Bear-Market Flashback

We'll work on Wolvern either way. Either way this week on the show, agree to disagree with me, but we have may just witnessed the best week for crazy things ever. Bankruptcy stocks are soaring evidently traders on the robin Hood investing app are going all in. Then all of a sudden, a five percent stock decline reminiscent of the infamous days of March? Is it a sign potentially of market froth? Our guests and yes, PLU all guests way in right? Sorry?

And I I you know, I gotta give you a shout out because I think you've covered basically all these crazy things by yourself this week. You've been doing some amazing reporting in the world of crazy things. Uh. You stole my thunder with the bankruptcy stock surging. That was gonna be my crazy thing of the week. But as you know, I came prepared with a backup, so so we're good. I think there there's multiple backups, so many, so many crazy things this week, and I thank you,

thank you for the shout at Mike. But I also will admit I'm ready for the weekend. I'm a bit, I'm a bit tired. But let's bring in our guests to help us break it all down. Uh. Two of our favorite Sarah. I'm glad to have them both the double header here with us, UH this week, joining us for the I don't know how many times it's got to be at least five or six. Is the head of macro strategy at med League Global Advisors, Mr Ben Emmons. Ben, welcome back to the show, a good and also joining us.

It's been a while, but I'm I'm psyched he's back. He's a macro strategist at Bloomberg itself. Uh. He writes the Macroman Calm. He's a blogger, UH for the Market's Live blog. I believe he holds a doctorate in armchair epidemiology from the University of Google. Is that right, Cameron Price, Uh, it's actually Google University. That's total, totally separate institutions. Can

anyone go ahead and get that degree? Cameron, Well, you have to put in quite a bit of quite a bit of work, I gotta say, with at least thirty seconds of search. We need dedicate that was that of course, was a great line from one of Cameron's columns, sort of making fun of how everyone is an expert in infectious diseases these days. UM, so we will not pretend to be experts in infectious diseases, but very much experts

are guests in markets. So but let me start with you. UM. I know you've been sort of optimistic about this rebound in stocks to some degree. Um. And you know, full disclosure, we're recording this podcast here on Thursday, June eleven, the markets down about five percent. Who knows what Friday will look like or even Monday. Maybe we'll see a bounce back, but at the moment, things look like they've turned on the dime. Uh. And for one thing, I think it's safe.

We can all agree that this market was a little bit overextended, a little bit overbought, and was due for some consolidation. Perhaps this seems a little bit more than consolidation. And I'm not sure how much it matters what the catalyst is considering how overbought the market was, but I'm

just curious your take. I mean, it seems to have really uh started to roll over a little bit before the FED meeting, it accelerated after the Fed announcement and the press conference, and then uh Thursday morning, it was just off to the races with the selling just a nest the tape from the get go. So I'm curious. You know, some people are blaming it on sort of this resurgeon in the virus um. Others talking about how the you know, POW is not exactly optimistic about the

economy and the economic projections sort of backed that up. Again, I'm not sure how much it matters. I feel like it's a market that was due for a little bit of a calm down. But walk us through what you're thinking about the state of the market right now. What caused this nasty dip on Thursday? And um, is it just a a sort of correction in an overbought market or is it the beginning of some more weakness? Do

you think, yes, A certainly. I can. So what I noticed on Monday, actually Monday evening, um those news out that koreation he cut off communication with Soft Korea, and the end dropped like almost two big things, like really quick, like roundies I think against the dollar, and I spinkings to a friend of mine over in Asia, and I was kinda trying to figure out, like, why is suddenly happening, right, And you know, that was the only news that we

thought that was the case, because the Japanese government actually came out I think I can forty five minutes later after that news broke, which apparently broke already over the weekend, but I guess it came in the market on Monday, and this is Monday night Asia, by the way, that so our time, you know, specific time, like six year time, nine at night something like that, And and I was the Japanese government kind of responded like, you know, we're

