Hey everybody. Its all about the FAANG stocks again this week: Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG), with a dash of Tesla (NASDAQ:TSLA) thrown in.
Midas Letter Chart (FB:US,AMZN:US,AAPL:US,NFLX:US,GOOG:US,TSLA:US)
The FANG + Index has been on a tear lately, despite being negatively affected by constituents Alibaba and Baidu.
This is driven by one thing and one thing only this week.
If the hysteria driven by Coronavirus fears has got you distracted, you’re not alone. Every time somebody around me coughs or sneezes, I go wash my hands and face. I’m not normally a hypochondriac, but the rate at which this bug seems to be wrapping itself around the world is crazy.
Now flights are cancelled to China, the Baltic Dry Index is plummeting as a result of the perceived drop in shipping prices thanks to reduced demand from China during the quarantine restrictions, and stocks in China are losing ground faster than a beetle on a sand dune.
How does this translate into greater demand for FAANG stocks?
Its simple. China just printed $23 billion to inject liquidity into its market. Where is that money going to go on a day when Chinese stocks are dropping fast? Why, America of course.
Both the crash in Chinese equities in combination with Trump’s premature (and likely completely false) proclamation that the US had “shut down” the Coronavirus were enough to catalyze a stampede into US stocks that ran contrary to global investor sentiment.
This is one of the fundamental problems with a financial system awash in free money; even real crises like a global pandemic isn’t enough to slow down the flow of money into the US, for the simple reason that now, more than ever, its the only game in town.
This explains also why small cap stocks with few exceptions are receiving little love from investors: How can you compete with a market that is the daily recipient of hundreds of billions of dollars in government Tier One capital?
The unfortunate reality is that this massive capital distortion caused by rampant government capital and credit fabrication will have a long term chilling effect on new enterprise. In fact, the risk tolerant generation we were once part of is slowly dying on the vine, as even the most stalwart startup investors can’t ignore the artificial reality that has been created here: you can’t beat ’em, so you have to join ’em.
Individual investors really need to understand that this is all by design. When the rules and the structure of the market is being manipulated in concert by government and big business, there is no alternative but to drop your reservations, pick up a glove, and get in the game.
I realize I’m probably sounding like a broken record here, but at this point, there’s not a lot of alternatives around for investors who need to see a return on equity.
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