
Stock Futures Were Halted Sunday Night After 5% Drop - flowerlad
https://www.nasdaq.com/articles/stock-futures-were-halted-sunday-night.-heres-when-sp-500-circuit-breakers-would-kick-in
======
aazaa
This happens against a backdrop of unprecedented manipulation of the financial
markets since 2008. The signs are everywhere:

\- persistent negative-yielding long-term sovereign debt in Europe

\- Bank of Japan owns 80% of the Japanese ETF market

\- a Federal Reserve unable to contain the exploding repo market

\- price-to-earnings multiple at historic highs, even accounting for declines

\- stock buybacks galore field by ultra-accommodative central bank policies

\- all eyes on the Fed to see what kind of shock-and-awe they can deliver

\- a US administration doing everything in its power to undermine the
independence of the Fed and bring on negative interest rates

The GFC never ended. It was never resolved. It was simply rolled over, like
opening a second credit card account to paper over a hole in a personal
budget.

Panic is a strong word. Market panics are very rare. Nevertheless, it would
not be surprising to see a full-blown stock market panic this week.

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partiallypro
I think this is all very overblown, and think within 5 years most people
(obviously not those directly effected) won't even remember this happening.
Similar to the Swine flu of 2009. Global growth will have a 1-2Q hiccup and
then we'll likely have a rubber band recovery. But markets are in panic mode,
and a lot of governments are showing their ineptitude, which is causing even
more panic.

~~~
jacobolus
Consider that career expert epidemiologists are predicting billions infected
and millions if not tens of millions of deaths worldwide, unless something
dramatically changes to deflect the current course or some of their
assumptions turn out to be substantially wrong. That’s more infected and 1–2
orders of magnitude more deaths than the 2009 swine flu.

~~~
nostromo
But who is dying matters when looking at economic impact.

Median age of death in China is 75. Median age is 81 in Italy. This is around
the expected life span of these countries.

Obviously a human life cut short is always worth mourning, but from an
economic perspective, dying pensioners could actually be a stimulus.

~~~
JMTQp8lwXL
At the risk of sounding worse, the younger folks who inherit that bequeathed
wealth might actually spend it, rather than tying it up in markets. Putting
the money to work in the "real economy".

~~~
thu2111
Money tied up in markets _is_ spent in the real economy, that's why it's tied
up to begin with. It's gone to buy things like labour and assets.

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jrockway
I don't play the stock market (I invest monthly and hold), but doesn't all
this kind of make you want to buy? Eventually everyone will get Coronavirus
and 0.2% of us will be dead. Then it will be back to making things again.

~~~
TAForObvReasons
A certain CNBC correspondent suggested as much:

> But maybe we’d be just better off if we gave it to everybody, and then in a
> month it would be over because the mortality rate of this probably isn’t
> going to be any different if we did it that way than the long-term picture,
> but the difference is we’re wreaking havoc on global and domestic economies

[https://www.marketwatch.com/story/cnbcs-rick-santelli-
sugges...](https://www.marketwatch.com/story/cnbcs-rick-santelli-suggests-
giving-everyone-coronavirus-to-spare-the-economy-2020-03-05)

~~~
mygo
This is absolutely false and yet another reason why journalists shouldn’t play
epidemiology.

Mitigating the rate of spread leads to less deaths overall. If everyone got it
at the same time, there wouldn’t be enough healthcare system capacity to
handle it. This isn’t a new concept, it’s well-known within epidemiology.
Cities with early interventions in the 1918 flu epidemic had 50% lower peak
death rates. If everyone got it at once, many more people would die than if
the same number of people got it over a longer period of time.

The following is my speculation, but if we woke up tomorrow and _everyone_
suddenly had the coronavirus, then the economy would be in much bigger trouble
than it would be with a slower rate of infection.

