• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Surreal Markets Demand Surreal Investing Tactics

It's time to put on your thinking cap and reject the group think investment strategies that have dominated the market for the past three years.
By JIM COLLINS
Apr 10, 2020 | 11:15 AM EDT
Stocks quotes in this article: MSFT, AAPL, NFLX, HYG, LQD, NAT, NNA, TNP

Yesterday was one of those days in the markets that felt like surrealism in action. Salvador Dalí must have been twisting his handlebar mustache looking down on yesterday's trading. The clocks certainly seemed to be melting between the Fed's announcement of extraordinary stimulus measures at 8:30 am ET and the close of trading for the holiday shortened week at 4 pm ET.

The Fed basically removed the specter of mass bankruptcies from the U.S. economy and, as has happened at every step during the Powell Chairmanship of the FOMC, did exactly the wrong thing. One of the reasons that the U.S. markets are such magnets for global capital of all types is the orderly, codified bankruptcy process we have developed over the past century. Without that, the natural curve between creditors and debtors is bent, and we will have what economists call an externality.

How to play this?

As I mentioned yesterday, the FAANG, MAFANG -- whatever acronym one chooses for the Tech Titans -- play is dead. The stock price charts of those West Coast big boys all look similar with an extraordinary inflation after President Trump took office. That free ride is over. Yes, Microsoft (MSFT) , Apple (AAPL) , etc. will rise when the market rises, but not by as much, and they are certainly exposed to downturns based on disappointing earnings, which will be reported in the next few weeks. In a world where "trash is cash", the real earnings and cash flow (except from Netflix (NFLX) , which hemorrhages cash) from the tech giants seem very passe. They will underperform the broad indices -- S&P 500 and Nasdaq 100 -- until that changes.

Trash is cash of course relates to the high-yield debt market as well. My firm had a terrific day yesterday as high-yield spreads narrowed. According to the St. Louis Fed's FRED database, the average spread for high-yield bonds versus U.S. Treasuries narrowed yesterday to only 796 basis points. Of course that's an elevated reading versus the 2017-2019 level, but it is actually below the peak of 864 basis points recorded just before the "Dimon bottom" of the markets after the commodities crash in January-February 2016.

Were things really worse in February 2016 than now, with the horrific human toll taken by Covid-19 and the economic effects of global lockdowns just being felt? Of course not. But Powell and company are bailing anyone and everyone out and even buying the (HYG) high-yield ETF (they announced the purchase of the (LQD) high-grade ETF in a prior stimulus actions) so risk is well and truly on. I was adding to positions in "junky" credits -- bonds and preferred stocks -- yesterday, and you should be, too.

Finally, to throw out one more cliche, one man's trash is another man's treasure. The extraordinary dislocations in the markets in the past eight weeks have created esoteric buying opportunities. Did you know that low oil prices and elevated contango in the oil futures markets have driven rapid rises in the rates for oil tanker shipments? I did, and I have been using the maximum amount of leverage afforded to my firm to buy shares of Nordic American Tankers (NAT) , Navios Maritime Acquisition (NNA) and preferreds of Tsakos Energy (TNP) to take advantage of this. Obscure names, to be sure, but oil shipping is one of the few sectors that is seeing improving fundamentals in this market. Oil is not dead. It may be asleep for a while, though, and in these surreal markets, renting a tanker that can hold 84 million gallons of the stuff (as a single VLCC can) is a smart way to play that.

So, it's time for you to put on your thinking cap and reject the group think investment strategies that have dominated the market for the past three years. Surreal markets demand surreal investing tactics.

(Microsoft and Apple are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MSFT or AAPL? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins's firm owned NAT, NNA, and TNP-F.

TAGS: Economy | ETFs | Federal Reserve | Investing | Markets | Oil | Preferred Stocks | Stocks | Trading | Treasury Bonds

More from Investing

The Market's 'Generals' Are Now in the Crosshairs

James "Rev Shark" DePorre
May 18, 2022 4:42 PM EDT

We've reached the next phase of the bear market, as big names get hit.

These Three Small-Cap Stocks Boast Big Dividends

Bob Ciura
May 18, 2022 3:00 PM EDT

Look beyond the mega-cap names for income investing to the more inclusive -- and often smaller -- Dividend Champions.

Can Nvidia Make a Rebound Rally Ahead of Earnings?

Bruce Kamich
May 18, 2022 2:32 PM EDT

Here's what I'd look for NVDA to do in the days ahead.

After Cisco Reports, Will There Be a Tradable Rally?

Bruce Kamich
May 18, 2022 12:04 PM EDT

Let's see how the charts look before earnings Wednesday night.

ServiceNow Picks Up a New Bull on Their Shares

Bruce Kamich
May 18, 2022 11:20 AM EDT

Here's what aggressive traders could do now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login