Shock & Awe: Of Shotguns and Rifles

Published on: March 12th, 2020

We have moved into the phase of policy activism. Unfortunately, even well-considered, rifle-shot, aggressively-timed initiatives are failing to generate the shock & awe their protagonists desire. Stress is only now entering the system as correlations and hedges start to come under pressure.

Comments

  • NR
    Nathan R.
    12 March 2020 @ 17:55
    $1.5T kitchen sink and stocks still down 7% as we speak...whoops Doesn’t bode well for fiscal if they felt this was necessary...
    • JK
      James K.
      14 March 2020 @ 14:12
      My understanding is that there were regulatory hurdles that prevented the funds from being accessed that the Fed didn’t even know about. Whoops.
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 01:02
      I believe James K was right, although I can see that they are slowly getting things right. Personally I think they "are gonna need a bigger boat". But some of the problems have been alleviated in markets where the Fed can most easily intervene. At one point 1m Tbill were trading wide of OIS by 20bps. Thats evidence of extreme liquidity stress. That bill OIS spread has moderated now to -10 I think. So, maybe they are starting to get a little traction, in markets were they can help with liquidity. Its gonna be tough for those who rely on banks for funding. I think fiscal would work a lot better although not as direct a solution to financial problems.
  • DH
    Dean H.
    13 March 2020 @ 11:33
    Hi Raoul, I have just signed over to RV pro today, I am wondering how you recommend playing the S&P500 short from today? Idea on a put? I have a Fut Op. in for June at 2300, but i feel i have overcooked it. Cheers, Dean
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:57
      Not entirely sure what you mean, but I like owning the downside in the S&P. I very much hope some Deus in Machina type event (Cv19 hates warm weather, or perhaps suburban nature of much of US mitigates problem) but short of that, if the projections are to be believed its hard to see how we wont see a massive credit event. I cant see how securities near the bottom of the capital structure avoid cheapening. Even from here. Even with the Fed doing its best to cushion the blow.
  • JK
    James K.
    14 March 2020 @ 14:08
    What are your thoughts on the Fed trying to hang on to the last quarter point vs just going straight to zero? A lot to balance there. Thanks
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:53
      Didnt get to this one in time. Sorry.
  • JK
    James K.
    15 March 2020 @ 06:39
    Any thoughts on buying put options on ED 30 days out to try and catch a blowout of the TED spread?
    • JE
      Jos E.
      15 March 2020 @ 10:27
      Would require banks believing a) other banks are about to go under and B) the Fed will not rescue the bank. Not likely to happen
    • HM
      Harry M. | Real Vision
      17 March 2020 @ 13:33
      Yes. Many thoughts. I agree with Joe E to some degree. Banks will not go under. However it is obvious there are extreme strains in the financial system and some bank balance sheets must be stressed. This conclusion is inevitable if you observe the Fed's actions. So yes, there are reasons to be concerned that unsecured funding costs might blow out. I am attempting to get a HEL myself, simply to add ammo, in case things become very bad and very big opportunities arise. No banks will fail. But it might become quite hard to borrow money.
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:52
      The vol isnt cheap but its not a bad idea. The more I read the more concerned I am about a serious divergence between secured and unsecured funding. I might be tempted to buy the put and sell the call, both a little out of the money. A risk reversal. But right now maybe you are right to pay for premium. God knows how I sleep short options,
  • RA
    Renaud A.
    17 March 2020 @ 13:30
    Hello. Awesome content, thanks! I have a very naive question. Why would postponing the olympics trigger a banking crisis in Japan? Could you elaborate a bit on this? Cancelling I get it, but postponing should be bearable, no? Thanks a lot
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:49
      Japan has levered itself off the Olympics. There are a bunch of new hotels and renovated hotels. This was to serve as a cashflow kicker to get all these new enterprises off to a good start. If its postponed, a large proportion of the intended international visitors might have to cancel. How many people have that kind of flexibility in their schedule? Japanese domestics viewers are unlikely to fully replace international tourists. Not great to have financed such an expansion in the hospitality trades only to have this happen.
  • TL
    Taylor L.
    17 March 2020 @ 23:42
    Julian: Are you still watching the 5, 20, 50 weekly moving averages on S&P? Looks like the 20 is starting to turn. Great work as always Best, -Taylor
