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March 12, 2020
(Simultaneously published at Money Daily)
Friday, March 13, 2020
It's likely that March 12, 2020 will go down in history as the day global markets were dealt a fatal blow.
After weeks of volatility, with stocks moving radically up and down - but mostly down - capitulation had arrived as equity indices around the world suffered historic losses. In the United States, stocks started the day badly, down seven percent within minutes, triggering a market circuit-breaker, shutting down the exchanges for 15 minutes.
Upon reopening, stocks languished in the red, major indices down more than eight percent, the Dow Industrials falling nearly 10%. At 1:00 pm ET, the Federal Reserve announced that it would inject $500 billion in a three-month repo operation at 1:30 PM ET. It also announced a further $500 billion in a three-month repo operation on Friday and another $500 billion in one-month repo operation for same-day settlement.
The promise of $1.5 trillion in ready liquidity quickly sent stocks higher, but, just as an attempt to sooth markets with a 50 basis point rate cut last week had failed to quell the selling, this exercise in money printing ended up in tatters as well, stocks plummeting shortly thereafter back to session lows and beyond.
By day's end, the carnage was widespread, with the Dow, S&P, NASDAQ, and NYSE Composite indices all suffering the largest point losses in history, and the greatest percentage declines since the 1987 crash.
While the focus was clearly on effects that the spread of COVID-19 will have on the business community and corporations in particular, it was also evident that efforts by central bankers were not going to solve the market's problems this time around.
As has been the case for the duration of the 11-year bull market, which ended abruptly on Wednesday, Thursday's trading was about as grim and gloomy as had ever been seen, even worse than the fateful days of October, 2008, when Lehman Brothers failed and markets seized up in a paroxysm of distress, anguish, and fear.
While the Fed's largesse at this juncture may ease some of the immediate pain, it is unlikely to solve the underlying issues in the global economy, which are, in the main, disastrous levels of debt in corporate circles, households and governments. As the Fed believes every crisis to be a call for more credit, the world is drowning in what has become an avalanche of debt that will never be repaid. They system is readily drawing itself into a vicious death spiral. Every new dollar that the Federal Reserve, European Central Bank, Bank of Japan, People's Bank of China or other central bank entity will be washed down the tubes as quickly as it is put to use.The world's banking entities and governments are about to find out that they cannot bail out every corporation, every household, every state, city, or county that suffers from unwieldy debt overburden.
The market meltdown of March 12 is the beginning of the end for the global fiat money system. Backed by nothing but faith, all currencies are about to suffer the same fate: being expunged forever into the trash heap of failed economic ideas. Central bank intervention can only offer temporary relief, but it cannot continue on this course of action each time there comes a crisis. In the end, all central banks will fail, many governments will be overthrown by its own people or the sheer weight of indebtedness upon them.
The world is about to change in dramatic fashion. Money will vanish. Corporations, which have binged on stock buybacks for the better part of a decade, are bout to suffer a powerful hangover and have possibly poisoned themselves to death. All the time corporations had been loading up on cheap money, financing massive stock buybacks, no thought was ever given to how the balance sheet would look when the stock would be reissued to the public. Companies which bought back their own stock at, say, $90 per share, are looking at offering fresh issuance at $40 or $30 per share. Worse yet, when they issue new stock, there may not be ready buyers, as investors have been put off by the fragility of the market, massive losses in portfolios, gross wealth inequalities, and an evolving liquidity crunch.
Corporations will be caught upside-down and many will be earn the moniker of "zombies," wherein their present income is not enough to service ongoing debt. There will be massive numbers of bankruptcies, first by small businesses, then by major, publicly-held corporations. The economy, in major developed nations, will cease to exist in any reliable fashion.
Prior to all of this unfolding over upcoming months and years, the world has first to combat the nemesis that is COVID-19. As the day wore on, the news flow became worse and more terrifying with each announcement. During the day, the NBA suspended all games, as did the NHL. The NCAA cancelled the annual college basketball tournaments, and with that, "March Madness" became "March Numbness" for college hoops fans. Late in the day, Major League Baseball (MLB) announced that is was suspending Spring Training at various facilities in Florida and Arizona, and announced the the opening of the regular season would be delayed by at least two weeks. Originaly scheduled for March 26, the timetable was pushed forward to April 9th, at the earliest.
The states of California and New York, where outbreaks of coronavirus have been spreading rapidly, announced bans on large gatherings, California limiting the size to 250 people, while New York will allow only crowds of 500 or fewer. Other states have closed public schools, issued various warnings, and are preparing for large-scale outbreaks. Literally, there are too many stories of cancellations, bans, and preparedness responses to cover in this article.
Overnight, Disney (DIS) announced that it was closing all of its theme park operations, including Disney France, and the massive Disney World park in Orlando, Florida.
The news is unlikely to be cheerful as the week draws to a close. Millions of Americans will spend the weekend doing something other than watching sports on TV. People around the world are frightened, many already infected (in excess of 135,000 worldwide), and over 5,000 have died. With the virus nearing what should be its peak stage, almost all economic activity has ground to a halt. Congress continues to work toward a plan for assistance to hospitals, states and localities, but, as usual, they're doing more arguing for political gain than providing actual service to the American people.
It's become all too real, all of a sudden. It's not about to end any time soon. Brace for economic and societal impact.
Here is a glimpse of the carnage done to markets on March 12:
At the Close, Thursday, March 12, 2020:
Dow Jones Industrial Average: 21,200.62, -2,352.60 (-9.99%)