Robert Shiller explains the pandemic stock market and why it’s decoupled from the economy

Robert Shiller explains the pandemic stock market and why it’s decoupled from the economy

The stock market has gone through three phases during the pandemic: Denial, fear and fear of missing out. There are a few simple factors driving the Chinese market’s fresh uptrend, and one group believes that they could bode well for Bitcoin. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an Uber Technologies is swallowing delivery service Postmates in a $2.65 billion all-stock takeover, the companies announced Monday. Tesla (TSLA) is up this morning, grabbing a new all-time-high after it received a pair of bull notes following Musk’s tweet

The more economic fundamentals and market outcomes diverge, the deeper the mystery becomes, until one considers possible explanations based on crowd psychology, the virality of ideas, and the dynamics of narrative epidemics.

After all, stock-market movements are driven largely by investors’ assessments of other investors’ evolving reaction to the news, rather than the news itself.

Follow the latest movements of the stock market on MarketWatch.

That is because most people have no way to evaluate the significance of economic or scientific news. Especially when mistrust of news media is high, they tend to rely on how people they know respond to news. This process of evaluation takes time, which is why stock markets do not respond to news suddenly and completely, as conventional theory would suggest. The news starts a new trend in markets, but it is sufficiently ambiguous that most smart money has difficulty profiting from it.

Of course, it is hard to know what drives the stock market, but we can at least conjecture ex post, based on available information.

Also read: Living in retirement during COVID-19? How to keep your cool

Each of these phases reveals a puzzling association with the news, as the lagged market reaction is filtered through investor reactions and stories.

The first phase started when the World Health Organization declared the new coronavirus “a public health emergency of international concern” on Jan. 30. For the next 20 days, the S&P 500 rose by 3.1%, hitting an all-time record high on Feb. 19. Why would investors give shares their highest valuation ever right after the announcement of a possible global tragedy? Interest rates did not fall over this period. Why didn’t the stock market “predict” the coming recession by declining before the downturn started?

One conjecture is that a pandemic wasn’t a familiar event, and most investors in early February just weren’t convinced that other investors and consumers paid any attention to such things, until they saw a bigger reaction to the news and in market prices.

Their lack of past experience since the 1918-20 influenza pandemic meant that there was no statistical analysis of such events’ market impact. The beginnings of lockdowns in late January in China received scant attention in the world press. The disease caused by the new coronavirus didn’t even have a name until Feb. 11, when the WHO christened it COVID-19.

In the weeks before Feb. 19, public attention to longstanding problems such as global warming, secular stagnation, or debt overhangs were fading. President Donald Trump’s impeachment trial, which ended Feb. 5, still dominated talk in the U.S., and many politicians apparently still found it counterproductive to raise alarms about a hypothetical new enormous tragedy looming.

The second phase began when the S&P 500 plummeted 34% from Feb. 19 to March 23, a drop akin to the 1929 stock market crash. Yet, as of Feb. 19, there had been only a handful of reported COVID-19 deaths outside of China. What changed investors’ thinking over that interval was not just one narrative, but a constellation of related narratives.

Some of the new news was nonsense. On Feb. 17, a run on toilet paper in Hong Kong was mentioned for the first time, and became a highly contagious story as a sort of joke. Of course, the news about the spread of the disease was becoming more international. The WHO dubbed it a pandemic on March 11. Internet searches for “pandemic” peaked in the week of March 8-14, and searches for “coronavirus” peaked in the week of March 15-21.

It appears that in this second phase, people were trying to learn the basics about this strange event. Most people couldn’t get a handle on it immediately, let alone imagine that others who might influence market prices were doing so.

As the stock-market downturn proceeded, vivid stories appeared of hardship and business disruption caused by the lockdown. For example, some people in locked-down China reportedly were reduced to searching for minnows and ragworms to eat. In Italy, there were stories of medical workers in overwhelmed hospitals being forced to choose which patients would receive treatment. Narratives about the Great Depression of the 1930s flourished.

The beginning of the third phase, when the S&P 500 market began its 40% rise, was marked by some genuine news about both fiscal and monetary policy. On March 23, after interest rates had already been cut to virtually zero, the Federal Reserve announced an aggressive program to establish innovative credit facilities. Four days later, Trump signed the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, promising aggressive fiscal stimulus.

Both of these measures, and similar actions in other countries, were described as resembling the actions taken to counter the 2008-09 Great Recession, which was followed by a gradual but ultimately huge increase in stock prices. The S&P 500 increased fivefold from its bottom on March 09, 2009, to Feb. 19, 2020.

