The Great Panic of 2020 is already one for the history books. Yet the damage has only just begun. We suspect the stock market crash, economic destruction, and forfeiture of freedoms will persist long after the coronavirus hobgoblin has been put to bed.
With respect to the stock market, the modus operandi of the last 11 years is being stood on its head. Rather than ‘buy the dip.’ The new divine mantra is ‘sell the rip.’ Here’s why…
If you recall, the U.S. stock market commenced a multi-year swan dive in autumn of 1929. About that time, the economy also commenced a decade long Great Depression. Given the rapid and relentless stock market carnage over the last month, and the prospect of a lengthy depression, a closer look is in order.
From September 3, 1929 to November 13, 1929, the Dow Jones Industrial Average (DJIA) lost 48.9 percent. Then, as rarely noted, it rallied 48.1 percent through April 17, 1930. This had the adverse effect of luring the buy the dip crowd back into the stock market just in time for the next massacre.
The 1929 through 1932 bear market, as noted by Pater Tenebrarum, was like a rubber ball bouncing down stairs. With each bounce, even the most savvy of investors were given another chance to lose their money. Taken in sequence, the repeated bounces provided many opportunities to lose money over and over again.
In the end, the bounce up between November 13, 1929 and April 30, 1930, turned out to be the ultimate sucker’s rally. The DJIA subsequently crashed 89.2 percent from its initial peak, along with the hopes, dreams, and aspirations of an entire generation.
Such a colossal collapse could never, ever happen again, right?
Well, if it happened before, by definition, it could happen again. Hence, if an interim bottom is put in over the next several weeks, and the DJIA attempts to retrace towards its February 12 all-time closing high, take this as a gift. An opportunity to sell the rip.
Bend the Curve
The economy’s being fundamentally pummeled by coronavirus containment. Long term damage will be sustained. The type of damage that takes a decade – or more – to recover from. Fake money won’t fix it. But, nonetheless, there’s no shortage of solutions being offered to save us from ourselves.
Coronavirus, according to scientific prophecy, spreads exponentially. The only way to contain it is to “flatten the curve” through “social distancing.” The world must “hunker down” in unison; if not voluntarily, by government decree.
Bars, restaurants, gyms, schools, and many employers are shutting down. San Francisco has ordered all residents to “shelter in place.” The Maltese Falcon can only screech to itself from within a vacant John’s Grill.
The former Mayor of San Francisco, and now California Governor, Gavin Newsom, has ordered all residents to stay at home until further notice. According to Newsom, “We need to bend the curve in the state of California.”
Perhaps these solutions have merit. But they’re disastrous for the economy. Cash flows are running dry. Credit markets are freezing up. People are losing their jobs. Full mobilization is needed, we’re told, in the war on coronavirus.
For example, Fed Chairman Jay Powell’s pulling out all the monetary stops – zero interest rate policies, quantitative easing, repo madness – to pump liquidity into credit markets. But that’s not all…
The Fed’s now accepting stocks as collateral in exchange for liquidity. The Fed also established a Money Market Mutual Fund Liquidity Facility (MMLF). The sole intent of the MMLF is to keep short-term credit markets from frosting over like the Alaskan tundra, and breaking the buck.
On the fiscal side, the Treasury Department’s angling with Congress to send out $1,000 checks – possibly, two of them – to struggling Americans. Mitt Romney, a man of discretion, is onboard with $1,000 checks. Chuck Schumer says it won’t be enough. Cory Booker wants to send out $4,500 checks.
But why stop there? Why not send out $45,000 checks? If a little helicopter money’s good, isn’t more always better?
Is the Panic Worse than the Virus?
If only the world was as simple as potato brains Booker believes. Remember, when the U.S. Treasury borrows money created out of thin air from the Fed to send out checks, it’s executing a program of mass currency debasement.
A check may arrive in your mailbox. But its face value constitutes a fraud. Moreover, this fraud constitutes a down payment on tomorrow’s disorder.
Yet, by the doom being proffered on the matter, mass currency debasement and systematic hunkering is needed to win the war on coronavirus and save the economy. Or is it?
For perspective, we’ll draw from words first scribbled in 1841 by Charles MacKay. Here’s a brief excerpt from MacKay’s timeless classic, Extraordinary Popular Delusions and the Madness of Crowds…
“During seasons of great pestilence men have often believed the prophecies of crazed fanatics, that the end of the world was come. Credulity is always greatest in times of calamity. Prophecies of all sorts are rife on such occasions, and are readily believed, whether for good or evil.
“During the great plague, which ravaged all Europe, between the years 1345 and 1350, it was generally considered that the end of the world was at hand. Pretended prophets were to be found in all the principal cities of Germany, France, and Italy, predicting that within ten years the trump of the Archangel would sound, and the Saviour appear in the clouds to call the earth to judgment.”
As far as we can tell, the coronavirus has attracted prophets of all stripes like bees to a honey pot. Mass coronavirus hysteria has led to public and pretend prophetic histrionics.
According to Bill Ackman, “hell is coming.”
Maybe so. Or maybe the mass panic has been slightly overblown. By this, is the panic worse than the virus? Who knows?
What we do know, is the spring equinox has arrived…marking the earliest coming of spring in 124 years. After the last several weeks of winter, we’ll take it.
for Economic Prism