May 18, 2020

Two observations struck me lately that I think could foretell our days ahead.

First off, tens of billions of dollars in rent went unpaid last month. Through the first five days of April, 31 percent of tenants had not paid their rent, up from 18 percent the prior year.

And it’s only going to get worse. If there’s no April rent. There’s probably no May rent either.

Imagine if you owned an apartment complex and most of your cash flow disappeared instantly. Or what if you owned a shopping center and nearly all your tenants filed for bankruptcy?

That’s happening on a national scale right now. How do you bounce back from that?

Second, speaking of bounces, the stock market just had a tale of two months. March was historically horrific, while April was the best month in decades. Overall, the first two quarters of 2020 will be rough on the market, but traders assume a quick recovery once the virus is under control.

That’s partly due to the Federal Reserve’s ongoing stimulus injections. But those can’t continue long-term. So, for equity prices to continue rising, markets need willing buyers with cash.

Who will fill that role?

Since 2008, companies have spent many billions buying stocks via share repurchase programs. Corporate net purchases dwarf everyone else.

This is a problem for bulls because corporate buyers are leaving the scene.

One reason is political pressure. It would look bad to reward shareholders when the country is in such dire straits. Plus, most firms need to conserve cash. Beyond that, the CARES Act restricts the practice for companies receiving stimulus funds.

Bull markets require buyers. If companies can’t buy, who will? Not Main Street. It’s struggling with rent.

With few buyers, the bears will come out.