Ch-ch-ch-ch-changes Turn and face the strange
Last week was fun on the news front, but ended on a sad note. There were a ton of deals on Monday, then the Snowflake IPO was just crazy. For me, as a former person who traded these events, the fun was watching Friday’s close. I can’t believe I didn’t cover this in last week’s note, but Friday was quad-witching and a big day for index changes. I’ll cover this a little more below. After the close of Friday, it was learned that we lost Supreme Court Justice Ruth Bader Ginsburg. She was a big proponent of women's rights. The sad part is now we’ll see everything get political around trying to appoint her successor.
This week is already off to a quick start. As I’m writing this, I see that Nikola founder, Trevor Milton, will step down. That should make trading intense in the former SPAC in Monday’s session. Banks in Europe are trading lower on a list of suspicious transactions leaked from government files There are also some US Banks on the list that CNBC is reporting on this morning. We’ve got some decent possibilities on the Earnings front, and Tesla will hold a “Battery Day” event.
Earnings Watch
We’re back to a somewhat active earnings schedule. Not a ton of names, but there are some names that need to be looked at.
- Darden Restaurants (DRI) has a 9% beat on the SmartEstimate, but that’s only 0.01 because the nominal number is so small. This name has a huge disparity on the individual estimates. The mean is $0.048/share, but the high estimate of $0.23 comes in from 5 star analyst David Palmer of Evercore (+375%) and the low from Credit Suisse at -$0.11 or down 300%.
- Nike (NKE) should be one to follow reporting on Tuesday. With the recent strength of some of their distributors like DKS and FL, there are high expectations. Nine analysts that updated their EPS estimates last week. Eight were higher and the average revision was 77% higher. The weekly options are pricing in about an 8.5% move.
- The name I’m really interested in is Autozone (AZO). The SmartEstimate is up 22% over the past week and 46% over the last month. It’s still showing almost a 10% Predicted Surprise. There are four brokers that have not updated their numbers since May. The options are expecting much here, pricing in only a 6% move.
- Aside from those three with upside prospects, keep an eye on KB Home (KBH) on the downside. The SmartEstimate is $0.03/share or 5% lower than the mean. The one estimate that looks to be causing this is the Truist estimate up at $1.00 that hasn’t been updated since February. Removing that estimate gets the mean inline with the SmartEstimate.
Best of the week:
The author of one of my favorite books of all-time joined Grant and Bill this week. Ed Chancellor wrote ‘Devil Take the Hindmost: A History of Financial Speculation’ twenty years and three market bubbles and crashes ago. This is not something you want to listen to if you’re blindly bullish. A lot of the content they talk about is of the bearish tilt.
The End Game Ep. 7 - Edward Chancellor - Listening time: 82 minutes
Best of the rest:
I am so pumped for this book to come out. Annie’s book was due out this week, but a problem at the printer has caused a delay. This is just another reminder of the movie Elf. Annie explains her thinking on decision making in a very easy to understand way. She uses examples like Waze, Star Wars, and going out to dinner to help you understand your process and how to improve it. There is so much in this discussion and it’s not business or finance, but it's directly related to most of the daily process. Decision making is one of the most important pieces of the puzzle for the non-quants, for the quants it’s still there but in a different way. It’s even there for the “passive” investors. Unless you’re Morgan Housel and you buy only the VTI in your portfolio, there is still some form of asset allocation decision.
Annie Duke – How to Decide - Listening time: 96 minutes
This has been something to follow with all the fires in the West. The good news is the top chart is from the 15th, and the bottom is from the 19th, so things are improving with some recent help from the weather.
https://www.purpleair.com/map?opt=1/mAQI/a30/cC0#3.43/38.01/-71.11
Speaking of weather. Last week my colleagues on our Weather research team held a webinar. They covered a lot of topics around global weather patterns. La Niña, which can be a huge factor on the North American winter weather, was a big part of the presentation. Isaac Hankes, Senior Weather Analyst @ Refinitiv, walks us through his December to February outlook. Isaac also covered the 2020 Atlantic Hurricane Season. Named storms on pace to be 250% of normal, but total activity is just over 100%. This means the activity is more severe than normal. Isaac does some excellent work with reports on our Eikon platform. Tom Walsh, Head of Weather Research, finishes up the presentation on some of the new benefits we have in our Weather app in Eikon and the roadmap.This might be some alternative data that can help your trading decisions in both the ags and energy commodities, but also the equity and fixed income analysis in these sectors. It may also help a personal decision on whether or not to buy that generator for this winter.
