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We should call this bear market in risky assets “the reverse gump” because, quite simply, we always knew what we were getting.
When the Federal Reserve announced it planned to drive down inflation by aggressively raising interest rates, the party’s punch bowl was taken away, as in all previous cases of this nature, and it spelled the end of a runaway bull market in stocks and other shiny but risky assets.
Speculative sentiment collapsed first, as always, as so-called “meme stocks” gave back most of their pandemic-era gains.
The Pied Piper of the Internet who preached that “Stonks” always go up, or the “monkeys” who ride their deals to the moon with diamond hands were, as always, right in the short term, but as John Maynard Keynes promised, were for the long haul sight dead
With inflation accelerating and interest rates rising, pandemic-related tightening continuing and war raging in Ukraine, the results and impact were again perfectly predictable.
Stocks with incredibly high price-to-earnings multiples led the overall market lower before higher quality names, even those with immense global footprints and strong balance sheets, joined the stock bear market.
Yes, Forrest, this is a bear market.
Damage has been done
Bonds suffered their worst first quarter performance on record. The NASDAQ plunged 30% from its all-time high, the Dow 12%, and the S&P 500 nearly 18% from its recent record close.
While it doesn’t meet the explicit criteria of a 20% decline in the Dow or S&P, it’s good enough for government work.
Small-cap Russell 2000 is similarly down nearly 25% from its peak. The average stock is down more than 25%, so if it rumbles like a bear, snorts like a bear, and well, you know what a bear is… we’re in the woods.
The same applies to the global stock markets with only a few exceptions.
And now the crypto market has collapsed amid a crash of a so-called “stable coin,” a Wall Street oxymoron if there ever was one.
Backed not by anything but a mathematical equation, no treasuries, or actual cash, the UST has broken the dollar into spades, now worth less than a third of a dollar, while a similarly situated stable coin, its so-called sister token , “LUNA” has lost 98% of its value.
The full story has yet to be written, but as many of us have been claiming all along, cryptocurrencies are hardly currencies. And stablecoins…well…stablecoins are extremely unstable at best, Ponzi schemes at worst.
They are vaporware that was considered a digital store of wealth.
There are 12,000 such digital tokens in the crypto sphere. And they were all part of a big ol’ bubble, as we all knew all along.
Shame, literally, for the poor El Salvadoran whose country adopted Bitcoin as legal tender for $65,000 only to see his purchasing power plummet by 50%. They might as well have moved to a Turkish beach, taking the same hits on the value of the lira while enjoying a Mediterranean vacation.
Meanwhile, NFT sales have reportedly plummeted 92% from their recent skyrocketing transaction pace, proving that “invisible friends” can only accompany us through childhood, not adult life, when real money is at stake.
In search of the deep
Finally, the babies are now being thrown out with the bath water as Amazon and Apple, two very large and stable companies, are being slammed.
I have no idea why anyone would be surprised.
We noted back in December 2021 that the bull market would end when the Federal Reserve intends to tighten credit conditions in 2022 and beyond, especially if accompanied by a significant and disruptive war…we were, quite a bit indeed clear about these combined risks very early in the new year.
The momentum low for stocks may have come on Monday, but technically, stocks suffer a momentum low and then a bottom.
In the Great Financial Crisis, momentum bottomed out in October 2008, according to my friend and veteran technical analyst Helene Meisler.
The price bottomed on March 9, 2009. Warren Buffett has long claimed that when the tide is out you can always find out who’s swimming naked, which is the case now.
I would argue that Wall Street is not a box of chocolates. You just always know what you’re getting. The chocolates never change, only the boxes they come in.
https://www.cnbc.com/2022/05/12/ron-insana-says-this-is-a-bear-market-that-anyone-could-have-seen-coming.html Ron Insana says this is a bear market that anyone could have seen coming