There is some Fed Fud going on right now with a busy economic calendar. We studied the Spanish flu and what is happening with covid. During both events there are very similar sentiments. Does this mean we will trade this scenario NO this is purely a study of the two events. With that being said. Here is what we came up with.
Spanish Flu
Throughout the 1920s, the U.S. economy expanded rapidly, and the nation’s total wealth more than doubled between 1920 and 1929, a period dubbed “the Roaring Twenties.”
The stock market, centered at the New York Stock Exchange on Wall Street in New York City, was the scene of reckless speculation, where everyone from millionaire tycoons to cooks and janitors poured their savings into stocks. As a result, the stock market underwent rapid expansion, reaching its peak in August 1929.
By then, production had already declined and unemployment had risen, leaving stock prices much higher than their actual value. Additionally, wages at that time were low, consumer debt was proliferating, the agricultural sector of the economy was struggling due to drought and falling food prices and banks had an excess of large loans that could not be liquidated.
Millions of shares ended up worthless, and those investors who had bought stocks “on margin” (with borrowed money) were wiped out completely.
As consumer confidence vanished in the wake of the stock market crash, the downturn in spending and investment led factories and other businesses to slow down production and begin firing their workers. For those who were lucky enough to remain employed, wages fell and buying power decreased.
Many Americans forced to buy on credit fell into debt, and the number of foreclosures and repossessions climbed steadily.
www.history.com/topi...t-depression-history
Covid
Rising stocks and rock-bottom interest rates have delivered a big perk to rich Americans: cheap loans that they can use to fund their lifestyles while minimizing their tax bills.
Banks say their wealthy clients are borrowing more than ever before, often using loans backed by their portfolios of stocks and bonds. Morgan Stanley MS -2.69% wealth-management clients have $68.1 billion worth of securities-based and other nonmortgage loans outstanding, more than double five years earlier. Bank of America Corp. said it has $62.4 billion in securities-based loans, dwarfing its book of home-equity lines of credit.
The loans have special benefits beyond the flexible repayment terms and low interest rates on offer. They allow borrowers who need cash to avoid selling in a hot market. Startup founders can monetize their stakes without losing control of their companies. The very rich often use these loans as part of a “buy, borrow, die” strategy to avoid capital-gains taxes.
Many wealthy people are also borrowing against their portfolios.
“Ordinary people don’t think about debt the way billionaires think about debt,” said Edward McCaffery, a University of Southern California law professor who says he coined the buy-borrow-die phrase. “Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die. These are planks of the law that have been in place for 100 years.”
www.wsj.com/articles...r-wealth-11625909583
^^^^^^^^^^^ 100 years? something rhyming
Summery
Both events have over margined accounts in the book
Both events have the average person in the market Spanish flu recovery had "cooks and janitors poured their savings into stocks." now with Reddit, Discord, Twitter, and all of these trading groups working together to trade so we have retail in the books. Retail is the exit for smart money.
If this scenario plays out we will have margin call selling, panic selling, and stop losses being triggered.
Where can it go? From the tweets and podcasts that we have gathered from fund managers they all missed the lows of covid most of them got in after the high was cleared at $236 so this is where the margin positions are sitting. Going to the high liquidates all of these positions.
Bull Scenario we hold 354.47 which liquidates 4-5 months worth of position liquidating those positions may give us enough supply to push the highs. We trade level to level not some bar chart copy be objective and trade safe! Use stops! Again this is only a study of the two events. We want to see how this pans out.We have a plan and playbook for a bull and bear cases.
todays examples of preperation
Before
heres the vix with a SD line hitting rejection here is bullish for SPY a break is risk off market
After
Spanish Flu
Throughout the 1920s, the U.S. economy expanded rapidly, and the nation’s total wealth more than doubled between 1920 and 1929, a period dubbed “the Roaring Twenties.”
The stock market, centered at the New York Stock Exchange on Wall Street in New York City, was the scene of reckless speculation, where everyone from millionaire tycoons to cooks and janitors poured their savings into stocks. As a result, the stock market underwent rapid expansion, reaching its peak in August 1929.
By then, production had already declined and unemployment had risen, leaving stock prices much higher than their actual value. Additionally, wages at that time were low, consumer debt was proliferating, the agricultural sector of the economy was struggling due to drought and falling food prices and banks had an excess of large loans that could not be liquidated.
Millions of shares ended up worthless, and those investors who had bought stocks “on margin” (with borrowed money) were wiped out completely.
As consumer confidence vanished in the wake of the stock market crash, the downturn in spending and investment led factories and other businesses to slow down production and begin firing their workers. For those who were lucky enough to remain employed, wages fell and buying power decreased.
Many Americans forced to buy on credit fell into debt, and the number of foreclosures and repossessions climbed steadily.
www.history.com/topi...t-depression-history
Covid
Rising stocks and rock-bottom interest rates have delivered a big perk to rich Americans: cheap loans that they can use to fund their lifestyles while minimizing their tax bills.
Banks say their wealthy clients are borrowing more than ever before, often using loans backed by their portfolios of stocks and bonds. Morgan Stanley MS -2.69% wealth-management clients have $68.1 billion worth of securities-based and other nonmortgage loans outstanding, more than double five years earlier. Bank of America Corp. said it has $62.4 billion in securities-based loans, dwarfing its book of home-equity lines of credit.
The loans have special benefits beyond the flexible repayment terms and low interest rates on offer. They allow borrowers who need cash to avoid selling in a hot market. Startup founders can monetize their stakes without losing control of their companies. The very rich often use these loans as part of a “buy, borrow, die” strategy to avoid capital-gains taxes.
Many wealthy people are also borrowing against their portfolios.
“Ordinary people don’t think about debt the way billionaires think about debt,” said Edward McCaffery, a University of Southern California law professor who says he coined the buy-borrow-die phrase. “Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die. These are planks of the law that have been in place for 100 years.”
www.wsj.com/articles...r-wealth-11625909583
^^^^^^^^^^^ 100 years? something rhyming
Summery
Both events have over margined accounts in the book
Both events have the average person in the market Spanish flu recovery had "cooks and janitors poured their savings into stocks." now with Reddit, Discord, Twitter, and all of these trading groups working together to trade so we have retail in the books. Retail is the exit for smart money.
If this scenario plays out we will have margin call selling, panic selling, and stop losses being triggered.
Where can it go? From the tweets and podcasts that we have gathered from fund managers they all missed the lows of covid most of them got in after the high was cleared at $236 so this is where the margin positions are sitting. Going to the high liquidates all of these positions.
Bull Scenario we hold 354.47 which liquidates 4-5 months worth of position liquidating those positions may give us enough supply to push the highs. We trade level to level not some bar chart copy be objective and trade safe! Use stops! Again this is only a study of the two events. We want to see how this pans out.We have a plan and playbook for a bull and bear cases.
todays examples of preperation
heres the vix with a SD line hitting rejection here is bullish for SPY a break is risk off market