An ED Trade From The Road…
September 14, 2020
SHLL We Arb This One…???
September 23, 2020

Turbulence Ahead…

On Monday, I return to work from an extended vacation (I didn’t miss much it seems). I’m refreshed and ready for what will likely be one of the craziest periods for the markets since the COVID Crash.

I realize I’m the guy who has gone out there and said you have a free shot on goal ever since late March. I even called it “Project Zimbabwe,” as it was so obvious that you only had two acceptable exposure options, long and very long. That said, now is a time for a bit of caution leading into the election.

Longer term, markets are going much, much higher because no matter who wins the Presidency, both parties are committed to the sort of fiscal and monetary expansion that only Banana Republics can countenance. “Project Zimbabwe” is very much the playbook here. That said, over the next few weeks leading up to the election, there will almost certainly be volatility. The election itself may be undecided in the first day. Who knows what happens if one side does not accept the outcome? Markets abhor uncertainty.

With all of that in mind, this is your friendly reminder to de-gross a bit. Increased liquidity equals free optionality. Besides, it’s not like I think I’ll miss much upside leading into election day. In summary, I’ve been a seller over the past few weeks. I’m letting Event-Driven trades run off and I’m hesitant to add new ones unless they’re somehow hedged. I am also going to let my September paper roll off and will not re-load for November—not unless implied volatility spikes into election day.

This isn’t a call to panic sell or get short. It’s still “Project Zimbabwe” out there. Rather, much like going into the COVID Crash, this is a time to go through your book and ask if you’re confident in each of your positions, or if there are a few that ought to be jettisoned. Remember, most of the money is made buying the panic dips—do you have room to add on a violent pullback?

In summary, I want some extra room in case this election turns into a complete klusterfuk.

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