Futures Limit Down

[Jurgis]

(New rule: if the market's obviously going to crash because of a massive pandemic, don't trade away your hedge in order to pick up pennies.)

 

New rule: if the market's obviously going to crash because of a massive pandemic, sell everything, buy levered OOM puts, ... , profit, retire to an island with private jet and no viruses.

[RichardGibbons]

New rule: if the market's obviously going to crash because of a massive pandemic, sell everything, buy levered OOM puts, ... , profit, retire to an island with private jet and no viruses.

 

LOL, it's kind of ridiculous, but also kind of true. 

 

Do you remember in late 2007/early 2008, when a bunch of people on this board were saying "all this crap is happening, and the market is barely reacting negatively.  Are we insane, or do we just not get it?"  Then in summer 2008, everything collapsed.

 

This felt the same way in February--all this bizarre stuff was happening in the world, but the market remained high for no apparent reason.  I could've put 5% percentage of my portfolio in VIX calls and doubled my portfolio.  I wouldn't do more than 5%, because you don't need to, timing is hard, and I could be wrong.  But it was really obvious from around mid-February that we were in trouble (basically, once containment failed and the virus started popping up all over outside China.)

[Xerxes]

Thx

I rather go with Canadian index to buy put against.

It has less liquidity but don’t want to convert to USD now.

 

And I think I am more bearish on Canada than the US

[RichardGibbons]

Thx

I rather go with Canadian index to buy put against.

It has less liquidity but don’t want to convert to USD now.

 

And I think I am more bearish on Canada than the US

 

Yeah, I'm more bearish on the USA, because--regardless of what no_free_lunch seems to be saying--the Canadian response has been far superior to that of the USA.  BC, Ontario, and Quebec have put in preventative measures that will cause the infection numbers to fall, peaking probably next week or sooner. Trudeau's economic response has been mediocre (he shouldn't have tried to shove payments to individuals through the EI system), but I think over the next few weeks, the virus numbers will be driving things, and Canada has done way better than the USA on the virus.  The economy's going to suck for everyone.

 

(Of course, all this is speculative--I'm betting on the SPY, but I'd also bet that the divergence between the S&P 500 and the TSX won't be huge....)

 

I agree that it's a terrible time to be converting CAD to USD.

 

It's also worth noting that I see light at the end of the tunnel.  So I'm only very short-term bearish based on future infection numbers, but medium- and long-term bullish.

[Jurgis]

New rule: if the market's obviously going to crash because of a massive pandemic, sell everything, buy levered OOM puts, ... , profit, retire to an island with private jet and no viruses.

 

LOL, it's kind of ridiculous, but also kind of true. 

 

Do you remember in late 2007/early 2008, when a bunch of people on this board were saying "all this crap is happening, and the market is barely reacting negatively.  Are we insane, or do we just not get it?"  Then in summer 2008, everything collapsed.

 

This felt the same way in February--all this bizarre stuff was happening in the world, but the market remained high for no apparent reason.  I could've put 5% percentage of my portfolio in VIX calls and doubled my portfolio.  I wouldn't do more than 5%, because you don't need to, timing is hard, and I could be wrong.  But it was really obvious from around mid-February that we were in trouble (basically, once containment failed and the virus started popping up all over outside China.)

 

Yes, it was quite obvious.

No, I did not sell/hedge/buy puts/etc.

The portfolio is down XX%.

 

Like Buffett says, I think I know who the patsy is.  ::)

[Hoodlum]

Thx

I rather go with Canadian index to buy put against.

It has less liquidity but don’t want to convert to USD now.

 

And I think I am more bearish on Canada than the US

 

Yeah, I'm more bearish on the USA, because--regardless of what no_free_lunch seems to be saying--the Canadian response has been far superior to that of the USA.  BC, Ontario, and Quebec have put in preventative measures that will cause the infection numbers to fall, peaking probably next week or sooner. Trudeau's economic response has been mediocre (he shouldn't have tried to shove payments to individuals through the EI system), but I think over the next few weeks, the virus numbers will be driving things, and Canada has done way better than the USA on the virus.  The economy's going to suck for everyone.

 

(Of course, all this is speculative--I'm betting on the SPY, but I'd also bet that the divergence between the S&P 500 and the TSX won't be huge....)

 

I agree that it's a terrible time to be converting CAD to USD.

 

It's also worth noting that I see light at the end of the tunnel.  So I'm only very short-term bearish based on future infection numbers, but medium- and long-term bullish.

 

I don't know what is happening in the US.  In Canada we are testing over 20,000 per day yet it looks like the US is testing 40,000 per day?

[LC]

New rule: if the market's obviously going to crash because of a massive pandemic, sell everything, buy levered OOM puts, ... , profit, retire to an island with private jet and no viruses.

