Will S&P 500 Retest Recent Low By End of April

[TwoCitiesCapital]

Dow down 900 points this morning. TX, FL, AZ and a few others are showing worrying signs of 2nd wave. Unlikely states will close again (at least until the fall or winter) so maybe 10-15% fall in the summer is best we might get.

If we do fall below the March 23rd low then it should be entertaining how the Fed and Federal Government will respond...future headline

Fed buys etfs SPY, Fed starts negative rates, Federal Government ups stimulus check from $1200 to $2k, no filing of taxes this year, etc.

 

I'm not so certain.

 

States don't have to close for the market to realize that it's not just Q1 and Q2 in the dumps. A second wave might just mean 10% of the population decides to stay home while the rest move about normally...but that is still enough to make a pretty big dent in earnings for Q3 which are already incredibly fragile (and optimistic).

 

Further, while the last jobs report was an anomaly to the upside, we still have 1 million plus applying for jobless benefits every week despite the entire country being open and some cities/state having been open for weeks. If that type of behavior continues it further builds the case that Q3 and Q4 will probably also suck (assuming $600/week unemployment benefits aren't extended).

 

Just b/c we don't shut down a second time doesn't mean the damage from the first time is gone and doesn't linger - any reduction in the 'V' shaped recovery narrative takes us down from here regardless of a second closure and 10-15% seems shallow if that is the case.

 

I agree with you that each quarter going forward will have flagging earnings until we've put the virus behind us (whether by vaccine or herd immunity).

 

However, a few quarters of earnings hardly matter compared to all future distributable earnings discounted back to the present.

 

We can debate the actual impact to earnings or how impacts to cash flows in years 1 and 2 are dramatically more impactful to valuation than earnings in years 11 or 12, but I'll just rely on what we've seen historically.

 

All recession have proven to be temporary. Most only last a few months. And as a group, they have categorically lowered stocks significantly from all time highs in nearly every occasion. Maybe the lack of impact on the DCF value is why people who buy the dip do so well? But the lack of impact on the DCF hasn't prevented the dip and that's the point.

[ERICOPOLY]

Dow down 900 points this morning. TX, FL, AZ and a few others are showing worrying signs of 2nd wave. Unlikely states will close again (at least until the fall or winter) so maybe 10-15% fall in the summer is best we might get.

If we do fall below the March 23rd low then it should be entertaining how the Fed and Federal Government will respond...future headline

Fed buys etfs SPY, Fed starts negative rates, Federal Government ups stimulus check from $1200 to $2k, no filing of taxes this year, etc.

 

I'm not so certain.

 

States don't have to close for the market to realize that it's not just Q1 and Q2 in the dumps. A second wave might just mean 10% of the population decides to stay home while the rest move about normally...but that is still enough to make a pretty big dent in earnings for Q3 which are already incredibly fragile (and optimistic).

 

Further, while the last jobs report was an anomaly to the upside, we still have 1 million plus applying for jobless benefits every week despite the entire country being open and some cities/state having been open for weeks. If that type of behavior continues it further builds the case that Q3 and Q4 will probably also suck (assuming $600/week unemployment benefits aren't extended).

 

Just b/c we don't shut down a second time doesn't mean the damage from the first time is gone and doesn't linger - any reduction in the 'V' shaped recovery narrative takes us down from here regardless of a second closure and 10-15% seems shallow if that is the case.

 

I agree with you that each quarter going forward will have flagging earnings until we've put the virus behind us (whether by vaccine or herd immunity).

 

However, a few quarters of earnings hardly matter compared to all future distributable earnings discounted back to the present.

 

We can debate the actual impact to earnings or how impacts to cash flows in years 1 and 2 are dramatically more impactful to valuation than earnings in years 11 or 12, but I'll just rely on what we've seen historically.

 

All recession have proven to be temporary. Most only last a few months. And as a group, they have categorically lowered stocks significantly from all time highs in nearly every occasion. Maybe the lack of impact on the DCF value is why people who buy the dip do so well? But the lack of impact on the DCF hasn't prevented the dip and that's the point.

 

That does appear to be the tradition.  People tend to discount the possibility of a recession, and then once we're in one they discount the possibility of a recovery.

[SharperDingaan]

Saputo released results last week (large manufacturer of dairy products with operations in Canada, US, Australia and UK). Results were terrible. They do a large amount of business with foodservice which has been especially hard hit. Company said operations will be severely impacted until a vaccine is available. The key issue is it is impossible to run the plants efficiently. Lots of other companies in the exact same situation. If we do not quickly get good news on the vaccine front we will likely see bankruptcies start to pick up. (Saputo will be a buyer of distressed dairy assets). October/November is when we likely start to understand what is really going on from an employment and economic perspective. We are in the early innings of this crisis.

