The Economy

Part gazillion of: How the Federal Reserve has completely fucked the country and created a survival of the unfittest environment that insures misery for years to come.

I just looked at Zero Hedge and saw this: https://www.zerohedge.com/markets/hertz-trades-50-higher-plan-sell-bankrupt-stock-robinhooders?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+zerohedge/feed+(zero+hedge+-+on+a+long+enough+timeline,+the+survival+rate+for+everyone+drops+to+zero)

The headline cracked me up, though: Hertz Trades 50% Higher on Plan to Sell Bankrupt Stock to Robinhooders

Robbinhood is an app that knucklehead geniuses are using to get rich trading stocks right now -- it's really easy, stocks go up, up, up and Warren Buffett is an idjit (in case you didn't know).

With retail traders jumping in since March, the number of Robbinhood users has shot up. They offer commission-free stock trading by selling their order flow to high frequency traders who then front run the orders for small profits, so that what you save on commission gets made up in the execution on the trade (if you are thinking you are getting something for nothing -- you never are).

In any case, those "Robbinhood traders" (although the retail trade is not just limited to that app) have been a big part of the lunacy in the stock market the last couple of weeks. They have been driving up stock prices of bankrupt or near bankrupt companies.

Hertz, which is entering bankruptcy, saw that happening and its investment bank, Jefferies, decided to capitalize. So they are doing a stock offering -- issuing a billion dollars of stock! For a bankrupt company, whose existing equity SHOULD be worthless right now (after creditors take their haircut, there should be no equity left).

But that isn't what is happening, because with the Fed outright propping up the junk bond market by creating dollars out of thin air and buying up debt with it, they are not allowing failure. So it sends the wrong price discovery signals to markets.

As a result, Hertz's stock price rallied as much as 1,000 percent this week, when it should have been trading at 0. Seeing that stupidity at work, Jefferies decided to do a billion stock offering rather than having to do a debtor in possession loan that would typically be necessary to keep the company operating as it goes through its bankruptcy. And can you blame them? In a world that hasn't been made batshit crazy, that wouldn't be possible, because there wouldn't be anyone willing to buy the stock. But as long as the world is this upside, and there are people who will buy a sack full of dog shit, why not feed your dog a laxative and sell as much of the stuff as you can?

Of course, this eventually ends the way every monetary-induced speculative frenzy ever has ended, with the greater fool theory devolving into, "no fools left." The same way that the liquidity is driving prices of worthless things into the stratosphere, when the ability to keep feeding that liquidity in ends, it is going to be an elevator ride down.

People are going to end up hurt badly, a la the dot-com bubble carnage.

But right now, a bankrupt company, whose equity should be worthless -- Hertz has $4 billion worth of bonds it is defaulting on -- is issuing more stock, and not only are people buying it, at the moment premarket, Hertz stock is UP 50 PERCENT!

The fuckwads in the Eckles Building, who are patting themselves on the back for how they "manage" the economy, have completely destroyed free market capitalism. They not only price fix markets, but they actively are funneling money toward failure, which means it can't reach the potentially economically productive things it would find if a MARKET were allocating that capital. It's sad.

Here is the bloomberg story on the stock offering. Bloomberg - Are you a robot?

F'in ridiculous.

 

The futures opened very weak and are getting crushed around the European open right now.

For anyone trying to figure out what I am posting about all the time. ... Aside from some technical things, where the equity indexes basically formed an island reversal last week (won't get into it, though). ...

The most telling thing about the price action is that the Federal Reserve expanded its balance sheet by only $3.7 billion last week. ... and the phony rally they have engineered fell apart. There has been nothing all that magical about what we saw. In a free market, stocks wouldn't be trading at ridiculous valuations in an environment in which the economy is tanking, millions are unemployed, businesses' earnings have fallen off a cliff. But the Federal Reserve put a "put" under the market with $3.5 trillion of liquidity in just 2 to 3 months. Markets have never seen anything like that before -- it is an insane level of manipulation, even by their standards which had already crossed the thresshold of insane.

The minute they stepped away from that craziness a little bit last week (seeing if they could jawbone it now, rather than actually creating the money out of the ether), the bubble started to deflate.

Unless they are willing to completely destroy the dollar and expand the money supply at an insane rate to fuel a risk asset bubble in perpetuity, stock prices have to come down by at least 40 to 50 percent (and that is if they don't overshoot to the downside, the way they usually do in disorderly sell offs) to even come close to valuations that make sense given the fundamentals.

The Fed obviously can't do that--essentially print money 24 hours a day and pump it into markets. But I don't think the reason for what we are seeing is just that they want to prop up stock prices to keep up the facade of a wealth effect and pass it off as the "economy" doing well. I think that they know they helped create a massive pension crisis over the last 12 years or so, by robbing trillions of dollars worth of pension funds of the risk-free rate of return they needed to have a prayer of meeting their obligations, and as a result, they forced those pensions into risky investments, and when those risky investments crash, the train wreck the Fed created hits the radar screen of a lot of people who are going to find out that their retirements aren't secure. I think that is the fantasy these fuckwads are really trying to prop up, but with every incremental day until they are finally rendered impotent, they continue makes it worse for all of us.

 

Trump has had so little control over how US equities have performed, despite his making it into a barometer, and claiming credit when asset prices are rising.

If anything, without Janet Yellen, and then Jay Powell, suppressing interest rates and creating money to buy up bonds to put a ceiling over yields, the chaos of Trump, along with the business unfriendly things he has done as president would have hurt the stock market. The one thing he accomplished that juiced stocks was the tax cut, and it was a one-time sugar high. The majority of what he has done economically is run huge budget deficits, institute tariffs, instigate trade wars, etc. He's a disaster. What Yellen and Powell were doing -- which preceded Trump, too -- had nothing to do with Trump. If anything, they each can't stand him, and have no reason to spur asset bubbles that he thinks benefit him.

 

Not a Ponzi scheme.

Hertz is offering a half a billion dollars of common stock that should not only be potentially worthless, but with where its bonds are trading right now, is more likely than not to be worthless when creditors take their haircut and the equity holders are left.

But nobody is forcing anyone to buy that stock, and Hertz isn't misrepresenting what it is.

If I offer you something that is worthless -- that is so obviously worthless that everyone can see it is worthless -- and you nonethless willingly pay me for it, it doesn't make me Charles Ponzi or a swindler.

Hertz is telling people in the offering that it expects anyone buying the stock to lose all of their money: Hertz says it expects stockholders to lose all their money in filing for selling more stock