more and more and more debt just to kind of mask the underlying issues. I mean, we're trillion dollar deficit, right, and we cant even get two percent GDP growth here.

All this is paid for, and to your point, they should have stopped a long time ago. But every single time there were troubles in markets Central Banks have stepped in. They're not willing to take the pain because they're afraid of the beast that they themselves have created.

So that’s why we had QE2 and QE3, and then in 2016 we had global Central Banks was $5.5 trillion of intervention between 2016-2018. So they keep just exasperating the disconnect between asset prices and the side of the economy. At the same time, while all this is producing this ever wider wealth inequality as 10 percent of people own 90 percent of the stock market, right.

And so yeah, you have the Jeff Bezos and the Mark Zuckerberg’s and others that are just reaping massive benefits. I mean, my classic example is Bill Gates. Even he’s whining about it saying I shouldn’t be able to make this much money. You know, he’s one of the richest guys on the planet and he’s actually retired. And he’s giving more money away then anyone we know on the planet, right. He’s doing a lot of philanthropy, but he can’t help getting richer because he still owns Microsoft stock and other shares of course as well. And these asset prices just keep going wild to his and other people’s benefit.

And then you look at the global political picture and you see more discontentment and politicization and fragmentation of society to the point where no democracy can actually get anything done on a structural basis. So it’s very concerning. Working on this train that keeps running, but it’s getting heavier as we keep going uphill.

Chris Martenson: I totally agree. And a whole separate conversation, but the social impact of what the Central Banks have done with the Federal Reserve at the head have been deplorable in my mind because they’ve been engineering a very, very unfair, unjust wealth gap in pursuit of something which they can’t actually articulate. It’s like we're going to keep printing and making stocks go higher until what? I don't know what the what is in story.

So Sven, I know you time is short here today. Last question if you have the time. A lot of people listening to there's may still have money in the markets, and I'm just wondering given where you see things upside versus downside, should people who are fully invested or more invested than they're comfortable, be taking money off the table here, maybe protecting gains, stepping aside and watching for a while? How would somebody play this?

Sven Henrich: Well, I'm not someone that gives financial advice. Let me be clear. We just look at this through a technical lens. But I will say this. From a macro perspective, I think from my perspective here in the 2020, there is a chance they can still kick the can one more time, if you will, maybe into 2021. I think a lot has to do with how this virus plays out.

But we are at historically stressed valuations. We're in an environment where five, six, seven, eight, nine stocks control very large portions of the indices. We have a bond market that’s not confirming a reflation trade to growth. And we have trapped Central Bankers who are now, and this is I think the biggest part of what I call the recklessness of it all, right – Central Banks originally were supposed to be lenders of last resort. They were supposed to be there when things really go bad.

And now they’ve morphed into a self-anointed classification of we are going to always intervene at any sign of trouble, and we're never going to let the system cleanse itself. To my perspective we're in a massive asset bubble. I'm not one to tell you that we talked last week or we're going to talk a few months from now; I'm just saying from a risk/reward perspective, if they ever lose control over there's construct that they have created, we have massive, massive downside risk in equities.

And let’s go back to something I mentioned at the very beginning. 158-159 percent market cap to GDP. Put this in historic perspective. In the ‘80s and ‘90s this was around 60 to 80 percent. We had the tech bubble that peaked around 145 percent. We had 2007 bubble that peaked around 137 percent. So we are massively extended beyond any history where we’ve ever been especially in a slow growth environment.

So you got two things to consider here. Either this continues, something that has never before happened before will continue indefinitely, or there's going to be some sort of reversion right sizing of this.

And even if you go down to – which is also historical high – let’s say 120 percent of GDP, market cap to GDP, you're still looking at a massive downside risk in market. And keep in mind, in 2009 we went down to about 60 percent. So these things can change quite traumatically.

To the extent that the top five stocks, tech stocks, remain over-owned and continue to be bought, I think you can keep the valuations up. But anything breaks on these, there's a lot of people that all own the same stocks, and they may find the exit door rather thin.

Chris Martenson: I agree. And the idea that the Central Banks and the Fed in particular have painted themselves into this corner where they have a narrative that has to be maintained which is that they are going to intervene, which is they’ve got it, the put exists, that they can print, that they can make everything better.