2020 Weather Wrap-Up: Key Forecasts and Features to Watch - Watch time: 64 minutes
Ben takes a look at the allocation history of public pension plans. The allocation to fixed income and cash assets have changed considerably in the last thirty years. The majority of that has moved into alts. This shift might need to continue, because of the low rates on fixed income now. I thought it would be interesting to compare the large institutions to the allocations by individual investors. Looking at the bottom half of this chart of the AAII surveys, investors have a larger allocation to stock than the historical (data goes back to 1987) average.
How Are Institutional Investors Ever Going to Hit Their Return Targets?
Everyone seems to be worried about and positioning for inflation, but the Capital Spectator's latest post questions whether we actually even know how to get inflation to rise. This chart from one of his posts suggests to me that the US might have a problem getting inflation to move higher. I hate to get political, but some of this has to do with our current policies making immigration harder. The key to the US lowering its average age is lots of new citizens. Honestly, legal or illegal, it doesn’t matter. The Baby Boomers are aging and their spending outside healthcare will start to slow.
It’s Hard To Raise Inflation If It’s Unclear Why It’s So Low
Equities
The S&P 1500 and it’s underlying indices had quite a few changes for a quarterly rebalance. This was the rebalance that Tesla (TSLA.O) was supposed to be added, but the index committee threw a wrench in that. Tesla initially traded down about 20% over the next day or two. It’s still up nearly 6% over that time frame (Sept 4th), which is more than any of the three names (ETSY.O, TER.O, CTLT.K) that did make the cut and the index as well.
These index changes are still fun to watch though not nearly as fun as the late nineties or early aughts. All these names involved on Friday trade outlandish volumes. Catalent (CTLT.K) traded the most relative to its average volume for the last year at nearly 28x it’s normal volume. Many of these stock traded 40-60% of their day’s volume on the close. You can see a number close to the closing print in the pair column. I use this view to track the names going into the close.
Etsy, Teradyne and Catalent Set to Join S&P 500; Others to Join S&P MidCap 400 and S&P SmallCap 600
Here’s a chart of the last 30 minutes of trading in Wingstop (WING.O) migrating up from the Smallcap to the Midcap index.
I loved the opening line to this article saying SPACs are the Wall St equivalent of celebrity podcasts. The author goes through the reasons SPACs are better for the companies themselves. They are cheaper than the traditional IPO, they generally take less time than the 12 to 18 months, and there’s less paperwork to file. The article then goes on to ask if they’re good for investors. They have a sort of hedge fund structure with a big name manager, sponsors usually take 20% right off the top of the funds assets, and performance has been mixed. The exchanges are already looking for a way to get back some of the pomp and circumstance around the IPO, by making its cousin the direct listing easier for companies.
Are SPACs Too Good to Be True?
Anthony Pompliano, aka Pomp, is the co-founder and partner with Mark Yusko at Morgan Creek Digital. Pomp is a huge proponent of the digital asset category. I’m actually surprised it took this long for him to get Michael Saylor, CEO of MicroStrategy on. Michael once sold a web domain for $30 million and now he’s putting hundreds of millions of his company’s assets in Bitcoin (BTC=). He doesn’t feel he can hold traditional cash any longer, because of the current monetary and fiscal environments.
Michael Saylor On Buying Bitcoin With His Balance Sheet
After reading the Hindenburg short case for Nikola last week, this article is sort of the path of their analyst. Instead of profiting from the shorts, the author reported some of the nefarious behaviors to the appropriate authorities, but nothing happened. When it happened again, he and a colleague brought it to light one more time. This time they profited from the SEC’s whistleblower program.
Why I Broke Wall Street’s Code of Silence
One last thing
Next weekend, I’ll be doing a ruck, which is a weighted hike, with 35lbs called ‘March for the Fallen’. This year I’m doing the half version, which is 14 miles. Some of my acquaintances in the #FinTwit community will be doing the full 28 miles and doing so in local groups around North America. This event honors our fallen soldiers and their Gold Star families. I will be marching for Army 1st Lt. Dustin Vincent, former of Mesquite, Texas. I didn't know Dustin, but each participant of our larger team is given tags of someone we lost. Due to COVID this event will also be virtual. There are non-weighted versions of the 14 or 28 miles, even a 5k or fun run, if you just want to do something to help raise awareness. You can find out more about our group at the link below and also find the event page at the link too. Check out the #MFTF hashtag on Twitter to follow us.
https://alphaarchitect.com/2020/07/08/march-for-the-fallen-2020-sign-up-for-the-virtual-version/
Comments
Post a Comment