Markets stocks

Bear In A Bull Suit.

I just don't know anymore.

There’s no evaluation yet on when the US economy will reopen, Larry Kudlow said Monday.

Small wonder, then, that the mammoth rally in equities to kick off the week was met with more than a little skepticism in some corners.

To be sure, news on the virus front has improved. Some worried Sunday’s string of relatively positive developments amounted to little more than a false dawn. And while those worries may ultimately prove well founded, there were more encouraging developments on Monday.

For example, confirmed new cases in Italy fell a third day to “just” 3,599 over the past 24 hours.

That’s markedly lower than the 4,316 cases from the previous day, and the lowest in almost three weeks. Daily fatalities rose, though, after recording their lowest increase since February 19 over the weekend.

Meanwhile, in New York, Andrew Cuomo expressed guarded optimism that the outbreak is slowing. The state recorded 599 new deaths, up slightly over the previous day, but the trajectory is less alarming. At the same time, hospitalization rates are slowing noticeably.

“If we are plateauing, we are plateauing at a very high level and there is tremendous stress on the health care system”, Cuomo said, adding that “now is not the time to slack off on what we’re doing” in terms of social distancing.

Hospitalizations rose to 16,837, a 2% increase (there were 358 new hospitalizations, versus 574 the previous day and 1,095 the day before that). That makes three days in a row of single-digit growth in hospitalizations, a far cry from the 20-30% that prevailed previously.

This kind of news flow is lending a hand to equities. Although US stocks declined last week, the drop was relatively pedestrian, and Monday’s blockbuster rally seemingly “validated” upbeat calls from a handful of analysts, including Morgan Stanley’s Mike Wilson, who has (rightly or wrongly) garnered a reputation for being a permabear over the past two years. It was Wilson, you’re reminded, who famously called the Q4 2018 tech rout.

“With the forced liquidation of assets in the past month largely behind us, unprecedented and unbridled monetary and fiscal intervention led by the US, and the most attractive valuations we have seen since 2011, we stick to our recent view that the worst is behind us for this cyclical bear market that began two years ago, not last month”, Wilson wrote. You’ve got to love how he manages to insert a reference to his “rolling bear market” thesis, which he’s generally hung on to through thick and thin, since early 2018.

JPMorgan, meanwhile, sees retail investor behavior “normalizing” as equity underweights are covered and some of the $1.5 trillion in USD cash now parked in government money market funds and bank deposits finds its way back into equities and bonds – back into the market, basically.

A short interest proxy (the Quantity-On-Loan for SPY) had risen sharply during the selloff weeks, but reversed amid the short squeeze that played out two weeks back. “This past week [it] appears to have risen a bit and remains firmly in oversold territory”, JPMorgan notes, adding that a broader short interest proxy (the Quantity-On-Loan for all stocks and equity ETFs globally) “shows that short interest has declined further, pointing to continued short covering for a second week in a row”.


Other strategists gently suggested things could calm down, at least in the near-term. It goes without saying that any deal between the Saudis and the Russians to help at least cushion the blow to crude from what might very fairly be described as the largest demand shock in history would add fuel (no pun intended) to the fire in terms of stoking bullish sentiment.

All of this comes with the usual list of obligatory caveats. Price action recently hardly screams “trustworthy”. Have a look, for example, at South Korea’s Kospi, which is now a bear wearing a bull costume (h/t to Bloomberg’s Dani Burger).

And yet, as skeptics abound and anomalies multiply, Morgan’s Wilson reminds you that “bear markets end with recessions, they don’t begin with them”.

That, he says, makes “the risk/reward more attractive today than it’s been in years”.

Perhaps. But it’s worth noting that the very same tech stocks Wilson correctly said would suffer grievous losses in 2018 are, as of Monday, trading rich to their 2019 average using the 24-month blended forward P/E ratio.



20 comments on “Bear In A Bull Suit.

  1. I don’t understand it. Ray Dalio was right, I’m feeling like a fool still holding onto cash after a day like today. Did I miss the bottom?

    • It seems like anyone with logical proclivities and a concern about society as a whole seems like a fool right now. This market is absolutely disconnected from reality in my opinion. But I could see it rallying right past 100,000 deaths with a big happy smile on its face.

    • This seems like impatience. Wait until it sinks in that we cannot end these quarantines lest the rates rocket again. Wait until the unemployment kills consumption. Wait until the rural states begin to see their surges as they are not engaging in stay at home measures. It is even likely that a plateau at high rates of death and infection could persist for a long time as the stay at home measures slow but do not stop the spread.

    • Is this question purposefully satiric? I can’t tell..

  2. Who knows? –but why would you want to risk holding equities when dividends are being suspended left and right? Taking risk and not being paid a risk premium does not make much sense –trying to trade on volatility is very tricky business — a very small number of very sophisticated traders (and with no small amount of luck) can do it. Personally, today is a FOMO fantasy driven event that is fueled by the idea that the crisis has pasded even though the tidal wave is still 10 miles from shore. Seeing it coming is not the same as it actually hitting. And given how poorly prepared and how bad our information is (could anyone possibly trace transmission in Florida?) there is too little basis for a meanigful assessment of the economic damage that will wreaked upon the world. Bear in mind that there will be a supply side shock when the virus takes hold in places like India, Malaysia, Idonesia –and even Japan which was very very late to lock down and supply chains are disrupted. In general, there seems a lot of “happy talk” to try and soothe the market that is stoking wishful thinking that is bordering on delirium.

