We’re living through a crash. We might have just lived through a crash. But we might still be in the process of living through a crash.
The markets hate confusion. The markets can’t discount future cash flows if nobody has any idea what future cash flows will look like post-Coronavirus Crisis time. We don’t even know at this point if there will be a post-Coronavirus Crisis time.
The changes in our society from this Coronavirus Crisis seem huge right now. And it’s looking like it could be a long time before things return to normal, if they ever do.
Is the market pricing in a full US economic shut down for two weeks? Or is it pricing in for a full shut down for two months? It’s certainly not pricing in a full shut down for the next two years (yet?). I’d guess we’re somewhere near pricing in a full shut down for the next two months after today’s rout.
The global economic system seems fragile right now. And indeed, maybe it is. What if interest rates for the US don’t stay near 1% or lower? It’s fine and dandy and in fact quite serendipitous that the Coronavirus Crisis hit when the economy and markets were strong and that interest rates were/are at all-time lows so that the Federal Reserve and the Federal Government can pump and/or borrow trillions of dollars with almost zero percent interest rates here to pump into the economy. They better do so quickly if they’re going to. Because we don’t know if interest rates will stay low if the global economic system itself is broken.
Is the Coronavirus Crisis going to break the global economic system itself? Or will all these supply chain factories and economic ecosystems correct themselves right back (perhaps even at Kurzweil Rate of Change Speed). Will all these people being laid off at retail shops and restaurants and casinos be rehired right back again in a few months.
Or will people stop going to restaurants? Will people stop going to other countries? Will they go back to working out in gyms? Will basketball remain a popular sport for people to play (not just watch)? Will people get back on airplanes? These are the great unknowns. And that’s what the market is pricing in today. Scary unknowns.
On the other hand, these are some things we do know: People will still buy shoes and clothes. People will still go on social media. They’ll be playing a lot more video games. They’ll be spending more times with their families. They’ll be streaming movies and videos since they can’t watch sports.
I’m pretty sure we’re about to see some serious new innovations and technological revolutions and maybe even more globalization but less so physical world and more so in the virtual societal world. Don’t doubt the US and don’t doubt the ability of mankind to persevere and prosper in the 21st century.
Here’s my strategy for today and the rest of this week, and it’s a lot like my strategy has been since the Coronavirus Crisis hit.
I’m covering a little bit of shorts. Rolling down some puts, meaning that I’ll sell some, say, SPY puts for $40 or so that I bought for $3 or so a few weeks ago. Then I’ll take some of those proceeds and buy a few SPY puts dated out to the end of this week or next week at or just in-the-money for say $6 or so.
Likewise, I continue to bid on some of my favorite names when the markets get slammed like they are again today, putting bids in below where I last bought them. I’m doing that across the board in most of our long positions, today including some TSLA, SQ, FB, QCOM, TWTR, etc.
If/when the markets rally 5-10% like they have been off and on lately too I will re-short the indexes and I might trim one of our longs or two when they rally 10-20% off and on like they have been lately too.
Be careful out there. Don’t try to nail the bottom and don’t get greedy trying to game the ups and downs here.
Amaris sure admirers her sister, this pic is a good one as Lyncoln tells her a story with props. Keep your family safe.