The more things change, the more they stay the same.

Well last week, I wrote up a bit about Kodak, and it seems that enough other, more prominent people, did as well. Now, the government thinks there should be an investigation. While I think this looks extra fishy, I do also think that Kodak will have the proper documentation around this to make enough of a case that this was legal. So we’ll probably have some grandstanding around this, but let’s be honest, we need Kodak here and it’s not that far outside their core business. 

U.S. to investigate Kodak's government loan deal, Trump says

I don’t know what the Democrats were thinking here. Did they think they would back the Republicans and Trump into a corner and they would just give up? This negotiation to help the American public is a disaster, and on Saturday night The President acted. What surprised me about this was the reaction of the markets? As of this morning, they are basically flat. We’ll have to see where this goes from here, because the government needs to fund these orders. 

Covid talks going nowhere as deadline nears

Trump signs orders aimed at extending some pandemic relief after Congress fails to reach a deal

Finally, looking back at last week’s post. Mohawk and T-Mobile crushed earnings. Mohawk (MHK) had an interesting trading day after reporting great numbers on Tuesday, but ended the week up more than 5% from their report. T-Mobile (TMUS) reported excellent numbers as well and traded up almost 10% on Friday, but ended the day up 7%. 

We’ve got a lot of interesting names reporting this week. Wayfair (W), DocuSign (DOCU.O), DraftKings (DKNG.O), Barrick Gold (GOLD.K) are on my radar. DraftKings has a large Predicted Surprise on EPS @ 20.5% and I want to see how Barrick reports with record gold prices. They had record numbers back in 2011 and 2012, the last time Gold was on a tear. 

Best of the week:

This interview with Beeneet Kothari is a fantastic look into the thinking process at one of the world’s most successful funds. Beeneet was the youngest PM in the history of the firm. I also found his views on technology investing insightful. 

Druckenmiller Protege on Tech Investing and Developing Your Own Framework - Listening time:  41 minutes

Best of the rest:

These first two stories are less about being the best and more about being impactful. Last week the trade tensions with China stepped up a bit. The Trump administration put some timelines in place around bans and this will have some knock-on effects around the technology industry. We’ve already seen one in the third link below. It appears one of the main reasons CIO Yu Ben Meng resigned was his ties to Chinese investments. I took a look at the five largest ETFs with an international tilt (VWO, EEM, IEMG, VEU, & VXUS), those five funds have $186B in AUM. A third of it is invested in China and about 15% in Chinese technology firms. This simple analysis doesn’t extend to smaller ETFs or the largest mutual funds, which have a much larger AUM. Aside from the impact on global trade, these heightened tensions will impact the global equity portfolio. 

Trump team outlines plan to crack down on US-listed Chinese groups

Fortnite and League of Legends players could be collateral damage from Trump’s WeChat ban

CalPERS investment chief steps down at $400 billion pension fund

Retail Traders

CNBC reported on Friday that RobinHood would be restricting access to its API data, so we will no longer be able to see how many of their users are buying/selling specific names. 

So long RobinTrack, it was good while it lasted

This, my readers, is what the kids would call a burn.  I don’t like to share many articles behind a paywall, but this one was just too good. Here are just a couple of quotes from this article.

-” 92% of the differences in newsletters' annual returns is due to luck. When he applied the same formula to a sample of large-cap U.S. equity mutual funds, he reached the almost-identical conclusion.”

-"Only 3.84% of domestic equity funds in the top half of the distribution in 2015 maintained that status annually through 2019, significantly below what random chance would predict."

When Day Traders Do Well, It’s Probably Just Luck

Correlation or Causation 

As the dollar continues to slide, what should equity investors be watching? This chart from the Wells Fargo Investment Institute shows the performance of the different classes of investments during periods of a weak USD. 

What history says about the stock market and a falling dollar

This little snippet from a Bernstein report highlights something similar to the correlations I wrote about last week. The idea of this commentary is that everything is moving together and risks are elevated that if something changes things could get squirrely. 

