Thoughts from June 17, 2020

  1. Hertz front and center!

Well someone at the SEC finally watched CNBC and took notice that maybe the Hertz offering is bad for the general pubic.  Amazingly, the stock rocketed 21% higher this morning before settling around yesterday’s close price.  Anyone trading this stock at this point would be better off finding a roulette table!

  1. SMCCF Re-Announced and Re-Ignites the stock market

With the stock market bulls running out of steam (and Wall Street justifying current levels based on earnings in 2022), the Fed had to come to the rescue.  This time, the program was not new, but they needed to re-announce it since they took their time to actually DO anything.  Consequently, the stock market was re-ignited for one day as media pundits discussed the program already discussed 8 weeks ago that was part of the Fed acronym bombardment.  Nothing new to see here…except they actually started the program and are illegally buying corporate bonds. Did I say illegal?  Oh that’s right.  According to the Federal Reserve Act, they are not allowed to buy corporate bonds – they are only allowed to buy gvt and mortgage securities.  But they are anyway.  Why?  Because no one dares stop them.  Congress has the power but not the backbone.  But I digress…maybe we will get into that another time.

  1. Corporate bond yields hit all-time lows.

It is now cheaper for a lot of companies to borrow than at anytime in history!  Think of that.  In the midst (some even say the beginning) of a pandemic/depression, when companies are becoming evermore financially fragile, they can now borrow MORE $ EVEN MORE CHEAPLY!!!!  My clients and followers know my concerns about the exponentially growing debt burden around the globe, and this is just one more example of the irrationality of the financial system.  Sadly, it has been the actions of Reserve Banks around the world that have created this, and it is hard to imagine how it ends without painful consequences.

  1. Nikola – another auto company worth more than Ford?

Interested in buying a “green” technology company focused on the truck industry?  Not, not Tesla.  Nikola.  When I first hear the name, I thought of Ricola, but that is a throat lozenge.  Since its’ IPO earlier this MONTH, shares of NKLA are up 93% and now have a market capitalization greater than Ford Motor company.  That is no big deal, really.  Except Nikola has no revenue….and of course profits for that matter.  They have a lot of debt of course, but in this upside-down world, maybe more debt and less revenue/profits = higher stock prices???  I am thinking that is it.  Maybe they will be an amazing company in a few years, but who is going to buy their expensive trucks when companies are cutting CAPEX, reducing costs, and just trying to survive.  Seems a tad overvalued to me.

Thoughts from June 16, 2020

  1. Buffett scolded again…and again…and again.  

It has been a rough few years for Mr. Buffett, but don’t think he hasn’t seen this before.  Is this time different?  This time valuations don’t matter?  Has this generation finally outsmarted the financial markets and established a new higher plateau where prices can only go higher?  Mr. Buffett, heralded as one of the greatest investors of all time, has been through more market cycles than any of us.  He has learned from his mistakes, and he understands and respects the past.  And he doesn’t care what people think.  He will do what he wants.  I would not bet against him.

  1. Royalty Pharma IPO +59% in one day.

Recent IPOs have exploded as irrational exuberance continues to flood the stock market with more speculation than actual investing.  In some ways, however, this one is refreshing.  The company is profitable and pays a dividend, which is unlike nearly any company we have seen IPO in the past 18 months.

  1. Industrial Production “Rebounds” or “Slow to Gain”

It is always amusing to see how the media spins news.  Today, Industrial Production “rebounded” 1.4% after falling nearly 20% over the past 2 months combined.  Most of the media called it a “rebound” (check similar stories at CNBC, MarketWatch, Yahoo, Bloomberg, WSJ).  ING called it “slow to gain” – they are not a media outlet of course and that is at least a little refreshing.  The bottom line with the report is that businesses that make stuff are still not making very much.  A 20% decline followed by a 1.4% gain means as much.  We will be watching this closely over the coming months to really gauge whether manufacturing is coming back with reckless abandon (which is what Wall Street is pricing in) or if we have a new normal, which is what I suspect we will see.

Thoughts from June 12, 2020

  1. Robinhood’s user activity might be speculation

Robinhood, a free trading platform adopted by many a day-trader during this crisis, is showing us that retail investor activity is heavy bent on speculation.

  1. Bankrupt companies stock is still worth $0

Hertz filed for bankruptcy and Chesapeake Energy has said bankruptcy is basically imminent.  These companies will not disappear due to bankruptcy.  That’s not how it works.  Debt holders will become the new equity owners and current stockholders (equity owners) will get wiped out.  That is how a re-organization works.  Trading a bankrupt company’s stock is like a 2-year old playing with fire…it always turns out badly.

  1. Starbucks closing 400 cafes – I’m not happy

For those of you that know me well, you know that coffee is important.  Next to God and family, coffee is highly ranked.  My kids roll their eyes when dad is heading to Starbucks at 2p for a coffee!  Speaking of Starbucks, they are closing/modifying 400 cafes.  This was after refusing to pay rent at thousands of locations affected by COVID-19.  Sadly, there may  be more changes coming.

  1. COVID-19 “second wave” or “lingering nemesis”

I guess COVID-19 is still with us.  I didn’t think it was eradicated, but it has been thoroughly ignored over the past month or so.  The hope of the economy re-opening coupled with social justice issues has diverted our attention (and right so).  Momentum and focus is shifting again, and it is coming to many as a surprise.  I have been saying all along that this is going to last awhile as more of a “lingering nemesis”, and we need to figure out how to live with it, treat it well and protect those vulnerable.