COVID-19: The Big Potential Trades Ahead

hi I'm Keith McCullen welcome back to another real conversations we've teed this one up a lot of you been asking for him to come back and he was kind enough to give him give him give us some of his time thanks thanks Mike Taylor for making the time you're now a some kind of a rock star on the edge a Content platform thank you so much it's a pleasure to be here I got my guitar right here so let's get to work you look good in it and it's good it's good to have you back not not often as you know do you get a live mic on somebody and say hey how do you think this plays out and they give a cogent play-by-play on how something like this which which by the way you had no reps on there was no experience away from your 20 years of running a hedge fund of course but there there was no experience with this virus in particular and what was going on in the market but you said quite clearly look I'm getting long and by the time we reopened this saying the reopening of risk effectively comes back you absolutely nailed that so I think that maybe if we start there and you said this morning or the other day you got your hard hat back on like how do you see the next the next part of this play up well there's three stages dismiss deny and vomit and it works like that every time virus was not to come back for CDC and the White House and if I'd November or some date after the election and here we are four to six weeks post lockdown and it's popping up everywhere in every state in fact I think there's only one or two states left that are still in decline and the rest are growing and one of the great sources for this is a New York Times website they do a great job modeling at each state and it actually I've modeled out all the major states to determine on how it's going to play here but but it is dismissed deny vomit and we are halfway into tonight and dismiss is it's not coming back it won't come back we'll be able to control it when it comes back and we're past that now now we're into denial well it won't really do anything because look the hospitalizations and the deaths are below and that will change in about seven to ten days well that's a I hope that is not the case but once you get sick you're sick for two weeks you're admitted frequently you will pass if you pass your pass in the hospital three to four weeks post and so we're getting to that moment now where those events should happen and and I don't understand entirely why it would be tremendously different this time versus last there are a couple tools that they can use now dexamethasone antiviral drug by Gilead and maybe a little bit more care and how they prone the patient's stomach down help with flow things like that and they know how to identify patients that are going to be bad quickly so I think the care is gonna be better but I think the outcomes won't be terribly different I think that right now they'll probably take about 20-25 percent of the deaths off the table but I believe that it's very likely we will see 100,000 new cases a day within the next four weeks and and and that's that's really a count of New York New Jersey Maryland Michigan Massachusetts and Pennsylvania turning around in their cases they haven't started growing yet because they were all late to get off the lockdown and so now as we're approaching week three week four that's when we'll start to see the cases start to ramp and that's how we get from about 45,000 cases a day now to close to a hundred thousand and if the other states don't control this a Texas Florida Georgia and on will be over a hundred thousand cases a day and and that will be at the end of August into August and that's when the governors will hit the oh button and start making changes about what school is going to look like next year a shutdown slot you name it it's going to be a potpourri of whatever and and it should be because the CDC has basically demonstrated that they are following a political political model rather than a transmission model like mine by the way they have the exact same model that I do well the rate of change model I mean it'd be hard I mean again we don't know have to know what the virus is gonna be or didn't have to know when what particular point that it was gonna hit but we do have to measure a map it from a rate of change perspective this is basically what you said to begin with you're gonna have the rate of change slope and then it's gonna come back so again is that just the point you have to actually be a dispassionate almost from a human being perspective and say look I'm not focusing on deaths I'm focusing on rate of change of case growth well in this regard the models a lot like your models that you have there and that you are dispassionate you simply have inputs and you're extremely stringent in applying those inputs and and that's it and well what's rational what's irrational and to think completely irrational it would be to assume that transmission would not pick up and what I think they probably missed if they missed something was the underlying seed population and that's what we talk about a lot in the last call is that when this virus comes down and there are going to be a third 30% of the patients have a mild cold and those are the ones that are spreading it and don't know they have it they don't want to go to the doctor because heck I don't have it I'm not that bad I will catch it if I go to the doctor and so they're spreading around and I assumed at the time that that underlying number was about a hundred and fifty thousand patients in the US and I was wrong it's actually more than that because this is tracking about seven to ten days ahead of my model so what that means likely is if the seed population was larger than I thought that's interesting because I mean Darius and I often say this to each other and when we're discussing the rate of change of joblessness in the country it keeps surprising us to the sigh and you know obviously we had a pretty bearish outlook to begin with so those kinds of things together I put them all at the same time squarely going back into a recession after a depression that's not a positive thing I wonder though what on what you said on the on the political nature of it all I mean how do you handicap that obviously we can see what's happening in the polls some people say Mike hey look I don't believe the pulse yeah what do you think about that and the risks associated with the the the in the intense nature of the political arena going into the election well I think it's pretty clear now that and and I'm a political honestly I I don't have I'm probably more libertarian than anything else you know hey get off of my law so that's me but I think the Trump has demonstrated that he will do and say absolutely anything to stay in the White House and truly to any level and that goes from a fraudulent China deal to strong-arming the CDC into putting out fake projections and it just goes on and on and on is it will simply do anything to get reelected and the key in his mind to get