Will S&P 500 Retest Recent Low By End of April

[Mephistopheles]

Take a look at the price action of Chesapeake today, halted numerous times and then up 180%, and after hours news came out it's filing for Ch. 11. HTZ up 113%, far higher than it was when it filed for BK. JCP shot up today too.

 

I'm also seeing that options buying from retail investors is like at an all time high.

 

Anecdotally, a friend (who doesn't know much about stocks and is in mainly cash) started buying options on cruise lines today. Why now? Because a bunch of her family members have been doing it and making money.

 

Then my sister, who knows nothing about stocks, who works in healthcare, texted me saying do we own Hertz? Because apparently her coworkers were all talking about it today and there was some remorse for missing the boat.

 

Now Druck is throwing in the towel regards to being cautious, lol.

 

Or maybe I'm wrong for being 30% cash. That could be it too.

[John Hjorth]

... Over the medium term earnings will matter. And this will be determined by the level of economic activity. ...

 

And the real question will be : "Which earnings?" [ : - ) ] - Because some reported earnings are & will be totally skewed [& screwed up] by subsidies from the packages. [ : - ) ]. So I suppose when we start to get the 10-Qs for 2020Q2 for american companies in July & August this year, for some there will be discussions here on CoBF about "reported earnings" and "real earnings", discussion of subsidy accounting according to IFRS etc. on how to look at P/L etc. It's to me a bit mind boggling, because this will be for companies who have their home in what is by many considered the cradle of capitalism. [ : - ) ]

 

I have already read a few examples of how fairly large Danish companies have been reporting, that they have started paying back to the Danish state received subsidies. From a strictly logical perspective, is this even rational? [ : - ) ] [i'm well aware, that this is a "marketing tool", used to signal strength towards financing parties, other creditors, customers & employees, & "We're a good Danish corporate citizen" etc.]

 

In a way, it reminds me a bit of the discussions in '09 & '10 about the TARP funds, where some banks were signalling, that they didn't need the funds [while all were forced to take them, and the TARP funds hit the B/S, not the P/L].

[mattee2264]

 

I think in general 2020 earnings are going to be a very poor proxy for normal earning power. If anything subsidies help to bridge the gap as they partially offset some of the lost income from the government imposed shutdown.

 

But I think that because it will be incredibly difficult to anchor off 2020 earnings it is introducing a speculative element to the market. The market seems to be anchoring off pre-COVID earnings i.e. assuming a V shaped recovery in earnings. The problem is that earnings reports and economic data is backward looking and the market is forward looking and companies are understandably reluctant to give any guidance and economic forecasts are wildly unreliable at the best of times. So the prediction of a V shaped recovery can only be tested after the fact and in the meantime the market will clutch at any data points it can find to confirm or disconfirm this prediction without having a full picture.

 

Personally I think that a partial recovery can be achieved pretty quickly and markets are starting to realize that and getting excited. But a full recovery could take a lot longer than expected making pre-COVID earnings a poor anchor. So it could be that market expectations and economic reality might not collide until much later this year or next year. So what will initially look like a V shaped recovery could suddenly stall just as reported earnings become more meaningful and therefore deserve more weight in market valuations.

[starmitt]

Take a look at the price action of Chesapeake today, halted numerous times and then up 180%, and after hours news came out it's filing for Ch. 11. HTZ up 113%, far higher than it was when it filed for BK. JCP shot up today too.

 

I'm also seeing that options buying from retail investors is like at an all time high.

 

Anecdotally, a friend (who doesn't know much about stocks and is in mainly cash) started buying options on cruise lines today. Why now? Because a bunch of her family members have been doing it and making money.

 

Then my sister, who knows nothing about stocks, who works in healthcare, texted me saying do we own Hertz? Because apparently her coworkers were all talking about it today and there was some remorse for missing the boat.

 

Now Druck is throwing in the towel regards to being cautious, lol.

 

Or maybe I'm wrong for being 30% cash. That could be it too.

 

We are clearly out of our league here. https://www.bloomberg.com/news/articles/2020-06-08/retail-traders-flout-legal-logic-in-dash-for-bankrupt-stocks

[TwoCitiesCapital]

Take a look at the price action of Chesapeake today, halted numerous times and then up 180%, and after hours news came out it's filing for Ch. 11. HTZ up 113%, far higher than it was when it filed for BK. JCP shot up today too.

