Stocks have taken an unexpected downturn on Thursday, which is to say the only recent bearish calls are entirely dismissible, as they came only from those pundits who never stop making bearish calls. Eventually, financial media outlets always settle on a culprit in cases such as this, but as we are still in the bear market's opening hours, it hasn't happened yet, and the usual suspects are notably absent from the lineup. Russia isn't invading anyone, no major company just flunked an earnings report, Janet Yellen isn't speaking, the mortgage market isn't imploding and the economy hasn't made a sudden move in one direction or the other.
So who have we got? Let's put them up against the wall and have a look.
Suspect: Richard Fisher, president of the Federal Reserve Bank of Dallas
Evidence: The market sometimes reacts strongly to comments by Fed officials. Here are Fisher's: “It's assumed in the marketplace that we'll start our lift-off in raising interest rates sometime between the spring and the summer. I won't say what we're saying internally – that would not be appropriate – but maybe sooner, rather than later.” A change in the expected date of an interest rate hike is enough to get bond traders moving things around, and as the dominos from such a move fall, it could easily result in a selloff.
Alibi?: In addition to being a Fed official, Richard Fisher is also a person, and I don't mean to put them down, but people say all kind of things for all kinds of reasons. Most of it means nothing at all. Too vague? Fed Chairwoman Janet Yellen re-assured the market just last week that rates would stay zero-ish for “considerable time.”
Evidence: Welcome to the Zerozone: it's not a nation, it's a stagnation. After harrowing debt crises in both the public sector and the banking sector, Europe tried to tough-guy its problems away, though it now appears to have succeeded only in laying the groundwork for a new crisis. Economic stagnation now coexists with the threat of deflation, even as the Euro falls against the dollar which, while inexplicable, kind of has to be bad.
Alibi?: Things are no worse in Europe now than they were two, three, and four years ago. Europe never hurt the bull market before, so why would it now?
Suspect: Apple (AAPL)
Evidence: Apple's woes: A glitch in iOS8 is causing the new iPhones to block calls, the new iPhones bend too easily, and lots of people are naked who aren't supposed to be.
Alibi?: Bending will probably be blamed on users for trying to keep their iPhones in their small, tight, trendy hip pockets, instead of their spacious, convenient, unfashionable breast pockets, which is where I'll be keeping mine. As for the glitch, some of us are still waiting for our new iPhone 6 plus and expect to be doing so for several more weeks, so if people who already have theirs are slightly inconvenienced, it smells a bit like karma. Finally, Apple is not responsible for your – or any given celebrity's – state of dress or undress, and the company claims that it was weak passwords, not a software glitch, that led to the hack. So far, the story seems to hold up, though it was inauspicious of Apple to choose this week to remind us that yes, it is perfectly capable of green-lighting messed-up software.
Suspect: Homebuilders, particularly KB Homes (KBH)
Evidence: The collapse of the huge real-estate bubble that led to the 2008 financial crisis was presaged by a wave of speculative overbuilding, which is why I argued last month that the market wouldn't fall off the proverbial cliff until we saw homebuilders, particularly KB Homes, go bust. You could easily have missed this news, but KB Homes reported on Wednesday that it earned $0.28 per share in its third quarter, missing the consensus estimate by a full ten cents, or 26%, prompting RBC Capital to downgrade KBH stock.
Alibi?: August existing homes sales came in as expected on Monday, the FHA Housing Price index shows that prices are holding steady, and August new home sales were extremely encouraging, beating the consensus estimate of 435,000 by 16% to come in at 504,000. That's surprising, and not at all the doomsday warning I described. In other words, the trigger was pulled, but this gun didn't go off.
Evidence: China's inconceivably huge real estate bubble is deflating and may even be popping. Prices continue to drop, and Forbes reported last week that major US investors, such as Prudential, are pulling out and warning others to do the same. The value of Chinese investments, including real estate, is tied to values in the US to a greater degree today than it ever has been before, and Chinese investors may have to pull money from other sources to cover their losses. Hence, as Chinese real estate values fall, the value of almost literally everything else will fall in sympathy. Bitcoin, for example, is being hit hard by this.
Alibi?: U-G-L-Y. China's got no alibi.
Keep in mind that the investigation will be rendered moot the moment the bull springs back to its feet, which will probably be on Monday or Tueday of next week.