reelected is going to be jobs and a stock market that's up and can't accomplish it with jobs he'll do it with a helicopter money and and so we should expect more of that September October November if the Democrats will play ball and that's another topic that we should go into at some point in this call yeah what I always say to people to get your helicopter money or to get your fed that you can't fight you have to get run over to begin with I mean so incrementally it's a lot harder to do more from the all-time high and the Nasdaq so it's the particular point that you need more cowbell that matters and and we will get into that I want to go to the China piece so first because you mentioned it you didn't mention it in passing but fake China deal like where we add on this you affectionately call the the virus itself CCP 19 like can you maybe just give us kind of a nice in a nice Tiffany box with the bow on it what you think about the whole Chinese situation altogether absolutely and and I should have said this on the last call with you the answer is there where this came from and how it was developed and is sitting in the lab notebooks of the scientists from Wuhan there are going to be five years of hand written lab notebooks and minutes from meetings it's all hand written and it can all be you can't fake it because it's impossible to fake five years of hand written lab notebooks just impossible because of you know hundreds of projects that were deliberated upon correspondent upon emails around and and failed experiments throughout that and then meetings minutes notes from those and then on top of that the consumables and consumables are all the things that they ordered from thermo Fisher and other vendors out there that that they used to to consume cell culture media plates all that sort of stuff and it would all line up and those are third-party vendors so that data can't be faked and you'd line it up experiment consumable experiment consumable and all of it will be in the lab notebooks we have no lab notebooks all that's disappeared and I think that circumstantially that is a gigantic red flag but there's a lot more going on I think behind the scenes not to get to the bottom of this I believe that the US White House knows what the bottom is I just think that this White House is completely compromised so you know ordinarily I mean you'd say it's a layup for Trump I mean I think it's probably one of the very few topics where it's bipartisan support to be anti China you know now you got the Chinese manipulating their stock market we could talk about the P P T's impact in the US equity market and Trump's impact obviously and his self interest in that but how do you how do you square that do you think that he runs into a political debate problem with Biden if he sides in any way shape or form with the Chinese well I don't even think he has to go that far I think Trump is going to win the election even though you know okay I am dispassionate about Trump will work Biden but the probability that Joe Biden look let's put it this way in the debates and this will be the probably the first time we really see Joe Biden in the event that he can tell us what day it is he will win that debate I'm not sure you can do that and that's it yeah that's that's pretty I think they I think the Trump is going to absolutely eviscerate this poor guy in the debates and and we may and I hope that's not the case I really love to see an actual debate on topics and so forth but you've seen his commercials on YouTube I'm sure you have where he's stumbling all over his words in the commercial and that's the best take what about the 52 other takes I mean right so so that's the end of that I am very worried about his cognitive skills and and I'm only saying that as an observer I don't know the truth I hope that he is well I hope he's very well I hope that this is just some crappy YouTube commercials and they took the worst tape possible and made that go to the public and but but other than that I do question his mental capacity to perform in any any way and we'll see that at the debates and I hope it is great to be but I do fear that Trump is going to mop him up all over the floor but more in a sad way now because Trump is fantastic but because Biden is completely mentally compromised and and he cannot be a candidate and for that reason the Democrats will who hate Trump will go out to vote Trump but the other Democrats the are gonna be difficult they're gonna have a difficult time voting for somebody with mental issues like that so they're just not gonna vote and then Trump wins and I don't really mind either way who wins you know we can trade that that's not the point it's just this is what I think is going to happen and there are many bets to go with mostly obvious ones I mean in a way in a way if you're right and if I'm right I mean if we get your version of the virus already coming back I mean you give us a roadmap of two to four weeks for godsakes that's not even that's no time at this point in the market but if we set that up and we have phase two of the stock market crash I mean Trump's gonna be able to scare the living daylights out of most Americans on the fly on that he's already got his talking points I've never heard a president threaten you with your 401k but obviously that's on the table as well and the more scared you get about your livelihood and your savings and that might work anyway that's a that's a little bit off the rail but I'm just to just kind of tie this back in and and back to the Fed and back to the market and back to the PPT in general one do you believe in the PPT some people say well what the hell is the PPT and and why do you keep talking about PPT at 2:00 to 3:00 in the morning oh my god do you mean the payment protection program I'm sorry to say PPP or that the PPT that the plunge Protection team oh my god you believe in it what are you talking about do you believe in it no some people think that I'm being a conspiracy theorist I mean they're that they think that I'm just making it up actually it's actually quite well documented throughout history many instances in 87 I mean art Kashem has gone on many times to recreate and replay that back where that you know the Fed the banks called the Fed and said by the way we have all this insurance it's going to be bad and then they said why don't you start buying stocks now and that was it and so and that's going back to 87 so we've had many many many instances of the feds giving the wink nod in order to move stocks there's many ways to do it now though because they can do it through bonds they can do it through selling ball so they don't have to go and directly by equity futures in order to move markets for and honestly all they have to do is get somebody else to do it with a wink nod and that can be I mean look at overnight repo right overnight repo is a great way to do it because you're basically telling them like hi we're gonna give you a ton of look what are you gonna do is 3:00 a.m. that's it all you have to do is and and