Spare Time + Money to Burn

  • Warren Buffett… to the curb
  • It’s bro-tastic: “Stocks only go up” 
  • Viral boredom and stock market gamification
  • Rolling the dice on near-bankrupt Hertz
  • Wall Street’s pearl-clutching
  • The three phases of bull markets
  • Alan Knuckman on 12 years of “crisis moments”
  • Rising cost of basic necessities
  • A longtime reader says: “Take the jackboot off my neck”… Another reader on Founders’ rough justice… Wasting away again in Space-ville… And more!

“Stocks only go up, this is the easiest game I’ve been part of!” enthused Dave Portnoy in a video six days ago.

Portnoy is the founder of the bro-tastic Barstool Sports website. There’s not a lot of sports to write about these days, so he’s turned to day trading.

At age 43, he’s become an improbable “FinTwit” figure — that’s short for “financial Twitter,” by the way. He shares his picks with 1.5 million followers.

Modesty does not appear to be part of his mindset…

Warren Buffett

Then again, Portnoy jumped into airline stocks at the very moment Warren Buffett bailed this spring — a move that’s worked out extremely well.

“It took me a while to figure out that the stock market isn’t connected to the economy,” he tells The Wall Street Journal. “I tell people there are two rules to investing: Stocks only go up, and if you have any problems, see rule No. 1.”

“Individuals Roll the Dice on Stocks as Veterans Fret” is the web headline of the Journal story where Mr. Portnoy is featured. (It’s on the front page of today’s print edition.)

The story delves into a phenomenon we’ve been noticing all spring, although today’s the first time we see fit to address it in depth: Amid the pandemic, it seems there are an awful lot of folks with time to spare and money to burn.

And so they’re trying their hand at the stock market, often for the first time — taking a devil-may-care attitude toward the record speed of the 35% market drop in February and March.

“Online brokers are being flooded with new customers,” the Journal says. Brokerage account signups at Fidelity are up 77% from a year ago. And that’s nothing compared with TD Ameritrade, where signups in the quarter ending March 31 grew 249% year over year. Trading volume is up too — the daily rate at TD so far in June quadrupling that of a year ago.

Even in our little corner of alt-financial media, we’re seeing an uptick in interest. The percentage of people who open this e-letter when they receive it has grown steadily these last three months. At first, we thought folks were frightened and looking to make sense of that steep sell-off. Now it’s apparent many of your fellow readers are in fact scouting out potential opportunities.

How else do you explain not only the jump in airline stocks but also the performance of the rental car firm Hertz since filing for bankruptcy?

Legendary investor Carl Icahn bailed on his Hertz stake after the filing late last month. Shares are up 481% since — more than doubling Monday alone.

Bloomberg writer Matt Levine sees it as an aspect of what he calls “BMH” — the boredom markets hypothesis. “A near-bankrupt, or actually bankrupt, company, one that is particularly beaten down and unloved in the pandemic, might feel like more of a fun gamble, and a compelling story arc of trial and redemption, than one that is doing fine.”

Wall Street’s “pros” are looking upon this phenomenon and wringing their hands.

They’re invoking the dot-com bubble and subsequent bust: “The environment is dangerous,” JonesTrading’s Michael O’Rourke tells the Journal. “Little to no due diligence is being performed and the general public expects the Federal Reserve to support every market pullback with policy accommodation.”

Adds Dartmouth business prof Peter Fisher: “Because of the Fed’s interventions, market prices and credit spreads don’t have the information content that we think they have. The Fed is mucking up what prices mean.”

That’s rich. As The 5 has chronicled the whole time, a huge amount of the bull market since 2009 can be attributed to Fed money-printing, near-zero interest rates and so on.

Hell, the Fed’s been regularly “mucking up what prices mean” since at least 1987 when Alan Greenspan intervened to stanch the bleeding from the stock market crash that year. Did Prof. Fisher ever speak up during his earlier gig at the New York Fed? Or when he was at the Treasury Department?

Oh, but NOW that everyday folks are catching onto the game, Fisher’s suddenly got religion and he’s sermonizing about the need for honest price discovery. Preach!

OK, time for perspective: Wise old market hands — wiser than Mr. Fisher, certainly — say a bull market goes through three distinct phases:

  • In the first phase, nobody wants to buy. Think 2009 — or if you’ve been around long enough, the early 1980s. Stock prices are crazy-low, but the fear is they’ll go lower still. Of course that’s when the brave move in and scoop up the best bargains
  • The second phase is that proverbial “wall of worry” — when the pros are piling in but they’re fretting the whole way up that it could all fall apart again. There was a near-bear market in 2011… and in the previous bull cycle there was the aforementioned crash of ‘87. In both instances, they proved to be bumps in the road
  • The third and final phase is the mania phase, when Mom and Pop pile in and start to believe, as Mr. Portnoy puts it, “stocks only go up.”

In the epic 1982–2000 bull market, this mania phase didn’t get underway till maybe 1995. It lasted longer than many thought possible, defying scares like the “Asian contagion” of 1997 and the Russian debt default of 1998.

In the present bull market that began in 2009, Mom and Pop have mostly sat out. For years, between 50–55% of Americans polled by Gallup have said they have money in the market — compared with over 60% going into the 2000 and 2008 busts. Not much in the way of “retail participation,” as the saying goes.

Until now.

Is this the start of the mania phase? And who’d have guessed it would start with lockdown-driven boredom?

And so here we are with the Nasdaq back at all-time highs this week, with the Dow and the S&P 500 close behind.

