It had appeared to be something of a mundane type of trading session. Suddenly, the floor fell out.
You have all read my quicksand story by now, and I don't want to be one of those folks that tells the same stories over and over. That becomes difficult as I age. Though there were some actual adventures, the stories in total are finite, at least I hope so, while the applicable market examples will likely run on forever. Well past that day that I have had my final thought. So, in an effort not to put a mental image of a kid walking "point" just disappearing from his squad leader's (me) view in an instant, let's just call this one: "The Trap Door."
It was the kind that back in "olden times" might allow for a little mental break in the middle of the week. Just one thing: These are not the "old days."
Algorithms read keywords, and react to headlines far more quickly than we ever did back when humans controlled the process of price discovery. No time to convert information into something like a developed idea in the age of electronic execution. You better know what you want to buy or sell ahead of time, and already be set up at those levels you see as acceptable. Why? Just in case something does break, and algorithms that time their trades in microseconds because milliseconds are far too slow, start to race each other toward a marketplace of badly fractured points of sale. They do this so that they can "take the offer" or "hit the bid" just ahead of the slightly slower algorithm trying to accomplish the same -- and then turn around and profit, even for far less than a penny on the trade, then do it over and over again.
What stock? Doesn't matter. Only speed matters. This, by the way, is why there is so much thoughtless overshoot across modern markets. This is how "traders" trading in and out of product without ever knowing what names they are in, do turn a consistent profit. This is how the right price, or correct valuation for any given security became a tertiary data-point, whose significance has now been exceeded by how easily last sales can be moved around. This is also why technical analysis has become so much more accurate a trading tool than it ever was when emotion, skepticism, anger and hesitancy all had a place at the point of sale.
No such thing as a mental break in this "modern" era. Take a mental break, and understand that these markets will not. That is the risk that the "do it yourselfer'' must accept. There is no more "Go find Johnny, and tell him he probably needs to start paying attention." There is no more "hush" across the trading floor, as a few hundred traders all read the same news story on their Quotron and try to understand whatever it might mean more quickly than the trader to the left or the trader to the right. Now, you just notice six or seven names cross the tape in a row (because you always keep an eye on the tape) print at either higher or lower prices, and suddenly all of the major indices are trading at levels that maybe they have not seen all day (or maybe days).
Everyone then has that immediate thought. Something happened. Scan all of the news services. Nothing yet. Then... ahh, there it is. A headline. Time to read a story that will take three or four minutes for humans -- that the slowest of algorithms picked up on and already acted on five minutes ago.
That my friends is why our chartwork is just as important as knowing our fundamentals. Technical analysis used to be a nice tool that could help. When the competition is much faster that one could ever be, and quite ruthless, even thoughtless in execution, pattern recognition becomes just as important as knowing one's way around a balance sheet. Sad, but true. Adapt, or fail to compete.
Winter
It happened in the afternoon.
Markets had just about priced in all of the positivity that they could in the wake of good news from Pfizer (PFE) , followed by better news from Moderna (MRNA) that itself was then followed by even better news from Pfizer. This morning, there has been some positive vaccine-related news released by AstraZeneca (AZN) . This news has had little impact. That trap door opened late in the Wednesday session, as New York City Mayor Bill de Blasio announced that public schools would be closed Thursday and stay closed for the time being. Similar action was being or had already been taken in Philadelphia and Detroit, as well as smaller school districts around the country.
Just like that, a reminder that the economy will be slowed by the virus. At almost the same time, as the U.S. experienced it's 250,000th Covid-related death. More than 1,800 of them on Wednesday alone.
As the virus spreads at an unacceptable pace across nearly every single state in the Union, hospitalizations are up more than 25% week over week. As the expansion of restrictions on human interaction are implemented region by region across the land, businesses will struggle and fail. Demand for labor will decline just as does labor force supply as two-earner families are forced by closing schools to make tough choices. The problems, as both demand for and supply of labor will be stunted, will be mismatched, as well as the resultant decline in revenue generation at the Main Street and household levels.
