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Thoughts On A Panicked Market

Mar. 08, 2020 10:38 AM ET470 Comments
The Heisenberg profile picture
The Heisenberg


  • Friday was one of the most dramatic days in the US rates space in recent history. Even veteran traders were taken aback.
  • Meanwhile, dollar-funding markets are tightening and credit spreads are widening.
  • In equities, market participants are being whipsawed. I'll explain why.
  • It's not all bad news. But then again, it never is.

"Panic moved up a few notches from already extremely high levels,” Tony Farren at Mischler Financial Group remarked on Friday. "I thought last Friday was the blow off top and then a few times this week before today but now it's beyond belief," he went on to marvel.

That's the kind of commentary that was coming from the pros on the last day of the week, particularly during the US morning, when a bond rally with almost no precedent was unfurling.

Although most serious traders watched the beginnings of it unfold in Asia on Thursday evening, anyone who somehow wasn't aware of the situation woke up to read about a series of limit-up, circuit-breaker halts in Ultras amid a combination of acute fears about the coronavirus, a generalized risk-off trade and an apparent convexity event.

“For those who don’t trade bonds on a regular basis, it’s difficult for me to convey the true ‘epic-ness’ of this move," my good friend Kevin Muir, a 25-year market veteran who used to run equity derivatives at RBC Dominion, remarked, in a Friday morning note.

And I could go on. Duration had gone "offer-less," so to speak, and liquidity had apparently collapsed. At one point Friday, 30-year yields fell nearly 34bps.

The following visual is from Bloomberg's Cameron Crise, and I use it not simply for the "eye candy" value (anyone can create the actual chart), but rather for the accompanying quote from Crise, who made a simple, yet crucial point. After reminding everyone that Friday's move lower was the largest since 2008, Crise noted that prior to the crisis, "you have to go back to the ’87 crash to see a move that big [and] in neither case was the starting point 1.54%."

That latter bit is obviously key. 30-year yields fell nearly 34bps

This article was written by

The Heisenberg profile picture
Perhaps more than any other time in the last six decades, the fate of markets is inextricably intertwined with the ebb and flow of geopolitics. It's become increasingly clear that one simply cannot fully comprehend market movements without a thorough understanding of concurrent political outcomes. Drawing on extensive experience in both politics and finance, Heisenberg will help demystify a world in which investors can no longer hope to conceptualize of markets as existing in anything that even approximates a vacuum.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (470)

Lawrence J. Kramer profile picture
When you look at one of those ubiquitous curve-flattening graphs, imagine overlaying your favorite equity index. The farther to the right the case plot goes, the longer it takes for the market to recover. I'm not making a value judgement here, just observing what is likely to happen if social distancing is "successful."

The mad scientist in me wonders if social distancing can be too effective. The ultimate goal must be herd immunity. That can be achieved by mass vaccination, which will take, give or take, two years if we’re aggressive, or it can be achieved by mass exposure, which can be achieved much more quickly.

If we had the collective smarts, we would use social distancing to protect the vulnerable only. We would send the kids who live with healthy parents to school, let them blow on each other’s birthday cake, let them get “sick” and then render them useless to the virus as vectors. Young, healthy people would be tested, and those who prove positive and then negative will be allowed to interact with vulnerable populations. Way before a vaccine could provide immunity, circulation would provide it.

But we aren’t smart enough as a species, or as a country, to use this method. Once, parents hoped their kids would get chicken pox or mumps so that they would be immune for life and not spread the disease. Now, we think “vaccine.” I have no problem with vaccines; I and my kids get the ones offered. But waiting for a vaccine simply does not seem like a good strategy.

The limiting factor here seems to be hospital capacity. We want to “flatten the curve” so as to not overwhelm the treatment facilities. That’s a bit odd, since there is no treatment, but let’s suppose that overwhelming hospitals would cost lives. Analogies to Katrina come to mind; the levies are being over-run. If we had more hospitals, would we relax social distancing so that the curve rises to meet the higher limit? I doubt it. Still, it would be nice if we had more hospitals.

