Let’s review this past devilishly wacky week to see if we can divine the way the world is turning and why the markets are churning. It was 2019’s worst week in stocks and, well, just about everything economic all across this crazily spinning planet. Volatility lifted its head back out of the water like Loch Ness’ monster while the citizenry took flight to treasury safe havens, bringing treasury yields down again to the five-year’s lowest point of the year. North Korea’s Rocketman returned to his rocketry, and the Chinese threw up their hands and ran as far from Mar-a-Lago as they could…or maybe they just threw up from too much chocolate cake.

The China syndrome is back

Most notably all over the world, bad news finally moved back to just being bad news, even as it arrived in cloudburst after cloudburst. Gold popped as money dropped and China flopped. Chinese exports fell 20%, outstripping the worst prediction four fold. The central bank of the billions of people of China mainlined major yuan jolts into the Xi dynasty’s tiring economy, and yet the Sino stock market fell off the mountain, taking a full panda bear plunge in one week. Apparently the nouveau riche Chinese ghost-city dwellers are wising up to all this easing and just realized talk of more of the same as far as the eye can see simply means the economy is finished more than it means refreshed hope waits on some distant horizon. 

Trump talked and China walked

The best boast Trump could bluster from his tweet blaster was that the stock market would rise again if China would only deal; China chose, instead, to cancel Chairman Xi’s second coming at Mar-a-Lago. Most market makers are saying the Chinese trade wars now have more downside than upside. Markets have priced in Trump’s repeated wafting of wistful hopes that a deal will be struck any day. His twittering about had the lightness of ether this week. If it happens that China does sign a grand bargain, the market money is already riding on that deal, so it won’t bring a lot more lift. If it doesn’t happen, on the other hand, the tablecloth gets pulled out from under the Mar-a-Lago gold settings, and one can only hope all the crystal doesn’t shatter as Xi walks away without his chocolate cake.

Central bankers on parade

The European Central Bank joined all other major central banks in twirling away from the tightening it had just promised and rushing back to renewed rounds of easing via mega loans to banks because it got schooled in a hurry to the awakening that it cannot ever unwind its balance sheet. It made this stunning pivot when reality forced it to admit the European economy is stalling. The ECB forecast prerecessionary growth of just 1.1% for 2019. To finish the dance, reports came in after Chairman Draghi’s announcement that some ECB thinksters didn’t think their central bank downgraded the economy far enough.

And, so, the bank that once promised it would do anything to save the Franco-German Empire will return to doing what hasn’t worked so far. As happened in China, this new round of promised profligacy was not greeted with the now customary market ecstasy. Exasperated European investors dwelled instead, on what the ECB’s flash reversal revealed about Europe’s economy. 

And, so, the old regime returned in which bad news is just bad news. It was almost as if exhausted investors felt Central Banker Draghi’s sudden ankle twist indicated central bankers are clueless since only a couple of weeks ago Draghi was boldly certain his central bank needed to torque up financial tightness. Suddenly, he and his banker troop were break-dancing on their bonnets in the streets of Belgium. 

How appropriate that this carnival took place in the same week as Mardi Gras in the US. Speaking of which …

The Fed goose-stepped to the same tune, singing from sea to shining sea its reiterated message that tightening is over now. Boston Fed head, Eric Rosengren, indicated the Fed is dead in its tracks, saying it could take many meetings before the Fed recaptures a sense of where this spinning economy is now going in order to figure out what to do with interest rates:

“It may be several meetings of the Federal Open Market Committee before Fed policymakers have a clearer read on whether the risks are becoming reality, and by how much the economy will slow compared to last year,” said Rosengren in his speech. He added that “patiently watching” is the best policy for now.

Seeking Alpha

Notice the shift to figuring out how much the economy will slow, rather than worrying it may start to run too hot, which required full-blast quantitative tightening up until December. These guys know what they’re doing.

