Cramer dropped the following 10 stocks from the index, which span health care, real estate investment trust, exotics (miscellaneous), consumer packaged goods and home entertainment-oriented companies.
Becton Dickinson, -13% from April 24 Digital Realty, -7.79% Freshpet, -6.73% Inovio Pharmaceuticals, -0.89% Inseego, -14.03% Kimberly-Clark, -4% NextEra Energy, -2.25% Owens & Minor, 0.55% Roku, -13.81% Snap, 8.81%
“I am dropping 10 of the worst performers, replacing them with stocks that are better suited to this moment and more relevant,” Cramer said, adding that “some of these [former picks] are duplicative” of other stocks in the index. Newcomers
“With those 10 changes, I’m feeling pretty better about the Cramer Covid-19 Index,” Cramer said. “But — and this is a very big but — if the reopening goes smoothly and the economy comes roaring back, we’re going to need to abandon this whole index and swap into a totally different cohort of recovery stocks.”
“I don’t think we’re there yet, although I’m working on a separate recovery index so that we’ll be ready when it happens,” he said.
The Dallas-based founder of Hayman Capital Management is starting a new fund that will make all-or-nothing wagers on a collapse in Hong Kong’s currency peg
Bass, best known for his prescient bet against subprime mortgages before the 2008 financial crisis, will use option contracts to leverage the new fund’s assets by 200 times, the people said, asking not to be identified discussing private information. While the strategy is designed to generate outsized gains if Hong Kong’s currency tumbles against the dollar, investors stand to lose all their money if the peg is still intact after 18 months.
The trade is audacious even for Bass, who profited handsomely during the subprime crisis but has since had less success with doomsday calls on everything from Japanese government bonds to the Chinese yuan. A vocal critic of China’s Communist Party, the 50-year-old investor wrote in a Newsweek op-ed last month that Hong Kong has become “ground zero for the ideological clash between democracy and heavy-handed Chinese communism.”
By taking aim at the city’s currency, Bass is betting he can time the demise of a dollar peg that has survived repeated speculative attacks since 1983 and wrongfooted big-name investors including George Soros.
This article is to initiate a comparative analysis on exchange-traded funds within the Emerging Market segment. Countries in discussion are Hong Kong, Malaysia, and South Korea. The Malaysia and Hong Kong ETFs are cost efficient options compared to the South Korea one.
Few traders have had careers as long and stellar as Stanley Druckenmiller and Paul Tudor Jones.
Rarer still, however, is for both of those investors in the same week to describe themselves as “humbled” by what they’re seeing in the stock market.
But both Druckenmiller and Jones said the S&P 500's robust rally since March left them perplexed and wondering how, amid a global pandemic and civil unrest, the index could have rebounded with such strength.
After all, even with Thursday’s steep losses, the index is up 37% since its March low.
They and others now say that a combination of unprecedented monetary and fiscal stimulus appears to have pacified the market in a way they’ve never seen before.
“Let me tell you, if there was a franchise for humble pie, oh my lord there’d be a mile long to own that because we’ve all had huge gulps of it — me included,” Jones told the New York Economic Club on Wednesday. “You just had unprecedented times in every way, shape or form.”
Druckenmiller, who joined CNBC’s “Squawk Box” on Monday, expressed a similar view.
“I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the last three weeks certainly fits that category,” he said.
For those unfamiliar with the two investors, Druckenmiller — who said as recently as mid-May that he thought the market was overvalued — and Jones aren’t the type to change their minds on a whim.
Jones, whose Wall Street fame can be tied back to his brazen and accurate prediction of the October 1987 crash known as “Black Monday,” has made much of his fortune by standing by his convictions.
Bets designed to pay off in times of market duress like Black Monday, when the stock market fell 22% in one day, or ahead of the Great Recession have solidified Jones’ prowess.
Fellow billionaire investor Druckenmiller also isn’t one afraid of taking a contrarian bet if he’s convinced of a good trade. His famous short bet against the British pound in 1992 netted George Soros’ Quantum Fund some $1 billion in profits.
So when Druckenmiller said Monday that he’s been humbled by the market’s rebound and has only returned 3% since the March bottom, others tend to pay attention.
