Epsilon Theory Professional
As the kids would say, I’m old enough to remember Charles Keating and Neil Bush.
I’m old enough to remember the slow-burning dumpster fire that was the S&L Crisis of the late 1980s, when politically connected bankers used their influence to enrich themselves and secure regulatory forbearance for their crappy loans.
It’s happening again.
The more I see these midday mysterious reversals in the growth/value relationship, the more I think that there is a Common Knowledge shift happening and not just a month-by-month shift in the Wall Street drum-beating for this sector or that sector.
A shift in Wall Street drum-beating is good for a trade. A shift in Common Knowledge, though … that’s a Big Deal.
I don’t expect everyone to be as excited about the arrival of the new ET Professional Narrative Monitors as Steve Martin was about the arrival…
The Fed completes its transformation of the credit market into a political utility, the EU tops the US in economic growth prospects for the first time in living memory, and Americans are losing faith in “America”.
A narrative backlash is developing against RIAs and other asset managers that took PPP money.
Fair or not, this narrative is pure red meat for anti-Wall Street sentiment, particularly in an election season and particularly as the stock market goes up even as the real economy suffers.
Can a free world survive an endemic COVID-19, where there’s no vaccine but a chronic global affliction?
I used to think yes. Now I think no.
I know it’s forbidden to say this, but I like Woody Allen movies. If you’ve never seen “Everything You Always Wanted to Know About Sex* … But Were Afraid to Ask”, it’s worth your time just for the Gene Wilder scenes. And yes, credit default swaps are the sheep in this story.
The dominant COVID-19 narrative today is a “short and deep” economic impact, with a corollary narrative of “pent-up demand”. These are market-positive narratives.
Here’s how we think those narratives could reverse, and here’s what investors should watch for to see if that reversal happens.
In 2008, the market came roaring back after Bear Stearns was sold for parts to Jamie Dimon. Why? Because narrative. Because with Bear’s elimination, “systemic risk was off the table.”
That’s the question you need to ask yourself today. Is systemic risk off the table?
Legacy Monitor Archive (Pre-January 2020)