So What Do I Think about the “Crash” in Stocks?

A lot more will have to happen before this turns into a crash; and markets 

are not there yet.

With all this wailing in the media about stocks, you'd think there's at least

some blood in the streets. But no. Not a drop.

The Dow fell 4.6% today to 24,345. This 1,175-point drop, as it was endlessly

repeated, was the biggest point-drop in history – but irrelevant given 

how relentlessly inflated the industrial average had become. The percentage

drop today, combined with the drops of last week, took the Dow down just 

8.5% from its all-time high on January 26.

For the year, the Dow is down merely 1.5%. I mean, what horror. The last

time this sort of debacle happened was way back in ancient history of 

January and early February 2016.

The Dow is not even in a correction (defined as -10% from its recent high).

But that messy Friday and Monday, following a record 410-day streak 

without a 5% decline, did break the recently pandemic illusion that you 

cannot lose money in stocks.

When the Dow gained 1,000 points in the shortest time ever, after having

already booked the fastest-ever 1,000-point gains in prior months and

years, no one was complaining about it. These rapid-fire 1,000-point-gains

had become the new normal. So today, one of those 1,000-point gains has

been unwound.

The S&P 500 dropped 113 points, or 4.1%, to 2,648. This took the

index back to December 8, 2017. The past six trading days were the worst

decline since … well, since the weeks leading up to February 7, 2016,

at which point the S&P 500 was off 19%, not quite enough for a dip into

an official bear market.

The Nasdaq fell 272 points today, or 3.8%, to 6,967, below 7,000 for the

first time since the end of December, but remains, if barely, in positive

territory for the year.

What'll happen next? Dip buyers will come in, maybe at this very moment,

or maybe later, and some of them will likely get plowed under, but there

is way too much cash lined up in hedge funds specifically set up to profit 

from sell-offs. And dip-buyers have been rewarded relentlessly over the

past eight years, and it's not until the dip buyers get massively destroyed

and stop dip-buying that the market is in real trouble.

Because nothing goes to heck in a straight line.

But already, the coddled soothsayers on Wall Street are blaming the Fed.

These are the same ones that could never get enough QE, that insisted

on calling QE-3 "QE Infinity," clamoring at the time for eternal 

scorched-earth-monetary policies so that asset prices would recklessly

get inflated to the moon. They're the same ones now clamoring for 

the Fed back off its "normalization" strategy.

They just sound like silly little crybabies that cannot deal with markets

attempting however briefly and feebly to do some price discovery on 

their own.

Compared to the sell-off that has been crushing cryptocurrencies – 

even the largest ones have plunged 50% to 80% from their peak a month

ago – the sell-off in stocks so far is mild. Oil sold off too. As did some

other commodities and assets. And as confidence in them began to wobble,

there are some things that have been rising over past few days, including 

gold prices.

As usual when too many retail investors suddenly realize that something

is up, and they want to get their goods onto dry land, it didn't work.

The websites of a number of online brokers, mutual fund firms, and 

fintech robo-advisers went down at least briefly under the onslaught of traffic.

They included Charles Schwab, TD Ameritrade, Vanguard Group, T. Rowe

Price, robo- adviser fintech startups Wealthfront and Betterment, and others.

This sort of thing happens frequently: When retail investors are rattled and 

are trying to sell, the system breaks for them. This shows how hard it

can be for those waiting to sell at the absolute peak — if they could even 

identify it — to be able to get out at that peak, when everyone is trying

to get out at the same time.

So do Friday and Monday count as a "rout?" Yes. But a crash? No. Far from

it. A lot more will have to happen before this turns into a real crash, and

markets are not there yet. But many people will need to get used to a new

sensation in their lives: losing money in stocks.

In terms of bonds, it's only a question of how disruptive the adjustment will be,

whether it will be just a painful sell-off or junk-bond mayhem.