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How Great Would It Be If Jeff Gundlach Shorted Stocks Just Before The Fed Starts Buying Them?
"Actually I did just put a short on the S&P at 2,863", Jeff Gundlach told CNBC on Monday.
He wa
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If the US/world truly is going into a sustained recession, given the size of the US bond markets (somewhere north of $40T?) and the US equity markets (north of $30T?), hard to believe that even if the Federal Reserve added US equities to their buying programs, it could prevent a significant decline in the markets.
True, one mighty soldier cannot defeat an entire army of orcs. But standing shoulder to shoulder with said mighty soldier emboldens all of the others in the ranks, thereby overpowering the enemy.
Or something like that…
Long chain of thought follows:
US daily death rate is 2,000. Half is the four worst hit states (NY at the top). Those states will shutdown, their death rates will decline. The states that are reopening have very low death rates, and lower density. Their death rates can rise a lot and still be offset by declines in the big 4. The national death rate can stay around here even with most states reopening, for a couple-few months at least.
If daily death rate stays around 2,000, that is about 540,000 dead in 2020, or 0.2% of the population.
The average person has a close social and family circle of, I speculate, about 100 people. If that. If someone outside that circle dies, of covid or other cause, the person isn’t very emotionally affected. It is a bummer, but what’s for dinner?
0.2% of 100 is 0.2. The average person won’t lose someone in their close circle, even if half a million die this year of covid. The covid death toll will remain mostly an abstraction for most Americans. It’ll be the new normal, something the US lives with just like the country lives with mass shootings and drug deaths.
Lost jobs, financial stress, going without haircuts or bars, those are not abstractions for most people. Those affect them more than the death of an uncle they haven’t seen for years, or the wife of some guy at work, or grandma who was packed off to a nursing home years ago.
So most states and cities will reopen in the next 30 days, regardless of whether they are “ready”. The federal guidelines, IHME models, even PPE supplies will be disregarded. The economic, political and business pressures to do so are huge and the population as a whole will want to reopen, or at least won’t fight it.
Once reopened, a state will not shut down again, regardless of what virus deaths etc do. There are many ways to obfuscate, distract, and disinform. As we approach the election, even more forces will resist a second shutdown.
Reopen means business starts to comes back. Even 30% of normal will be a big move for a business currently running at 0% or 5%. Extrapolating to 60% by 3Q and 90% by 4Q won’t be hard.
If the economy thus bottoms out mid-year and buy side estimates are rising fast, then stock prices get a lift. Add in all the Fed backstopping and Treasury buying, it’ll be easy to look over the valley to the promised land of 2021.
Is it a good look for investors to be dinging the cash register when 20% of Americans, disproportionately lower income Americans, are out of work and small businesses are permanently shutting down right and left? No. Next year, the guillotines – today, the S&P futures!
The case fatality ratio for nursing home patients is 34%. So hopefully none of the 100 social circle lives in a nursing home….
interesting citation here that the Fed buying IG corp, HY is just a head fake so far. Fed doing a lot of jawboning… nearly “well not technically a lie but caused everyone to think they heard X, and it’s not really X”
this kind of shit works, for a while. truth is fed doesn’t have that many tools for this type of tragedy, this is a fiscal problem….
… but, if the data in this link are true (Fed not buying IG debt, much less HY, or technically the SPV set up by treasury levered by the Fed is not buying HY debt, yet) — then it probably means the much bigger rubicon, equities, is genuinely pretty far off / maybe never.
https://wallstreetonparade.com/2020/04/gundlach-feds-corporate-bond-buying-program-is-illegal-fed-says-program-isnt-operational/