The world has gone crazy – stark raving mad.
2020 was supposed to be a nice quiet little year with modest economic growth and a gently rising stock market, according to all the economists, pundits, gurus, and government talking heads.
It was the year that the Dodgers would win the World Series, and the Orioles (my favorite team, of course) would finish next to last in the American League.
There was going to be a presidential election with the prospect of experiencing laughter-induced tears and giggling as we watched Joe Biden and Donald Trump engage in what would be the most incoherent presidential debates of our lifetime.
Interest rates would probably stay about the same as they closed in 2019 for most of the year. If the economy picked up steam, there might be a tiny increase later in the year.
Then came the coronavirus…
The economy was shut down. We were told to stay at home to flatten the curve. Businesses large and small alike had to shut their doors. Many of those doors will never open again.
Then we added murder hornets and civil unrest to the mix…
It didn’t have that big of an impact on my family and I. We are pretty much homebodies anyway. Liquor stores are considered essential – as they should be – here in Florida. I get most of my recreational reading material on my Kindle, and everything I need for research is available online.
Staying home with lots of reading material, a heated pool, a stocked bar, and a full freezer is not the worst thing to ever happen to us.
The stock market has participated in the madness. We saw the quickest 40% decline in history when the pandemic started.
For a brief period, we were facing Hell as Bill Ackman so famously put it.
With no tenants paying rent in residential or commercial buildings, we were facing the genuine possibility of massive defaults in real estate loans that would make 2008 look like the best party we ever attended. It would have sent the U.S. and the world into a depression worse than the 1930s.
The Congress and the Fed both stepped to the plate and delivered…
The Fed continues to inject cash into the economy and is buying up every asset except baseball cards to keep the system liquid.
Congress passed several pieces of legislation that rushed cash into the hands of businesses and individuals alike. Rents got paid for the most part, and we could breathe a sigh of relief.
Then came Davey Day Trader and the Robinhood gang…
Day trading came back into fashion as sports bettors and casino gamblers had nowhere else to go. Vegas is starting to reopen, but unless you are willing to jump on a plane and head for Sin City, the opportunity for action is limited.
The action junkies, simply put, turned to the stock market. Robinhood’s trading app is seeing more activity than ever before. Chat rooms are popping up on Redditt and other social media sites.
Dave Portnoy of Barstool Sports has declared himself better than Buffett and is trading sox figure swings at socks based on absolutely nothing at all. He is not using fundamentals or technical analysis or much of anything. Just his hunches. It has been both hysterical and painful to watch at times.
One of the preferred activities has been to trade illiquid, low-priced stocks. The simultaneous buying activity of hundreds of thousands of bore gamblers is pushing these stocks higher than common sense would think is possible.
The wild speculation has even caused the price of bankrupt companies like Hertz (HTZ) and J.C. Penney (JCP) – whose equity value is pretty much zero – soar in value before falling back into the pit of reality.
I woke up on Wednesday, the 17th of July, walked the dog, grabbed some coffee, showered, and sat down at my desk for the day. I did some research and wrote myself a few notes before the market opened. As soon as the markets opened, alarms started going off to alert me that one of my little bank stocks had made a move.
Usually, that means a takeover has been made.
Not this time.
Shares of tiny little Carver Bancorp (CARV) shot higher by 500%. I started getting emails to let me know that the bank had popped on a popular list at Robinhood. As small traders piled into the $9 million market cap bank, the prices eventually got as high as $22 after closing on Tuesday at $2.41.
I had recommended the stock a few years ago in my Community Bank Stock Investor monthly letter, so I immediately shot out a sell alert. Carver was worth more than the stock price on Tuesday, but not ten times more.
While I am delighted to see subscriber’s bank gains of 500-700% on the stock, it is another sign of how crazy things have gotten.
This hysteria will end badly with tears all around, just like the last burst of widely irresponsible trading back in the late 1990s ended. People will think they have unlocked the secret to massive profits and then watch the world come crashing down around their ears.
Not to mention, we still have civil unrest in America.
The economic future is a question mark for now. All the madness is creating some powerful opportunities, and I intend to help you take advantage of them. The key will be not giving in to the powerful temptation to become part of the madness.
How does all this end?
Only the virus has the answer to that question right now.