• Market Crumbs

"Hell Is Coming"

Image via James Lee on Unsplash

Stocks continued to get decimated yesterday, with the Dow Jones Industrial Average falling below 20,000, giving up all of its gains since U.S. President Donald Trump took office in January 2017. Yesterday marked the first close below 20,000 for the Dow since February 2017. 

The unprecedented selloff from last month's all-time highs reached new lows as investors continued to run for the exits as fears over the coronavirus continue to mount. The Dow, S&P 500 and Nasdaq are now each down nearly 30% from their all-time highs. 

Billionaire investor Bill Ackman, founder of Pershing Square Capital Management, spooked markets further yesterday following a series of tweets and CNBC interview. 

Through a handful of tweets, Ackman described what he believes has to be done to limit the coronavirus' effect on the U.S. economy. 

"Mr. President, the only answer is to shut down the country for the next 30 days and close the borders," Ackman tweeted. "Tell all Americans that you are putting us on an extended Spring Break at home with family. Keep only essential services open. The government pays wages until we reopen."

He continued "No one defaults, no one forecloses. A 30-day rent, interest and tax holiday for all. The shutdown is inevitable as it is already happening, but not in a controlled fashion which is extending the economic pain and amplifying the spread of the virus."

Ackman believes a "global Spring Break will save us all," and as a result "the stock market will soar, and the clouds will lift."

A few hours after his Tweetstorm, Ackman decided to call into CNBC and take it up a notch. "What’s scaring the American people and corporate America now is the gradual rollout," Ackman said. "We need to shut it down now. ... This is the only answer. America will end as we know it. I’m sorry to say so, unless we take this option."

Ackman suggested corporations halt their share buybacks because "hell is coming." He then covered struggling industries such as hotels, restaurants and airlines, saying "The hotel industry and the restaurant industry will go bankrupt first, Boeing is on the brink, Boeing will not survive without a government bailout."

Ackman even had a dream of this scenario, saying "Beginning in late January I was getting increasingly bearish and I woke up with a nightmare. And my nightmare was you have this virus that replicates and infects incredibly rapidly." As a result, Ackman started taking cash out of the ATM, to which his colleagues called him a "lunatic."

Despite his worries and warning "every hotel company in the world is done" if action isn't taken, Ackman has been a buyer during the selloff. "I’ve been aggressively buying stocks including Hilton today. And I’ve ben buying all the way down — Hilton, Restaurant Brands and Starbucks," Ackman said.

While a lot of what Ackman said is true, you have to take what notable investors say publicly with a grain of salt as their goal is to make a profitable trade. Agree or disagree with Ackman, he certainly provided entertainment yesterday as losses compounded.

Leftover Crumbs

  • Mortgage applications tank after rates spike. Following weeks of heavy demand for mortgage refinance applications, total mortgage application volume fell 8.4% last week as the average 30-year fixed-rate mortgage jumped from 3.47% to 3.74%. Despite applications to refinance a mortgage dropping 10% for the week, total volume still saw a more than 400% increase from the same period a year ago. The percent of total applications attributable to refinance activity fell to 74.5% from 76.5% the week before.

  • Restaurant industry requests funds. The National Restaurant Association has requested a $455 billion aid package from U.S. Congress as it believes the effects of the coronavirus could cause half of the industry's jobs and a quarter of this year's sales to be lost. The trade group said the total economic effect could be $675 billion as each dollar spent in a restaurant generates $2 for the U.S. economy. "As an industry that is based on welcoming everyone through our doors, we are uniquely affected by mandates that keep us from serving our customers," the letter said. "Without aggressive and immediate action from the federal government, many restaurants that are a staple of local communities will simply never resume service."

  • The NYSE will be without humans. Despite markets already being overrun by computer trading, the New York Stock Exchange will close its doors to humans after two people tested positive for the coronavirus. The NYSE equities trading floor and NYSE American Options trading floor in New York, as well as the NYSE Arca Options trading floor in San Francisco will begin electronic trading March 23. The NYSE said "trading and regulatory oversight of all NYSE-listed securities will continue without interruption."

  • Tesla doesn't want to shut down. Tesla has told employees to continue to report to work at its Fremont plant despite the Alameda County Sheriff saying "Tesla is not an essential business." An email from HR to Tesla employees read "There are no changes in your normal assignment and you should continue to report for work if you are in an essential function." The functions mentioned include "production, service, deliveries, testing and supporting groups." Tesla blamed "conflicting guidance from different levels of government" on the confusion over whether employees should or should not report to the factory.

  • SoftBank balks at WeWork. SoftBank is reportedly walking away from its commitment to purchase $3 billion in shares from existing shareholders, citing the regulatory scrutiny the company is under. The U.S. Securities and Exchange Commission, Department of Justice and New York regulators have all requested information from the troubled office-sharing startup. Among those who will most likely be affected by SoftBank's change of heart is co-founder and former CEO Adam Neumann, who was believed to receive up to $970 million for his shares.