 

I'm also seeing that options buying from retail investors is like at an all time high.

 

Anecdotally, a friend (who doesn't know much about stocks and is in mainly cash) started buying options on cruise lines today. Why now? Because a bunch of her family members have been doing it and making money.

 

Then my sister, who knows nothing about stocks, who works in healthcare, texted me saying do we own Hertz? Because apparently her coworkers were all talking about it today and there was some remorse for missing the boat.

 

Now Druck is throwing in the towel regards to being cautious, lol.

 

Or maybe I'm wrong for being 30% cash. That could be it too.

 

We are clearly out of our league here. https://www.bloomberg.com/news/articles/2020-06-08/retail-traders-flout-legal-logic-in-dash-for-bankrupt-stocks

 

It worked for them in USO - why not here?

 

For background, I shorted USO when it was trading at a 40% premium to its NAV, didn't have the ability to issue new shares, and NAV decay was 5-10% per month AFTER it had reorganized it's portfolio on 4 or 5 different occasions. It took a a 300% rally in oil prices and the move from contango to backwardation to kill the short, but people who paid 40% over NAV did better than me despite how obvious it was to short that thing.

 

I'm hesitant to step in front of this retail trade seeing as an obvious short like USO still worked out in their favor.

 

[Gamecock-YT]

We should keep doing these, we'll probably be able to call the top

[rb]

Non for nothing but this trade is insane.

 

Here's a little anecdote. I'm part of a facebook group supposedly about investing. I don't really do anything there I'm just a part of it, it's really subpar. Last night I was talking to a buddy of mine about how crazy this shit is with hertz. Then I go to bed, wake up today and see a thread on CoBF about Nikola. Never heard about this company before. So I figure it's some other market cray thing as markets do. Then I see the thing is worth 28 BILLION. Then I pull the Q. There's nothing there. WTF!

 

Now this is where things the get weird. I log into facebook and the first thing is a thread regarding this Nikola company. Some dude wants to buy but his broker won't let him. There's like 24 people on this thread that are super jacked to buy this thing. Now here's the thing, if I haven't heard of this company till today, none of these numbnuts herd about it either. But here they are. So one guy comes around tells them that maybe buying Nikola is not the smartest thing they'll do today. They were ready to lynch him.

 

That get's me interested and I start going down. The hottest topic yesterday was about Hertz. Before that there was so much about cruise lines and airline. These guys aren't doing just stocks they're doing options, CFDs, all sort of craziness in these names. Just stuff they have no business being in. This retail trade is insane and it's global. There's probably some guy in Angola right now with an etoro account taking out a micro loan to buy American Airlines and Hertz CFDs.

[vinod1]

All it took is 10 weeks to go from a 1929 (Great Depression) type worry to party like it is 1999 (Dot com boom).

 

Love the market!

 

Vinod

[ERICOPOLY]

All it took is 10 weeks to go from a 1929 (Great Depression) type worry to party like it is 1999 (Dot com boom).

 

Love the market!

 

Vinod

 

And it took even less to get to the "Great Depression" phase.  I forget what his handle is, but he was running around gleefully saying he was right and calling anyone with a bank stock a 'bagholder'.

[DooDiligence]

We should keep doing these, we'll probably be able to call the top

 

If you see me post in the “What are you buying today” thread, sell everything & head for the hills.

[Gregmal]

All it took is 10 weeks to go from a 1929 (Great Depression) type worry to party like it is 1999 (Dot com boom).

 

Love the market!

 

Vinod

 

And it took even less to get to the "Great Depression" phase.  I forget what his handle is, but he was running around gleefully saying he was right and calling anyone with a bank stock a 'bagholder'.

 

Holy shit! An investment related(kind of) post from ERICOPOLY! Up there with Big Foot and Lock Ness Monster in terms of rarity or proof it exists!

[Gregmal]

I think one thing the market has going for it is the fact that the politicians and the Fed both seem 100% committed to bridging Main Street. And fortunately for the market, the measures they choose to take to help Main Street disproportionately benefit Wall Street/HNW folks/big corporations. That could be a factor.

