Here are the highlights from my notes to self this evening:
Note: To the extent that I express my short-term outlook on the overall market, a sector or a commodity, in my log entries, these are not to be the least bit construed as trade recommendations to the reader. At all times, under present conditions in particular, they are subject to change without notice. What might appear to the reader as a viable trade idea today, could be something I’ll do an about face on — as new information presents itself — tomorrow with no prior warning. I share excerpts from my notes only when I deem them useful in terms of helping our clients maintain proper perspective.
- Today’s monster rally was about the prospects for fiscal stimulus and the technical aspects of the market being oversold and bouncing off of 2200 on the S&P 500, which is right at 2016 support. But more about the prospects for stimulus.
- Junk debt performed well, the dollar came down a bit, currency basis swaps have calmed down markedly the past couple of days.
- Tracking BIZD — ETF that tracks the MVIS US Business Development Companies Index — which reflects the fortunes of the companies that have invested in the very worst credits out there. This should to some degree reflect the level of stress in the lowest-quality debt arena. As of yesterday it was down 55% from its Feb 20 peak. Today, however, it rebounded by 12.5%, reflecting optimism over what the stimulus bill may mean to that space… I suspect that, ultimately, the political risk of rescuing the really bad credits makes today’s optimism a bit misplaced.
- Both gold and silver had a huge day, up 4.8% and 7.9% respectively. The gold VIX selling off at the end of the day has me feeling better about our position right here (although 40.41 is still a very high reading). Silver VIX has been trading steadily lower the past few sessions, although it too sits at a higher than comfortable 70.69.
- Our short junk bond ETF, SJB, got trounced today, down 4.6%. Still up 21% on the year however, and remains a must-own given the immense credit stress in the system — despite the efforts of the Fed.
- In terms of equity sectors, energy had a crazy good day, up 16%, followed by industrials, financials, materials and utilities. As for our foreign exposure, Germany did the best, up 10.7%, both it and our Eurozone ETF outperformed the S&P. Russia had a big day as well, up 8.05%. Our Asia/Pac ETF rose 8.1%.
- Today’s rally was a no-brainer, given the recent trading action on fiscal stimulus headlines — even though the bill has yet to be passed, as the rhetoric was positive enough to call it a done deal. The rising VIX, however, suggests that there are definitely traders positioning to sell the news when the bill is finally signed. That makes sense to me, given present conditions. There is however a case to be made for stocks catching a bid until month’s end, given how badly they have been beaten up lately, and, thus, how much balanced funds will need to buy to move back to their equity exposure targets by quarter’s-end. Although the market headwinds right here remain enormous and, thus, they could easily overwhelm said quarterly rebalancing.
- The fiscal stimulus package looks to equal roughly 10% of annual GDP. Morgan Stanley predicts that GDP will decline by 30% annualized in Q2, Goldman predicts a 24% contraction. In either case the stimulus only amounts to, at best, a few months stopgap. I.e., if this lasts awhile, there’ll be more government-financed support to come.
- The implications of all of this stimulus within the system as we come out of this — which we ultimately will — will be interesting as they relate to inflation, monetary policy at that juncture and its effects on markets, and so on…