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seibelj
The entire world has collectively decided that recessions are unacceptable, so
all central banks will print as much money as necessary to ensure no pain is
ever experienced by anyone except prudent savers. Watch the printing presses
get ramped up, I assume everyone in the USA will be getting a few thousand
bucks in the mail soon.

~~~
nostromo
If we can avoid recessions, we should.

If we can create wealth without inflation, we should.

~~~
dgudkov
If you're not sure if you can, probably you can't. At this point nothing
indicates that we've learned how to reliably avoid recessions. Quantitative
easing and negative rates don't look like the Holy Grail, quite the opposite.

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gfodor
My hot take is that the virus isn’t affecting future cash flows enough to
warrant a crash, but as is typical, it sure as heck is a big enough catalyst
for “risk off” to take hold and most pent-up mispricings to finally normalize,
which according to some would be a huge pullback or crash.

~~~
dcftoapv
Your hot take is wrong. Cash flows are absolutely going to be impacted here.
Initially, the thought was that this was only going to be a supply-side shock,
but people are planning to completely hunker down, not booking flights, not
traveling to work, taking time off.

This is going to be a large, if transitory, problem. Buy a little bit of the
dip every day, and get ready to eat some losses in Q2. Summer is coming.

~~~
gfodor
I misphrased that - I meant to say in the long term. I agree that we will see
a quarter or two of eps impact due to virus. But for a true crash the market
needs to price in a longer term impact due to the virus - which seems unlikely
on its own. However we certainly can see a crash due to sentiment and
valuation changes prompted by this as a catalyst.

~~~
dcftoapv
This has introduced credit risk to impacted businesses as well. Credit risk
means we could see less liquid debt markets which could decrease employment,
investment, and long run GDP growth. All of this especially concerning given
that the fed has only 1 - 2 more pulls at monetary supply via interest rates
before they have to introduce more QE.

There are too many connections here to simply discount the long-run risk to
the economy which is why you're seeing a sell off.

PwC's audit lead gave a great interview on Bloomberg the other day that I
thought summed this situation up well. Paraphrased: Those that have been
fixing their roof while the sun is shining are going to be just fine, but a
lot of businesses didn't do that.

Businesses with high leverage, unsteady cash flows, flaky customers, and
inefficient cost structures could be in trouble here.

I'm a buyer in this market, but I'm a buyer precisely because I have a long
horizon. There's no guarantee that we get back up to these rich valuations any
time soon.

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aplummer
Time in the market not timing the market.

\- here for future reference

~~~
tempsy
I have been holding S&P puts as a hedge since the S&P was at 3330, and my
portfolio value is at the same level as it was near early Feb highs because of
them even though my stock holdings are down.

The idea that you should just sit back and be ok with a 20% haircut isn’t
something that I will just “take” if I can help it.

~~~
nostromo
Congrats on winning the lottery.

Long term yours is a losing strategy.

~~~
manigandham
Insurance through options is not a losing strategy. They are designed for
hedging, and some basic attention to trends (all-time highs and coronavirus)
can provide nice gains or protection from losses.

~~~
mox1
What you are referring to is “timing the market”, which is a strategy I
suppose. Just not one a lot of investors consider valid.

~~~
manigandham
Yea, because people interpret it as extremes.

Anytime _in the last quarter_ with constant news about all time highs, record
low interest rates, overbought stocks with extreme ratios, and a global
pandemic affecting supply chains was enough to try and allocate _some_
attention towards a downturn with cheap bets or portfolio protection. 1-5% on
puts is well within standard risk management.

You don't need to be a daytrader or prophet for any of this. If you missed the
drop and positions have lost value then sell covered calls for income. Then
wait it out because we have an entire summer of disrupted global trade coming.
Don't think about buying in until that's over.

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the-dude
Nikkei down 6% at the moment.

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drenginian
I can’t see why this wouldn’t be the biggest crash for 50 years.

All the other ones were largely human caused and largely controlled by
sentiment, and did not cause everyone around the world to avoid contact with
everyone else.

This will last until a vaccine is developed which might take 12-18 months and
in the meantime many many businesses will die around the world.

