Sell the Reopen News?

time ever. Call it just a technical factor at play or a warning for other assets we'll discuss, and of course we'll close out the episode with our tradition the craziest things we saw in markets this week. Remember, you two can contribute to that segment. Just give us a call on the podcast hotline at six four six three to four three four nine oh, or tweet to us at the at podcasts handle and maybe you'll make it

onto our show sometime. And if you have any other questions about the show, or some criticisms of Sarah or compliments of me, but I know that by all means, give us a call and let us know how we're doing. But UH very excited to introduce for the first time on this show a guy who I consider UH to be the happiest man on Finn Twitter, as as they

call financial Twitter. I'm sure we have a lot of finn Twitters out there, but if you're not UH a participant in financial Twitter, I think this guy is the the happiest man in finch Wit, which is Sarah not necessarily saying a lot because it's mostly a bunch of crank pots on financial Twitter. Well, I can tell you right now we have a nice zoom conference going. He has the nicey virtual backdrop and he's laughing, smiling, So he might be the happiest person on the podcast here

right now. And if you if you're not a participant of Twitter, you might remember this guy from a very funny Wall Street Journal story last year about how you know Patagonia, the company that makes the famous vests that a lot of Wall Street firms used to buy the vests and put their logo on UH. At some point last year, Patagonia pushed back and said they didn't want to sort of be really associated with the finance bros anymore.

They were only gonna allow their vests to be UH bought and and logoed by companies they deemed sort of worthy of their brand name. So there's a funny story in the journal on it, and the guy who ended up being the poster child of the Patagonia vest is our guest today. Very happy to have him here. I think his quote was, I'll die on a hill wearing my vest before I give it up. And Sarah, thanks to the magic of zoom video, we can confirm he's

wearing that vest today. He has not yet died on that but a really good, great guy, good friend of ours, and really smart market strategist at BARED in Milwaukee. His name is Michael Antonelli. Michael, Welcome to the show. Yeah, I am so excited to be here with you guys. It's always great to see some of my friends, both at Bloomberg and kind of kind of on Twitter. I'll say there's two things I'm gonna rep till the day

I die. One of them is Chicago style pizza. I don't care, you know, I'm gonna rep that all the way to the end. And I'll rep Patagonia. I thank the Walstree Journal for its great article. It kind of vaulted me into the number one status of of Patagonia wears across the street. So I'm excited to be here. Great, great day for a show. I'm super ready to go true fashion model. I think our first fashion model, Sarah on the show is as a matter of fact, yeah, I'll follow you on the vest I I like a

good vest myself. But I don't know about the Chicago pizza. I don't know. I can't I can't go with you on that one. But Michael, I one thing I wanted to ask you sort of to start out with is and correct me if I'm wrong about any of this. But I sort of view you as as like a mark get generalists, someone who follows the macro trends, the earnings trends. You know, you can pick out an attractive stock based on sort of the fundamentals and valuations, that

sort of thing. What I think is interesting about the market right now, though, is there's this whole other segment of investors in the world focused on say, biotech and pharma, and it's such a different world to me because it's not at all about balance sheets or earning statements. It's all about sort of reading the tea leaves of those drug trials and the chances of a drug being successful, whether or not the government will pay for it in

in Medicare programs that sort of thing. But with the virus. What I find is fascinating is that these these worlds have collided in a big way, and I feel like the market as a whole now is is trading off of farma headlines that maybe the rest of us in sort of the general space don't necessarily understand. And the U the news on Thursday from from Gilead is a good example. They had that drug that that people were

hoping would be a good treatment for the virus. Turns out that first trial UH was not as successful as people hope, and I was described as a flop. You know.

I don't know if that's a technical pharmaceutical term, but to me, I feel like there's this kind of stress in the market right now between UH that general sort of your your regular investor who looks at bounce sheets, looks at earnings, and that other niche specialist group that knows how the the whole biotech and drug development world UH goes and and maybe they're you know, a better group to to sort of be gauging the outcome of

these things. Do you am I write about that? Do you do you get a sense that you know, sort of the general market practitioner now is forced to be a tourist into the pharma space. Yeah, I think you're

spot on. And what you're talking about is kind of this notion that people are going through various levels of expertise with almost no background in and I think I tweeted or said the other day that you know, everybody has gone from being a doctor to a virologist, onto being a statistician looking at bell curves, and and you know we're ending up in places like commodity expert now and and biotech expert even with no expertise in that category.

