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US Fiscal Stimulus Update

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Image Source: frankieleon The US Congress is debating and working on a massive multi-trillion dollar fiscal stimulus package to mitigate the negative impact the ongoing novel coronavirus (‘COVID-19’) pandemic is having on the domestic economy and to provide for additional healthcare funds to cash-strapped entities to combat the virus. To read our previous US fiscal stimulus article, click here. By Callum Turcan After a failed vote on the U.S. fiscal stimulus bill (specifically, a shell bill to speed the legislative process along) in the Senate on Sunday, March 22, a program that’s worth around $1.5-$2.0 trillion (negotiations are ongoing), the legislative body picked up where it left off on Monday, March 23. After initially proposing to hold a vote in … Read more

Fed and Treasury Efforts Might Not Be Enough to Avoid Another Great Depression

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Image: The Energy Select Sector SPDR and Financial Select Sector SPDR, two securities removed from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in August 2019 have been ravaged during this market selloff. We maintain our view that the energy and banking sectors are worth avoiding during this market meltdown. By Brian Nelson, CFA Let’s not mince words: We’re facing a global financial crisis and the real and growing probability of another Great Depression (not recession, but depression). The Fed has unleashed just about every backstop facility that it did during the Great Financial Crisis of 2007-2009, with the announcement the morning of March 23, and it is now even buying corporate bond ETFs (LQD). It’s possible … Read more

Extreme Volatility and Crisis Economics

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Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). From Value Trap: “There may be just one other period in history that had more price-agnostic trading than today, and that may be the period pre-dating the publication of John Burr Williams’ work The Theory of Investment Value, or roughly 1928-1940. This was the most sustainably volatile period in stock market history, as measured by … Read more

Banking Entities: The Technicals Tell the Story

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Image: The Financial Select Sector SPDR ETF has experienced a tremendous amount of pain in recent weeks. From Value Trap: “It’s likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear and the nature of a banking entity’s business model, which does not hold a 100% reserve against deposits. Our good friend George Bailey, played by actor Jimmy Stewart, in the movie It’s a Wonderful Life knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the beloved … Read more

US Considering $1 Trillion (Or More) Fiscal Stimulus Program

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Image Source: Frank Boston By Callum Turcan A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10 (link here). Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in … Read more

Buybacks and Wealth Destruction

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Buybacks and Wealth Destruction — — From Value Trap: “According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even … Read more

Fed Cuts 100 Basis Points, Launches More QE

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“Now, stocks and other assets are being sold, some indiscriminately. It is truly becoming a stock pickers market as opposed to a quant-led and index-led market. It takes a different kind of bravery to buy on massive down days and one must have conviction in their research that the company will not go away if massive downside scenarios do in fact emerge.” – Matthew Warren. In this piece, we cover our assessment of what the global markets might be facing in a bull-case, base-case, and bear-case scenario. Our base case is a substantial recession in the US and a financial crisis of some unknown magnitude. By Matthew Warren The tremendous (mostly downside) volatility in all asset markets globally during the … Read more

Closing ‘Crash Protection’ Again, Circuit Breakers Tripped Again, Too

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Closing ‘Crash Protection’ Again, Circuit Breakers Tripped Again, Too — By Brian Nelson, CFA — On February 24, 2020, we “added” put option “crash” protection, a 1% “weighting” in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, a position that was closed March 2 for a “solid double.”  — On March 6, 2020, we “re-established” put option “crash” protection, a 0.5%-1% weighting (June 30, 2020 with strike price of $250). During the trading range March 6, that put option’s daily price range was $9.25-$9.91, according to YahooFinance.  — Today, in this notification, we are “closing” crash protection yet again, with the June 30, 2020 puts with strike price of $250 trading at $25.00, for another solid double. Please … Read more

Seeds of Financial Crisis May Have Been Sown, Volatility Soars

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Seeds of Financial Crisis May Have Been Sown, Volatility Soars — Image Shown: The broader market indices continue to reveal tremendous levels of volatility. The Dow Jones Industrial Average dropped 5.86%, or 1,465 points, to 23,553 during the trading session March 11.—From Value Trap: It seems like the markets experience a new financial crisis every decade or so. During the past few decades alone, there have been three significant banking crises: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital Management and the Russian/Asian financial crisis of the late 1990s; and the Great Recession of the last decade that not only toppled Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia but also caused the seizure of … Read more

S&P 500 Hits Target Range, Nibbling at Ideas?

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This article was emailed to members the morning of March 10. The email can be accessed here. — By Brian Nelson, CFA — Very few bearish targets on the S&P 500 (SPY) ever get hit, but with the momentous all-time worst decline in the stock market March 9 (on a point basis), our target range of 2,350-2,750 has been breached–yet, another great call for those watching at home. The S&P 500 closed at 2,746.56 March 9, off about 19% from the all-time highs it reached just a few weeks ago. You have been ahead of developments. — As we have outlined extensively in Value Trap: Theory of Universal Valuation, the combination of indexing and quantitative algorithmic trading is creating a situation of tremendous … Read more