Thread by @codywillard

I’m going to riff on a bunch of related deep thoughts and than summarize them all up at the end with strategy and trading ideas.
/THREAD Full analysis, article here: tradingwithcody.com/2020/03/26/dee…

*Most small businesses aren’t going to be able to get their hands on any of the trillions of dollars that the government is about to hand out. For example, the immigrant owner of the small Chinese restaurant at the corner isn’t going to go through all the red tape, the time

and commitment it takes to getting his/her hands on what might otherwise be coming to them from the stimulus package. Think about all the owners of small businesses that you know, scrappy, hardworking people who are now supposed to figure out how to check all the boxes and deal

with all the bureaucracy that comes with government “help.” Oh, by the way, there will be a ton of fraudulent actors who will get a part of that “for small business” part of the package.

2) Some of the action the last few days comes from algos and rebalancing portfolios at pension and foundation funds that have parameters about how much stock/bond/Treasury/private equity/etc allocations they are supposed to make.

3) Everybody’s like, hey, the bailouts worked in 2008, they will work this time too. Some analysts say that this financial crisis won’t last long is because it’s a being caused a sudden flash crash economic collapse caused by a coronavirus and not by fraudulent, speculative

excesses like it has been the last few times the market/economy tanked in 2000 and 2008. If that’s the case, I’m not sure we should assume that the bailouts and stimulus ideas that the government used last time are going to be the right tools this time.

In fact, I’d argue that even in 2008, the bailouts and emergency measures from the Federal Reserve and the stimulus packages from 2008-2010 did more harm than good and the economy/markets/financial system recovered despite those things not because of them.

Certainly the government borrowing from the future and printing money can help inflate assets and can help keep the financial system moving. But there is going to be a lot more waste and fraud and mal-investment and crony giveaways in this giant government program

just like there is in every government policy that’s passed in the name of helping/saving the economy. And no money is borrowed or printed in a vacuum — there is a cost and someone who is treated unfairly in every act the government does in the economy’s name.

4) The market’s rallies this week and the crashes the past few weeks have been historic but most of the closest comparable trading days of 10% moves up or down come from 1928-1933 and in 2008 $DJIA:

Here’s what the $DJIA looked like from 1928 to 1941 to give us some perspective. You’ll see that the market crashed more than 80% from its highs in 1929 though 1932 before almost tripling in 1933 and peaking up another 50% from there 18 months later:

5) We all want to blame these crazy intraday swing in the markets ON programmatic trading and algorithms but if the most comparable days to these last couple three days were in the 1930s, what did people at home (the low % of people who owned stocks) blame it on back then?

6) Do you remember the Great Depression of 1918/1919? No? That’s because there wasn’t one and indeed, the markets/economy went into a period that was so strong that they still call it the roaring ’20s a century later. Finally, a bullish deep thought for sure, this one.

7) Everybody is at home on lock down by choice or command are watching TV news and trading the same headlines and I’m not sure I can get an edge from what everybody is watching.

8) It is expensive to buy doomsday insurance on the stock markets because the premiums on put options are so spiked. It’s also expensive to buy doomsday insurance on junk markets and other credit derivatives right now.

9) Looking at almost any individual stock chart, you’ll see a huge crash that then spiked higher in the last few days. Most individual stocks out there on were down 50-90% and they’ve now bounced some 30-100%, even megacap names.

Everybody I know is trying to decide whether to bet on more spike next or more crash next.Makes me think we might to just churn here. Feet to fire, expect that the markets and many of the most traded individual stocks stay within 20-30% of their current price for the next 3 mo's

10) Every permabear out there who has been warning about an economic collapse for years and years, warning about things like: How the US consumer is always just about stop spending like they used to and maybe over time consumerism collapses.

Or how the fractional reserve banking system is a Ponzi scheme ready to collapse on itself. And how the fiat petro US dollar and other nation’s similar central banks and fiat currencies are going to end up worthless.

And how the endless deficits and giant amount of debt that the US government, businesses and consumers have are unsustainable. Well, if those things are going to happen, now it sure seems more likely than ever before, no?

The whole world’s economic system, social systems and support systems just hit a vacuum. And we know that they won’t come back immediately. So yea, this one’s pretty clearly another bearish bullet point.

So here’s the story. Clearly, after the big rally the last 2.5 days, with the DJIA up 20% off its four-year lows from Monday, the market is no longer pricing in some of the worst case scenarios from above.

Clearly with stocks still down huge from their all-time highs a few weeks ago, the market is no longer whistling past the Coronavirus graveyard either. In the last 2.5 days, we’ve done six moths or a year’s worth of action. In the last two weeks, we’ve done a year or two worth

In the last two months, we’ve had several years’ worth of action. I don’t think we can keep gaming this by buying/covering into crashes and trimming/shorting into spikes.

I don’t think the risk/reward of trying to buy (or to short) the broader stock markets here is not a good idea. I think being too aggressive in our longs is probably not a good idea right now either.

The thing that keeps me bullish is that the most of us in the US, the whole country collectively itself and mankind overall is innovative, loving, helpful, hardworking and industrious. We are innovating at an exponential rate.

We are living in a time when money moves instantly around the world and when the amount of trade/inventions/innovations/advancements that happens in one day used to take years. That’s not going to change.

The playbook then: I’m continuing to trim longs and to cover shorts and to raise a little more cash and be a little bit more defensive right now than I was last week before so many of our stocks spiked once again.

I’m staying long a core position in all of our names for now and most of my hedges too, but I’m not looking to press on the gas pedal for now. Full analysis: tradingwithcody.com Full article: tradingwithcody.com/2020/03/26/dee…

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