(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: Week #14 Ahead... Survive!
Folks as a pin going forward during this turbulent times, let us please remember:
The Covid-19 crisis with all its challenges, stress, chaos & opportunities will also eventually pass. What defines humanity & ourselves as individuals is how we both individually & collectively act under adversity. Think of how you want to look back over this period, doing your part to keep your family healthy, society healthy & functioning. Keeping a cool head, when others are losing theirs, maintaining an objective list of positive aspects & negative aspects of the policy responses & economic shock the world is/could go through. And lastly gratitude, sympathy & empathy for one another. Asia got/is getting through this & RoW.
The one big positive from all this, is it reminds us we are all One & we are not at the top of the food chain. Covid-19 does not care if you are rich, poor, what your ethnicity & skin color are, what passport/s you hold, nor what you age or profession is. Our greatest achievements are almost always those that we collectively do with others & sometimes as in this case, as a species. Lastly keep your mind open to growth & opportunities.
Top of Mind…
- An old Wall Street adage says that in bear market regimes, everyone’s’ capital gets destroyed – both the bulls & the bears. Some of the whip saw moves that we have seen over last 2wks, definitely lend that adage some substance. Just remember the market does not care… its is the pinnacle of zero ego… you can lose $250m or make $2.5bn… the market does not care. It will calibrate & settle on different pockets of equilibriums given what is currently front & center.
- Going into WK 14 & forward, we are all going to be Thu Jobless claims watchers… Numbers o/n were 3.3m massively beating the 1.7m adj. expectations & that from a c. 290k p. This number is going to go up, that is 1000% certain & its going to go up epically. Our best of breed economist Dembik put out a great piece on this & you know KVP’s context example on just the 15m Restaurant industry. We are talking literally millions of people could not get into the system to file for benefits & this is pre-peak Covid velocity, where KVP’s conservative back of the envelope numbers are well north of anything being currently touted – we easily, easily get to 1-2m. Remember only a fraction of the US is ‘shutdown’, the numbers (Virus & economic wise) get a lot worse before its better – it all comes back to what is priced in for today’s session & for where we are mid to back of April.
- Still US mkts had a monster +6.2% on the SPX to 2630 (looks like 3m was the whisper number in the market), we are now in that key fibo retracement that we touched on yest. between 38.2% & 50%...KVP would be looking to finish the last line of puts here… final 90%... & still leave a touch just in case we gun for 2800 – 3000! If we get past peak Covid-19 velocity in the US (end of Apr to ? End of May… hard to lock a date given lack of system wide coordination across the states) & the equity markets continues to melt up or trade sideways, then clearly it will have been the wrong thesis/view.
- If you think the bottom is in on US equities & it’s only upside from here, we’ll see.
- If you think there is more to come on the downside, we’ll see.
- If KVP had to choose one hedge fund strategy, along with $1bn to spend the next few years on – it would be US & CH credit, there are basically some quasi-sovereign / TBTF (Too Big To Fail) high yielding names… plus you are front running the Fed. It literally does not get any easier than that, do you want to be part of the Titanic Tsunami of liquidity (Fed buying) that is trying to right the system (for a shock that has NOT YET hit us fully yet) or do you want to fight that wave… that’s Bonds & Credit folks… it got significantly easier post Monday & that’s one of KVP’s key takeaways for not just WK 13, yet this entire Covid-19 crisis.
- One big positive of next wk, is it will be month/quarter end which should at least start to get us out of the re-balancing flow noise… where its estimated than anything on the scale of +$225bn globally, $190bn in the US of equities needs to be bought… that added to the potential shorts still out there (some bank data still showing good amount of shorts)… then we may still have some squeezy days that makes it hard to ascertain how much of this is real money coming in structurally, vs. just short squeezes & near-term trading.
- Daylight savings time kicks into Europe on Sun. And we also have Japan Mar fiscal year end – which KVP has not been able to ascertain any special relevance to despite recent events (i.e. most of 2019 was pretty decent).
- In addition to Jobless claims on Thu in the US, we also will have NFP, AHE, Final PMIs & ISMs – note that these will not yet have the full effects of some of the recent governmental measures.
- Rest of the world is obviously in the final PMIs camp, here KVP would be watching China’s on the 31st…which could surprise to the upside, albeit expectations are still quite high given the previous figures… (Mfg. PMI 44.8e 35.7p, Serv. 42.0e 29.6p)
- We can expect more politicians & policy makers wave the whatever it takes anthem, plus increasing jumps on confirmed cases (remember the map is not the territory, just because there are no widespread public testing does not mean that the underlying numbers are fine, they are not… tick tock on places like Sweden & Turkey… just wait for it)
- For next wk KVP will really be focused on getting the works together for a world class crisp webinar on Thu & Fri next wk (You should have gotten an invite), so the Dragons are gonna be super light. However you know the potential game plan, risks & opportunities.
- As always for all our VIP clients, never hesitate to reach out to SaxoStrats or/& your friendly GST contact – we are here to do our best to help you walk the fine line of wealth protection, as well as growth. If you would like to find out more about how to become a VIP, please reach out to your Saxo contacts.
We could continue to be in a gang buster period of volatility both to the up & down side until at least mid-Apr to back-end of May. Some, time decay is needed in the system, both from a Covid-19 spread (past peak velocity upwards), even bigger & even better government / fiscal / monetary policy response, to overall heads of governments giving this the 2nd & 3rd order consequences thinking that it needs. This will also pass. Keep you minds & hearts open.
Good luck to everyone out there, be nimble & position accordingly.
Get some rest over the weekend, spend it with loved ones & get some time off the screens.
@KVP_MACRO | @SaxoStrats