The Fed: They’re ‘everywhere’ Explaining the S&P 500's climb since March is a tricky business with many possible answers, but Jones and Druckenmiller say the gains almost certainly have something to do with Washington.
Congress passed in March the $2.2 trillion CARES Act, a mammoth piece of emergency legislation that sought to inject the U.S. economy with a much-needed cash infusion. The law, unrivaled in American history for its scope and size, came as businesses closed and people sheltered at home to slow the spread of Covid-19.
It provided funding for hospitals and research labs, direct payments of $1,200 to individuals earning up to $75,000 and dramatically expanded jobless benefits for those the millions of Americans who’d find themselves without work in the weeks to come. It also established the Paycheck Protection Program (PPP) and sought to provide support to many of the smallest businesses in the U.S.
An additional piece of stimulus legislation, the $3.5 trillion HEROES Act passed by House Democrats last month, is stalled in the Senate, where Republicans thus far favor a wait-and-see approach to further fiscal stimulus.
But as helpful as the CARES Act was for individuals and commerce, investors have applauded perhaps even louder for the Federal Reserve. The Fed, led by Chairman Jerome Powell, announced throughout March and April a torrent of new lending powers designed to provide as much liquidity to the credit markets as possible.
This unparalleled response from the Fed has in effect drowned the market in cash and provided business owners with one of the most powerful safety nets in U.S. history, said Prudential Financial market strategist Quincy Krosby.
“Let me put it this way: The Fed’s balance sheet in December 2008 was approximately $880 billion. And then when they finished [with Great Recession stimulus] it was about $4.5 trillion,” she said in a phone interview on Tuesday. “Now this time around, in very, very short order, they’re above $7 trillion.”
But in addition to expanding its balance sheet and asset purchases, the central bank announced its own $2.3 trillion lending program that will extend credit to banks that issue PPP loans and purchase up to $600 billion in loans issued via the Main Street program to mid-sized businesses.
It also said it would expand plans to backstop lending to some of the country’s largest companies by supporting riskier bonds issued by firms that have lost their investment-grade status.
“Think about how fast they moved. And how quickly they moved into every nook and cranny in the market to stabilize financial conditions,” Krosby said of the central bank. “They’re everywhere, they’re everywhere. And they have made it clear they’re not going to stop.”
A major legacy of the COVID-19 pandemic will be a significant increase in already high global debt levels. In the U.S., government debt is expected to rise to $27 trillion by September 2020 from $23 trillion a year ago — a debt-to-GDP ratio of 135%. In OECD countries, debt levels are expected to increase by $17 trillion, rising from 109% to more than 137% of GDP.
Public sector debt increases reflect higher healthcare spending, actions to alleviate the economic effects of the COVID-19 crisis, emergency loans and the loss of tax revenues. Households and businesses have also substantially increased borrowings to cover income shortfalls. If the recovery is slower than expected, then the rise in borrowings will be greater.
Reducing debt is in order now, and this can be done in five ways:
First, debt can be self-liquidating. Where invested in productive activities, the income generated can pay back interest and principal. The problem is that much of the debt incurred has financed consumption or is otherwise unproductive. Much of the current increase in debt is designed to supplement lost cash flow or facilitate business survival.
Moreover, governments are reluctant to raise revenues through higher taxes to decrease debt levels, fearing a drop in economic activity as well as for ideological reasons.
Second, strong economic growth can help reduce debt. In aggregate, it boosts GDP, decreasing debt as a percentage of the economy or business leverage. Strong growth augments government tax revenues and business income, which helps to pay off borrowings. Unfortunately, growth has been lackluster since 2008, being sustained artificially by low interest rates, liquidity infusions and fiscal deficits.
Growth and debt are now inextricably linked. Increasing amounts of debt are needed to generate growth. Globally, around $2-$3 of new debt are needed to produce each dollar of growth. This means debt is increasing at a faster rate than growth.
Third, high rates of inflation, especially if above the nominal interest rate, can help deleveraging. It increases revenues and reduces the economic purchasing power of the debt. In recent times, inflation levels have remained low due to a mixture of weak demand, overcapacity and changes in industrial structure. Central bank efforts to increase inflation through loose monetary policies have not been successful.
