What a V-Shaped Recovery Would Look Like at this Point…

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.

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.”

Lessons and Mistakes Learned in My 15-Month Adventure So Far

I posted on Reddit this Sunday afternoon:

Like Buffett says: “You don’t know who’s swimming naked until the tide goes out.” Meaning: In a rising market– everyone looks like a genius and posts monster returns. It’s only during a crash do we see what separates the professionals from the amateurs.

And full disclosure– for the past three weeks since Feb 21, I have been positively reamed from every which way in my positions (long AMD & MU). I’d started day-trading Jan 2019 (after being inspired by the show, Billions) and had been doing pretty until Feb 21 but the past three weeks have been totally humbling and has revealed to me that I am a total amateur. If I get out of this alive, I’ll know now it was completely luck and that I’m totally not a genius.

All that said, I thought I’d take this opportunity to share some hard-learned lessons I’ve learned these past 15 months. This stuff more applies to active traders (as opposed to investors, which is why I’m not posting this in /r/investing).

Humble Advice from a Beginner re Active Trading

  • Get proficient on the Quantopian platform. To be clear: I am in no way associated with Quantopian. I just use one of their free accounts for data exploration, pricing info, and analysis. But it’s really awesome; I regret not knowing it better before I started. Yes, you will need to know a little Python and Pandas (a programming language and a software library package) but it’s incredibly basic and easy to use. Eons ago, I was once a history major. If I can figure it out, so can you.
  • The market is difficult to time. Here’s the stat that is always tossed about: “If you missed the ten biggest up-days of the past xyz years…” As consequence: Know your time horizon and always have an “investment thesis.” As the ol’ saying goes: “Bulls make money. Bears make money. Sheep get slaughtered.”
  • Keep an eye on the VIX.
  • Keep an eye on “Wall Street Week Ahead” posts on /r/stocks. (I can’t believe I didn’t know about this sub sooner… I guess you don’t know what you don’t know… /u/bigbear0083 is a national hero; someone give this person a Nobel prize.)
  • And specifically– if you’re day/swing trading any specific stocks, follow the stock’s sub, if it exists. Eg. I just learned about /r/amd_stock a month ago and have been following it ever since. In particular– I wish I’d known about this post of catalysts last year.
  • Go straight to the source. The next two economic indicators I’m most paying attention to are the US Labor Bureau Stats and ISM numbers on April 1 & 3. (More on that at the bottom.)
  • Finally: (And again, just my humble 2c.) Get a wife. (Or a husband/life-partner, etc). YMMV on this one, but personally, it’s helped me tremendously. When you’re parked in front of your computer the entire weekend crunching numbers and scouring news, you need someone to feed you. Also, someone to periodically bug you to leave the apartment to go out for walks for fresh air. Marriage is net good.

Things I did Wrong

  • Use the candlestick charts; not just the line charts.
  • Deleveraging spills over, even into safe asset classes, during historic plunges. Three weeks ago, I kept huge positions in memory and semiconductors thinking, “Oh– if the market melts down from COVID-19, it’ll only be travel, movie theaters, dining out, etc. that plunge.” I had 100% erroneously thought that in a downturn, asset classes not directly affected would be shielded. I was totally wrong. What I know now, which I wish I knew three weeks ago, is that in a massive downturn, all asset classes will plunge. And here’s one major reason why: Investors, big banks are usually highly leveraged. When the pandemic hit, they took huge hits on the “losers” (airlines, oil, etc). In order to smooth out the losses from the losers, folks are forced to sell winners as they dramatically deleverage positions to cover margin calls/retain capital position. Therefore, even “winning” stocks/classes will be affected in a downturn. Maybe, in the long term, data centers/semis/memory/etc, may come out ahead. But none of that matters in the hyper-short term (on the magnitude of weeks). I made this mistake in my mental model. Never again. (If there is a next time.)

Things I did Right

  • Use a Roth IRA as a “pace account.” Put ETFs and some blue chips in here and then just leave it. Having a pace account allows you to easily compare how you’re doing with your active trading against your passive strategies at any given point in time.

My Personal Future Outlook (aka, Guess)