So I think, to paraphrase what you said, all of stocks have been priced for perfection, and it’s not a perfect world. We have this thing called the coronavirus which is my definition of almost a perfect black swan. Totally unexpected. Nobody’s faced it before who’s alive. We don’t know how this is going to ripple through. Can’t compare it to the 1918 Spanish flu because at that time most people lived on farms still. This is a completely different world, and we don’t have any models for it, and that is something you just can’t print your way around very easily.

So if the perception is that the Fed is now out of its element and is facing something that it can’t control, I think that busts the whole narrative and people are going to have to spend some time getting used to a lot of volatility until we figure out what the correct narrative actually is.

But I think the old one is really in danger of just being shredded by one of those machines that takes the cars apart. That’s what it feels like to me.

Sven Henrich: Let me just add this point here to my point about this being reckless when the Fed was supposed to be the lender of last of resort.

They have now very little ammunition left on the rate cut – they only have six rate cuts left before they're back to zero. In 2000 and in 2007 it took over 500 basis points and cuts to stop the bleeding.

And to the extent that they went full in in 2019 because of the slowdown to try to kick the can, you know, they again reacted to the markets sensational appetite for easy money. And they're just others willing to take the pain ever. They're so afraid of the beast that they’ve created that they are beholden to markets.

And so now, if the coronavirus, for example, is actually turning out to be that emergency, that trigger, that actually requires you to have an army with ammunition, well, the Fed has left itself with precious little ammunition. And that’s the irresponsibility of it all.

Look at the ECB. Negative rates and they cut again, you know, and they’ve restarted QE. What new stimulus can they bring? The answer, and I think they know that, is very little and hence why you see Central Bankers across the globe basically begging governments for fiscal stimulus which is code for add more debt.

Well, great, so now we are in the most indebted economy, global economy, ever. We are at the lowest rates with the least amount of ammunition, and you hope that something like the coronavirus is just a temporary thing.

Well, the concern is that something like that is not a temporary thing and we have a real crisis, and we're completely left unprotected in that sense. They will try to keep kicking the can, but every time they do, every time the Fed cuts rates, for example, they will have even less ammunition to deal with the ageing business cycle.

So the future, unfortunately, as it looks right now, is permanently ever more debt. We have trillion dollar deficits for the next decade, at least. That’s prior to any recession because none of these models assume a recession ever. And so I think the world is mightily exposed. At the same time, as long as stock markets are high, you can maintain that confidence.

That’s why I'm saying everything is about the stock market and everybody is trying to protect it in any shape or form possible.

Chris Martenson: That was so perfectly well said. And we're going to end it right there. Sven, that was amazing. And I just love talking to you, and I love following you on Twitter. And you just very generous with your insights and with all of your analysis and things like that.

So thank you so much for your time today. I know you’ve got to get to the markets because they're about to open here. I really appreciate it. I'm sure everybody listening has really appreciated this as well.

So again, tell people how they can follow you, please.

Sven Henrich: You can catch me at @northmantrader on Twitter, and of course, the website northmantrader.com. And Chris, thanks very much. I’ve very much enjoyed speaking with you.

Chris Martenson: Thanks again, Sven. Good luck with all your trading and with life going forward.

Sven Henrich: You got it. You too. Take care.

Worried about what the financial markets will do from here?

Adam Taggart: Hi folks, this is Adam Taggart. Chris and ii are the cofounders of peakprosperity.com.

Given the macro and technical risks that Chris and Sven addressed in the podcast, we think it’s extremely important not to have your investment portfolio on autopilot these days. We’ve long recommended that you work with professional financial advisor who understands the nature of the risks involved with today’s markets and to position your wealth accordingly for safety.

If you're having trouble finding a good advisor on you own, consider talking with a financial advisor that Peak Prosperity endorses. For over a decade they’ve worked with people just like you who are concerned about preserving capital during a time of dangerously overvalued markets.

You can talk with them for free, no strings attached and no commitments required. To schedule a free consultation, just go to www.graylockpeak.com. We think you’ll find this a useful resource.

Thanks for listening to this podcast.

