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Bulls See ‘Once-In-A-Lifetime’ Opportunity, Bears Worried Market Will Drop 10%

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Bulls See ‘Once-In-A-Lifetime’ Opportunity, Bears Worried Market Will Drop 10%

The coronavirus continues to be a battleground for stock market bulls and bears. This comes with the bulls pointing to an opportunity and an economy that is slowly recovering. It also comes with the Federal Reserve providing trillions of dollars in stimulus.

An Opportunity

One of those bulls in Marc Lasry. He runs a $14-billion Avenue Capital investment firm and co-owns the Milwaukee Bucks NBA team.

He views the coronavirus pandemic as a “once-in-a-lifetime” opportunity to make money.

“I know you’re not supposed to say this, but it’s a once-in-a-lifetime opportunity. You’re not going to see this again: Where you’ve actually got an economy that’s fine, and you’ve got a Fed pumping trillions of dollars in.”

Lasry’s firm specializes in providing funding to distressed businesses. The number of bankruptcies piling up means more business for him. Just today, men’s clothier Brooks Brothers filed for bankruptcy protection.

“You’ve got a lot of companies that are in trouble,” Lasry said, adding that today’s business environment is very similar to what he saw during the Great Recession. “It’s a once-in-a-lifetime, but it happened 10 years ago, also.”

Is the US Better Prepared?

He adds that while the outlook for many forcibly closed businesses as part of the economic shutdown doesn’t look promising, the country as a whole has become better prepared to weather the storm compared to that of the Great Recession.

“Today we all know something,” he said. “We will be fine in two years. People will be back out, there will be a vaccine. The question is: How long will it take to get back to normal?”

If you ask Savita Subramanian, she says she’s not a bear, but does expect the stock market to end the year almost 10% lower than it is today.

Subramanian, the head of equity research at Bank of America, says the economy is facing a litany of headwinds.

“I wouldn’t paint myself as a bear but the risks between here and year end are completely to the downside,” Subramanian said. “We’ve had a reopening frenzy and now we’re seeing payback.”

The Negative Outlook

Unlike Lasry, Subramanian felt “really worried” that the fiscal and monetary stimulus used to boost the economy has pulled forward future growth.

She also points to a historically-expensive stock market. Three things had driven the gains of that market, and all of them might come to a grinding halt soon: globalization, falling interest rates, and tax cuts.

Subramanian says a Democratic victory in November will likely have the effect of reversing those market-friendly policies.

Stocks continue to climb higher despite surges in new coronavirus cases. With this, Subramanian said she doesn’t think the markets are assuming everything will be okay. She notes that “work from home” stocks are still doing very well. Also, she mentions that if investors thought we would be returning to offices and jobs anytime soon, those stocks should suffer.

She advises being overweight consumer staples, industrials, technology, and financial stocks.

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Nasdaq Sets A New Record, Dow Forms A ‘Golden Cross’

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Nasdaq Sets A New Record, Dow Forms A ‘Golden Cross’

Since bottoming in late March, the stock market continues to set records in what seems like an almost invincible climb higher.

Nevermind that Jim Cramer said the rally is being driven by the “power of enthusiastic buyers who do not know what they’re doing” and that he can’t fathom “how stupidly bullish this market can be,” the fact is that stocks are climbing higher.

The latest evidence for a runaway stock market is that the Nasdaq Composite Index just gained 1,000 points. It happened in the shortest amount of time in the last 20 years.

1000-Point Climb

It took 114 days for the index to climb from the 9,000 level to the 10,000 level. That milestone was hit on June 10 of this year.

In just 40 days since, the Nasdaq has tacked on another 1,000 points, climbing above the 11,000 level.

That is the fastest 1000-point gain for the index since it took a blistering 38 days in 1999. Back then, it climbed from the 3,000 level to the 4,000 level.

You might recall that period, it was during the dot-com bubble. We know how that ended.