Fourth, nations can engineer currency devaluations to decrease the purchasing power of debt issued in its own currency. In a world where every nation is seeking to devalue to increase export competitiveness as well as reduce debt burdens, this option is difficult.
Fifth, debt can be decreased by default or restructuring, either by bankruptcy or negotiations between debtor and creditor. As debt and savings are two sides of the same coin, this would result in loss of wealth. If debts are written off, then savers are left without resources to meet future commitments. The result is lower consumption, which reduces economic activity.
Debt, then and now In an environment of low growth and disinflation or deflation, high-debt levels are difficult to manage. The historical precedents are not encouraging.
Between 1914 and 1939, for example, World War I, post-war rebuilding and the Great Depression damaged public finances. Immediately after World War I, U.K. debt rose to 140% of GDP. Attempts to reduce debt through austerity failed. Debt rose to 170% of GDP as economic growth fell, with 1928 output below that of 1918.
Germany, bearing its war losses and reparations, experienced hyperinflation and the destruction of its currency, which reduced its debt burden by 129% of GDP. In the 1930s, countries making up nearly half of global GDP defaulted or entered debt restructuring. The social and economic costs were severe.
After World War II, some countries defaulted or experienced hyperinflation. Others used financial repression, such as negative real rates, controlled lending and deposit rates, capital controls and forcing institutions and households to finance the government at below-market rates, in order to manage debt. Real interest rates in advanced economies were negative roughly half the time between 1945 and 1980. These actions, along with strong growth driven by post-war reconstruction, helped reduce debt levels.
Nowadays, given the limited options, the current debt burden will be managed in the short run through financial repression. Zero- or negative interest rates will make borrowing bearable. Debt will be consolidated onto the government balance sheet. In the current crisis, governments globally have acted as lenders to businesses and individuals. Some loans will be of necessity converted into grants. Student loans or some delinquent mortgages may be assumed by government. In the absence of growth or inflation, default, either explicit or in the form of debasement of the currency to wipe out obligations, may be unavoidable.
Debt is analogous to the effect that ice has on an aircraft. Planes are designed to cope with modest icing on the wings. But large build-ups cause a loss of lift, resulting in erratic flight, loss of altitude — and ultimately a crash. Global debt levels resemble a large buildup of ice on the wings of the global economy and threaten a catastrophic final chapter.
The central bank said it would buy individual corporate bonds and signaled a broader approach to corporate bond buying that had remained a matter of speculation until Monday afternoon. The Fed indicated earlier in the spring that it would buy bonds on the primary market, but Monday’s announcement expanded its operations into the secondary market.
• The chart shows that an island was formed by two gaps, one on the left and one on the right.
• The chart shows an Arora sentiment indicator was giving sell signals throughout the formation of the island. (This indicator reached an extreme positive zone during this period.) Sentiment at extremes is a contrary indicator. In plain English, when sentiment becomes extremely positive, it is a sell signal. It is important to note that some publicly available indicators work well, while others do not. In general, we have found that publicly available sentiment indicators do not work well, hence the need for proprietary indicators.
• The chart shows that on the last two days of the island, the smart money — professionals — was selling.
• The chart shows an inside day occurred the day after the island reversal. Further during this inside day, the candle is red. In plain English, this means that the close was below the open in the stock market.
• The chart shows that the stock market is opening up lower after the inside day.
• If the inside day did not occur, it could have nullified the negative implications.
• The chart shows that the volume was very high on the day when the gap was formed on the right side of the chart. This adds to negative potency of the pattern.
• The chart shows that RSI (relative strength index) reached 95 when the island was being formed. This was an extremely overbought level.
• The chart shows that while the island was being formed and prior to the stock market falling, RSI gave a sell signal when it crossed below the moving average shown on the chart.
• In a pane below the volume, the chart shows the S&P 500 ETF SPY, +0.93%, which tracks the benchmark S&P 500 Index. The pattern in the S&P 500 is the same as in the Dow Jones Industrial Average. It is important for investors to confirm the pattern by looking at different indices.
• The late stages of the rally have been characterized with strong up moves in travel-related stocks such as airline stocks and cruise-line stock.