And how do the economic effects of social distancing affect death from all causes? We don’t have universal healthcare, and, even if we adopted it tomorrow, one may expect that the economic dislocations of businesses shutting down will cause an increase in homelessness and death by other causes, including not going to the ER with a mere suspicion of, say, heart disease, for fear of contracting Covid-19. A lot of misery might be prevented if we could isolate only those who need to be isolated and let everyone else get on with their lives. I would love to see some assumptions on that dynamic written into the modeling.

My guess is that history will record that we over-reacted to this bug, not in the sense that we worried too much about it, but in that our response was insufficiently nuanced. The social distancing will last much longer than necessary because herd immunity will not be achieved until nearly everyone’s been vaccinated (as with smallpox in its day). We will look back and realize that less would have been more.
diroha profile picture
I like your thought process. I do think that a 2-3 week distancing is advisable but then we have to figure out how to go back to work. masks, gloves and stringent hygiene habits should do the trick.
AgileDave profile picture
You can be sure if the choice is mass death and mass hysteria versus expediting therapies and vaccines, they'll expedite. No way this takes two years. Vaccines are in trials now, and it's likely they'll be included in the next round of flu shots. Several therapies have proven to be effective in China and Korea, and those will be approved quickly here, too.Those who panic simply don't understand how good our medical researchers are, nor how reasonable stodgy bureaucrats become when properly motivated. Sensationalized news and zombie movies should be considered entertainment only, not reliable forecasts.
MtBudmoreView profile picture
The USA can return to being itself, assuming it wants to, but it's unlikely, as they are sheep, no longer
Day Trader Ray profile picture
Your view is cloudy @MtBudmoreView Maybe it's clearer on Mt. Bid Lite.
MtBudmoreView profile picture
;) perfect Head Trader Ray, all the best this week
pebble16x profile picture
For me, the interesting to see will be the quarterly holdings reports from the funds and institutions. (particularly for what moves they may have made on BABA.)
Day Trader Ray profile picture
More interesting will be the reaction of Trump's supporters when the see their Q1 409k statements. MAGA 2020
AgileDave profile picture
About the same as Obama supporters after the (much worse) swine flu - they reelected him.
pebble16x profile picture
I just checked my msg and I don't see a word about politics.
danwatson888 profile picture
Experimental Drug Helps Some Americans Ride Out Coronavirus, NIH Doctor Says
Antiviral drug remdesivir appeared to have an effect in American cruise passengers treated in Japan, although data are limited Updated March 13, 2020 7:52 am ET
best to all remain long ($GILD) and many other biotech/pharma companies
It's always sad when people die, but everyone needs to realize that people get old. Old people get sick and sick people die. CDC estimates that 22,000 deaths have occurred already from the plain, old ordinary flu, which also requires medical intervention, ventilators and hospitalization. Yet, we are not told the sky is falling about that on our nightly news because of the flu. Maybe because we can't find anyone to blame for that.
Lawrence J. Kramer profile picture
"Maybe because we can't find anyone to blame for that."

The flu is a devil we know. We have vaccines and herd immunity, and we pretty much know how bad it will get. This new bug is, well, a new bug. When we get a vaccine, it will become like the flu, something that afflicts unvaccinated idiots and unlucky outliers. Until then, uncertainty has a discounted present value, which is being subtracted from stock prices in an entirely rational way.
No, it’s because we already do what we can to prevent those deaths, vaccinate. Also without any vaccines or herd immunity from previous infections, this has the potential to infect way too many people all at once for our heath care system to keep up. And even with a health care system that can keep up, deaths are happening at a tremendously higher rate with COVID-19 than compared to the flu.

You need to read up on what’s happening in Italy. This is no hoax or media driven panic. US hospitals are already seeing an increase in patients. Doctors are being asked to work more hours or to stop other activities (ie research, teaching or administration) and switch to seeing patients. Sorry, but pull your head out ... of the sand ....

