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...
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...
Lies, Damn Lies: Broken Markets 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: Much to the delight of plebeians across Wall Street, AAPL released their earnings with what pretty much a thud. Of course, the market being the market, with negative mental associations already built into the stock...it promptly rallied afterhours some 6%. The market will use AAPL as an excuse to relieve some downside pressure before what I suspect will be further downside in both the stock and the market into the middle of February, at least. With the FOMC set to announce their decision tomorrow and knowing that the Fed hates to be seen as predictable, I would expect them to zig while the market is expecting a zag. In other words, don't expect them to hand investors a bouquet of flowers and a box of candy tomorrow in the form of an accommodative stance disavowing knowledge of QT or further rate hikes. Shorted KL today for a trade. This has been the hottest gold stock in the market over the past 12 months. While I am very long-term bullish on gold, in the short term I suspect that investors have underestimated the Fed's resolute stance towards QT. If there is any inkling of doubt regarding the Fed's propensity for dovish behavior, the US Dollar will strengthen and gold will fall. Gold, like nearly every commodity, is highly influenced by technicals. In what is a classic breakout pattern here recently, I expect that there is a lot of weight gathered on the upside that if tipped, could result in some high velocity damage over the short-term. It's a high probability trade I expect, especially when given the potential payout due to the aforementioned. Have been short NVDA since last week. The earnings warning on Monday gave us a nice cushion to push the position. I have added to the short since. These types of momentum names, once their earnings trends shift and price deterioration begins to take place, become possessed spider demons on the downside. They completely obliterate expectations for what is possible in terms of sheer destruction of capital. Once the market begins to deteriorate further, the point I am making here will be demonstrated in real time via...
Lies, Damn Lies: Pre-Market Ponzi 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: Got shorter as the week progressed last week. This is a difficult spot for the market that presents investors with a terrible risk/reward situation, as opposed to the beginning of the month where risk was negligible and the reward for participation on the long side was shiny. Can't emphasize this enough: Understanding the company you keep in the markets is a highly overlooked edge. As it currently stands, the same investors who were making the terrible decisions to sell late last year are trying to buy back the stock they sold here and now. The reason? They have been provided comfort by the market in the form of earnings, the Fed, government reopened and so on. It's an environment that is being made cozy and comfortable for investors so they don't realize that ritualistic castration is about to take place. The put/call ratio on Friday fell to some of the lowest levels observed over the past 12 months after spiking to some of the highest levels observed in years just several weeks back. This type of velocity shift in sentiment typically ends up in some type of violent reaction by the markets. It's akin to stumbling upon a monster in its lair. This is one case where popular sentiment may actually prove to be correct. Emerging markets look like they are set to outperform this year. It's not at a point where I believe in the emerging markets thesis strongly enough to invest. However, it is worth noting that sentiment and relative value versus developed markets is at historically extreme levels. In other words, emerging markets are a bargain vs. Europe and especially the U.S. With the Fed meeting taking place this week and the market largely pricing in a dovish Fed, there is potential for an extreme reaction if they aren't as soft as investors expect. In either case, it seems to be setting up to be sell the news type of event. This week is the heart of Q4 earnings. Again, with the markets advancing as they have, the reaction to earnings has the potential to be weighted on the downside. It's a simple probability scenario where...
Lies, Damn Lies: Stampede 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 greatest indication that investors are finally starting to get the picture that this rally is not a bear market rally meant to separate speculators from their dollars is the action in long-term treasuries. Investors are beginning to understand that a 2.75% yield won't cut it in the face of a rallying stock market, where companies like JPM are up 4% this month while sporting a 3.5% yield. Ten year should be back above 3% within months. Continue to be short a concentration of TLT. As this rally continues on the dynamics of the market are changing. This is one of the better trading environments in recent years, where astute investors can take advantage of both sides of the market. With that said, there are more opportunities developing on the short side of tech and financials. Long opportunities are more focused along the lines of defensive companies, such as BMY that I detailed in yesterday's lies and on Twitter. As you may have noticed during the past few notes I've posted, the metals complex has been an area of confusion. I dumped our metals names at the beginning of the month due to the fact that I thought the markets were going to fully "risk on" status. Metals don't play well in a risk on environment. Up until yesterday, they were holding their own given the acceleration to the upside in equities. That changed today. It looks like metals traders and bond traders are getting the memo that these assets don't play well with where we are now. Long-term very bullish on metals. Have to pick and choose the spots, however. MSFT finally took off for us in an admirable way today. Want to see the trend continue with momentum to the upside for the remainder of this week. Currently long. PAYC is another name we picked up in early January that has taken its time accelerating. That changed today. The momentum on the upside looks promising. The company automates the HR process. With unemployment at historic lows and a natural tendency for companies to chase efficiency, the growth here should continue for sometime to come. USB is our...
Lies, Damn Lies: Hard Knock Life 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: AAPL looks obnoxiously weak. Perhaps earnings will help it gather some steam. However, for the time being it seems that investors are looking elsewhere. The problem I have is that I believe the markets are going much higher from here, however, that is a difficult eventuality to imagine without AAPL's participation. Perhaps we are at that point in the story where the protagonist fades into the sunset. In any case, I do have a buy point in mind for the name substantially lower than where we are now. The numbers for assets in money market funds is mind-blowing. Investors are basically positioned now at the same money market levels as in March 2009. I have repeatedly made the point that investors suffer from 2008 PTSD. These money market numbers demonstrate that in vibrant color. The $3 trillion in money markets as of last week is a lot of fire power for equities in the months ahead into what is a relatively thin volume environment, in general. As discussed in last nights "Lies" note, financials looks like they want higher prices. We got the first bit of good news for financials with Citi earnings not being nearly horrible enough to justify the recent sell-off, which created a bid beneath the sector today. I expect there to be a few curve balls thrown in the days ahead with so many earnings. However, the path of least resistance will likely be up for the foreseeable future. Took a position in BMY today. Defensive names have been left behind in this market. Given that we are at a juncture where sideways and perhaps downside volatility can become more prominent than it has been over the past couple of weeks, defensive oriented long positions are a prudent investment. BMY, in particular, has been beaten up recently due to a highly leveraged purchase of CELG. When BMY announced the acquisition at the beginning of January, debt was being given the stink eye. I expect the skeptical view of debt, in general, to become much less intense over the next few months, allowing investors to see the benefits of their CELG acquisition rather than the perceived...