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16 Comments

  • Tue, Feb 25, 2020 - 1:25pm

    #1

    George Karpouzis

    Status: Silver Member

    Joined: Feb 17 2009

    Posts: 189

    5+

    One of the big signals (stocks) now glaring red

    Up until a few days ago our prep was stealth. Now the CDC is openly saying we have problems. Market got hammered 2 days in a row.

    People will slowly wake up to our predicament

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  • Tue, Feb 25, 2020 - 2:29pm

    #2
    Desogames

    Desogames

    Status: Member

    Joined: Feb 03 2020

    Posts: 210

    As far as prices go

    People forget during a crash stuff goes down, everybody goes down. Various reasons for it; both price manipulation as well as margin calls - everybody having to sell gold/silver to pay for the longs that just went bust. In 2008, both silver and gold crashed after a long run up. Wiped out all gains for years.

    But once that ended.... well. The chart speaks for itself. If history rhymes in bubbles it rhymes in aftermath too.

    I like reading Sven's articles too. His chart game is absolutely on point! Definitely can recommend!

    EDIT: New video from Chris (that doesn't have a accompanying article yet): https://www.youtube.com/watch?v=9V9_IuKnEdU

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  • Tue, Feb 25, 2020 - 3:02pm

    #3
    Desogames

    Desogames

    Status: Member

    Joined: Feb 03 2020

    Posts: 210

    2+

    More things that will happen now that the bubble has burst!

    Just 2 for now because there's many things that'll happen and i wanna let others have their say too 😀 but these are VERY important for Americans to consider:

    1. Pensions will be GONE!
    https://www.zerohedge.com/political/bankrupt-illinois-cities-forced-cut-services-fund-pensions

    Just search for "Illinois pensions zerohedge" to get all the info you need to understand Illinois pensions are completely broke. So if you can exit out of 401ks or whatever you can do to drag some pension money out of there. Will there be bailouts? sure. But this is a *national* problem. At some point you can't keep bailing yourself out (without triggering hyperinflation and then everybodies poor anyway).

    2. The student debt bubble will explode. This is some original work from yours truly! But i didn't have anywhere to post it at the time where somebody would pick it up, so i posted it to the only people who would gain atleast some shadefreude from it.
    reddit.com/r/studentloandefaulters/comments/en68sf/the_death_of_for_profit_schools_and_bailing_out/

    (You have to add https://www. yourself because HOLY HELL it fetches and posts the entire reddit post and my god did i ever spent hours working on it/typing it so it's a long one. Not gonna do that. Nope.)

    I wonder if somebody will pick up on it now. In any case; Sallie Mae is the only student loan maker in the US, it's basically the same as Freddie Mac and Fannie Mae, except they wheren't nationalised in 2008. So that'll have to happen now because it's a private entity, a private bank, and student loans where already at an incredibly high default ratio back in december - and all those day trading students who just got wiped out will not be paying back those loans.

    If nothing else, it'll be a fun read if you've ever had to suffer under student debt. Atleast your tormentors will get their due.

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  • Tue, Feb 25, 2020 - 3:05pm

    #4
    Vickdenise

    Vickdenise

    Status: Member

    Joined: Feb 25 2020

    Posts: 2

    Diabetes

    Cured from diabetes with Herbal medicine
    I was diagnosed of DIABETES for sometime, I have tried all possible means to get cured but all my effort proved abortive, until a friend of mine introduced me to a herbal doctor from Africa by name Dr Nelson, who prepare herbal medicine to cure all kind of diseases including hepatitis B, DIABETES and (HPV). When I contacted this herbal doctor via his email, he sent me his herbal medicine via courier service, when i received the herbal medicine he gave me step by step instructions on how to apply it, I took it as instructed after 3 weeks I went for check up and my result was negative. I am very grateful to DR Nelson may God bless him and continue to give him wisdom. I will continue sharing this testimonies,You can also Contact him on. [email protected] gmail. com
    or send him a whatsapp text on +2348116522191.
    he has herbal cure for Herpes Virus and outbreaks, Fibroid, cancer, Hepatitis and heart diseases

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  • Tue, Feb 25, 2020 - 3:19pm

    #5
    Nairobi

    Nairobi

    Status: Bronze Member

    Joined: Feb 05 2020

    Posts: 289

    Sorry to disagree, but Sven is wrong

    What we are seeing right now on stock markets with this current correction is just an temporary event and it will not last.