moreover and in this day and age you just have to get the machine who doesn't think at all to believe and then they just chase the pattern so I mean you know there's more to me it appears that there's more than a collective effort from the buy-side fully-loaded whether it's the quants or other people with an interesting agenda to make that happen it's it's an interesting set up I mean to me it's quite bubbly I don't think you entirely disagree with that there's a lot of behavior out there that is beyond bubbly I mean what do you think about that component of this into the setup the whole notion that I think the one-liner is stocks don't go down well I just wanted to get back to the feds job okay and the whole thing about being the Fed that chairperson is being the Fed chair person and if Trump doesn't win he's not going to be here for the next term and that's it so really it's job protection and plunge protection is that he has to work hard to make sure that this elected official that appointed him stays in the White House so he can be the Fed chair nobody wants to be a one-term ER so so he's really just doing what's in the self-interest of his job and it was really fun to watch the transition of his realization of what his job really is and we saw that in what was at December of 18 when he was on out the academic playbook and he's like well I'm gonna be hiking rates because this is the right thing to do and then all of a sudden he started losing control along end of the yield curve and that's when he realized what his real job is it's to simply make the US appear as if it's which is the same job as the BOJ and the ECB right now and that's it and that's his job and it was really amazing to watch his eyes open up and say oh my god I literally I'm a monkey in the cage and I press the button and that's it and I'm sorry if you'll see this and he'll be terribly you know upset about this and and I believe that maybe somewhere he believes that his job is different but if you simply look at what they do and not what they say specifically it becomes extremely clear what all of their jobs are they have governments that are way over their head and sovereign paper and so they have to keep printing in order to make it appear as if there's no problem and the BOJ is a fantastic example of this where they printed and printed in red still printing right through 3% jobless so we've always say oh well you know it's inflation target and jobless and and remember the the famous Draghi who determined that price stability as his mandate meant that prices can't go down really price stability was more around inflation and the cost of goods prices going up and he was supposed to be maintaining price stability so that people don't get robbed of their buying power but he reinterpreted it as prices shouldn't go down and so I'm gonna get that uh pretty money because the truth is is that the bond vigilantes for all of these countries are just sitting there in the wings waiting to dump as soon as the central bank's blink because they are the buyer they're just the buyer and the moment they walk away think they're gonna walk away whisper wink that they're going to walk away everybody's gonna walk away at the same time and that's the conundrum that they're all in and it was really fun though to watch that at that time Pawel have that realization is like well I'm gonna play it by the book and then he finds out oh my god there is no book I'm totally screwed and it's it's been amazing to watch and it's a little bit upsetting that nobody writes about that and nobody has really arty elated this sort of phenomenon and it's exactly what we have been watching ending look I have the utmost respect for you he was sat in the same chair that we did during the last meltdown and there's very few people that did it and I know you did it well and and survived it and can say they survived it so we thought that that chair has had a different job and over the past 10 years we've all got to realize that their jobs are completely different now and are not going to change for the foreseeable future and you have a lot of people thanks for that recap because it's not the way that people generally recap the Fed as matter-of-factly but you know when we go from here that's the most important point I mean the Fed actually and there I guess some people may have forgot this but I mean in the in the beginning of the feds okay we're going easy we're gonna do whatever it takes the market actually got bodybag by that I'm talking about the stock market of course the bond market and gold is of have made new highs all along without anywhere near the kind of volatility that equities have had but now Europe you're at the all-time highs you know you're at a very different point for the Fed to make a particular move and that's that that to me is is the most important thing as you know like how I build my model it's fractally so it's the particular that matters it's not the average of things or god forbid some bloody moving average well we know is it talk about monkeys hitting buttons as soon as the moving averages break they have to sell so what is it that breaks the back of momentum again I have my own answers but I mean I I'm wondering given your focus on negative versus positive momentum as a factor exposure you know what you think about that well that brings us up to the trains moving forward and for the people that follow me on Twitter am I allowed to say my twitter handle yeah of course okay at biotech WA T it's a handle that I had all the way back from aol.com and that was the time when even at big traps like millennium all of my orders would literally be on aol.com just come to attempt at not return you know what did you say exactly no building a blah blah blah sorry I have to go you know and and that's really how it was but that's how that handles stuck with me so it's biotech lady at biotech WA T and so the trades really brings the for me to think about these trades that are coming forward people that had followed me realized that I was short in the recent days negative momentum and negative momentum got a lot of questions on this and negative momentum simply means essentially in the most simplest form is where is the stock chart over a one-year period is it down negative momentum or is it and then you could make it relative and say well what is it relative to the SP or some other indices is it below that in a trend and that is a momentum factor negative momentum factor positive and it's the same definition of physics like a vector and I always look at stocks as a vector they have mass they have directions they are this way they're this way they're this way and the mass really has to do with the dollar-weighted volume that's going on there and that's how I think of momentum but I'm in swart negative momentum now that the rubber hit the road and the economy order back up because now it gets much harder much much harder as of this month and moving forward in my opinion and we were long negative momentum meaning garbage going into the