Coronavirus

[Andrew Stepner]

I am selling off (and no longer 100% long)

Stepner

[Richard M]

good timing!

i have shrunk my exposure, mainly b/c if there is a flareup in the US I expect a gigantic selloff and I expect that to become self-fulfilling.  Once people are out, I don't see a big catalyst to get back in with the election happening, interest rates, etc.  should create some names on sale.

On Mon, Feb 24, 2020 at 10:52 AM Andrew Stepner <andrew...@gmail.com> wrote:

I am selling off (and no longer 100% long)

Stepner

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Richard Mordini

[Andrew Stepner]

It is too early to say for sure obviously, just 1-2 days so far, but yeah today was a good day to be on the sideline.

Generally to me it seems like a strong chance of triggering recession. Although I wouldn't discount the chance of a small temporary rebound depending how the news cycle falls. Ultimately it just seems like it will be self fulfilling and the underlying market has been too overextended just waiting for a big enough catalyst to reverse the upward fed driven momentum.

Do you like anything particular in terms of bearish use of funds? I went to mostly cash although I do have a few shorts, a bunch of $GLD and I'll probably get back into some $IEI and $SHY. I am hesitant to jump too quickly into out of the money puts since the VIX is so high this week. Options are complicated and I am trying to be a bit more conservative this time around.

Stepner

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[Andrew Stepner]

I want to update on where my portfolio is at. I did sell as I said, and I'm essentially ~~0% long. Here's where I'm at:

Defensive: 83%:

Cash - 33%. Wish I had more places to deploy for capital appreciate, but I think we are on the way to recession, and most things look extremely overvalued to me in that context.

IEI -  22% - 3-7 year US Treasuries ETF. Safe haven.

GLD - 28% - Gold ETF. Safe haven

Short - 11%

RCL - 1% - Royal Caribbean cruise line - To me travel industry is likely to have bankruptcies in this downturn/recession in the same way that banking/housing had trouble in the last one. People seemingly will stop going on cruises temporarily due to the virus, and I'm not sure how the cruise lines survive that. that's why I also have puts mentioned below.

AAL - 2% - American Airlines, seemingly the worst of the major U.S. airlines per my minimal research. Again, if travel sector collapses due to the virus, it should really hurt travel akin to how housing was hurt. I am sort of think airlines effects will not be as extreme as cruise lines, but airlines have had plenty of historical bankruptcies and legacy carries seem pretty inefficient, so it's a sector I am happy to bet against.

BOX - 4% - I've had this for a while since I think Microsoft's OneDrive ends up taking a lot of their business away. It's not my favorite short anymore, but I like having short exposure these days.

SPY - 2% - S&P500 short to hedge while I wait for this odd lot exchange offer in $MCK/$CHNG to complete. Will probably cover once I get my $CHNG shares and sell them.

XLV - 2% - Health care ETF short to hedge while I wait for this odd lot exchange offer in $MCK/$CHNG to complete. I had bad timing on this with the Biden news. Will probably cover once I get my $CHNG shares and sell them.

Puts - 1% and adding. On a delta adjusted basis, it is more equivalent to like ~8% in underlying stock exposure, and as I said I am adding.

RCL Jan 50 strike puts -  2% delta adjusted - Royal Caribbean cruise line (also short mentioned above).

MAR Jan 100 strike puts - 4% delta adjusted - Marriott - Seems like they will also get hit from a travel slowdown. I haven't researched them, I just wanted downside hotel exposure.

Long - ~~5-15%:

TLRA - 2% - Telaria - just waiting for their earnings call which unfortunately kept getting delayed. I love it long term but want to dump it after their earnings so I can get my equity long exposure to ~0%.

DELL - 6% hedged with a 5% VMW short - Waiting on a buyback and spin offer catalyst that is still seemingly 12-18 months away. Since I'm fully hedged with VMWare I am only exposed to the spread. Thus it is fairly market neutral. If Dell gets crushed then likely VMWare will too, so I think I am hedged pretty good. Happy to discuss this one more too.

BMY.rt / BMY" - 2.5% - Love the risk/reward, it's just very risky to size it large since it is a binary outcome of either $9 or $0. Otherwise I'd own more because it seems market neutral. (CVR contigent right connected to 3 drugs. Let me know if you want more info.)

MCK/CHNG - Odd lot exchange offer. Probably will sell as soon as I get the shares.

Upcoming

Gonna add more January puts that are somewhat out of the money. I might focus on expensive stocks with high Price to Sales ratios. Maybe things like $SHOP. Great company, but 34X Revenue just seems like an absurd valuation in a recession. I feel like plenty of downside for these types of expensive growth stocks if recession path does continue.