    Markets remain in a very strong technical secular bullish uptrend and I will counter that even more money will flow there over the coming years.

    This will take place against a backdrop of an increasingly strong dollar and continued deflation in industrial commodities. That includes both gold and silver which stand to sell off substantially during the next 24 months.

    My long term gold target is sub 1000 dollars and we are going there in spite of every narrative proclaiming such a thing is impossible. Well it is indeed possible and the charts are unequivocal in that respect.

    Both GDX and the HUI, for example, have to this very day failed to make new highs versus the 2016 price highs and let me assure you of the extreme bearishness of that one simple fact.

    I suppose I would be remiss to tell you all just how bad it's going to get for gold so let me just get to the point and warn you what the target looks like.

    First off, we are not in a bull market for precious metals at this time in spite of the usual people proclaiming such. Not yet anyway. We still need a fairly steep decline to complete a long standing pattern that is as good as etched in stone.

    Price will fall to around 968 dollars before all is said and done and that should warn you about the severity of the deflationary impulse that is now being unleashed on the entire globe.

    Along with silver, these are two assets that should be sold for several more years. Instead, if I were to offer a better alternative it would be to remain focussed on both the stock market and dollars as that's where we will see continued performance.

    Gold miners will not see a final low until January 2024.

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  • Tue, Feb 25, 2020 - 3:27pm

    #6
    Desogames

    Desogames

    Status: Member

    Joined: Feb 03 2020

    Posts: 210

    2+

    If you wanna buy gold... make sure you can

    Goddamnit i forgot a very important one for those who don't know yet. That'll be alot of people since this news hit amid the repo panic/WWIII panic so it got snowed under.

    https://news.bitcoin.com/germans-rush-to-buy-gold-as-draft-bill-threatens-to-restrict-purchases/

    Since January 10th 2020, Germans can no longer Anonymously buy any physical gold above €2000 with cash. This was down from €10,000 in 2019 and €15,000 in 2017. This means, at current prices, they already *cannot* buy a 1 oz gold coin purely with cash.

    Now obviously this will shunt most of you into a "gubment gonna gitcha gold" mentality, and you'd be right to consider it. However, i don't think that is the government's end goal.

    Deutsche bank is bankrupt, as are others (https://www.youtube.com/watch?v=5He-opu-nFk&t=1215s But it's in dutch, with only auto translate on the captions, but i thought i'd atleast link my source for those statements). The scale of the German banking system is too large to save *without* a *bail-in*.

    A bail out is when the government uses tax money to save the bank. A bail in is when the bank uses haircuts on deposits from customers to "pay" for the bad assets they have. If they're liable to give less money back to people, their capital ratio increases. In other words; they gon' gitcha money.

    Buuuuut we saw in Cyprus in 2012 when they trail-runned that bad boi that there is no point if you *announce* the bail in. All the Russian Oligarch money was gone before the financial "lock down". They won't make that mistake again.

    As soon as all transactions are cashless, you just flip a switch. If you can't buy gold with cash, and if you can't get cash, then you turn off the access of gold traders to the banking system and voila - no more gold sales.

    No where to spend your money on as they first take it via bail ins, and then dilute whatever you have left with hyperinflation.

    Even if they wanted to confiscate gold a la 1933 (i think?) the government's not going to have the man power to go door to door, or check all the vaults to see whats in them. They're going to rely on people turning gold in, and more importantly, no additional gold sales frontrunning the inevitable price hikes. It's simply going to be: They're going to look for gold as long as they can bear it and who ever's left standing, wins.

    Prepare accordingly. I'm not going to give advice as what you should buy when. But along with delivery and demand shortages, you should also keep your government's actions in mind.

    (oh and obviously, when the german banking system goes, the US goes with it, because we learned nothing from 2008 and banks are just as interconnected as they ever where).