Today’s 1000-point climb is only a 10% overall gain (from 10,000 to 11,000) compared to the 33% overall gain during the ‘99 surge (from 3,000 to 4,000). However, it’s still a blistering pace that investors pay attention to.

“Although 11,000 by itself doesn’t mean much, these big round numbers are a nice reminder of just how strong this rally has been since the March lows,” said Ryan Detrick, the chief investment strategist at LPL Financial.

A ‘Golden Cross’

Not wanting to miss the fun, the Dow Jones Industrial Average just flashed its own bullish signal to investors.

The index just formed a “golden cross,” where the shorter-term 50-day moving average crosses above the long-term 200-day moving average.

Investors consider this to be a bullish signal for the index, as it shows the short term momentum is strong.

Conversely, when the 50-day moving average crosses below the 200-day it’s called a “death cross” and is a bearish indicator. The last “death cross” was on March 20. On that day, the stock market was pummeled by the economic shutdown caused by the coronavirus pandemic.

With the rally being led by technology stocks, the Nasdaq – which is more than 50% tech stocks – has gained more than 60% since the March lows. The S&P 500 is made up of about 25% tech stocks and has gained nearly 50% since March, and only 20% of the Dow is tech stocks so it’s lagged behind, gaining only 47% since March.

How reliable is the “golden cross” for stocks to move higher? According to Dow Jones Market Data, the last time a “golden cross” failed was in January 2016. That was also the last time the market slipped lower.

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Get In On The Hottest Investment Trend Today: SPACs

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Get In On The Hottest Investment Trend Today: SPACs

The hottest new investment trend right now are SPACs, or special purpose acquisition company. It’s how Nikola Motor Company, which plans on making both electric and hydrogen-powered trucks, went public virtually overnight.

With the IPO market cooling, it has become an appealing alternative for private companies looking for a quicker and easier path to being publicly traded.

Now billionaires are tripping over themselves to create SPACs as quickly as possible. They need to do so if they want to get in on the gold rush.

What are SPACs?

SPACs are commonly referred to as a “blank check” company and with good reason: they are created to go around gathering a bunch of money from investors with the only goal to buy an existing business within a specific time frame, usually 18 to 24 months.

The management team essentially has a blank check to go out and buy any business it sees fit. Some are created with a specific acquisition in mind. Others are created simply to have the money in place and ready to go when the opportunity arises.

The structure is very similar to private equity deals or leveraged buyouts. Also, private equity firms, hedge funds, and other “smart money” investors sponsored the creation of many SPACs.

Many of these SPACs are publicly traded. So, if the idea of having “smart money” go around hunting for the best deals on your behalf sounds appealing, you can typically invest in them through your normal brokerage account.

Here’s a short list of SPACs that you can either buy today or can buy very shortly once they go public. Be aware, many of these SPACs are just a few weeks old. So, there isn’t much history to judge their performance by.

Pershing Square Tontine Holdings (PSTH.U)

Fresh off a billion-dollar payday in March, Pershing Square Capital Management’s Bill Ackman just launched a $4 billion SPAC, the largest in history after overwhelming interest from investors.

Ackman has the right to put in another billion, giving the company access to a total of $5 billion to hunt for what Ackman calls a “unicorn” with “significant long-term growth potential that will be likely candidates for inclusion in the S&P 500 index.”

“Our thesis is by having a $5 billion cash pile in a public company; it’s our own version of a unicorn. It’s a one-of-a-kind entity,” Ackman said during an interview with Yahoo Finance. “So, we’re looking to marry a unicorn. So we’re prettying ourselves up for the most attractive possible partner.”

Churchill Capital IV (CCIV.U)

While not publicly traded yet, this will be founder Michael Klein’s fourth SPAC. Two of them have acquired companies and one has yet to find an acquisition target. To highlight investor demand for SPACs, Klein raised $1.8 billion for his fourth SPAC. This figure stands at 80% more than what he originally planned.

