Jump to content

Surly #Stonks

Wally Fairway

By Wally Fairway
in Business and Markets

 Share

Recommended Posts

Wally Fairway

Wally Fairway 5674

Posted
  • Author
Posted

Warning to those holding SPY puts -direct brrrrrrrr fucking of your our puts
The Fed is going to buy stocks. 

https://www.forbes.com/sites/kevincoldiron/2020/07/18/the-fed-is-going-to-buy-stocks/#625dff11eb49

Quote

The Fed is going to buy stocks.  I don’t know precisely when (sorry day traders), but it will happen, and probably soon.  

The first half of the Fed’s dual mandate is to promote maximum employment - that means avoiding and mitigating recessions.  Supporting the S&P 500 is central to this effort, not because a fall in the market signals a recession is coming, but because it is the recession. This isn’t what we’re taught in Economics 101 and frankly it isn’t how most economists understand the market, so the idea requires a little backstory.

The Rise of Carry

The S&P 500 drives the economy through its central role in the global carry trade. Carry traders earn a yield spread, or an up-front premium payment, as compensation for the risk that the asset they’ve purchased will depreciate or the event they’ve insured against will occur.  These transactions, and a wide variety others like them, are “short volatility”.  They do well when the world stays the same but can crash suddenly when things change.

Carry trades always increase both leverage and liquidity.  The growth in leverage makes the world more fragile, but increased liquidity temporarily hides this fragility. Debt financed stock buybacks are an important example.  Their growth reinforces the leveraging up of corporate balance sheets (increased fragility) and at the same time provides a critical source of equity buying (increased liquidity) for those investors who wish to raise cash.  We shouldn’t underestimate this dynamic - for over a decade now the only sector that has consistently purchased US equities has been non-financial corporations.  

The price of this liquidity provision is proxied by the stock market’s volatility - the VIX.  When it skyrockets in a crash - as it did in March - carry trades lose money, carry traders withdraw from their positions and liquidity evaporates.  In a leveraged and liquidity dependent world, a fall in the US stocks and a rise in the VIX, has immediate negative consequences for the economy, forcing the Fed to act.

In 2008, and again in 2020, the Fed was able to support the S&P 500 indirectly by lowering rates, purchasing government debt and making loans to buy risky bonds.  With each intervention they’ve crept closer to buying stocks.  This is no accident.  When the Fed intervenes to support markets, it suppresses volatility and truncates losses for carry trades.  This in turn encourages them to grow in size and scope, thus almost automatically guaranteeing that the next round of support will need to be larger.  The most recent round stopped just short of buying equities, the next round will take Fed over the threshold.

The Fed Is Trapped

Don’t agree with me?  Ok, let’s try a thought experiment.  What would happen if the Fed explicitly ruled out buying stocks?  

It seems fair to suppose that this would cause an immediate market sell-off.  But, that might well be temporary.  Longer-term, though, there would be important consequences.  The Fed is already buying both investment-grade and junk-rated corporate bonds.  Drawing a line in the sand with equities would only encourage a further shift toward debt financing.  Why use equity when debt is cheaper and, with Fed support, easier to roll-over and thus competitive with equity in terms of duration as well?  Unfortunately, more corporate leverage would boost equity market volatility, increasing the probability of large fall in equity prices and deep recession.

It’s not hard to see the trap. Given Fed actions to date, ruling out future equity purchases would accelerate a structural dynamic that risks more frequent and deeper recessions, the exact outcomes the Fed is mandated to avoid.  

There’s more.  The ongoing shift of retirement assets to saver-controlled DC plans makes such a line in the sand even harder to hold politically.  Wait, you helped bail out banks in 2008, you bought junk bonds in 2020, but now you won’t step in to support the 401K’s of individual savers?  Less than a decade ago Texas Governor Rick Perry infamously suggested Fed Chairman Ben Bernanke would be in for some “ugly” treatment if he kept “printing money”.  I suspect the tables have now turned so dramatically that future Fed chairs will be in for rough treatment if they do not print money.

