Lies, Damn Lies: Uberizing The World Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: The Zillow earnings call was something to marvel. As disclosed earlier this month, we are long Z. Founder of Zillow, Rich Barton, chose this moment to come back to the company, further going on to describe the opportunity as a "short circuit," stating that what started as a small experiment with Zillow Offers became an inundation of consumer demand. As a result of what they have observed, they are essentially attempting to "Uberize" the home market with a one click and your house is sold vision. Rich Barton, for those unaware, started Expedia, Glassdoor and Zillow. He has been on the board of directors for Netflix since Netflix was a private company. In other words, Rich has seen a thing or two in the evolution of technology over the years. He described the gravity and importance of the transition in Zillow as similar to when Netflix went from mailing out DVDs to streaming. In other words, it's a high risk moment in the life-cycle of the company, but one that comes with massive rewards if they execute correctly. In the meantime, they have a solid core business that can support the big swing that is being taken with respect to Zillow Offers. For Rich Barton to come back as CEO after observing the Zillow offers experiment for a couple of quarters means that he saw something that was extremely exciting in his view. The entire team sounded excited on the call for what's ahead. I think that excitement will leak into the stock price, with the results in the next few quarters being equally exciting. Have taken a position in BABA recently. The stock has been performing well and it's a reasonable way to play a buy the rumor, buy the news reaction on a trade deal with China. Bringing me to my next topic, the US-China trade deal will be such a comprehensive piece of work that the markets will have no choice but to rally on the news. Both countries haven't postured to this point for it to be a weak document, with broad strokes. It will be bullish for both countries and that bullishness should spill...
A Game Of Unintended Consequences
It was April of last year I began pounding the theme of Everything Has Changed In 2018 into the consciousness of investors. As we are now at the midway point of Q1 2019, another theme is becoming readily apparent. The theme of 2019 will be A Game of Unintended Consequences. The Fed has done something that is unprecedented in modern economic times. The message they have given the markets since the crash of Q4 2018 is that equities are the economy. As a result of this A-HA moment by the Fed, they have abandoned all conventional, accepted thought as to their role within the grand scheme of the economic landscape. By basically admitting that they have no desire to take the Fed Funds rate to the neutral target of 4% while normalizing the Fed balance sheet to anywhere near its pre-crisis levels, they have essentially told the markets that they are fine with a soft-QE, with the possibility of moving towards a full QE if the economic situation worsens. Judging by the reaction of the markets to this soft-QE it has been enough to reignite the equity markets, which should in turn bolster the economy moving forward. The unintended consequences of such a policy come in the form of the sector that stands to benefit the most from inordinately low interest rates during an economy that is running at above average levels. Much like 2002-2003, when the Fed overreacted to the bursting of the internet bubble, determining then, much like now, that equities were too important to the economy, a low interest rate policy will ignite the animal spirits in real estate. Real estate moving into 2019 and beyond, with a record low unemployment rate, rising wages, low interest rates and millennials who are on average 30 years old, will be a primary beneficiary of the evolving economic environment. Homebuilders, mortgage originators and servicers stand to benefit the most. Those companies providing streamlined/low cost methods of finding, financing and buying a home have inordinate upside, as millennials balk at having to sign reams of paperwork while paying unreasonable commissions for the privilege of somebody telling them where to sign. Already in listening to the earnings calls for homebuilders and real estate related names, we are seeing CEOs express markedly increased optimism at the environment that has been developing in Q1. As the economy accelerates into Q2 and interest rates remain at reasonable levels, I would expect that the real estate market will serve as a reflexively positive factor in the resurgence of both equities and the economy at large. That's all for tonight. _______________________________________________________________________________ From time to time, I...