Baird has a really good biotech analyst named Brian Scorney. He was kind of on top of the Romans of your drug kind of data when it came out, and he was a little skeptical on it. I think most biotech investors analysts have a kind of a healthy notion of skepticism about them. I think that's really at their core what makes them good. But but we're in a situation now where the average investors, say, people who are just at home, or people who might be looking at

the headlines, we're all looking for a quick fix. Everybody wants out of this mess. In a hurry. So when we see any sort of light at the end of the tunnel, whether it be romeds of your data that is kind of uh arnished, or whether it be hydroxychloroquin, we're all looking for this quick fix and and we're hoping for it where we're wanting it to happen. And I think smart investors, like biotech analysts, say just hold the hold, hold your horses. You're not you're not a

biotech expert. Just just wait. You have to wait, even though we want this kind of quick answer. So we mentioned these biotech headlines, but there's also been a huge discussion lately of the reopening of economies county to county, state to state. I'm interested in how you kind of grasp onto that and think about that. Say, we do see economies start to reopen. Sure, that sounds great to some.

Some are still nervous it's too soon. But I mean, what next, especially as it relates to investments in the Market's like, sure, the economy reopens, but does everything just snap back? Are their worries of a second wave? You having to shut down again? I mean what then? Yeah, I'll put this take out there. I think that the reopen is to sell the news event. I don't. I

don't think it's the answer that the markets looking for. Say. Um, I think it's the right step to kind of see what what what kind of next things we can open with kind of next things that can come back online. But I do think it's to sell the news event for the following reason. You know a lot of your listeners will be uh study, I have studied normalized bell curves.

Will think about bell curves is kind of the traditional shape. Um, A lot of the models out there assume that the coronavirus gets worse and then just gets better in a bell shaped I think that it's gonna get kind of better in a really long tail. Think about instead of a perfectly symmetrical bell, the right side of the bell is just this really long tail. So if we if if someonere to say I'm reopening Wisconsin, tor, I'm reopening New York tomorrow, Florida tomorrow, you know how many people

are still gonna be consumers? How many people are gonna say, I'll go to an outdoor restaurant, but not an indoor restaurant. So I'm I'm only a partial consumer for at least a while. So That's why I think it's to sell the news event. I just don't want people to think that once we hit the reopen button that you know, people are gonna be going to eighty thou seat stadiums right away. I just think it's gonna be the slow slog.

Let's talk a little bit about that note in that it could be a sell the news event, and Mike, as is my custom, I'll pack about five questions into one right here for you now. Right. So, so I wonder if there's a danger that that retail capitulation is

inevitable and that could be part of that sell the news. Uh, if we do see a reopening um and we do see a little bit of all or not that volatility has gone anywhere, But if we do see a pick up and another sort of really scary dip in the market happen, could that trigger that sort of main street capitulation that we haven't really seen yet, but I think which most people expect. You kind of need to really

form a solid bottom. So in part twelve of my question, I would say, where does that sell the news take us? Does it take us back down to that bottom we saw in March or possibly even worse. You know, how how bad could it get? Yeah, there's there's been a lot of good studies on the bounce and what does a bounce mean? What does a retest mean? You know, guys that we follow, like Ben Carlson, like back Nick.

There's also NDR research again named Clisshold. You know, I'm kind of consuming all this in my basement, you know, on top of your guys and stuff, I'm consuming everybody else's stuff. But you know, Ed Clisshold said that kind of the sharp the sharp nature of the bounce, the sharp nature of how far we've come off the low, it doesn't necessarily mean we won't retest the low, right, there's no there's no hard and fast we won't retest, but the retests tend to be shallower. Um, this is

something NDR looks after a waterfall decline ends. You know, what we went through in March was was basically a waterfall decline. You know, I remember seeing back on March twenty three a lot of a lot of really scary headlines. I remember seeing something I think it might have been from Bank of America Mary Lynch saying that that was their biggest day of retail selling. We might have seen

