WASHINGTON, Aug. 20, 2015 – Sketches of our favorite stock market crash mascot, Wile E. Coyote, don’t even begin to describe this week’s market carnage. Traders’ attitudes this week might best be characterized instead by adapting amoral biker dude Marlon Brando’s famous wisecrack from “The Wild Ones”:
“What do you hate about this market?”
An even better metaphor for this sickening market, however, might be the immortal inscription appearing above the gate of Hell in the early pages of Dante’s “Inferno”:
“Abandon all hope, ye who enter here.”
Or however that works in the original Italian. Today, that seems like genuinely sterling advice on Wall Street.
Good, bad and indifferent stocks are being taken out back and shot Thursday with an almost ISIS-like ruthlessness and efficiency. Greedy traders are already battling each other in the Fourth Circle of Dante’s hell as in our Gustave Doré headline illustration above, where the avaricious Evil Dead battle it out against one another using huge moneybags as weapons.
As we write this column, it’s almost 1 p.m. EDT, and the Dow is cascading into oblivion, down nearly 280 points and looking like it wants to plummet further.
The S&P 500 is taking a run at the negative jackpot, too. It’s is currently off nearly 30 points. And the tech-laden and otherwise somewhat risky NASDAQ is getting smashed to the tune of a negative 107 and change. Things could get worse. Much worse.
Or, we could get what we often see on such down days: what ETF Digest’s Dave Fry calls a last-minute “stick save” by that legendary “plunge protection team” that everyone knows exists but that has thus far remained anonymous. (Though central banks and governments are the usual suspects.)
The point is, everything nearly anyone has done in stocks and bonds in 2015 has been a losing proposition. The grind is getting to everyone, including longtime and professional investors, like the Maven, for example. Markets are being driven by the algos and high-frequency traders (HFTs). Rationality departed long ago. And everything now seems to be a crap shoot, literally.
The occasional rally these days takes place on gossamer-thin volume, while big down days bring in the heavy volume guns.
Currently, oil is dropping so far and fast that by Friday, service stations might be giving gasoline away rather than trying to sell it. Everything else is getting hammered, too, however, for two primary reasons.
First, the one thing that was clear from the Fed’s June minutes, released Wednesday afternoon, was that Janet Yellen and the Federal Reserve have absolutely no clue as to what they’re going to do. As if they ever did after she took over the helm of America’s central bank.
Half the Federal Open Market Committee (FOMC) wants to raise U.S. interest rates in September, come hell or high water. The other half seems anxious to head back to the future and engineer another round of quantitative easing—QE 4 or 5 we guess that would be. These geniuses seem to have a Hamlet complex when it comes to answering this sticky question decisively.
Second, China’s horrendously plummeting markets have the whole world spooked. Everyone seems to expect the Chi-coms to continue buying stuff. But one must ask a key question: Buy stuff with what? Thrilled to be allowed this past spring to invest in Chinese stocks like China’s Communist bigwigs do, the Chinese people started firing money into Chinese stock exchanges like it was America in the 1920s, with half of investors relying on hot tips from taxicab drivers to uncover the next stock market winner.
That didn’t work out too well, as the market went upward in a hyper-parabolic pattern; which, of course, has caused the equal and opposite Newtonian reaction on the downside.
Making matters worse, it’s increasingly evident that the Chinese have been stockpiling and hoarding resources and commodities like copper for years. Now, exactly what do they propose to do with the vast tonnage of copper, et al., in their vaults that absolutely no one now wants to buy?
Commodities are rapidly deflating, at least as a partial result. Deflation is not only scary. It’s also what led to the Great Depression, which only World War II was ultimately able to remedy.
Even worse: Given China’s current antics and currency flailing, there are increasing fears the world may actually be entering a currency war, which was always a possibility from the day the U.S. Fed started playing the QE game. As a result − happily for long-suffering gold bugs − both gold and silver seem to be catching a decent bid here, perhaps resuming their respective places as value holders as world currencies are debased.
Small wonder that small and large investors alike are heading for the hills. That’s crystal clear on today’s rapidly deteriorating charts.
(3 p.m. UPDATE: The Dow is now down over 300 points. Remaining Wall Street bulls − currently an endangered species − seem to have left the building. They may be drowning their sorrows early today, maybe down the street at Harry’s on Hanover.)
We, ourselves, are in this mess a bit more than we’d anticipated and should have sold the whole shebang in May like everyone says you’re supposed to. That said, we’re in the soup now, so will weasel out, little by little, on what’s almost certain to be a near-term oversold rally.
Short seems to be the way to go now, particularly via the double-short S&P 500 ETF (SDS). But on a two-day decline as hefty as this one, today’s probably not the day to put this kind of position on. We’ll almost certainly wait for that short-term rally instead.
Meanwhile, remember Dante’s words. When it comes to Wall Street, just don’t go there. You know what happens to Hope.