Talking Stocks 2.0

[beshannon]

Originally Posted by RidingDonkeys

Nailed it. I don’t think there will be buyers. Government restrictions are making it impossible to make money. Supply chains are broken. Businesses are being forced into an unnatural hibernation.

The only thing that fixes this is if we give everyone a hug, get COVID-19, and recover quickly so that life can return to normal.

Well I disagree but the real issue is Money Market activity

[m j b]

Originally Posted by doctoryellow

Opinions on BYND?

No positive earnings, a lot of hype, I would wait.

Originally Posted by maximus1

This is a lot worse than imagined.

I am working from home, but I still went to the gym yesterday. It had about half the usual people there (Planet Fitness, which skews young) and every other cardio machine was closed to maintain 6' social distance. They also seemed to have staffed it a bit more, and there was more cleaning going on.

Then I went to the grocery store. My local store was literally cleaned out last Friday of all meat, produce, pasta and bread. Now they've restocked everything except meat (I didn't check the t.p. inventory) which tells me that supply chains are good, but people are panicking. I think without reason, as far as food goes.

Traffic at 6 PM was extremely light. Lots of businesses closed, all schools are closed, people working from home and many just scared to go out. Here in NC restaurants can do take-out only.

When I read about NYC and potential actions there, I wonder how that will affect the stock market.

Europe is looking bad, short-term. I saw an article headline (haven't read it yet) that COV-19 is coming back in Asia.

Giving most working Americans $1000 is a great start, but too little. If you are a working stiff, and you lose your income d/t this virus thing, $1000 probably won't even cover your rent, much less food and utilities. It needs to be twice that, IMHO, and monthly.

Restaurants are going to be devastated by this. The trickle-down will be enormous, with workers, suppliers, landlords losing a lot of revenue. I fear the same with tourism, small hotels, B&Bs, etc.

Now it looks like the auto plants will be shutting down or working reduced schedules, which makes sense because no one is going to be buying a new car. Big ripple effect from that as well.

It's hard not to get a little scared. But I read this from my Marketwatch newsletter this AM:

Retail investors have not capitulated. Analysts at Barclays estimate that total U.S. fund outflows (ETFs and mutual funds) for the past three weeks are around $25 billion, which are much smaller than past sell-offs which have been in the range of $40 billion to $50 billion.

So that's good news, in a sense. But it also means that the market has not yet found its bottom.

[EEpro]

Originally Posted by Hard_Six

Thoughts on picking up some SQQQ towards the close?

Did you do it? You were right.

[beshannon]

Futures limit down at the open but it did not trigger a trading halt.

Dow 20K is hanging on as support at the moment, BA down 23 shaving points off the Dow.

Several small bounce attempts so far, will need to see how the news flow progresses throughout the day.

I averaged down in a few names at the open again.

Edit: at 10:00 up 400 off the bottom

[JParm]

Originally Posted by beshannon

Thanks

I added some positions today,

I averaged down in AVGO, MSFT, SBUX
I bought WFC, CSCO, VZ and BA (very small) at the bottom

I still have a higher than average amount of cash

I just went in on BA.

[Hard_Six]

Originally Posted by EEpro

Did you do it? You were right.

No, I didn't.

[m j b]

I too am back in BA, but will sell on any recovery, as I have done twice already.

I sold a bunch of stuff recently, either grabbing short-term profits or cutting losses. With only two exceptions, they are all below the selling prices (past two weeks). The two that are up from where I sold them are UPS and ZS.

ZS was a recommendation from an employee, whose dad works there. No other reason, and so I sold it after thinking about it for 3 minutes. It's up 10 points now.

Not a recommendation, just an observation. It's always encouraging when insiders buy their own company though.

Of what I sold, I'm going to be buying more back. The question is: when?