If we don’t act, hospitals will be over run. Not only will more people die of COVID-19, but people like my son with asthma will have reduced access to health care if he needs them for non-COVID reasons. A guy with a stoke or a heart attack won’t get seen. A girl in a car crash... etc. It will lead to an over all increase in the fatality rate of all diseases and accidents. The term a epidemiologist might use would be a “excess deaths”. Essentially we know roughly how many people die every day, then COVID comes along and we will see more deaths from that both due to COVID directly and indirectly.

Anyway, I hope you don’t have a compound leg fracture at just the wrong moment when ER docs have 2x as many patients as beds...
terryongarland profile picture
This contraction is just too weird..so this Covid -19 is a flu virus..its morbidity is low except for elderly at risk.. so called common flu kills people in greater numbers..the symptoms of Covid -19 are relatively mild..why this panic ?
Streets are quiet as are stores..have never seen something ,that to my little mind, seems so over blown. I don't know anyone who even has a cold ,let alone flu..
This takes shooting yourself in the foot to new levels..am I ignorant or stupid to say this whole thing is a total cluster ?
diroha profile picture
Those that recover also need intensive care and a widespread virus would overwhelm our healthcare system.
@diroha BINGO. I think that is the key point.

People don't die, but those that get serious category of case ( the 5=ish percent ) need to go on ventilators and treatment beyond just sit it out on your couch.

That's why governments are freaking out to keep it from spreading.
AgileDave profile picture
CDC says it's in 38 states plus DC. Seems pretty widespread already, and still low mortality, much less than flu. Panic is irrational, but much of our society is.
tails bears win, heads bulls lose.
Investor since ‘73 profile picture
Everyone who was calling Buffett a fool for hoarding $128 billion in cash should maybe rethink that now, eh? Until we have 2 weeks of smaller moves of under 100 pts per day, until there is some stability, it’s too early to put his or your cash back to work in a serious way. I did buy about 1/3 position in GM on Monday when it was below 25, will buy another third if it hits 22 and then go all in at 20 if I get the opportunity. Will begin to buy into SPY at 250 and follow the same discipline. I had 60% in cash going into this long awaited time of feasting, not nearly as much as Mr. Buffett of course but I’m stoked to begin wading out into the bloody streets to look for nuggets in the stream. So glad I bailed at much higher levels. Same rules always apply, sell high, buy low, only works if you do it in both directions. Lying about the virus, failing to even have test kits available 2 months into this, blaming everyone else after having disbanded all those pandemic scientists and doctors that Obama put in place will all come home to roost, despite his and Faux ‘news’ lies. Change that channel, get a clue... Make some money!!!
AgileDave profile picture
The complaint about test kits is odd, or political. In '73 test kits would have been impossible, and even with today's technology it takes time to analyze a new pathogen and construct a test. They actuallu had a test early but it was unreliable. As soon as they got it right the labs started mass producing them. Maybe those who complain should put on a lab coat and lend a hand. But I suspect most of the complainers don't know how. Or are just political. Heard a comical rant by Bloomburg before he quit, complaining that the president is not a scientist(!!) I wonder what science credentials Bloomburg has? And why he expects the president to be a scientist? We have plenty of real scientists working on it. More wouldn't help. Not having exported our production capabilities probably would help. But we'll be fine. Don't panic. And don't be political.
Investor since ‘73 profile picture
S&P closed nicely above the 2880 level.
Buy TBT here.
Active_Trader profile picture
Great day it is.
Friends, I trust you are all heavily invested long and strong TVIX for stellar profits. Fact re due diligence.

Coronavirus, there is no cure, www.worldometers.info/...

Friends, this is a must read for stellar TVIX profits at:


Government stimulus, rate cuts, payroll tax cuts, political elections, etc., mean jack. 

Liars figure. Figures lie.

A vaccine, which is years away if ever, is required. 

MRGA Make Recessions Great Again.

Carry on shorting oil and stock markets at large. 

