[Market Madness] Edition 0061
Having fun yet?
Market madness indeed
Well folks, there is never a dull moment in the markets. Just like that, we’re back on the hype train trying to recover from yesterday’s brutal sell off. European markets moved back into the green overnight, and Asian markets were just below neutral. As the markets look to make a bounce back, we are seeing Treasuries slightly rise, as investors sell out of the safer assets for the riskier stock market investments.
Volatility notably moved up yesterday in the wake of the wild market movements, but has since cooled off slightly into the trading day today. It is still high, suggesting that there is still an essence of fear in the markets felt by investors.
By midday, we saw the early trading momentum fade away, with indices holding onto only a fraction of their earlier gains. By the close, we still saw green, but much less than what we saw in the early trading day. I suggest we take the slight recovery today as a win, enjoy the weekend and buy more on Monday.
Please enjoy today’s shorter piece, as I work to put together a strong Sunday recap, and hopefully bring some sense to the past couple days. Safe and happy weekend to everyone!
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Friday Close:
Dow Jones Industrial Avg: +1.90%
S&P 500: +1.31%
NASDAQ: +1.01%
US 10 YR: 0.698% | 99 3 / 32
Crude OIL: $36.40
Market Madness Portfolio: +1.03%
COVID 19 Global Cases: 7,678,836
Indices Overseas:
FTSE 100: +1.30%
Nikkei: -0.75%
Hang Seng: -0.73%
Oh, that Hertz
Earlier on, we covered off on Hertz’s filing for bankruptcy. Earlier this week, we saw their share price skyrocket, which was unusual. They have since given back a majority of those post-bankruptcy gains after being de-listed from the NYSE. They have also let go their chief marketing officer without cause. It is a really interesting time to be a fly on the wall at Hertz corporate office.
The latest headline comes in the wake of an unprecedented stock sale by the firm. Hertz “is looking to sell up to $1bn in stock to take advantage of frenzied trading in its shares, in an unprecedented move for a company whose solvency is in doubt.” (excerpted from article) They are hoping to use this cash injection as a substitute for the more traditional senior loan that most firms seek after filing for bankruptcy.
“A filing to issue new stock would include a disclosure stating that “an investment in Hertz’s common stock entails significant risks, including the risk that the common stock could ultimately be worthless”, the company wrote.” (excerpted from article)
The whole situation is very confusing and very interesting. Many novice investors took to buying shares of the firm, despite its bankruptcy, pumping it up to $2.06, far above the $0.56 trading price following Chapter 11 filing.
An advisor at Pacific Life Fund Advisors suggests this heightened activity is similar to the bitcoin bubble and the interest by some investors to buy anything that is losing value, assuming that every business will be saved from failing. As we have seen with several other big name firms, no one is going to be safe from bankruptcy. This is especially true when these firms made large mistakes leading up to the onset of COVID 19.
Hertz was hoping to use the safe of unissued shares (nearly 247 million shares) as a self funded loan to keep their working capital needs afloat. The whole situation is so interesting and something I’ve not seen before, even in the various case studies I’ve worked on.
The traditional process for distributing funds to claimants on a company’s assets in times of distress. The bondholders get first priority for distributing liquidated asset value and they follow their order of seniority (Senior debt and then subordinated). Anything that is left after fully repaying all bondholders will go to shareholders. First, preferred shareholders will be paid, and then common shareholders. These two are not guaranteed, which is why stocks are riskier than bonds - their value is not truly guaranteed. Many experts are in agreement that some form of Hertz will remain after its bout with bankruptcy, but they caution investors who might be investing for a long time horizon in something like Hertz, where its future is incredibly uncertain. Be sure to keep up on this news piece as it develops - it is something very unique to finance for me and I’m interested in seeing how it all unfolds.
Read more here, here and here.
Quick Takes
COVID 19 spiking once again in some U.S. states. (via WSJ)
Health experts are not calling recent spikes in COVID 19 the ‘second wave,’ but that we’re still in the first wave. (via CNBC)
Mad Money’s Jim Cramer suggesting that Wall Street professionals are toying with the novice Robinhood investors. (via CNBC)
Oil stocks are still ‘far from cheap.’ (via FT)
Sales of diamonds and gemstones down as customers are unable to physically see and touch the product. (via FT)
L.A. is preparing to resume television and film production. (via CNBC)
The FitBit fallacy! (via WSJ)
Reader’s Corner
The reader enjoyed this article discussing investors’ enjoyment of equity-like returns in the hot bond market. Read all about that here. Have a great weekend, everyone!
Behind the Madness
Thank you again for checking in.
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