some of that at the March twenty three lie. I keep trying to go back to find that that tweet or that that data point, but I remember seeing it back then. And I always kind of go back to Vangar because they kind of have the stickiest amount of people in their in their kind of service. They They've

done studies about previous volatility. They did a study and they found that, you know, during the European financial crisis about their accounts did nothing and that's still bottomed, right, that still had an end to the volatility, end to the event. Uh. You know, I think the notion that retail is in what it used to be in or two thousand and one. I think that retail is kind of morphed through either behavioral coaching, use of more advisors. I think the nature of them is traded, uh not

traded has changed, um for the better, honestly for the better. Um. I you know, we can talk about this about that low, um, but but I do think that that was a really panicky low. I think there was a lot of stuff that you would expect in the low that happened on Marche. But my my notion of sell the news, I think you can you can sell the news could be a grind sideways. Uh, it could be you know, another pull

back towards the low. I just, I just I'm not in the camp that we're going to retest that that march fully, I guess so along those lines, and what could potentially happen, whether that's capitulation or something else to bring back a little bit of panic or bring back

some selling. Next week, we have earnings from the likes of Google Parent Alphabet, Amazon, Facebook, Google, And something that's really stood out to me throughout this market resilience has just been this performance of mega cap large cap companies. Amazon short has its own reasons. Microsoft, you could say use of its cloud services as really in vogue right now.

But someone said to me at some point over the past week or so that to him, he thinks that these megacap earnings, surprising to the downside and not standing up as much as people hope or think they will, could actually be a larger risk at this point than some of the coronavirus news coming out in the weeks to come. Would you agree with that? Are are you a little bit worried at all over the strength of the mega cap companies. Yeah, that really, it's it's a

really relevant point. There's been a lot of stuff on this recently too that if we maybe we'll talk about oil later. We should probably talk about oil. But you know, for the market to retest the lows, you have to have a big hit to the biggest compas because they are such a huge weight to the SMP five hunter. Right now, the the the energy sectors three of the spire, and it has crashed, right the energy sector is basically crashed.

You know, you wouldn't look to a three weight to be more of the downside, you know what I mean. So yeah, in order for the downside to be retested, the big big megacap tech have to be hit, which means that investors views of they're they're both you know, six months to twelve months to one to one and

a half year performance has to be ratcheted lower. UM. You need the Apples and the Amazons and the facebooks and the Googles to all lead the way lower UM, which right now we're just not seen that they tend to be UM places people hide out in at least for now. So yeah, he's right, You're right, there has to be a change in expectations around it's called the top fifteen companies in the sp order for that retest

to really accelerate. Like, I also wonder, you know, like you said that the big fang stocks UM at least it definitely Amazon, Netflix, um, you know the others to some degree. There there's certainly a haven out a time like this, which which makes sense. Now everyone's buying more on Amazon, You're we're watching more Netflix. Their subscriber numbers

were crazy good this week. But I wonder if if the sentiment does turn to uh, putting the virus behind us and and getting back to those cyclical stocks, could we have like a really nasty value growth rotation that would see those mega cap stocks really take it on the chin. If people start piling into the value in the banks and the energy. Yeah, you'd have to see just a massive ramp and growth expectations for that. I

think that trade to play out. Um. I always said, you know, small cap starts out performing when the yield curve really steepens, when people's growth expectations really start to rise. H. You know one of my partners, uh, Willie Delwitz, who kind of we kind of work together, He's looking at h copper and he's looking at ten ure yields for for what you're saying, right if in order for this to be a meaningful bounce, you want bigger breadth, and

then you want to see some of the cyclicals do better. Um, you know, the people hiding out in the in the mega cap tech stocks. You know, I think even going back to the pre Corona to days, you know, I'm sure I've read pretty articles from you guys saying what happens if this gets hit and this and small caps go? Yeah, that's one of those, Like you know, we always kind of circles around us. What happens when small does well

in Apple and Amazon? Don't you know you need this massive surge and growth expectations and you'd want to look towards copper and tenure to sniff that out. And that's just not happening yet. Um. But but yes, people are crowded into that space, crowded into that Yeah, as you say, crowded trades can can last a lot lot longer than people expect. I guess, Sarah, you know, uh as Michael alluded to, when you alluded to at the beginning, Um, you know, every week we talked about the craziest things

