- Hertz, Don’it?
- The Summer of Vaccination
- Coronavirus Cases Are Spiking
- Unintended Consequences
Car rental company Hertz announced this morning it received a delisting notice from the NYSE after filing for Chapter 11 bankruptcy in May.
(When asked why the company waited until now to reveal that information, a spokesperson for Hertz said “Maybe we did tell you and you just weren’t listening, did you ever think of that?”)
The company, who rented me a car that smelled like rotten fish and strawberry air fresheners the weekend of my wedding, decided to disclose the news after a hectic series of trading sessions.
This is an actual photo from my wedding album.
Hertz stock (HTZ) shifted into overdrive last week, exploding from 82 cents on June 3 to $5.53 at session close on Monday, a 574% gain in just five days.
The rally was likely fueled by rising airline traffic and the hopes that Hertz could get back to business of renting folks a completely different car from the one they reserved online. (What’s with this? Is it a form of negging? Am I supposed to feel a sense of shame and regret as I drive away in my lime-green Chevrolet Spark?)
Small-money traders, betting on a wild price swing, clambered over each other to give Hertz their money, driving the rally upwards. But that all came to a crashing halt yesterday when analysts chimed in with their two cents.
Deutsche Bank Analyst Chris Woronka said overeager investors were underestimating the risk inherent in the strawberry-fish car company’s stock.
“The risk/reward is skewing a bit negative here, particularly given the inherent medium-to-longer-term risks that a resurgence or second wave of COVID could bring,” Woronka said.
Meanwhile, Barclays Analyst Brian Johnson reminded investors that, despite improving data points, the company had filed bankruptcy only two weeks ago.
Hertz stock crashed as much as 38% (about the same percentage of crash I have, when driving a Hertz vehicle) paring some losses before the session closed. The stock continued to tumble this morning after the company announced the NYSE was trying to delist it, falling another 28% in the morning trade.
Hertz said it had appealed the delisting notice and will continue to trade on the NYSE until the appeal has been resolved.
“There can be no assurance that the NYSE will grant the Company’s request for continued listing at the hearing and whether there will be equity value in the Company’s common stock,” said Hertz’s new spokesperson, Droopy the Dog.
The Summer of Vaccination
The federal government will conduct three final-phase vaccine trials this summer, potentially paving a path back to normal life or dooming us to another year as crazy mole people. (If I have to stay inside any longer I’m going to start digging, folks.)
The Phase 3 trials will involve tens of thousands of subjects across the US, John Mascola, director of the vaccine research center at the NIH, told the Wall Street Journal.
The goal of this final phase is to determine the vaccine’s safety and effectiveness. (Phase 1 and 2 mostly involve focus testing the vaccine to see if it should be more X-treme.)
Moderna’s vaccine will be up first, starting in July, followed by AstraZeneca’s in August, and finally Johnson & Johnson will be taking a break from making carcinogenic baby powder to test its vaccine in September.
Each vaccine will be tested separately, though the companies will coordinate an independent committee to monitor brains exploding and guts shooting out of the butt and stuff like that (general safety).
The development of these vaccines has been considerably faster than most. Usually vaccine development takes about — let me check notes — way too long. But, even if all these vaccines are found to be effective, it may be well into next year before a working product hits the streets.
Researchers hope the trials will yield results within six to eight months of the initiation. (Screw it, I’m buying a shovel.)
All three companies got the save-the-world stock bump when the trials were confirmed this morning. Moderna (MRNA) climbed more than 4%, AstraZeneca (AZN) popped 2.84%, and Johnson & Johnson’s (JNJ) jumped 1.64%.
Coronavirus Cases Are Spiking
Coronavirus cases are on the rise in 21 US states, with major spikes in Arizona, California, and my home state: the state of denial.
The majority of cases seem to be linked to private home gatherings like birthdays, funerals, and that thing where everyone puts their car keys in a big bowl and they won’t let you go home until everybody has been thoroughly disappointed.
“Many of the cases that are showing up in hospitals are linked to gatherings that are taking place in homes – birthday parties and funerals,” Olivia Kasirye, public health director of Sacramento County, told Reuters.
Arizona was one of the first states to reopen in mid-May and get back to the business of being too hot and too dry for any living human being. Since then, cases of the virus have shot up 115%, prompting a leading state health official to call for a second stay-at-home order.
Meanwhile, Texas has recorded a 36% rise in cases since Memorial Day (which was ironically the day everybody suddenly forgot about the virus), and reported two consecutive days of record-breaking hospitalizations this week.