Lies, Damn Lies: What If? Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: What if the Q4 2018 pullback we experienced was the first bull market reset of this secular bull market? Every investor needs to weigh for themselves what that means. Pullbacks during secular bulls and cyclical bulls are completely different animals. You can take whatever you thought you knew about the market from 2000-2013 and throw it out of the window when it comes to the current market environment. There are other periods that are far more instructive. Those periods tell us that if this was indeed a reset of the secular bull, the next leg will be far more powerful than than anything we have witnessed up until 2017. Not enough investors are discussing this currently. Getting it right is the difference between being a top performer over the next couple of years and being roadkill. Back to gold. There are what I believe to be multiple short to intermediate term headwinds headed the way of metals. An acceleration of the current uptrend in the equity markets is going to bring money into risk on assets exclusively. Gold is not that. The strengthening US Dollar will begin influencing gold negatively. The weakening Yen, especially, is kryptonite to gold. The consensus is now squarely in the bullish gold camp, as expressed by a near uniform bullishness on emerging markets (EM bullishness and gold bullishness go hand in hand). Time to get short in some way, shape or form. If the Fed has indeed exited stage left, then the markets may run farther and faster than any are expecting. If we see continued equity strength while the Fed sits idly by into the summer, then I suspect the markets will go haywire on the upside. Dow 30,000 isn't out of the question this year on the back of an absent Fed, economic stability and a comprehensive trade agreement between US and China, which will kick off all sorts economic tailwinds globally. Have taken some outsized exposure to both GRUB and Z as long-term investments. Both are outstanding companies that are highly disruptive. GRUB will become an aggregator of restaurants similar to what online travel websites, such as Priceline, have done for...
Portfolio Update: More Chips
A brief synopsis before I begin. In late December, it started becoming obvious that group think fortified by panic-ridden headlines had gotten the best of Wall Street, creating one of the better buying opportunities of the past decade. By the latter half of January, the markets hit a point where bears should have been able to take control for a time. Instead, what happened was that the Fed basically went back into their cave and we learned that the economy was not running nearly as poorly as most expected. Bears quickly lost what was a key opportunity to take back what they so pridefully controlled through December. Well into February, we are sitting in a market that is the best of all worlds: Fed is no longer a factor Economy running well, but not well enough to prompt a overly-aggressive Fed or stoke inflation fears Earnings estimates have been toned down substantially, allowing upside surprises galore as the year wears on Persistent headline fear that keeps investors completely off-balance, refusing to participate in what has been a rebound that many have missed A perfect environment to be heavily long, in other words. With that said, this past week a lot changed in composition of the portfolios. First, the ETFC that I initiated as a long position recently was acting suspiciously so I let it go. The KL short that was initiated towards the end of January was covered as it just refuses to break, while the gold market remains in a sea of crosscurrents. New positions taken include AMAT, XLNX and TXN. Semiconductors have been leading the tech sector forward, while reporting impressive earnings, all things considered. The continued leadership role of the sector should accelerate as the markets move forward. I'm expecting February to be a bullish affair, with an acceleration of the uptrend taking place this week, through the end of the month. Fortunately, last week's brief interruption of the uptrend allowed us to take advantage and position properly for what's ahead. _______________________________________________________________________________ From time to time, I email commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just...
Lies, Damn Lies: Bulls In Charge Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: During selloffs it's important to watch how risk off assets behave for an accurate gauge of sentiment. Yesterday, as the market opened lower, there was piling in of assets into fixed income and gold names. As the day wore on, the treasury market was relentless on the upside, while gold stalled a bit. Nevertheless, this appetite for US Treasuries despite recession fears basically being eliminated at this point tells of not only a lot of misallocated capital that will require equity exposure at some point in the near future, but also of a generally bearish undertone in decision making. Speaking of rates, the interest rate on the 10 year makes the earnings yield on the S&P look increasingly attractive, especially as treasuries are being bought as stocks sell off. With earnings not being as poor as many expected, there is an increasingly significant likelihood that investors will take notice of this discrepancy sooner rather than later. Semis look like they want upside. This may be THE sector for 2019, along with software related names. The earnings they have released have largely dispelled bearish theories. With that, they are mostly well below their 2018 highs. AMZN just has the looks have a laggard in 2019. With everything developing the way it is for Bezos, the stock may find itself hard up for consistent bidders. The owner and the company are inextricably tied here. And the personal problems/battles of the owner only seem to be gaining steam. The current selloff shouldn't be much more than multi-day affair. It's certainly hurrying through the motions as it negatively affects investor spirit. Next week trade talks with China resume and it's option expiration so expect the market to zig after everyone has been conditioned by zag over the past couple of days. The gap down this morning, which is below yesterday's low on the NDX is a pretty classic trap. We're gapping right onto a very significant support area. Good spot for a reversal either today or Monday. Yield on the ten year is also sitting on significant support levels. This is about as low as it should get for the month of February....