watching this carefully, the situation. And so I think that was a bit of a geopolitical tension. That's that that started a bit of this flight to safety idea. I think the treasuries from there took that on as well as usual Golden and Swizz Frank, but it's nothing to do but what we're actually seeing today maybe that indeed, people have reassessed a bit that the reopening euphoria, as you say, it was pretty exuberant, and it's taken somewhat

out of the off the table. People points still point too that the fat yesterday delivered the exact message that the market was looking for. It's a v shape for coffee on the short term, but a long road. I had rates state low quee stage in place, and it's sort of a message like, you know, not much more euphoria behind that, right, And I think that and the acknowledgement that the job or report was strong but not like you know, we need to see a lot more of it. We would like to see a lot more

of it. As I think that tone was kind of added to the simmering view political little tension with North Korea in the background that that triggered what we're seeing now today. The people then start liquidating maybe some of these trades that was so popular that you know that

Sarah and actually written about on the retail side. I was a little skeptical on that part, thinking that that actually came early to the party these times of late right, and tends to be when they're late retail investors, they tend to be then the ones that really drive that we pushed the market b down and start overreacting. But you know, at the end of the day, I think this is kind of the sequence of events that that

we're dealing with. Added to that, perhaps also that I think what people are looking at though as a background story is I think two other stories you want to highlight. Um One, the story around Hong Kong continues to be something to be able to carefully watch. So what I've noted was that this and the swings in the ad rs right that are on the exchanges here is huge, right, and and that indicated that there's a lot of speculation, a lot of Chinese company looking to move away from

US markets and go listen in Hong Kong. The flood of IBOs has picked up quite a bit in Hong Kong. There's been a fair bit of dollar demands in Hong Kong, like as in people holding dollars to deposits and banks have risen quite a bit, right as in it's not the capital flight system mind, people that kept I guess hoarding the dollar instead of the Hong Kong dollar. So it sounds like there's a there's plenty of reasons to

be concerned. You just gotta take your pick. But I want to I want to focus on the reopening, though, because something I've heard from a fair amount of investors this week that I just personally do not understand at all is them saying that a second wave of the

coronavirus is priced into markets. So even though we're seeing numbers starting to increase in the likes of California, Texas, Florida, where I personally am right now a little bit nervous, um, they're saying, you know, it shouldn't really matter all that much because markets are expecting a second wave. It is that the truth, like, should that? Should we buy into that narrative? I don't. I don't buy that. I don't

buy that. I don't get it at all. But then I have investors at certain firms which I won't name, saying this to me before the five percent decline on Thursday, that is, and it just doesn't make any sense to me. Um, So if anyone can make sense of it, I would love to. I would love to hear that so so well. I looked at it said we're going to get the second wave, because it was actually communicated already in March by Fauci that look what when we're doing today, we're

gonna prepare for the second wave. Right, So the fact that the second wave will becoming is there, and and the dreadful story about that, this eighteen Spanish flu scenario of like the second wave is worse than the first wave, right, And I'm not sure if that plays are roll here today. But what I do think matters to markets mostly is that if we get the second wave, that indeed picts are quite quite requite a momentum that there would be a governor or a mayor or anyone right that's in

charge of a city, county. Then support suddenly says, okay, I'm going to close this thing down, and it starts with one and a bunch of others followed because they're getting worried politically that they may be responsible for more fatalities, right, and they're making a decision on we gotta shut things

again down. That would be I think very negative for markets because think about what's priced in in that sense, in that V shape idea is that the reopening when you reopen eCOM tiki United States economy, you get immediately recovery. And that's that's kind of what it's shown, right the data when you look at mobility data or in kind of like real time data, sales or whatnot of people can be hired, that's all jumping really quickly, with the

capacity of airlines jumping quickly. So I think that the market is really nervous if the if the second wave leads to another lockdown. I think my personal view, it's politically not possible, like we would really push ourselves into a depression, right, I think that's in this season of

political season, not possible. But I do think there's worries in the market that certain parts of the country may end up that way simply because the local governor or mayor who's in in charge is putting her or her or his feet on the ground. Kevin, I wanted to bring you in here at a bit um. Both you and Sarah have written really well this week about this whole retail trader phenomenon. You know, you had a column talking about what you call this is the phase of

