By: Steve Smith
I have always been a voracious reader. Even as a teen, I used to love to read Kurt Vonnegut. He was an amazing writer, and the world lost a real treasure when he died.
One of my favorite stories by Vonnegut was a short story he wrote in 1961. The story is Harrison Bergeron. The story takes place in a dystopian future where the “Handicapper General of the United States” is in charge of making sure that everyone is equal. If you are beautiful you are forced to wear a mask of a goofy nose. If you were more intelligent than average, you would wear an earpiece that would make a loud noise every 20 seconds or so to keep you from concentrating.
If you were stronger than average, you would be forced to wear sandbags or other weights to make sure that you couldn’t lift more than the average person. The story is truly depressing, and it is strangely reminiscent of what is happening in the financial markets.
Jerome Powell is pumping such massive liquidity into the market through QE and low rates – that it is keeping “zombie companies” alive. He’s not a “Handicapper General,” he’s an “Enabler General.”
Companies that should be bankrupt are not only trading…. Many of them are trading HIGHER!
Look at the cruise lines. They took a hit on Monday. But over the last 90 days, all the major cruise lines are trading up as I write this.
Royal Caribbean (RCL), Norwegian Cruise Line Holdings (NCLH), and Carnival’s (CCL) two stocks are all trading up. But, only one is taking cruises right now.
And it’s not just the cruise lines, J. C. Penney Co.(JCPNQ) is up over the last 60 days — though the company is in bankruptcy.
Whiting Petroleum (WLL) filed for bankruptcy protection on April 1st of this year. Since then, the stock is up over 272%?!?!
And Hertz Global Holdings Inc. (HTZ) announced plans to issue up to $500 million in stock while they are in bankruptcy. Since May 26th, as of this writing in July, Hertz stock is up 250%. It was up almost 1000% before they announced the new stock issuance.
How can a company in bankruptcy issue stock?
Because the “Enabler General” has created so much liquidity and kept interest rates so low… The money has to go somewhere, so it ends up in securities.
But, we are walking (running?) down a very dangerous road. Hopefully, things end well, but as I seem to be saying a lot recently — someone has to make a profit somewhere, or this can’t keep going on.
It will inevitably crash unless there is some course correction. When? I don’t know.
In the meantime, no one should be buying and holding any stocks. I don’t even suggest people trade stocks in this environment. It’s far better, in my opinion, to use financial instruments which keep your downside very low, and allows for a very large upside.
I wrote a report about that exact kind of financial instrument. It is perfect for retail investors, who want to profit from the market volatility but don’t want to take huge risks in doing it.
To Your Success,
Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.
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