What is Truth?
Even if a man should chance to speak the most complete truth, yet he himself does not know it; all things are wrapped in appearances.
- Xenophanes, 500 BC-ish?
Perhaps the most difficult of questions to answer has already been asked a thousand times, and been answered a thousand different ways. I know I have asked before. In fact, I have asked you in that past, and will undoubtedly ask you again. What is the truth? How broad is truth? Is there a public truth as well as a private reality? We see it all the time... those charged with governance, or the management of both finds, and/or reputations really only explain what they must. Is truth the highest form of cognizance, some plane of spiritual awareness to be aspired to? Or is truth something far less glamorous? Instead of the idealistic plane of reality, perhaps truth is nothing more than the dumpster fire of both societal acceptance and rejection? Odd how our marketplace, often driven by both greed and deception, forces us to ask this question as both Passover and Holy Week get underway, and less than two weeks ahead of Ramadan. Odd, not funny.
As interpreted by our feeble minds... was the broad rally across the domestic equity space on Friday afternoon that culminated in the most fascinating of real-time melt-ups over the final 70 minutes or so of that day's regular trading session truth? A rush to turn cash into equity holdings ahead of a short week that is projected to be more volatile than most?
Is truth best exemplified by the mega-sized container ship "Ever Given" that had run ashore in the Suez Canal and blocked passage for roughly 12% of all global commerce for nearly six full days before finally being partially and then supposedly full refloated as tides rose on Sunday night/Monday morning in Egypt? The revelation there is simple. Though such passage had gone unmolested for more than a century, there is now a massive traffic jam that must now be "unscrewed" while other ships still must choose between getting on line, and "going around." Twelve percent? How fragile? Fragility. Now, we are onto something. For what is truth if not fragile? I think we just figured out something many have spent lifetimes in search of. Truth comes bearing many noble characteristics, yet its own fragility might be its last line of defense. For through systemic fragility, honesty is eventually forced upon civilization at some point. You know I could go into a thesis on the relationship between monetary and fiscal policies at this point, but this is Monday morning. I shall spare you.
Those whom I love, I reprove and discipline, so be zealous and repent.
Speaking of a fragility in method that reveals an ugly reality... was it not just a couple of months back that a coordinated group of supposedly retail traders (yeah, right) with the help of high speed algorithmic trend-setters (don't fool yourself) forced perhaps the most epic of short-squeezes that I have seen in my now rather long career playing this equity game? That whole meme stock high speed chase brought at least one hedge fund to its knees, but more broadly took many victims. Now, this?
Most of us did notice the sudden collapse of Discovery (DISCA) , ViacomCBS (VIAC) , as well as a number of Chinese internet based companies such as Vipshop (VIPS) , Baidu (BIDU) , and Tencent Music (TME) that really took a few days to play out, but seemingly came to a head on Friday. There was chatter of broken markets, mostly from those directly impacted. There was simple relief felt by those spared. By Friday night, we were all detectives, trying to figure out who or what had failed. There must be money to be made if this obvious bout of price and time insensitive fire sale was over? Was it over? Oh, and just an FYI... had the old open outcry auction market model still been in place, yes there would have been higher commissions paid on the trades, but the bottoms for those stocks would have found a much higher low. Much higher. Think differently? Fight me. We were better than whatever that was. Much better.
We used to do this crazy thing called "homework." If we had a very large sell order (millions of shares plus) we used to actually figure out what funds had been buying the shares earlier in the week before obliterating the stocks. Somebody paid more than $100 for ViacomCBS last week. Somebody else sold the shares down to almost $40. Are there any brokers or traders left? Hello? I don't know... Maybe call the guy/gal who paid $100 and ask him or her if they have an appetite at let's say... $75? Is there anyone left who knows how to do this job? Because if not, I know a few hundred traders/brokers who probably never finished college, but do. Has the dire need for human involvement in the process of price discovery ever been more obvious? Now, that is "truth". You chose speed over quality. You chose the Ivy League over Queensborough Community College. Nice going, Slick. Now, suffer the consequences. I'll take the five guys named "Vinny'' over this clusterpluck anytime.
