Liquidation Continues

The bond market is revolting at the size of the proposed fiscal stimulus.  Giant moves in the Treasury market, especially the long end, are wreaking havoc with risk parity and relative value funds.  I am hearing rumors, from reliable sources, that a huge hedge fund (one of the biggest) is facing massive redemptions while its performance has been hammered this year.  Also hearing rumors of 2 other hedge funds that are big players in the levered fixed income space that are having to reduce risk levels
0 by huge amounts due to the Volcker rule regulation on VAR targeting.

If SPX futures are lock limit down, one would think that Treasuries would be rallying strongly, but bonds, especially the long end, have been quite weak and it trades like there are funds in bad shape and forced to liquidate their positions.  As I've mentioned before, this type of action happens in the panic phase of a downtrend, which we're clearly still in, considering the lack of sustained buying pressure after an up day.  Investors are using any rallies to get liquid, reduce equity exposure, and hunker down preparing for the worst.

It looks like SPX 2370 wasn't the bottom, because this market trades like it wants to test much lower levels before stabilizing.  With 3 horrible gap down Mondays in a row, investors will be extremely nervous heading into the weekend with all the bad news out there and panic widespread, so I expect more selling for the rest of the week. 

The amount of selling is off the charts, the intensity of this down move is something I've never seen before.  This is more intense selling than October 2008.  I will venture to make a guess which might surprise people but is going to be pretty obvious when you think about all those laid off or not working:  the economy will be weaker than 2008/2009.  Whole sectors of the economy are being annihilated.  That never happened in 2008.  That is not priced in at current SPX levels.  The US market is still richly valued. 

The more I read about the coronavirus, the harder it seems it will be to contain.  About half of those who catch it show no symptoms, but can still pass on the virus to others.  And it is very contagious, and very deadly for the elderly and those with existing medical conditions.  The US is taking too much time to enact a strict virus containment policy.  The US should be following the steps of Italy and Spain and put the whole country under lockdown, only allowed to go outside for groceries, and absolute necessities, health care, or required work.  That is the only way to contain this.  And I doubt that is what the federal government will do until the number of cases has gotten huge and harder to control. 

The bear market rally off the bottom will be explosive, its just seems more likely to happen from lower levels than here, perhaps SPX 2150-2200.  If I miss the bottom, its ok, shorting the bounces is the safer play anyway.