Correlation confusion: We are converging on only one trade - beware the vol spike

Speaking of correlation, one of my favorite blogs talks about market tops and skyscrapers this week. Mark seems to think there’s a correlation with the finishing of big buildings and an economic top. “When there is a topping of a new tallest skyscraper, it is a sign that we are at an economic top and ready for a collapse. Construct the tallest building and rest assured that the economy is ready for a downturn.” It’s a short piece with an entertaining chart.

Skyscrapers and alternative data - An example of correlation not prediction

This is another metric that people have tried to equate to tops or bottoms in the market. Investor Sentiment. This link is a summary of a more in-depth report they have behind their paywall, but it does have some good information. I like to use this chart I created below that tracks the range and where we are versus the history. 

Individual Investors Still Don't Believe

Credit

Goldman’s co-head of Global Financing talks about record issuance. She says companies are starting to take liquidity based on what comes next, taking more of an offensive role. She also reviews some of the areas of strength in accessing capital markets and those that are seeing difficulty. One area of strength is the IPO market. IPOs saw an uptick in July with 31% of IPOs in 2020 priced last month.

How Companies Are Meeting Their Financing Needs - Listening time: 22 minutes

These are some ridiculously low rates. Just after this article was posted, I went to our New Issues Monitor in Eikon (FINIM). Amazon did fetch a slightly lower rate, but it was a three year term rather than Alphabet’s five year. A Paccar subsidiary did see as low as 35 bps, but it was on a third of the amount. Most everything else in this range is a three year term or in one of the government buckets.

Google owner Alphabet issues record $10 billion bond at lowest-ever price

Stephen talks here about how ETFs functioned during the period of distress, like Q1 of this year. More than half of all the value traded in 2019 traded in Q1 of 2020. On March 12th, one of the craziest days for spreads, LQD traded 90,000, whereas the largest five bond holdings traded only three dozen times. Research done by Blackrock shows that ETF trading is more of an indication of where bonds will trade. I think it’s good to come back to these conversations to learn about how markets might react in the liquidity crisis. 

Blackrock’s Stephen Laipply – Fixed Income ETFs - Listening time: 32 minutes

This is a summary of the return towards a normal market in Emerging Market debt in Q2 from GMO. They review the benchmark spread lowering, bid-ask spreads (first chart below), but the biggest take-away I had from this was the value they see in EM currencies. The second chart shows the value relative to the past 10-year average, and it’s considerably higher than the 2008 financial crisis highs.

VALUATION METRICS IN EMERGING DEBT: 2Q 2020

This one didn’t surprise me one bit, because it’s happening in our house right now. At least 75% of the monthly savings I have on commuting costs are going into savings. The article notes, “consumers shaved their credit card debt by an unprecedented $110 billion, or roughly 12%, in the first six months of 2020.”

U.S. household debt falls amid COVID-19 spending cutbacks

Metals

Good chat between Josh and Peter on inflation. Peter’s comment that inflation is temporary is something you don’t hear often enough. At the end, they talk about Gold as basically another currency not a safe haven. Josh notes that this year is the first time since 1979 that both the .SPX and Gold are rising to new highs at the same time.

The coming inflation shock and why gold could be headed to $3,000 - Watch time 25 minutes

Brett over at SpotGamma is releasing a new service. He’s expanding beyond just the S&P 500 options gamma positioning with an occasional NDX look. Now, he’s looking at the options positioning for 3,800 different stocks and ETFs. This is an intro/advertorial for the new product, but I’m including it here, because he does an in-depth analysis of the Silver ETF (SLV). It has option interest on over 6M call options, and you can see that in his chart here. I did a quick chart via our CodeBook app to see how it breaks out by strike price and you can see the OI chart agrees with Brett’s analysis that there's a ton of impact around the 30 level in SLV. 

SpotGamma Equity Hub™ - Watch time: 16 minutes

Miscellaneous

Maria has been making the rounds on many podcasts of late. This was probably the best of the interviews with her. While this isn’t really related to business, the economy, or trading, I think it’s a very relevant discussion. 

Maria Konnikova: Less Certainty, More Inquiry - Listening time: 97 minutes