expiration of the lock-up and that creative work too so so mad mad it's a good year I have not taken a lot of directional bias believe it or not I've taken factor I am currently long positive momentum and I am short negative momentum there will likely be a moment where that changes but I don't think that that's going to work until September or sometime around the second week of August to the second week of September well I mean that that worked obviously at one point you know quite quickly this year but again it works after both things move directionally it's not that complicated I mean I think that people kind of struggle with people that are like what's your call in the marketing I keep saying I don't have a call and spies I haven't traded it since 2019 but short the Russell insured financials are basically you know I'm short negative momentum and long tech is long positive momentum that's a simple way for people to wrap their heads around what you just said and when it breaks and this is my real question for you which is like when everybody's in everybody's it I mean we got we got bar stool in we got everybody you know yesterday yesterday the Nasdaq taken an all-time high and it consumer cyclical is like cruise lines casinos shitty restaurants they're all getting smoked I mean it was a great it's been actually a great week couple weeks here for generating alpha with the set up that you have but at a point you get like as Demark would say exhausted like you this relationship gets exhausted so what do you do and how I mean you've made and I've made a series of mistakes around those pivot points but they're pretty violent and you all try not to make them that often I say it to my guys and and I talk every day to about regulates let's say every day to a group of 25 to 35 portfolio managers out there and many of which I've mentored summer friends and some are new because they just want to talk what do you think about this especially if things are tough and really the only reason I mean I'd like to think they talk to me because I'm a nice guy and they like my company but maybe it's because I survived the two recessions and made money in both and and that's it and so they just want a sounding board does this make sense and I'm really receptive to that because anybody who's bright and reaches out to me is like a real thrill for me because I'm gonna learn something I'm gonna learn something I didn't know and that just literally I think it's a lot like you where you're learning stuff you didn't know before and it's just amazing it's so exciting learn stuff and I will say this to the 25 that have called me and I tweeted yesterday I am a five hundred basis points today in my book and I was up four hundred bits yesterday in my book and I'm not patting myself on the back and say well had a 900 basis point move it's ludicrous okay that's what tops look like where everybody figures out your strategy whatever it is and then everybody piles on and you tend to have that whipping profit effect right towards the end when like you've said the factors turn and right now we are and Factor mayhem and not for the regular guy and and honestly not for the directional guy I believe that for instance Dalio I think takes massive directional bets and he runs a relatively unhedged book so he may not be looking at this too much but Citadel millennium all the paired books Bally as me Stevie Cohen they're running I'll just give a citadel for example they were unmoor leveraged from most are running about a nine times equity levered book and so their equity book is probably around a hundred and forty billion dollars or so and I'm no I'm not including the client but I think it's between a hundred and hundred forty depending on how much they turn the lever on and the momentum factor right now is off the charts because the winning hand has been massively crazy long momentum and short- momentum and so when you add that up in a book where you're positive momentum is positive but you subtract the momentum factor from your short book but if your short book is negative momentum it's a double negative and that means it's a positive that the market moves so they end up being long momentum in their short book because it's negative and then long momentum in a long book so what it means is if the markets going to tank they very little protection and so they're not really running hedge books at all when I was at Citadel over ten years ago we would get an email we're a tap on the shoulder that's always very exciting and and it's a my got it and it'll be the rest guys you know and they say hey Mike and I gotta tell you you know we're gonna flip the risk model in four days or five days and this is what your risk model is going to look like cuz I only see the risk model that they give me right now but the bad guys in the back office are always you know redoing a tree doing it right now momentum is off the charts and so they send me a picture of what my book risk wise is going to look like the day after and so if you look in my calendar at five days before every single quarter month end I have a reminder risk world it says risk Falls and I'll think about momentum factors specifically is that something with hedge funds are terrible that net-net and it usually gets him in a lot of trouble and I'll look at was this an extreme momentum moment and is the risk profile gonna flip abruptly in the next five days because everyone's getting tapped on the shoulder now how to move it and they got to start moving their feet well moving their feet means selling their winners in covering their shorts that are negative momentum and that's exactly what you were talking about in the flip on momentum factor and most of the time in my view is spurred by that tap on the shoulder that everybody gets on the same day hey our risk is gonna go crazy when we flip this calendar page so you've got to start taking it down now and so you'll frequently see that the last three four days of the month you'll see the risk roll yeah well you can also see and I've started to make this case just to myself in my own head and thanks for having this discussion live because these aren't the discussions that I can have in an open architecture that's kind of why we build hedge eyes so that people could could listen in on this kind of a conversation but I think that that's moved quite literally a week like if you look at what happened the capitulate or you know the capitulation high of June e8 I mean we raid on the screws July the 8th that looks like the same setup to me where yeah you thought that the moment would come on the turn of the month but then it you get three to four to five more days of the you know the fu move and then everybody's really given up I mean also seen another leading indicator on that is the capitulation of guys shown CFTC futures and options contracts just even in S&P index and e-mini you know they covered a ton of hedge in in in the month of in the last a couple weeks of June so it's a very different set up with similar behavioral characteristics