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:45
      Yes he has been Taylor, but the speed of the drop is such that the turn is still quite some way away. Momentum indicators will not turn this around quickly
  • am
    alexander m.
    18 March 2020 @ 05:58
    New article on ZeroHedge, claims fed will be accepting equities as Primary Dealer credit facility collateral now, could you please do an update on this development please? seems rules have changed materially
    • HM
      Harry M. | Real Vision
      22 March 2020 @ 00:44
      I think there has been an update Alexander
  • am
    alexander m.
    18 March 2020 @ 05:58
    New article on ZeroHedge, claims fed will be accepting equities as Primary Dealer credit facility collateral now, could you please do an update on this development please? seems rules have changed materially
  • am
    alexander m.
    17 March 2020 @ 04:05
    Raoul and Julian thank you both so much, not just for the winning trades but also for the risk management guidance and framework you 2 have instilled in us which has really helped me keep disciplined and not chase more and more risk/returns through this insane time. I've learnt so much!
  • VA
    Vikram A.
    13 March 2020 @ 03:28
    Thanks for the quick updates in view of the current situation. I have a request. I think it would be helpful if the trades are specified clearly. It would definitely help new members like myself. For eg. HYG was a put trade (expiration ?, strike price ?). Does it make sense for the trade to be entered now. If so, at what price. Similar for the other recommendations. Also, what's the symbol for BKX?
    • JW
      JW2 W.
      14 March 2020 @ 06:40
      Tend to agree with you (even though the HYG option trade was clearly stated, Buy Put, 75 strike, June). Many people have commented before, as have I, that it would be great if the team could set targets or target ranges, so that people who are late to the trade can review whether entry still makes sense. Not sure why RV team does not follow-up on this, it seems pretty logical and I do not think it goes against any conduct guidelines. I mean, if you issue a trade you might as well set a target - or state it's open ended. They do not hesitate to instruct folks to move stops at the other end so not sure why these requests remain unanswered.
    • RP
      Raoul P. | Founder
      14 March 2020 @ 13:56
      I don't use targets or stops so that is why... we all have to manage our own risks. If I close out, you'll see it here.
    • JW
      JW2 W.
      15 March 2020 @ 15:45
      Yes but...(I sound like my wife :-) ...for members who are building their trading experience, I am sure not all of us are experienced traders, I think that targets provide context and perspective. Not looking for a fight with the zen-master, so I'll just leave it here :-)
  • AT
    Andy T.
    12 March 2020 @ 17:29
    Is box a valid symbol?
    • AT
      Andy T.
      12 March 2020 @ 17:30
      Bkx that is
    • KJ
      Kevin J.
      12 March 2020 @ 17:48
      I think the ETF is KBWB
    • JW
      JW2 W.
      14 March 2020 @ 06:42
      https://indexes.nasdaqomx.com/Index/Overview/BKX
    • DD
      Donal D.
      15 March 2020 @ 04:38
      I also struggled with BXK but did find that KBE which Julian had a previous stab at shorting was a pretty good proxy in that they both move in the same fashion. May be a bit late to get in now as its already down over 30% in the past few weeks.
  • AS
    Alan S.
    12 March 2020 @ 17:33
    Sorry to seem dense here, but this trade on HYG? As I read what you wrote, you bought HYG at $ 85, it is currently $ 78, but it has been great trade? Did you leave out the line that you shorted HYG at $ 85? What am I misunderstanding here?
    • KJ
      Kevin J.
      12 March 2020 @ 17:48
      They starting buying puts on HYG 2 weeks ago I think. Raoul covered that in a Flash Update.
    • AT
      Alun T.
      12 March 2020 @ 19:23
      Yes, the trade is to short HYG (or JNK). Trouble is you can't borrow these anymore, as they know they are going South. I bought SJB instead. Probably not as good, but still seem to be up reasonably at the moment
  • ag
    anthony g.
    12 March 2020 @ 18:44
    This is good - short, simple, direct and timely. Appreciated.
  • CU
    Can U.
    12 March 2020 @ 18:18
    Dear Both, please stop apologizing for the format and some glitches in delivering what is the most important to us - timely insights into your thinking!!! I think your customers can survive some imperfections in the delivery, it's the content and your views that we value.....
  • SL
    Steven L.
    12 March 2020 @ 17:26
    Won't open in IE, Firefox or Chrome..
  • ke
    karen e.
    12 March 2020 @ 17:17
    Still cant open on computer! Please provide a direct link.
  • JW
    JW2 W.
    12 March 2020 @ 17:14
    Excellent update and thanks again for the 'just in time' delivery.