Battle of Red Mirage

Some news out of last week that caught my eye. Tesla Battery Day was a complete dud. Penn National Gaming issues 14M additional shares valued at about $900M, but in reading the S-1 I found they also upped their Q3 revenue guidance and a few analysts have followed by increasing estimates. Johnson & Johnson (JNJ) entered phase three with a single dose COVID vaccine.

For this week, we’re already off to a fast start with the NY Times article on the President’s Taxes. That should add some spice to the debate on Tuesday. Cleveland Cliffs also announced that it has agreed to purchase ArcelorMittal USA for $1.4B Going forward, airlines are waiting on a possible stimulus package. There are nine possible IPOs pricing this week. The most followed will be Palantir Technologies (PLTR.K), which is expected to start trading on the NYSE on Wednesday around the $10 range or a $22 billion market cap. As we’ll read about below, Tortoise Acquisition Corp shareholders will vote on the merger with Hyliion. I’m also looking forward to Google’s launch event on Wednesday. They’re expected to show off the Pixel 5 plus a couple of other products. My wife is a Pixel user and I’m impressed with the functionality. Thursday and Friday have a few impactful economic reports.

Earnings’ Watch

Last week’s names I shared went nearly perfect. Nike smashed and continued to near the post earnings levels all week. DRI also crushed earnings, but started off slower than NKE then caught a second wind after the open. AZO quickly poked its head up at the open after great numbers, but then traded lower on the week. You could have made money trading this if you acted quickly. KBH had decent earnings, but just got crushed right off the bat. Below is the table of the next day’s trading and how they fared for the rest of the week.

This week we’re still working with a light schedule. I see less than twenty names reporting in the US and Canada this week excluding the pink sheets. However, of those few names, I see three decent opportunities for a big move.

United Natural Foods (UNFI) report today (Monday) after the close. Starmine Predicted Surprise is 5% for EPS and -0.6% for Revenue. The EPS estimate is up 3.8% over the last week. Trading volume is up and the options are pricing in a huge move with IV30 at 105. There are a few olderish estimates that are +20% lower than the mean.
Bed Bath & Beyond (BBBY.O) doesn’t report until Friday, but they’ll open the week with a 58% predicted surprise for EPS and 9.4% for Revenue. The EPS estimate is up 15.7% in the last week and 51.4% in the last 30 days. Keep in mind though the mean EPS is still negative, but the highest weighted analysts have positive EPS estimates. The weekly options are pricing in a 16% move.
Micron (MU) is my one name with a negative outlook. Predicted EPS surprise is -5.6% and -0.8% for Revenue. The mean has been slowly making its way down closer to the SmartEstimate for the past two weeks. What caught my eye here was Goldman Sachs’ four star analyst, Toshiya Hari 24.2% below the mean and the large chuck of analysts that are not included because of the cluster methodology. Those eleven analysts have an average EPS number of $1.03 vs. the $0.93 SmartEstimate. Weekly options are pricing in a 8% move.

Best of the Week:

The main interview here is with Alex Gurevich discussing “the end?” of the 38 year bond bull market. Alex made a few points that caught my attention. Policy predictions out 3-4 are for zero forever, and Alex thinks those longer term predictions tend to be wrong. He thinks there is some chance that we get unexpectedly high inflation and we may have an opportunity to raise rates. He also feels the Dollar may still be in cyclical downtrend, because the US has an easier path to currency debasement. That and a few other trends could lead to another 10-15% decline of the Dollar. He’s also leaning toward metals, because of the global currency debasement, but thinks Gold may be a little extended versus the rest of the precious metals complex. The discussion with Alex is an excellent discussion on it’s own, but when you combine it with the second interview with Jim Bianco this becomes a great podcast episode. Jim highlights the importance of the electoral college. He thinks that people are not following the betting markets enough. Below I’ve highlighted how President Trump has a better chance to win the election than he does the popular vote. Keep in mind the term 'Red mirage'. This is the idea that President Trump will look to be winning on Election night, but as the mail-in vote comes in things might swing to the blue. Erik thinks there’s a higher than 10% chance there is an all out civil war based on these election results. Each side will not accept the results and feel the other side “stole” the election. This election and the period running into it could be one of the most contentious periods in the history of this Country.

Bond Yields, U.S. Dollar, Equities & more - Listening time: 88 minutes

Bianco Research - Election Charts

Here are a couple of charts I’m following around Election volatility:

The VIX term structure. The yellow line is the last and blue is the previous close. You can see it’s elevated all the way out into February. That November contract is currently the second month contract. A chart I’ve seen floating around is comparing the continuous 2nd to an average of the front month and 3rd month contracts. That spread has been elevated more in the last month that at any point in the last twenty years or the last four election cycles.

Best of the Rest:

Space, the final frontier. Author Robert Jacobson joined Meb to talk about his new book, ‘Space is Open for Business’. We’ve seen a rise in coverage of the business of space with the evolution of company’s such as SpaceX, Virgin Galactic (SPCE.K), and Blue Origin, who had a launch scrapped last week.

Robert Jacobson, Space Advisors - It’s Not Just One Vertical, It’s More Like An Ecosystem With Lots Of Different Dependencies…The High Ground of Space Being The Overarching Theme - Listening time: 54 minutes

It may not be space, but it is some SciFi type stuff that the trading desks are starting to work with. This FT article looks at the futuristic desks that traders might be working on sooner than later.