Overall, the number of new infections in the US rose 3% in the first week of June, representing the first step backwards after five weeks of declining infection rates.
I’m not in the Southwest, but just yesterday, the city of Baltimore suspended recycling services for three weeks due to an outbreak of infection among the city staff.
This is a major pain in the ass because I only have one tiny garbage can and if they don’t pick up my recycling this place starts to look like a box fort built by drunken college students. Oh and also I hope the sick folk are ok, I guess.
My dire recycling predicament aside, public health officials are warning that a slow burn of infections throughout the summer could result in a massive resurgence of the virus in the fall.
So, I guess that’s something to look forward to.
In Other News
ONE LAST THING
The market has been on an absolute tear the last week or so on a wave of optimism wholly disconnected from the reality of real-world events.
Folks have made money on this contradiction, but our macroeconomic expert Graham Summers says the market is showing warning signs of crash.
Graham reveals all the sordid details in today’s one last thing, and he’ll be back tomorrow to outline an investment strategy you could use to profit from this financial reckoning.
Unintended Consequences of Major Money Printing
By Graham Summers
Right now, above all else investors need to be thinking about “unintended consequences.”
Everyone knows that the Fed has flooded the financial system with liquidity. This liquidity, combined with what appears to be a “V” shaped recovery in the economy, is what propelled stocks to go straight up from the March lows.
As I write this, the S&P 500 has broken out of a rising wedge formation (blue lines in the chart below) to the upside. It is now slamming into overhead resistance (red line in the chart below). It is unlikely we would break this on the first try.
A drop to retest the breakout would be perfectly normal. I’ve drawn what this would look like with a red arrow in the chart below.
So… stocks rally on liquidity as the Fed reflates the system. That’s the obvious consequence of the Fed printing $1 trillion a month. But what is the unintended consequence of this money printing?
The market is suggesting it could be a crash in bonds
The Darker Side to Major Stock Momentum
The US was already on schedule to run a $3–4 trillion deficit this year based on the March–May economic shutdown. However, it is growing clearer that the real number is going to be even higher than that.
Multiple states (NY, CA, IL) are on the brink of insolvency and will need bailouts soon. And the president has suggested he’d like a massive infrastructure bill passed this year as well.
Either of those could mean the US needing to issue $5–6 trillion in NEW debt this year… on top of rolling over its old debt.
The bond market is signaling this might be too much for it to absorb at current levels. The chart below proves this.
The long–term Treasury has rolled over badly. We are now at support (green line in the chart below) and still a long way from a mean–reversion drop to test the bull market trendline (blue line in the chart below).
A bond crash would mean the bond market revolting against the federal fiscal stimulus. And it would have a profound impact on ALL risk assets — including stocks.
So while it’s nice to see stocks rallying so much, we need to consider what might be coming down the pike in the near future. Bonds suggest it’s nothing pretty.
I’ll outline an investment you could use to profit from this in tomorrow’s article.
Closing Data for Today
|S&P Index 500||3,190.50||↓ 0.52%|
- The Nasdaq briefly rose above 10,000 yesterday, a new record for the tech index.
- France pledged $17 billion to support its ailing aviation industry in an effort to keep Europe in the global aerospace race.
- Starbucks says it will close 400 stores in North America because of the economic hit from the pandemic.
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Yesterday, we suggested that letting folks over 65 die to the coronavirus was a bad idea, not least because many medical specializations are almost exclusively staffed by folks over 65. Here’s what you had to say.
A bad idea for many reasons. It’s not just doctors. Check out the amount of engineers who are in their sixties. Chemical engineers. Mechanical engineers. All the various stem people designing planes and similarly higher level people working in very technical fields, that are not necessarily in silicon valley style ‘tech.’ Allowing the virus to decimate the engineering staff at say, lockheed martin, or raytheon, or even exxon mobil could set america, and industry in general back in a serious way. — Mark F.
You massively overstated the death rate – very lazy research – you say 4-14% – seriously – what is your source for that? Under 50 is .4%…. — Chip
Glad you asked, Chip. I’ll refer you to the Buzzfeed image you painstakingly researched and included in your email to me. The CDC’s death rate for those over 65 ranges between 4% and 14%, increasing as you get older. At 65, the average death rate is about 4%. And at 78 (the age of the oldest workers who died at the JBC meat processing plant) your date rate is about 14%.
I didn’t mention the death rate for those between the age of 40 and 49 because the article, which you read I think, was about protecting workers over the age of 65. Incidentally, if 0.4% of people in their forties died that would represent a death toll of 161,600.
Editor, One Last Thing