set up being the net positioning of the market versus the behavioral like the machine or the meme of chasing the momentum the into the first week of the month of the new mom you know what I do but I can tell you as many other shops and I don't want to say which ones actually change that model to where they're like wait a minute wait a minute everybody's gaming us on this risk role well let's let's let's do a weekly yeah right okay and then it's earned to daily daily I get one very large shop where it I love it I love it people people nuts tragic risk robot is sticking crap in your book to hedge your factor risk on the hour I've started to do this I've started to do it every I do it basically between 950 in the morning because I won't transact til the first wave of FOMO is out of you know the monkeys are done it's me yeah you wait 20 minutes it particularly in a developing bear market because that's when you get the most violent squeezes but between 950 and 11 o'clock I'll roll and then between 2:00 and 3:00 or 4:00 in the afternoon I'll do it again so basically some people get pissed at me they're like you bloody day trader look what I thought you were mr. macro trending guy I'm like yeah but I could still trade and they're literally like games within the game they're all these these luda loops so as I would call them and and that's exactly what I see going on is that they've gone from and and again that you know my how my model works but I called it the immediate term trade duration which is three weeks or less because the machines used to do it a month so you're a 1 week ahead right it's like no you're right so trends trends are 3 months or more all that all the SuperDuper smart people that we've worked with some of them no longer work in the industry because they're too smart and so that was a quarterly investors but those are the trends and then the trades are quite literally as trying to front run you know no offense the magnetar but basically what I learned there which is you know the one month and and then now we've like you said that's exactly what's happened you have so many people crowding in to these very short term loops that it's almost like it's a and and as I'm asking this as plainly as I can to to me that's why we're perpetuating the vol signal because that's too much too often to get the bloody thing that won't make the market SP broadly or Russell God god forbid that thing ever goes up again but I mean it can't go up until that volatility goes away and you kick at the volatility you go away until you stop people doing that from doing that that's a good point you know one thing is different very different over the past seven years is all like you mentioned and the VIX the options market is no longer really a market of buyers and sellers meaning that you've probably noticed some days the VIX will just move 30% and in rough terms it means that the cost of puts forth calls but usually puts most 30% in a dip right and then you're like who the hell just did that because it just literally it just moved gaped in an hour who is that well it's not buyers and sellers it's not it's a market maker it's a market maker who says holy crap I don't want to sell any puts to anybody except for an absolute ripoff price and it's so it really is is a terribly inefficient market amazingly efficiently for them but terribly inefficient for investors and so when you see sometimes that the VIX is high like it is now you say to yourself whoa whoa this is a great opportunity because hedge funds are all grossed up and puts hold on let me check my output call ratio right now cuz it's something that I look at constantly and I didn't look at it today and I should be fired all right here we go so where's the mix right now where's the Vic noise install 30 that's like 27 28 I said alright 2793 alright and pump all ratio is plenty for 2.0 or 2.4 ok my friends what that means is that there are what it means is out there is that there are more calls being bought if you will versus points and that's the positioning so more people have calls and they do puts in fact the Polk call ratio right now is lower than it was in February at the highs exactly yet the VIX is at 27 so what you have is an unbelievably expensive put that nobody owns so the hedge funds don't actually have protection on and that's one of the giant missed cues that you're seeing in the tape right now is that you're looking at a high cost of puts and you're making the assumption well everyone's hedged up so you've got to go long and I'm telling you right now they don't have protection on period and you can see that in the put/call ratio yeah the you could see it also guys show show the fly ball discount and premium table this morning I was reviewing this actually on the macro show which is in financials and this is why I grossed up my financials position back to max yesterday which means that I'm not just you know shorting the the cash but also you know buying buying puts more aggressively 25% discount to to what's been realized in the last 30 days you see these there's Mike there's literally one two three days in a month where you know it's like short seller lights are green go like you know let's take the bear side and and and that you could see these things move very very quickly you gotta be awake you know because it happens fast yeah and and and shockingly so like you know just you know you bring your Snapple bottle don't go to the bathroom you know you're prepped here because it's gonna happen and it's kind of an exciting moment like that because it's like you know as the world turns we talked about earlier today it is a soap opera and it never ends and it's really fun if you like that sort well I love as the world turns I mean I used to be a big fan of the desecrator in Salem on Days of Our Lives back in my junior hockey playing days so again we would go to school you know look look at me I didn't get the lowest SAT score at Yale by going to school are you kidding me I mean so you you end up in in these places where it's like oh I've seen this part of the movie but there's an interesting new twist and what what I try to tell people and you said this last it was one of the best lessons that I think anybody has had on edge ITV which is basically make money don't be right make money now how about how about this don't focus so bloody much on the narrative stop reading the old walls narratives you know again the this is it has nothing to do with the narrative it has everything them you would have married you have to read it you got to read it it's like a soap opera but you don't have to be emotionally affected by it no no but you have to read it you don't have to know like you know I can our good friend ed Hyman at ISI produces an amazing product he has never ever told me to not buy stocks Hey look you know what she's been right what 80 percent source up baby I used to write and I got a credit him with that but at a shop like mine doing what I did and and still live now I wouldn't be able to be sitting in that chair