REUTERS/Harshith Aranya

Gold rises 1% as virus fears overshadow firmer equities

March 11, 2020

“Gold rose 1% on Wednesday, regaining some ground after the previous day’s near 2% slide, as fears over the economic toll of the coronavirus outweighed an uptick in equity markets following an interest rate cut from the Bank of England. The BoE on Wednesday joined other central banks in cutting rates, raising hopes for more coordinated monetary and fiscal stimulus. Looser monetary policy tends to benefit gold, as it cuts the opportunity cost of holding non-yielding assets.

‘Gold remains driven by developments in global financial markets, which are driven by the further development of the coronavirus (outbreak),’ Commerzbank analyst Carsten Fritsch said. The BoE cut rates by half a percentage point, while the British government is also set to spend billions extra in its budget to minimize the economic impact from the outbreak, which has infected more than 119,000 globally … ‘All of a sudden, the BoE comes up with emergency rate cut and there’s also news from Italy on a complete lockdown, travel restrictions from several European countries and cancellation of big events – so it’s getting bigger and bigger,’ Fritsch said.”

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CNBC/Thomas Franck

Goldman says bull market will end soon with stocks dropping another 15%

March 11, 2020

bull market ends soon“Goldman Sachs’s top U.S. stock strategist said that the longest bull market in American history will meet its demise soon with equities seeing significant losses beyond what they’ve already suffered over the last three weeks. David Kostin, chief equity strategist at Goldman, wrote that the historic fall in interest rates is unlikely to prevent a ‘collapse’ in second- and third-quarter profits and advised clients to tilt investments toward companies with stable earnings and strong balance sheets.

‘After 11 years, 13% annualized earnings growth and 16% annualized trough-to-peak appreciation, we believe the S&P 500 bull market will soon end,’ Kostin warned in a note sent to Goldman clients. ‘Investors have cut their equity positions in recent weeks, but not to levels reached at the trough of other major corrections this cycle.’ The stock strategist slashed his mid-year S&P 500 forecast to 2,450, meaning the investment bank now sees the market falling another 15% beyond Tuesday’s close to levels not seen since December 2018. That is, the bank now sees the market down another 15% on top of its 14% loss incurred over the last month.”

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Chart of Wall Street’s ‘fear’ index in 2020 illustrates how unhinged stock markets have been over coronavirus compared to the 2008 crisis

March 11, 2020

chart of fear index“How volatile and anxious is Wall Street amid this evolving worry about a potential global pandemic that could shake the global economy to its core?  Perhaps, the best gauge of that deep-rooted concern is one of the market’s most closely watched measures of volatility. The Cboe Volatility Index or VIX, hit its highest intraday level since 2008 on Monday, amid a stock market slump that also registered as the ugliest one-day plunge for the Dow Jones Industrial Average the S&P 500 index and the Nasdaq Composite Index in 12 years.

But what’s arguably more impressive than the daily move for the gauge, that uses S&P 500 options to measure trader expectations for volatility in the coming 30-day period, is its year-to-date surge so far. Compared against the move for the VIX at the same point this year in 2008, the differential between the two is dizzying. The VIX so far this year is on pace for a 280% surge, compared against a 108% return for the fear index in 2008—a period marked by the global proliferation of esoteric mortgage bonds and derivatives that brought world-wide financial markets to their knees and ushered in the 2007-09 recession. ‘That spread is remarkable to see what’s going on out there in the [VIX],’ Mark Longo CEO of The Options Insider, an options-focused analytics firm, told MarketWatch. The rise in the VIX usually correlates to a decline in stocks because traders and investors use it to hedge their equity positions.”

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THE WALL STREET JOURNAL/Anna Isaac and Frances Yoon

U.S. Stocks Decline as Volatility Increases

March 11, 2020

WSJ stock decline“U.S. stocks tumbled Wednesday as investors’ anxiety about the economic fallout from the coronavirus outbreak left markets poised for another day of tumultuous trading.  The Dow Jones Industrial Average dropped 822 points. The S&P 500 fell 3.1%, and the Nasdaq Composite lost 2.7%. The declines continued a volatile week. A closely watched measure of turbulence in U.S. stocks, the Cboe Volatility Index, was hovering around its highest level in a year.

‘For private investors, getting into markets at the moment is like juggling with knives: it’s just far too risky,’ said Ian Shepherdson, chief economist at Pantheon Macroeconomics. ‘For short-term traders, this volatility is very exciting, but for long-term investors, it’s worrying.’ After an 11-year run, the bull market in S&P 500 stocks is coming to an end, equity analysts at Goldman Sachs Group said in a note Wednesday. Lower crude-oil prices and interest rates are likely to erode earnings for energy and finance companies, and business activity will probably be weaker than previously anticipated in other sectors, they wrote. ‘Both the real economy and the financial economy are exhibiting acute signs of stress,’ Goldman Sachs said in the note.”

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Demand for Precious Metals About to Skyrocket

March 10, 2020

demand for precious metals increase“Last year the U.S. Mint produced the least amount of gold eagle coins in the programs 33-year history. Demand for precious metals has cratered, dropping some 85% since 2016. Our work supports a major shift in 2020 as financial fears wake investors from their complacent, pleasant slumber. Unfortunately, the average investor rarely gets it right. They follow the herd, and like lemmings, plunge themselves over the cliff. They watch the news and do what everyone else is doing; that makes them feel comfortable. Only a precious few dare to think for themselves.”

“Physical demand for precious metals was at rock bottom in 2019, even as gold broke above $1400 and confirmed a new bull market. Most investors were either unaware or asleep…that is changing as we speak. Fears over the coronavirus and a plunging stock market have awoken the sleeping giant – his name is ‘fear.’ And with ‘fear’ returning from hibernation, things are about change for precious metals … The SARS outbreak of 2003 peaked with the flu and began to decline with warmer weather. It’s too soon to know, but I expect the same fate for the coronavirus. The news tends to overplay the real threat level. As China goes back to work, the pent-up demand will slingshot an immediate need for materials and commodities leading to a second-half reflation.  I see a similar outcome for silver in 2020 to early 2021. If I’m correct, then by this time next year, silver should be testing $26.00 – $28.00. Currently, our Gold Cycle Indicator is at 412, and we are anticipating a top in gold any day.”

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BLOOMBERG/Jordan Yadoo

U.S. Home Refinance Applications Surge on Record Low Rates

March 11, 2020

home refinance applications surge“A measure of U.S. home-refinancing applications soared to the highest level since April 2009, a sign that some homeowners may see a silver lining in the coronavirus outbreak that’s battering the economy and markets. The Mortgage Bankers Association’s refinance index surged 78.6% in the week ended March 6 to 6,418.9, according to a report Wednesday that also showed the contract rate on a 30-year fixed loan fell to match a record low 3.47%.

Cheaper borrowing costs reflect a drop in Treasury yields as investors rush to the safety of government debt amid stock market chaos caused by the virus. Yields on government bonds that underpin home lending have plunged to record lows this week as the entire U.S. yield curve fell below 1% for the first time. MBA expects mortgage originations will rise 20% this year to $2.61 trillion as refinancings jump 37% to $1.32 trillion, the most since 2012. Lowering payments could help put more cash in the pockets of consumers, whose spending makes up the biggest share of the world’s largest economy, and help offset at least some of economic hit from the virus and stocks rout.”

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