Month: March 2020

From my Reddit post I made this afternoon:

Today marks the ten-year anniversary of the COVID-19 virus which a decade ago swept the world. Originating in Wuhan, China, the virus spread quickly starting in December 1, 2019. After jailing Dr. Li Wenliang (who eventually died) for spreading “dangerous misinformation,” the Chinese government enacted an unprecedented lockdown that quarantined 11 million in Wuhan and 57 million in 15 other cities in the Hubei province starting on January 23, 2020. Chinese state-owned news media lauded President Xi for acting so swiftly and decisively to ensure the safety of the public health. “It only took seven weeks,” remarked one Chinese health official. “That is definitely a record.”

Meanwhile, in January 2020, Americans preoccupied themselves blithely following the Trump impeachment hearings that were destined to go absolutely nowhere. When asked in January how she intended to convince the Republican-controlled Senate to impeach President Trump, Majority Speaker of the House, Nancy Pelosi, simply shrugged.

“Ultimately,” Pelosi remarked, “the American people generations from now will care about this Kabuki theater. For posterity’s sake, we needed to have it recorded in the history books that at least we tried.”

Despite isolated incidents of Americans dying, particularly in nursing homes, American citizens finally woke up and took notice of COVID-19 on Monday, February 24, after the Dow dropped 1,032 points.

After four weeks of market turmoil, the Dow finally hit its bottom intraday on Monday, March 23, at 18,213, 38% down from its all-time high of 29,568 that it struck on February 12.

Normally, after such a steep decline, markets stage at least one relief rally, which did indeed occur. Beginning on Tuesday, March 24, markets surged on a three-day rally recovering 23% of lost ground all the way to 3:30p on Friday; the Dow managed to reach 22,327 before people came to their senses and realized that no one wanted to hold a ticking time bomb over a potentially volatile weekend.

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Buoyed by Powell’s willingness to do “whatever it takes” and work “hand-in-hand” with Treasury Secretary Mnuchin to operate the Treasury like “his personal piggy bank,” markets continued their historic run back up to all-time highs. Veteran trader, Andrew Borowitz, called it, “The Easter Miracle– Trump came out and declared that our economy would reopen by Easter, April 12. And everyone on Wall Street believed him. It really actually happened.”

A critical point, Borowitz notes, was the highly anticipated jobs report released on Thursday morning, March 26: Despite no vaccine being in sight, on Thursday markets shrugged off a historic 3.3 million unemployment number (the whisper number being something closer to “5 million” as CA alone had reported 1 million) and continued its meteoric climb back to all-time highs.

Even as a record number of bodies piled up in New York and Los Angeles with the virus continuing its exponential spread, the market resumed its surge back to the top based solely on Trump’s hope and optimism and Powell’s ability to print unlimited money. Noted hedge fund manager, Bill Ackman, commented on CNBC at the time, “If there’s one thing I’ve learned in my 30 years of doing this, it’s that you don’t fight the Fed. When you create the world, you make the rules.”

Ten years later, Secretary of Health and Human Services, Alex Azar, in an interview with Bloomberg’s Matt Levine, reflected, “Thank God unemployment claims websites kept crashing and timing out. We really dodged a bullet with that one.”

What I really enjoy, for better or worse, about day-trading is how unforgiving it is towards people in their “reality-distortion-bubbles.”  Nowadays, it’s become en vogue to wander the planet with your “own truth.”  And for the most part, that’s fine.  You’re welcome to believe whatever you want about gun rights, gay marriage, abortion, etc.  No one is going to fight you on it; at least there’ll be no consequences re what you believe.

But with the market, there are consequences.

The market is anything but simple.  But it does offer something simple that is rare nowadays:  A single objective reality.  At any given point in time, all of the world’s nuances, complexities –geopolitical risk, a company’s performance, expectations, scandals (or rumors thereof), etc– are reduced to a single number– the price.  You can believe all you want… but it won’t do a lick of good unless you’re right.

In this post-truth era, such a stark, unforgiving black-and-white worldview is refreshing.  There are no gradations here.  On any given day, the price will move either up or down– there are no alternatives.

The other feature fascinating about day-trading is how merciless and agnostic it is from a time perspectives.  Years of gains can be lost in a single week or even day.  Months and weeks of gains can be lost in a single hour.

