Hot tip – Buy bankrupt shares!

Just when you thought it couldn’t get even more insane than the Alice in Wonderland world I have been describing these past few months, it has.

“Investors” have been filling their boots with shares of bankrupt companies such as the stricken 100-year old Hertz rental car giant (among others). Poor old Hertz ran out of customers (pandemic shut-downs) and money.

In fact, they were in such demand that on Monday, the shares were a ten-bagger! Yes indeed, those savvy millennial ‘investors’ pushed the Hertz share price up ten-fold from the low. So after reading a website urging them the secret to investing was simply to Buy Low, Sell High, they looked for the cheapest most beaten down stocks they could find – and voila! They found one in poor old bankrupt Hertz. It was surely a no-brainer as they were totally familiar with the name. What could possibly go wrong?

Maybe they should have googled ‘bankruptcy’ first that would have told them that bankrupt shares are cheap for a very good reason (something to do with running out of revenue, I believe. In Hertz’s case. they just ran out of gas).

There is no shortage of idiocy stalking the market and the lands. I am spoiled for choice. I see that the BBC – that achingly PC outfit – has pulled the ‘don’t mention the war’ episode of the classic 1970s comedy series Fawlty Towers from iPlayer for ‘racial slurs’. As I remember it, the people-hating hotel manager Basil Fawlty (John Cleese) had some German guests in his hotel and obviously still carried a grudge against all Germans – the exchange in the restaurant was hilarious (the first time round).

Considering the historical fact that the Nazis (aka Germans) kicked off the whole thing, I fail to see how this 50-year old comedy sketch could be classed as a ‘racial slur’. But we live in unusual times, I grant you, when a perceived racial slur carries a heavier penalty that vandalism or even physical assault or murder.

As that greatest of futurists, George Orwell said: If liberty has any meaning, it is the right to tell people what they don’t want to hear.

And liberty is certainly in steep decline with authoritarian governments ordering us all how to behave during this pandemic as the ideal smokescreen. I wonder how many of our liberties will still be constricted after this whole thing is over. And it is all for our own good, naturally.

Meanwhile, back to the new rules for investing. Here is the amazing Hertz chart:

Why does everyone believe the Fed controls the market? Today they are controlled by idiots. Consider this – the bankrupt Hertz which is in the bankrupcy courts is now planning to issue up to $1 Billion in new shares as they see what’s going on!!! What?? And since being bankrupt now is a magnet for today’s ‘investors’, they will probably sell out – if they get permission to go ahead.

We have all heard of IPOs (Initial Public Offering) by start-up companies. We now have the novel reverse offering for an end-of -life company – let;s call it an IBO – an Initial Bankruptcy Offering? Seems the more sarcastic you are, the more reality imitates you.

If anyone out there is in any doubt today’s capital markets are totally $&*%$-ed, then surely this must dispel any lingering doubts. Crucially however, they still do obey the age-old laws of sentiment and they still form lovely wave patterns that we can analyse.

Of course, this kind of idiocy only occurs at the end of huge financial bubbles when considerations of value go out of the window. Its all about momentum and so long as a greater fool will take the rubbish off your hands at a higher price, why not play the game?

But there is perhaps a natural explanation for this behaviour. One of the most popular US trading platforms is Robinhood where it is mostly millennials who inhabit it. Since the lockdown, the number of active ‘investors’ has rocketed as couch potato furloughed workers have turned to their screens (what else?) to while away the time – they are either playing a computer game or trading shares. So which is it to be?

In their torpor, maybe they are getting it all mixed up – they think they are playing a hot new game while in fact, they are trading shares! That must be it.

What did the Fed say on Wednesday? Was it for even more stimulus?

The Fed did exactly what was expected – nay, demanded! Asset purchase volumes will be maintained while rates will remain near zero for the next 2 years.

Then so why did the Dow crater by over 1,800 pts (8%) directly after the press release in the Thursday session after they promised more juice? Or has everyone got it wrong all along? Could it be that the supposedly all-powerful Fed is not in control after all? Or is it the man behind the curtain in the City of Oz?

Please allow me to bust yet another market myth. Most believe the Fed is hosing new money into the stock markets and that is what is pushing up prices. Wrong.

Consider this: When a stock trade takes place at an agreed price (assuming it is a cash transaction), the seller takes the cash and adds it to his/her account. And the buyer transfers the same amount of cash (incl fees) from his/her account to the seller. So there has been no change in the total level of cash in the market! Thus, no extra amount of cash available to buyers will necessarily move prices. The Wall of Money idea is bunkum.

So if loadsa Fed cash does not alter the stock price, what does move prices? It is simply an agreement between the buyer and the seller that the price should move up or down from the previous quote. And that is driven by the prevailing sentiment. Is the buyer more eager to transact that the seller? Then the price will likely go up to accommodate the eager buyer. The seller is happy because he/she receives more cash. The next trade may be different because the seller may be more eager than the buyer – and price may fall. Multiply that millions of times per day – and you get the wave patterns we love to analyse! It’s that simple.

In recent weeks as stocks continued their relief rallies, just about every pundit I read emphasised how the rally was being fired by the Fed’ stimulus. The chorus of unanimity of the Fed’s omnipotent powers was deafening. It was obvious that the Fed would keep asset prices aloft for as long as they wanted was their cry.

