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No Ceilings (Spacemen)
The dollar slumped to a fresh two-year low and the vaunted "stay at home" trade looked poised to ext
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Pretty easy to understand this scenario and buying in resembles ‘playing Chicken with a Train ‘. At the same time where as that can be fatal so can the alternative if you consider shorting this mess at some point…. A few hedges and maybe playing around the fringes is the safest place.
The “stay at home” shift in consumption is real and dramatic, but also artificial and temporary.
Artificial, in that consumers did not choose to lock down at home, forgo dining out and travel, and stare at (newly purchased) screens in lieu of face-to-face school, work, family, friends. They were forced to do so by an external force, the pandemic.
Temporary, in that the pandemic will end, whether via vaccination or acquired population immunity, likely by early/mid 2021. The 1918 pandemic lasted a year (Mar 1918-Jan 1919 in the US) with no pharmaceutical intervention.
Valuations of stay at home names has long surpassed levels that require current spending patterns to be sustained indefinitely. They now require that future spending shifts at an even more dramatically. How likely is it that Americans continue “sheltering at home” for many years? That Americans shelter at home twice as vigorously as now?
There are other drivers of these valuations, such as low risk free rates and TINA, but those are not unique to stay at home names.
We’re told that, unlike the 1999/2000 tech bubble, today’s tech rocketships are real companies with high profits, fortress balance sheets, deep moats and indispensable products. But so were most of the big NASDAQ names in 2000 – Cisco, Intel, Sun, etc – that inflicted such pain shortly thereafter. And some are not – Tesla comes to mind.
Does the parlourous state of the economy matter to the stay at home rally? Yes, in the sense that the weaker the economy, the better these names look on a relative basis. Their customers tend to be the higher-income WFH consumers who can buy new MacBooks for the whole family and refurnish their house in lieu of a month in Tuscany.