With his latest SPAC, Klein is looking for a company with excellent long-term growth prospects, a strong competitive advantage, recurring revenue, attractive free cash flow. He is also looking for a company that is in an industry where consolidation opportunities exist.

Dragoneer Growth Opportunities (DGNR.U)

Like Churchill Capital, this SPAC is not yet publicly traded. The company is lead by CEO Marc Stad, who appeared multiple times on Fortune magazines “40 Under 40” list. Also, other directors include David Ossip, CEO of Ceridian HCM Holding, and Sarah Frier, CEO of neighborhood social network Nextdoor.

Stad has a strong pedigree, having backed a number of very successful companies in the past, including Spotify and Uber Technologies. Dragoneer will focus on six areas: software, internet, media, consumer/retail, healthcare IT, and financial services/fintech.

East Resources Acquisition (ERESU)

Current Buffalo Bills and Buffalo Sabres owner Terry Pegula started East Resources targeting the energy industry in North America.

It makes sense given Pegula’s history, having sold his company, East Resources, to Royal Dutch Shell for $4.7 billion in 2010.

Now Pegula is back, looking for operational control of a company that has long-lived assets with low fixed costs, that is producing oil and gas and generating free cash flow, but is operating below full capabilities.

With Pegula’s extensive knowledge of the oil and gas industry, he could find multiple opportunities in a short period of time.

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Day 10 of Stimulus Stalemate Yields Concessions From Both Parties

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Day 10 of Stimulus Stalemate Yields Concessions From Both Parties

Republican and Democrat leaders appear to finally be willing to make concessions. This comes in an effort to finalize the next stimulus package. Meanwhile, President Trump has hinted that he may use an executive order to push through his own stimulus plan.

There are rumors swirling around Washington that Trump has met with his key advisers. He is also reportedly considering an executive order to pass his own stimulus bill. Indications are that the bill would include a payroll tax holiday and an extension of unemployment benefits. It would also include a moratorium on evictions and another round of stimulus checks for most Americans.

An Unexpected Move

Trump is considering the unorthodox move in an effort to sidestep the Democrats’ efforts to hurt the economic recovery by delaying the passing of the next stimulus bill.

President Trump’s only focus is on the economic recovery, says White House economist Joe Lavorgna during an interview yesterday with “America’s Newsroom.”

“The president is just trying to work in the best interests of the American people and trying to get the economy moving. We have reopened and been very successful,” he said.

Lavorgna added, “The president right now is hyper-focused on getting a deal done because while we have this V-shaped boom, why not take out an insurance policy and solidify what looks like we’re going to see, a record second-half economy. The Democrats have fought against it.”

Trying to End the Stalemate

Recent meetings between House Speaker Nancy Pelosi, Senate Minority Leader Chuck Schumer, Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows have resulted in what Schumer calls “concessions” from both sides.

According to reports, the Trump administration has offered to extend the additional federal unemployment insurance until December at $400 per week. This is lower than the previous amount of $600 per week. Senate Republicans have proposed a different plan. Their plan would pay unemployment insurance at $200 per week through September. Then, it would change the benefit to 70% wage replacement once states were able to update their unemployment systems.

In a small sign of compromise, Mnuchin and Meadows offered to extend a moratorium on evictions from federally backed housing into December. Meanwhile, Democrats reduced their funding request for the U.S. Postal Service from $25 billion down to $10 billion.

There remains no agreement on other Democratic requests like aid for state and local governments. No deal has also been made funding for schools, and assistance for food, rent and mortgage payments.

Some Republican Senators, like Marco Rubio, appear willing to sign a bill that includes concessions for Democrats. They are willing to do so in an effort to get something approved.

Appearing on CNBC’s “Squawk Box” yesterday, Rubio said, “We have to act. We have to do something. And that will require us to vote for a bill that has things in it that I may not necessarily like.”

Rubio did say “there’s a limit” to what concessions he would accept. Additionally, those don’t include much of the $3 trillion legislation House Democrats passed in May.

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