Portfolio Update: How Long Is Too Long?
On our last episode I was just beginning to build back into our long positions, taking a position in NFLX, and reversing TXT from the short side to the long side, among other maneuvers. Since then the accumulation of long positions has only increased given that this is a verifiable, legitimate, testosterone induced, shit kicking, fence jumping bull. What's interesting to observe is how investors are being misled by obnoxiously puffed up statistics, mostly related to obscure areas of sentiment and technical analysis that have no relevance. It's purely drivel. The important point, however, is not necessarily that this analysis is being disseminated in rapid fire form. Rather, it's that there is such an appetite for this information that those who create it have a willing audience. This is the tell. Investors currently or only too happy to jump back onto the bearish bandwagon. I tried it a couple weeks back for a short time and it actually felt good. There is a recency bias coming out of the mess equity markets experienced in December that makes the decision to get bearish an easy one. It's like walking downhill. Takes little effort and you feel like you're getting to your destination faster. As so often is the case in the markets, however, what is obvious and easy is obviously wrong. With that said, the markets will likely keep pressing to the upside here until investors get that this is a bull market that is headed to new highs relatively quickly. How long is too long? There's no such thing as too long in a bull market. This week we've added MU, BMY, more NFLX and ETFC. This is in addition to the MSFT and QQQ we took on on the first day of February. Plan on to continue the buying binge in one or two other names this morning. We've only just begun to live. _______________________________________________________________________________ From time to time, I email commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered,...
Lies, Damn Lies: If You Don’t Know, Now You Know Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: The bears, of which I counted myself as one until about mid-week, had a chance to capture the flag and recapture their glory. Instead, a Fed induced rally completely dismantled the bear case from a technical perspective. The jobs report on Friday, followed by the ISM report, both came in much better than expected. The case for a recession anywhere in the near-term is a non-starter at this point. Anyone tooting that horn needs to be medicated and put down at once. Rotation taking place here is pretty impressive. Financials are resting while technology is resuming its leadership role. I have taken note, adding to our tech holdings on Friday, with plans to continue buying in the week ahead. Bond yields are mispriced to the point of absurdity here. Much like during the first part of January, I've taken a large position on the long side of yields. The current pace of economic growth paired with an indecisive Fed may translate into inflationary pressures that surprise both the Fed and Wall Street. Inflation or not, a ten year below 3% at this stage of the expansion will be rectified in what should be relatively short order. Gold and silver look extremely susceptible to weakness in the next few weeks. Investors have embraced the sector with great excitement in recent weeks. A resumption of the uptrend in equities should lead to a general "risk on" type sentiment among investors. Higher interest rates should create some tailwinds in the US Dollar, as well. In any case, a rinse in some capacity is due to take place. Currently short KL in the sector. One positive divergence that took place for equities was how strong crude oil was into the end of the week. I've been talking about the positive correlation between crude and equities for sometime now. Seeing oil continue its strength on the upside should provide support to U.S. equities, in general. Another positive divergence was how strong the Semiconductor Index (SOX) was to close out last week. Healthy tech rallies are always led by semis and we're seeing that at present. Hate to say this because I have such an...