SPX...Head SHOTs ONLY

Updated

BLUF: Of course we get a bounce...But what sustains? The FED/REPO's/YIELDS/Tax Reciepts/FiscalPlan?/FookinKungFluVirus/FookinGammaBro's Covering&Rolling....Fookin WTF...PLAN/PROCESS/EXECUTE...FIND-FIX-FINISH!

"Prices are not an indication of where the market IS, they are an indication of where the market WAS

No matter how often I repeat it, it’s hard for people to truly process. Your JOB is to follow the models, not construct hasty debates about whether the models are broken. If they’re broken it’s “not your fault”... if you deviate, it’s “your fault”. Choose wisely.

I’ve talked endlessly about this. Efficiency is not enhanced by reducing diversity of market participants and concentrating capital in return agnostic allocator hands... what possible measure of “efficiency” are you referring to?"
—Mike Green (Logica)

“Too many people spend money they haven't earned, to buy things they don't want, to impress people that they don't like.”

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We’ve all suspected ETF liquidity would be thin – but this is the first time liquidity has really been tested in recent years. I confidently predict massive liquidity failure will trigger further unintended consequences – especially when retail starts trying to exit daily liquidity funds. Who will be the first to Gate a fund? How embarrassing.
This morning I’m looking at the wreckage from yesterday and thinking the Oil Shock aspect is probably done and dusted. (We will still have to see what happens to Shale producers – but that likely puts a floor on the market.)
—Morning Porridge

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One of the most important issues facing authorities currently is arguably to try to keep the credit cycle alive and kicking. Supply shortages and/or demand shortfalls must not trigger extensive defaults, as such could dent the credit cycle and perhaps prompt a truly adverse economic scenario (forget buybacks or M&A activity in this scenario…).

The current landside in oil prices, which will likely continue next week now that the Saudis have declared a full-blown price-race to the bottom, is another risk for the US credit cycle. The move by the Saudis could be interpreted as an attack on US shale producers, and we know by now that US Capex is generally positively correlated to the oil price. Credit risks are rapidly on the rise, and so is the credit cycle risks.

Maybe the best asset allocation is to be long China vs. the rest of the world as a relative Virus-containment efficiency bet. We wouldn’t place our chips on as an effective contain of the virus in Europe or US compared to China…It may be that the time is ripe to consider massive changes to USD hedging strategies, at least if the current pricing in the Fed Funds curve is correct and the Fed eventually delivers accordingly.

The Fed is currently priced to deliver rate cuts down to ~0.20% by the end of this year – basically re-entering ZIRP. If the market is right, then the current cost for hedging against USD weakness (1.6% for a 3m hedge) is about to collapse completely. We think this is important because in early 2018 corporates & institutional accounts stopped hedging against USD weakness because it had become so costly (then ~2.3%/annum in EURUSD for rolling 3 months hedges). That gradual change to lower USD hedge ratios caused a more benign USD flow environment and boosted USD spot.

Up until a week or two ago, we argued the drop in hedging costs hasn't mattered much for the USD because it has still been too costly to consider changing FX hedge ratios. But in a scenario with Fed cutting to 0% this could obviously change.

Looking ahead however, who will be willing to fund already large US deficits with a still-strong USD and rapidly dropping US yields? Either the USD needs to weaken or US yields will need to rise to attract needed inflows, and US yields would not be able to rise in adverse scenario where the Fed starts Yield Curve Control – leaving the USD the pressure valve. In short, the Fed is possibly rewriting the landscape for the dollar this year.

—Nordea….M. Enlund

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Be careful what you wish for...always maintain a "Cash-Reserve"...TBD

If someone tells you where the TOP/BOTTOM or RECESSION is...walk/run the other way...BS Pegged...SpideySenses on HI Alert!

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While the flight to safety has been most glaringly appealing in bonds over the last 2 years, investors might recognize that this is also where the greatest risk may lay ahead and when the bond trade unwinds. For now, investors would likely be more greatly rewarded by exercising patience and nibbling on stocks within a manner that is consistent with long-term objectives and personal risk tolerance.
Finom Group...Seth Golden

More...

For most of 2017, the average number of E-mini contracts available to be bought or sold within a tight band around their current price, corresponding to a one-point move in the S&P 500, hovered between 3,000 and 6,000, Deutsche Bank data show.

But over the past two years, that number has rarely climbed above 2,000 contracts. On Friday, it fell to just 163 contracts—down more than 80% from a week earlier—before slipping even further, to 132 contracts, last week Tuesday, according to Deutsche Bank.

The term “liquidity” refers to the ability to execute a big trade without affecting the price of an asset. In layman’s terms, lower liquidity means that when a wave of selling hits a particular market, prices drop more sharply than they would have otherwise. In the case of the E-mini, heavy selling has a knock-on effect on the stock market itself—and on investors’ portfolios.

Low market liquidity reared its ugly head on Monday and Tuesday’s market snapback in futures is no less a factor of market liquidity than it was on Monday. Investors should consider that this period of market whipsawing action will soon pass and will be revealed as yet another buying opportunity. With that opinion put forth, everyone has an opinion on where the market will be heading going forward.

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Watch it....TBD

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Michael (@profplum99) Tweeted:
The hedge is back. Can everyone please take a deep breath (exhale only if wearing a mask or at acceptable social distance)... t.co/obzykNK62E
twitter.com/profplum99/status/1238046153616343040?s=20

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Nothing is a "Sure Thing" in these markets....proceed w/caution and leverage! or just partake a small amount! Cash is King!

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JPM:

Also, on the commodity front, the period of depressed oil prices could be short-lived as Saudi/Russia pain thresholds are surpassed. Given the above base case, we view the current level of S&P 500 offering an attractive risk-reward, and maintain our 2020 S&P 500 price target of 3,400.

We do acknowledge the potentially extreme binary outcome as we work through the impact of COVID-19, but still hold the view that policy supports should ultimately outlast the outbreak. If COVID-19 intensifies and proliferates well beyond JPM base case scenario and the anticipated counter-policy responses turn out to be underwhelming, the S&P 500 will most likely face further downside. Under this pessimistic scenario, the equity multiple may not find a bottom until it hits 14-15x and EPS growth turns negative—implying a recession case of ~2,300 level for S&P 500. Even in such a downside scenario we expect earnings recession to be relatively shallow by historical standards, given relatively healthy balance sheets of US consumers and key corporate sectors.

MikeSans

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