we've seen in markets this week. I think this week we all saw the craziest thing anyone's ever seen in any of our lifetime. Uh so let's skip ahead of that. And of course, uh listener kind of front ran us on all of it, and and phoned in a voicemail to tell us exactly what happened in case you missed it. I don't know who missed this. I think even someone who hasn't thought of stock since since nine probably probably read about this. But let's listen to that voicemail to

to clear it up. Hi, this is Charlie Ford. Craziest thing a son on Wall Street. Looking at the terminal here, the um spot crude is at uh negative thirty five bucks or some negative thirty seven point six three and the front month contract is a negative two dollars and forty seven cents. Now that's pretty crazy. Thank you. You know what. I love of Mike that we got a

call in real time too as this was happening. He decided, you know what, I've gotta pick up the phone, call Mike and Sarah and let them know how crazy I think spot crude at negative forty of barrel. That's right. I like that instinct. I also like the guy's name, Charlie Ford. Uh, that's the guy who killed Jesse James if I'm not mistaken back in the in the wild West. So we'll assuming that's this guy's real name. You never know, But Mike, I mean, were you did your eyes pop

out of your head watching that all go down? I can't imagine. Was the phone ringing off the hook with with clients? How do you how do you handle a day like that? Yeah, you guys have awesome listeners. I love that they're calling in real time watching watching crude oil get absolutely pummeled. You know, I I treated commodities for a couple of years. I've traded equities, I've treated all sorts of products. I never thought I would see

anything like that day. There's just really no words. I think I tweeted that the thing that was taking Somebody said, what's gonna take the biggest hit due to negative crude prices? And I said, literally every of these productivity on finton, I think all it's it's it's definitely due to the kind of nature of futures contracts, how how futures contracts expire, what delivery means. It's definitely a quirk of how oil works.

You know, we we probably need to talk about why oil is doing what it's doing from a spy demand perspective, but I'd love to hear from you guys what you were thinking. I was just staring at my screen. No stop. Yeah, it was like once we hit zero, the dam just broke and it was really hard to just stop watching. And I feel like there was so much discussion about this being a technical issue that's really being due to the fact that there's nowhere to store oil right now.

But you bring up the point, Mike, I mean, what's actually driving this supply demand and balance? And I wonder, what's to say that this isn't going to happen again. I mean, what's going to happen to the demand picture or the supply picture in the next month or the next two months, or whatever it may be, to say that this can't repeat itself right? Well, you know what I found amazing about it is, Uh, it was in

one of our chat rooms or work chat rooms. Uh. And I think the price had gotten to like, I don't know, four or three dollars, and I typed in there I was like, is it allowed to trade negative? You know, I didn't know if the the CME would actually allow the contract to trade negative. UM. Probably about five minutes later, I think someone on the OURT Commodities team had the same question and emailed the CMME and said,

are you gonna let this thing go negative? And then we had that hot sticky head on the terminal saying Sime says, we'll let it go negative, and almost instantly is when it actually went negative. So traders, I think didn't know if they could put in a negative bid or a negative offer, and it's almost like they got

that permission to do it and it went negative. And I'm not sure every brokerage house out there, uh or every you know, the trading platform that trades futures was even prepared for this, to be honest, It's it's such an unbelievable scenario. You know. One of the things we had we had a lot of advisors calling us, we

had a lot of clients calling us. UM. I think one of the things that you guys probably talk about or we need to talk about more is you know USO the E t F. I don't think retail investors understand how it works, Uh, why it did does what it does. I think a lot of the e t s that have to deal with future's curves, whether it's volatility or crude, um, people just don't understand them. They just I just don't understand them. I think it's important for for advisors and people to get educated on them

before they use them. Um. But look, I'm measuring my car usage in miles per week right now, you know, gallons per week, So I get what crud is doing. What it's doing. It's you know, there's there's so much of it. Saudi started a price war, which just it's

like a worst case scenario here. You know, Like I keep hearing that old phrase the tipping point again, you know, the old Malcolm Gladwell concept about how certain events in history can really just trigger a permanent change in the white things work and crude going negative to me, you know, seems like it blows up basically every risk model ever written. So so that's one another tipping point I keep thinking about.

