April 8, 2020 | An Ounce of Good News Fuels Rally

Investors seem to imagine that slightly encouraging pandemic news will somehow beget improved economic news. Shares rallied for a third straight day, evidently because the deadly tide of contagion appeared to be receding somewhat in Italy and China. Even that story was a bit muddled, since there were reports that a second wave of Covid-19 was rolling through Wuhan. Regardless, the small businesses that are the backbone of the American economy face a long, difficult slog toward normalcy, assuming it ever returns. The Fed has made a mighty effort to ameliorate the pain in the meantime, providing a credit lifeline to tens of thousands of businesses that are not generating any cash.

Far more daunting than their cash-flow problems, however, are the challenges of  staying solvent.  My colleague James A. Kostohryz has some sobering thoughts on this subject in an article he posted at Seeking Alpha, How The Intrinsic Value Of Common Equity Shares Will Be Destroyed In This Crisis.  The discussion that follows is worth a read as well, since it suggests there are plenty of investors who expect a v-shaped bottom and who are ready to pounce on stocks at the first encouraging sign. This is in stark contrast to my prediction that the Dow Industrials will trade well below 10,000 before this bear market has run its course. You can read Kostohyrz’s essay by clicking here.

Rick Ackerman April 8th, 2020

Posted In: Rick's Picks

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