Was the CoronaVirus crisis exaggerated and the crash overdone?
There is a school of thought in Dalal Street that vested interests may have exaggerated the impact of the CoronaVirus crisis and caused the great crash in the stock markets.
“Mere ko lagta hai ki public ko gumrah kiya gaya hai,” Madan Kaka, an intellectual, stated today during our post-market session of Chai and Gutka.
“Yeh kaam Bill bhai aur CNBC ne kiya hai,” Mukeshbahi remarked while Jigneshbhai and the other punters nodded sagely in agreement.
Prima facie there is merit in this line of thinking.
If Bill Ackman had not spooked the entire market with his “Hell is coming, Tsunami is coming” cries, possibly the market would never have crashed like a ton of bricks and tripped the lower circuits.
Ackman just halted the market.
— Nathan Michaud (@InvestorsLive) March 18, 2020
In fact, Bill Ackman, who has been nicknamed “Baby Buffett” owing to his stock picking mastery, himself blamed CNBC for distorting his comments and misleading the public.
“I really blame CNBC …. It took 15 seconds of my interview and then went around scaring people because it was good television. … I gave a very bullish message. I said I was buying stocks,” the Billionaire said in his latest interview.
However, we have to compliment the wily Billionaire because he was fully aware of the devastating effect that his comments would have and had come fully prepared with Puts.
He raked in a mammoth fortune of $2 Billion in the aftermath of the crash.
He has also revealed the precise modus operandi that he adopted to profit from the crash.
President Donald Trump, who is also a wily businessman, was wise to the tricks of the stock market Billionaires and slammed them in his typical blunt manner.
When the so-called “rich guys” speak negatively about the market, you must always remember that some are betting big against it, and make a lot of money if it goes down. Then they go positive, get big publicity, and make it going up. They get you both ways. Barely legal?
— Donald J. Trump (@realDonaldTrump) May 13, 2020
ACKMAN SAYS 'I REALLY BLAME CNBC' FOR SCARING MARKET
— Quoth the Raven (@QTRResearch) July 22, 2020
I was bullish then and I am bullish now
Anyway, all of that is now in the past and there is no point in dwelling upon it.
For the present, Bill Ackman has confirmed that he is bullish and sees significant upside.
“We are long-term bullish on America; We are long-term bullish on the markets,” the founder and CEO of Pershing Square Capital Management said in a confident tone.
“We are approximately 98% long. We are not short any stocks,” he candidly and fairly disclosed.
What sort of stocks are a good buy now?
It is elementary that stocks which have been beaten the most owing to the pandemic are an excellent buy now because they will surge like rockets as soon as normalcy returns.
“We are obviously bullish on America, owning restaurant companies, hotel companies, real estate development companies. These are a bet that the country will recover,” Ackman said.
On an earlier occasion, the ‘Baby Buffett’ had revealed that his favourite stocks are Hilton, Restaurant Brands, Lowe’s and Starbucks.
Bill Ackman said he has made a “recovery bet” on the economy, investing $2.5 billion in less than two weeks in equities, including upping his positions in several of his portfolio companies like Lowe's & Hilton & reinvesting in others like Starbucks. https://t.co/oDQ70cfLDq
— Lisa Abramowicz (@lisaabramowicz1) March 23, 2020
It is notable that Rakesh Jhunjhunwala, the Badshah of Dalal Street, is also thinking on the same lines.
He has bought a truckload of stock in Indian Hotels, the blue-chip flagship of the Tata Group.
The key triggers which will enable the Badshah to rake in big bucks include the reopening of the economy and de-leveraging by the Company. The Hotel chain will also grab market share from its peers who are financially weak.
RAKESH JHUNJHUNWALA – Checks In
Name appears in June Shareholding with 1.05% Stake
— Mangalam Maloo (@blitzkreigm) July 20, 2020
Which stocks to avoid?
Stocks which are highly leveraged are obviously most vulnerable to the problems caused by the Pandemic.
“We have today a short position in a high-yield index. We are bearish on highly levered companies,” Ackman revealed.
“The highly levered businesses will struggle because it will take time for the economy to reopen,” he explained.
“I don’t think the Fed is going to bail out companies with too much debt. Such companies carry a high level of debt to cash and therefore have a stronger likelihood of default or bankruptcy during a crisis,” he warned in a grim tone.