It’s often only in hindsight that we can specifically identify when a bubble bursts. But if Thursday’s 1,800 point selloff in the Dow Jones Industrial Average was the popping of the bubble, there is a tweet that may mark the peak of investor insanity.
The tweet reads: “I’m the new breed. I’m the new generation. There’s nobody who can argue that Warren Buffett is better at the stock market than I am right now. I’m better than he is. That’s a fact.”
That tweet, from Dave Portnoy, the founder of sports blog Barstool Sports, embodies the euphoria around the markets today.
Everyone wants a piece of the action, and it seems the more dangerous or speculative the investment, the more attention it gets.
Take Hertz for example. The car rental company filed for bankruptcy late last month, and billionaire investor Carl Icahn sold his stake for around $0.77 per share shortly after the filing was announced.
Last week, shares of Hertz jumped as high as $6.25, and the company is trying to seize on the insanity by issuing $1 billion in new shares.
Trading volume in the stock is 63 times above the 2019 normal daily volume. It also shouldn’t surprise you that Hertz also became the most popular stock on Robinhood last Friday. The number of Robinhood users that own the stock jumped by 100,000 in the last month.
Keep in mind, the new shares the company is issuing will likely become worthless when the bankruptcy is finalized. But the company is betting that investors, mostly inexperienced ones like those opening Robinhood accounts, don’t care. They’re just hoping to make some money and see if they can find a chair before the music stops.
“Unless a genie or a lamp showed up in the collateral pool, we expect the eventual equity value will be zero,” said a CreditSights analysts about the proposed new stock issuance from Hertz.
“This is not investing. It is gambling,” said Nancy Tengler, chief investment officer at Laffer Tengler Investments.
Portnoy, who usually spends his days creating content for the sports blog he created, has turned his attention to the stock market with all major sports shut down due to the coronavirus pandemic.
His tweets are often a running tally of the day’s wins and losses with a significant amount of braggadocio.
In another recent tweet, Portnoy questioned why Buffett sold his airline stocks. Portnoy also challenged why anyone would sell and take profits when the Fed has virtually guaranteed the casino will send everyone home as a winner. “I’m just printing money. Why take profits when every airline goes up 20% every day. Losers take profits. Winners push the chips to the middle. … I should be up a billion dollars,” added Portnoy.
“Sports gambling is a huge business in this country and a lot of sports gamblers and a lot of these millennial gamers are now playing the stock market, day trading,” said Jim Bianco, president and macro strategist at Bianco Research, during a recent interview on Fox Business. He jokingly added, “The smart money is the Robinhood accounts, and dumb money are billionaire hedge funds.”
Andrew Adams, a strategist at Saut Strategy, says his indicators are “flashing warning signs like crazy.” He says his friends and family who aren’t active stock investors have been asking him what to buy and he’s been getting emails asking “I’ve missed this move but now want to buy, what should I do?” People are cracking jokes about Wall Street legends who denounced the rally.
“I even had one stock-market novice friend text me to say that he’s been making a lot of money buying call options since he’s been working from home lately and he’s wondering if he should just quit his job to trade for a living,” said Adams. “I’ve learned from past experience to be very careful when we start seeing stuff like that.”