Terry’s Columns Monday pre-opening: UGLY!

Monday pre-opening: UGLY!

By Terry Savage on March 09, 2020

Today will be memorable –and ugly. Stock markets around the world have fallen more than 5%, and the US futures are locked “limit down” with a loss of 5%. The Dow itself is likely to fall more than that at the opening, since it is not constrained by those limits.

(If the market falls dramatically during the day, a series of trading pauses would occur — first triggered if the S&P 500 index drops 7%, followed by another if it declines 13%, and potentially a complete trading halt at a 20% decline in the S&P 500 — 594 points.)

There is a crude oil price war between Saudi Arabia and Russia, which has taken U.S. crude oil below $30 a barrel briefly overnight. The Saudis will keep pumping, increasing supply. And with demand dwindling (think cancelled flights and cruises) the price of oil will impact U.S. producers – and employment.

Interest rates plummeted to 0.34% on the 10 year Treasury note overnight, and remain below 0.5%. It is now official: the Fed is impotent. If they cut significantly rates will go negative, as they are in much of Europe. (As global liquidity searches for safety, it rushes into U.S. debt, pushing prices up and yields DOWN.)

Overnight gold traded at over $1700 an ounce. And crypto-currencies plunged.

If this were “only” a markets panic, you’d want to stay out of the way and hold your breath. But this goes beyond the markets, as the spreading impact of the Coronavirus slows economies around the world. Stick with your “chicken money” – even though it is yielding near zero now. You’ll be glad you have the liquidity.

What to do NOW? As you know, I’ve been warning for months that those near or in retirement need to protect their profits, find the safest investment inside the 40l(k) plan and move money there to have liquidity for RMDs and living expenses. I don’t call market tops and bottoms. But IF the market closes down “only“ 7%, we will be down 20% from the top.

So it’s not too late to ask yourself whether it’s too late, since the “average” bear market declines about 33% (according to InvesTech Research) and the duration of the bear market could be several years.

You can make that decision during the day as we see what unfolds. BUT REMEMBER, if you’re in a mutual fund, and you give an order to sell during the day, the transaction will be posted at the closing price for the day.

As you listen to the news, keep in mind that no one knows what will happen, if there will be a bounce, and from where. The stock market is NEVER easy – especially when it looks easy. That was my closing line two weeks ago, and it is even more true today. And that’s The Savage Truth.



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