Waiting For The Worst

The U.S. COVID-19 Tracker as of Monday Night

Waiting For The Worst

I should be writing more. That's what I tell myself.

Instead, I keep refreshing that COVID-19 tracker, as I sit here in the contagion hot zone of Bergen County, NJ. I put on a surgical mask and gloves for occasional trips to buy food or medicine or whatever home exercise equipment is left, and then I go home and look at that site. The 24-hour increase in deaths dropped to 14% on Sunday, for the first time since I'd discovered the site about a week ago, and I was briefly encouraged. But as I write this, it's back up to 26%. If it stays at that level, and deaths peak in two weeks, by that time there could be more than 80,000 deaths in the U.S. Grim, but it could be a lot worse if so many of us weren't on lock down right now.

Looking Ahead

Markets are supposed to be forward-looking, so with the SPDR S&P 500 ETF (SPY) up more than 17%, as of Monday's close, from the bottom, one might assume the market is looking past the peak in COVID-19 deaths expected next month.

But as my Twitter correspondent James Miller, the Smith College economist, noted, markets weren't very forward looking in early February.

What Now?

So what now? I wrote recently that it was too late to hedge market risk because it was too expensive, but it might get a little cheaper after a bounce. We've had a bounce and it's gotten a little cheaper, but it's still extremely expensive: 11.61% of position value annualized, to protect against a >20% decline in SPY over the next ~6 months.

By way of comparison, when I suggested hedging on February 13th, the annualized cost of similar protection was about 1.12% of position value.

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