anymore if I simply took that advice so you just have to take a huge swatch of information and process it for yourself and say aha and that's if you want to be a good acting manager and and honestly that number is getting smaller and smaller about 55% of the allocation is passive money now and remember that all that passive money that flows into markets has to be bought almost entirely by an active manager meaning the active manager has to sell to the passive money that's flowing in and so that's one of the reasons why we are going to see very very very increasingly exaggerated markets from here on out why then people don't understand that at all I mean generally speaking I think obviously pros do like you and and a slight four guys are our subscribers obviously get this I mean just the evolution of the flow I mean this can you see that these charts my chrono as we promised your found their news site for a slide for Papa there it is no but the black the black bar is basically what you just said the passive flow in the blue bar is hedge funds okay yes yes so and you think something's going on very very close and dear friend of mine is very successfully running a relatively new hedge fund and his entire premise of that hedge fund is I don't want to give away a strategy but it is basically upon that and based around derivatives and and for that means options for some of your listeners and that the derivatives are mispriced Victo not to allocate not incorporating that transition which is relentless and and he has done spectacularly it's a brilliant guy I would love to pump him on your show but I I don't want to say his name is good I don't want to give away a strategy and so forth but I it's one of those things where wow I see that I'm not sure how I'd actually trade it wow you're a genius for figuring that out by the way we've been talking about this he and I for 10 years and and boom he's nailed it he's cooked it and he's just putting up numbers that he'd be I'm up well I put I was out so I'm probably up in the low 30s this year 34 something like that and which is a great year that's great but the amount of goddamn sweat I had to put in to do that picking single stocks and all that stuff my dad I I wish I could just have a this strategy and just dip to do to do and and it works wow that would be nice sweat it out like you but but thanks for thanks for articulating that because I mean you've tied actually a lot of our subscribers how to use you know what I'm actually sending people real-time alerts for example I mean if you're trading options which you I absolutely do on all these ETS which is basically the flow part of that chart you know these 1 2 to 3 percent moves in an ETF like shorting you know shorting Spain if you just do it the cash that doesn't work so well relatively speaking to like two-week puts or one-week putts yesterday I mean that you make a shitload of money doing this and some people like oh you're doing a one two three percent thing it's like you don't we need to teach people how did it had it how to use options in short-term trading strategies because it highly augments all this all the blood sweat and tears we put into these bloody ideas that we have yes but frequently those options and opportunities they close out pretty quickly yep so you have to be a good way and I'll give you an example last week Pfizer right in front of their code 19 data the date before it came out to be the calls near the money calls were trading for 22 cents 21 cents 22 cents and I I scooped up a lot of them personally and it was a Forex payout on one day and III called all my guys you know we're on Bloomberg chat and these are all the critical mass guys they used to work for me and now they're they're running money all over in healthcare all over the world and I'm so proud of all of them and there's about seven or eight of them on our chat right now and I was like haven't you seen this and you know because I get so excited what the hell is going on what am I missing and they're like well I don't know well I don't know and I'm like okay I'm buying thousands right now digit today and and that was it and so you're absolutely right about trading the options if you're a quick and watching and understand what it is you can do extremely well and it's not a 1 to 2 percent return we're talking sometimes a 2 3 x return and then you just have to very sensitive about exit and exiting specifically and of course the bid-ask on the price because they can scalp you for a fortune there yeah you just you just have to be dispassionate don't look at your cost basis if it doesn't work with look quite literally for me within 48 hours it's gone you know you have to be disciplined and again that's an important lesson that people should have but it's also fading the Machine you know generally speaking if you're gonna make money you buy puts her if you're buying calls just to use really basic stuff do it from the top and the bottom end of the wrist range that's when you're gonna get the best price and you're gonna get the best pop so I'm gonna keep trying to teach people that I'm we're running out of some time here before I get to some questions but and we will do questions next if you have questions for Mike pop them in the queue equai to few of them are there already but first I want to give you my first question is like what's your your best ideas here our best idea if you wanna go with one or like maybe we wanted to have a Q&A if you just keep talking I'm sure everybody wants I mean the last time I recommended three reviewers long humana it was a us HMO they're still gonna crush numbers and I believe that this Kovach problem is going to be sticking with us for the rest of the year into next year and so they're gonna crush it because nobody's going to be utilizing healthcare yet all the Medicare patients will continue to pay so that's still alone I did come across as you know I look a lot at code virus and everybody that's working on it I came across a a Swiss company and I don't normally trade a lot of international stocks but there is a Swiss company called molecular Partners and they have a cocktail of antibodies to treat coded virus and it's going into the clinic right now it's very similar to Regeneron approach and I've been positive armory General's approach would or going to see more data in the coming weeks if it's treatable but what's different is there is from Regeneron is that there's the only one that is subcutaneously dosed Regeneron ziz IV and is predominantly going to be dosed in the hospital when you're in patient admitted but you're gonna lose 90% of the market which are the people that don't get admitted and molecular partners can pick that all of it and that is a ridiculous mark so this Swiss company is a 300 million dollar market cap they're going through a raised right now which I believe was a reverse inquiry where investors came to them and said take my money please because they believe in this antibody approach we'll have data from them in September late September I think