• The chart shows American Airlines AAL, -0.23% stock tracing a less ominous pattern. The same is the case with other airlines such as United Airlines UAL, -1.66% and Spirit Airlines SAVE, +4.83%.
• The chart shows Carnival CCL, -2.70% is tracing a pattern that is less ominous. A similar pattern is being shown by Royal Caribbean RCL, -0.57% and Norwegian Cruise Line NCLH, -2.48%.
• Investors have been hiding in the five big tech stocks of Apple AAPL, +1.23%, Amazon AMZN, +1.08%, Microsoft MSFT, +0.63%, Alphabet GOOG, +0.47% GOOGL, +0.55% and Facebook FB, +1.71%. The patterns in these stocks are nowhere near as ominous as in the Dow Jones Industrial Average and S&P 500.
Putting it all together Where many investors go wrong with technical analysis is that they do not put in the time and effort needed to learn it. It takes years to get good at it. In this case, it is not just the island reversal pattern, but also the following that are important:
• The size of the gaps.
• The location of the island — in this case after a very strong rally.
• The day after the island is formed and the subsequent day.
• RSI during the time the island is formed.
• Sentiment during the time the island is formed.
• The height of the island — tall islands give stronger signals than shallow islands.
• Volume.
• Duration of the island and many more factors.
Due to the Fed’s actions, more data points are needed before making any definitive conclusions.
Stephen Roach, one of the world’s leading authorities on Asia, is worried a changing global landscape paired with a massive U.S. budget deficit will spark a dollar crash.
“The U.S. economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit,” the former Morgan Stanley Asia chairman told CNBC’s “Trading Nation” on Monday. “The dollar is going to fall very, very sharply.”
His forecast calls for a 35% drop against other major currencies.
“These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead,” said Roach, a Yale University senior fellow.
The U.S. Dollar Currency Index is up more than one percent over the past two weeks and is relatively flat so far this year. But Roach believes it’s no time to get complacent.
“The national savings rate is probably going to go deeper into negative territory than it has ever done for the United States or any leading economy in economic history,” he said.
Roach contends other forces are at play, too.
‘Lethal combination’ “At the same time, America is walking away from globalization and is focused on decoupling itself from the rest of the world,” said Roach. “That’s a lethal combination.”
The big question: Will it happen quickly or gradually?
His timeline is rough — over the next year or two, maybe more. However, Roach suggests a crash virtually inevitable, and it’s a risk investors shouldn’t ignore.
“Generally, it’s a negative implication for U.S. financial assets,” he added. “It points to the probability of higher inflation as we import more higher cost foreign goods from overseas, and that’s a negative for interest rates.”
He’s concerned a crash could spark a late 1970s-type stagflation crisis, when prices rose sharply while economic growth was muted.
According to Roach, not even a leadership change in Washington in November would be able to move the needle much — especially as lawmakers try to battle the economic impact from the coronavirus crisis with unprecedented stimulus measures.
“Policymakers to their credit have never had to deal with anything close to this disruption,” Roach said.
Futures contracts tied to the major U.S. stock indexes rose early Tuesday morning as a Bloomberg report said President Donald Trump’s administration is preparing a $1 trillion infrastructure proposal.
Dow Jones Industrial Average futures rose 492 points, suggesting an open gain of more than 539 points when regular trading resumes on Tuesday. S&P 500 and Nasdaq-100 futures also implied a positive Tuesday start for the two indexes.
Citing people familiar with the plan, Bloomberg reported the Trump administration is drawing up a $1 trillion infrastructure proposal. The report said a preliminary version being prepared would set aside majority of the money for traditional infrastructure such as roads and bridges, though funds would also be reserved for 5G wireless infrastructure and rural broadband.
The overnight moves Monday evening followed a striking rebound in U.S. equity markets during the regular session.
The Dow Jones Industrial Average closed 157.62 points higher on Monday after the blue-chip index fell more than 760 points earlier in the session. The S&P 500 gained 0.8% to end the day at 3,066.59 while the Nasdaq Composite advanced 1.4% to 9,726.02. The S&P 500 and Nasdaq had fallen as much as 2.5% and 1.9%, respectively, before erasing those losses.
Traders pointed to an announcement from the Federal Reserve during Monday’s session for an abrupt move higher around 1:50 p.m. ET.
