Market gyrations, maybe a ‘Minsky Moment’, ‘stay at home zombies’, a V-shaped bounce and other random mutations. Welcome to March Madness!
There’s a slim jim chance that the coronavirus (below) will be nixed in the United States soon at the behest of the Golden Godzilla and his crackerjack CDC medicos. But there’s also a possibility that the highly-contagious, scary AF virus will spread like a Balenciaga FW20 meme and there will be sporadic — then apocalyptic — outbreaks across the country.
If this latter scenario takes place, then the ructions in the financial markets will intensify, making it impossible to form a bottom or spark a sustained relief rally (the current one is welcome, but it’s probably a false positive – especially with two NYC high schools suspending ops due to the virus and the G-7 taking a neutral bias. Stay hedged!). If stocks can’t find a bottom, then pressure will build on traders and investors, who purchased securities with borrowed do$h (leverage), to sell both good and bad assets in order to repay debts, cover shorts, and reinforce (rehypothecate) collateral chains.
These massive, cathartic sell-offs can quickly turn into firesales where it’s nearly impossible to find a buyer regardless of price. What’s dangerous is ‘panic selling’ — a vicious, self-reinforcing downward spiral in which stock prices collapse in a frantic, disorderly tumble. The phenomenon has also been characterized as a ‘Minsky Moment’ and known colloquially on trading desks as ‘VIX-pocalypse’ events. Contagions can kick in fast manifesting massive, multi-asset negative externalities.
‘Minsky Moments’ generally occur because investors, engaging in excessively cavalier speculation, take on additional credit risk during giddy times, or bull markets. The longer a bull market lasts, the more investors borrow to try to amp up returns and exploit vol and easy money. A Minsky Moment defines the inflection when speculative activity reaches an extreme that is unsustainable — a ‘tipping point’ — leading to a precipitous price decline and an unpreventable market implosion. What follows is a prolonged period of instability and crash dynamics — that ‘OH FUCK’ moment of terror and recognition that ‘stability begets instability’ all the way down.
So, how close are we to the dreaded Minsky Moment? Pretty fuckin’ close. In the last week alone, US stocks have erased $3.6 trillion in market value while benchmark Treasury yields have dropped to all-time lows (the 10Y bond = 0.999%) and the ominously-named ‘fear gauge’ (the VIX – Volatility Index) has spiked to levels not seen since the GFC (the VIX pierced 51 last week, a spike of nearly +230% while the ICE BofA MOVE Index, which reflects bond volatility, has surged over 61%). In$ane.
The losses have been fuckin’ savage and severe, but the credit markets have held up pretty well so far (fingers crossed). This week (and next) could be a different matter altogether though — there’s geopolitical savagery in Syria (Russia vs. Turkey – watch this), Covid-19 outbreaks across Africa/France/Lat Am and other Third World armpits; refugees wandering aimlessly through Euroland and getting lit up along the way; and the prospect of comrade Bernie infecting US politics with what may be worse than the viral infection of late — ‘democratic socialism‘ — leading us all down the road to serfdom (today is ‘Super Tuesday’, of course!).
Another wave of extreme jitters could lead to widening credit spreads, major dislocations in the bond market, and deathly corporate defaults (esp. in China). A coronavirus emergency in America would fuel the funeral and crematorium biz (yikes!) and darken peoples’ prospects in the short-term. But Gen Y‘s idiotic penchant for neo-Marxist progressivism/Bolshevik Bernie is perhaps the darkest, most ill-fated plague of them all. Bernie will wash out soon, we suspect (fingers crossed!), and so will plutocrat-oligarch Mike B. and liar, liar, pants on fire/spoiler Liz Warren. Good Riddance.
Over-extended (indebted) firms that have borrowed oodles of cash (at low penalty rates — ‘beer goggles for borrowers’) to buy back their own shares, would certainly face a day of reckoning as their capital evaporates overnight and their prospects for rolling over their prodigious pile of debt drops to zero. This is typically how credit cycles end, in a fetid cloud of blood and smoke, preceded by that veritable ‘euphoria phase’…then killer capitulation and fade to black.
It’s a fucked dynamic that builds on itself in the short term, fueled by a ‘viral fear’ and other behavioral traits that engender paralysis and insecurity. It also promotes self-reinforcing doom loops with nasty social, political and institutional spillover effects, amplified by the considerable risk of pockets of multi-level malfunctioning. FUCKKKKK.
At VIVISXN, we’re buying select dips (yesterday worked — thanks, central bankers! And the FED just cut rates moments ago by 50 bps. Swoon!), monitoring the disruptive antics of incompetent DEM candidates/officials (Trump will win, don’t worry, but there will be angst along the way!), and showering ourselves in germicidal sanitizer as the pandemic propagates (it will peak by June!). We can’t be a paralyzed nation hostage to malign forces (Bernie Sanders, China, Iran, France, Covid-19), mired in racketeering (Joe Biden + AOC + Ilhan Omar) and captive to cliched fashion brands (Celine, Prada or Balenciaga — even though we heart ♥ Demna G. and Hedi Slimane!).
Don’t worry, the germaphobe president will be on duty during the gravest and most frantic financial-medical panic in recent history, and it is a damn good that we have Dr. Anthony Fauci & Co. to temper the coronavirus circus.
To decisively turn the corner, the global economy needs evidence of two health accomplishments: success in containing the spread of the virus, particularly when it comes to community transmission; and sustained success in illness recovery and avoidance, with the latter best done through the availability of a new vaccine (Go Gilead and Moderna!).
At VIVISXN, we are investing in vaccine makers, teladocs, disinfectant producers, precious metals (gold) and frontline biotech ventures. Just sayin…A V-$haped, positively parabolic bounce is coming, so BTFD. A ‘reflex rally’ is in the making.
This post was authored by VIVISXN’s proprietary AI Thought Bot®
Photography Happy AF Death Squad + Balenciaga + MECA Macro
[The content above is for informational/editorial purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. You alone assume the sole responsibility of evaluating the merits and risks of the aforementioned ideas. Don’t be a pussy!]
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