it's gonna be late September it might be early October but I think late September and I I don't understand how it's not a five acts if that data looks good and just on that many of the comps right now without data are trading at three to five billion dollar market cap and that's over 10x higher than where that stock is now so I own I own six digits of it personally multiple multiple six digits the only reason I'm not seven is because it's difficult to trade oh and actually I kind of blew it right now because I should have bought more before this program yes yeah you you want to do that again just that thing yeah that that was that's that was impact that was not standard I think they're gonna crush this data I'm familiar with the technology and they're using a similar approach or Regeneron but they're gonna pick up all the market 90% of the market that Regeneron misses and I mean think about it if you have a million people infected that present at the PCP meaning the primary care physician and the this is something they could dose subcutaneously right there you test covert positive here's your antibody cocktail boom thank you very much $5,000 times a million people in the US alone and well that's five billion dollars and it's probably gonna be a lot more than a million people so that's an incredibly huge market and they're the only one I know of that has that I believe in the distant future there may be approaches like that but they're first and that'll be so that's my that's my pick of the day I like that picks yeah and people like that picks all right let's get some question thank you for that Mike appreciate that first one is from Drew Mike last time you're on hedge I you said your net long for the first time in a long time is it time to be net short this time and what's your favorite second and short of thank you my favorite sectors to be sure going into this Cova grant is going to be consumer leisure travel banks and and a funny thing the if you've noticed in the leisure travel slash casinos McHale hasn't opened up yet and at my last check of my official Chinese news is that there's no problem with ghovat virus in China and but strangely they've kept Macau closed so the casinos I think are in for a hell of a time for the back half of the year and negative time if you will yeah here's another guy this is a bit of a FOMO question not a bit of it this is a formal question do you think that the market will ignore any earnings declines going forward because the Fed has announced that they'll buy they'll buy everything for years well that won't have anything to do with earnings declines right I guess he is he talking stock declines yeah not earning declines well you know stocks if earnings go down a lot will stocks never go down a lot because the Fed said so you know that's that's a great point and about four months ago I'd probably said no and that was before another like 7 million retail accounts of open up and I think all of them are smaller accounts are all on call they have calls in Tesla and and that's the trade and when you get a see of retail people in thinking they cannot lose money and it doesn't matter what the reason is it's the Fed it's the fairy godmother it's a great economy it doesn't matter what it is when you get a lot of individual investors plowing into the market all along with new money and and you know and they did a good job by an amount by the way net net that sets you up for a problem and when you look at the put/call ratio and it's 0.42 today that is like alarm-bell on my head sell sell sell so I'm gonna stay long my favorite healthcare names because I as many of you know I'm a health care specialist I did drug development for a number of years and then traded healthcare stocks for the past 20 I'm gonna stick long with them but I'm going to be sure what I just meant and I am sure or what I just mentioned it's amazing - and buying the puts on what you just mentioned is really cheap going into earnings and and we've out we've also and obviously seen any company that pre announced or anybody who's off quarter in terms of their reports if they miss and it could have even been like some software companies like Medallia smartsheet we're work or slack you know these names just like down double digits in a day so again yeah I love going into that setup you know Dan Benton used to be at peak oh I don't know if you know him or not he used to cut say there's macro season then there's earnings season and when you have both at an intersection that have similar sets you know it's really I think it's going to be an awesome earning season for people that that are in and out of the right stocks we also have a very unique macro situation because the forbearance of payments on everything usually lasts about three months March April May some of June now July comes that's all expired and so people are now going to have to start making payments after they didn't and frequently the previous payments will be slapped on top of the payments they're making now and so they're gonna owe a lot of money that they didn't as a comp in addition jobless unemployment benefits start to roll and then lastly the PPP starts to roll for companies and what I mean is is that employers couldn't dismiss some of their workforce until they held them for eight weeks and it was eight weeks post receiving the check from the government and that eight weeks is heading right now so in the small businesses that I talked to every single one of them expect to layoff workers over the next two months so when I put all of those things together with a heavily retail invested fresh helicopter money into the stock market stock market at highs and the the put/call ratio 0.42 I am net net very very bearish when I see that yeah me just one thing one thing just to put a picture on what Mike just said like we call it the policy support cliff slide fifty guys just so you can see we put dates on all the things that are if actively experiment people's answer to that of course Mike would be there just gonna do it again and again and again I don't want to relive all I agree I agree but that's that's like that's probably September and everybody knows that September is three careers from now I love that how I was talking about that this morning in the early look you know everyone loves the rate of change acceleration off the you know these proctologists that have all called the bottom you know they love they love that but they don't want to talk about the next three data points the the the July August September data points they just want to draw a secant line out to 2021 earnings so that's fine that's kind of typically how they bottle it this question I want to ask this one's got a lot of votes and this is your view on the mad may the man-made nature of kovat nineteen can you expand upon that again and if your thoughts have odd I am you know so I did a lot of iris work before that was most my drug development work using virus for gene therapies and so I'm familiar with virus and how to make viruses that are different