The Unthinkable Keeps Happening

If that seems a bit extreme, think about how dramatically Fed behavior has changed in a relatively short time.  When Long-Term Capital Management failed in 1998, the Fed feared its bankruptcy could threaten the financial system.  Yet despite this fear, its concern about excessive interference in private markets was still great enough that it went out of its way to avoid any appearance of direct intervention.  Twenty-two years later the Fed is now using a loophole in its charter to run an SPV that finances the purchase of corporate debt, including junk bonds. That is a long road to have traveled and there is no evidence to suggest the road ends here.  

Andrew Mellon, as US Treasury Secretary is supposed to have advised Herbert Hoover to “liquidate everything” in order to purge the system of its rottenness following the 1929 stock market crash and subsequent depression.  I am not advocating this strategy, nor am I trying to argue that recessions are somehow good.  What I am saying is that the Fed’s actions over the past two decades, however well-intentioned, have had very important unintended consequences.  If we are going to address those consequences - slow growth, rising debt and excessive reliance on carry trades for liquidity - we first have to realize how and why they’ve evolved.  

In the meantime, get ready for the Fed to buy stocks.

 

  • Like 1
Link to comment
Share on other sites
  • Replies 9.6k
  • Created
  • Last Reply

Top Posters In This Topic

Popular Days

Top Posters In This Topic

Popular Days

Popular Posts

Hank_Hill
Hank_Hill

Haven't mentioned it because didn't need naysayers because it is stupid, but I'm a med student doing this almost purely on my student loans while they're at zero interest. I've made +$20k since Decemb

Hank_Hill
Hank_Hill

The real treasure is the friends we make along the way

BradInATX
BradInATX

As long as 700% APR payday loans exist, you can fuck right off with "protecting people from themselves".

Posted Images

NateHitch

NateHitch 1282

Posted
Posted
What are the main research outlets for stonks? Been following this thread for a while but haven’t had the gumption to jump in without the proper legwork.
I use finviz, stocktwits, barchart and Twitter a lot, just search the ticker and you can usually find some good DD threads. Get used to reading and understanding SEC filings. If you don't know how to read charts watch some YouTube videos
Link to comment
Share on other sites
Wally Fairway

Wally Fairway 5674

Posted
  • Author
Posted

ALT is a bit jumpy this morning - falling to $25.16 shortly after close, as someone wanted to get out, and now back around $33

#stonks doing #stonk things - not sure if it's pump and dump, or dump and pump. All I do know is that the options I'm still holding are now in the 10-bagger category

Thanks - @Harrison Stafford

Link to comment
Share on other sites
Harrison Stafford

Harrison Stafford 3392

Posted
Posted
1 hour ago, SuperSport said:

Just checked my numbers, I actually have a larger relative position in IBIO than I do in ALT.  Gonna be a good Christmas this year if both continue to run.

[knocks on every piece of wood in sight]

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

  • Like 2
Link to comment
Share on other sites
PenelopeWitherspoon

PenelopeWitherspoon 19305

Posted
Posted
3 minutes ago, Harrison Stafford said:

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

I have liked playing the ALT options game.  I will continue to do so.  

I am liking IBIO.

Link to comment
Share on other sites
closetohumping

closetohumping 17817

Posted
Posted
7 minutes ago, Harrison Stafford said:

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

And Covid is a dry run.   There’s gonna be more crazy diseases down the pipe

 

 

 

wtf is hbtx

Link to comment
Share on other sites
CooterBrown

CooterBrown 18288

Posted
Posted
1 hour ago, Harrison Stafford said:

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

CJaj.gif

  • Like 4
  • Haha 2
Link to comment
Share on other sites
Wally Fairway

Wally Fairway 5674

Posted
  • Author
Posted

I've read a couple of pieces that S&P will soon announce that TSLA will be added to the S&P 500. If that is true, I presume a lot of funds will have to buy shares in proportion to the market cap of TSLA vs. the total S&P 500 market. 
This could be yet another push to the TSLA stock price, it has more rocket fuel than it's cousin Space-X

I'm gonna bet all my #stonk money and buy 1 TSLA call

 

  • Like 2
Link to comment
Share on other sites
CooterBrown

CooterBrown 18288

Posted
Posted
I've read a couple of pieces that S&P will soon announce that TSLA will be added to the S&P 500. If that is true, I presume a lot of funds will have to buy shares in proportion to the market cap of TSLA vs. the total S&P 500 market. 
This could be yet another push to the TSLA stock price, it has more rocket fuel than it's cousin Space-X
I'm gonna bet all my #stonk money and buy 1 TSLA call
 

Glad I bought in last week. Already realized a nice profit today.
Link to comment
Share on other sites
Errestaurants

Errestaurants 2570

Posted
Posted
8 hours ago, Harrison Stafford said:

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

You got anything else kind sir? I got in on IBIO last week at 1000 shares. Appreciate everyone's commentary. 

