Read on Twitter
1/ Regarding my tweet about a potential 1987 tech led crash, here is a thread.
For disclosure, I do not manage money other than my own, nor do I have any insights/advantage over anyone else.
I head a secondary private mkts team for an IB in NYC & this is my opinion.
For disclosure, I do not manage money other than my own, nor do I have any insights/advantage over anyone else.
I head a secondary private mkts team for an IB in NYC & this is my opinion.
2/ Again, I do not work in any regard with public mkt securities.
Ok, now that that’s out of the way, here we go. This is solely my opinion and may not at all play out...I’m open to all outcomes and will change my opinion/not marry it for very long should this not develop.
Ok, now that that’s out of the way, here we go. This is solely my opinion and may not at all play out...I’m open to all outcomes and will change my opinion/not marry it for very long should this not develop.
3/ There are a number of reasons why I believe a 20-30% rapid decline may occur and it’s related to how we got here, what it looks like today and what the preset conditions were in 1987 which led to that crash.
4/ First a quick lesson on 1987 can be read as best described here https://www.google.com/amp/s/www.cnbc.com/amp/2017/10/16/cause-of-black-monday-in-1987-as-told-by-a-trader-who-lived-through-it.html">https://www.google.com/amp/s/www...
5/ The 3 main factors in 1987 not in any particular order were inflation fears, tax changes and portfolio insurance.
Sound a lot like today?
Inflation fears rising & will continue to if this next stimulus package gains traction. This is way too much too soon.
Sound a lot like today?
Inflation fears rising & will continue to if this next stimulus package gains traction. This is way too much too soon.
6/ If you think the market isn’t concerned take a look at the 10yr trend line the TLT has been tight roping for 5 weeks. This breaks and it may lead to a rapid rise in 10-30yr rates. In 1987 the 10yr rose 3% on black Monday!
7/ Tax changes. Corporate tax rates are likely to go up to either 25 or 28%. Regardless of what anyone says this is not priced in at all. I know this because earnings jumped 20% in 2018 vs 2017 and most of it was because of the tax law.
8/ Portfolio insurance. Leverage has absolutely exploded over the last 9 months. Prime broker financing balances up nearly 600% in the U.S.
Remove portfolio insurance and insert Total Return Swaps. Think Hwang is the only one out there that drank from the punch bowl?
Remove portfolio insurance and insert Total Return Swaps. Think Hwang is the only one out there that drank from the punch bowl?
9/ Hwang is likely a symptom of a much larger problem & much more levered system. The financing balance data proves this and there’s no other explanation for how predictable the mkt has been on a daily basis day in and day out this past yr. Randomness has been killed by money.
10/ The lead up to the 87 crash came with a very strong economy and roaring market over the prior year, very similar to today. The Dow in 1987 tightly resembles NQ of this past year and we’re at a critical point in time relative to the October 87 high retest.
11/ While we have this huge build up in leverage, liquidity has been evaporating since 2018 which undercuts the insanely strong narrative that liquidity has driven the market to new highs. Better said, leverage has. https://twitter.com/fadingrallies/status/1379517673185361925?s=21">https://twitter.com/fadingral...
12/ So the question I ask myself today is....With the less regulated non U.S banks being hit way harder than U.S banks due to Hwang, how much longer until risk teams at these banks allow other Hwang’s to maintain these high leverage ratio’s, or...does the market decide for them?
13/ Lastly, longevity from Covid antibodies/vaccines is still a ?. Are people going to want to take an MRNA vaccine every 6 months? Will this alter consumer behavior for years? I don’t know the answers, but I’m at least asking myself these questions as it relates to investing.
