On 2/25/2020, the DOW dropped another -879 points after a decline of over -1000 points the previous day. This brings the total decline to -2267 points in only one week.
Of course, the public advice offered by financial media is to “buy the dip”. This is implying that there is a dip, rather than the market facing further decline.
I have pointed out that beyond the more public view, financial firms are advising their larger investors of completely different actions. A few months ago, Goldman-Sachs advised investors with over $200 million in deposits to divest from the dollar and invest in precious metals (especially gold) and invest in foreign currencies, especially eastern currencies such as the yuan. This advice was only offered to such large investors in a private newsletter, not intended for the general public to see or know about.
In spite of that advice, US investors have been withdrawing investments from China since the quarantine began, along with withdrawing investments from India. They have been investing in gold, though, which has risen by over $65 in the past month and over $300 in the past year.
It is no secret that the stock market has only risen because of stock repurchases by corporations while the Fed expands it’s balance sheet and bails out failing banks.
There is no guarantee that this is a “dip”. It is unquestionable that the stock market has been overvalued for years and a correction at some point is inevitable. Is this that correction? It’s difficult to say.
What is not difficult to say is that there has been no justification in the general market for the increases we have seen in the stock market. While wages have increased slightly, that is primarily because of people working multiple jobs. Student loan defaults are the highest in US history, vehicle sales are down, vehicle loan defaults are up and increasing, retail sales are down and retail closures continue after the highest number of retail closures in US history in 2019. Consumer residential real estate sales are down as well, while rent continues to increase. Consumer credit debt is the highest it has ever been due to so many relying on credit for sheer survival. Meanwhile automation continues to eliminate jobs.
So, as stated above, there is no promise that what we are seeing is a “dip”. This may well be the effects of the Corona virus, along with economic events happening in numerous countries. I wrote some time back that investors only invest if they believe they will make a profit from their speculation. When it appears the market has reached a peak, that’s when a massive sell-off begins. This may be the beginning of that sell-off. As stocks decline in value, remaining stockholders demand further layoffs to reduce costs. As more layoffs occur, consumer spending declines, meaning further reduced sales and the cycle continues downward.
Of course, I could be wrong but right now I don’t see how. Any salvation would have to entail steps taken by the Fed or the government which would be at best surprising and at worst nearly unthinkable.