The Bear attacks! ‘Davos fiddles while markets burn’

Wednesday’s horrific morning trade plunges world markets into bear territory as oil leads the lemmings down. Hard.

The bears are having fun on Wall Street again, just like they did in this 1907 cartoon. (Public domain via Wikipedia)

WASHINGTON, January 20, 2016 – A year from now markets will rejoice—or at least breath a sigh of relief—as a new U.S. President is inaugurated. Hopefully, America’s new chief exec will know a little more about how markets and the economy work than the current occupant of 1600 Pennsylvania Avenue.

And maybe a new non-Obama will know a little bit more than the current hydra-headed Fed, which, along with a cadre of very bad international actors, has officially brought us into bear market territory with Wednesday morning’s market meltdown.

Need proof? Notes CNBC,

“The MSCI All-Country World Index, which measures all major developed and emerging markets, fell into a bear market Wednesday, with its decline from early last year now totaling more than 20 percent.

“A plunge in U.S. stocks, which caused the Dow Jones industrial average to decline by more than 400 points at one point, pushed the global index into bear territory mid-morning during New York trading.

“Japan fell into a bear market as well as the Nikkei 225 index dropped 3.7 percent Wednesday, bringing its total pullback to 22 percent from its high in June.

“Stock benchmarks for some countries including China, Russia and Saudi Arabia are down more than 40 percent from their highs.”

The widely followed Dow Jones Industrial Average (DJIA) was gasping for air within moments of Wednesday’s opening bell, nearly drowning in a tsunami of red ink and off well over 400 points. Numerous attempts at a bounceback have failed, overwhelmed by fresh waves of selling, and as we near the noon hour EST, the Dow is still down 392 points and wavering. The other major averages are off just as horrendously, with markets down roughly 2.5% overall—for one day.

The market has essentially been tanking since the 2015 Santa Claus Rally self-aborted. A major cause of the current market swan dive has, of course, been the massive oil price decline, which continued with a vengeance Wednesday morning. WTI was as low as $26.81 bbl. this morning with Brent crude only slightly higher. As of the noon hour today, WTI was up a bit off the low, trading at $27 bbl. But in case anyone was in doubt, today’s oil price handle offers absolute proof of at least one thing: the number can go lower tomorrow.

Already spooked by oil’s waterfall decline (although consumers are now enjoying bargain basement prices at the pump), frightened by China’s jaunty, ad-lib approach to controlling their markets (badly), and terrified by the Fed’s obliviousness in raising interest rates anyway without deflation, in spite of commodity deflation (and without reflecting how this worked under similar conditions in 1937), investors, traders and funds alike have been throwing in the towel on a massive scale, growing exponentially since a dismal 2015 rang in an even more dismal 2016.

It is remarkable how a cadre of Harvard, Yale and Goldman Sachs alums can be so stupid all at once, but there you have it. Taxpayers are paying a lot of people in Washington to know what they’re doing, but today, Joe the Plumber could probably do it better.

There’s no doubt that today’s continuing wash-out is feeding on itself, kicking off more HFT sell programs, which, in turn, are putting more and more margin accounts into the red leading to forced selling—which is likely a good bit of what we’re seeing today. We could also be seeing the downside of the last decade’s stampede to create and trade ETFs which, when they’re sold off in massive amounts, also have the effect of selling off the massive quantity of stocks they hold.

The whole miserable situation was perhaps summed up best in a tweet from controversial bond maven Bill Gross. Gross scoffs at the currently-underway Davos Conference for Very Rich, Very Liberal Billionaires and Money Morons in Switzerland, whose preening participants typically prefer to emphasize the the dubious importance of global warming climate change while neglecting a deteriorating world economy. (Not to mention the 99% of us who inhabit it):

Comments ZeroHedge

“He is right, and yes: the world’s billionaires and highest profile actors may be in Davos with their private jets ‘representing’ the world’s middle class, railing against the unfairness of inequality and “attacking corporate greed” (#Ref!) but at least the fiddling will be surrounding by the usual fawning “journalist” groupies, proudly on deck to ask preapproved and scripted questions resulting in even more scripted answers until the farce is repeated again 12 months from now.”

The current result of this greed and stupidity is the markets’ ongoing disaster.

No trading tips today or for the indefinite future. Even our conservative suggestions for holding on to some relatively safe investments are turning to ashes today. No place to hide, apparently, except in a few select utilities and, oddly, a couple of muni-bond ETFs. Best to stay out if you’re not already in.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17