So what happened on Thursday when the Dow fell by a chunky 8% that day? I guess they fell asleep at the wheel.

To me, we have two pandemics – the virus is one and the other is the mania for share and asset buying that I believe is in its final flourish this year. The Hertz story is the icing on the cake – and a fitting epitaph for the Great Bull Market that has been running for 200 years.

As the legendary trader Joe Granville said: When everyone thinks something is obvious, it’s obviously wrong.

Social unrest is spreading – and that’s not bullish for shares

And finally, the stock market is perhaps starting to take notice of the spike in social unrest surrounding the issue of race and gender identity. We have seen headlines about statues being toppled Not only that, but horror of horrors, JK Rowling, the famous author of the amazingly successful Harry Potter franchise, is being set upon by a pack of wolves in the shape of the various child actors in the film series – of all people – over her comments about transgender people. Talk about biting the hand that fed them! That surely must take the Oscar this year in that category.

The curious thing about the toppled Colston statue in Bristol being dumped in the river is that the police not only moved to not prevent such vandalism, but they seemed to actively encourage it.

Incidentally, Edward Colston became a great philanthropist with his wealth created from slavery (and also legitimate commodity trading). While at Bristol University, I came across his name frequently in the many charities he founded there. Also, today the level of slavery is reported to be much greater than in the 17th Century – a fact much overlooked.

And what a contrast to the police in the US! There, a black man was killed by a cop while in custody which lead to the mass Black Lives Matter demos. Here in the UK, our police have become cheerleaders for vandalism. Welcome to the new world order!

And not forgetting the ongoing pandemic, of course. I sense that most are totally fed up with the lockdowns and putting enormous pressure on the authorities to ease the restrictions. Most nations are working towards easing.

It will be interesting to see if the feared second wave will rear up with more close contact. Here’s a thought – if we do not see much of a second wave of cases, what would that show? Would it show that the virus is not as dangerous as believed? Meanwhile, whole sectors of the global economy have been wiped out.

Yes, the virus has been present in the deaths reported, but I understand most have had at least one underlying condition and who is to say that that condition was not the main cause, not the virus?

In other words, is the Covid-19’s bark worse than its bite and have we been scared into a needless series of economic disasters by the fear it holds over us?

Whatever the answer, I see the overwhelming global compliance with all of the strict lockdown requirements as a symptom of the extreme state of anxiety in societies that has been building your years. That is a very bearish backdrop to markets.

Recent trading has been super-emotional

Normally, I receive few emails from members commenting on my recent market calls. But on Wednesday, as stocks were shooting up, there were a decent number in my inbox – and they weren’t telling me I am now on their Christmas card list! In fact, most were highly critical of my steadfastly bearish stance in the face of a massive bull market (some were pretty abusive, which is extremely rare). That told me in no uncertain terms that trading had become super-emotional.

And a clear sign to me that the top of second waves was at hand.

And on Thursday, shares collapsed. I can tell you that I received no abusive emails thereafter. In fact, thank you to all members who sent messages of support.

I had a target of 3238 in the S&P for the wave 2 top as this was at a Fibonacci relationship relating to ‘a’ and ‘c’ waves of a correction:

So not only did it hit my target zone but also hit the upper tramline on a nice momentum divergence. And in one day, it collapsed to the lower tramline in an 8% swoon on Thursday. I believe the high emotion on display in my inbox was a sign of the Buying Climax I had been awaiting (since March 23!).

Over in the tech-heavy Nasdaq, DSI bulls have reached a 2 1/2 year high at 94% as new ATHs have been attained last week. It has reached the end of the line and I expect huge declines are imminent.

VIP Traders Club members are positioned short and are in great position to take advantage of the big wave 3 down to come.

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I have accurately followed most of the twists and turns of many markets this year. We are racking up major profits already in both services. Don’t delay – take a two week Free Trial to my VIP TRADERS CLUB where we trade stock indexes, currencies, gold and much more. Or take a generous three week Free Trial to my PRO SHARES service where we trade individual UK and US shares .

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The dollar rallies – against consensus

As I have been forecasting, the US dollar is advancing. Of course, most pundits have been trashing the dollar as they see the tsunami of Fed ‘funny money’ about to swamp all markets. But guess what? That forecast is being proved false.

So will they abandon their ‘Fed controls the markets’ theory (see above for my debunking of it). Of course not! They will come with some rationalisation that pleases the masses – and create a great story in the process. Of course, when your salary depends on believing the impossible, what are you to do?

Luckily, my rewards come from making good forecasts. When they fail to chime with the ‘experts’, I suddenly gain more confidence in them. Here is the euro

We had a terrific rally in May (which members took full advantage of) but it advanced in a classic five-wave form and along lovely tramlines. The momentum divergence at the high was a major clue the rally was about to reverse and when it broke below the lower tramline, that was a textbook signal to go short (and take profits on longs, which is what we did).

So now we are positioned short for a decent swing trade. Why not take a Free Trial to my VIP Traders Club to discover what I have in m ind for this trade (and also in GBP/USD, USD/CAD).

We are also positioned short in many tech issues including Apple and Netflix in my PRO SHARES service. A three week Free Trial is available!