Let me know if you can think of any egregiously overpriced stocks. Especially I am looking for ones without mega high levels of Implied Volatility. I am looking for ones with moderate historical volatility that could still have potential to crash in valuation. For example $TSLA is arguably overpriced but Puts are expensive due to high Implied Volatility.

Stepner

[Andrew Stepner]

Markets are still at levels from 2019 (QQQ) and 2018 (SPY). I think this is shaping up to be a gigantic economic problem and it looks to me like markets should continue to tank a whole lot lower than where they are now.

Hard to have a lot of certainty on any particular path/outcome, but I am now expecting an economic depression as my most easy to envision scenario. I don't think I am overstating it to say that. But even if we only end up with an economic recession, I don't see how we hold at 2018/2019 levels. The markets would have to bottom way below that, right?

[Brendan Mathews]

Probably further to fall in the market. 

I personally think this is something the economy can bounce back from pretty quick. But I have no idea how bad the actual virus will be, and I’m sure some remedies we implement will be very damaging (trade war, political stuff, bad policy). 

Strong conviction is that I don’t know. I’m probably 10-15% (getting higher denominator gets small). I’ll probably make small opportunistic buys of new companies that I’m interested. And my 401K will take bites of the market on schedule 

On Mar 16, 2020, at 2:09 PM, Andrew Stepner <andrew...@gmail.com> wrote:



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[Richard M]

The actions just undertaken likely stopped the virus in its tracks.  A $1B budget for pandemic response and earlier travel bans could have prevented this trillion dollar intervention.

remember when trump banned travel from muslim countries "until we can figure out exactly what's going on?"  Imagine he did that 20 days ago.

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Richard Mordini

[Andrew Stepner]

Virus

The concern I have is that China's interventions have been pretty extraordinary (and practiced for), and I have some doubts that we have the political or cultural will to force everyone to get their temperature checked every time they enter or exit a building. Video with more details here (clickthrough for 6 min video, I forget which part: https://twitter.com/EpsilonTheory/status/1238835973070426113).

South Korea has theirs under control as well but they seem to have great testing logistics that we are way behind on. It seems like contact tracing will be much hard for us if we have tons and tons of cases by the time our testing capacity is ramped up. To me massive testing is the primary solution for us, it just looks like it will take a lot of time to get to widely available instant testing. I hope I am quickly proven wrong on that.

And Italy is the far more concerning example.

Ultimately it just seems like leaders are acting like there will be a quick solution while virus experts are expressing a more somber tone that things will take quite a while to solve.

Economy

Economically I would think unemployment insurance can help solve the problem of huge impending layoffs. I am less certain about what could solve the problem of incredibly large numbers of small businesses throughout the country having to shut down/go bankrupt due to lack of cash flow.

Stock winners/loser

So far I have been mainly trying to bet against stocks most exposed to a travel downturn.

Now I am trying to turn my attention to two places:

1) Which stocks are most expensive (like high Price/Sales ratio). In a deep recession I assume they will see their P/E multiples drastically cut, even if they are good businesses.

2) I am hoping to find some time to look at which stocks have performed best in the recent market. There have to be some winners. Something like Kroger $KR maybe. Something like Zoom $ZM, but hopefully a less obvious one that is a less crowded trade (and not such a sky high Price/Sales - 54X?!?). If you have a recommendation for where to systematically screen for recent good performers, let me know.

Stepner

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[Andrew Stepner]

I am strongly considering giving up my bearish market positioning and going market neutral or maybe even somewhat long. (I'll probably keep my large $GLD hedge though.) The market has been shockingly resilient and my bearishness has been wrong so far so I'm questioning whether it makes any sense to stay bearish given all the positive signs the market has shown.

And the coronavirus data seems to suggest potential plateauing/herd immunity possibly being reached at lower levels than previously expected.

Thoughts welcome.

[Richard M]

I'm long individual names and short OTM puts on individual names, then am short indices writing covered puts. The idea being a drop would be profitable but not a severe one. 

Too many unknowns right now for me. Market is detached which is why falling prices could fall a lot. Stimulus impasse could be big. 

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sent on the go

[Andrew Stepner]

I think I'm going to get back to being long the market (as opposed to currently having been pretty neutral/hedged/tons of GLD)

Stepner

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[Richard M]

I think a significant pullback is coming and this time we won't have a President who is going to pump the markets to save them.  No more Plunge Protection Team!

I'm short the indices and long an assortment of stocks, mainly selling covered calls against them: V and MA, PM and MO (no calls, just huge divvies), MSFT GOOG, AER, LUV.

I think the next earnings is going to dump cold water on a LOT of names. Look what happened last earnings - everything fell until the election results then the vaccine.

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Richard Mordini

[Andrew Stepner]

I don’t have a strong short term view but as you look longer term the vaccine data looks quite promising and I expect we start to get anticipation of what things will look like as vaccines start to roll out.

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