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2020-03-25

bearhaus.substack.com

2020-03-25

Our first bounce

James O'Beirne
Mar 25, 2020
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Share this post

2020-03-25

bearhaus.substack.com
Twitter avatar for @archillect
Archillect @archillect
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11:51 AM ∙ Mar 25, 2020
307Likes36Retweets

Good afternoon.

  • Enjoying the stimulus? We’re in a bounce, but I think it will be brief.

  • My P&L melts, but I remain short.

  • A quick tour of darkness on the horizon.

—

Kudlow promises that we’re going to get $6T in combined juice, between $4T from the Fed lending in new and interesting ways, and $2T of fiscal stimulus amounting to direct payouts to individuals and businesses.

Twitter avatar for @byHeatherLong
Heather Long @byHeatherLong
Just In: Larry Kudlow says "Stimulus 3" will be $6 trillion ~$2 trillion for direct relief (the checks, more unemployment insurance, and grants+loans for small and large businesses) ~$4 trillion in additional Federal Reserve lending washingtonpost.com/us-policy/2020…
10:10 PM ∙ Mar 24, 2020
109Likes103Retweets

Obviously this sounds like a lot, and the market responded with a ferocious bounce yesterday.

Predictably, this crushed my daily P&L. I spent the day chasing tops shorting SPX (via /MES) and stopping myself out — the aforementioned hazards of trying to scalp vol. Mercifully I pared my losses with a lucky gold short, and much of this red amounts to giving back some of the profits from the last few days of pretty successful shorting.

Much of the P&L horror shown there is unrealized and a function of options repricing.

Is this time finally different?

Luke and I have spent much time in the past 24 hours discussing whether or not this is a fundamental regime change in markets. With the Fed, and now congress, responding with unprecedented stimulus, will stocks finally become untethered to reality? Are equities morphing into their terminal state: collection of normie-friendly shitcoins, unburdened by any sort of fundamental measurement; a zoo of virtual tokens to sop up the cash pouring out of Washington for those that understand what an ACH transfer is?

The two of us joked morbidly a month ago that one likely outcome was the entire country would be locked at home, subsisting off of pasta and bottled water indefinitely, with nothing to do but turn on CNBC and bid the Dow to all-time-highs while the printing presses whirred.

The federal budget for 2019 was $4.45 trillion. With the government promising to inject a combined $6 trillion for starters, could stocks become completely detached from any kind of real valuation? This is a serious worry of ours and challenges our current approach of shorting the hell out of SPX.

Maybe we should take what cash is left of our options position, and rotate into equities and Bitcoin for the reflation trade?

While this is a possibility, I still don’t think it’s the base case. As I’ll go into shortly, fundamentals are absolutely terrible. We took Dad’s Camaro out for a spin and hydroplaned into a tree; Mnuchin may have shown up with three tons of superglue and motor oil, but that doesn’t mean we’ll be driving the car home.

I remain doubtful that monetary and fiscal policy has the precision to transmit to all the parts of the economy that need support.

Twitter avatar for @spencernoon
Spencer Noon @spencernoon
Watch the real estate market. My neighbor is an @Airbnb super host. She is on forums with other hosts. Many of them have 10+ mortgages. 0 guests are booking their properties. They are running out of cash.
3:23 PM ∙ Mar 24, 2020
5,516Likes1,213Retweets

I think the most real risk to our current big trade (SPY puts dated at expiry for anywhere between April and June) is that the crash takes longer to happen than anticipated. It’s conceivable that stimulus could keep markets propped up for some amount of time. But I find even this dubious: the flood of horrible news we’re going to see in the next two weeks will make our heads spin.