Lies, Damn Lies: Rotation Station 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: Financial names have the look of a sector that will be accelerating to the upside during the second half of this month. A majority of financial institutions report earnings this week, which will set the tone for the remainder of the month after what will likely be a choppy week of trading ahead. The overreaction that took place in money center banks, in particular, should become apparent to investors this week, setting a bullish tone if all goes as expected. A short-term allocation into defensive longs is likely a decision with a positive expected value. This doesn't mean I would consider selling some of our more aggressive tech or financial long exposure. What it does mean is that defensive names have lagged this month and with the market decelerating, risk/reward on some names looks juicy. Gold and silver names are in a highly confusing spot. We rode the uptrend in the names for a nice gain in December, liquidating in the new year. Since then, a confluence of conflicting signals has taken place that likely dictate a period of being a bystander on the sidelines watching. Long-term, metals are in a bull market. I will be patiently seeking a re-entry point. It used to be that bond investors were the "smart money" on Wall Street before the information curve flattened. There really isn't a smart money contingent on Wall Street any longer. With that being understood as fact, interest rates are absurdly off base in what their expectations for the economy are. Recession is a near zero probability this year with economic growth moderating, however, still moving along. Ten year yield should be nowhere in the vicinity of sub-3%, yet PTSD of a a repeat of 2008 has caused a dislocation to take place that should be taken advantage of. Nasdaq 100 and Russell 2000 are real close to their first major test of resistance since this rally kicked off. How they handle these areas will be telling. I'll be watching the rhythm of their feet carefully to make sure nobody has become drunk, ready to tip over. The range expansion that has taken place in corporate credit as...
Lies, Damn Lies: Stocks In The Buy Zone 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: AMZN has reversed convincingly. While it may have a few more tricks up its sleeve, the December low should hold in January. Safest buypoint in some time not just for it, but FANGs in general. Took a position in AVGO on Monday. Demonstrating wonderful relative strength within technology. Relatively safe way to get exposure to semis. Traditional and plain vanilla, yes, but BRK.B allows exposure without normal concerns for volatility. A conservative consideration for exposure to the financial space. BTG is an example of the convincing strength that took place in mainstream gold names during December. The pattern looks set for continuation as it is becoming apparent that a weaker U.S. Dollar is the release valve the global economy needs to sustain growth. C is in a low-risk short-term buying position. The compression in price/book for financials is overdone. Q4 results should be relieve some of that pressure. Every market bottom has its hook. A hook is the primary market average that will lift the rest of the boats. For this market bottom, the hook is the Nasdaq Composite. It has managed to reverse at an important technical level, which will give the rest of the market averages the courage to push forward. GOOG is another FANG name that looks to be setting up for a push higher during January. Economic data and earnings will be seen as strong enough to justify purchasing growth at 30%+ discounts. Not buying JPM on a 20% pullback will only be seen as a mistake for most large cap fund managers when it's down less than 10%. Unfortunately, buying into points where fear and misinformation is at its greatest point does not present a situation comfortable enough for a majority of those who manage money. And this is why they underperform. If you're comfortable doing anything, then odds are something is wrong. Was talking to a bodybuilder at my gym recently who was training for a competition. He told me that whenever he feels good, he knows something is off in his training regimen. Whenever he's uncomfortable, he knows he's doing it right. MSFT falls in the same category as JPM. Large cap...
Lies, Damn Lies: Armageddon On Pause 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: Insider buying is now at an 8 year high according to Bloomberg. "The last time insider buying spiked in this fashion, in August 2011, the S&P 500 was in the middle of a 19 percent retreat before staging a 10 percent rally in each of the next two quarters." Insiders are very obviously witnessing the fact that on a corporate level everything is fine. The weakness in the markets hasn't trickled down into the economy as of yet. Whether in two quarters from now those very same insiders are wishing they had put their cash in a bank CD due to a falling stock price and sudden economic weakness is another question entirely. Insiders are just as likely to blow it as anybody else, keep that in mind. For the time being, however, this is another indication that corporate earnings will calm the markets a bit in Q1. Short interest in various industry ETFs is plunging, which is basically the equivalent of soldiers putting down their guns in the middle of an oncoming assault. Either the soldiers have lost their minds or they don't think the assault is worth fighting against. The XLB (materials sector etf) is at a 4 month low in short interest. XLK (technology sector etf) is close to a three low in short interest. XLP (consumer staples) is sitting at a multi-year low in short interest, as well. From a purely contrarian perspective, this is a problem. Among developed countries, the United States is certainly an outlier when it comes to debt. This fact puts the Federal Reserve in a precarious position should another economic crisis take hold. In any case, the U.S. Dollar will be the most apparent casualty. The Fed expanding their balance sheet had a stupendous effect on equity prices. How can we logically assume then that through extensive global central bank balance sheet tightening, this effect won't reverse to an extent? We have already seen that in 2018 as the Fed's expanded tightening starting in October of $50 billion per month was accompanied by a market top. Europe climbs onboard the QT train in 2019. While the markets could very well...