Dow Futures -1041 after Fed cut to zero .. 0 rate priced in

[11522914]

https://www.nysscpa.org/news/public...t-of-market-but-investors-seem-unfazed-011020

Wow.

"The*International Monetary Fund*warned that while this*easy-credit environment has allowed companies to maintain business as usual, even in these conditions, "in a material economic slowdown scenario, half as severe as the global financial crisis," the amount of debt-at-risk (defined as debt owed by companies whose earnings are insufficient to cover interest payments) would amount to $19 trillion, or roughly 40 percent of all global corporate debt. When aggregated down to individual countries, the IMF said that certain areas have at-risk debt levels equal to, or even beyond, those prior to the financial crisis.*"

 

[Running_Man]

I guess it is 40% by market cap, I was unable to find that in the article. It is a pretty shocking number but how does it compare to, say, 1999 or other years?

Her eis the Wall street journal article it is 40% of all listed companies by percentage not market cap..
https://www.wsj.com/articles/money-losing-companies-mushroom-even-as-stocks-hit-new-highs-11578608209

 

[Running_Man]

Wow.

"The*International Monetary Fund*warned that while this*easy-credit environment has allowed companies to maintain business as usual, even in these conditions, "in a material economic slowdown scenario, half as severe as the global financial crisis," the amount of debt-at-risk (defined as debt owed by companies whose earnings are insufficient to cover interest payments) would amount to $19 trillion, or roughly 40 percent of all global corporate debt. When aggregated down to individual countries, the IMF said that certain areas have at-risk debt levels equal to, or even beyond, those prior to the financial crisis.*"

And that is before this occurred and the price of oil dropped 60 percent.

 

[ESRwannabe]

40% of companies listed lost money last year, FED is going to have to do some real buying to hold the market up, Nobel theory of random walk demands it!! Perhaps the FED could institute negative dividends as a means to pay for the program.

"40% of companies listed lost money"

WTF... yes its true, i just googled it

https://www.wsj.com/articles/money-...room-even-as-stocks-hit-new-highs-11578608209

That's insane! We are in deeper than I thought.

 

[Lsbcal]

The market is already down 20% so how much negative news is currently discounted?

 

[Fermion]

The market is already down 20% so how much negative news is currently discounted?

All of it? Efficient markets hypothesis?

 

[teejayevans]

Three/four weeks ago we were at all time market highs, now we are in a bear market - things changed fast. FOMC is the only buyer of last resort for market securities (currently MBS and Treasuries) but I wouldn't be surprised if their mandate would include stocks as well soon.

What has changed? We haven’t seen any economic data that indicates a recession? They drop the rates, twice, to zero, before having the scheduled meeting.
Once I get, but twice, in rapid succession?

 

[BeachOrCity]

The market prices based on future expectation. It also prices based on certainty and risk, just like options are more expensive when the market moves a lot.

Since future expectations are quite low and the certainty is low (high risk)..... the trend is down for the market.

 

[Tiger8693]

While my retirement account (which was 60/40) has lost value (although on paper only), I have up to now been playing the daily or every couple days swing in the S&P500 ETF to get some gains in taxable account (about $10k so far). Not sure I will venture in today though, I think people/things are just too hysterical at this point and unsure of the swing back up short term.

 

[audreyh1]

So why the heck has gold dropped from 1670 last Wednesday, to 1460 now?

 

[audreyh1]

The market is already down 20% so how much negative news is currently discounted?

Futures were halted, but still with what is shown now we just give back Friday’s gains?

 

[pn3069]

So why the heck has gold dropped from 1670 last Wednesday, to 1460 now?

No one exactly knows, but my theory is that traders were selling the assets that appreciated recently and gold appreciated quite a bit in the last year.

I suspect we will go down another 25% in the global stocks before the selling crescendo subsides.. the thing is aggregate bonds will drop probably half as much along the way.

 

[target2019]

What has changed? We haven’t seen any economic data that indicates a recession? They drop the rates, twice, to zero, before having the scheduled meeting.
Once I get, but twice, in rapid succession?

It looks like the FED is trying to front-run the recession data. Public news is one thing, but I think this goes beyond what we hear about. Obviously the FED can get on phone to several key insitutional players and get an honest appraisal of what will come.

 

[audreyh1]

No one exactly knows, but my theory is that traders were selling the assets that appreciated recently and gold appreciated quite a bit in the last year.

I suspect we will go down another 25% in the global stocks before the selling crescendo subsides.. the thing is aggregate bonds will drop probably half as much along the way.

