by James Corbett

corbettreport.com

March 07, 2020

Last week in this column, as you might recall, I noted that the coronavirus panic had already produced "the worst week in the markets since the financial crisis, including the worst two-day point drop in Dow Jones history." And I also warned that "the economic effects of this event are going to be very real and very profound."

Well, here we are all of one week later. And what a week it has been. Let's review the week in market headlines, shall we?

March 2 – Dow surge is the biggest-ever point gain

March 3 – Dow drops nearly 800 points after the Fed's surprising news about the economy

March 4 – The Biden Bounce: Dow Futures Up 666 As Traders Forget About Panicking Fed

March 5 – Global Markets Follow U.S. Stocks Higher

Uh oh! I've got egg on my face, haven't I? Here I was thinking a massive disruption of the global just-in-time supply chain was going to expose the Everything Is Awesome! phony baloney fiat economy for the Ponzi scheme that it so obviously is. But, as MarketWatch tells us, "[a]fter the worst week since 2008, the Dow is now on pace for its best week since 2011." I guess Trump was right after all: Everything is under control and this is a great buying opportunity!

So, are you feeling optimistic about the global economy now? Yeah, neither am I. Here's why: Record-breaking point drops followed by record-breaking point gains followed by yet more dramatic downswings are not the sign of a healthy and happy market. This is not conjecture; this is age-old accepted market wisdom.

Market volatility is of such interest to market watchers that it has its own index, the CBOE Volatility Index (better known as the VIX). In fact, market volatility is such a key early warning sign of market panic that the VIX has a nickname: the fear index. As any trader worth his salt will tell you, big up and down swings in stocks are a clear sign that the market is about to take a major turn. Now, true, that "major turn" could be a turn to the upside or a major turn to the downside, but I think we can all agree that if stocks are going any direction as a result of this massive global economic disruption, it will be to the downside.

So take a look at the VIX right now. If you extend the chart to its "MAX" setting, you'll note that in the past week the VIX has reached levels (54.18, to be precise) that have only been seen once before in the entire 30-year history of the index. Want to guess when that was? That's right, in October of 2008, when the VIX topped out at 59.89.

Translation: The fear index has never been more certain that we're about to have a major market disruption than since the Lehman collapse threatened to wipe out the global economy.

Keep in mind the VIX index goes back only thirty years. How about this fact: In the last 120 years, the Dow Jones Industrial Average has experienced back-to-back-to-back gains and losses in excess of three standard deviations over the average daily return only six times. Three of those six instances took place at the start of the stock market crash of 1929, and one of them took place this week.

So, keeping all of this worrisome volatility in mind, what do you make of the fact that our good friends at the IMF are now calling for an "all-out offensive" to combat the economic effects of the coronavirus hype? Or the fact that JPMorgan Chase, Morgan Stanley, Goldman Sachs and Citigroup have all begun to ready their emergency disaster plans? Or the fact that the OECD predicts an escalation of the coronavirus fear pandemic could cut global economic growth in half?