Oh my, this margin call situation is scary, so let's go back to stocks that we know and buy them.
I know that seems preposterous, a ridiculous analysis of the fallout, because a giant fund that had borrowed a lot of money blew up. But that's precisely what occurred in the wake of a giant margin call against a mysterious hedge fund, Archegos, run by a gentleman named Bill Hwang, that, until today, most people had never heard of.
Somehow Hwang was about to hoodwink almost every firm on Wall Street by borrowing huge amounts of money and taking down some very concentrated positions in some Chinese stocks like Baidu (BIDU) and Tencent Music (TME) as well as American stocks like Viacom (VIAC) and Discover (DISCA) , two media companies with stocks that have been rocketships for months. The liquidation dinged a bunch of banks, with real impact felt by Credit Suisse (CS) and Nomura (NMR) , with the former actually forced to say that it endured "highly significant" losses.
Goldman Sachs (GS) came out and said that its losses were immaterial, but there's enough guesswork about the rest of Wall Street that the great reopening trade, which included these major banks, took a breather.
I heard a lot of fretting about this fund's crisis and what it might mean for Wall Street. I don't think it means anything, although I did think it odd that this hedge fund got away with some outrageous actions, when Robinhood was nailed for something that seems far less nefarious when it was trying to deal with is own issues involving GameStop (GME) and AMC Entertainment (AMC) . It doesn't seem fair that Robinhood got the wood put to it immediately and apparently this craziness of Archegos went on for quite a long time.
At the same time that Archegos was busy ruining the bottom lines of a bunch of Wall Street firms, we got a whiff of fear that we may be premature in the reopening trade -- even as we are vaccinating 3 million people a day. I think the fear of more dangerous variants is always going to be real and the idea that we are wide open before more people are vaccinated does seem wrong to me.
The head of the Centers for Disease Control and Prevention, Rochelle Walensky, seems to agree, going as far as to say that there could be a fourth wave of illness and that we are facing impending doom. That term reverberated through the canyons of Wall Street and sent down most of the restaurant stocks and live entertainment stocks that had been flying for months now. The oils and big cyclicals took a header, too.
You would think that, though, it would impact every stock. Nope, this market is always robbing Peter to pay Paul and this time Peter is the Great Reopening trade and Paul is the "doesn't work like that." Peter is always paying Paul in this tape; accept these two trade rubrics. In this case, Peter's the cyclicals and the banks, and Paul is the stay-at-home winners that have been punished for ages. It's a strange rotation, given that Goldman Sachs (GS) is talking about 10% gross domestic product growth and a general belief that we are about to have a repeat of the Roaring Twenties, the last time a pandemic came to a conclusion.
I think the rotation is definitely countertrend. A market led by Clorox (CLX) and Procter & Gamble (PG) and Amgen (AMGN) is a market that makes no sense, unless we are about to have a re-lockdown like they are having in Germany. I think those stocks have seen better days and don't make a ton of sense to rally other than because they have fallen so far behind the rest of the market. I respect that Johnson & Johnson (JNJ) has a terrific pipeline, but its upward move seems very exaggerated.
Last week, Larry Williams suggested buying Walmart (WMT) and Costco (COST) right before the Easter holiday and -- voila -- both stocks took off. Remember, these are considered essential retailers, and their rally came at the expense of the Kohls (KSS) and the Nordstroms (JWN) . Again, robbing Peter, the non-essential, to pay Paul, the staples that had been abandoned ever since we started getting vaccinated. I think these two stocks have been punished enough for being important enough to stay open during the lockdown. They will have terrific numbers year-over-year, so they deserve to be in your portfolio.
The oddest part of this rotation, though, is that unlike last week, when we saw the wrong FANG go up, the FANG that's the symbol for Diamondback Energy (FANG) , an independent oil and gas company based in the Permian, this time the real FAANG went higher.
Some of this, again, could be pent up demand.
We got word from one Wall Street firm that Facebook (FB) may be doing better than expected. Last week Mark Zuckerberg, the CEO of Facebook, faced Congress in a confused session about what kind of regulation social media should have. Once the smoke cleared, as you can expect, an analyst comes out and is bullish on Facebook's stock because Congress isn't really going to do anything to hurt the earnings of the social media giant. It's very to see this stock trade almost as low as 20 times next year's earnings. Then again, though, it is a company that is hated by Wall Street and Main Street, but loved by its readers and advertisers.
The stock of Apple (AAPL) was pushed hard last week by a noted Apple bull and it meant nothing, and now we recall the note fondly and take it up.
Amazon (AMZN) is part of the not -so-quick-to-reopen trade, because you don't go out when you buy from them. Alphabet (GOOGL) had been widely perceived as a Great Re-opening trade, but this time it got dragged along by the cohort.
How about the robbed Peter? I think that the money comes right back to the cyclicals and this is a rally-based on the emotional comments of Wallensky. If she hadn't dropped the "impending doom" comment, we might have spent more time pondering the possibility that everyone who wants to be vaccinated will be, maybe by the end of April.
Tomorrow, I think we forget Archegos, and we begin to distance ourselves from the Stephen King-like impending doom comments, right out of "The Stand," of course, and re-focus on the opening trade. I would take a hard look at Disney (DIS) and Boeing (BA) , the former because the accelerated vaccination time table will directly impact its bottom line and the latter, because it won a big order from Southwest Air (LUV) , an order that it was thought might go to Airbus not that long ago. Plus the 787 Dreamliner was approved for sale by the Federal Aviation Authority. These are huge positives and would have moved the stock up much more if impending doom weren't part of the agenda.
One thing is for certain, the fickle nature of this market is a reminder not to dump stocks that are counter-trend when they are going down. There's always a better time. Monday was that better time. Peter and Paul will pull the old switcheroonie and the money will flow back to the opening stocks and once again you got in at prices that would otherwise would be unthinkable just 72 hours ago.
(BA, DIS, GOOGL, AMZN, AAPL, FB and GS are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