Most people have no idea what’s in the Fed plan or the CARES Act, but investors did know of one recent example when such measures apparently worked.

Stories of smaller but still significant stock-market collapses and strong recoveries, a couple of them from 2018, were widely recalled. Talk of regrets about not buying at the bottom then, or in 2009, may have left the impression that the market had fallen enough in 2020. At that point, FOMO (fear of missing out) took hold, reinforcing investors’ belief that it was safe to go back in.

In all three phases of the COVID-19 stock market, the effects of genuine news are apparent. But price movements are not necessarily a prompt, logical response to it. In fact, they rarely are.


Author: Robert J. Shiller

Here’s Why the Chinese Stock Market’s Rally Might Boost Bitcoin

Here’s Why the Chinese Stock Market’s Rally Might Boost Bitcoin

The Chinese stock market has found itself caught within the throes of a fresh bull market, and it could create a tailwind that lifts Bitcoin.

After facing the dire implications of the ongoing pandemic that originated within China’s borders, the country’s investors appear to be moving on, now helping to fuel a fresh bull market.

The country’s benchmark stock indices all saw massive growth during their latest trading session, with the Shanghai Composite even seeing its best single-day percentage gain since 2015.

A few simple factors are driving this fresh uptrend, and one group believes that they could bode well for Bitcoin.

It is important to note that unlike the U.S. financial markets, retail traders are the dominant force within the Chinese equities market. Some data sets even suggest that they account for 99% of the stock market’s investor base.

As these traders flood into the market, their growing appetite for risk may translate into gains for Bitcoin.

After a long period of weakness, the Chinese equities market is rebounding with a bang.

On Monday, the Shanghai Composite rallied nearly 6%, while the Hang Seng was able to climb by 4%.

These gains come as the global markets in general start flashing signs of strength.

The new uptrend was catalyzed by a push from the country’s regulatory agencies for the development of margin trading and short selling capabilities in the country, which is anticipated to boost stock market activity.

It also appears to be driven by hype.

Because retail investors make up for 99% of the Chinese market’s investor base – according to a government survey from May – their excitement regarding technical and fundamental developments can morph into mania.

The power of a retail investor mania was seen in 2017 when Bitcoin and the aggregated crypto market saw meteoric gains.

A similar trend has also been seen recently in the US stock market, with an army of traders on Robinhood pushing some individual stock prices up hundreds of percent.

The media can also help fuel this hype, and CNN has reported that multiple state-owned media channels within the country are already pushing the narrative that the markets are entering firm bull territory.

One active crypto fund recently explained that China’s FTSE A50 Index hit fresh all-time highs off of this latest rally.

Bitcoin China

Image Courtesy of the Amber Group. Chart via TradingView.

This, they note, indicates that risk sentiment for Chinese investors is growing, potentially boding well for Bitcoin and the aggregated crypto market.

“FTSE China A50 Index at new ATHs, surpassing 2015 mania levels. As a proxy for risk sentiment in China, this could bode well for crypto.”

Naturally, there are barriers in China preventing retail investors from entering the crypto markets freely, but the use of VPNs and other means allow these roadblocks to be easily subverted.


Author: Cole Petersen

Is New Senior Investment Group Inc (SNR) Going to Burn These Hedge Funds?

Is New Senior Investment Group Inc (SNR) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of New Senior Investment Group Inc (NYSE:SNR) based on that data and determine whether they were really smart about the stock.

Is New Senior Investment Group Inc (NYSE:SNR) a healthy stock for your portfolio? The smart money was selling. The number of bullish hedge fund bets fell by 5 in recent months. Our calculations also showed that SNR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SNR was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with SNR positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a large number of indicators stock traders put to use to size up stocks. Two of the most innovative indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can beat the S&P 500 by a solid margin (see the details here).

Leon Cooperman of Omega Advisors


At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the fresh hedge fund action regarding New Senior Investment Group Inc (NYSE:SNR).

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in SNR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in New Senior Investment Group Inc (NYSE:SNR), which was worth $17.7 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $12.4 million worth of shares. Arrowstreet Capital, GLG Partners, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Omega Advisors allocated the biggest weight to New Senior Investment Group Inc (NYSE:SNR), around 1.6% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to SNR.