The St. Louis Fed head piped in that he was in favor of holding interest rates at the present level with the same focus on how things are falling apart:

Vice Chair Richard Clarida … stressed “cross currents” and “head winds” are strengthening.

The Dallas Fed head harmonized with everyone else: 

Substantial growth in BBB and lower-rated bonds is indicative of a weakening in corporate credit quality in the U.S…. which sort of reinforces, for me, why I feel we should be taking no action for some period of time.

Fed Governor Lael Brainard and Bank of Canada’s Deputy Governor Lynn Patterson also joined the chorus of CBers singing refrains of a new season of easing. Patterson said the Canadian economy looks like it will be weaker through the first half of the year than it appeared it would be in January, and the Bank of Canada “toned down its convictions over future rates hikes.”

So, the central choristers sang as the high-stepping Fed heads joined Draghi to spin in the streets of their financial capitals, but the citizens watched in stony silence at their odd and globally united parade. All this market hopium gave no high anywhere. Stocks did nothing but fall, fall, fall, which would seem to confirm Jerome Powell’s candidly stated concern last month that people are losing faith in big institutions…by which he seemed to mean central banks.

Is there anyone who would ever have thought more rounds of quantitative easing would be less effective this time around because the Law of Diminishing Returns still rules? Oh, yeah, me … right here all along.

Numbers fell from the sky like rain

To cap this capricious week of chaos and carnival, one of those once-a-year flukey jobs reports cruised in under the radar at a mere 20,000 new jobs, smashing far below the lowest expectations of the gloomiest, doomiest prognostications of 150,000. 

As if that were not enough rain on the parade, all hail broke loose that same day when the US budget deficit took a rocket ride to the moon. That is to say, it was reported that day that the US deficit vaulted into the heavens in a whopping 77% ascension in the first four months of this fiscal year — another Trump triumph. He ordered the tax cuts, and he ordered the spending increases, so he gets to own it. 

With the greatest revenue boosters now receding in the rear view mirror and GDP fading smaller and smaller each of the last two quarters, it doesn’t look like those tax cuts will ever be paying for themselves. The Fed made that definitive by forecasting an even bigger GDP plunge this quarter to a 0.3%-0.8% lowland that makes Europe look great again. So, we can reverse the Trump Tax Cuts to restore fiscal responsibility, too, or just spend ourselves into oblivion because the interest alone is now pushing half a trillion dollars. Half a trillion here, and half a trillion there, and pretty soon you’re talking real money. “Don’t worry,” the Debt Drifters will say, “It’s only money; we can always print more” 

Carmageddon and the Retail Apocalypse soldiered on

General Motors mothballed one of its Ohio factories this week, and Dollar Tree announced it will be closing several hundred stores even as clothier Charlotte Russe announced closure all of its stores with immediate liquidation of all inventory. The Gap said during its earnings report it will be shuttering 230 stores. Victoria’s Secret said it will be stripping off 53 of its North American boutiques. 

Two top execs of America’s largest mall landlord, Simon Property Group, said this “trend is accelerating,” using phrases like “I don’t want to scare you” and “we have many more [store closures] that are in the pipeline.”

And, yet, there are idiots out there who keep crowing that the good times are really on a roll now. After all, we just had a fantastic bear-market rally, now ended. How could it be better? 

Stocks couldn’t stop stumbling

If you’re looking for the reason stocks fell relentlessly this week, how about all the above? The quants can have their numbers; the charters can charter away, but reality carries the day.

The S&P 500 slipped back under its 200-day moving average. The Nasdaq nodded the same. The S&P Buyback Index, which tracks all the stocks that are rising in the S&P due to buybacks actually fell harder than the overall index. The Nasdaq FAANGs dangled below their 200-day running average, too. 

Intriguingly, perhaps ominously, the S&P continued its relentless retracing of its 1939 crash pattern:

I wouldn’t make any prediction based on an eerie chart coincidence but it’s still fascinating. Especially in a world gone weird. Twain said history rhymes; today we might say it is comprised of fractals of peculiar coincidence.

