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Falling Knife Catchers Anonymous (Containment Zones)

Then again...

"It's not quite time to buy", one guest mused, on Bloomberg TV Tuesday afternoon, as US equities oscillated and investors anxiously awaited details from the Trump administration on the White House's plan to help cushion the economic blow from the containment measures associated with the effort to prevent the spread of COVID-19. Apparently, Trump told GOP'ers he'd like to see payroll taxes waived through the election in order to ensure that any temporary, COVID-19-linked holiday doesn't expire just in time for Americans to notice the hit to their paychecks and vote him out of office. That's according to sources who spoke to Bloomberg. In Italy, virus deaths topped 600 and cases reached 10,000. The country is now totally locked down. Luigi Di Maio told Rai the government is considering measures including the suspension of mortgage and tax payments. Air France said Tuesday it's suspending all flights to and from the country from March 14. The government is actively pondering whether to demand it be allowed to lift its deficit to just under 3% of GDP in order to pave the way for some €16 billion in stimulus. In New York, Andrew Cuomo announced a one-mile "containment zone" aroun
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4 comments on “Falling Knife Catchers Anonymous (Containment Zones)

  1. Anonymous says:

    Heard an interesting point from a pro today…

    A sharp widening in Investment Grade credit spreads should, by logical extension, signal a reduction in the P/E’s that equity investors will be willing to pay.

    That is, if you’re demanding more risk premium for the debt, then you’re sure as heck going to demand more risk premium to own the equity.

    So, if IG spreads remain wider, then we have to apply lower P/E’s to the lower E’s that Walt references in this post.

    I now remember why equities tank 25-40% during recessions. One-Two punch of lower E’s and lower multiples.

  2. mfn says:

    “Fast Money” traders were talking about this tonight. Seymour said it’s signaling a likely bottom at S&P ~2,740. A non-regular on the panel was suggesting lower (but not 2,350 Dec. ’18 retest low). FWIW, I’m betting on a retest of the December low. Went out to dinner tonight in NYC. Coronavirus was all people were talking about. Lots of talk about canceling travel plans and fingers crossed that the news doesn’t get worse. Way too much uncertainty out there to say we’re close to the bottom.

  3. hookandgo says:

    H-Man, the market still can’t price the virus. Methinks, the storm is just brewing. This is like a hurricane coming in at CAT 5 and it looks like a direct hit.

  4. Bas says:

    Yeah, I agree with Goldman. I see higher volatility for a while, at least until options roll off and aggregate gamma flips positive. Maybe another 5-10% downside through it all, but promises of stimulus will likely limit the downside. There are still some good trading opportunities with short term directional option bets. Buying puts today.

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