Traders set to don virtual reality headsets in their home offices

Saw a chart similar to this making its way around a few different blogs or Twitter posts, but could not remember exactly where. The middle pane below shows the lines of Long and Short positions of the NDX futures for non-commercial traders and the histogram is the net positioning. The current short positioning has not been this short since April of 2008.

Funny Business

Peter Atwater says he initially thought that WeWork was the peak of ridiculousness. Now, he realizes that he might have just been a little early. ‘Screwtiny’ is not a misspelling. It’s a play on the correct spelling scrutiny, but with the mob looking to really put the screws to the offenders.

The Coming Age of Screwtiny

This was a conversation around Fraser’s latest report on Grenke, some follow up on WireCard, and how the life of those who are putting out negative research is less than ideal. Fraser tells of being followed, bugged, and attempted intimidation. Here’s the chart of the latest company they’ve found to be a little questionable, Grenke AG (GLJn.DE). You can see here the stock is down 70% from its highs and 44% over the last week.

Fraser Perring: Corporate Malfeasance and fraud - Listening time: 61 minutes

This might not be fraud in the same sense of the last two articles, this Institutional Investor article covers some fishy speculative trading activities around the negative oil contracts in April. As the article starts off, I thought this was going to be someone just whining because they got caught up in risky speculative positions, but it looks like a London trading firm, Vega Capital, might have been involved in what’s known as “banging the close.” There are a few more cases around that period, including Interactive Brokers paying clients north of $100 million in settlements because it’s system would not allow trading below $0 and Goldman Sachs’ commodities unit making $1.4 billion through May.

The Mysterious London Traders Accused of Manipulating Oil Markets — and the Anonymous Hedge Fund, Rare-Coin Expert, and Day Traders Who Are Fighting Back

Macro

I’ve been watching housing for a while. I’ve tried a few trades with little success. I still think there’s something going on here. Josh Brown has Logan Mohrashami on this episode. Logan is a housing data analyst for Housing Wire.

The Suburban Housing Boom is Only Getting Started (with Logan Mohtashami) - Listening time: 55minutes

David Kelly, chief global strategist at JPMorgan Asset Management joins The Exchange to talk inflation. I liked one of his points that many feel there hasn’t been inflation, but as individuals save more it’s been more asset price inflation rather than the price of goods. Japan keeps coming up when people talk about inflation. David gives his idea that while Japan has been chasing inflation for years, it might actually be in trouble if/when it comes.

Inflation nation - Listening time: 40 minutes

This is a quick one, because it's a Tweet from Danielle DiMartino Booth about this chart. Her point “the Fed so fears building disinflationary pressures it’s buying all the TIPS it can get its hands in an ATTEMPT to force inflation narrative into investors’ psyches. THAT’S FEAR.” Look at the whole Tweet. There are a few more charts in the responses. If you’re expecting inflation, this post argues the other side.

Attempting to force the inflation narrative

AI/ML should help make a trader’s jobs easier. This new feature from Overbond improves the trader’s ability to aggregate data across sources in RT and use technology to help with certain parts of their workflow. This tool might allow a sellside IG bond trader to increase the amount of RFQs they’re able to answer in a day by 2-3x. With roughly 30% of Corporate Bonds trading electronically, this will be a tremendous tool to improve their business.

Global launch of Overbond's COBI-Pricing LIVE AI algorithm and Refinitiv integration launch - Watch time: 5 minutes

Harrison Kupperman, aka Kuppy, is a frequent guest on my favorite podcast, but he is also a very successful hedge fund manager with Praetorian Capital and CEO of Mongolia Growth Group. He writes an informative blog around event driven trading call Adventures in Capitalism. This post is a wonderful example of how one could trade a SPAC. He goes through trading both the warrants and the stock as well as delta hedging the position. I don’t know if how this particular example plays out, but the way the post walks you through the positioning will help gain a better understanding of the formation of a trade on these instruments.

SHLL We Arb This One…???

I thought this was an odd development. A whole channel for short selling? I mean there are a good amount of opportunities out there, but not enough for a whole channel. The internet channel is going to be free, but I’m actually interested to see where this goes. This got me thinking of the tools Refinitiv has to check out shorts. Our Starmine models provide a long only model that helps you stay away from companies with large short interest. I also like to keep track of the Most Shorted Index. The index tracks the top 50 +$1B companies based on the Starmine models. It’s a great tool to track how much shorting is out there. Out-performance generally indicates there is a little less fear out there.

Muddy Waters' Carson Block to roll out internet TV channel for short selling

SPACs are everywhere. There were more than 30 S-1s filed last week alone. Chamath Palihapitiya announced his second version bought OpenDoor for $4.8 billion last week, and he also filed three more on Friday. Although not directly a short report, the second link below is a rather negative piece on OpenDoor. This article goes into almost every aspect of OpenDoor’s business.

Chamath launches SPAC, SPAC and SPAC as he SPACs the world with SPACs.

Knock Knock. Who's There? Opendoor.

I know I have a ‘Best of the Week’ earlier in the post, but I’m not 100% that this piece is not actually better. One thing I love about working for the company that employs me is the true diversity of our workforce and leadership.

Are markets in a bubble because traders live in one?

Thanks for reading. Have a wonderful week.

Michael

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