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  • Tue, Feb 25, 2020 - 4:01pm

    kunga

    kunga

    Status: Bronze Member

    Joined: Feb 26 2017

    Posts: 342

    1+

    Deflationary impulse

    Thank you for your studies/opinion.  Do you think the Fed. etal. will allow deflation to develop?  I almost got convinced to stop buying gold in the early 2000s because a guru I followed said it was going to drop to $100/oz.  But I kept reading my charts and bought 10 oz. @$252/oz. the day of the low.  Scarry, h##l yes, but sometimes those are the best buys.   I think, because of the debt, they have to keep printing.

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  • Tue, Feb 25, 2020 - 4:43pm

    Desogames

    Desogames

    Status: Member

    Joined: Feb 03 2020

    Posts: 210

    1+

    No.

    That's a definitive negatory on deflation. I couldn't possibly find it right now due to all the activity but i saw a chart on Zero Hedge that showed there hadn't been any (real) deflation in the past 90 years since the creation of the Fed. There had just been slowdowns and speedups in inflation.

    Now all logic says both that Deflation Must Happen, because it hasn't happened for so long and deflation is an integral part of the economy. They learned that lesson in the Great Depression, because they had prevented deflation from happening for so long they ended up in a deflationary spiral.

    In short; they had eliminated deflationary crises by simply kicking the can and stacking all of them on top of each other. Which is now coming due.

    But the answer to Deflation is still the same; print and circulate more money. It actually is; if i was central bank president i would've already said 2 things: 1. the virus is the real deal and we need to prepare, 2. Here's 2 trillion in liquidity. It won't be for the stock market. it will be for mid to small sized businesses to lend directly from the Fed at zero interest rates to survive the initial virus impact and continue paying a percentage of wages rather then outright terminating employees, to make sure whenever this is over everybody still has a job to return to and they can go into lockdown without worrying about income.

    Sounds completely reasonable right? It would be! But i also wouldn't have printed $4,5 Trillion dollars during a bull market so my balance sheet would go from $0 to $2 trillion. If there EVER is a real recovery, rates would normalize, and the US would brankrupt itself overnight. So it's a rock and a hard place: print nothing and deflate, print everything and hyperinflate.

    Considering both Trump and Bernie have both announced massive spending plans with no way to pay for those, and while there will be a rush into the dollar as a safe haven first, no foreign country is going to buy bonds when they need cash themselves for supplies. Who in the damn hell is going to buy all these things when the world is on lockdown?!?!

    The central banks that's who. And they have only 1 way to do so. But this time the problem is compounded by >real intrinsic value< disappearing. It's the other side of the coin. If Money represents Value, and Value is reduced while the amount of money stays the same, Money becomes worth less.

    In practice you know this better as food inflation or "Bad harvest, less oranges, orange more expensive".

    Bonus points for spotting the trading places reference. So not only are we going to see more money, we will see less value that money represents. Prices will skyrocket, even during a deflationary episode.

    And since the Repo Crisis on September 2019 meant the US effectively went bankrupt (because it forced the central bank to buy bonds >out of necessity because nobody else wanted them< which is the definition of bankrupt) the fed will have to keep printing now. There is no choice.

    Inflation Must Happen. The charts that say interest rates will normalize at one point are stronger then the ones that say we're headed for a deflationary spiral. NOBODY is going to tolerate a -3% savings rate on their bank account they'll just pull cash out of the system.

    Which are also more arguments for this going into hyperinflation at some point, we are, *once again* in a liquidity crisis. Those are deflationary in nature, after all if there is a premium on liquidity there is a premium on cash, cash increases in value vs real value thus; deflation. They will print this difference away just like in 2000 and 2008, balance sheet be damned.

    BUT! now that real world value is plummetting and starts acting like a multiplier on the whole thing, when investors are desperately going to look for value to hold on to whatever money they have, interest rates will start to tick up. Slowly at first, but they will. (AKA we get deflation first as they adjust the amount they're printing upwards, but they go too far for too long cause that's all they ever do).

    The bond market has been running on faith for a very long time. Once people realize it doesn't matter whether they lose their money in bonds or lose it in WeWork shares, it's lost either way. So it's much better to bring it closer to home in the form of cash and gold/silver. (putting an even bigger drain on liquidity) (and i say both of those because they hedge each other: if the deflation persists, you spend the cash on more gold. If deflation then turns, the gold protects your value on the way up. You can always sell it at the next top.)