[Spekulatius]

I think one thing the market has going for it is the fact that the politicians and the Fed both seem 100% committed to bridging Main Street. And fortunately for the market, the measures they choose to take to help Main Street disproportionately benefit Wall Street/HNW folks/big corporations. That could be a factor.

 

The CARES act helps Main Street much more so than TARP did in 2008. TARP was pure trickle down, while the PPP loan programs, the UI insurance boost in particular as well as the  Economic impact checks are pure helicopter money. The current response is much more holistic and of course way more expensive. There is a real question what happens when the sugar rush from all this helicopter money wears off.

[Gamecock-YT]

I think one thing the market has going for it is the fact that the politicians and the Fed both seem 100% committed to bridging Main Street. And fortunately for the market, the measures they choose to take to help Main Street disproportionately benefit Wall Street/HNW folks/big corporations. That could be a factor.

 

The CARES act helps Main Street much more so than TARP did in 2008. TARP was pure trickle down, while the PPP loan programs, the UI insurance boost in particular as well as the  Economic impact checks are pure helicopter money. The current response is much more holistic and of course way more expensive. There is a real question what happens when the sugar rush from all this helicopter money wears off.

 

history with QE would say they just throw out some more so nobody starts coming off the high

[wabuffo]

history with QE would say they just throw out some more so nobody starts coming off the high

 

I don't think QE really works for two reasons:

1) i'm not sure a few bps lower in Treasury yields really changes the economic picture or risk appetites. It definitely punishes savers more than it helps debtors.

2) It removes a liquid asset (Treasuries) from the private sector and exchanges it for an illiquid one (bank reserves).

 

On the other hand, the US Treasury has taken advantage of the removal of the debt ceiling by Congress and is pre-funding its General Account at the Fed to the tune of $1.5t (as of yesterday).  They are going to $2t, IMHO, and they plan on spending it.

 

wabuffo

 

[wescobrk]

Dow down 900 points this morning. TX, FL, AZ and a few others are showing worrying signs of 2nd wave. Unlikely states will close again (at least until the fall or winter) so maybe 10-15% fall in the summer is best we might get.

If we do fall below the March 23rd low then it should be entertaining how the Fed and Federal Government will respond...future headline

Fed buys etfs SPY, Fed starts negative rates, Federal Government ups stimulus check from $1200 to $2k, no filing of taxes this year, etc.

[TwoCitiesCapital]

Dow down 900 points this morning. TX, FL, AZ and a few others are showing worrying signs of 2nd wave. Unlikely states will close again (at least until the fall or winter) so maybe 10-15% fall in the summer is best we might get.

If we do fall below the March 23rd low then it should be entertaining how the Fed and Federal Government will respond...future headline

Fed buys etfs SPY, Fed starts negative rates, Federal Government ups stimulus check from $1200 to $2k, no filing of taxes this year, etc.

 

I'm not so certain.

 

States don't have to close for the market to realize that it's not just Q1 and Q2 in the dumps. A second wave might just mean 10% of the population decides to stay home while the rest move about normally...but that is still enough to make a pretty big dent in earnings for Q3 which are already incredibly fragile (and optimistic).

 

Further, while the last jobs report was an anomaly to the upside, we still have 1 million plus applying for jobless benefits every week despite the entire country being open and some cities/state having been open for weeks. If that type of behavior continues it further builds the case that Q3 and Q4 will probably also suck (assuming $600/week unemployment benefits aren't extended).

 

Just b/c we don't shut down a second time doesn't mean the damage from the first time is gone and doesn't linger - any reduction in the 'V' shaped recovery narrative takes us down from here regardless of a second closure and 10-15% seems shallow if that is the case.

[ERICOPOLY]

Dow down 900 points this morning. TX, FL, AZ and a few others are showing worrying signs of 2nd wave. Unlikely states will close again (at least until the fall or winter) so maybe 10-15% fall in the summer is best we might get.

If we do fall below the March 23rd low then it should be entertaining how the Fed and Federal Government will respond...future headline

Fed buys etfs SPY, Fed starts negative rates, Federal Government ups stimulus check from $1200 to $2k, no filing of taxes this year, etc.

 

I'm not so certain.

 

States don't have to close for the market to realize that it's not just Q1 and Q2 in the dumps. A second wave might just mean 10% of the population decides to stay home while the rest move about normally...but that is still enough to make a pretty big dent in earnings for Q3 which are already incredibly fragile (and optimistic).