The domino effects will be huge. Remember that lots of people and companies
are up to their eyeballs in debt, what if that starts to run out of control
with bad debt everywhere cause businesses and people are bankrupt?

This is very long term and very damaging to all economies and there’s not
really much governments can do to change people’s behaviour.

This one is caused by sentiment, but that sentiment is driven by a virus which
is out of human control. Unlike for example a war, which can be controlled by
politicians.

Thar’s a big one blowin in, batten down the hatches.

~~~
ncmncm
Forecasts are for testing a vaccine in six weeks, rollout in 3-4 months.

But billions of people will suffer before this blows over.

~~~
taurath
Source on vaccine timing? My understanding is anyone who claims a viable
vaccine is trying to pump their favorite pharma.

~~~
ncmncm
Heard it on NPR, I think.

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cletus
So late last year after about 3 attempted rallies, around one of those local
peaks I decided enough is enough and I basically liquidated everything so now
I'm 100% cash. This was all before the coronavirus. My rationale for this was
simply that we were in the longest bull market in modern history, we were
likely closer to the top than the bottom and because of certain FIRE
tendencies [1] I decided my time horizon had shrunk to less than 5 years, at
which point I decided it was more prudent to get out of equities.

For the last several years I wondered what triggered the eventual correction.
By "correction" I mean there'll eventually be a reversion to mean that will,
for a time, cause the market to be oversold. Traditionally this is a good time
to buy but it can be hard to get anywhere near the local bottom (this is where
the term "dead cat bounce" originates).

I didn't think it would be anything like 2000. We have some tech giants around
$1T market caps now but they are money generating machines the likes of which
probably hasn't been seen since the era of Standard Oil and the rail barons
(whereas 2000 was purely speculative). It didn't seem like real estate would
be the trigger either.

I thought it might be the possibility of a trade war with China but, on
further inspection, it seems China may well be more vulnerable to that than
the US. Still, China has a way of thinking long term that's simply nonexistent
in US politics.

Certainly when I heard about this new virus, I didn't think it would be it.
AFter all, we'd had SARS. But SARS was in some ways too effective and it
basically burned out really quickly so never threatened a pandemic.

But this? The problem here isn't the disease. After all, for most people,
it'll likely just be a bad flu. The problem is the changing behaviour it will
cause because there seems to be such a long period of being contagious while
asymptomatic while being highly contagious.

Some airlines are down 40%+ this year. Some cruise lines are even worse off
than that. With travel being impacted, so are hotels, restaurants, tourism,
etc. Any large public gatherings are likely to be curtailed (either officially
or just effectively as people stay away).

As soon as I saw there were cases in California where the source couldn't be
identified I thought "well that's game over for containment". The same with
the Italian cases.

Oil prices have plummeted due to lower demand so all oil-dependent economies
are now at risk of recession. The Fed's attempt last week to jump start the
economy with a surprise 0.5% rate cut basically did nothing and there's only
so low rates can go.

So best case I think we're in for a bad 6 months, maybe as much as 18-24
months.

Personally I'm disappointed I didn't end up shorting the market in the last
week, I honestly don't really know why I didn't. But it could be worse.

It'll be interesting to see how the anti-vaxxers spin this as it unfolds.

What I do know is that it's way too early to go bargain hunting on the
stockmarket.

[1]: [https://www.daveramsey.com/blog/what-is-the-fire-
movement](https://www.daveramsey.com/blog/what-is-the-fire-movement)

~~~
taurath
I agree with all of this, though I am also looking forward to understanding
why I’m wrong.

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MaupitiBlue
There needs to be a discussion about how China is going to compensate the
world for covid19. Given the thousands of lives lost and billions of lives
disrupted, it seems unfair and unwise to let the source of the loss escape
shouldering the cost.

~~~
mc3
That's a real stones in glasshouses argument.

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quickthrowman
All 4 of the major US index futures are at limit down: /ES, /NQ, /RTY, /YM
(S&P 500, Nasdaq 100, Russell 2000, Dow 30)

