It’s Never Happened Before in Stock Market History and it just Happened

This has Never Happened Before in Stock Market History and it just Happened

This is the fastest snap back rally in stock market history.  And not by a little.  By nearly 7 to 8 times.

Since 1929, selloffs of 35% with an 85% recovery have happened 7 times.  The average snap back recovery takes a year and a half.  This One took 74 days. (Via TastyTrade Research)

Of course, this is an election year and President Trump needs to run on a strong economy.  So, between the PPP Program and the Fed $4 Stimulus, there has been a tsunami of liquidity thrown at this market.

Negative Interest Rate Policy:  The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

Japan’s stock market is flat for the last 30 years.  Their economy is irrelevant.  Their government owns their economy via ETF purchases.  Most international mutual funds and indexes do not even include Japan.  It is irrelevant.

For now, Powell is pushing back on the idea.  But his track record of bowing to the wishes of the President is pretty weak.

The Fed has gone so far as to buy junk bonds of the lowest rated companies in order to save the US economy.  An unprecedented move likely to be questioned for years to come.

And of course, the stock market is not the economy.  Not even close.  As I discussed in a previous post, large companies listed on the exchanges benefit from the liquidity much more than smaller businesses.  They also benefit from geographic diversification.  Some areas were hit harder than others.  And some areas weren’t hit very hard at all by Covid.

The real question is can it last.  The jobs report included many workers who are about to be let go from theor jobs.  The job gains were stores like Home Depot and grocery chains that needed additional help.  Both of those trends are temporary trends.  And the jobs report does not qualify better jobs.  A job is a job.  But is a job stocking shelves at Safeway equal to an oil and gas engineer?  Probably not in economic terms.

I can tell you anecdotally that I run value screens frequently and there are very few stocks that are truly undervalued.

5 Stocks the The Big Short Investor Michael Bury is buying here

However, The United States has become much more attractive as an investment locale mostly as other countries in Europe and Asia have struggled and become much less attractive to capital.

Germany, japan, and Hong Kong are prime examples of countries that institutions are nervous to invest in or are leaving altogether.

As stated previously, due to the social unnrest of recent weeks, real estate has taken on a new risk profile.  The real estate market is much less attractive in major cities.

Stocks don’t exist in a vacuum

Institutions like pension funds and insurance companies constantly evaluate the risk of all assets.

Stocks, Bonds, Real Estate and others.

Riots have gotten so severe in the past 5 days, especially in New York that it has altered the risk premium for real estate.

I believe this will be permanent.  I’m an optimist.  But things have changed for cities.  It doesn’t matter if we’re speaking about commercial buildings or residential properties.  The costs, risks, and insurance have all gone up.

No one could have imagined the scenes we are witnessing in New York City.  Businesses in areas like SoHo and Madison Avenue have been destroyed.  They are less attractive now.  To continue operating these stores, you will need serious enhanced security measures.

And even with that extra security, it is nearly impossible to combat what we have seen.  A security guard cannot fight off 7 looters at one time.  Have you seen the footage?  And this behavior may not be going away.  We have 40M unemployed.

Small businesses are being destroyed.  Literally and figuratively.

Small restaurants and bars are in serious trouble.  I keep reading of closings.  In Los Angeles, after three months of lockdown, bars and restaurants were allowed to open this past Saturday.  Widespread looting occurred.  Many stores on Melrose Avenue and in Santa Monica were destroyed.  After a three month period with no revenues.

What small business can survive that hardship?  Its heartbreaking and devastating.

Are we heading towards an America dominated by chains like Applebees and Chilis?  There will be much less diversity of choices in bars and restaurants that’s for sure.

Public companies have access to capital.  They can negotiate better lease terms.  They have flexibility.  And they win when the local bars and restaurants close.

It is not much of a stretch to say that the safety and security of the S&P 500 makes it the only game in town.  Especially when compared to the pathetically low interest rats provided by bonds.

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Buffett is Selling:

Its possible that Berkshire Hathaway has sustained losses in its catastrophic insurance portfolio.  It’s also possible he sees a serious recession on the horizon.

Either way, he has a mountain of cash ~ $130B and is still raising more.  Even if you don’t believe Buffett is at the top of his game, its worth considering why he is so cautious right now.

Warren Buffett:  Buffett has sold stakes in airlines and in Goldman, Sachs.

Warren Buffett announced he had sold his entire airline stake on the premise that he wasn’t sure if air travel would return in two or three years.

That’s the most bearish assessment anyone has heard from Mr. Buffett in quite some time.  But, few investors or Algorithmic programs paid much attention to him these days.

Sam Zell is Selling:

Sam Zell mentioned this week that he was quite cautious about the future.

When novice investors ruch into a market as experienced legends take their profits, it rarely ends well.  Will this be the exception?  Stay tuned.