Good Tuesday A.M.,
Late in the day yesterday, markets flip flopped from earlier trading with equities closing up (erased an 800 point deficit) and bonds sliding into the close. We are seeing some follow through today based on the same news. Mr. Powell, releasing a statement yesterday during trading hours (not common) and before today’s congressional testimony, that the Fed will now buy corporate debt in any amount and for as long as needed. This is the first time in the history of the Fed they have been willing to invest in private companies. Think about that, companies that are bankrupt or essentially so, now get a get out of jail lifeline from the Fed. Hertz, United Airlines, Chesapeake Energy plus every other walking dead now gets to stay in business. They will not be able to repay the bonds they sell as they have no profits but the Fed is coming to the rescue. I assume it is with the expectation that companies will retain employees which are currently receiving extended and boosted unemployment benefits. Stocks loved it, although I think it is short sighted and Mr. Powell did walk that commentary back a bit today. Buying stock in companies that you know will not have profits is a fool’s errand. Leon Cooperman, investor extraordinaire, while on CNBC yesterday said this will end in tears for many. I concur. The 10-year yield back to 75%. Bond traders are holding their own despite equities running like they just stole something. This is a sign that the smart money is not in equities… if it were, bonds would be getting shellacked.
Amazingly there is no news about the second wave of Covid infections, despite it happening all around us. Did you know that China closed schools again as they are experiencing a second wave as well?
The headlines from the WSJ tell the economic story. There is nothing like more government stimulus to reinvigorate the stock market.
Please remain safe and healthy and make today great!