the market where garbage starts to float. Floating garbage. I love it. Floating garbage A great line. Now, I obviously, you know, these retail traders uh their home, their board, there's not a lot of entertainment. They might have some spare cash from their stimulus checks, or that the extra unemployment benefits, whatever, it is not a lot of options to sort of blow your money foolishly on gambling or

expensive trips whatever you otherwise do. So I think, I mean, it's obvious that these traders have puffed up some ridiculous stocks, like the the bankruptcy stocks that you both have written about, you know, Hurts, chess, Peak Energy, arguably the surgeon inflows in the jets, the air travel etf is A is

another example. I think the debate though, and where it gets sort of I get greeted with skepticism is when I suggest to people that they're also maybe part of what lifted the entire market over the past couple of months. And I know, from from sort of an a U M. Standpoint, even all these retail traders together are a a sort

of drop in the ocean compared to institutional investors. But is it possible that their exuberance is kind of set off signals that that has has helped the rest of the market sort of float higher than it it should have in the last couple of months. Well, I think we need to acknowledge that this is not a regular market. And while it's always tempting to point to catalysts as to why things are moving, fundamental catalyst or whatever, um, the fact is is that it takes a lot less

flow to move the price than it used to. I've got a measure of market liquidity, and it's off of its lows, but it's basically still shows worse stock market liquidity than at any point uh in the last quarter century, other than the very nid deer of the financial crisis. UM. At the same time, you see a lot more sort of student body left, student body right price act. If you look at the TICK index the New York Stock Exchange, Sarah pointed out that it hit an all time low Thursday,

having hit an all time high last month. And indeed, if you look at a long term chart, you can see the amplitude in terms of highs and lows of the TICK index is unparalleled in the history of that index, which is suggests that everybody seems to be moving the same way at the same time at the same time that there's not really much liquidity. So if Davy day Trader says, I'm buying Spirit Airlines, well guess what Davy day Trader has two? Well whatever, I'm not, I'm not

one of them, right whatever. Anyway, he's got this this legion of people hanging on his on his sort of every word, and if every if each one of them, you know, if a million people each by five thousand dollars worth of stock, that's all of a sudden, a five billion dollar trade that's going to move the price. Right Um, And Okay, that's that's an exaggeration, but I think it does speak to the dynamic of what's going on here. For those who don't know Davy Day Trader,

that is Dave Portnoy. He's the founder of the website bar stool Sports. This guy was most famous recently for his reviews of pizza. He would go to pizza joints, take one bite, and give you a review. And that's that's what made him famous. Well, what happened was he sold part of his business to this uh this Penn National Gaming, got paid in stock. The stock went up, then it collapsed and it came back. And so you

know he also got some cash. It was a pretty wealthy guy, right, and he can't gamble on sports because there is no sports. So he started trading stocks basically and coincidentally more or less about it at the time of the low And guess what, you know, a blind monkey throwing dart in a newspaper trading from the longside was gonna make money over the last two and a half months. And that's uh, you know, and that's what he's done. I'll give it to him. I mean, it's

been great marketing on his behalf. Everything going on right now in him day trading and people following along. But it feels like in the year of the anecdotes are endless. Okay, you have Davy day Trader, as he's called one. My colleague vill Donna this past week was talking to a strategist over at bat t I G who was telling her how all of a sudden, his eye doctor's son

is asking her which stocks he should be buying. At the same time, I've been spending my days just watching Robin Tracks, which watches Rob Tracks, Robin Hood uh and on Wall Street bets once again, and I think of Luke Cowell'll say r I p no longer with the step Bloomberg, but wishing him the best. No, wishing him the best. Missed him very much. But he wrote this

almost infamous story back in February, right before everything blew up. Uh, And it was about the Wall Street Bets crowd and Robin Hood traders and kind of speculating that there could be some type of dot com bubble out and about, and all of a sudden, it feels like it's back. Yet we're in the midst of a recession. We just experienced this extremely fast bear market and fast rebound. But in a way it feels very speculative. I mean, what what do you make of that type of environment that