 

Further, while the last jobs report was an anomaly to the upside, we still have 1 million plus applying for jobless benefits every week despite the entire country being open and some cities/state having been open for weeks. If that type of behavior continues it further builds the case that Q3 and Q4 will probably also suck (assuming $600/week unemployment benefits aren't extended).

 

Just b/c we don't shut down a second time doesn't mean the damage from the first time is gone and doesn't linger - any reduction in the 'V' shaped recovery narrative takes us down from here regardless of a second closure and 10-15% seems shallow if that is the case.

 

I agree with you that each quarter going forward will have flagging earnings until we've put the virus behind us (whether by vaccine or herd immunity).

 

However, a few quarters of earnings hardly matter compared to all future distributable earnings discounted back to the present.

[rb]

This is starting to sting a little bit.

[tede02]

Anyone else read articles about all the new retail accounts established in the last 3 months. I believe there were articles in both WSJ and on CNBC.com today. Gundlach also talked about this during his webcast yesterday. Many of these people probably scored quick gains and thought it was easy money. I won't be surprised to see them all get washed out when they head for the exits at the same time.

[mattee2264]

 

I also think it is likely any correction will overshoot to the downside. Until there is a lot more clarity there is likely to be a risk-on/risk-off trade dynamic which will probably keep markets range bound between the March lows and recent highs and result in a lot of volatility in the interim.

 

 

[Viking]

Saputo released results last week (large manufacturer of dairy products with operations in Canada, US, Australia and UK). Results were terrible. They do a large amount of business with foodservice which has been especially hard hit. Company said operations will be severely impacted until a vaccine is available. The key issue is it is impossible to run the plants efficiently. Lots of other companies in the exact same situation. If we do not quickly get good news on the vaccine front we will likely see bankruptcies start to pick up. (Saputo will be a buyer of distressed dairy assets). October/November is when we likely start to understand what is really going on from an employment and economic perspective. We are in the early innings of this crisis.

 

The challenge is understanding the second order effects. The longer the virus depresses economic activity the greater the chances we start to see some nasty second order effects. One example here is Canada is if the economic damage from the virus then causes our housing bubble to pop. As GDP contracts corporate profits will shrink.

 

The real challenge is the virus is in the drivers seat. And its future path is an unknowable event.

[TrashIsCash]

Are there a lot of bored, under-employed white collar professionals sitting at home trading in their pajamas?  I ran into a neighbor on Monday who fits that profile. She had just scored some quick gains in Nikola.  Is that a factor driving the market?

[mattee2264]

  Yup. I think to some extent we will learn to live with it which is why we've seen a bit of an economic bounce as we've moved towards partial re-opening without the sky falling down which might have fooled markets into buying into a V shaped recovery.

 

Containment measures as well as some degree of population immunity not to mention realization of the extent of the economic damage will probably allow us to avoid a second lockdown.

 

But until a full re-opening can be achieved and sustained I think there will be a structurally higher unemployment rate as well as lower productivity. I am not convinced businesses are ready for WFH en masse. Perhaps they can keep the lights on with core trusted employees WFH and the rest furloughed but I am sceptical to think they can get anywhere close to pre-COVID employment and output and productivity levels.

 

 

[Gregmal]

Accidentally posted this in the cesspool thread, but its basically my thoughts here. I think some of you guys are on the money with your onbsrvations/analysis.

 

It will be curious to see how these play out. I dont think any of these red states will go full shutdown over a few thousand cases a day or whatever. But I would imagine this would effect people mentally and as we ve seen the corporations who probably are acting out of 1) genuine concern and 2) not wanting the liability/blood on their hands; so they err on the side of caution such as SBUX did with many of its drive through location and what most corporate offices are currently doing. As with most socially responsible acts, this will obviously have a cost, which will be bore by shareholders as their allocation of the profits dwindles and in some cases, their per share ownership gets diluted.

 

I'm also eagerly anticipating seeing everyone who missed the massive rally get excited and say "see! I was right to be in cash", after a 10-20% retreat. Which I will buy again. And others will probably completely miss. Maybe Buffett gets a mulligan.

 

I agree about the psychology of the trading range as others have said. I dont see the recent highs being eclipsed for a while. So play the ranges.