Due to the fact that New Senior Investment Group Inc (NYSE:SNR) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. Interestingly, Israel Englander’s Millennium Management said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $0.5 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also said goodbye to its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to New Senior Investment Group Inc (NYSE:SNR). We will take a look at Capital Southwest Corporation (NASDAQ:CSWC), Gritstone Oncology, Inc. (NASDAQ:GRTS), AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), and Maui Land & Pineapple Company, Inc. (NYSE:MLP). All of these stocks’ market caps are similar to SNR’s market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSWC,7,10362,-6 GRTS,7,44260,1 AMAG,12,92458,0 MLP,1,1704,-1 Average,6.75,37196,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $33 million in SNR’s case. AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) is the most popular stock in this table. On the other hand Maui Land & Pineapple Company, Inc. (NYSE:MLP) is the least popular one with only 1 bullish hedge fund positions. New Senior Investment Group Inc (NYSE:SNR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SNR as the stock returned 44.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Get real-time email alerts: Follow New Senior Investment Group Inc.

Disclosure: None. This article was originally published at Insider Monkey.

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Author: Asma UL Husna

Uber gobbling up Postmates in $2.65 billion stock takeover

Uber gobbling up Postmates in $2.65 billion stock takeover

Uber Technologies is swallowing delivery service Postmates in a $2.65 billion all-stock takeover, the companies announced Monday.

The acquisition comes as Uber’s main ride-haling business has struggled amid the COVID-19 pandemic while its Uber Eats service has surged.

Uber intends to keep the consumer-facing Postmates app running separately, supported by a combined back-end network with its existing platform, the company said.

Uber Eats has mostly focused on restaurants during its recent expansion, whereas Postmates offers a wide array of goods including groceries, pharmacy items and liquor.

Even with the proposed merger, competitor DoorDash remains the dominant industry player, according to Edison Trends.

“DoorDash has strengthened its position at the No. 1 spot in June with 45% of transactions,” an Edison Trends spokesman told The News. “If Uber was to buy Postmates, combined they would take 37%, with Grubhub taking 17%.”

Postmates CEO Bastian Lehmann said “joining forces” with Uber will create an “even stronger platform” for users and couriers alike.

“Together we can ensure that as our industry continues to grow, it will do so for the benefit of everyone in the communities we serve,” Lehmann said.

“We’re thrilled to welcome Postmates to the Uber family as we innovate together to deliver better experiences for consumers, delivery people, and merchants across the country,” Uber CEO Dara Khosrowshahi said in a statement.

Uber’s ride sharing business slid 3% in the first quarter and dropped 80% in April compared with the same period last year.

Bookings through Uber Eats, meanwhile, shot up 54% in the first quarter.

The boards of directors of both companies have approved the proposed transaction, and stockholders representing a majority of Postmates’ outstanding shares also have committed to support the deal, the companies said.

The transaction is subject to the approval of Postmates stockholders, regulatory approval and other customary closing conditions and is expected to close in the first quarter of next year.


Author: Nancy Dillon

Tesla Stock Soars on Analyst Bull Notes - Schaeffer's Investment Research

Tesla Stock Soars on Analyst Bull Notes – Schaeffer’s Investment Research

The shares Tesla Inc (NASDAQ: TSLA) are up 7.5% at $1,300.20 at last check, earlier touching an all-time-high of $1,309.75, after the electric vehicle maker earned price target hikes from both J.P Morgan Securities and Deutsche Bank. Respectively, the firms hiked to $295 and $1,000, after over the weekend, Tesla’s CEO Elon Musk said on Twitter the company would expand mega factories in Asia outside of China.

The equity has swiftly recovered from its mid-March lows near the $350 level, when it was forced to close factories in the U.S. due to California stay-at-home orders. Now, shares have more than tripled and are breaking records daily, with consistent support from the stock’s 20-day moving over the past three months. Year-over-year, TSLA sports a jaw-dropping 459.7% lead, and today the stock is eyeing a fifth straight gain.

Despite its positive price action, analysts were mostly skeptical toward the equity coming into today, with eight of the 22 in coverage calling it a “sell” or worse, nine carrying a tepid “hold,” and only five sporting a “strong buy.” Meanwhile, the 12-month consensus target price of $732.14 is a massive 43.8% discount to current levels, meaning more price-target hikes could be on the horizon.

In the options pits, however, calls are trading at nearly twice the average intraday amount. Most popular by far are the July 1300-, 1400- and 1500-strike calls, with new positions being opened at all three.

Lastly, Tesla stock’s Schaeffer’s Volatility Scorecard (SVS) sits at the highest possible 100. This shows the stock has far exceeded option traders’ volatility expectations during the past year — a boon for option buyers.


Author: by Fernanda Horner

Robert Shiller explains the pandemic stock market and why it’s decoupled from the economy

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