 

The challenge is understanding the second order effects. The longer the virus depresses economic activity the greater the chances we start to see some nasty second order effects. One example here is Canada is if the economic damage from the virus then causes our housing bubble to pop. As GDP contracts corporate profits will shrink.

 

The real challenge is the virus is in the drivers seat. And its future path is an unknowable event.

 

The Canadian CERB (2k/month) began Mar-15, and expires 16 weeks later on Jul-04. Today it is Jun-11, and much of the major population centres in both Ontario and Quebec remain in lockdown. Do you really think that the 1M+ people in Ontario and Quebec that the CERB was intended to protect, are going to find a replacement job within the new 3 weeks? while the lockdown continues? What are they supposed to do when their CERB runs out? 

 

The CERB is going to have to be extended, modified, and delivered via a provincial versus federal program.

How do you think that plays out if your province has it's sh1te together, and then DIDN'T get additional CERB moneys because of it?

 

CERB pays the first (16 weeks), then Employment Insurance (maybe 52 weeks), then Welfare. Best case, we need to be back at pre Covid-19 employment levels by June-30, 2021 (5 quarters). Yet current unemployment levels are near those of the great depression - hence we need an extended period of historic and record breaking month-on-month employment gains, THAT HAS NEVER BEEN DONE BEFORE. The nearest precedent is FDR's (US president) 'new deal'

 

We may bitch about energy, but when re-employment at this level is required;

Canada's o/g pipelines, green tech, rail/shipping fleets, and port expansions WILL be built. We simply need the work.

 

The future looks great!, but the timing - as always - remains a mystery  ;)

However it's going to be a roller-coaster ride.

 

SD

 

 

[meiroy]

 

There is some recovery underway and it might be faster than expected but the underlying economy is in quite a bad shape and won't really recover unless households are supported and have the ability to consume as a larger share of the whole economy -- consumption/demand is not going to come from any other country that is facing similar circumstances.  On the opposite, they'll try to get hold of American household consumption and that will make the situation even worse.

 

So, it all comes down to politics. Trickle-down or Trickle-up.  As investors, we would benefit short term from both and really long-term from trickle-up. The only situation that would harm us is a deadlock and lack of more fiscal/fed action.

 

It seems the Fed is not everything-is-100%-supply-side so that's good news.

 

[TwoCitiesCapital]

Take a look at the price action of Chesapeake today, halted numerous times and then up 180%, and after hours news came out it's filing for Ch. 11. HTZ up 113%, far higher than it was when it filed for BK. JCP shot up today too.

 

I'm also seeing that options buying from retail investors is like at an all time high.

 

Anecdotally, a friend (who doesn't know much about stocks and is in mainly cash) started buying options on cruise lines today. Why now? Because a bunch of her family members have been doing it and making money.

 

Then my sister, who knows nothing about stocks, who works in healthcare, texted me saying do we own Hertz? Because apparently her coworkers were all talking about it today and there was some remorse for missing the boat.

 

Now Druck is throwing in the towel regards to being cautious, lol.

 

Or maybe I'm wrong for being 30% cash. That could be it too.

 

We are clearly out of our league here. https://www.bloomberg.com/news/articles/2020-06-08/retail-traders-flout-legal-logic-in-dash-for-bankrupt-stocks

 

It worked for them in USO - why not here?

 

For background, I shorted USO when it was trading at a 40% premium to its NAV, didn't have the ability to issue new shares, and NAV decay was 5-10% per month AFTER it had reorganized it's portfolio on 4 or 5 different occasions. It took a a 300% rally in oil prices and the move from contango to backwardation to kill the short, but people who paid 40% over NAV did better than me despite how obvious it was to short that thing.

 

I'm hesitant to step in front of this retail trade seeing as an obvious short like USO still worked out in their favor.

 

A virtuous cycle indeed - Hertz offering a billion in shares while in bankruptcy....

 

Can't say whether it's enough, or not, but crazy that they can even consider offering stock in the midst of bankruptcy proceedings. Maybe people still made money shorting this after market action today, but I'm still super hesitant to step in front of these trains when things like Hertz and USO are killing short thesis left and right.