[beshannon]

For those looking for some insight as to what is happening at least for today, it is the bond market or more broadly the credit markets

Rates reverse higher rapidly on growing costs to combat crisis, 10-year Treasury yield hits 1.2%

This was dramatic overnight

The rapid rise in yields also appeared to spook equity markets on Wednesday. Dow futures hit their “limit down” level in premarket trade Wednesday, then tumbled more than 4.5% in morning trading.

The flights from long-term debt this week came as the White House floated a historic fiscal stimulus package of more than $1 trillion designed to help boost a U.S. economy that many believe is on track for recession.

That sentiment was echoed by longtime bond trader and DoubleLine Capital CEO Jeffrey Gundlach on Tuesday, who told investors that he thinks there’s a 90% chance the United States will enter a recession before the year is over.

https://www.cnbc.com/2020/03/18/trea...t-markets.html

The equity market will price this in, the overnight action was what sppoked the market today.

Bottom line, do your own homework.

Companies with strong balance sheets, revenue streams and large moats will weather this better than others. Look at WMT, I am not making a recommendation as it has really run too far too fast but this is the kind of stock that will survive and grow

Online companies, service companies, utilities, telecom etc., should be fine.

[Duey]

Boeing, (BA) is only down to a 2013 level so basically we just took off the bubble

[beshannon]

Originally Posted by Hard_Six

No, I didn't.

You would have needed to be quick, this is moving dramatically and too quickly for me as I believe we are likely trying to find a bottom here and not going down another 30%

This is already way off the highs of the morning, stay sharp

[Duey]

With Nevada shutting down ALL casinos, basically everything else too, for 30 days any airline related stock is a no for me.

[beshannon]

Not helping that it is options expiration this Friday



There is major unwinding of leverage across the world, and this is adding to the credit market stress

[m j b]

They say that the market anticipates the future. In other words, a predictor. So, the stock market will often start to decline before a recession is officially recognized, which does happen after the fact since you have to wait a month or more for companies to report to the government who then produces GDP numbers. Then, in turn, the market anticipates a recovery and may actually be up months before the economy goes back up.

Since we (assuming that we will, in fact, enter into a world-wide recession d/t virus) had no lead time and could not anticipate such a disaster, although some folks did (but we won't go there) the market is just now catching up. At some point, maybe soon, there will be light at the end of the tunnel and people will start to anticipate the recovery and the market will go back up.

The capitulation, imho, is that we will go into more lockdowns, restrictions, and once those peak and start to be removed, which may be as soon as the end of the month, that's when we can see real steady market improvement.

Feel free to throw this back in my face in two weeks. LOL

[m j b]

Originally Posted by Duey

With Nevada shutting down ALL casinos, basically everything else too, for 30 days any airline related stock is a no for me.

do we think that the govt. will give huge help, in any form, to the travel and hospitality businesses?

[beshannon]

Originally Posted by m j b

Feel free to throw this back in my face in two weeks. LOL

No I agree

Originally Posted by m j b

do we think that the govt. will give huge help, in any form, to the travel and hospitality businesses?

Well this is in part what the Fed is trying to do in the credit markets and what the government is trying to do through legislation and immediate programs.

Will it matter? We need to wait and see as the news flow is very fast

[Bearxj86]

I am just shaking my head. In finance (Corporate FP&A) and the magnitude of these shutdowns ...damn....my topline forecasts changed dramatically over the past 3-5 days.No surprise that most companies have suspended earnings guidance because it truly is very hard to predict.

On the bright side, China, Singapore, and Taiwan are pretty optimistic that they are through the worst and are on a recovery trend (with a recessionary tail). They are afraid of the re-infection curve so international travel quarantines may be alive and well even after the worst is over. Look at India, 1.2B people that are starting the infection curve. We don't want that reinfecting China/Singapore etc.

[mannyv11]

Originally Posted by beshannon

No I agree



Well this is in part what the Fed is trying to do in the credit markets and what the government is trying to do through legislation and immediate programs.

Will it matter? We need to wait and see as the news flow is very fast

I think it is a kick in the pants that the airline industry over the last 10 years bought back a ton of their stocks in lieu of stockpiling a little cash for a time like this. Instead they are now asking for another handout from the government to save them.

