As the old adage goes "one man's trash is another's treasure."
In the case of "Jay's World", the 'other' man appears to be young, hyper-levered, momentum-chasing Robinhooders as they have managed to drive a portfolio of the shittiest companies in America up to entirely irrational levels
In this morning's "View From The Floor", Man Group takes a moment and just reflect back on what’s happened over the past few weeks.
Global pandemic hits; the world shuts down; investors panic because they fear companies are going to go bust. But then central banks and governments step in; financial panic is averted; stock markets make their way towards pre- pandemic highs.
The first leg of this was led by secular winners, and we have detailed before the narrowing in breadth this created. But in the last few days, the rotation has swept up the laggards - retailers, airline companies, even a car rental company that has declared bankruptcy have seen sharp recoveries in their share prices.
Indeed, the Russell Microcaps Index – an index of about 1,000 stocks with an average market cap of USD240 million – is less than 10% away from its all-time high (Figure 1), despite the average stock having a debt-to-enterprise value (‘EV’) ratio of 65%. (For comparison, the average debt-to-EV ratio for the S&P500 Index is about 30%).
Separately, we constructed a ‘garbage’ portfolio, an equal-weighted portfolio of all the listed US companies with a credit default swap of more than 1,000 basis points as of 1 April, 2020. This portfolio has outperformed the MSCI US Index month-to- date, even after huge retracements as the US market fell sharply last week (Figure 2).
Speculative excesses such as this do give us some pause about the durability of the recovery. There are some movements in price which seem entirely divorced from fundamentals.
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And today, it's not just "garbage" stocks that are panic-bid, it appears that the BLM movement has reached the stock market with traders signaling their virtue by voraciously bidding up black-owned businesses:
Black-owned bank Carver Bancorp is up almost 800% today...
Black-owned American Shared Hospital Services is up over 5% today...
And black-owned Broadway Financial is up over 40% today...
None of these entities appears to have any major catalyst news-wise.