Thank dog that I am here to help. 

Cheers, Active Trader,


Feel free to share with others and follow me for profits.

$TVIX $DWT and more ....
lintervvv profile picture
tvix: down 13% today
dwt: down 23% today.
glad i didn't hop on yesterday's parabolic rise!
Interesting, you are pushing TVIX as some investment vehicle.
TVIX is a 2x daily ETN (DAILY), but if you use it as investment then you may want to learn to what happened to TVIX holders back in 2012.
pebble16x profile picture
active trader: "Coronavirus, there is no cure"

I don't think it's a matter of whether there is a "cure". Anymore than there's a "cure" for the flue. It's a matter of "avoidance" more than a "cure"

And that "avoidance" boils down to getting the shot for it.

Do you think that the development of that avoidance shot is out of the question?
Looks like devils at the central banks decided to play a chart game called "measured move". Because who else.
Its not a Bear Market, Its just a crash. Im a buyer
This bear market was not typical say the talking heads.
Caught everyone off guard....even the Perma bears.
Of course, there will be those that will say: I said this would happen. All ready on Bloomberg these portfolio experts are coming forth with I predicted this. Sure, they knew many months ago the coronavirus contagion would be upon us? They knew OPEC would fall apart?

401K voters will have second thoughts about future payroll deductions?

If the market does not rebound soon, the ordinary investor will stay away until their portfolios
have a meaningful rebound. And with a money market with near ZERO return, many will say I will keep my cash.
Otter Investment profile picture
Excuse me, anyone caught "off-guard" has not been paying attention. So many read flags. Just to give one: how many times does the yield-curve have to invert to get your attention? Want another: pay attention to the repo market. Want still another: read a history book about the typical consequences of trade wars.
”That's not a prediction as much as it is me imploring folks to keep an eye on credit spreads and especially on things like FRA/OIS and cross-currency basis.”

Where? What’s the link to “keep an eye” on this spread?
Not Quite Normal profile picture
I've invested in the stock market since 1973 and have always been a buy-and-hold type of investor, not a trader. I sold all my holdings on February 27th and am completely out of the market for the first time in 47 years. I believe we are looking at least a 25% to 30% drop in the market and a recession over the next six months.
@1MHL You got started at the beginning of the 1973-74 bear market. I remember that bear market as if it was yesterday. It was a slow-motion train wreck that seemed like it would never end, lots of pain.
The market is and has always been a fickle beast. Put your money in the bank or under your mattress. It won’t earn much but it won’t be stolen by manipulative short sellers. Savers beware, caveat emptor.
John97 profile picture
the market continues to meet my expectations. I got out of my trading account 18 months ago and all securities in Feb except bonds and solid preffered. The kids were moved to the sidelines as well. Anticipation of the lack of certainty in voting for a president, putting the market on a knifes edge. If it wasn't the viris it may have been some thing else to tip it over.

The effort to stop the virus is good practice for a future more likely to have more deadly effect that this one. Big money is always looking for ways to panic the market inorder to buy cheap and sell dear.
Active_Trader profile picture
Such bullshit that WHO today condones China's Coronavirus stats all the while the world at large knows that self serving China lies ... and now The World Health Organisation.

Don't drink the contaminated Fraud St. and cronies' juice.

Rest assured S&P 500 goes sub 2000.

Such unregulated manipulated bullshit the markets are today.

Ignore the idiots trying to pump the markets higher.

Follow the S&P 500 crash at:


Coronavirus, there is no cure.

Government stimulus, rate cuts, political elections, etc., mean jack. 

Liars figure. Figures lie.

A vaccine, which is years away if ever, is required. 

MRGA Make Recessions Great Again.

Carry on shorting oil and stock markets at large. 

Thank dog that I am here to help. 

Cheers, Active Trader,

Feel free to share with others and follow me for profits.

$TVIX long and strong for profits to infinity the beyond.
Gamma is not only biologically hazardous....but financially.....
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