IMO i'd let some of the players fail, good companies survive down economies, great companies still continue to thrive, bad companies and industries keep needing hand outs from the government when they should have been planning for something like this to happen especially with how connected everyone is.

I apologize my soap box rant is over.

[Duey]

I think Nevada will be a litmus test of what's to come in stocks and businesses that support

[m j b]

GM down 20% right now. Ouch.

Yes, I bought some over the past week, and added a bit this morning before it cratered.

[77T]

Originally Posted by mannyv11

I think it is a kick in the pants that the airline industry over the last 10 years bought back a ton of their stocks in lieu of stockpiling a little cash for a time like this. Instead they are now asking for another handout from the government to save them.



IMO i'd let some of the players fail, good companies survive down economies, great companies still continue to thrive, bad companies and industries keep needing hand outs from the government when they should have been planning for something like this to happen especially with how connected everyone is.



I apologize my soap box rant is over.

I think the buybacks made sense at the time. Now if they mark those shares to market, they are in bankruptcy court methinks.

I think any bailout amount to each of them should be done by Treasury buying those shares at some reasoned price + that airlines commercial paper (not to exceed the value of the bought back shares Treasury takes).

A 50/50 proposition.


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[superdog]

Originally Posted by m j b

GM down 20% right now. Ouch.

Yes, I bought some over the past week, and added a bit this morning before it cratered.

so I suppose it is true. do the opposite of what you do...

I feel the same actually. we should start a service.

[m j b]

Originally Posted by superdog

so I suppose it is true. do the opposite of what you do...

It's almost foolproof!

[Romeojk]

Originally Posted by superdog

so I suppose it is true. do the opposite of what you do...



I feel the same actually. we should start a service.

I could be a founding father of this club as well.


Sent from my iPhone using Tapatalk

[SMD]

Originally Posted by mannyv11

I think it is a kick in the pants that the airline industry over the last 10 years bought back a ton of their stocks in lieu of stockpiling a little cash for a time like this. Instead they are now asking for another handout from the government to save them.

IMO i'd let some of the players fail, good companies survive down economies, great companies still continue to thrive, bad companies and industries keep needing hand outs from the government when they should have been planning for something like this to happen especially with how connected everyone is.

I apologize my soap box rant is over.

Disagree. The stock buyback criticism is a red herring. No amount of efficiencies or rainy day fund would have helped the airlines weather this.

For those who don't read him, Matt Levine is very good on these things and explaining complex topics in an amusing way. Here is his take on buybacks:

"People are worried about stock buybacks

Let’s imagine that you are the chief executive officer of American Airlines Group Inc., it is the beginning of 2014, and you can see the future. You know that you will have a great few years. You just emerged from bankruptcy at the end of 2013, but now you will have six straight years of positive net income, totaling about $17.5 billion. The airline industry will become so lucrative that people will write papers arguing that airlines collude to keep prices high.

It will be so lucrative, in fact, that you might say “I don’t think we’re ever going to lose money again,” though I suppose in this hypothetical you wouldn’t. Because in this hypothetical you also know about the coronavirus. You know that in March 2020, air travel will more or less come to a halt for a long period of fear and uncertainty. You’ll have a bunch of planes that aren’t flying, a bunch of obligations to pay and little income with which to pay them. Let’s assume that your vision gets hazy after about March 17, 2020, but you know stuff is bad.[1]

There in January 2014, what should you do? Well, you should keep buying planes and flying them and paying pilots and all that stuff. People want to fly, so you are providing them a valuable service, and they are paying for it. The fact that in six years they won’t want to fly doesn’t affect your decision now. You keep flying and raking in the money.

What do you do with the money, though? Here are some ideas from Tim Wu (published yesterday, with the benefit of hindsight):

There are plenty of things American could have done with all that money. It could have stored up its cash reserves for a future crisis, knowing that airlines regularly cycle through booms and busts. It might have tried to decisively settle its continuing contract disputes with pilots, flight attendants and mechanics. It might have invested heavily in better service quality to try to repair its longstanding reputation as the worst of the major carriers.

