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!https://www.cnbc.com/2020/06/17/the-sec-told-bankrupt-hertz-it-has-issues-with-its-plan-to-sell-stock-chairman-jay-clayton-says.html

  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.https://markets.businessinsider.com/news/stocks/federal-reserve-begins-individual-corporate-bond-purchases-secondary-market-relief-2020-6-1029309910

  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.https://twitter.com/KathyJones/status/1273256605614632960

  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. https://www.barrons.com/articles/nikola-stock-fuel-cells-electric-trucks-buy-rating-wall-street-51592399805?siteid=yhoof2&yptr=yahoo

Thoughts from June 15, 2020

  1. CalPERS borrowing $BILLIONS

In a short few weeks, it will mark the 7th anniversary of moving my family from Los Angeles to Raleigh, NC.  The list of reasons why is long.  CalPERS is just another ridiculous organization that I am glad to be away from, but sadly, the stable retirement of many friends and family is dependent upon CalPERS.  This is an insane practice, but one which has been used before and will be used many times over in the years to come by pensions that can’t keep up with their obligations.  Any deepening of the stock market correction for any significant period of time will blow the whole thing up anyway.  https://www.ft.com/content/2a6ec6aa-492e-4e7d-85f8-83789a2bc481

  1. Tesla #1

Shares of Tesla are now up 139% YTD while everything about the company seems to be trending in the wrong direction.  Sales down.  Deliveries down.  Earnings non-existent.  Factories offline.  Demand down.  But with all of that as a background, Tesla became the largest Automaker IN THE WORLD (in terms of value…not actual making anything), surpassing Toyota.  I am not surprised in the least considering we are in the age of valuing only the distant future while completely discounting the past.  https://www.marketwatch.com/story/tesla-passes-toyota-as-worlds-most-valuable-car-company-2020-06-11

  1. Jobs lost from Demand Destruction will not come back

While many of the 40M+ jobs that were lost over the past few months will come back as the economy reopens, many will not.  And not just from restaurants closing or small businesses shutting their doors.  Ultimately, when demand stops, companies cut.  Those cuts are permanent and will only be replaced when demand returns to a robust pace.  For many industries, it may be years.  Recessions (and dare I say Depressions) change people’s behavior.  The financial security there once was is now in question.  There will be more saving, and therefore less spending.  With many out of work, they also will be spending less.  Less spending means less revenue for companies which typically means less profit which means more job cuts.  It is and likely will be a vicious cycle.  I keep reminding people.  We are only 3 months into this.  3 months.  There is a lot more coming.  https://finance.yahoo.com/news/millions-jobs-could-permanently-lost-110000772.html

  1. Speculation is not investing

Hertz did announce today a $500m follow-on offering, but was quick to note that is was very likely the shares are worthless.  Wow.  Typically I am more of an anti-gvt involvement kinda guy, but this is one where I wish the SEC would step in and protect investors.  There is very little moving Hertz stock except retail speculators.  More to come on some of these other companies that should be worth next to nothing.  https://www.cnbc.com/2020/06/11/frothy-trading-in-bankrupt-companies-penny-stocks-sent-red-flags-that-a-pullback-was-due.html?__source=sharebar|linkedin&par=sharebar