Yesterday the S&P500 officially erased the entire global Pandemic losses. Done... over... finished.
The rally yesterday was highlighted by junk, garbage, bankrupt stocks soaring... with some capping tremendous multi-day gains.
For one we have Hertz. A bankrupt car rental stock turned into a high growth high flier the last several trading days.
From $.88 late last week to almost $7 yesterday.
And it wasn't just $HTZ...Another? How about $CHK.
The stock was trading at $12 on Friday and surged to over $84 a share yesterday.
After the close the company was reportedly readying their bankruptcy filing. ... which oddly enough, despite the price action, was not a surprise. The surprise was why they heck the stock was up some 600% ahead of the looming bankruptcy filing.
I think this is all a side effect of the FED taking the risk out of junk.
When the largest bank in the World.. the largest bank in the galaxy, save the excessively dovish Romulan Central Bank, decides that junk has no risk??? Guess what? You are going to see junk trade like it has no risk....
But what happens when that risk does exist after all?
After $CHK rallied to $84 yesterday - the after hours bankruptcy headline has the stock ready to open down more than 50% from yesterdays highs.
You can take the risk out of the junk, but you can't junk the bankruptcy filing?
How does that sound? Perhaps someone else has a snappy one liner that better encompasses the current financial landscape.
And its all the result of our Federal reserve. I've said it for many years. The next recession would trigger higher stock prices not lower ones. And sure enough... here we are... the recession is OFFICIAL... we entered a recession in February and in celebration of that, yesterday the NASDAQ hit and closed at a new ALL TIME RECORD HIGH!
I get high with a little help from my FED.
My reasoning for higher stock prices during the next recession was that the FED would respond with ever more firepower than before. And oh boy did they ever.
But the kicker was the junk bonds. And I don't think it is pure coincidence that the stock market bottomed and began the best 50 day rally ever the minute the FED said it was buying bonds...
We bottomed on March 23rd.... coincidence? pic.twitter.com/h9Rv7ZYoZL
— UPBOptionMil (@UPBOptionMil) June 9, 2020
I think not.
Now the question going forward is... how much further do we have to go to the upside? Clearly, like the WSJ said that same week when we bottomed... we had entered a new bull market.
Will this be like the furious stock market rally....?? and become the shortest bull market ever?
I do think.. and I highlighted this recently... that we have a great shot at new all time record highs for the S&P500.
However I also think... if we could print trillions of $$$ without negative consequences... bailout high risk corporations via the junk bond market.. and effectively take so much risk out of the market that participants are buying up bankrupt companies.... well.... it's the proverbial... this ins't going to end well.
Clearly every day that passes we are a day closer to this not ending well. But as of yesterday, its been ending very well for anyone buying the NASDAQ. New all time highs.. every dip on the NASDAQ since the dawn of man has been a great buying opportunity.
And I've said it previously as well. Cheap money = higher stock market. Expensive money = lower stock market. Money remains cheap. However I think what is going to ultimately derail the latest bull market is that long awaited inflation that most are still not calling for, which will force money to be more expensive.
I think the Pandemic wasn't a real recession. But I do think the actions required to stave off depression has brought the next recession... or the first REAL one since the Financial crisis... that much closer.
When? I don't know for sure.. but I think its coming. The FED buying junk bonds now.... what do you think they are going to buy when the next recession hits?
The Pandoras box was opened in 2008. There is no turning back.