The central bank said it would buy individual corporate bonds and signaled a broader approach to corporate bond buying that had remained a matter of speculation until Monday afternoon. The Fed indicated earlier in the spring that it would buy bonds on the primary market, but Monday’s announcement expanded its operations into the secondary market.
Stock futures turned negative after White House trade advisor Peter Navarro told Fox News in a Monday interview that the trade deal with China was “over.”
As of Monday evening stateside, Dow futures dropped 398 points, implying an opening drop of more than 300 points at the open on Tuesday. Futures on the S&P 500 and Nasdaq-100 also pointed to a lower open for the two indexes.
While stocks started the week on a strong foot, it came under thin trading. The SPDR S&P 500 ETF Trust (SPY), which tracks the broader market index, traded more than 67 million shares on Monday. That’s well below the ETF’s 30-day volume average of 105.01 million.
White House economic advisor Larry Kudlow told CNBC on Monday “there is no second wave coming and that lawmakers will likely develop another stimulus package by the end of next month.
The Fed in March unveiled lending programs it said could provide $2.3 trillion to the economy. So far, that has totaled just $143 billion, or 6.2% of the total firepower.
When the coronavirus pandemic locked up capital markets and pulled the economy into recession, the Federal Reserve took aim with a $2.3 trillion bazooka to try to help. Thus far, though, the central bank has only fired off surprisingly few rounds.
In the three months since a slew of programs were announced, the Fed has loaned out just $143 billion, or a mere 6.2% of its total firepower. The most ambitious initiative, the Main Street Lending Program, has yet to make a loan, according to the most recent Fed balance sheet data, though officials expect that to change in a matter of days.
As for the rest of the measures, from municipal lending to corporate credit to the Fed’s role in the Paycheck Protection Program, there are several likely explanations for why what was supposed to be an infusion of cash into the economy instead has been a comparative trickle.
One is simply that the programs, particularly in the case of Main Street, are complicated and have proven difficult to launch as the Fed gathers feedback and works through logistics. Another is that there is simply less demand from entities that are finding other ways to make do. And on that same point, the notion that the U.S. economy is recovering more quickly than expected from a recession that began in February has negated the need for the arsenal that the Fed launched starting in March.
“The economy is getting better, so you’re not seeing as many firms short of cash as you’d seen in March and April,” said Yiming Ma, an assistant finance professor at Columbia University Business School. “Some of the terms are just not very attractive to firms who potentially do need the funds.”
Slowness in getting out of the gate is not unique to the Main Street program.
The number of Americans applying for unemployment benefits each week is still shockingly high if the government’s math adds up, but some economists are starting to wonder.
After a rapid decline in late April and May, the historically high level of initial jobless claims only fell 4% to 1.51 million in the seven days ended June 13. It was the smallest percentage drop in new claims filed traditionally through state unemployment offices since the early stages of the coronavirus pandemic.
By all rights, weekly claims should have fallen even faster and dropped below the 1 million mark by now, economists say. There was a record loss of jobs in March and April, and a rebound in employment in May as the economy began to reopen.
An actual, or unadjusted 18.7 million people were getting benefits as of the first week of June. If more Americans are returning to their jobs, continuing claims should decline more rapidly.
And as bad as those numbers are, they are even worse if jobless claims filed through an temporary federal-relief program are included. An unadjusted 29.2 million people were reportedly receiving benefits as of May 30, the most recent data available.
In the three months since a slew of programs were announced, the Fed has loaned out just $143 billion, or a mere 6.2% of its total firepower. The most ambitious initiative, the Main Street Lending Program, has yet to make a loan, according to the most recent Fed balance sheet data, though officials expect that to change in a matter of days.
1. Sentiment is turning bullish. Not feverishly so, but enough to make this a less compelling time to buy stocks in the contrarian sense, meaning you should get less bullish as the crowd gets more bullish. The dozen sentiment indicators I track are all now either neutral or bearish (showing too much bullishness). Excessive optimism is seen in the high levels of call buying at the Chicago Board Options Exchange, for example, and the record number of new accounts at discount brokerage firms and Robinhood.