This winter begins on Dec. 21, 2020, and will last through March 20, 2021. Winter, this winter may have already arrived. Thanksgiving is just a week away. The holiday-laden month of December lies just beyond. Families will gather, even if unwise. Houses of worship will fill. I am a man of prayer. I know this is tough. I deal with Covid "fatigue" in my own family, despite these good folks witnessing what the virus did to me. Vigilance and discipline is the only way to get as many of us to the other side of winter as possible.
Hiroo Onoda
The armed forces of the Empire of Japan surrendered to allied forces in August of 1945. Not everyone got the word right away. Some never did.
Readers have probably never heard of a Japanese intelligence officer named Hiroo Onoda. Onoda died in January 2014, perhaps in some form of obscurity. To all who have served in uniform, any uniform, he was a celebrity. He was one of the last, and perhaps the most famous of his breed, surrendering finally in 1974 after continuing on with what he saw as his orders, alone for much of that time in the mountain jungle of Lubang Island in the Philippines.
In 1974, Onoda was discovered by a Japanese man who was actually looking for him. Unable to convince Onoda that the war was over, that man, Norio Suzuki, had to return to Japan and seek out Onoda's former commanding officer, so that Onoda could be properly relieved of his responsibilities. It was only then after waging war for a time as part of a small group, and finally for years, by himself, that Hiroo Onoda came out of the jungle in his tattered uniform, and turned over his weapons, including his sword.
Surely, you and I can wear a mask, and stay socially distanced for a little while longer if other humans in other places could endure far worse for far longer. Just might keep someone you love alive. Just might keep them from suffering the long-term after-effects of recovery, which can be far worse than the virus itself. We can do this. In fact, we must... so toughen up.
Reality
It becomes more obvious nearly every day that Congress needs to act, though it appears unlikely, while the lame ducks are still in session. Certain parts of the economy still look strong. That much is true. The consumer appears to be fading, though. The cushion created by stimulus earlier this year in addition to the federal stipend that had been tacked on to state level unemployment benefits, had a positive impact on consumption, on savings rates, and on the paying down of debt. This cushion now wears thin. Very thin.
New York Fed President John Williams joined the chorus on Wednesday. We've all said it. Now, Williams said it too: "When that money runs out and some of these programs expire, I think that cuts off some of the support that small businesses and households were getting, and that's going to slow the economy over coming months." Thank you, Captain Obvious? Sure, but it is truth, and higher-profile speakers do need to echo the sentiment.
The problem is that there is no easy way out. There needs to be increased fiscal support so that Main Street does not fail, so that families don't fail. This money of course, does not exist, so it must be created, through the purchase of debt. This debt will mount until one day, growth becomes impossible. See the front page last night at the Financial Times? Apparently, the total level of global debt-load is set to reach $277 trillion by year's end, which would exceed 365% of global GDP, up from 320% the prior year.
When does a lot become too much? I don't know. Jerome Powell? Christine Lagarde? Janet Yellen? They don't know either. At some point, artificial support, though admittedly necessary, becomes something similar to pushing on a string. Remember the cube? This is how I teach new learners about debt and its relationship to economic activity.
A cube measuring 2x2x2 would have a volume of 8. Where I am going is this? In order to fill a box measuring 2 feet tall by 2 feet deep by 2 feet wide, there must be 8 square feet worth of fill or the box will collapse under pressure. Well, the demand has grown for a larger box, let's say 3x3x3 in terms of feet, so we now require 27 square feet worth of economic activity in order to support our new box (the economy), but our level of transaction (the velocity of money) is not yet back up to 8 square feet.
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Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 709K.
08:30 - Continuing Jobless Claims (Weekly): Last 6.786M.
08:30 - Philadelphia Fed Manufacturing Index (Nov): Expecting 23.5, Last 32.3.
10:00 - Existing Home Sales (Oct): Expecting 6.46M , Last 6.54M SAAR.
10:00 - CB Leading Indicators (Oct): Expecting 0.7% m/m, Last 0.7% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +8B cf.
11:00 - Kansas City Fed Manufacturing Index (Nov): Last 23.
The Fed (All Times Eastern)
08:30 - Speaker: Cleveland Fed Pres. Loretta Mester.
12:35 - Speaker: Cleveland Fed Pres. Loretta Mester.
