Stock Markets Shrink, Oil Prices Drop Coronavirus Spreads
Economist Jack Rasmus published a brief statement at 10:31 pm on Sunday, March 8, 2020:
Financial Crash Now Underway!!
March 8, 2020 by jackrasmus
Here’s what is happening right now: Oil prices falling to $30/bb. (were $45 on Friday) US Dow futures down 1250 pts. US 30 yr Treasury now trading below $1 and 10 yr below $.50 A potential crash now worse than 2008 could occur tomorrow, Monday.Financial asset deflation contagion going worldwide. Asian markets plummeting. (Source Bloomberg Asian Mkts News, Sunday, 10 pm eastern time).
On top of the impact of the rapidly spreading coronavirus which was already crashing the markets, an oil war began between Russia and Saudi Arabia over the weekend. Russia refused to participate in propping-up the price of oil. This resulted in Saudi Arabia lowering their price in a competition with Russia for market share. Crude oil prices plummeted 30 percent with oil prices suffering their biggest plunge since the Gulf War in 1991 over the weekend as the oil war developed.
On Sunday night, stock futures on the Dow sank 1,000 points, S&P 500 futures and Nasdaq Composite futures lost more than four percent of their value. The drastic plunge triggered circuit breakers on Sunday night to stop prices from falling even further.
London’s index of its 100 most valuable companies was predicted to open at least 300 points down on Monday morning. Global stock markets took hits overnight with the Tokyo stock market index plunging 6.2 percent, Seoul four percent, Hong Kong 3.9 percent, Sydney 6.1 percent, and Riyadh eight percent.
The 10-year Treasury yield broke below 0.5 percent for the first time ever as coronavirus fears and the price war forced investors to opt for safer government bonds.
By 9:30 am, Monday morning, stocks were plummetting by more than 6%, with the Dow Jones Industrial Average dropped nearly 1,800 points. By 9:34 am, the S&P 500 fell 7% triggering the circuit breaker halting trading for 15 minutes.
According to market researcher, Jim Bianco, this could be one of the fastest declines into a bear market in history.
As I write, the S&P 500 is down 17% to 18% from the February 19, 2020 all-time high. That was just 13 trading ago.
Fastest for the S&P 500 from an all-time high to down 20%
* September/October 1929 = 42 days
* August to October 1987 = 55 days
* July to October 1990 = 87 days— Jim Bianco (@biancoresearch) March 9, 2020
CNBC reports that oil prices continued to drop on Monday, indeed the 24 percent drop was the worst day since 1991. They report “The XLE, which tracks the energy sector, and the XOP, which tracks oil and gas companies, fell 19 percent and 27 percent, respectively, on Monday.” This oil war is different from previous market battles as it comes when the coronavirus is already shrinking demand and when the climate crisis is threatening oil investments.
It is important to understand that an economic collapse is not caused by the coronavirus and the oil war. These are triggers to an economic decline that was coming. The Federal Reserve and Trump administration have done all they could to prevent a recession. The Fed has kept interest rates low and has been injecting money into the financial system. Trump’s tax law included tremendous cuts for corporations and wealthy individuals. This allowed corporations to engage in record buyback of corporate stock which pumped up the stock market. People were waiting for a trigger to occur that would bring the house of cards down. Now, it looks like there are two — coronavirus and an oil war.
Now, all that has been done to prop up the economy is not available for recovery from the collapse that is beginning. The Fed has already ensured cheap money, while they can cut interest rates a little more there is not much room and that will not solve the problem of the global supply chain. Government debt is at very high levels so it is difficult to go furether into debt to spur a recovery.
US corporations have $9 trillion worth of debt, around 46% of GDP, a record high. Corporations will not be able to borrow more to survive a recession. Shale oil and gas are at particular risk. More than 200 companies in North America have filed for bankruptcy from 2015 through November 2018. The industry was already in trouble with Banks writing off as much as $1 billion in shale loans last year. Now, their stock value is dropping as is the price of oil. Bankruptcies will escalate and debts will not be paid, leading to a virus spreading through the economy.
Personal debt surpassed $4 trillion for the first time ever in 2019. People will have a hard time borrowing more to get through the slump. It is not just the US but the global economy as world debt levels now exceed $250 trillion, equivalent to a whopping 320 percent of world gross domestic product.
On the day after Jack Rasmus declared “a financial collapse is now underway,” all the major US market averages dropped more than 7 percent, markets across the globe fell downward. The Dow Jones had its single largest one-day point decline in history, dropping 2,013 points. The collapse is just the beginning — the oil war has just begun, the coronavirus is still in its early stages and problems in the economy that have been hidden are now being exposed.