 

LOL, it's kind of ridiculous, but also kind of true. 

 

Do you remember in late 2007/early 2008, when a bunch of people on this board were saying "all this crap is happening, and the market is barely reacting negatively.  Are we insane, or do we just not get it?"  Then in summer 2008, everything collapsed.

 

This felt the same way in February--all this bizarre stuff was happening in the world, but the market remained high for no apparent reason.  I could've put 5% percentage of my portfolio in VIX calls and doubled my portfolio.  I wouldn't do more than 5%, because you don't need to, timing is hard, and I could be wrong.  But it was really obvious from around mid-February that we were in trouble (basically, once containment failed and the virus started popping up all over outside China.)

 

I think it's also a case of nobody wanting it to be true. "Oh, maybe it just stays in China and never even reaches Europe". "Oh maybe it's just a flu that will blow over" "Oh we can't trust China's numbers anyways" "Oh once the warm weather hits this will all be forgotten" "Oh we have a much better healthcare system". Etc. etc etc.

 

New rule: When some weird shit is going down on the other side of the world, actually try to quantify the probability of it occurring globally and take an appropriate hedge, even if it seems minuscule.

 

[Spekulatius]

New rule: if the market's obviously going to crash because of a massive pandemic, sell everything, buy levered OOM puts, ... , profit, retire to an island with private jet and no viruses.

 

LOL, it's kind of ridiculous, but also kind of true. 

 

Do you remember in late 2007/early 2008, when a bunch of people on this board were saying "all this crap is happening, and the market is barely reacting negatively.  Are we insane, or do we just not get it?"  Then in summer 2008, everything collapsed.

 

This felt the same way in February--all this bizarre stuff was happening in the world, but the market remained high for no apparent reason.  I could've put 5% percentage of my portfolio in VIX calls and doubled my portfolio.  I wouldn't do more than 5%, because you don't need to, timing is hard, and I could be wrong.  But it was really obvious from around mid-February that we were in trouble (basically, once containment failed and the virus started popping up all over outside China.)

 

I think it's also a case of nobody wanting it to be true. "Oh, maybe it just stays in China and never even reaches Europe". "Oh maybe it's just a flu that will blow over" "Oh we can't trust China's numbers anyways" "Oh once the warm weather hits this will all be forgotten" "Oh we have a much better healthcare system". Etc. etc etc.

 

New rule: When some weird shit is going down on the other side of the world, actually try to quantify the probability of it occurring globally and take an appropriate hedge, even if it seems minuscule.

 

For a lot of Americans the simple fact applies that if it it doesn’t happen on US soil, it simply doesn’t matter. It a bit of a mixture between ignorance and exceptionalism. To some extent, you find they view everywhere in the world, but you certainly find it US much more then anywhere else. That’s why an event like 9/11 was so scaring.

[Xerxes]

I am certainly guilty by being ignorant and thinking it will blow over.

Certainly when it first reached Italy, I should have adjusted my view but failed to do so again and again.

 

The fact is 70% of us economy is consumer. And that consumer is not spending now and won’t be after the wealth destruction that we saw in stock market. So there bound to be an economic downturn and I need to protect the long only portfolio.

 

Certainly it is not directional bet like it was with dow at 28,000 a month ago, but I am not making a bet and just want to some insurance if the black bear turns into monster grizzley.

[widenthemoat]

The markets reaction to the unemployment figures are a bit concerning to me. The SPX is at roughly the same level as a year ago (December 2018), yet unemployment just went up 10x. I sometimes scratch my head at what these "professional money managers" do. Makes me worry about peoples retirement accounts and whatnot. Who knows, maybe I'm wrong. I'll be on the sidelines until the companies on my watchlist become cheap again I guess.

[Xerxes]

I think the real bargain had to be had when everything got thrown out. Good or bad.

Now it will be more systematic

[meiroy]

 

Feels to me right now like this is all misguided optimism and that because I'm so much up already I should just liquidate everything, but didn't sell a single share. Because. Greed.

 

[widenthemoat]

Time will tell I guess. I'm not one to predict market movements, it's just fascinating to me that there is such a large disconnect here. Either the market was grossly undervalued a year ago, and the inevitable decrease in earnings will still generate a reasonable rate of return when purchasing the underlying companies in the index now, or things are grossly overvalued now, and the returns will be not so reasonable. Or maybe there will be no impact to earnings at all from this, and we're right where we should be.