On the flipside:  A single day of gains could exceed everything you’ve made in the past week or month.

There is something, to me at least, that is very intriguing and counter-intuitive about this:  The lazy trader who rolls out of bed late one day and makes the right trade could very possible win bigger than the diligent trader who rises at the crack of dawn every day and meticulously sits at his station every day of the year.  Nowhere else have I ever seen the saying more true than in day-trading:  “Sometimes it’s better to be lucky than good.”

So the walls are closing in… total portfolio is down over another 10% today… the pain just keeps mounting.  Total drawdown now approaches 30%, I think… it’s been two weeks.  In times like this, I often comfort myself with the old Persian lament:  “This too shall pass.”

At this point I’m essentially stuck in a long-term hold.  It’s basically become a game of chicken… which will happen first?  Will the market rebound?  Or will I get margin-called?  That is the question.  On a lighter note, one unexpected upside is the sudden time and energy that not day-trading has suddenly freed up!  Since I’m no longer actively day-trading every morning, I’ve been able to focus more on what Cal Newport calls, “deep work.” I’ve been using some of this extra freed time to study historical bear markets and their circumstances. In particular, WP wrote a fascinating postmortem of the 2018 December downturn.

For me, this has particularly meant concentrating on the day-trading bot.  I spent most of this past weekend scraping indices pricing and volume data for DIA, SPY, and QQQ from the past three years.  I have the data at minute granularity but now the challenge is just properly wrangling it before putting it into the db.  (Eg. Some fields are ‘NaN’ and I’ve been having to manually fix those data integrity errors.)

Additionally,  it also means I’ve been able to spend more time focusing on writing.  I’m still aiming to write a post a day to post on this blog… we’ll see if I can keep it up!  As I’ve mentioned elsewhere, I often don’t know how I feel about something until I properly sit down and put my thoughts into written words.  So as we enter the third week of the correction (soon to be a bear market if we sink just a little further!) I’ve had a lot of time to just sit on my hands and think.

One other revelation that struck me recently is how similar day-trading and investing is to religion.  As I sit here in my leveraged account and contemplate existential questions, watching my balance drop day after day, I look back at previous price action and it reminds me a lot of the bible.  The Great Head Fake of December of 2018 when Abraham’s faith was severely tested.  The parting of the Red Sea when Tesla shot up to $969 per share, wrecking Tesla shorts on one side and David Einhorn on the other.  Just like the bible, we’ve got our share of prophets too– some bona fide; some false.  Cramer, Ackman, Dalio, Simmons, etc.  The list goes on and on.

Sharing here for posterity; from my Reddit comments that I posted over the weekend:

Here are the usual caveats:  I’m just a guy in my bedroom.  I don’t have a fancy MBA or work at some prestigious, boutique financial firm.  I’m just a guy trying to day/swing-trade for a living in my humble abode.  Watching the show, Billions, back in 2016 is what first piqued my interest.  And I started actively trading at the beginning of 2019.

One:  Re hard economic data and China– It’s a country of ~1.4 billion people.  Because of the one-child policy that lasted for decades, there’s also a pretty big M/F gender disparity.  Additionally, in such a top-heavy government, Xi cannot afford to look weak for much longer; his COVID-19 honeymoon is quickly waning, IMHO.  Many big companies are already highly automated anyways.  Those of them that aren’t will simply throw human bodies at the assembly lines to meet production quotas again, regardless of infections.  Remember, there are no human rights in China; it’s a communist state.  Either come to work or you’re fired and will never work again anywhere for the rest of your days.  I recall that scene from Chernobyl where the workers were already so badly radiated that they decided to just keep shoveling the uranium “for the greater good.”  In times of crisis, humans lives (esp in communist states) are forfeit and cheap in the mission of the almighty dollar/RMB.  Gotta keep the engine of capitalism humming!  (There’s great irony in this, I know.)

Two:  Looking forward, what is the strategic macro picture?  Here’s my speculation for several moves ahead on the board:

• Meat-space is going to get increasingly more fraught.  I currently live in an apt rental complex and I already see those Amazon Prime vans making multiple trips a day delivering stuff to our complex.  Millennials are already reluctant to go outside.  My God, back in my day, going to the mall, getting pizza, and hanging out at the arcade was a thing.  Nowadays.