    It'll hit a tipping point where the bank won't be able to print fast enough. Because if you see the central bank printing $1 trillion a day, you will start losing faith in the dollar real quick. That's hyperinflation - a total loss of confidence in the currency. The dollar will eventually survive, but as a remade currency - the greenback is DOA.

    So their preferred kicking the can one last time method will be trying to not print all the money at once and just let prices rise a little. then a little more, then a little more. After all, 10% monthly inflation isn't 1000000% monthly inflation, right? No need to worry it'll be fine. This didn't happen in the Weimar Republic or Zimbabwe exactly like this before or anything.

    Deflation won't happen until the day they kill the greenback and allow you to exchange it for New Dollahs at a rate of $4 trillion to $400 or something like that.  Nobody will have any left to care with at that point.

    And the rich? https://www.zerohedge.com/markets/hundreds-billions-gold-and-cash-are-quietly-disappearing

    As always. The Rich will be fine. It's not about not-losing money. It's about losing less then everybody else:

    I have $10. You have $100. You have 10x my wealth. Bread stabilizes at a price of $1, because there are many more of me (poor) then of you (rich). You can buy 100 breads.

    Crisis hits. I have $5. You have $70. You lost $30. I lost $5. In flat terms, you lost 6 times what i lost. You now have 14x my wealth. Bread stabilizes at a price of $0,5, because there are many more of me (more poor) then of you (more rich). You can buy 140 breads.

    Welcome to Wealth Transfer 101. May i hang your Wallet?

    I'll stop here after that Zinger 😀 cause i could go on for hours, i really think we're in the end game here. As usual, the normal caveats: I do have logic on my side as well as alotta charts, but no man can see the future. The moment somebody takes me seriously is the moment my predictions start falling apart, as people change their behaviour. So what ever you do or believe; it's your own damn business (that's why critical thinking is so important; i can't do it for you because i refuse to take responsibility for your decisions).

    Time will tell if i'm right or not. All i'm saying is i've got €1000 in cash next to my silver and gold, just in case i'm wrong and deflation pulls me way down. Considering 50% of Americans don't even have $1000 in their bank account, relatively speaking, if gold becomes worthless i'd still be rich (cause cash will move in the opposite direction). Deflation is like turning back the clock, and since the US didn't have it for 90 years, it'd be like owning $1000 in 1900. Considering my current wealth i'll take that deal.

    Just be smart bout whatever you decide to do. Don't take my word for it, read what people opposite of me are saying, and ask yourself which sounds more likely, then construct your own events from your local situation as to what might actually happen. That's what i like to call, an Informed Decision.

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  • Tue, Feb 25, 2020 - 4:44pm

    #9
    Matties

    Matties

    Status: Member

    Joined: Jan 30 2020

    Posts: 160

    Prediction

    In March they will bomb Trump away and with it Q and justice.

    Look who is coming to the forefront. Obama probably by UN, possibly by election.

    The antichrist is visible back in business.

    Good luck with that...

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  • Tue, Feb 25, 2020 - 4:48pm

    Nairobi

    Nairobi

    Status: Bronze Member

    Joined: Feb 05 2020

    Posts: 289

    The Fed follows the market

    No, the Fed is powerless to stop deflation. What is about to happen is much bigger than the collective power of the world's Central Banks which is why they are now talking about MMT.

    We are on a deadline now.

    What most people don't know is that the bond markets already peaked in 2016. We are only awaiting the other shoe to drop as the chart confirms it by topping a second time during 2020.

    In other words the so-called bond bubble will burst this year and it will no doubt be attributed to our global slowdown brought on by a steep economic decline in Asia.

    But I can tell you that I have been watching this unfold from the perspective of capital for many years already and even though I could not identify the reasons, I could forecast when the trouble would start.

    So rates will rise as bonds come down. It does not matter what theory or narrative anyone puts forward since this cannot be stopped from happening. It's more a matter of how we deal with it once it begins.

