At a press conference early this AM, the CDC announced it will begin investigating a mysterious new illness that appears to have spread among traders in financial markets. The primary symptoms are uncontrolled projectile vomiting and fever induced panic.

According to the CDC, preliminary indications suggest it may be correlated with high leverage.

Sell when you feel like a genius.

Buy when you feel like you’re going to puke.

I’m doing some light buying today. I don’t think severe risk has passed, but neither do i have a good read.

I believe a bottom may be at hand when we see headlines of JPM running to the discount window, as this has been telegraphed, so they should just do it already.

I’ll elaborate more in another post but a couple of rules of thumb for buying –

1. Assume a market (SPX) earnings yield of 8% to be priced in at extreme panic – so what you buy should be priced accordingly (account for premiums or discounts to that). Can’t tell you if we get there, but past behavior says it’s possible.
2. Be careful of leverage (duh!). Some traditional value guys have a blind spot for that. My rule in the GFC was anything over 3x Total Assets / Equity gets risky, and a bit higher and you’re into closet financials (if not outright).

 

Keep calm and carry on!