• The other day I was in line at our local Walmart (when times are good, it’s Target and Whole Foods.  When times are like now, it’s Walmart and Aldi’s) and some guy ahead of me was in line was trying to use multiple gift cards to make a huge purchase.  There was some problem with the register and the whole ordeal took something like ten minutes as the queue grew increasingly long, with everyone inline growing considerably annoyed.   Yes, there was something like twenty registers, but only three were manned at the time (it was a weekday afternoon).  I mean, seriously, can you blame millennials for not wanting to venture out into meat-space?  It’s awful.

• So back to now:  What are the implications of COVID-19?  Will it make meat-space more attractive or less?  You do that math.  My feeling is that the Coronavirus will just accelerate what had already been a growing trend:  People doing more commerce from home, people being more entertained at home, etc.  I’m a big follower of a16z and their big claim to fame is “Software is Eating the World.”  I wholeheartedly believe in that.  This is why I currently have huge positions and am overweight in memory and semiconductors.  I believe in more datacenters, more people going online (according to Andreesen, only half of the global population is currently online.  Vast swathes of South America, Africa, etc are still in the queue, etc), and that basic human way-of-life is fundamentally changing.

• Also, I do believe we’ll eventually figure out crypto.  And that translates into (my belief, anyway) a big/bright future for semis and memory.  Long AMD and MU!

Our current president is transparently corrupt.  The one thing, as far I can tell, that he cares about most is himself.  I’m sure somewhere he’s invested lots in the market, personally.  Also, he has lots of rich friends.  The only thing Trump can really hang his hat on atm is America’s record bull run.  Trump will move heaven and earth, legally or otherwise, to make sure the market doesn’t fail.  That’s what sets him apart, IMHO, from previous presidents who were bound by things called “laws” and “norms.”  You’re welcome to bet against a megalomaniac who currently controls 1.5 of the three branches of the American government (maybe even 2.5/3, if you count SCOTUS) who only cares about himself and his own wealth.  Personally, I’m aligning my own interests with his.

Also, I sincerely believe –especially if it ends up being Bernie or Biden– that Trump is a virtual lock in November.

Longtime lurker, first-time poster to this sub. I’m fully cognizant that this post may not age particularly well next week, or in the weeks hence (especially in light of recent news), but whatever; I have no shame putting myself out there. This is why God gave us anonymous Reddit handles.

One: It’s an election year.  Trump absolutely won’t let this market fail.  By hook or crook, he will 100% do everything within his power (and not in his power) to prop up the market.  (Including working Powell like a sock puppet.)

Two: Investors will eventually realize/recollect what I still remember from two weeks ago:  It’s a classic chase for yield.  As expensive as they’d gotten, as recently as two weeks ago, US equities still remained a bastion of growth compared to virtually everywhere else in the world.   And that was before COVID-19.  If the rest of the world was already teetering on the precipice of blazing-dumpster-firedom before the Coronavirus outbreak, now the full-on zombie apocalypse has actually arrived, where do you think all of those pension funds/hedge funds/etc are going to get their returns for 2020? (They need to be able to somehow justify charging those fat fees!)  Italy?  The UK?  Germany?  China?  America has now literally become the only game in town. The market is forward-looking; after the initial panic settles, where will that chase for yield go?

Game on.  I’m all in. Last week hedge funds suddenly woke up and remembered why they existed. But eventually, when the inevitable rebound happens, I expect Big Algo to launch it into the stratosphere. It shall be thunderous unlike any man has ever witnessed before. I obviously have no idea where the exact bottom is, but I’ve learned that precisely timing it is a fool’s errand. (If you’re able to do it, then good on you. I am happy for you; I am simply not as skilled as you are.) The only way (for me at least) is to ride it out. Assuming you’re not facing a margin call, etc, my humble suggestion is to just take a vacation and not even look at what’s going on. Check back in a week or month or two.

(Disclaimer: I’m personally currently long AMD and MU– I believe in the Big Data Story! PS. AMD’s Investor Day is March 5! Am expecting great things!)

PPS. All that said, I’m fully aware there are tons of people thinking the worst is yet to come. This clip from WSB is one of the funniest things I’ve seen in a long time.