To believe or not to believe, that is the question. Whether 'tis nobler in the mind to suffer, the slings and arrows of outrageous fortune, or to take arms against a sea of troubles.
After listening to endless hedge fund managers tell me not to believe, I wonder how in heck the market could therefore rally today?
I think that's because the believers can have their day, too. Aside from the fact that I couldn't resist harking back to Bard-Churchill, just didn't make the cut this time -- we have to talk about the snapback, because it may be emblematic of what we have to accept will be the case for some time.
Let's start with the set-up. Right now, if you listen to the wise men of the hedge fund business, you have to believe that the slings and arrows are going to crush us. First, the debt load of companies is so high, trillions and trillions of dollars, that there's no hope. There's billions of dollars owed by the oil companies. They can't pay it back with the collapse in oil. The airlines? How can you run a heavily indebted enterprise, even as they were buying back stock -- egads! -- and not default on everything? Boeing (BA) alone will cost us billions. The Secretary of Treasury, Steven Mnuchin, said to me that he didn't say the number of unemployed could go as high as 20%. The hedge funds I listen to are talking about 25% unemployment.
You can't have a restaurant industry, if you can't eat at the restaurant. Hotels? Sold to you.
Malls? Bowling alleys. Bowling alleys? Baby Boomer storage lockers.
Money markets? Trashed. Commercial paper? No liquidity. Arcane dollar-yen trades? Devastating.
Oh, and small and medium sized, business? Finished.
Break out the apple stands and the sandwich boards, while we become a colony of the Peoples Republic of China, like Hong Kong.
Am I really exaggerating? I don't know. Maybe the hedge funds should go to Congress to get a bailout, lest they have to sell their fifth beach house or move to Florida to pay fewer taxes?
So then how could we rally? Who would ever by stocks with that apocalyptic view? I would rather use the money to buy a bunker in an undisclosed location and fill it with machine guns for perfectly sighted interstitial fire replete with claymore mines so when the grim reaper comes calling in the form of the masses seeking food, I can teach them a nasty lesson.
OK, let's say the smartest, richest people are dead right, meaning we will all be dead except for them, every bull has its day and today was one of them.
First, a funny thing has happened to the bears in their ursine, saturnine gloom. They think that this disease can't be beaten. Who can blame them? Italy, a totally civilized country, just passed China in Covid-19-related deaths. We are finally getting our testing kits, and we are going to find out that maybe 10-times the number of people we thought actually have the darned thing. We have to triage, as we figured, because we don't have enough hospital beds.
But what if one of the three antivirals that the president spelled out today, an old drug for malaria, a drug meant for Ebola, and one for rheumatoid arthritis, actually work and enable you to be cured or at least avoid being a Covid-19 fatality? Doesn't that change things? Maybe you will never go out again if you are going to get sick, but maybe you can ward it off or shorten the course? Make testing regular, have a procedure that gets you in and out of the hospital and then have a vaccine by this time next year. Not ideal. But not the death sentence it seems and, more important, we might be able to beat the darned thing with what we are doing and go back to normal as is the case with the Peoples Republic of China.
"Ah ha!" you say, "that's ridiculous. There is no normal. They are lying."
If that's the case, then why the heck did Kevin Johnson, CEO of Starbucks (SBUX) , say that Starbucks is back and running pretty much regular like in most of the country and even with consultation, opened up a store in Wuhan, ground-zero of the illness before Milan overtook it. Why did Hormel (HRL) say the food chain's back to normal? Sure, I want to see Disney reopen Shanghai Disney (DIS) but did you see that giant bond deal Disney did, raising cheap money that shows the public will lap up iconic brand bonds.
At this point, I am betting with the scientists. It's just a sucker's bet to go against them.
Second, the oversold condition is insane. The S&P oscillator I follow, from MarketEdge? It registered a number north of minus 24. That's the most selling pressure on record. It takes out the level of the 1987 crash, which had the title at minus 23 and change. I know the masters of the universe hate it here. But, so does everyone else, at least according to the oscillator. Not coincidentally, the 1987 crash was not a good day to sell. You made very good money buying and holding. Maybe it can happen again?
You know who thinks that way? Larry Williams, my favorite technician, actually, almost everyone's favorite technician, the dean of the group, who points out that we have hit extreme panic, which is his single most reliable indicator of trend shift from bear to bull. In a special bulletin today, he said you have to buy because "none of the tools of the trade I have in my arsenal have done this good a job of calling major stock market lows. ... For almost 90 years we have seen bull markets begin at these times of extreme panic."
There have been only 24 signals like this in the last 87 years, he writes, and of these 18 signals, or 75% were within three weeks of a marker bottom and 24 times -- 66% -- the signal came within one week of the low. He says, "Never have I see an indicator with a better record. There is no perfection in this business of market timing. This is as close as it gets."
Williams could be totally and utterly and completely wrong. But I like odds and his work says the odds are better than good.
That means, as I said yesterday, it is now too late to sell. Now you have to wait for more of a snap back to let things go. Williams doesn't have any emotion about it. That's what the charts tell him.
Now notice not once did I mention what the government is doing. To listen to the hedge fund community they are going to do everything wrong. But I would point out at the bottom many of the companies are trading as if they are bankrupt already. They are all over the place. A little company, GIII Apparel, was priced at $3 last night. Thursday morning it reported an extraordinary quarter and the stock jumped 57%. I must have seen dozens of stocks that made similar moves today without even reporting.
This brings me to my final reason why we rallied. We don't know who, but some big firms must have blown up and had to liquidate Wednesday and they sold through the price of what a company might be worth even if it is on life support. Thursday produced so many winners that they weren't needles a haystack. It was more of an Easter Egg Hunt. When I ran the Easter Egg hunt in Summit, New Jersey, for the Police Athletic League, I hid them really well. Thought they wouldn't be found. Thought parents would yell at me for making it too hard.
But the tykes braved the slings and arrows and found the darned thing.
We're not done. Even Williams makes that clear. But so many companies were priced for bankruptcy yesterday, at least on an ineluctable trajectory that it was worth taking a flier.
No one is minimizing the virus. I'm Jimmy Chill Clorox (CLX) for now. I am just saying the bull's out there, hibernating, but if you provoke it, the darned thing can and will wake up and given enough liquidity and a cure, stampede the hell out of the place.