And, Wu continues, here is what American actually did:

Instead, American blew most of its cash on a stock buyback spree. From 2014 to 2020, in an attempt to increase its earnings per share, American spent more than $15 billion buying back its own stock. It managed, despite the risk of the proverbial rainy day, to shrink its cash reserves. At the same time it was blowing cash on buybacks, American also began to borrow heavily to finance the purchase of new planes and the retrofitting of old planes to pack in more seats. As early as 2017 analysts warned of a risk of default should the economy deteriorate, but American kept borrowing. It has now accumulated a debt of nearly $30 billion, nearly five times the company’s current market value.

People who don’t like share buybacks tend to have one of two broad theories for disliking them, though the differences are not always clearly articulated. One theory is that “blowing cash on buybacks” is bad for shareholders; it reduces the long-term value of their investment in your company. Instead of wasting cash by giving it back to shareholders, you should invest it in your business for the long term, buying equipment or spending on research and development or earning customer or employee loyalty with low prices or high salaries, because that will ultimately increase your stock value more than buybacks would.

The other theory is that buybacks are often good for shareholders but bad for employees or customers or creditors or the world.

But you are the hypothetical CEO of American Airlines and your loyalty is to the shareholders. (Remember this is in 2014; you can foresee that the Business Roundtable will one day issue a statement about stakeholders, but you haven’t signed it yet.) What should you do to increase long-term value for the shareholders? Certainly not any of Wu’s suggestions! “Better service quality” to improve your reputation? However much money American and the other airlines invested in service, one of them would end up with the best reputation and one would end up with the worst and they’d all be in exactly the same boat now. No one is making air travel decisions today based on legroom or free snacks. Your investment in customer service would have been wasted. Better labor relations might help now, but might not; in broad strokes “we are not going to be flying planes so we can’t pay you” is a simple message to convey no matter how much trust or distrust you have accumulated with your workers.

Store up cash reserves? Maybe. If you had just put that $15 billion in the bank, it would cover four months or so of normal expenses, even if no money is coming in. Presumably some money will be coming in, and your expenses, during the coronavirus retrenchment, will be lower than in normal times. (American spent $7.5 billion on fuel last year; I suspect this year will be less.) Perhaps if American had that $15 billion back, it could go into hibernation for a while, keep paying its employees and suppliers, and emerge from the coronavirus ready to go back to never losing money again.

Or perhaps not; again, your vision gets hazy after March 2020. Also meanwhile much or all of that $15 billion would be gone, spent to preserve the business during hibernation. Would it be worth it? To shareholders? At the end of 2019, with the coronavirus a distant rumbling, American Airline’s stock market capitalization—loosely, the expected value to shareholders of its future earnings—was about $12.3 billion. Spending $15 billion to keep control of a stream of future income worth $12.3 billion is not obviously a good trade.[2]

At the start of 2014, American’s stock market capitalization was about $13.3 billion. Shareholders got back $15 billion between then and now.[3] In the aggregate, shareholders got about 113% of their money back over six years. If their stock is now worth zero—it’s not, American’s market cap as of yesterday’s close was about $6.8 billion—then that’s not an amazing return, and of course the 2014-vintage shareholders who sold their stock did better than the ones who held through to today; that’s an aggregate return, not an individual one. But it could be a lot worse. For instance if you had invested that $15 billion in better labor relations and customer service, and not paid a cent of it out to shareholders, and then the coronavirus hit and the stock became worthless (again, it isn’t), then the shareholders would have lost 100% of their money. They would have paid for six years of other people’s air travel, with great customer service, and have nothing to show for it.