NYC’s medical system will continue to implode:

Twitter avatar for @Craig_A_Spencer
Craig Spencer MD MPH @Craig_A_Spencer
Thank you everyone for your incredible messages of support and encouragement.♥️ Many of you asked what it was like in the ER right now. I want to share a bit with you. Please RT: A Day in the Life of an ER Doc - A Brief Dispatch from the #COVID19 Frontline:
4:09 AM ∙ Mar 24, 2020
123,946Likes64,537Retweets

Industrialized demand for stocks will dry up. Equity appreciation for the past, oh, five years has been contingent on buybacks since corporates have been the dominant buyers. No longer?

Twitter avatar for @Schuldensuehner
Holger Zschaepitz @Schuldensuehner
Cancelled stock buybacks mount, and they may not return for years. AT&T, Chevron, Intel, Shell, Best Buy & other comps shelve repurchases after last year's $729bn buying binge as pandemic hits earnings. Govt aid to business to come w/buyback restrictions. bloomberg.com/news/articles/…
Image
1:15 PM ∙ Mar 25, 2020
131Likes67Retweets

Hopes about a covid19 treatment may be overhyped (which, by the way, I say without relish—needless to say I would rather go bankrupt than see this virus continue):

Twitter avatar for @Laurie_Garrett
Laurie Garrett @Laurie_Garrett
Here it is: The only controlled trial using #Chloroquine to treat #COVID19 - from China - finds zero benefit compared to placebo. Zip, nada. In other words, @realDonaldTrump --it does NOT work.
5:06 AM ∙ Mar 25, 2020
2,351Likes1,380Retweets

Both corporates and individuals have no buffer to weather this storm:

Twitter avatar for @trevornoren
Trevor Noren @trevornoren
"Majority of Americans say they have no savings" axios.com/newsletters/ax…
Image
2:50 PM ∙ Mar 25, 2020
10Likes5Retweets

And the jobless-claims numbers coming out tomorrow are shaping up to be unprecedented:

Twitter avatar for @spomboy
steph pomboy @spomboy
St.Louis Fed's "back-of-the envelope" calculation on Unemp Rate in 2q....32%
Image
1:46 PM ∙ Mar 25, 2020
26Likes12Retweets

All this tells me that we are far from the bottom, and almost any conceivable action by an essentially bumbling bureaucracy, deep though its pockets may be, can only prolong the inevitable.

I remain convinced that this is a classic bear-market bounce. If history tells us anything, it’s that these huge updrafts almost universally precede giant moves downwards.

Twitter avatar for @JustJake
Jake @JustJake
Anybody who knows anything about markets should be fucking terrified about this 11% gain Amongst the Top 5, four of them happened right before the Great Depression. In the Top 10, ALL of them happened right before crashes (~1933, 1987, 2008) We're not in good company
Image
10:38 PM ∙ Mar 24, 2020
62Likes5Retweets

Ready for some non-advice? Stay patient, resist the urge to buy dips, and keep your eye on The One Bearhaus Chart.

A closing note about Boeing

Twitter avatar for @NivElis
Niv Elis @NivElis
Boeing CEO says if gov't forces it to give equity stake for bailout, "we just look at all the other options, and we’ve got plenty of them.” If that's the case....why do they need a bailout at all?
thehill.comBoeing CEO says company may reject stimulus if Treasury seeks equity stakeBoeing chief executive David Calhoun on Tuesday suggested that the aircraft manufacturer would not accept federal aid as part of a pending economic rescue bill if it meant giving the Treasury Department a stake in the company.
7:05 PM ∙ Mar 24, 2020
15,356Likes3,775Retweets

I’d like to think that at an earlier time in American civilization, if $60B in public money was awarded to an executive team who had spent the past decade knowingly marketing a lethally defective product and spending almost all free cash flow on share buybacks, there’d be a lot of us in the streets with weapons.

We’ve gone soft, and eventually the consequences won’t be virtual.

I guess now is a decent time to mention that I made a small market buy of Bitcoin this morning.

Twitter avatar for @nic__carter
nic cartbrrrrr @nic__carter
Any capitalist societies left on earth? I’d like to move there please
11:47 PM ∙ Mar 24, 2020
657Likes55Retweets

—

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2020-03-25

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