Ricks Picks header image

A Short-Squeeze Melt-Up Hasn’t Changed the Odds


Nothing like a little QE chatter to trigger a buying rampage on Wall Street. Powered by freaked-out bears getting hit increasingly with margin calls as the day wore on, Monday’s short-squeeze panic drove the biggest one-day gain in stock market history. Don’t fight the Fed, as the saying goes, and today’s record-breaker reminded us why.  Although a deep global recession appears inevitable, we’d be the last to get in the way of this stampede. And not until the last, foolhardy bear has been gutted and disemboweled will we suggest sallying forth to bet cautiously against the banksters. For the moment, however, the ‘easing’ chorus has grown so shrill over the last few days that the central bank is all but certain to accommodate with a quick 50-basis-point drop in administered rates.

However, never before has the idea of stimulus been stripped so bare of the pretense that it will help the broad economy. It will help inflate assets, is all, so that the resulting glut of funny money can float everyone’s boat — perhaps even the working man’s paycheck. Or so the theory goes. But it’s a stretch to think the stock market can recover to new record highs as it has done reliably for more than a decade, or even merely tread water, just because the central bank is about to shave 50 basis points from the federal funds rate. Shares would need to stay afloat in the face of a steep earnings downturn that could stretch into autumn and the holiday season. Some of the biggest companies in the world have already warned that revenues will take a big hit from the pandemic.

‘Radioactive’ Chinese

Will the stock market be so feisty when Americans trying to avoid contagion shun restaurants, concerts and movie theaters, as well as airplanes, cruise ships, buses, subways and trains? Will global commerce be able to even grind along in an environment where Asian businessmen are already being treated as though they were radioactive? Will shares be able to mark time for at least a few more bad quarters until the coronavirus subsides and global supply chains return to normal?  These are important questions that Wall Street chose to put aside for now. However, investors should have no illusions that short-covering rallies, spectacular though they may be, will alter the course of a pandemic that has only just begun to bear down on the global economy.

Please do not ask trading questions!

  • Ben March 3, 2020, 3:06 am

    Holy moly… It’s almost getting worse by the hour, now! Reports out of South Korea — now at 5,000 cases — that medical personnel have started falling to exhaustion. This is exactly what happened in Hubei province!

    Forget the Chinese impact on the global economy. With Japan’s cases rising fast, and South Korea’s health system facing imminent collapse, we’re now facing _East Asia’s_ impact on the supply chain. No one will escape that. Not even “relatively”. And look at Europe, now…

    I hadn’t been paying too much attention to Germany and France, but it seems they’re in a race now. Switzerland is getting hit much harder than I thought it ever would. Little red dots, all over Europe, on the John’s Hopkins map. This is just one week later, from when everything was said to be okay, with “little risk” of a global pandemic.

    And one last thing to note: Funny how all these “Syrian refugees” that Erdogan is unleashing on Europe even want to go there. Europe’s a Covid-19 hot spot, but Syria and Turkey aren’t showing any cases. Really makes you think!

  • Ben March 2, 2020, 8:24 pm

    “Will global commerce be able to even grind along in an environment where Asian businessmen are already treated as though they were radioactive?”

    Well, give it a few months, when fall and winter come to the southern hemisphere. If we’re lucky and get a corresponding spring & summer relief, it may not be so bad.

    But cases are already popping up in the southern, where and when they’re not supposed to, so… Soon enough, perhaps, everyone will be an “Asian restaurant owner”.