How will the current stock market and other financial asset markets’ collapse (e.g. oil & commodity futures, currencies, junk bond-leveraged loans, etc.) potentially lead to a financial crisis and credit crunch that produces a deep recession? What are the causation and transmission channels? Listen to my Alternative Visions radio show of March 6 and the discussion on how the global economic contagion effects of the virus could lead to the above scenario. (Also, listen to my summary analysis of the recent Democratic primaries from Nevada to South Carolina to Super Tuesday this past week & why the Democrat Party is in deep trouble).
TO LISTEN GO TO:
http://alternativevisions.podbean.com
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SHOW ANNOUNCEMENT:
Dr. Rasmus comments on the continuing fall in financial markets and how that may prove a contagion channel to the real economy and recession. Why the Fed’s .5% rate drop earlier this week had no effect at all on the stock market implosion, continuing to this day. Worst since 2008. Why other financial asset markets (oil, commodities, currencies, etc.) are also contracting sharply. How financial asset deflation can translate into US junk bond, BBB bonds, leveraged loans, Repos, and derivatives financial problems. How the latter propagate then to the real economy via a credit crunch. Rasmus explains why monetary policy solutions are dead in the water. What’s coming possibly this weekend and next in fiscal (tax, spending) responses by US and other government. Rasmus reviews the 4 channels of coronavirus contagion to the real and financial economy (supply chains, demand, asset deflation, currency devaluations). The show concludes with an analysis of this week’s ‘Super Tuesday’ and the now more clearer evidence of Democrat Party leaders and financiers’ strategy to stop Sanders. How this may lead to an irrevocable split in the Democratic Party and defeat of Biden should he become the nominee (now likely). For analysis of the primaries, read Dr. Rasmus’ just published print piece, “Super Tuesday and the Irrevocable Split in the Democratic Party’ on this blog, jackrasmus.com).
Stocks actually squeaked out a gain this past week of about 1% despite being down three of the five days; the two up days were huge enough to overcome the down days
Yes, but the decline since the virus impact began just weeks ago is 12%-15% (depending on market). The ‘up’ days were due to temporary effects of the primaries and other non-economic news. What’s significant is economic news, like Fed .5% cut and official 272K jobs was ignored and declines blew right through it. Major momentum is to the downside. Plus other financial assets also in freefall, and very bad news in EMEs, Europe and elsewhere globally.
Stocks actually had a tiny gain this past week of about 1% (the three out of five down days were just a little offset by two huge rallies of >1000 points each, and Friday’s close, while down, was still better by far than it’s initial drop of about 900 points) I think the markets right now are uncertain about the response to COVID-19 and even just how serious it is, and are in a holding pattern for a little bit with plenty of profit-taking and bargain hunting to staunch the bleeding in portfolios.
Goldman Sachs forecasting 0% GDP for US in 2Q20. That means corporate profits deep dive and that means more big declines in markets. Another ‘wildcard’ that may perform to the downside: US job numbers starting with March and April.
Yeah, like I said there’s a lot out there screaming to “sell.” I also think there’s a lot out there saying “shelter in place” so that there may be a lot of trades trying just to hold position.. This coming week will be interesting, and not in a good way. Also, just to throw in the mix, the first confirmed coronavirus case in Indiana appeared this week, so hang on.