Link to comment
Share on other sites
SuperSport

SuperSport 1369

Posted
Posted
On 7/20/2020 at 11:19 AM, Harrison Stafford said:

Both ALT and IBIO will continue to run.  ALT is going to $50 and IBIO is headed to $15 - $20.....initially.  We’re seeing the beginning of a boom in biotech that will dwarf the dot com bubble in technology because, this time, the global economy and lives are at stake.  The massive funding (with much more to come) in this unhinged market makes this a once In a lifetime incredibly worthwhile bet, especially for innovative micro-caps.  We’re in only the second lap of s horse race in which every horse that merely approaches the finish line wins.  It’s a bad time to bet against any of these companies and Covid-related names are going to shoot up.

This might be heresy for the stonk thread, but anyone know a good biotech/immunotherapy ETF? I thoroughly enjoy the rocket rides, but a sector index would be solid across-the-board coverage to avoid hunting unicorns while still profiting handsomely off the above scenario.

Link to comment
Share on other sites
Harrison Stafford

Harrison Stafford 3392

Posted
Posted
1 hour ago, Errestaurants said:

Bought 100 shares of ALT @ 31.50 and 500 AIM @ 3.60. Thinking of adding another 500 shares of IBIO

If you use the top of the gap from yesterday’s open as support,, you’re looking at 4.97.  Soooo, you might put in an order for 5 and keep your fingers crossed it gets filled.

  • Like 1
Link to comment
Share on other sites
TornACL

TornACL 7792

Posted
Posted (edited)
23 minutes ago, Anastasis said:

I bought some IBIO.  Can someone tell me what they do now?

Ha ha I interned at the brick and mortar location of an online brokerage firm in 1999-2000. 

I didn't have a Series 7 but I helped people set up accounts, etc. and learned about the markets thru osmosis and chats with the brokers. 

Every day, I would open an account for someone who would be wanting to buy stock in companies that they knew NOTHING about. Or I would get asked "Now how do I make money once I buy this?"

I could take walk in stock orders, and just take it back to the brokers. Sometimes people couldn't even correctly pronounce the company for which they wanted to buy $10K worth of stock, which made looking up the symbol next to impossible. 

It was like working the betting window at the horse track. The worst were the retired dudes who had an account full of fun money to "day trade" with. They'd hang out in the lobby bullshitting with me until a customer came in. Then they'd get real quiet and then immediately tail whatever order that customer just placed. 

Edited by TornACL
  • Haha 1
Link to comment
Share on other sites
Reagan1k

Reagan1k 3042

Posted
Posted
5 hours ago, T’Boo Ted Marshall said:

Was doing some research this morning and tons of other stocks are diverting activities towards anything Covid related. Stonklife

Worst I ever was involved with was a company who made burn care for emergency station kits placed around factories.  Some kid they hired in their fledgling IT dept. built their fancy website and I guess it got rave reviews, so they decided to leverage that, changed their name and went 100% into website design and tried to become a dot com incubator like CMGi (olds here will remember those days).  They'd design websites for cheap and take equity as payment.

Went from pennies to $80+ and then evaporated overnight when the bubble burst and rational adults realized that their stakes in pimentocheese.com and castoroil.com were worthless.

That was a stonky stonk for sure.

 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
 Share
Go to topic listing


Football ... Basketball ... Baseball ... Other Sports ... Futbol ... 🤫995🤫 ... Gambling ... Movies & TV ... Music ... Hobbies ... Lulz ... Food & Travel ... Daily Texan ... Business and Markets ... Cloak Room ... Help ... For Sale ... Board Discussion ... Subscribe!... Donate!... Advertise... COOKIE MONSTER!

×
×
  • Create New...