A Black Monday For the Record Books

Well, it happened again. Another shit show on a Monday. We can't say that it wasn't expected, but this one is gonna go down in the record books as THE Black Monday to end all Black Mondays. Seriously, why do we even call these things Black Mondays anyway? Surely it's not because of Don Cheadle and his amazing show on Showtime, is it? IS IT?

If you haven't watched Black Monday yet and you're a SteemLeo regular... seriously, what the hell? Go do it, especially now, after this epic meltdown. As he says, Cheadle "puts the Brother in Lehman Brothers" in this fictional retell of how the biggest single day market collapse (in terms of percentage points, at least) transpired. We still don't know what exactly happened on that Black Monday, October 19, 1987, when the shit hit the fan for a 22.61% loss in a day.

By comparison, yesterday's snafu was nothing - merely a 7.79% decline on massive volume - although it did set the record for largest points down day in history with a negative 2,013.76 print! 🤮As you can see by this tally of largest percentage gains and losses in Dow history, about 40% of the drop was made up for two days later on October 21, 1987. So hopefully we'll see something like that later this week. Heck, pre-market on Tuesday at the time of this writing has us up almost 4.5% already, so there you go.

But the big difference between the 1987 Black Monday and the 2020 Black Monday is that we know what the issue is now. A combination of Coronavirus fears and a tiff between oil giants Russia and Saudi Arabia that led to the biggest single-day collapse in the price of oil ever caused this financial catastrophe. The shite thing about that, though, is there is nothing the United States financial apparatus - the Fed, the SEC, FINRA, whatever alphabet soup you wanna list - can really do about either of those phenomena.

Therein lies the rub. The Trump Administration seems kinda paralyzed on what the heck to do with COVID-19 here, which means it is more likely to get a helluva lot worse before it gets even marginally better. Diplomacy with Russia and Saudi Arabia has been strained, to say the least, during this presidential tenure. So placing pressure there in any kind of way does not seem likely that it will yield any result.

So what are we supposed to do? Well, thanks to some conservative central banking moves in the past couple years by Jay Powell, the Fed has a bit of wiggle room, as compared to other global central banks. But there's only so much room available due to the prolonged accommodation the Fed provided during the recovery period after the last financial crisis. We can lower rates, do some QE stuff, and raise more Treasury debt now that USD is in such high demand. But bad news is that that is not gonna train more doctors and nurses, produce more testing kits, buy more protective equipment, or give us any more time to combat this incredibly contagious (and lethal to elderly) disease. That spells doom to any rational thinker, which means that we could be headed for quite a substantial fall in equities pricing, with certainly some massive dead cat bounces along the way, at the top of each one of which you should be thinking about lightening your stock exposure.

After all, we are coming off the second-most overvalued stock market in the history of the United States. If we take a look at the cyclically adjusted P/E ratio (CAPE), which you can find here, the pre-COVID-19 market was trading at an average CAPE of 33, second only to the ridiculous figure of 44 we saw during the Dot-Com Boom.

Still, the CAPE on Black Monday 2020 was almost double that of the CAPE on Black Monday 1987, which means that there could be lots of pain ahead.

Stay healthy, stay safe, and manage those portfolios well, y'all! If this is all a bit overwhelming, remember that there ain't no shame in raising some cash.

Posted via Steemleo