than what occurs in nature and I said this before I'll say it again and and this is just circumstantial but it's important the probability of a animal virus making to the leap to humans and being highly transmissible among humans is unbelievably low like one in billions that that would happen or could happen and I mean many many many billions so it is in so improbable as to border on impossible and we do have viruses jumping from animal to human all the time it's just that they're not very transmissible and like the other SARS events that we had in the past they never evolved into something bad because that truly was an animal to human virus and it wasn't very transmissible in humans and that's why it fizzled out but for this to be highly transmissible coming from or orientating from wuhan with the only BSL level four lab there that would actually be used to make and contain and propagate this sort of virus with a whole team of people that work specifically on this corona virus and we can't see their lab notebooks what they were doing meeting notes any of it lockdown the answer is ridiculously clear it's it's it's very painful and we could go into the specific mutations here and there and wear these man-made and we could debate that to all in but that evidence of where it came from the the location what they were working on the timelines it wasn't like oh they were working on this 14 years ago and everybody's retired no they were working on it last week you know they are publishing on this crap and and I think it simply escaped accidentally and this was the only one that we saw because this might have been the only one that was human transmissible there many many many many many viruses that escaped there through bad disposal techniques and it's just we never saw them because they never picked up in humans do you think that getting to the quote-unquote bottom of that story even matters um I well it doesn't it doesn't matter right we're not gonna solve any of the problems of humanity getting to the bottom of it yeah but we can do is identify dangerous bad actors that function without law and above consequence and that's what I think where we could benefit from but there are so many players that have interests in China business and detective dollars that get donated to politicians that they all want a piece of it and they're all getting greased and that's I don't want to say that's the problem it's not that it's a problem it's just a reality and so we'll probably never know we'll never know the sequence of events and and the hope is of the this White House even is that simply the new cycle will change and all of a sudden you won't believe it but pee-wee Herman is going to be huge again and early all over the news right and that's what we'll be talking about next time well that's I mean it's kind of amazing to watch it I don't think it's ironic to you like what's happened in terms of Chinese news news flow in the last three weeks I mean talk about turns of events that have now ended up into the renewal of a Chinese stock market bubble we went from the Himalayas yeah Freddie so and then the way they do it is really amazing like you were talking about plunge protection team they literally just call up the brokerage houses and say we give you more credit now yeah thank you bye and that's it and stocks go straight up and and a lot of people will look at it and say why don't we like that why don't we do that well you know and I know why is because that points to an unbelievable misallocation of capital and what that turns into eventually is a gigantic debt bomb inflation bubble that blows up all over their faces and throughout history every single command economy has ended their history with that all of them well I mean that has to be my last question to you I mean is this the mother of all bubbles in terms of notches I mean US equities wrap it up with Chinese momentum stocks that's a big part of the momentum factor - no I actually don't think this is the biggest bubble because I think it's going to get better and I believe that we are going to have a ludicrously sized stimulus package and another one not as large in the spring of next year and I believe that while we will have I believe a pretty hard pullback in the near term weeks 6 to 7 weeks or so but but secretly I really think it's like literally within the next week or so it'll start it would give me more time so that I can be right you know honestly give me more time so I can make money forget about being right and I think that we're gonna have an incredible helicopter money event that's what I think is gonna happen we're gonna have a huge helicopter money event and then we're gonna have to try fact out an insanity where the velocity of money turns around as this does incremental e improve neck year it won't be a solve all but it will increment the comps will be easier just like that we're gonna have a lot of stimulus money floating around and we're going to have the Fed and the Fed is going to become like the BOJ where they now have so much paper out there and debt that they can't let the long end live and so they're gonna print money all the way into full employment like during full employment will be very much like Japan in my view and that is a trifecta crazy train move place for stocks and then I believe we'll have the biggest bubble ever so back half 21 and that's when inflation will start to come in and I don't know if it says I'm your models but I see back half of next year very likely we see bad inflation with a deep globalization sharp and that sharp but let's say a persistent move down in the dollar throughout the second half of next year and I think that wherever the dollar is I think around September is going to be the the most recent high for the dollar and and it will be an incredible opportunity to be long emerging markets short US dollar which is kind of the same trade and and so that I think there's tremendous tree but we'll cover that then and we'll talk about what the great rates are then then but I do have a lot of things that are coming together in my mind and how to make it mint on this and and hopefully we can do it together love that man and you know ordinarily they say the man the myth the legend it's you're not a myth you're actually the guy right there and then you're the calls are starting to maker are good you know there's a little legend to this sorry to develop mic so we definitely have to invite you back and have these paint I'm just a troglodyte with a keyboard and that's the rest of the story thank you appreciate it he's Mike Taylor you could find his his Twitter tweets it means tweet action is pretty pretty legendary too but again a genuine honor to have that conversation thanks for joining us you

Channel: Hedgeye

Views: 19,334

Rating: 4.4896812 out of 5

Keywords: finance, wall street, markets, stocks, trading, macroeconomics, hedgeye, keith mccullough, bloomberg, options, day, michael taylor, covid

Id: uZuJTp6ZuJ8

Length: 61min 26sec (3686 seconds)

Published: Tue Jul 21 2020