Bear has begun and shows no signs of Returning to Cave anytime soon

Historic is hardly the word for it. At times like these it seems like we have to repeat to ourselves “it’s just stock prices”. The VIX, a measure of “fear” in colloquial terms, rose 40% to hit the highest point in history at 80, two points above the level that it was at on two previous occasions. Both of those previous occasions were during the 2008 financial crisis.

The unique fact in the mix, this time around, is that these extreme readings in the fear gauge and the obvious volatility that has the Dow up and or down one thousand to three thousand points on any give day and it’s almost “normal” is all happening barely a month from the all time high that was reached on Feb 12th.

And therein, as they say, lies the rub. The bear market that started last week, based on the common but meaningless measurement of a 20% drop from that high, likely has a long time yet to go. Naturally there will be ferocious short covering rallies and even, eventually, slow days without mega up or down moves. But just because the percentages from the high are large, or because the VIX is at its all time high, does not mean that the bear market will be over soon.

The novel coronavirus is clearly a serious event and will cause disruption both economically and in the disruption of our daily lives, but the bear market that was, in truth, long overdue would have happened eventually in any case as bear markets always follow bull markets eventually. The concern is that the remedies and actions by the Fed and the political establishment never addressed the underlying causes and weaknesses of the entire system during the 2008 crisis, dooming us all to re-live that terrible time, potentially with an even more extreme set of circumstances.

Let’s hope that both the health crisis and the parallel financial crisis will be less dangerous and less extreme than it would appear on a day like this one.

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