  • Again, I’m not a professional so take this with a grain of salt. But here’s where I think things are going: I agree with RBC: SP 2300 is the Maginot-Atlantic-Wall-Mason-Dixon-Rubicon. Either we hold this level (expecting a “garden variety recession”) or an utter bloodbath ensues. My personal belief (well, more like hope and prayer) is that we hold the line with intraday bottoms going as low as SPY (~232) which is the bottom we hit on Dec 26, 2018. (For reference, we ended Friday at SPY 269 but did sink as low as 248). We’ll find out next week; in particular, on Monday.
  • Last Wednesday, Trump gave the single most catastrophic Oval Office address I’ve ever seen. On Thursday morning, markets reacted accordingly. Friday’s Rose Garden address was better. I am now praying/hoping for sideways action until the ISM report on April 1 and Jobs report on April 3. Everything hinges on these two reports. (Btw, February 2020’s job report was absolutely spectacular. In fact, BLS actually revised Dec 2019 and Jan 2020’s numbers upwards.) Right now, I feel raw utter panic has gripped the country. People see barren aisles at Whole Foods and Trader Joe’s. They see five-hour queues at Walmart and Target. People can’t buy toilet paper and water…. etc. Schools are closing, NBA/NHL seasons are canceled. Movie releases are getting postponed. (God, even the mighty Vin Diesel, King of Coronas, couldn’t hold out against the Corona virus…) Etc.
  • My bet (hope and prayer) is the BLS and ISM numbers on April 1 & 3 won’t be as bad as people are expecting. If that’s the case, the market will absolutely rocket into the stratosphere. (I made this prediction several weeks ago and I’m holding to it.) I am personally guessing that we’re about to witness the shortest bear market in the history of bear markets and the fastest recovery man has ever seen. If there is contraction, I believe it’ll be very short-lived. (Maybe one quarter at most.) We’ll see. (I can elaborate more on my theory if anyone’s curious. But since this post is getting really long; I’m just going to omit that theory here.)
  • My humble opinion is that this panic is 100% overblown and we’re in an emotional nosedive right now. People think the sky is falling and there is no guidance of any kind right now to indicate how bad things will be. So everyone’s bracing for the worst. I saw some guy on Seeking Alpha yesterday proclaiming Dow ~17,000… (No link for him as I think he’s a complete nut. But I guess we’ll see who’s the fool… him or me…)
  • Futures open at 6p ET tonight. That’ll be the first indication of what next week may look like.

Good luck and Godspeed out there.

PS. This is hilarious.

A Single Objective Reality

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.”

The Question

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.

Happy Wife, Happy Life

This morning, I listened to Tim Ferriss interview Tyler Cowen on his podcast.  Cowen detailed at great length how he cultivated a daily writing habit.  The key was writing each day, no matter what.  I know I seem to do this on an annual basis, but I’m going to give it a shot!  My humble goal shall be to hit 500 words in each post.  The topic will range widely and cover just about anything I happen to be contemplating that day.

On my mind this afternoon:  I have been recently enormously glad that Bagel has taken on a new hobby!  Thank God.  Having been in the country for nearly three months now, she was beginning to grow restless.  And despite my best efforts (taking her antique hunting, going out on walks, scraping together enough money to eat out more often, visiting art museums), she was beginning to grow increasingly moody and irritable.  All the gauges on my dashboard were in the red– it was the danger zone.

Luckily, The Universe intervened!

By some miraculous stroke of dumb luck, Bagel has recently found a new hobby in becoming an eBay reseller!  The detailed intricacies escape me, but from what little I’ve gathered, she essentially buys some item that she can obtains cheaply either in the FB Marketplace, our local goodwill store, or elsewhere; restores it; and the resells it online on eBay.  For whatever reason, this has captured her imagination and given her a new lease on life!  Before she was really struggling to self-study for the TOEFL exam and it was definitely not going well.  (By my observation, marshalling her energies to summon the mere will to study appeared to usually take an entire morning.  And then by the time she cracked open the book, it was usually already afternoon.  And then after an hour or so of study, she’d then usually go lounge on the sofa and watch Netflix or YouTube.  I think the study-hours to rest-hours ratio was something like 2:1.)

Anyway, for whatever reason, reselling items on eBay has captured Bagel’s imagination and passion.  And I am infinitely grateful for the development!  Now that the new hobby keeps her occupied for many hours of the day, that frees me up to actually work on my day-trading bot which had been languishing.

The takeaway lesson here is that if you are in a relationship, it absolutely paramount for you to find a hobby that will sufficiently occupy your Bagel’s time, energy, and attention.  It is important that everyone possesses their own hobbies and passion projects.  I’ve personally never struggled at all with being bored or unfulfilled.  But I think that’s largely due to the fact I’m in STEM, and specifically– I know how to program.  I can code my own apps and relatively easily build entire worlds and systems.  I’m not an artist but I suspected painters or musicians are blessed with a similar freedom and agency.

For everyone else out there, the act of creation is a little more difficult.  If you’re not naturally interested/gifted in writing, drawing, composing, coding, or in some other creative endeavor, I suspect the burden of living becomes all that much steeper of a slog; something akin to scaling K1.  I’ve discussed this with Gwen a lot and we both agree that this is why most people end up having children– it gives them a project to jointly work on so they can continue to hold their marriage together.  I strongly suspect one major reason people have children is that when they’ve exhausted their individual dreams and passions (or have accepted resignation and defeat that they will never reach them), raising children is one of life’s great consolation prizes.

A Global Chase for Yield

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.

Two Reasons the Market will Rebound Sooner Than You Think

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.