[meiroy]

https://www.bloomberg.com/news/articles/2020-06-11/nearly-a-third-of-u-s-renters-worried-about-their-next-payment?utm_campaign=socialflow-organic&utm_source=twitter&utm_content=business&utm_medium=social&cmpid=socialflow-twitter-business&__twitter_impression=true

 

"Thanks largely to coronavirus lockdowns, 17% of U.S. renters already couldn’t cover their last lease payment -- but that number is dwarfed by the number worried about making the next one.

 

About 31% of renters responding to the U.S. Census Bureau’s Household Pulse survey in the five weeks through June 2 said they had “little or no confidence” they can make their next payment on time.

 

By comparison, 11% of households with a mortgage failed to make their last payment and 16% of the survey respondents said they fear they can’t cover the next one.

 

This could impact consumer spending and the economic recovery."

 

 

Should change that "could" into a "would".

 

 

[SHDL]

Another update on what small traders are up to in the options market:

 

 

Looks pretty euphoric to me.

[stahleyp]

Anyone know how much Robin Hood controls with margin?

[SHDL]

Anyone know how much Robin Hood controls with margin?

 

I don’t but they seem to have around 10-13m users so you can make some educated guesses. Ok, well maybe not if it’s true that they give their users access to “infinite leverage.”

[stahleyp]

Anyone know how much Robin Hood controls with margin?

 

I don’t but they seem to have around 10-13m users so you can make some educated guesses. Ok, well maybe not if it’s true that they give their users access to “infinite leverage.”

 

Thanks. Yeah, I'm just trying to understand how Robin Hood is getting access to capital and how much impact they're actually having.

 

I saw this article yesterday. It was a sad story about a 20 year old that had a margin debt of $700,000 and ended up taking his life.

 

https://www.marketwatch.com/story/finance-isnt-worth-losing-your-life-over-the-heartbreaking-story-of-a-rookie-trader-who-racked-up-700000-in-debt-2020-06-14

 

Or this one:

 

https://www.bloomberg.com/news/articles/2019-11-05/robinhood-has-a-glitch-that-gives-traders-infinite-leverage

 

I'm trying to understand how prevalent these crazy margin stories are and how Robin Hood is backing that.

[SHDL]

how much impact they're actually having

 

I tried to get a sense of this too but decided it’s too difficult.

 

What makes this tricky IMO is that in addition to whatever crazy leverage that Robinhood may be providing their users, there are the actions of other bigger players that are likely amplifying the market impact of small retail traders. For instance if a bunch of small investors try to pile into a hot name there are HFT firms and the like who will try to front run the orders. With options there are dealers on the other side of the transactions who will trade the underlying for hedging purposes. Also there are the price insensitive players like index funds who seem to be making prices more sensitive to small shifts in demand than they otherwise would be. And so on.

[Spekulatius]

how much impact they're actually having

 

I tried to get a sense of this too but decided it’s too difficult.

 

What makes this tricky IMO is that in addition to whatever crazy leverage that Robinhood may be providing their users, there are the actions of other bigger players that are likely amplifying the market impact of small retail traders. For instance if a bunch of small investors try to pile into a hot name there are HFT firms and the like who will try to front run the orders. With options there are dealers on the other side of the transactions who will trade the underlying for hedging purposes. Also there are the price insensitive players like index funds who seem to be making prices more sensitive to small shifts in demand than they otherwise would be. And so on.

 

I agree. There seems to be some amplification going on that exaggerate these moves that retail investor tries to ride. today’s fools gold is $CARV as there is trade for Banks serving black communities going on.

[stahleyp]

how much impact they're actually having

 

I tried to get a sense of this too but decided it’s too difficult.

 

What makes this tricky IMO is that in addition to whatever crazy leverage that Robinhood may be providing their users, there are the actions of other bigger players that are likely amplifying the market impact of small retail traders. For instance if a bunch of small investors try to pile into a hot name there are HFT firms and the like who will try to front run the orders. With options there are dealers on the other side of the transactions who will trade the underlying for hedging purposes. Also there are the price insensitive players like index funds who seem to be making prices more sensitive to small shifts in demand than they otherwise would be. And so on.

 

I agree. There seems to be some amplification going on that exaggerate these moves that retail investor tries to ride. today’s fools gold is $CARV as there is trade for Banks serving black communities going on.

 

Yeah these microcaps moves make sense with robinhood. I just don't know how much RH could be affecting something like NKLA with its $20+ billion market cap though.

[rb]

In the case of Nikola I suspect that few shares are actually available for trading. That's why the borrow is so high on these. So despite its market cap it trades like a microcap.

[stahleyp]

In the case of Nikola I suspect that few shares are actually available for trading. That's why the borrow is so high on these. So despite its market cap it trades like a microcap.

 

Good point.