2. Insiders have shifted to neutral. Insider buyers have left the building. On Tuesday there were only 12 companies whose own executives bought more than $100,000 worth of stock, which is low. Part of the decline is because we are moving into earnings reporting season. So insiders are getting locked down. But this doesn’t explain all of it.
3. Covid-19 risks are rising. In the early days of the coronavirus resurgence, you could argue case counts were rising because of more testing. No longer. The infection rate per number of tests is going up because the coronavirus case count is rising as people circulate again. Epidemiologists I talk with, including Dr. Michael Mina at Harvard, caution that the chances are very high that we will see even more serious outbreaks in early October when flu season returns.
4. Political risk is rising. Polls show Joe Biden is now the favorite to win the White House. Betting odds at gaming sites suggest there is a good chance the Senate will go Democratic. Both events would be perceived as negatives for stocks since tax and regulation policies of Democrats can be viewed as bad for stocks. Democratic presidential candidate Joe Biden’s policies would impose $3.5 trillion in costs on businesses and investors by increasing the corporate tax rate, and capital gains and dividend tax rates, according to Cornerstone Macro.
5. The seasonally weak time of year lies just ahead. That means July through the end of October.
Not all bad news Offsetting those negatives are six factors that suggest any selloff won’t be too dramatic and that the current Covid-19 resurgence won’t be as bad as the initial phase.
1.?Cash levels are really high. Money market funds now hold $4.8 trillion, says the Investment Company Institute, above the prior high of $3.8 trillion in January 2009. Deposits in commercial banks increased sharply in March-May (by $2 trillion), moving those levels up to a record $15.4 trillion, or around twice as much as 2009 levels, according to the Federal Reserve. Those numbers suggest a lot of investors who sold the March selloff never got back in. They are itching to do so, which means they will support the market in any significant decline.
2.?The personal savings rate has increased dramatically. This boosts consumer-spending power. Defined as the percentage of income left after people spend money and pay taxes, this rose to a record high of 33% during April from 8.2% in February.
3.?The Fed and the federal government have injected massive amounts of stimulus in the economy. They are not even done yet. Phase 4 with an infrastructure-spending component awaits. To consider infrastructure stocks, here is a recent column I wrote on this theme.
4.?We probably aren’t going back into full lockdown mode. That’s because the trillions of dollars in costs seem too high, in economic damage and government stimulus funding to offset it.
5.?Covid-19 immunity for people who get it seems to be real. Mina, at Harvard, notes we see very few cases of people getting infected twice, and when it happens it’s because of severe immune-system problems. Meanwhile, we have learned a lot about how to track and contain virus spread, even if adequate testing and surveillance infrastructure is not in place, according to Mina.
6.?The Covid-19 resurgence may be limited geographically. The biggest spreads so far are happening in the Sunbelt. This suggests it may be linked to staying indoors because of the heat, with air conditioning recirculating viruses. People stay out of the heat and use air conditioning in the North, too, but less so. Many relatively cooler states currently do not show as much of a resurgence.
QQQ leading the way south after the evening star showing up couple days ago; DJIA, SPX, IWM, SMH following its way after breaking out the down trend lines!
Covid-19 milestones continued Saturday, from global coronavirus cases topping 10 million and worldwide deaths hitting 500,000 to Florida infections skyrocketing yet again.
The coronavirus stock market rally remains in a confirmed uptrend, with true leaders such as Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN) holding up.
Dexcom (DXCM), Fortinet (FTNT) and Chipotle Mexican Grill (CMG) all have brand-new bases. Meanwhile, it's a big week for Tesla (TSLA) and Tesla stock.
The coronavirus stock market rally could be starting a new, slower phase after the tremendous run from March lows, but it could also be the start of a pullback or more as soaring Covid-19 cases raise concerns about the economic recovery.
Leading stocks continue to lead. Apple stock, Microsoft stock and Amazon stock all rose last week. Fellow megacap Facebook (FB) and Google parent Alphabet (GOOGL), a little late to the coronavirus stock market rally, suffered big losses, plunging Friday. AAPL stock, MSFT stock and AMZN stock have been leaders in the coronavirus stock market rally, but also in recent years. Facebook stock and Google stock, though enjoying periods of outperformance, have generally moved in sync with the broader market for years.
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