End of bull market or really nasty correction?

Just wow. Since my last post it's been nothing short of insanity. The 10 year bond yield has collapsed to a mind blowing 0.50%, the fed cut rates by 50bps, oil crashed by 25% and the market is in free fall. Unfucking believable! The world is in full panic mode regarding this corona virus. Italy just locked down the entire country banning any form of public gatherings and it's only gathering steam. Like a bunch of lemmings running over a cliff, everyone is going into lock down mode. Suffice to say I believe it's a ridiculous over reaction but it does't matter what I think.

Last time I posted I said I wanted to see more things line up before being confident enough to make a medium/long term buy. After today we're definitely closer to that point. I'm still not getting the all clear but when the market drops hard like this, an oversold bounce can happen at any time.  The 7% drop in the SPX today was unbelievable and has the makings of forced liquidations and hedge fund blows. This very much has a 2008 feel to it. And the ironic thing is the bears who have been wringing their hands for years have not made much money on this decline. From what I can tell, they covered bearish positions way too early and I've seen some actually lose money trying to catch the falling knife for a trade. I also saw this happen in 2008 as well. In bear markets or nasty corrections the market tends to punish everyone.

So, is this the end? Is the bull market dead and we are going to see the beginning of a nasty bear market? Well, let me say this, bear markets don't typically start with waterfall declines like we've seen, that's how they have ended with. The only time a big bear market started with a crash was in 1929. If...and it's becoming a big if now, the economy can weather the economic hit we are going see from this virus such that it does't create a large domino effect (it has already toppled over some dominoes like what happened with Saudi Arabia) we are going to end up with a market that is deeply oversold, with short and long term interest rates at near 0%, massively reduced energy prices, stimulative fiscal and monetary policies and deeply ingrained investor pessimism. That's the ingredients for a massive bull run. If though, this lock down mentality goes on for too long everything could unravel into a vicious downward spiral. The credit markets could blow up, companies hit hardest announce lay-offs which eventually topples over the broad economy.

I tell you what else I think is contributing to this hard sell-off in the market. It's the crazy amount of passive investing that is in the market. I mentioned this concern a couple of years ago. Just over 50% of money invested in equity funds in the US use passive investing which is up from 25% 10 years ago. This whole " buy ETFs and save on fees" has sucked in a lot of investors but now they got a taste of what happens when you are a hostage to the index. When all these indexers hits the sell button at the same time this type of meltdown can easily happen. Index investing makes sense because stats show that most active managers can't beat their benchmark but the problem is that when too many people embrace a particular strategy, sector or any particular investment because it had done so well in the past, things eventually go very wrong as per the motto of this blog. I always believed that the end of the bull market would be marked by the destruction of passive investing but I didn't expect it to happen just yet....I was waiting for the euphoria phase of the cycle. With the market getting sideswiped by the global panic reaction to the corona virus I've been really wresting with myself as to whether we simply see the euphoria phase get bypassed and this ends up being the end of the road. We've had a 11 year bull run and there were notable signs of a bull market peak (inverted yield curve, record low unemployment, high consumer confidence) but there were important hold outs too. I have to respect that possibility that it's the end of the cycle here, but as previously discussed there's enough to suggest that the bull market should not be counted out just yet. If the bull is still alive, it will take time to repair the damage. In the meantime I expect volatility and headline risk  to remain very high and it's best to take an practical approach.  Try to be as objective as possible. In times like this it's easy to believe the dogma of the permabears. Just remember that they've been saying the same shit for the past 10+ years. I'm still waiting for my indicators to give the green light for an intermediate term buy signal....will have to once again wait for Thursday to get more data but it's looking close so far.