Why is the stock market rallying when the economy is so bad?

Re:Why is the stock market rallying when the economy is so bad? by kelnos on Sunday May 10, 2020 @04:49PM (#23136038)

Corporate bonds are... interesting... now. I've been looking at airline bonds that mature in the next 6 to 18 months. Quite a few of them have yields-to-maturity north of 7%. I figure airline bonds aren't super risky (at least for the majors in the US), since the US gov't will prop them up until the end of time. Some of these aren't rated investment-grade anymore, but I don't particularly trust the ratings to be all that useful at this time.

Airline stocks probably have a bigger upside, but they're quite a bit riskier. Bondholders do get priority in a bankruptcy, if it comes to that (though I'd doubt it).

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by bobbyi_settv on Sunday May 10, 2020 @05:13PM (#23136256)

Just because you believe the government won't let the airlines go away doesn't ensure that the bonds are safe. Sometimes keeping a company in business involves a restructuring such that those bonds won't pay out as you're expecting.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by quietbritishjim on Sunday May 10, 2020 @05:52PM (#23136605)

Genuine question: if a company didn't pay out on its bond, that's a default; how can it default without going bankrupt?

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by peteretep on Sunday May 10, 2020 @07:33PM (#23137303)

I believe what you’re missing here is a “Chapter 11 Bankruptcy”, as opposed to a “Chapter 7 Bankruptcy”.

Chapter 11 means the business keeps running, but the owners lose their money, Chapter 7 is what most of the world considers to be a bankruptcy / going bust / liquidation. Uncle Sam probably doesn’t care if Delta does a Chapter 11, as long as the planes keep flying.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by kube-system on Sunday May 10, 2020 @09:27PM (#23138007)

I guarantee that Uncle Sam doesn't care if Delta files chapter 11.

https://money.cnn.com/2005/09/14/news/fortune500/delta/

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by kart23 on Monday May 11, 2020 @04:13AM (#23139929)

holy shit. And there was a guy here who bought delta bonds, saying he would make an easy 7% by the end of the year.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by chii on Monday May 11, 2020 @02:43AM (#23139470)

sometimes bond holders are given the option to convert the debt into equity (at probably pennies to the dollar, which is a steep discount and therefore, a good deal) - that's what restructuring means.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by empath75 on Sunday May 10, 2020 @06:05PM (#23136719)

Going bankrupt means lenders and shareholders are wiped out but the company can be restructured and continue operating.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by cm2187 on Sunday May 10, 2020 @05:47PM (#23136554)

Like United Airlines.

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by icedchai on Sunday May 10, 2020 @09:09PM (#23137899)

I suspect many airlines will go bust before this is done. Not all of them. A few are going to come back strong. You could diversify, buy JETS (airline ETF.)

[ Parent | on HN ]

Re:Why is the stock market rallying when the economy is so bad? by canada_dry on Sunday May 10, 2020 @09:53PM (#23138149)

> many airlines will go bust before this is done

My bet is there will be a large number of hard hit industries (e.g. airlines, cruise lines, hotels, car rental companies) which will see widespread ch 11 and bankruptcies. Makes sense if then they can reemerge after eliminating a good chunk of debt and also roll back labour agreements. Likely a bunch of consolidation/merges on their way as a result too.

Should see the ball start rolling after the mid-year results come out early July.

[ Parent | on HN ]