Yeah this just seems like one of hte distortions caused by keeping interest rates so low for so long. If corporations can get long term debt at super low rates it might make sense to just increase their debt position and give the money to shareholders as a waz to boost Return on Equity.
I think a major root cause of the current issues is still the focus on short term market performance. Firms that have a lot of cash that is uninvested will have lower returns than firms who have only what is needed in most years. This is what drives executive compensation, so they get a lean capital structure that is not resilient. This could still be OK if they are able to secure some sort of large revolving credit facility at a good rate in place of a large cash reserve.
I don’t think it does the world a lot of good for companies like airlines to actually hoard big cash balances that would be needed to weather an 80% loss of revenue for 8-9 months. It is better to have a streamline bankruptcy process where equity gets wiped out along with junior debt getting wiped out or taking a haircut, and then the operations are reborn from the ashes with new equity holders. Our current crony capitalism government won’t let this process happen though.
My personal opinion is that if we OPEN FOR BUSINESS and go back to relatively normal soon then I tend to agree that the stonks market is probably underpriced right now with the trillions of free/cheap money. If we are in some type of a 2 year period where covid is a drag on the economy and markets then stonks are drastically overvalued.
None of us know with any certainty which one of those scenarios we are headed for but I think most of the brains out there I have heard talk expect it to be the latter.
I’ve been told by people much much smarter and more successful than me, whose job is to know this stuff, that we are in the middle of a W and that is my gut feel as well. I’m placing my bets accordingly.
I think the idea is that eventually as many helicopters of money as necessary get dropped for that last leg up whether that fucks up our currency or not. So nominal asset values go up one way or another.
One reasonable argument I have for this being fairly close to the near-term top is that there is a lot of good news priced in and almost no bad. In other words assuming an efficient market (lol me) there seem like a lot more things that could go wrong that aren’t priced in than good. Like the grand re-opening predictably being a huge flop and/or disaster. Other than finding a cure or Coronavirus disappearing I can’t think of any huge upside events in the near term. We have already had massive stimulus and are getting OPEN FOR BUSINESS.
No one knows, if we have rolling shutdowns for two years then I don’t see how we avoid significant problems in the real economy. I’m just saying you don’t want to do something like being in puts long term based on that opinion.
Just made a small purchase of $GSK, GlaxoSmithKline, they own Nicorette and NicoDerm and it doesn’t seem like the US market is pricing in the French study that’s about to start yet… But it’s already hard to buy nicotine patches here, so once that news register, I expect a surge.
I’m sure nicotine products are a small percentage of their business, but this is basically a psychological-based play. I think I’m ahead of the market on this study, I expect a big surge early next week, then I’ll probably dump it. I view it as a very +EV gamble with <1% of my portfolio.
I haven’t looked in detail, but just based off likely fallout from this, I think AMZN is a good hold. The longer/more people stay home and get stuff delivered, the better for Bezos.
It’s at $1.3T market cap and well above its previous all time high. There has to be some limit.
Quest Diagnostics is also getting back to 115 which seems to be its ceiling for the last 10 years. And their business is actually way down because no one is doing anything other than covid stuff.
You have to have a Bloomberg membership to read that (which as of next week I won’t have because fuck Michael Bloomberg) … but basically it’s saying that companies are about to start issuing stock instead of buying it back and that could crush the stock market.
I mean private investors (non companies, non pension funds) have been net sellers of equities for a couple of years now IIRC. Take the buybacks out of the equation and all that’s left is the 401k contributions and pension funds for buying pressure. I’m going to be really surprised if this thing holds up without massive support from the feds or a currency devaluation that smashes the real value of stocks pretty hard.
i saw a graph somewhere (maybe it was here) that showed that almost all of the gains made from 2008-present day are due to stock buybacks. they are responsible for like 80% of the post-Recession gains.
I basically never trade individual stocks but decided to take a peak under the hood at Amazon. Over 100 P/E ratio really stands out. Is it even possible for them to grow enough to justify a valuation like that?
I also think even Amazon will suffer if we go into a deep recession or depression situation because Covid-19 effects are felt for years instead of months. People will stop buying trinkets and other nonsense in that scenario which has to be a decent chunk of Amazon sales. I can’t tell you how many times I look at the bank account and there is some Amazon charge on there and my wife says she had a few glasses of wine last night and accidentally bought a burrito blanket or some other bs. People won’t be doing that if they are broke and it seems a lot of people will be broke soon if not already.
And if companies paid a 6% dividend instead of paying a 2% dividend and buying back 4% of their stock every year 80% of a stock’s return would be from dividends. So what?
Have we seen the quickest and shortest second dip of a W shaped recovery ever? S and p futures pointing to eradicating almost all of last week’s losses.
