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What Pandemic? Not Much De-Risking Is Happening And One CIO Thinks It’s Nuts
"In a rising market, equity investors typically find themselves shorter equities than desired, but once a correction arises, investors quickly find themselves much longer equities than desired", JPMorgan's Nikolaos Panigirtzoglou writes, in the latest edition of the bank's popular Flows & Liquidity series.
I know what you're thinking. You read that quote and immediately perceived something quite tautological about it. That is, of course folks wish they were longer when stocks are rising. An
The novel Corona Virus seems a Classic black swan (black bat?)…with asymmetrical characteristics.
It is currently also a long on Chinese Party transparency, correctness of quickly applied identification techniques, and a short on western pandemic modeling.
It could all be fine. AND even if it isn’t, the “markets” may still say that its all good.
This market is being kept alive to facilitate the acquisition of huge amount of capital concentrated in the hands of the few… Not a lot of alternatives to the forward momentum exist because if any occur that can’t be throttled down by gamma hedges that Charlie and really H… (who has explained repeatedly for those of us who needed the repetition ) the mechanics of what is going on then likely a Recession of some magnitude will occur… The accumulating parties are well aware of the crowded theater analogy and probably will attempt not to participate..
Do not expect a 48 hour notice when D (doom ) day arrives….just entertain yourselves with the comedy of ‘I told you so’s….
I am mildly optimistic about China’s ability to get on top of the epidemic, given the extent of the govt’s control, willingness to suffer economic pain, and stimulus power to drive recovery.
However, the number of cases outside of China are now at levels similar to China’s cases in mid January, and those numbers are, I think, seriously under-reported.
I’m not saying that Singapore, say, is grossly underreporting. I’m thinking about other countries with travel links to China but much weaker medical surveillance and governments. Indonesia, for example. There have been zero cases reported in Indonesia – how believable is that?
So I think it is likely that the virus will have a phase 2, which will be when it becomes visibly rampant in the emerging markets. Phase 3 will be when new cases accelerate in the US and other developed countries. There is, AFAIK, no medical restriction on traveling from Kuala Lumpur or Hanoi to the US . . .
I’m not expecting a calamity, because I think effective treatments will be developed in due course. But I don’t think the nCov story is over.
Definitely the story is not over. This virus is here to stay, it will not disappear like SARS. Even if China will manage to contain it now (what seems to be really hard), it will periodically arise in different countries. Most likely travel industry will be affected for years, and consumption in general will suffer too, especially in South-East Asia.
H-Man, putting the most optimistic spin on the virus and the world economy, still requires a double dose of omeprazole or whatever heart burn medication you prefer. No matter where you look, it looks bad and burns. While CB’s will provide more and more medication in the form of liquidity to offset the effects of the virus and the world wide blues, what happens when that medicine simply doesn’t make the burn go away? More succinctly, what happens when the liquidity elixir becomes snake oil?
When monetary policy alone is no longer effective the solution is likely to involve a hybrid monetary-fiscal policy answer. In other words, MMT.
I believe that it has derisively been referred to as ‘helicopter money”.
I was at a party 2 weeks ago. I was listening to someone bragging about being long FAANGs, TSLA, etc. they just recently purchased an 8 figure home. I listened looking for a way out. Someone came up and mentioned I am a HF guy and that this guest could “pick my brain”. I cringed but stayed silent as he asked me what a Hedge Fund is. For a guy worth as much as I suspect and with wealth mgmt guys probably calling him constantly I was surprised. I told him I am long some of the names he mentioned (like we all are) but that I am short some of those names and others. After explaining what a short and hedge is he asked me why in the world would someone do that when they always go up. Well, he may have a point as he sure has outperformed my fund. But it also tells me the complacency out there. And he has no clue about the competitive threats, bal sheet issues, valuations etc.
This is more common that we think. We tend to overestimate our abilities (I do as well). I saw this in 99/00 and have seen it now building from 17 to today.
I have weathered a few of these over the decades but honestly I have never seen a time where pretty much everything is rich (driven off rates).
I have the luxury to preserve and build the weath of the investors and individuals/retail do as well. Take advantage of that asset as I suspect that optionality is very undervalued currently.
reminds me of the client who fired me in 7/2019 because I was running 15% UST in his portfolio which was therefore only beating the SP50 YTD by 150 bp. We talked about valuations and risks and he said “of course it’s going to blow up, but it’s going up now!”