The drop is coming…. But it may be further out than we think – we’ve been here before (DD inside)

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by augusttrip2019

For those of us who were around for 2008 (or have studied it), you’ll notice a similar theme between March 2008 and 2020. For starters – I get it, different crises, blah blah blah. But some similar indicating factors. I’ll keep the DD light since most people won’t read it anyways.

3/18/08 was Tuesday and the S&P 500 was ripping – up some almost 5%. The previous weekend Bear Sterns almost failed, which the world found out about on Monday. This rally lasted for two months on the backs of stimulus checks and SP rising, triggering FOMO. Look at the price action in 2008 from March to May:

S&P 500 Performance 3/10/08 – 05/21/08

By mid-May in 2008 the SP was less than 10% below it’s record high (sound familiar?) down circa 3% YTD.

Two things in 2008 that led two that two month rise – faith in the stimulus and FOMO. The same concept holds here – do we think $1200 checks are going to pay rent for people for several months while the country is shut down? How about standard of living costs? the $600 checks that went out in 2008 weren’t able to pay their mortgages. One additional factor here – number of virus cases decreasing. Keep an eye on LIBOR spreads, they will be telling.

TL;DR: Ask yourself this – is anything fundamentally different today than it was yesterday? Do you think the implications of this virus will uncover massive fundamental problems with our financial system?

Positions: I’m out on May puts – SPY June-August is my new best friend. Fed knows this can’t last forever but they’re sure as shit going to try so long as Trump is at the helm.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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