Dumb Money Rules
During the beginning stage of the massive sell-off that took place on the New York Stock Exchange, Coronavirus stocks were soaring to the moon. A whole host of penny companies that most people never heard of before had suddenly skyrocketed triple digits as a diverse set of investors poured dumb money (buying at the top and selling at the bottom) into these companies, hopping on the bandwagon and hoping to enjoy a major payday. Unless they got in on the ground floor, they were in store for some disappointment.
The leading U.S. stock indexes are crashing, but these Coronavirus plays that were mostly in the biotech realm or pump and dump schemes are waking up to reality. And young, inexperienced retail traders likely bought high and sold low. You only need to take a look at some of the stocks that behaved like a modern-day Icarus by soaring to the heavens and falling back down to earth.
Lakeland Industries fell from $28 to $16.73.
IBIO Pharma tumbled from $3.40 to $2.25.
Vaxartdeclined from $5 to $2.40.
Novavax slipped from $16 to $12.87.
Co-Diagnostics dropped from $21 to $12.
Alpha Pro Tech cratered from $42 to $17.
These tickers are still above their 52-week lows, but the problem is that if you bought shares about the halfway mark during their rally, then you have either broken even or lost money. The smart plays or the value stocks are proving to be far more reliable to hold in this crisis, even after Covid-19 becomes a footnote in history. Clorox is up 10%, Costco is up about 6%, and iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) has surged more than 50%.
Outsiders may say that this is casino gambling based on sheer speculation, but retail investors playing craps is different from the speculators. Liberty Nation recently reported on the important social function speculators play and how the neophytes are either ousted from the market or they are forced to do better since they have lost a chunk of change. The ones who bought in near the top have learned a valuable lesson (or they should) – look at the P/E ratio, be patient, and check the MACD signal – and will soon become better traders.
Not QE is Really QE?
The Federal Reserve did it. After sitting on its hands and waiting for the situation to worsen, the U.S. central bank imposed an emergency interest rate cut of 50 basis points, lowering the benchmark target range to 1% to 1.50%. The market is betting that the Eccles Building will continue to ease, which means rate cuts, additional stimulus, and an expansionary balance sheet. We could see ZIRP by Christmas.
Let the good times roll!
All these tools the Fed is wielding is in addition to the relaunch of quantitative easing (just don’t call it QE4!) from late last year. The Fed has been purchasing Treasurys and bailing out repo markets. But Jerome Powell is stuck between a rock and a hard place: Will the Fed taper its repo operations and T-Bill acquisitions, or will he double down on these efforts? If it is the latter, then Powell will concede that everything he had been doing in the fall was quantitative easing.
While the Fed may not want to admit it, the whole purpose behind the latest round of accommodation was to stimulate stocks. Anyone who was mocked by the business media for refusing to parrot Fed talking points will be vindicated. If the Fed is not tapering in the coming weeks, as it promised it would, then QE4 was QE4 all along!
Joe-Lieve in Taxes
Establishment Democrats pulled out all the stops on Super Tuesday and helped former Vice President Joe Biden more than likely secure the party’s nomination. They felt that Biden’s supposed centrism, not Senator Bernie Sanders’ (I-VT) praise of socialism and communist dictators, could help take out President Donald Trump in November. But is Biden really such a moderate? Yes, but only in the sense that his opponents in the primaries were so far to the left.
Biden recently published a tax proposal that would raise levies on corporations, high-income earners, and investors. Under his plan, a Biden administration would do the following:
Raise tax rates on capital gains.
Double the minimum tax rate for multinational corporations.
Increase taxes on households making more than $510,000 per year.
Implement a minimum tax on large companies that show they are not paying a certain percentage on their earnings.
Repeal a plethora of tax cuts from the 2017 law.
The campaign estimates the hikes would raise about $3.4 trillion to help cover the tab for many of his ambitious progressive plans – if he can remember what they are by Inauguration Day. Despite Biden being viewed as the centrist, his proposed tax hikes would be more than double what Hillary Clinton recommended in 2016. And some political analysts believe Biden could take it a few steps forward to cement his victory.
What’s worse is that this tax policy does not even include many of the other expansive government schemes in his White House, such as burdensome regulations and swelling budget deficits.
If Biden defeats President Trump in November, he may introduce far-left economic policies that could deflate the current bubble-fueled boom. The only thing that could stop the former vice president is a Republican-controlled House and Senate, which would likely reclaim its lost fiscal conservative spirit and declare to the economic gods that balanced budgets are our savior.
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Read more from Andrew Moran.
