The dead cat is bouncing. This dead cat is coated in flubber. But make no mistake. The cat is dead. It will most likely be a very convincing bounce. So convincing that the world will breathe a sigh of COVID-19 relief and sing the praises of the resiliency of the global economy in the face of adversity. But it will be a bull trap, because massive consumer price inflation, price controls, and shortages are coming.
Here’s why the dead cat bounce in stocks is likely to continue, for now. It looks like the worst of the COVID-19 pandemic is only days away now, if we haven’t already hit it. Infection rates are slowing in Europe, and hot spots in the United States look to be finding a plateau. But here’s the thing. Since the S&P 500 topped in February, $920 billion have been added to the U.S. money supply, and that number will keep rising faster and faster and faster as the Federal Reserve keeps buying and buying and buying bad debt. We are still 22% below highs in the S&P. It is conceivable that we could see those highs return as COVID-19 fades away. Of course there is always the risk that a second wave of the virus strikes and everyone scurries back into their holes, in which case the next crash will be even worse. That is a significant risk that I cannot predict, which is why trading now is dangerous.
Still, if you didn’t buy calls in key gaming stocks by now, it’s not too late. Most of my March 27 trading recommendations for gaming stocks are down, and with the bounce now underway and virus news improving, they will soon be way up. Still, don’t go over 10% of a total portfolio. Don’t blame me if you get too greedy. And I must also warn, if you get car sick, don’t get in this car. If you have ever vomited from a rough roller coaster ride, don’t go to Busch Gardens. If you can’t stay conscious during a sky dive, don’t get on the plane. However, if you have ever pulled a slingshot maneuver around the moon at 9Gs to outrun an asteroid, land on it, drill into it and blow it up with thermonuclear weapons to save the planet, this should be a piece of cake.
For the rest of us, keep a good level of fiat paper cash on hand, digital fiat cash in your brokerage account, tuck away a nice portion of gold and silver held in Australia, a little Bitcoin SV (BSV) in a digital wallet, and then go and spend the next year with the nearest South American aboriginal tribe. You’ll learn really great skills with them that could come in very useful.
The leading gaming momentum stocks, which led the market down, are now leading it back up. Stocks like MGM, Eldorado, Penn, and Caesars, will not reach old highs, though it is possible that the broader S&P could for a short time. MGM is up 31% in two days, Eldorado 52%, Penn 23%, Caesars 14.5%. Hold options bought on March 27 if you did, and there is still time to buy them now because the chances of a continued face-ripping rally in momentum gaming stocks are higher as a reaction to good virus news, at least for the next 2 months or so. This is probably how long it will take for the coronavirus bailout money to reach consumers and start pumping up massive consumer price inflation.
Going into the perpetually weak companies though, they are not doing well. IGT shares look dead in a ditch, which shows the beginnings of realization that the company will not survive in its current form. Scientific Games did very well yesterday though, up 28%, however on a one-month chart that’s not even a blip. Day traders have turned the stock into a circus. It’s a crapshoot and should not be touched. There is no telling what that stock could do any given day. I get the feeling that something nefarious may be going on with SGMS trading behind the scenes.
In the United Kingdom, first of all, may Boris Johnson be well, and may I add that I’m glad pharma CEOs are offering him experimental treatments. If only everyone were offered any experimental treatment on their own recognizance at free market prices and this weren’t a privilege reserved for Presidents and Prime Ministers.
Anyway, 888 has regained almost all of its value since the crash began in late February. As one of the strongest U.K. gaming companies fundamentally, this makes sense. William Hill hasn’t recovered yet, but one very good and strong sign is that the stock has been either up or steady consistently since bottoming 3 weeks ago without any more big pullbacks. William Hill is the British stock to add to positions here, even more than 888. It looks like we have a very firm bottom in place at the ridiculously low price of 29 pence that will probably never be broken. GVC has also been up consistently and is once again laughing at me, rallying relentlessly since bottoming. What can I say. I just don’t get that one, but I’m glad for its shareholders.
Macau stocks are finally roaring back, and that should continue for the next month or two. I’d sell once the Macau ETF (BJK) hits $28-29. China is about to experience a frightening wave of corporate debt defaults that will take a huge bite out of the VIP population for a very long time. When Macau investors start to understand this, I expect Macau stocks to be repriced lower for the long term.
Fundamentally, the most important thing to understand now is that this crash has not been a business cycle downturn in the traditional sense. That only happens when money and credit contract. Money and credit were still expanding quite strongly before the coronavirus hit, which means we may entirely skip the monetary bust phase of the boom-bust cycle and go straight to hyperinflation. Business cycle downturns are what usually spur the money-printing that eventually causes hyperinflation. This time a virus did it. There is no slowing down the money machines now. We’re locked in for the end game at this point, so it looks like the business cycle as we know it in terms of relatively minor boom/bust may in fact be over, but not in the way the central bankers imagine.
But once it starts getting obvious that price inflation is unstoppable, that’s when everything will start to completely unravel. This is why you need your safe haven assets now. Once price inflation really sets in, the price of equities will be the least of people’s worries, least of all gaming stocks. The price of food and basic medicines will be the main focus. Calls for price controls will be heeded and this will lead to widespread shortages. Patronage at casinos and online gaming companies around the world won’t recover for a long time to come as everyone focuses in on basic necessities. That’s when fiat currencies and their future-counterparts, sovereign bonds, get put on the front lines and the bond vigilantes go in for the kill.
