Something wonderful happened yesterday [Thursday]The stock did not rise. They went down … and they went down a lot.
The S & P 500 lost 5.89 percent. But that was nothing. Gannett Co. crashed 29.5%, Noble Corporation fell 25.51% and Denbury Resources fell 23.65%.
Should I buy sauce?
To correctly answer this question, we must support in order to expand our perspective. From this external point of view, several critical factors in the retail sector are in the spotlight.
For starters, music stopped for American retailers. Yet retail investors continued to dance. Pandemic, economic collapse, complete social collapseNothing holds them back.
In accordance with BloombergMay was the worst month for insolvency since the Great Recession. This month, 27 companies with obligations of at least $ 50 million filed for bankruptcy. Known documents came from J.K. Penny, Neumann Marcus, and J. Crew.
Melanie Cyagnowski, former bankruptcy judge, thinks “We will continue to see applications at least at the level that we have been observing for some time.” Thanks to government blocking orders, retail revenues have dried up like a highlight in the sun. Now retailers can not pay their debts. They must go to court to make a deal.
However, retail investors are still dancing. For example, after closing at 26.29 on March 23 and even with a loss of 5.46 percent yesterday, the S & P 500 Retail ETF (XRT) has now grown by more than 55 percent. Obviously, the increase in retail bankruptcy filings is bullish for retail stocks. Who knew
As we always understood, when a company files for bankruptcy, the last in line. They support bondholders by receiving money back upon liquidation of part of the company. If they are lucky, they will receive a few notes.
However, retail investors cannot be deaf. Most likely they hear just fine. And what they hear is not music; but rather, the high-pitched sound and buzz of a printing press for money, which spun to the maximum. So they are dancing.
Follow the money
The Federal Reserve was ramping up its balance to cope with the economic collapse. Since the beginning of the year, about $ 3 trillion has been added. This is a print of electronic money; Digital loans have sprung from the air.
Most of this Fed loan was borrowed from the Treasury by purchasing treasury bonds. The Treasury then takes counterfeit money on credit from the Fed and pushes it into the economy through assistance, incentives and other social benefits. Thus, public debt can increase, apparently, without restrictions.
Fed purchases on treasury bonds also suppress interest rates, which supports the development of credit markets. Part of this excess loan goes to the stock market. Thus, as the economy descends, the stock market swells.
To date, the relationship between Fed loans and the stock market is firmly established for those who have tried to consider them. All you have to do is follow the money back to where it came from. All traces lead to the Fed and its electronic printing press.
At the same time, many otherwise smart people overly trust the Fed’s ability to levitate in the stock market. They see stocks quickly go bankrupt since March 23rd. They do not want to miss the opportunity to get their fair share of free money. Thus, they continue to dance with stocks long after the music has stopped.
The stock market, however, is not completely mechanical. Investors should take the Fed’s fake money and “twist and shout” to the market … believing that the party will continue. When confidence falls, which is inevitable, the investor madly rushes to the exit. Many do not survive.
Should I buy a Dip?
Until yesterday, investors were in the rhythm of an electronic press. Some with one eye out. Others have no idea. The important thing is that stocks rose. What also mattered was that the Fed did everything it could to support fraud.
Fed Chairman Jay Powell held on Wednesday press conference after the FOMC meeting. There he explained that he kept the machine for printing money at maximum:
“[The Fed will] Do everything in our power, and as long as it takes to provide some relief and stability, to ensure recovery is as strong as possible and to limit long-term damage. “
Alas, the lasting damage that Powell wants to limit has already been done. According to a recent update by Coresight Research’s Closing stores in the US for 2020US retailers may announce a record-breaking closure of 20,000–25,000 stores this year. As retail trade falls, commercial real estate falls with it.
Gap Inc., for example, posted a record loss of $ 932 million in the quarter that ended May 2. Moreover, the owner of the Simon Property Group shopping center is suing Gap to receive a three-month lease for a total of $ 65.9 million. Gap refuses to pay for rental stores that were forced to close due to government blockages.
How Powell believes that filling financial markets with loans will help restore the economy, it is unclear. But what is clear is that he created a moral hazard that overshadows the dot-com of Alan Greenspan’s bubble.
Perhaps yesterday’s sale signals a psychological shift. Perhaps the confidence in the Fed has been shaken. And investors and speculators of all stripes make their crazy jump to the exit.
This, in essence, brings us back to our original question …
Should I buy sauce?
The answer, no doubt, depends on if you are lucky. If so, go ahead and buy stocks. And while you play it, play one or two rounds of Russian roulette.
Thus, we believe that a feeling of happiness at this moment is tantamount to stupidity. We all know how past episodes related to the moral hazard associated with the stock market ended.
Do not be stupid.