[UK]

https://www.bloomberg.com/news/articles/2020-03-26/ecb-will-scrap-bond-limits-for-its-pandemic-purchases-program

 

"The dramatic move tallies with President Christine Lagarde’s comment that there are “no limits” to the central bank’s commitment as the economy faces a deep recession due to restrictions intended to stem the spread of the coronavirus. Former President Mario Draghi weighed in with a commentary in the Financial Times on Wednesday urging public authorities not to worry about rising debt levels, arguing that the “the cost of hesitation may be irreversible.” Central banks globally have stepped up with extraordinary measures to fight the crisis. U.S. Federal Reserve Chairman Jerome Powell made a rare televised interview appearance on Thursday, stating his institution is “not going to run out of ammunition.”

 

Maybe markets are starting react to this? Or how one can be sure, that cash is going to protect purchasing power in the (near) future? What would you do if you are Norwegian wealth fund?

[rb]

We can't have wartime deficits without pretending to try to pay the bill, right?

 

The US ran 13% deficit to GDP ratios after the GFC, and neither taxes nor inflation went up, net-net.  These CV deficits will probably a bit higher but will recede since they are either temporary measures or loans that need to be paid back.

 

We'll see, I guess, but I don't think you can predict with certainty what will happen.

 

wabuffo

 

You're absolutely right.  But like the post-GFC period, government debt to GDP will presumably jump higher again.  The question no one seems to know is how high that ratio can go.  Indeed, is it even a relevant metric?  My understanding is that the last time debt to GDP was this high was post WWII:  https://tradingeconomics.com/united-states/government-debt-to-gdp  [i believe the U.S. government also has much higher off-balance sheet liabilities now than it did then.]

 

Debt/GDP fell quite quickly for various reasons, including, I believe, a few bouts of high inflation:  https://tradingeconomics.com/united-states/inflation-cpi  (Of course, high real GDP growth, helped higher population growth rates than we have today.)

 

So, today we appear to be going toward higher government debt to GDP ratios than we had post-WWII, higher off-balance sheet government liabilities, with significantly lower population growth.  I don't know where all of that leads, but I don't think it's ultimately headed towards a free lunch.

If you want to go through history, I think Britain is the best example. It had debt to GDP ratios higher than this for most of its history.

[spartansaver]

https://www.bloomberg.com/news/articles/2020-03-26/ecb-will-scrap-bond-limits-for-its-pandemic-purchases-program

 

"The dramatic move tallies with President Christine Lagarde’s comment that there are “no limits” to the central bank’s commitment as the economy faces a deep recession due to restrictions intended to stem the spread of the coronavirus. Former President Mario Draghi weighed in with a commentary in the Financial Times on Wednesday urging public authorities not to worry about rising debt levels, arguing that the “the cost of hesitation may be irreversible.” Central banks globally have stepped up with extraordinary measures to fight the crisis. U.S. Federal Reserve Chairman Jerome Powell made a rare televised interview appearance on Thursday, stating his institution is “not going to run out of ammunition.”

 

Maybe markets are starting react to this? Or how one can be sure, that cash is going to protect purchasing power in the (near) future? What would you do if you are Norwegian wealth fund?

 

If markets were reacting to this, wouldn't we see yields on high grade corporate debt trending upward?

[rb]

The markets reaction to the unemployment figures are a bit concerning to me. The SPX is at roughly the same level as a year ago (December 2018), yet unemployment just went up 10x. I sometimes scratch my head at what these "professional money managers" do. Makes me worry about peoples retirement accounts and whatnot. Who knows, maybe I'm wrong. I'll be on the sidelines until the companies on my watchlist become cheap again I guess.

The claims number was actually really good. I thought it would be at least 5 million. Think about it. There's almost 17 million jobs in leisure and hospitality alone. The problem with jobless claims is that it's a weekly number. So there's also next week.

 

I think that market has been pretty optimistic about this whole thing. Posting highs when this thing was starting and ignoring it for a while.

 

If you think about it we are now about 23% below a pricey peak, and about 10% above the end of 2018 freakout. With a guaranteed recession to come. It somehow doesn't feel like a screaming buy.

[chrispy]

The rate of share price appreciation has shocked me as much as the rate they were decreasing 1-2 weeks ago.

 

I couldve bought all the companies I owned back and had 20-40% more shares.  Was greedy and had no idea how to react.  Primarily in cash now with a net change of about 0% from when I sold.

[rb]

I think you'll get your chance again chrispy. It's never straight down. My guess is that we have a negative day tomorrow as the boys won't want to go long and strong into the weekend when they could get hit with some horrible numbers out of Italy and Spain. France and NYC are probably gonna come online pretty soon as well.

[KCLarkin]

I couldve bought all the companies I owned back and had 20-40% more shares.  Was greedy and had no idea how to react.  Primarily in cash now with a net change of about 0% from when I sold.

 

This is why market timing is not recommended. Getting out is easy. But getting back in is the hard part.

