Tuesday, March 10, 2020

China Lehman

Deja vu of last week, this week's imaginary bailout spontaneously imploded, but then Biden hopium forced the shorts to cover. Big Donny's Twitter bullshit may have just sponsored the final short-covering rally before the shitting of bricks...

Picture a scenario in which quarantined global gamblers are sitting at home bidding up their own stocks while the entire global economy goes offline. Because THAT is where this is all heading. A society conditioned to believe that "stocks" are more important than the economy...


Entire countries are now being quarantined:

"ROME (Reuters) - Shops and restaurants closed, hundreds of flights were canceled and streets emptied across Italy on Tuesday, the first day of an unprecedented, nationwide lockdown imposed to slow Europe’s worst outbreak of coronavirus"

“It looks like an apocalypse has struck, there is no one around,” 

This Corona virus is now being used as an excuse to hide the imploding economy. Every negative data point is viewed as temporary. A buying opportunity. It's non-stop on CNBS. You have to get in BEFORE peak virus. Because otherwise when factory workers return to making goods for an imploded economy, it will be too late to buy. 

Meanwhile, unprecedented central bank liquidity is hiding insolvency. A tsunami of cheap capital with nowhere to go has hidden the fact that today's weak corporate dominoes are all Ponzi borrowers. Central banks have merely delayed the Minsky Moment and in doing so increased complacency and set up a larger explosion.

Goldman Sachs put out a note saying that (options) implied volatility is too high relative to the soon to revert level of Corona risk. Creating an opportunity to short more volatility via the options market. Of course, my prior post suggests the exact opposite. They go on to explain that global realized volatility is lower than 2008 and more inline with 2011. (Although they also admit that the futures market is pricing in an extended period of extreme volatility).

"Data on the impact of the coronavirus will be the key driver of normalization in the current environment"

Apart from global economic meltdown in broad daylight, here is what they are missing: Overnight volatility, which is not captured by standard intra-day volatility metrics. Every day, for the past two weeks, the market has opened down and then rallied in the U.S. compliments of BTFD.

Which is why I use the Average True Range:

"Wilder designed ATR with commodities and daily prices in mind. Commodities are frequently more volatile than stocks. They were are often subject to gaps and limit moves, which occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. Wilder created Average True Range to capture this “missing” volatility."

Meanwhile, I've noticed that large cap volatility is really heating up lately. Which is a function of fewer and fewer stocks holding up the casino.

In the spirit of imaginary bailouts, this morning Trump spawned a 1,000 point Dow rally via bullshit on Twitter.

However, unlike last Tuesday when bears pounded the Fed rate cut into the dirt, this week, they are covering their shorts ahead of tonight's Super Tuesday 2.0. On the basis that another Joe Biden win could spark another massive rally. The fact that they covered shorts this week and not last week does not bode well for another short-covering rally tomorrow. Meaning we are likely already seeing the Biden bounce right now. Of course a Sanders win and we could be limit down again overnight. Either way, a whole lot of bullshit is "priced in".

The bottom line in all of this, is don't trust Goldman Sachs or any of the other financial sociopaths running amok. They are always wrong when it matters the most.

And, one should never ignore overnight risk. Now that China's gamblers are "going back to work".