(2020-04-23) Hunt Bear Stearns And The Narratives Of Systemic Risk

Ben Hunt: Bear Stearns and the Narratives of Systemic Risk. In May 2007, Bear Stearns – one of the crown jewels of Wall Street – traded at nearly $160 per share. The S&P 500 peaked five months later, in October 2007. Five months after that, in March 2008, Bear Stearns was taken out in the street and shot in the head by regulators. The stock closed at $2 per share that day

The overall market came roaring back over the next 8 weeks, so that by May 19 the S&P was only off 1% for the year.

Why did the market come roaring back from mid-March to mid-May? Because narrative.

Because according to every market media Missionary, Bear Stearns was the bad Wall Street apple in an otherwise reasonably decent Wall Street barrel.

Sacrificing Bear Stearns to the regulatory gods meant that – and I’ll never forget this phrase – “systemic risk was off the table.”

From May 31, 2008 to March 9, 2009, the S&P 500 fell by more than 50%. Because, of course, systemic risk was NOT off the table with the execution of Bear Stearns. Because, of course, the Wall Street banks were ALL bad apples.

And so here we are in 2020. Nice bounce! (Coronavirus)

What’s the Bear Stearns equivalent in this morality play?

It’s the New York/New Jersey surge.

And now that the worst is over even in the uniquely hard-hit area of New York/New Jersey

“Yay, systemic risk is off the table!”

It’s already starting.

And so we’re going to start reopening local and state economies

new clusters will be explained away

As the COVID-19 narrative becomes that of a chronic and excusably lethal event for the United States, as opposed to an acute and unforgivably lethal event, we WILL get used to it.

And that constructive narrative will last until something acute and unforgivably lethal happens again in real-world, until real-world events give the lie to narrative-world complacency. Which they will. Because of the real-world severity of this virus and the entwining of TRILLIONS of dollars worth of assets in business models that are not just damaged but obliterated by that severity.