The corona virus and a generous fed are back. But as I
suggested last week in my impatience with the sterling rally in companies
without revenue sources and damaged balances sheets, the culprits were the
usual Algochums, but another joined the parade, those who play the market as a
game to make a quick buck, I call them Pinplayers , and they’re back!
Last week when I wrote about the aggressive purchases of
stocks that for all fundamental reason should not have been bought, I was
referring to the cruise lines and airlines having been decimated by the
pandemic and have had to borrow aggressively from the government but more
importantly from the bond market, taking on enormous amounts of debt that only
a resurgence in riders has little chance of recouping anything near their
financial condition before the pandemic. This in large part is why the 30
stocks in the Dow Jones Industrial Index went up so much recently and why it
came down so much today. But just as in other market corrections the same
incentives emerge and ETF’s are the lowest hanging fruit, hence all stocks
appear to move lower with further help from the Pinplayers and Hedge Funds. The
latter which I believe are the elitist of Pinplayers who have stood out this
year by ranting to the media that the world was ending. It didn’t’, they were
wrong, and the markets have an angry feel to them.
My reasons are straight forward. The markets have been
overbought for a few weeks. This shouldn’t come as a surprise to anyone who has
read the news or have skin in the game themselves. These days the use of
countless crystal balls to suggest this is or isn’t the case are all useless
compared to a simple relative strength indicator. Likewise, the uncertainty
that has entered the market is still considered a premium in so much as there
are assumptions that should be taken in stride. First, Fed Chairman Powell said
yesterday that the Fed would unlikely raise rates before 2023. The press took
this as scary; I take it to mean they’re going to stay out of the way and let the
bond markets do its own thing, which it always does anyway. There is also
growing talk of the second wave of the pandemic. This is expected, and since
the protests were occurring very little was said about the virus, but few were
lost on the masses of people, shoulder to shoulder, and many not wearing masks.
Does this mean something worse than the first wave? In my opinion I don’t know,
but what I do know is everything from wearing masks to social distancing has
become a near commonality for millions of people, testing is far more accessible, and as of today three pharmaceutical companies are cautiously
hopeful for a vaccine by the first quarter of 2021. All three are signs
of preparedness and a well-informed community that didn’t exist the first time
around and could provide a buffer the second time around.
And in the end the markets are going to predict what will
happen in the future. The reopening of the economy has been cautious and
carefully executed. Companies such as Starbucks (SBUX) have changed the rules
of business themselves and while it’s going to take some time to get to normal
there’s cash for opportunities and Treasuries to buffer some of the volatility.
And the companies that have weathered the real problems in the economy such as
Amazon (AMZN) will continue to serve a diversified portfolio well when
corrections such as we’re experiencing come to an end. When that happens is an
unknown, but when it does, they’ll be back, and so will we.
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