Monday, September 21, 2020

Morning Note: Nowhere to Hide (This Morning)...

Yet another jolt to the U.S. political setup, Covid breaking above March's numbers in Europe and a concerning report on major global banks and their alleged relationships with "dangerous players" over the past two decades has world asset markets on edge this morning. 

All but one of the 16 Asian equity markets we track closed notably in the red overnight. All of the 19 we follow in Europe are down big so far this morning. And U.S. stocks are taking their licks this morning as well: Dow down 542 points (-2.40%), S&P 500 down -2.10%, Nasdaq down -1.64%, Russell 2000 down -3.35%.

The VIX (SP500 implied volatility) is up 12.74%. VXN (Nasdaq vol) is up 7.08%.

Commodities are getting hammered as well this morning: Oil futures down -3.19%, gold's down -2.06%, silver's down -4.97%, copper futures are down -1.90% and the ag complex is down -1.27% so far.

The 10-year treasury is of course enjoying a nice risk-off rally (yield lower), while the dollar (to the detriment of assets [save for treasuries] across the board) is staging an impressive rally, +0.71%.

Our positions that have had our core allocation holding up beautifully during the September selloff through last Friday (save for our small position in the yen) are providing zero shelter so far this morning. With the yen being our sole gainer this morning, we're down 2.07% as I type. Of course the put hedge is screaming higher (+34%), but for now it simply offsets our biggest losers, bringing us more or less in line with the broad US stock market. Note, the hedge becomes more meaningful the further down we go (between now and year-end).

Like I said, up until this morning, we've been pleased with our core allocation as stocks experienced a bit of bloodshed for three consecutive weeks (blue = our core portfolio, orange = S&P 500):

This reflects the 41% of our mix that bears low correlation to stocks. 

Today's action for us is much more about the dollar than it is the stock market.

We'll keep you posted.

Reading Edward Chancellor's excellent Devil Take the Hindmost: A History of Financial Speculation over the weekend, this 1674 quote from poet Charles Cotton's Compleat Gamester had me thinking about today's retail trader mania that I've analogized herein to the day trader phenomenon of the late '90s tech bubble:

"...he is either lifted to the tip of mad joy with success, or plunged to the bottom of despair by misfortune; always in extremes, always in a storm ... and, as he is transported as he wins, so losing is tost upon billows of a high swelling passion, till he hath lost sight of both sense and reason."

Have a great day!

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