  3. Cramer thinks that some people think (or know) the Fed will be buying equities. Seems like a bit of a long shot but who knows anything anymore.

    • If you can persuade Nancy Pelosi that the Fed should be doing that instead of direct government takeover in the form of a SWF. Conservatives like Toomey would be appalled at the idea of the Fed picking winners and losers. Then there are corporate executives themselves who probably would not be all that thrilled at handing over equity stakes to the Fed. Airlines are already pushing back against the idea that Treasury would be given equity as collateral for loans. This nothing more than Cramer et. al. trying to reflate what had been an over-valued market when unemployment stood at 3.3% and the Federal deficit nearly 5% of GDP. Sluices could not have been open any wider and yet even the most deluded “forward earnings” fantasies were being entertained. And the Fed buying equities is pure fantasy. . .in the sense that it will happen and in the sense that were we to get to that point it would be a solution that would make us all rich. Just stop and reflect upon the implications for a moment before buying that leveraged index ETF

    • Anonymous

      Read about the PDCF special purpose vehicle. Unfortunately I don’t know the specifics — and I would love if anyone can chime in if they know more — but it is a facility through which primary dealers can take repos using stock as collateral. That’s as good as selling the stock to the Treasury, I am supposing, because the loan can be continuously rolled over, has a very low interest rate, and the PDCF will subsidize any losses using Treasury money.

  4. Yeah, Yellen saying the Fed should have the authority to buy stocks had nothing to do with the rally…What clowns..

  5. Mr. Oxygen

    I was fortunate for my perception of the market long before C19 thanks in no small part by this site where my refusal to jump through hoops in order to pony up were met with data and education. I started following the money in early 2000 and still have not figured it out. This site and it’s creator are substantive however and you can decide what information merits your needs as a consumer of the material and insight offers.

    I was breaking bones and drinking marrow from the bull early, according the functions of my dry powder. My dry powder now is practically house money. Outside of my (VGMF’s Target Daters and STAR) non discretionary, most of this has been achieved with three stocks now two OKE AES; sold my cheap MU.

    Don’t follow my investment advice becasue it is not good advice. I use Target date Mutual Funds and adhere to the 90 day trade restrictions to avoid fees to balance my portfolio risk, like a bond latter based on risk amount instead of time, though time is a basic component of how much risk I want to own at any given time..That strategy cant be good.

    Someone said buy the dips and sell the rips in this post bull. Put a strategy behind that and you just might get lucky. I have hit ridiculously low buy order limits and ridiculously high sell order limits on both OKE and AES. When I get stuck with these longs, well I will just be stuck with these longs.

  6. I am another ( foolish??) investor, not a day/momentum trader, who is patiently waiting in cash. Did well exiting the equity market- remains to be seen if I do as well re-entering the market. Type II mistake (per El-Erian)??
    Let’s see what happens during first quarter earnings announcements and what is said regarding next quarter/ remainder of FY 2020 guidance. More dividend cuts?
    Too many uncertainties for me- I require some fundamental reasons for investing in an equity other than “don’t fight the fed” and “we peaked”.

  7. Mr. Oxygen

    I agree. OKE and AES were caught up in the flotsam OKE a mid stream NG pipeline company was oversold with the oil decline and though there are some exposures to it was by no means even a fathomable fall alongside C19 at 80%, no fundamental reason for that magnitude sell off at all. Today unless I am wrong was the first day since the bull ended that OKE was not held back or down by falling oil prices. If so, perhaps an inflection point. Who knows.

  8. After a 20 year bear market and you still can’t pull the trigger? Please give your money to a fiduciary

  9. Market experts are forecasting a quick turnaround. Medical experts are not so cheery.
    The commonly used data (confirmed cases, hospitalization rates, even deaths) are sensitive to many variables and are at best loosely correlated with their titles. Stay safe.

  10. Anonymous

    Or maybe stock markets are as utterly disconnected from the real economy and the fate of its citizens as the market for Gustav Klimt paintings or Fazioli pianos. Maybe the large institutional investors and billionaires who matter are aware that the asset stripping that is about to occur for the benefit of some thousands of people is more important than any number of plebian deaths and that intrinsic value, price discovery, and market mechanics are obsolete.

    • Mr. Oxygen

      That very well could be. Perhaps this is the last breath being pushed out of capitalism democracy. Show me a party that actually supports capitalism there isn’t one. Power is no longer based on price discovery or markets of ideas. Power is based on dilution of plebian knowledge.

      Come on over here boy have a cell phone your gonna go far your gonna fly high your never gonna die their gonna love you. And did we tell you the name of the game boy; we call it Riding the Gravy Train.

  11. Anyone subscribing to the rolling bear market thesis is really just signing up to a variant of ‘this time is different’. Willing the bear market to have started earlier than it did does not make it so, nor does it bring the end closer. The 24-hour , hyper-financialized world that we currently occupy desperately needs to develop new narratives quickly, but there is no evidence that you can accelerate Mr Market out of his well-established routine. Expect 18 months of declines, and substantially more if there are secondary repercussions of this current crisis that are not yet anticipated.

  12. Trading on the inflection of second derivative is a well known tactic.

    The question is, the second derivative of what?

    And does second derivative trading really work with major recession cycles?

    Chart the SP500 vs GDP in 2008/09.

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