What we’re reading (11/28)
“Fauci: Omicron Variant Will “Inevitably” Be Found In U.S.” (Axios). “Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, cautioned on Sunday that the COVID-19 Omicron variant will ‘inevitably’ be found in the United States…He also said the variant looked likely to be highly transmissible, but officials need more data. ‘It has the molecular characteristics that would strongly suggest that it would be transmissible,’ Fauci said.”
“Wall St Week Ahead COVID-19 Fears Reappear As A Threat To Market” (Reuters). “With little known about the new variant, longer term implications for U.S. assets were unclear. At least, investors said signs that the new strain is spreading and questions over its resistance to vaccines could weigh on the so-called reopening trade that has lifted markets at various times this year. The new strain may also complicate the outlook for how aggressively the Federal Reserve normalizes monetary policy to fight inflation.”
“Black Friday Rout Shows Dangers Of Margin Borrowing” (Wall Street Journal). “Friday’s global retreat from riskier assets exposes a vulnerability of the broad market advance of the past year and a half: the rising use of leverage, or borrowed money…[b]orrowings against portfolios of stocks and bonds, broadly called margin debt, have grown as individual investors have become major players in the stock market. So too have concerns that debt-fueled buying could be a sign of overexuberance, setting the stage for tumultuous trading periods such as Friday’s, when the Dow Industrials posted their largest-ever Black Friday decline and the U.S. oil price dropped 13%.”
“Oil’s Black Friday: Algos And Options Turn A Tumble Into A Crash” (Bloomberg). “Black Friday turned red very quickly for global oil markets…[t]hen the options market kicked in. When prices fall heavily, banks often sell futures contracts in order to hedge themselves against losses from put options -- contracts that grant the right to sell at a particular price. Banks often sell puts to producers who want to protect against a bear market. This feedback loop, known as negative gamma to options traders, was seen as a factor on Friday.”
“How to Generate Alpha From Hidden Earnings Data” (Institutional Investor). “‘Core Earnings: New Data and Evidence,’ a report authored by Professor Ethan Rouen and Eric So of the MIT Sloan School of Management and Professor Charles Wang of Harvard Business School, explains that the primary challenge for analysts is to quantify and distinguish core-earnings items — those that stem from companies’ recurring central activities — from non-core-earnings items, which are related to “ancillary business activities or transitory shocks.”
