Hertz is a 102 year old rental car company with 38.000 employees and over $20 billion in enterprise value. Stock value was $20 just a few months ago and was under $2 after the close on Friday after the bankruptcy announcement.
As the price fell the last few months around 45,000 Robinhood users bought the stock on the way down (and who knows how many users on ETrade, etc). I'm sure they saw a well known company at a big discount, and were hoping for a rebound when things returned to normal. However they are not very happy right now. Other people who aren't happy are lenders of the $18 billion in debt the company owed. That debt was an asset for those lenders, it had a value and an income stream that is now significantly impaired (if not devastated). That's billions of dollars now simply GONE in the Deflation of 2020--vanished in less than 3 months.
Maybe there will be a restructure and some recovery, but that's a question for the future. Right now there are a lot of effected people who are poorer as a result who might not spend as much in the future or perhaps won't be able to make their debt payments, leading to further deflation.
And this is just one company. Over 500,000 Robinhood users have bought American Airlines as it fell. 450,000 have bought Carnival Cruise Line. 280,000 have bought Boeing. 140,000 bought MGM Resorts. Etc., etc. I've read reports that a lot of ordinary people have put money into the market (stimulus checks right into the casino!) and are at home during the shutdown trading. This reminds me so much of 2000 where so many people, including myself, lost their savings in an ugly bear market.
The current economic situation we're facing is unprecedented. The closest comparison is The Great Depression, and in many ways this is worse. IMO we're unlikely to see a return to normal for a long while, but rather people and businesses will be careful and reduce spending. Unemployment will be slow to recover. Money will be scarce and defaults and failures of indebted businesses like Hertz will continue to rise (which of course means banks are going to get hammered). The stock market and other assets will fall again and all those investors will lose their savings and be forced to reduce their spending even more. That loss of savings, reduction in asset values, increases in unemployment, debt defaults, etc. all lead to even more asset value reduction, defaults, etc. THAT is deflation. It's a viscous cycle and it isn't so quick to go away that a couple weeks of decline in the stock market is all you see of it. Anyone that thinks we're headed back to a rising market is delusional.
I wouldn't buy any stock that has been hammered by this situation. Those stocks are down for good reason. In fact I wouldn't buy any stocks at all for a while (maybe more than a while). Deflationary environments are the ugliest situation for investors, and the US hasn't seen such an environment for nearly 100 years. This is the 100 year flood the old-timers warn about. This is the time to keep your cash safe so you'll have the means to buy after the markets have been devastated. Losses in the 1930's market were -87% over 3 years. Losses in the Japanese 1990's deflation were -80% over an even longer period. We haven't seen the end of this situation yet, it's just beginning. The virus was only act one.
As the price fell the last few months around 45,000 Robinhood users bought the stock on the way down (and who knows how many users on ETrade, etc). I'm sure they saw a well known company at a big discount, and were hoping for a rebound when things returned to normal. However they are not very happy right now. Other people who aren't happy are lenders of the $18 billion in debt the company owed. That debt was an asset for those lenders, it had a value and an income stream that is now significantly impaired (if not devastated). That's billions of dollars now simply GONE in the Deflation of 2020--vanished in less than 3 months.
Maybe there will be a restructure and some recovery, but that's a question for the future. Right now there are a lot of effected people who are poorer as a result who might not spend as much in the future or perhaps won't be able to make their debt payments, leading to further deflation.
And this is just one company. Over 500,000 Robinhood users have bought American Airlines as it fell. 450,000 have bought Carnival Cruise Line. 280,000 have bought Boeing. 140,000 bought MGM Resorts. Etc., etc. I've read reports that a lot of ordinary people have put money into the market (stimulus checks right into the casino!) and are at home during the shutdown trading. This reminds me so much of 2000 where so many people, including myself, lost their savings in an ugly bear market.
The current economic situation we're facing is unprecedented. The closest comparison is The Great Depression, and in many ways this is worse. IMO we're unlikely to see a return to normal for a long while, but rather people and businesses will be careful and reduce spending. Unemployment will be slow to recover. Money will be scarce and defaults and failures of indebted businesses like Hertz will continue to rise (which of course means banks are going to get hammered). The stock market and other assets will fall again and all those investors will lose their savings and be forced to reduce their spending even more. That loss of savings, reduction in asset values, increases in unemployment, debt defaults, etc. all lead to even more asset value reduction, defaults, etc. THAT is deflation. It's a viscous cycle and it isn't so quick to go away that a couple weeks of decline in the stock market is all you see of it. Anyone that thinks we're headed back to a rising market is delusional.
I wouldn't buy any stock that has been hammered by this situation. Those stocks are down for good reason. In fact I wouldn't buy any stocks at all for a while (maybe more than a while). Deflationary environments are the ugliest situation for investors, and the US hasn't seen such an environment for nearly 100 years. This is the 100 year flood the old-timers warn about. This is the time to keep your cash safe so you'll have the means to buy after the markets have been devastated. Losses in the 1930's market were -87% over 3 years. Losses in the Japanese 1990's deflation were -80% over an even longer period. We haven't seen the end of this situation yet, it's just beginning. The virus was only act one.