The "Dumb Money" Sequel
How the Avis Squeeze Proved the Institutional "Machine" is the New WallStreetBets
Stepping away from the screens for a few days of conferences and industry meetings provided a necessary reset. There is a specific kind of clarity that only comes from disconnecting from the intraday "noise" and engaging in high-level dialogue with peers and industry leaders. These interactions offered a vital opportunity to stress-test my current framework against the actual positioning and sentiment of other market participants. Hearing how some are navigating the recent volatility—and where they are finding conviction—allows for a more nuanced evolution of my own outlook. Back on the desk with a refreshed perspective, ready to refine my outlook based on these real-world insights rather than just the isolated data points of the tape.
What I was reading and watching this week
Building Permits and Housing Starts- This week's data reveals a bifurcated housing market: building permits remain resilient as developers bet on long-term structural shortages, while housing starts have slowed due to rising labor costs and logistic friction from energy shocks. This growing gap between "authorized" and "started" projects suggests a cautious "wait-and-see" approach by builders facing 3.5%+ interest rates. While single-family construction is propped up by a lack of existing inventory, the broader sector is in a high-friction equilibrium, awaiting a clearer signal on the Fed’s next move.
FOMC Decision- The Federal Reserve held the benchmark interest rate steady at 3.50%–3.75% yesterday, marking Jerome Powell’s final act as Chair with a decisively "neutral" stance. While the decision to hold was unanimous, the accompanying statement highlighted a "lack of further progress" toward the 2% inflation target, largely due to the recent energy price shocks. The Fed effectively signaled that while they are not looking to hike further, the "higher-for-longer" regime is firmly entrenched until the geopolitical volatility in the Middle East subsides and its impact on domestic CPI is fully digested.
PCE- The March personal income and spending data illustrates a consumer base that is surprisingly resilient but increasingly pressured by the "sticky" inflation seen in the PCE print. Personal Income rose by 0.6% in March, a solid beat over the 0.4% consensus, driven by continued wage growth and high employment levels. However, Personal Spending (Personal Consumption Expenditures) grew even faster at 0.8%, suggesting that consumers are not yet pulling back despite the 3.5%+ interest rate environment. This "spend-through-the-inflation" behavior is largely focused on services and essential energy costs, which is why we saw the Personal Savings Rate dip to 3.2%, its lowest level in over a year.
The Main Course
For the specialized "POD" shops and market-neutral desks that focus on factor-based shorting, the Avis (CAR) squeeze wasn't just a bad trade—it was a cinematic nightmare brought to life. If the original Dumb Money movie documented the retail rebellion of 2021, the action in CAR over the last two weeks felt like a sequel where the "Groundhog Day" loop reset with even more devastating speed. Despite the sophisticated risk models and automated stops designed to prevent another Melvin Capital-style event, several funds once again found themselves "run over" by a crowd that prioritized narrative and momentum over the underlying rental-market fundamentals.