“The list of turmoil and events the market has overcome over the past 12 years is too long for me to detail right now,” says our Alan Knuckman — back in the Chicago options trading pits this week after they reopened on Monday (with appropriate social distancing, of course).

“All you need to know is what the market didn’t do time and again. It didn’t stay down on the mat, because every time the risk-reward changed, everyone stepped up and pounded the ‘buy’ button.”

Alan’s seen plenty of booms and busts over a near-30-year trading career — including the dot-com bust and the Panic of 2008. If he thought the present moment was setting up the same way, he’d say so. But he’s not.

“You get these crisis moments from time to time like we’ve already experienced in 2020. But the resiliency of the stock market is nothing short of amazing.”

The Journal story this morning ends with the story of a 23-year-old salesman in San Francisco who bought Hertz shares recently: “I’m happy with doubling my savings overnight. Where else are you gonna find that?”

Well, what if you could have bagged nine money-doubling trades over the last three months? And nine more winners of 50% or more? With no losing trades? That’s exactly what readers of Alan’s Daily Double Club have had the chance to do.

We’re opening the club to new members this week — but only through Friday night at midnight. Alan extends his personal invitation when you click here.

As for the markets today, it’s the first “waiting on the Fed” day since mid-December.

By the time this episode of The 5 hits your inbox, the Fed will have issued its every-six-weeks “policy statement.” There’s no doubt they’ll leave the fed funds rate at near-zero. The uncertainty surrounds what the Fed pooh-bahs anticipate for rates and the economy the next couple of years.

Typically, the Fed issues these closely watched forecasts once a quarter. But they didn’t bother in March because they’d just finished a round of emergency rate cuts and were still busy spinning up a raft of alphabet-soup “rescue” programs. So this will be the first set of Fed forecasts in six months. If there’s anything of significance, we’ll follow up tomorrow.

In the meantime, the action is a rerun of yesterday — Nasdaq up modestly, Dow and S&P 500 down modestly. Gold is steady at $1,718. Ditto for crude at $38.75.

Meanwhile in the real economy, the stuff you don’t need is dirt-cheap while the stuff you do need is rising relentlessly in price.

The Labor Department regaled us this morning with the Consumer Price Index. The headline number fell 0.1% in May. Year over year, the inflation rate is just barely above zero at 0.1%.

Whelp, so much for your annual cost-of-living increase from Social Security. And if you’re a higher earner on Medicare, brace for much steeper premiums next year. Maybe we’ll talk more about that before the week winds down.

Even the real-world inflation rate from Shadow Government Statistics is the lowest since October 2015 at 7.7%.

But beyond the headline inflation number, the big story is food — up 0.7% in May. And food consumed at home jumped 1.0%, the fourth-straight month of outsized growth. Beef prices leaped 10.8%, a single-month record.

Also rising in price is medical care — up 0.6% in May, on top of 0.5% increases the previous two months.

But hey, airfare’s cheap — down another 4.9% in May after double-digit declines in April and March. Assuming you want to fly anywhere…

“Comrade Dave, take the jackboot off my neck — so I can applaud you!” a reader writes with tongue firmly in cheek after the mailbag in yesterday’s 5.

Lord have mercy — you done got the hackles up on a redneck — and I love it.

“The police ‘institution’ has gotten out of control and really needs to be deconstructed and started anew — from 1 Police Plaza on down. The barriers to arresting, charging, trials that are shams, coupled with The Brotherhood unions, which aid and abet INJUSTICES, are a malignant cancer that requires immediate attention.

“Thank you for the fine work you do — especially most recently as you tackle events that are moving way too fast and in the wrong direction.”

“The Founders got by without police by shooting intruders and/or gunmen,” a reader writes after we posed some (sort of) rhetorical questions at the end of yesterday’s episode.

“In the Wild West, there were private police forces of sorts protecting and serving the interests of those who paid them, and it wasn't the ordinary man, and particularly not if he was a minority.

“If that is what the left has in mind [by defunding the police], good luck.

“More likely what motivates them is total control over the populace. The coronavirus lockdown has given us a taste of what's to come if these guys get to expand their power in November by pulling the wool over the eyes of the 'woke.'

“You cited a few examples of how we are all made to comply in your 5 yesterday. The woke need to literally wake up.”

“Watched, or tried to watch, Space Force,” writes one of our longtimers after we mentioned the Netflix series yesterday.

“Had high expectations given the very strong cast and because I was high at the time. Hey, I needed a laugh after watching the insanity going on in our country lately.

“Anyway, not a laugh, a chuckle or even a smile. Through the first episode. Tried another episode. Made it halfway.

“It was awful! I was embarrassed for the cast and the writers. It’s like they thought they could skate by on the cast cred alone.

“Didn’t do anything for me.

“And yes, I just tried watching it straight and it was much worse!”

The 5: Well, thanks for saving us the time!

Whoops — still haven’t gotten to the constitutional convention emails and now our 5 Min. clock is expiring. Tomorrow for sure!

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. “Yes, we’ve experienced a fantastic upside move,” says the aforementioned Alan Knuckman, reflecting on the market’s bounceback since March 23.

“And the way my premium subscribers have profited from it with in-the-money options has been incredible! That’s because even a modest move in the stock can lead to a 50%, 70% and even a quick 100% move on our options trades.”

Alan walks you through the strategy he uses for his Daily Double Club when you follow this link. (Note: If the link is dead, that means we’ve hit our limit for 200 new subscribers today.)

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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