🗞️The Wrap: Pandemonium
Tankers are flying, bonds are as complex as ever, and there’s money being made through the bleakness. Read on for some things you may not have realised about the past week of mayhem.
Those around for the wild start of Monday’s bloodbath would have appreciated an extra 15 minutes to make a cup of tea. Five minutes into the session, the market fell 7% below Friday’s close triggering a Level 1 Trading Halt.
Here’s what you need to know if you were caught off-guard:
- Before 3:25pm NY Time, should the S&P500 fall 7% (Level 1), trading will be halt for 15 minutes. Another halt of the same duration will occur if losses reach 13% (Level 2).
- At any time throughout the day, a drop of 20% will halt trading for the remainder of the session.
Note that pending orders on Stake will remain active once trading resumes.
Do they work? It seemed to on Monday. A similar experiment in China in 2016 was hastily cancelled 4 days after implementation.
Pandemic bonds. These things are complicated. Engineered by the World Bank, they act as a form of insurance for nations hit hard by unforeseen disasters. In short, investors buy pandemic bonds and receive coupons (interest payments) throughout the life of the bond. We’re talking some risky debt here, the premium tranche pays over 7%.
Should certain triggers be hit, the whole principle of the bond is required to be paid by buyers and the funds are used to manage the crisis. That may explain the high coupon rates. In this case, the World Bank is waiting for that cash flow as we edge closer to such triggers with the growth of COVID-19.
It sounds like a pretty clean and straight forward system but it has its critics. The triggers are complex and ambiguous and are based around the number of deaths, geographic spread, duration of virus and so on. It becomes more bureaucratic than practical. Perhaps this piece will answer the many questions you have in more detail.
With a great deal of attention on bond yields, we thought it was interesting to see what else is going on in the space. The wild west of debt is far more interesting than FINC101 makes it out to be.
What You’re Watching
Here’s some sectors and stocks that have caught the eye of Stake investors over the past few weeks. Of course, these aren’t buy recommendations but a good reminder that in the U.S., there’s always opportunity.
Tankers: There are a few sectors that benefit from ultra cheap oil: airlines, cruise liners and tankers. For obvious reasons the first two aren’t very attractive right now. As you can see from the Top 5 above, Tankers are rolling given their major cost has halved since January 1st.
Virtu FInancial (VIRT): Traders are loving this volatility. Market makers and HFTs are sitting back and counting their dollars as they provide sweet liquidity to buyers and sellers. 60% of VIRT’s income is from market making activities. The market has taken note as the stock has flown up over 50%.
Teladoc (TDOC): Virtual Healthcare, how futuristic. An attractive offering given the understandable aversion the world currently has to crowds and waiting rooms. Up 86% since the start of the year, TDOC pairs patients with one of 55,000 doctor via phone or video streaming.
Viral Stocks: Take a read of our blog post featuring five stocks popular on Stake at the moment. What makes them interesting? Each of them have made announcements in recent weeks regarding attempts to find vaccines or treatments to COVID-19.
What I’m Reading | Nassim Nicholas Taleb
I’ve recommended Taleb before but there’s no better time to revisit his work than now. Nestled into his 5 book series, The Incerto, on all things risk, maths, markets, society and philosophy is The Black Swan.
It talks about how random, unpredictable events can lead to unforeseen effects on the world. Google was a Black Swan…but so was 9/11.
A particularly topical read with COVID-19 taking the world by surprise. Just imagine how many hours of labour were wasted on 2020 outlooks.
One for the hardcore finance nerds out there. The VIX is at 40. What does this mean? Be as specific as possible in 2 lines.
Best Buy | DRIP +53.94%
When oil dropped below US$50 a barrel, this trader pounced and was handsomely rewarded when OPEC decided to take prices to US$30. For those who have already read Black Swan, this trader made the most of tail risks and is up 54% even with Tuesday’s drop.
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