Is the the commercial real estate. You know, every company, major corporation out there has uh basically discovered that they can get away pretty well with a lot of their couple you know, employees working at home. Maybe we don't need all that real estate. I'm curious, you know how you're viewing this whole event in through the prism of permanent changes and sort of winners and losers on the other side of this. I mean, do you agree like those two things are tipping points? Are there any other

sort of permanent changes you could see coming out of this? Yeah, I I talk about it. I talked about this with our clients all the time. I kind of put a slide deck together recently where I talk about things that I think will be the same, things that I think will be different. You're right, there's there's lots of things

that have probably hit tipping points. Uh. You know, the optimists and me thinks when you're when you're talking about this work from home, that that companies going forward will be able to hire people anywhere much more so than they used to in the past. I think smart, thoughtful companies always knew they could hire talent kind of outside

of their geographic area. But um, the the optimist in me, the long term optimist, says, maybe this solves a lot of our housing issues where you don't need to crowd into the Bay Area to work for a tech company. Maybe you know, I could be a Bloomberg reporter from Wisconsin, or I could be a Bloomberg reporter from anywhere. I think, uh that that mobility of talent, I think is probably hit a tipping point and that's a good thing. Uh what else has changed? I'd want to be along suburban

real estate right now, to be honest. You know, you're in an apartment in in a big city, and the hospitals are kind of crowded. You have a you have a kid, and you have no balcony. You can't go to the park because you're kind of afraid. I think people's views about urban living versus suburban living. We're not gonna completely online, but maybe at the margin you kick a few more people into the suburbs that maybe thought they were never gonna leave. Um. I think investing probably

is one of those things that might change. Pre COVID, I think we were in a tenure bowl market. There might have been people have thought I could handle yne equity portfolio and they learned that they can't. I think the reason we invest will always stay the same, which is to kind of grow, uh grow our our life and to say for things that will stay the same. But the way we invest, how many equities we hold, might might have hit a tipping point that takes a

long time to recover. Um, there's there's lots of trends out there at the Globalization is obviously one that may have hit a tipping point. We we can't have of our core components for generic drugs come from abroad. Um. So so there there are things that I think we'll change for the better and there are things that, um, we'll stay the same. That there's no way we're doing Kadell schooling online anymore. I promise you. Every parent is like, get out of my house. There's no way is going online.

You know, it never occurred to me. I could do my job from Wisconsin. Mike, find me a nice for bedroom on the lakefront somewhere, and uh, yeah, you'll get out there might be there. Yeah yeah, cost of living cut in half. I probably exactly exactly gotta wake up earlier though, So I don't know about that. It might be worth the extra cost living, But Sara me, going to Wisconsin might be the craziest thing to come out of this. I don't know. But but what there's a

lot of crazy things coming out of this podcast. But we all know that none of us are off the hook. We're sharing. Charlie shared, even though Charlie Ford scooped us in front, front, round us on the Craziest Thing, Sarah, what what do you have to offer to the Craziest Thing discussion? Alright? So, so mine's related and it's related to the U s O et F discussion as well, just to the point that retail investors are actually gravitating

to this instrument. So a couple of our colleagues had a story out on the Bloomberg looking at robin tracks data, so tracking data from Robin Hood, and what they found was actually that while all of this was going on, while USO was shuffling it's holdings, while crude was falling below zero uh, it was actually the one of the most actively traded securities and it was the most added

security when it comes to trading volumes. So even though there's so many people who don't know what this thing is actually doing, they look at the price action on their screen and they're like, you know what, I want a piece of that. Hopefully they didn't use that infinite leverage that Robin Hood is famous for to pile in the US, so that could be all right, Mike, what's the craziest thing you saw this week? All right, I'm gonna top both of you guys. Topping topping topping negative

oil might be kind of hard. I'm glad I got to be on for an absolute historic moment, but I'm gonna top it with this, which is a very popular topic over the past week or so. Initial Claims comes out every Thursday. It's something that all of us strategists look at. I'm sure you guys look at it. Initial Claims has always been most strategist desert island indicator. If you could take one indicator with you, you're taking weekly

jobs claims. How many people are filing for unemployment? Okay, so we know that they have been soaring over the past up to up to April, you've seen at least three million every week. So three million, six million, six million, four point nine four point two in April. Incredible numbers. Historic, It's cumulative over four million Americans. Absolute tragedy in terms of job loss is something that we've never seen before.