we're in right now? Well, yeah, I mean it is in many ways very reminiscent of the dot com era. Um, you know, the the Wall Street bets, the reddits of today were the sort of the Yahoo message boards of twenty long years ago. To some extent, I suppose it's difficult to square this idea that there's a zillion people out of work and struggling with this notion that people

have all the spare cash to play with the market. Uh. You know, there's a sort of cliche there's caricature that that sort of the millennials living at home took their stimulus checks and opened robin hood account of Yeah, maybe there's maybe there's something to it. I'm sure that some of the some of the individuals involved with this are

are are professionals or software engineers or whatever. You know, people who can work from home do have disposable income, in fact, more disposable income than they used to because they don't go out anymore. Yeah, I mean, I think there there is something to it, and you know, it's almost enough to make me when I take off my flip pops, put on a pair of shoes and go get them shine so I can get some stock tips. I do wonder about this all coincides with sort of

universal commission free trading to you know it. It's you know, it's one thing if you have a few hundred bucks to invest in the market, but a trade costs ten or fifteen bucks, you're gonna be sort of a little more gunshy than if you can do it for free. To some degree. But Ben, let's let's bring you in on this. What do you make of all this is?

Is this a uh sort of a sustainable effect that we're gonna have to deal with in the market now, these davy day traders, or is it, you know, something that a real institutional investor should just kind of forget about. I don't think so, Mike. I think that you do to keep the retail traders in mind because as you know, as camera point camera points out right, people are at home,

they have other time, they have more spare time. I guess like it's a different work environments you said of work doing this right, because you deal with a lot of people around you work. So I think I think that may play a hole that you have less distraction besides the money that you may have access and you know, let's not forget you have the savings right now thirty three percent, right, so there's a lot of people have

a lot of money. I think just sitting on the sideline and then looking for new opportunities, right which this would become again the next opportunity. We were getting a decent dip here and people come back, right. So I wouldn't add to that is that this this dot com bubble air that we went through late nineties. Think about the stocks on that that are working on vaccines for this crisis, right, Like you know, some of those are just also completely through the roof. Other than this hurts

and other like stocks. This another kind of bubble kind of environment in the background, right, and one of them will become the true winner, right and has to vaccine and that there's the magic ocean, ocean if you will. But but there's a lot of speculation there, right, So I think the temple will continue. People will continue to come back in seeking out those types of opportunities as well then just buying Apple and Google and you and Test.

I guess right, you know you standard trades. I think that that's gonna stay here, just kind of tactical retail style trading here until the path of the economy is more clear. Obviously it's really hard to know in the short term. But you said, I mean people will come back. Do you get the sense that, like Mike said, we are recording on a Thursday, we don't know what will happen on Friday, but that people will be willing to

come back and and step in at these levels. I mean, if I just use a benchmark as an example, ensure that might be skewed because you have much more leniency towards your mega cap names like Google and Microsoft for example. But I mean, if you look at the valuation for the SMP right now, it's still well above what it was back in Februar. Werey on a forward basis, So do you think people will be as willing to come

back in and quote unquote catch a falling knife so easily? Look, I do think there's optimism out there that we're going to see the end of the of the tunnel here

right It's just not going to stay this way. It's in a contagious virus, but it's not gonna dictate our lives forever because there's such a political pressure on getting this vaccine and therapeutics, and we've made a huge amount of investment in in the personal protective equipment and the system is more flooded with that now that there is a formal comfort, I think compared to the February situation that that was not in place. Therefore we have to

go to the lockdown. And so the lockdown scenario, my view, is a is a scenario that's not as likely maybe localized,

but not nationwide or globally. So it remains really I think an opportunity of this future rebound of the economy that you do want to play why you want to come back and take opportunity here as you have these like this, you know that I am more on the domistic side that way, as opposed to those who really think that we know, the pandemic was just really what pushed the new normal into a into a new depression, and we're going to get a new normal triple like

it's really really, really bad. If we're gonna get deflation and we're gonna not grow much of all of all, I'm gonna have to army unemployed people out there, and we're just not going to get out of it. That I don't firmly don't believe in that, because there's been a tremendous amount of effort done here to actually not be in that scenario, and I think the market is right to not buy that that that depression scenario. But staying on the optimistic side, hence there's gonna be de

buying again here coming in. If not not tomorrow, it will be in the next weeks or so, you know, driven my data and driven by just what I said, like the optimism of that we can get out of us. I would disagree in the sense that you don't have to think that there's going to be depression to think that stocks or allow the investment here. I mean, paying a dollar in time cents for a dollar is never a good idea. It doesn't matter what the economy is doing.