The wide reality gap, however, appears to be closing:

Best-case scenario, the two lines converge in the middle at 2350 where the S&P last found its bottom.

The Dow transportation stocks matched an ancient record of badness this past week. Their eleven-day fall paired up to their worst losing streak since Watergate. 

Important to note: The Dow transports are not stocks that merely show us how the rest of the stock market is falling. This 135-year-old index is the canary in the coal mine. The “trannies,” as they are lovingly referred to by gender-neutral marketeers, reflect the entire condition of the industrial world in America. The trannies go down when the closing of thousands of stores reduces shipping and when Trump Tariffs drag imports and exports down to stall speed, and when housing construction slows, which slows the movement of all kinds of materials, and when global economies start lurching like an auto out of fuel. They go down when the economy stops moving because they are the movers of all things real and not virtual, and boy have they gone down, hitting their worst path in half a century.

2019 also turned out to be, inspire of all its market madness, the year of capital flight from the US stocks. Well, I guess that is the mark of its madness. Yes, you heard that right. Even though stocks were bid toward their former heights throughout the first two months of the year, more money flowed out of the US market than flowed in throughout that same time. Apparently nobody with big money believes in this rising market.

It’s a great paradox, but as the market punched skyward day after day, knocking holes through the clouds, nearly wiping out their major 2018 losses, investors were lightening their ships by sending their treasures on lifeboats to nearby islands. Where? I don’t know; but here is a map of the journey:

Money kept leaving at the same pace, even though the market returned to rising. When the market finally reached the S&P’s triple-tested 2800 ceiling for a fourth attempt and skidded along the bottom of the ceiling to finally lose lift and drop back away, the fleeing investors proved right. Exactly how the market rose so much with so much money fleeing, I never found a good explanation for — prices going up almost equal and opposite to the money going out.

But, like I said, It’s a weird and wacky world.

The Big Bear rally now appears to be headed back to examine its nether regions. Each of the last three bear rallies rose to this same height, and each one dropped lower than the one that preceded it. If this one should find its rest along that trajectory of falling bottoms, it has an exponential distance to descend that would take us back to 2014:

While the bears prey, let the bulls pray that the S&P 500’s last 2400 bottom holds because the next sturdy stop for chart dwellers is between 2200 and 2100, taking out the entire Trump Rally; and after that, it’s no-man’s land. 

No, that’s not a prediction, but it is where this thing could fall for the simple reason that rallies based on hopium and the euphoric high it delivers when mainlined to the moon, have very little support stops along the way back down — either simple chart support or real fundamentals … especially real fundamentals. And those are my basis for saying this market has no support.

A wild and wacky world

When the entire world is margined into the stratosphere on corporate debt, individual credit card debt, mortgages (including millions still hunkered in from the 2008 crash) stock margin debt, delinquent student debt, sovereign debts (all in a world of rising interest), falling earnings and falling stock buybacks, you can find as much downdraft as the sinking Titanic.

Or … everything could go right … just like the Donald says it will.

Maybe this was just a week of blips, not of Freudian slips that are showing the true nature of the debt-addled economy through all the holes in the lacy veil that covers its stinking corpse. Maybe China will give us a deal that makes the Trump Tariffs salutary, and the ECB will finally save the Euromess with reinforced rounds of easing, and Brexit will exit as smoothly and gracefully as the most refined Englishman can hope for, and the US stock market’s last bottom will hold like a rock foundation as steady hands in the market hoist again the flag of hope. Maybe housing will find a second wind, and the Retail Apocalypse will hit a brick-and-mortar wall that stops it from mauling all of Americas malls, and automakers will retool to produce fleets of electric dreams, turning the auto market around in just a year to a bright new future. Maybe everything will go like your most golden dream.

It’s a wonderful wacky world, so anything can happen.