Monday, March 16, 2020

Black Monday

In a bid to keep the last Trump Casino from final imploding, the Fed just went ALL IN final implosion...

Last Thursday:

Two trading days later, today (Monday), is the new worst day in three decades -12% on the Dow:

We must never underestimate how crazy things can become in this insane asylum.

The Fed couldn't wait until Wednesday to squander what was left of their dry powder yet again attempting to rescue trapped gamblers from the towering inferno of Trump Casino. When the futures opened on Sunday night just minutes after the Fed announced they were slashing interest rates and re-starting QE, they were limit down in :5 minutes. I have to believe it was the fastest -5% decline in history. Clear indication that the smart money no longer trusts the Keystone Kops in leadership. I am referring to computer algos, not the artificial intelligence of the human kind. 

At the Monday open, there was no open. The casino tripped the -7% circuit breaker before the start of trading. The net result was a 9:45 am open with the casino trading -9% from the start. Similar to every other bailout rally of the past two weeks, gamblers did everything possible to stage a rally off the lows during the middle of the day. And then it all fell apart at the end of the day. Nevertheless, once again the daily bailout had the effect of sponsoring still more BTFD complacency at a new lower level.

Kudlow and Mnuchin keep insisting this is not a recession. They are right, this is now a depression. A total collapse in GDP. Goldman Sachs sees -5% in the second quarter (April - June). I suggest that is highly optimistic.

As the deflationary forces grow ever-stronger, the Trump Administration falls further behind the curve. Their policy ideas now no more than sound-bite gimmicks. The sad fact is that the government is out of dumb ideas. Both fiscal and monetary stimulus are entirely depleted. There is no conventional mechanism for fiscal policy to reach the middle class. 

The only next step is to nuke the credit markets with MMT for the masses, which I have said they would be loathe to take. And yet once again I underestimated how ideologically flexible today's capitalists have become. Remember when Ocasio-Cortez suggested MMT for the masses and was roundly derided as a Communist? Well, that's because she is a Democrat. Now that Republicans are in dire fear of losing the election, it's their idea now:

"Cash handouts to all American households are gaining support in Congress as the best way to shore up an economy brought to a near-standstill by the coronavirus.

Republican Senator Mitt Romney gave his backing to the idea on Monday, proposing to immediately send $1,000 checks to every adult American, and Republican Senator Tom Cotton also said he is working on legislation that would provide cash stipends. 

Among economists, the idea of across-the-board cash handouts as a response to the epidemic has been rapidly gaining support"

Once again, we see that for Banana Republicans, ideology is no match for existential elections.

Switching topics from printing money back to the collapsed economy, what this Coronavirus has achieved is the final and total Amazonification of the economy. Stoned gamblers sitting at home day trading stocks, receiving printed money by PayPal, and ordering everything online, while the real economy final implodes.

The retail sector was already on its last legs BEFORE this virus, now it has received its final death blow.

Getting back to Trump Casino:

Today's close brought the S&P 500 down to just above the critical 2018 low which was never successfully re-tested. Algos will attempt to support this level by every momentum device possible. Which means it could hold up for a few hours or maybe even a close. However, beneath this key level it's clear blue sky down to the pavement below. Bear in mind the Dow and small caps are already through this level - as are Financials, Transports, Retail, Autos aka. the economy. So it's only Tech holding back now.

Speaking of overbought Tech, volatility has now reached lethally explosive levels.

Whereas I've previously shown VVIX (Second derivative volatility) has been lagging due to the lack of panic, today, it rocketed to a new all time high going back prior to 2008.

Options implied volatility is now hypersensitive to changes in the S&P 500:

Here we see that "BTFD" is still the order of the day, despite the fact that the Fed is entirely out of ammo.

Belief in imaginary bailouts is the order of the day:

We may back-test this key support line, and then you know what...

Trump has now joined the pantheon of highly esteemed crash test dummies:


"We have one more chance to prove we can lead"