And I think if you buy stocks here, essentially you're paying a dollar in a quarter for five cents. If you look at the ratio of US market cap to the size of the economy, even taking out the Corona hit UH in the first quarter, we're basically at all time highs. That implies an expected return over the next decade it's negative. So personally, I have no interest in hopping in here, and I wouldn't have interest for many

many percents. H since both you guys are macro focused, I didn't want to ask a little bit about the dollar. I feel like the dollar bears are out in force these days, and I know there's been I don't know if it's quite consensus or maybe just the loudest voices have been the dollar bears over the years, and they've kind of not necessarily been right. Um. Something really caught my eye today is is uh. One Goldman strategist has a call for something like a depreciation in the dollar

over the next few years. I don't know exactly how many years, but um, oh, Kvin, I gotta wonder, you know. And I'm kind of putting you on the spot here because I know you haven't written about the dollar in a while, but if you do have an outlook for the dollar, and also I feel like if we go if the dollar weakens as much as in the next couple of years, the narrative will switch from sort of a oh a week, dollar is good for the economy to uh, wait a second, this is this is bad. Um.

What's your outlook for the dollar? And am I right that that sort of that much of a weakness would be not necessarily a bullish economy story. Well, you know, it's an interesting question. And in so far as we are kind of reliving in two thousand parallel in the stock market, maybe the follow through will be a sort of mid two thousand's um episode with the dollar um.

Insofar as if US demand comes back and you have this massive pent up demand and part of consumers, whether it emerges this year or next year, two, I don't know what that could very easily entail. Would be an extraordinary rise in the trade deficit at the same time that monetary policy is committed to being super easy and

fiscal policy is obviously a mess. So if you have the current account deficit blowing out to five six of GDP at the same time that you still have a tremendously large budget deficit, you could see suddenly US moving and the rest of the world recovers a bit and and and risk sentiment and proves on a more structural basis.

You could move from this environment where there's been this sort of structural shortage of dollars for for years, to reverting back to where we were starting and say two thousand three, where there was a structural surplus of dollars. Is it going to happen? There's a chance. I'm not convinted to base case, but if this this individual is going to be right about a tremendous declined the dollar,

that's probably what what it will look like. UM. I would say as an addendum that there's certainly an argument to be made to be want to want to be long sort of real assets versus every currency, because none of these currencies pay you a dime, and the fiscal situation, all these countries is terrible, and we know that we can't trust the price of financial assets because for various reasons that we've talked about, and I'm sure there's a

crazy thing we'll talk about talk about some more. Uh, there's an argument to be made for owning something that hurts when it falls on you. You know, Era Cameron gave us the perfect segue two crazy things there, and I totally dropped the ball on it. You're grabbing it, You're grabbing it and running with it. Now that's my bed. Why don't you get us, get us started. What's the craziest thing you've I know you've written about twenty crazy things stories this week, So what's your what's your top?

So there there are so many, Uh, it's really hard to choose one that I will go with. UM. On Monday, the day that the SMP turned positive for what at the close and also in the middle of the day, if you were to look at the members of the SMP since March, every single one of them was positive. And I know Cameron then took it a step further, uh, and he ransom programs and found that was the first time that we've ever seen every single stock move higher

together over an eleven week period, which is pretty crazy. Um, pretty crazy. And then one more just for you, Mike, because I know you love leveraged et s so so um hate them. Yeah dat. I've actually been spending my days just sitting on robin track dot net, which tracks what users on robin hood are doing. And on Thursday, as stocks are selling off, what were they adding up?