Here's my craziest thing of all of those days in a row up to April, the sp close positive all of them, which means anytime initial jobs claims has been at least three million, the market has closed that day positive. Um. I will give it to Mike though. That was a pretty good one. I think we gotta get give him the honorary win this week is as painful as it is for me as the judge before he even shares

his own. Yeah, yeah, it's pretty good too. Though. You know, we we've often probably all heard of this phenomenon where most of the market's gains come overnight, you know, the futures rally and off hours, and then cash index catches up with it in the morning. It's kind of a phenomenon that's persisted for a while, but it seems to have really gone on steroids during this uh last couple of months. And I'll quote a Macroman calm from our own Cameron christ who was looking into this in a

little bit of detail. He's said, while the SPI is still down some nine since February nine, by my calculations, futures are up a cumulative between midnight and three three am Eastern time. Over the same time frame, so between midnight and three am, if you're in at midnight and out at three am. You're up, and not just since the rebounds since the peak in February, including the bear market and the and the rebound. I I don't I've try to wrap my head around a million different explanations

for this, Mike, you know, I don't know. You always think, you know, maybe it's the delta one desks on on working the night shift somewhere, or what I got. Is there any theory I'll take, I'll take. I'll take your wildest I'll take the wildest conspiracy theory you got on that. All right, here's my here's my uh, here's my wild take, my spicy take. It's really boils down to the be one of the most ridiculous things I've ever say. It's

just total number of hours. The markets only open for six and a half hours during the day, and there's more non market hours than there are hours market hours. So I just think there's you know, there's only so much news that can come out while we're open. Let's say that you know, earnings, earnings, by the way, earnings come out after the clothes. Usually they'll come out pre the open, So you incorporate all the earnings you you incorporate all the company data drops that are usually happened

when the markets closed. Um, there's only so much that kind of comes out during the day, So I think the markets better at processing things post closed pre open uh. And it's it's more liquid, it gets priced in quicker. There's not as much emotion in the market during the future's hours because frankly, most people aren't even trading it. But I think it's just a sheer. I think it's just a function of when news it's released, how many

total hours there are both while the markets open and closed. Uh, And then just people's reactions are are a little a little faster to be priced in th futures markets. I wonder too if trading limits maybe have anything to do with it, because consider the amount of times that we've seen futures fall down five percent immediately five minutes after future is open, and then either there lodged there the rest of the time or they have nowhere to go but up once they become dislodged. So if you start

looking at midnight, maybe you can't go any lower. So you and so you know that it's the hardest thing for retail people to understand what future trading is it's a question I kind of field all the time from from individual investors. What are futures? What is pajama trators? Why does Kramer called pajama trators? What's going on? And and I operated in that world for at least four or five years, a couple of jobs ago. And it's, you know, it's it's very very thin, it's very liquid.

There's very few players. You're right, it's a lot of Delta one desks. Uh, it's a lot of hedge funds. It's just it's it's it's hard to put a broad stroke on futures and say this is the opinion of a lot of people. It's really the opinion of a few people. And then we wake up and say, oh, they must have been right, and it's just d of it kind of sits, you know, it kind of sits in place. Mike, I have no idea who this Cramer

fellow you're talking about. Is obscure somebody else. I was hoping for something more conspiratle maybe you know, Plunge Protection Team Carl Icons in the futures overnight. But we'll accept Mike's answer. I guess, Sarah, honestly, if there's a Plunge Protection team. They can we get a new round of it. They didn't stink in. Somebody go out to Harvard or Princetoner's hires some new people. I don't know what. Well, a lot to think about. This was a lot of

fun both Mike's um so Michael Antonelli. We really appreciate you coming on the show this week. Thank you guys. It's a blast anytime I'm around What Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and or wherever you get your podcasts. We'd 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 Sarah Ponzack. Mike is a reaganonymous our guest, Michael Antonelli is at Bowl and Beard, and you can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by tober Porheas the head of Bloomberg podcast is Francesca Levie. Thanks for listening, See you next time.