The other week I was talking about the pessimism I was seeing through conversations I’d had with neighbors and how they juxtaposed with what I was seeing in the data and other informed conversations.
It seems the market agreed with me.
Since the close of trading the Friday before I wrote that post, April 3rd, the S&P 500 is up 12.5% through yesterday’s close. Impressive.
I’m happy to say I was playing some individual names to the long side and have done well with them. And now, I’m starting to feel the opposite.
It feels like we’re getting too optimistic.
Here’s some anecdotal evidence… The other day, in my FB real estate investor group, someone asked for opinions on how to take ~$100k cash and $70k equity and turn it into seven figures.
There were plenty of hilarious replies. Some practical. Many related to real estate, but a noticeable number of equity related ones. Here are some of the best.
Take 100k and buy stock in oil now or cruise lines in a month. Both are significantly down and oil is about to do a rebound amid this ‘rona thing. Cruise ships will come out of it too
Carnival at 8/share = 12,500. It usually trades upper 40’s to mid 50’s.
Wait until Wynn stock hits low $20s after May 7 earnings are awful. Shove all in. 2years+ will be back to $150/share. There’s 7 x your money.
Agreed. Wait until some of the energy and hotels report qtly earnings, then tag your money in.
Saudi arabia bought an 8% stack in carnival cruise line. Good time to get in
The rational behind most of these statements is flat out baffling. My favorite… “It usually trades upper 40’s to mid 50’s”.
Weesh.
I was shocked to see so many real estate investors advocating for taking one’s life savings and sticking it into a handful of beat up, legacy brands and industries. I bit my tongue (rare).
Earlier tonight we got word that Gilead Sciences showed promising results with a new drug treatment for COVID-19. It’s worth a read, but here are some points that jumped out at me:
According to Stat, 125 people with COVID-19 receiving care at the University of Chicago are participating in two Phase 3 clinical trials conducted by Gilead; 113 of them have severe forms of the disease. Stat said it obtained a recorded video discussion about the trial among University of Chicago faculty members in which a physician said when some people start taking the drug, fevers come down and some come off ventilators.
Emphasis mine.
And then this:
One trial is evaluating remdesivir in 2,400 people with severe forms of the disease, the other is testing the drug in 1,600 patients who are moderately ill. Both trials are being conducted at multiple sites around the world. According to ClinicalTrials.gov, both trials began in March and are expected to conclude in May.
As a result, market futures are ripping higher with S&P futures up 3% while NASDAQ futures are up 2%.
It feels… premature.
One of the more interesting reads I came across this week was an article looking at the failure in social distancing models to actually show what happens once people start leaving the house.
In a nutshell, we’re being touted these models that show the massive benefits of social distancing for two weeks, two months… whatever. But they don’t show what happens after that period of time is over.
The media is showing us this…
…without showing us this:
The takeaway is that, yes, social distancing will appear to flatten the curve, but it’s really just prolonging the curve. It’s buying us time. And the assumption is that we’ll be able to make some sort of progress in that amount of time.
Maybe the new Gilead treatment is what we’re buying with that time. But remember, “trials began in March and are expected to conclude in May.” (again, emphasis mine).
Let’s assume people will continue to obey state and city-wide lock downs (there are already signs they aren’t). And let’s assume the Gilead drug is successful. We still have to ramp up production and administer it to, well… EVERYONE! That’s no easy task.
Will society continue to stay home while all that develops over the next 6 – 12 months? I can’t imagine!
It feels like there’s a second shoe to drop yet, and that’s not being priced in.