What was number three on the most popular most increased interest list while it was t vix So let me products just for you, Mike, what could possibly go wrong with that trip? Nothing? All right, Cameron? Cameron told me he has a doozy for the crazy Things segments, so expectations are high. Well, I mean this is coming from finance geek, so my definition of crazy interesting might not be the same as year. So you know, we know that the robin Hood folks love bankrupt companies. We know

that they love companies named after inventors. Obviously, Tesla has been a darling for years, and as I'm sure you know, last week saw the debut of Nicola U, named after the same scientists first name, and I've already looked he didn't have a middle name. My next career move so as I'm sure you saw, or as you may have seen, at one point, uh Nicola had a market cap greater than four despite having zero revenues, which is crazy enough

as it is, right, But here's my crazy thing. The option market for Nicola is the wildest thing I have ever seen in my life. So the issue is that there's no because it's a new stock, you can't borrow it, so if you want to short it, you can't. So the only way you can you can bet against it is to buy putts. So the structure of the option market is Bologny. So the stock is UH sixty, give or take. So I'm looking at the July options, the July sixty calls, So the at the money calls trade

at a two and are priced around eight dollars. That's crazy enough as it is. The sixty puts are trading a two eight and are priced at twenty eight dollars, So the at the money put is worth twenty dollars more than the at the money call, which is crazy, but that's not But that's still not the craziest thing

I've seen. I got this one from a friend. In Nicola options, there's a option traders will know, there's a thing called a box where you can sell it call spread, say forty fifty call spread, uh, and then you sell it put spread against it. The thing can only ever be worth ten dollars. A forty fifty box can only ever be worth ten vols. Well, I've been a friend who sold the Nicola July call spread for eight dollars and eighty cents. He sold the fifty forty Nicola put

spread for eight dollars. So we sold something that could only ever be worth uh, ten dollars for sixteen dollars and eighty cents. And that, my friends, is the craziest thing I've seen this week. That's that's pretty good, Ben, Ben, You've got some tough competition with that one. Oh, that's tough. That's good stuff. Wow. You know that I have a financial one I have and I have one for Sarah actually that I want to mention. It's that kind of

local thing for Sarah. Actually, I've been tracking this Hong Kong situation. Um, so you know, the A d R swings were pretty dramatic, like if you take you know, like companies that you never heard of of, a Jian Group or Wins Finance whould just swing like nine hundred eight on a d R A d R s by the way, like our you know, the most liquid things he can trade, right, that's I mean, I think that's

really really locally traded on on our exchanges here. I think that just again speaks to this tension that's there, right as a real tension building from money coming of adugunized stage back to Hong Kong. That that these that these ad R prices show aside from their their extraordinary swings, right which again back to the herds and other American airline step swings, it's kind of similar, right, So there's this really awkward phenomenon, so that that that is unusual,

if not crazy. And then I guess the local one. I popped up some website, you know, legitimate website, I thinks, U P I is, I guess the trending website. I clicked on a few things and I read here the following a python hunter in Florida known as the Python Cowboy, might have had a new records as by bagging in sixteen seventeen foot snake by putting up a fierce fight. And that this is in Martin County, trapping Wildflife Rescue owner Mike Kimmel. That's the Python cowboy in Florida. I

thought of, I can't, I can't, I can't say I'm surprised. Well, actually, um, funny story, not funny. Actually supposedly the last week or so there was a seven foot alligator found in the water right outside my house. So safe to say, I'm not going in the water anytime soon. So python's alligators. That's what you get down here, Ben Emmons and Kevin Christ. We will have to leave it there. Thank you so much for coming on the show today. There's always What

Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We love it if you took the time to rate interview the show on Apple Podcasts, so more listeners can find us. And you can find us on Twitter. Follow me at Sara pont Sec, Mike is at Reagan Anonymous, and Cameron christ Is at Fifth Rule. You can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by Jordan Gospore. The head

of Bloomberg podcast is Francesca Levie. Thanks for listening, See you next time.