Market Turbulence

The Dow opened down strong today after another bad afternoon on Thursday. All told, we’ve had an extremely turbulent week, and even most experts have no actual idea of where we’re headed over the near-term moving forward. 

Meanwhile, we’re seeing the 10-year Treasury bond rate going as low as .72%. This is extremely under-reported news. We’ve seen minor yield curve inversions in the last year, but the way it’s happening right now indicates for real that a recession is looming for us.  

I’m looking at two other things: 

  1. The Fed balance sheet and what’s happening with the repo crisis re-run. Big banks that fund big loans aren’t feeling good right now what with the coronavirus and other risks, leaving the Fed in a rough spot. So, it’s had to step in full blast on the repos again and QE on top of that to bolster bank reserves. That’s a big plus for stocks near term despite the headwinds of corona. 
  1. The election and the winnowing field in the Democratic party. Over the last week we’ve seen both Michael Bloomberg and Elizabeth Warren back out of the race. That leaves Joe Biden and Bernie Sanders – a mediocre centrist and a balls-out socialist – and you can bet your butt that the markets want Biden. But the election in general is totally up in the air, and it’ll be a long way to go before the dust settles and we see who will take on Trump. 

So, a lot of shakeup in the financial space this week, and no clear indication of what’s going to get it back on level ground. I keep telling people: This is a true black swan. It could get really big, or it could peter out. No one has any clue what to expect here.  

I’ll tell you what I think is most likely to happen in this week’s video. But when? That’s a tougher question: it could be weeks, or perhaps a few months. 

As always, we’ll keep you updated.