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  • Keith T. Bishop

New Lows Will Rupture the Market's Structural Flaws. Expect Exchanges to Shutter. Should We Even

Two plus years ago I published, "Don't Worry. Be Happy. BTFD." With the Dow ~ 25,200 and the S&P 500 ~ 2,730, I argued, the 35+ year bull market was dead. I was wrong! Over the next two years, the respective indices rallied 18% and 26%. But . . . the article’s premise is worthy today. The question is, as of the April 6, 2020 close, with the Dow currently ~ 22,700 and the S&P 500 ~ 2,660, will the warning be valid at the end of April 2020, the end of the 2020, or even in December 2022? How about anytime in the year 2035? Should we even care?

In January 2016, I published my second novel The Republican Bond – Returning Negative Yields. The story depicts a country ideologically ripped apart. Terrorism rocks the 2016 Election. The GOP sweeps the Presidency, House and Senate and upon inauguration issues the Republican Bond. Conservatism sweeps the nation. An uneven economy and return to conservative policies breeds dissent. Leftist radicals fight back. The economy meanders. Deflation sets in. Finally, a pandemic shoves the economy off the cliff. Unable to cope with the prolonged crisis, hospitals collapse, and an American Spring follows. Sound eerily familiar—and frighteningly possible?

In late February 2020, I was appalled over the ignorance, complacency and sheer arrogance of so many financial professionals regarding pandemic risks. Watching the markets crumble under the uncertainty of the coronavirus, their greed was telling. “Buy, buy, buy,” they screamed. “Review the charts! Every market swoon caused by SARS, MERS, Ebola, bird and swine flu were quickly reversed. The coronavirus will be no different. New highs are just ahead,” they promised. Others’ argued, “Nothing could be more devastating than the 2008-2009 financial collapse. Don’t jump ship. Stay the course. Buy more! This isn’t a financial crisis. These are incredible companies. America is STRONG! Don’t sell America short. This too shall pass. It will be a “V” shaped recovery. In months, you will be justly rewarded.” Incredulously, one widely followed economist compared extreme government responses like social distancing and school closings to car crashes. “Maybe we should ban cars,” he argued. Go figure. Days later Trump used the same analogy. Furthering their cause, pundits revisited every other modern downdraft. All ended with new highs. They even publicized ridiculous 100-year charts. For them, each comparison proved the “Don’t Worry. Be Happy. BTFD,” tactic was the only legitimate strategy. All other views were mocked. Those who warned of an impending crisis were charged with fear mongering.

On Sunday evening, March 22, 2020, with futures locked limit down, I published a post stating the markets would be shuttered. My reasoning? Unstable markets were rattling structural flaws—and with our key financial centers (NYC, Chicago, and SF) under “stay at home orders,” I believed closing the exchanges was the right thing to do. It would give the government time to determine logical next steps to calm the storm. Obviously, I WAS WRONG AGAIN! The market bottomed that Monday. Later that afternoon, after the market closed, Trump announced his Beautiful Easter Day proclamation. He reinvigorated America’s animal spirits. In three days, the Dow rallied nearly 4,000 points while the S&P 500 rose almost four hundred. Since then, volatility has reigned. With the market up over 7% on April 6, 2020, both the Dow and S&P 500 have eclipsed their recovery highs made on March 26, 2020. The indices are now up 21% and 19% respectively from their March 23rd closing lows.

The rally is impressive. But don’t be deceived. There has been a lapse of time—and the conditions have changed.

One of my most admired quotes is from the book Silas Marner, by author George Eliot. Published in 1861, I cite it often:

“The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.”

My storyline where pandemic flu eviscerates the economy and our healthcare system was published four years ago. My “BTFD” article was two years premature. Is it possible my concerns that future protracted selloffs could force exchanges to close is also correct, but just early in timing? Many will consider this notion irresponsible fear mongering. I argue it is good strategic planning for “What if” scenarios. More importantly, if markets closed for a significant period, could this be a good thing?

I’ve been involved or following the markets since 1983. I’ve been tracking, measuring and using volatility as a key indicator long before there was a VIX indices. I certainly understand the value of data, ratios, correlations, and complex models. We all realize the current environment is atypical. We should recognize the days until normalcy are unknown. Therefore, the indicators, rules and market laws we have relied on for eons are suspect. Take them with a grain of salt. Better yet. Throw most of them out the window. I’d suggest you first discard the rule that has deceived an entire generation, “Don’t Worry. Be Happy. BTFD.”

But don’t expect that to happen—it’s human nature. Instead, count on market professionals to resort to old tricks. They’ve all sold short the coronavirus. It’s in their best interests to will investors to a new bull market. However, the lapse of time and change of conditions suggests there will be a different outcome. Expect upcoming stock market lows to rupture structural flaws in the capital markets. Then, expect the exchanges to close—for days, maybe even weeks. The financial industry will express shock and outrage. Reject this self-serving stance. The market’s distancing will enable society to draft and enact understandable legislation to address America’s most chronic, debilitating disease—income disparity.

If I’m wrong; this means the economy has only been badly slashed. We will lick our wounds, and little will change. Income disparity will continue to ravage the country.

If I’m right? It will NOT be the end of the world. It will NOT be the demise of the markets or America’s way of life. But it WILL force a period of much needed economic and social policy adjustments, including infrastructure projects that favor the next generation. It’s time to Let Roads and Bridges Crumble. These endeavors will fuel American pride and stir national unity—without stoking dangerous nationalist rhetoric. It’s time for baby boomers to step aside—and guide, not lead. This will be good for the middle-class. This will be good for every American generation.

In the early 1980’s, the financialization of America began in earnest and the capital markets seized a large chunk of the economy. It is during this period America and I lost our way. Now it is time to stop fussing about the stock market. Opened or closed, the Dow at 10,000 or 30,000, the capital markets have mostly failed an entire generation. Now is the time to focus on the REAL economy and better enable industries and companies that may possibly provide living wages for all Americans. That’s how you better people’s lives—not through manipulated markets that grossly enrich a small segment of society.

The expected period of coronavirus is a very wide band, weeks, months even a few years. Like our lives, its exact duration is unknown. Thus, the preservation and efficient use of capital should be everyone’s number one priority. It’s time the financial industry takes its medicine. Don’t BTFD. Instead, focus on policies and invest in projects that benefit the next generation. That’s what we should care about. That’s how all will prosper—like one lifetime ago.

Keith T. Bishop is the author of SLOP – The Wild Boar Nation (2013), The Republican Bond – Returning Negative Yields (2016), several short stories and numerous published articles that cover the markets, politics and social and economic policies. To learn more about Bishop’s work, please visit his website

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