HedgeTalk: Off the Cuff - Almost 10 Reasons to Hedge!
By: Johan Rosenberg, Chairman
1. COVID19 (the “virus”) is not behind us. Example? Houston (“…we have a problem”) is considering lockdown part 2. 2. A “vvvv-shaped” recovery looks more like a ‘w’, which is the first letter in “worsening.” 3. VIX soared the most in two years on Friday (+48%) to 40.79. It would seem credit and economic risks are not priced into the market, contrary to popular belief. Reality is setting in after a month of taking stock and inventory of the carnage. Equity Bull Markets do not behave like this. 4. You get more now if you sell volatility; buying optionality just got more expensive. 5. Gold and other precious metals are holding their value. 6. If: we are looking at years of zero rates and a flat yield curve, Then: Financials, insurance companies, and pension funds will suffer and become underfunded. 7. The dramatic expansion in the Federal Reserve balance sheet of $2.5 trillion, has precisely matched the run-up in the S&P 500 market capitalization from the 10 March bottoms. Everybody now believes the stock market only goes up, and unemployment checks are being invested at $50 bucks a pop on the Robinhood app. 8. Guess who stepped into the short void after the short squeeze? Dealers. If you’re not in the Group Snapchat, you are going to get hurt. 9. A d…d…d…d…deflationary period is looming with an ensuing lag in demand courtesy of the virus. We learned to “do with less” and “want less” during the lockdown. Whether unemployed or employed, 80% of “skip-a-payment” participants are back on track. Savings are soaring. New car at a discount? ..hmmm, I think I’ll go for a bike ride instead…. Bottom Line Hedge. Create a long-short strategy that works for you. For questions on how to manage volatility and price risk, contact one of HedgeStar experts at email@example.com, or 952-942-6094.