Well that was my initial guess - selling what they have to, to cover.

 

[BeachOrCity]

I think many stocks won't even be able to "make market" and begin trading this morning before the circuit breaker cuts in.

 

[jazz4cash]

What has changed? We haven’t seen any economic data that indicates a recession? They drop the rates, twice, to zero, before having the scheduled meeting.
Once I get, but twice, in rapid succession?

What has changed is that a pandemic has been declared and consumer spending is grinding to a halt (except for toilet paper). The virus was thought to be trivial 3-4 weeks ago and that was overly optimistic. We seem to be unprepared for this situation.

 

[jollystomper]

States making restaurants and some other businesses close is also driving the market down.

 

[Helen]

We won't know if it is an over reaction until it is over. I must say, it's interesting times.

 

[38Chevy454]

Could the FED's actions be part of a longer term strategy to have lower rates for the tremendous increase in gov't spending to get through the current crisis? Already gov't has committed to $1.5 trillion, and will likely become more once all the wages stop for employees that are laid off or temporarily out of work? That is a lot of unemployment about to hit the books and gov't has already stated help for keeping money flowing to employers and employees.

 

[Lsbcal]

Maybe institutional investors with more information are worried about the outstanding debt out there. I've noticed that investment grade bonds are getting hammered versus Treasuries. That is why I moved the modest IG bonds in my portfolio to Federal money market. So at least the bond portfolio part is safe.

On Bogleheads someone mentioned this article about corporate debt: https://www.ccn.com/corporate-debt-was-a-recession-time-bomb-coronavirus-just-lit-the-fuse/

Coronavirus has created the economic conditions that will pop the corporate debt bubble after a decade of inflating.

The impact will be massive because a host of businesses that have been relying on refinancing cheap loans will struggle to stay afloat.

The amount of low-quality corporate debt that’s been issued is unprecedented and will have far-reaching consequences as the bond market declines.

Will corporate debt be like the 2008 mortgage debacle? Is the current government capable of managing this?

 

[jim584672]

The Fed will probably buy all the junk corporate debt with QE4.

 

[SeattleRocks]

I do wonder about the real estate market with zero interest rates. On one hand you would think people who have always wanted to buy a house will drive hard into this and real estate sales would sky rocket.

But on the other hand, people are completely focused on this virus issue and may be also worried about their jobs and will now put off buying a house.

I have my 2nd house that I have been toying with selling and I am trying to figure out if I should put it on the market now and see if these zero interest rates will drive real estate sales.

Or are we looking at another housing crisis where prices are going to plummet and we are going to see foreclosures everywhere?

Interesting times...

 

[Freedom56]

Maybe institutional investors with more information are worried about the outstanding debt out there. I've noticed that investment grade bonds are getting hammered versus Treasuries. That is why I moved the modest IG bonds in my portfolio to Federal money market. So at least the bond portfolio part is safe.

On Bogleheads someone mentioned this article about corporate debt: https://www.ccn.com/corporate-debt-was-a-recession-time-bomb-coronavirus-just-lit-the-fuse/



Will corporate debt be like the 2008 mortgage debacle? Is the current government capable of managing this?

Corporate debt is problematic in certain sectors: Energy, Retail, industrials, and REITs. There will be some defaults in those sectors. Don't go by rating agency classifications. For example Netflix debt is rate BB- whereas Boeing is rated A-. Here is a case where the default risk of Boeing far exceeds Netfilx. One is a cash business the other on is a cash flow negative business.

 

[CRLLS]

I do wonder about the real estate market with zero interest rates. On one hand you would think people who have always wanted to buy a house will drive hard into this and real estate sales would sky rocket.

But on the other hand, people are completely focused on this virus issue and may be also worried about their jobs and will now put off buying a house.

I have my 2nd house that I have been toying with selling and I am trying to figure out if I should put it on the market now and see if these zero interest rates will drive real estate sales.

Or are we looking at another housing crisis where prices are going to plummet and we are going to see foreclosures everywhere?

Interesting times...

From what I have read the last day or so, interest rates are slightly higher than last week before the previous Fed reduction. Part of that is because the rates are so low that the mortgage companies are swamped with applications. No need to drop the rates to get more customers. Raise them to get a bit more breathing room. I also think that this is a short term interest rate and the 30 year outlook on interest is not quite as rosy as today's. So not proportional drops in mortgage rates IMO. Who really knows?

 

[ER Eddie]

I was out driving and walking with my dog earlier. It was such a beautiful day. I thought to myself, "It really doesn't get much better than this."

Then I come home and turn on the TV, and it's like