    Don't count on the Fed for any answers though because they ultimately follow the market and the market is already telegraphing that the cost of money will start going back up.

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  • Tue, Feb 25, 2020 - 5:53pm

    kunga

    kunga

    Status: Bronze Member

    Joined: Feb 26 2017

    Posts: 342

    1+

    Hyperinflation

    Years ago, now lost in the mists of time and moving, I read a prediction of a US hyperinflationary cycle that stretches back to the Revolutionary War days.  Due to hit 2022-2024.  So, I hope I survive covid2019, cuz I'd like to see what happens.  I think diversification is good.

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  • Tue, Feb 25, 2020 - 6:03pm

    #12
    PenchantForHoarding

    PenchantForHoarding

    Status: Member

    Joined: Feb 03 2020

    Posts: 12

    45 Degree Angles

    Funny thing about consistent chart angles, whether up or down.  If there's a trendline, and you're lucky, consistent, or brainwashed enough to follow them, it's a steady payday.

    If major markets do an upper left to lower right on the chart for the upcoming period, there are dozens of readily available index short ETF's to choose from.

    https://www.stocktrader.com/inverse-short-etfs-bearish-etf-funds/

    I piled onto 5 shorts the past 2 days, closing out or placing tight stops at the end of each session.  Also put a bit into PHYS as a hedge and medium term play should safe haven trades kick in.

    Take it a day at a time, and if you have the stomach for it, short it all the way down.   ***BE CAREFUL*** with the leveraged short positions and don't leave them in play overnight... for most folks just stick with the 1x levered shorts (ie SH).  Our IRA just went up a few mortgage payments in 2 days should we need it if this virus knocks our jobs offline..

    NOT a professional investor, but would offer this advice to anyone not super financially savvy with a passive 401k:  GET OUT.  Go to cash (ie exchange all your funds for a money market).  Employer provided 401K's unfortunately tend to offer only upside options - nothing bearish, gold related etc.

    Go.  To.  Cash.  Do it immediately.  Call your 401K 800 number if you're unfamiliar or haven't logged in in awhile.  This isn't going up, and could nosedive quickly.  Take what you have and park it now, and if you're comfortable ride the water level down with shorts.

    Good luck everybody - this is about to get real.

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  • Tue, Feb 25, 2020 - 7:18pm

    kunga

    kunga

    Status: Bronze Member

    Joined: Feb 26 2017

    Posts: 342

    Money markets

    You need to research  what investments are held in the money market.  Might be a bunch of sketchy bonds and mortgage backed securities.  Very little is safe now days.

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  • Tue, Feb 25, 2020 - 7:37pm

    #14
    Nairobi

    Nairobi

    Status: Bronze Member

    Joined: Feb 05 2020

    Posts: 289

    3+

    Bite my tongue...Sven is right.

    I don't spend much time watching the DOW and S&P charts but just took a longer look. Sorry to admit it but Sven is right. We have three years of sideways and down markets coming. Looks like almost everything will deflate....bonds, stocks and gold. The dollar will rise. What a screwfest this is going to become.

    But the world won't end. It's just going to be a protracted slowdown and long consolidation period for the markets.

    Maybe it's a good time to walk away from the computer and just enjoy life a little more instead.

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  • Tue, Feb 25, 2020 - 7:59pm

    #15
    Geedard

    Geedard

    Status: Member

    Joined: Oct 13 2014

    Posts: 63

    Hong Kong fiscal stimulus - looks and smells like helicopter money...

    Hong Kong just announced a variety of fiscal stimulus measures...including a "cash handout" of HK$ 10'000 (total budget cost = HK$ 71 billion) - which looks and smells exactly like helicopter money to me. I imagine this will get saved before it gets spent.

    PP has long talked about helicopter money spelling the beginning of the end...

    And so it begins, it seems...

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  • Fri, Mar 06, 2020 - 11:17am

    #16

    Dogs_In_A_Pile

    Status: Platinum Member

    Joined: Jan 04 2009

    Posts: 824

    So what?

    Who cares? COVID-19 is just another event that causes the market to move. It's only a problem for people (like Sven) who have a green market bias. Lose the bias, adopt market neutrality and trade in both directions.

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