[KJP]

We can't have wartime deficits without pretending to try to pay the bill, right?

 

The US ran 13% deficit to GDP ratios after the GFC, and neither taxes nor inflation went up, net-net.  These CV deficits will probably a bit higher but will recede since they are either temporary measures or loans that need to be paid back.

 

We'll see, I guess, but I don't think you can predict with certainty what will happen.

 

wabuffo

 

You're absolutely right.  But like the post-GFC period, government debt to GDP will presumably jump higher again.  The question no one seems to know is how high that ratio can go.  Indeed, is it even a relevant metric?  My understanding is that the last time debt to GDP was this high was post WWII:  https://tradingeconomics.com/united-states/government-debt-to-gdp  [i believe the U.S. government also has much higher off-balance sheet liabilities now than it did then.]

 

Debt/GDP fell quite quickly for various reasons, including, I believe, a few bouts of high inflation:  https://tradingeconomics.com/united-states/inflation-cpi  (Of course, high real GDP growth, helped higher population growth rates than we have today.)

 

So, today we appear to be going toward higher government debt to GDP ratios than we had post-WWII, higher off-balance sheet government liabilities, with significantly lower population growth.  I don't know where all of that leads, but I don't think it's ultimately headed towards a free lunch.

If you want to go through history, I think Britain is the best example. It had debt to GDP ratios higher than this for most of its history.

 

I looked and couldn't find charts going very far back.  Since 1975 the UK appears to have generally followed the US:  https://tradingeconomics.com/united-kingdom/government-debt-to-gdp

But I assume you're talking about going much further back. 

[Cigarbutt]

We can't have wartime deficits without pretending to try to pay the bill, right?

The US ran 13% deficit to GDP ratios after the GFC, and neither taxes nor inflation went up, net-net.  These CV deficits will probably a bit higher but will recede since they are either temporary measures or loans that need to be paid back.

We'll see, I guess, but I don't think you can predict with certainty what will happen.

wabuffo

You're absolutely right.  But like the post-GFC period, government debt to GDP will presumably jump higher again.  The question no one seems to know is how high that ratio can go.  Indeed, is it even a relevant metric?  My understanding is that the last time debt to GDP was this high was post WWII:  https://tradingeconomics.com/united-states/government-debt-to-gdp  [i believe the U.S. government also has much higher off-balance sheet liabilities now than it did then.]

Debt/GDP fell quite quickly for various reasons, including, I believe, a few bouts of high inflation:  https://tradingeconomics.com/united-states/inflation-cpi  (Of course, high real GDP growth, helped higher population growth rates than we have today.)

So, today we appear to be going toward higher government debt to GDP ratios than we had post-WWII, higher off-balance sheet government liabilities, with significantly lower population growth.  I don't know where all of that leads, but I don't think it's ultimately headed towards a free lunch.

If you want to go through history, I think Britain is the best example. It had debt to GDP ratios higher than this for most of its history.

I submit that the previous statement is simplistic and misleading :) especially if it implies that it's been done before without specifying context.

Pre-industrial debt levels were essentially tied to war efforts between ruling classes and debt default was the norm, not the exception, with the ordinary people paying a heavy toll during the debt build-up and during the social "restructuring". Britain started the 19th century with a huge debt due to multiple and lengthy war efforts and it was able to 'manage' the off the chart debt then only because: 1-it happened to be a winner of most wars, 2-war efforts diminished considerably during the Victorian era and up to WWI and 3-England's GDP started to take off (a first in the entire history of civilization) as a result of the Industrial Revolution.

The debt levels (debt to GDP) we see now in our 'developed' and not so 'developed' nations have never been seen outside of war time episodes. This is an experiment on a large scale that has never been attempted in the entire history and wabuffo's right that the outcome is anything but certain but, conceptually, I find it hard to see a good outcome when the solution to get out of the hole is to dig deeper.

"Getting out is easy. But getting back in is the hard part."  ---) I don't agree.

[chrispy]

Kclarkin - it's something I knew, understood, but overconfidence is a bitch!

[wabuffo]

I looked and couldn't find charts going very far back.  Since 1975 the UK appears to have generally followed the US.

 

Japan and France (as two examples) run much higher central-govt-debt-to-GDP ratios than the US and seem to have no trouble floating long-term sovereign debt at near-zero.  Here's the comparison of France to the US.

 

 

wabuffo

[rb]

I looked and couldn't find charts going very far back.  Since 1975 the UK appears to have generally followed the US:  https://tradingeconomics.com/united-kingdom/government-debt-to-gdp

But I assume you're talking about going much further back.

Here you go buddy. Back to 1800.

UK_Debt-to-GDP.xlsx