Hot Dogs at the Beach
Isn't leverage grand? Underleveraged and you're a fool. Overleveraged? How could you? Of all the whales, the Beluga has always been my favorite. I am not a fancy kid. The Beluga was not my fave because it was an especially large whale, but mostly because I grew up in the outer boroughs of New York City and they actually had a few of these Belugas on display at the New York Aquarium (Coney Island) on Brooklyn's southern shore. They were smart, sometimes playful, and a trip to see the Belugas usually also meant time spent with family and a trip to Nathan's Famous for lunch. As a professional, I have grown far less fond of the kind of whales that roam our turbulent seas, for they often remain beneath the surface, wrapped in appearances, truth unknowable to most, until some ugly turn of fate forces a more complete revelation.
What we have to figure out now, is whether or not this whale was rogue. We all know that whales often swim in family units known as pods. The "Wall Street Bets" crowd only knocked one hedge fund for a loop, but this involves several major investment banks/broker-dealers. We all know that many hedge funds copy each other. Is there more such exposure. Is there perhaps a lot more. I did tell you on Friday morning that if granted an "up" day that I would be shaving my winners. Don't know if I was right. Do know I feel pretty "okay" about that decision at zero dark-thirty on Monday morning.
What is the complete truth? We all know that we may never know the depth of "what is", my friends. My best guess is that few dominoes fall without knocking down the next in line. Let's hope, for all of our sakes, that this most epic of margin calls is that one domino that falls in isolation. We already know that there are multiple casualties.
Hard to Believe
Hard to believe that I got this far without mentioning Bill Hwang or Archegos Capital, but you all followed along just fine. Hard to believe that Archegos translated from the Greek can be used to mean leader, or pioneer. I am no theologian, but I believe the word is used in the Bible twice. One time in each Testament... in Hebrews 2, where the word is used to note "the Author of our salvation", and in Acts 3, where the Christian Savior is referred to as "the Archegos of life." Just thinking out of line here, just who the heck did this guy, Hwang think he was? What we know is that he used to run the Tiger Asia hedge fund and got himself into a jam that cost him $44 million in penalties back in 2012. Time passed, Hwang opened a family trading operation... "Archegos Capital." The rest is history.
Why did Goldman Sachs, Morgan Stanley, Credit Suisse, Deutsche Bank, and Nomura fawn all over him? For commissions? For the "block trading" opportunities that this "client" brought about? Yeah, how's that going? We know that these forced sales will materially impact performance at Credit Suisse and Nomura (through a subsidiary unit) because these two banks have told us as much. The others involved seem less impacted. We think. We know that the underlying issues involved have surrendered up to $35 billion in market cap.
We know not if there is more. We know not, whom was similarly exposed. We know not just who suddenly became exposed as this fire sale progressed. We do know that Wells Fargo cut ViacomCBS from "Equal Weight" to "Underweight" on Friday morning.
The Week Ahead...
1) It is still "Jobs Week", and Friday is still "Jobs Day" though equity markets will be closed. Consensus says this one should be a doozy.
2) President Biden is expected to split his spending pan in two, addressing part one this week in Pittsburgh. Part one will involve the infrastructure rebuild, to include many green energy initiatives. Part two comes later in the month of April, and will focus more on social issues such as healthcare and child care.
3) Q1 earnings and revenue projections have been on the rise. According to FactSet, consensus view for the S&P 500 is for a year over year earnings increase of 23.3%, up from 21.8%, just a few weeks ago. Consensus view on revenue growth is up to 6.3% from 6% a few weeks ago. The S&P 500 now trades at 21.6 times next 12 months expected earnings. Now, keep this in mind... that forward looking PE ratio is deceptive. Most of those watching DC these days expect an increase in taxes, corporate taxes in particular, to be on the way. David Kostin of Goldman Sachs estimates that an increase in the corporate tax rate from the current 21% to 28% would reduce S&P 500 earnings in aggregate by a rough 9%. The market may simply not be as overvalued as you think.
4) Opening Day is this Thursday for Major League Baseball. At last. You pal is excited, to say the least. All-time favorite New York Met: Tom Seaver. All-Time favorite Yankee: Bobby Murcer.
Economics (All Times Eastern)
10:30 - Dallas Fed Manufacturing Index (March): Expecting 15.1, Last 17.2.
The Fed (All Times Eastern)
11:00 - Speaker: Reserve Board Gov. Christopher Waller.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (CALM) (.06)
After the Close: (SEER) (-.31)