I submit to you that if you ran American Airlines and knew the future, you’d spend just as much on buybacks as American actually did. The buybacks were optimal. Spending money on other stuff—better planes or labor relations or customer service—would not have insulated American from its current problems; hoarding the money would have, but not completely. None of those things would have created as much long-term value for shareholders as just giving them money and letting bondholders (or, fine, the government) hold the bag. If you are in the business of making risky bets, and you win a bunch of them in a row, the way to enhance your long-term value might be to take money off the table.

So that’s what the airlines did. “The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares.” If you are an airline shareholder you should be thrilled that they bought back so much stock. I mean if you didn’t sell them any of your stock I guess you regret the missed opportunity, but still, on principle, they were doing the right thing for you.

If you are a bondholder you should be considerably less pleased, but it’s not like the buybacks were a secret.

What if you are the U.S. government and taxpayers being asked to pay to bail out the airlines?

Reeling from the coronavirus crisis, U.S. airlines are seeking over $50 billion in financial assistance from the government, more than three times the size of the industry’s bailout after the Sept. 11 attacks.

The exact form of the aid—and the amount—is under discussion with Trump administration officials and congressional leaders. A potential aid package could include government-backed loans, cash grants and other measures including relief from taxes and fees, according to an airline trade group and others familiar with the discussions.

“We’re going to back the airlines 100%,” President Trump said at a news conference Monday. “We have to back the airlines. It’s not their fault.”

Well, right, the coronavirus is not their fault. The financial structure of the airlines is … look, “fault” is a weird word. The financial structure of the airlines is optimized for shareholder value; it is optimized to extract money for shareholders when things go well and minimize the amount of shareholder money that is at risk when things go very wrong.[4] That’s sort of the nature of the limited-liability corporation and the modern focus on shareholder value and capital-structure optimization.[5] It’s not that the CEOs of the airlines, in 2014, with perfect foresight, said “we are going to extract as much money as we can for shareholders for as long as we can, and then leave the government holding the bag.” It is … a lot like that … but that was not their conscious choice; that was, like, capitalism’s choice.

I think you could rationally conclude from this that any government support of the airlines should involve taking a lot of equity or zeroing the shareholders or whatever, as a matter of fairness, but I do not have any special expertise in matters of fairness and will leave that to you to figure out. (Please do not email me your answer.) “The trade group argued that roughly half of the proposed assistance—$25 billion—should come in the form of direct grants to airlines,” ah. I suppose, as a matter of fairness, you could even conclude that the government shouldn’t support the airlines at all, though I do not think that that sort of decision is mainly a matter of fairness. (It is good to have airlines! It is good to avoid the chaos and expense of bankruptcy! It is good for airline workers to get paid! Etc.)

Or you could certainly conclude from this that not everything that is in the long-term interest of shareholders is necessarily in the best interest of other stakeholders, or of society. Or to put it the other way: Not everything that you want, that is in the best interest of society, will necessarily be what rational executives pursuing long-term shareholder value will do."

[beshannon]

Markets now at the lows of the day accelerating while the news conference is going on, reveals the sentiment

[enjoythemusic]

Originally Posted by m j b

GM down 20% right now. Ouch.
Yes, I bought some over the past week, and added a bit this morning before it cratered.

Yipes! i'd wait, as no need to try and catch the falling knife imho.

[golfgrouch]

Bill Ackman is laying out a doomsday scenario on CNBC right now. I just cancelled my buy orders...

[beshannon]

Originally Posted by golfgrouch

Bill Ackman is laying out a doomsday scenario on CNBC right now. I just cancelled my buy orders...

Well that is what hedge fund managers do. Note he is also buying

Remember the old adage, "when the time comes to buy, you wont want to" and "buy when others are fearful"

Just hit a trading halt down 7% on the S&P to 2351 which is right on the December 2018 low, need to see if this holds

[GB-man]

Bill on there making sure his shorts hit.

[Doc Savage]

S&P down 7%, circuit breaker hit, and trading halted.

I don't know why so many people keep predicting a bottom in this market. All signs (at least the ones I read) point to a lot more pain before we bottom out. My money is very happy to wait in bonds until probably this summer.