Right Now

As the Van Halen song goes, 

"One step ahead, one step behind me
Now you gotta run to get even
Make future plans, don't dream about yesterday, hey
C'mon turn, turn this thing around"

Last week, we lost the great American rocker, Eddie Van Halen. Eddie was a wizard with the guitar. If you're not familiar with his work check out Eruption and/or Poundcake. This week I'm quoting another Van Halen song, Right Now. It seems when the politicians make progress on stimulus talks, they take a step back. It's time to turn this thing around and get this economy moving in one direction on all fronts. Volatility measured by the VIX was lower last week, but there was a little blip higher when the President tweeted on Tuesday that he wouldn't sign any stimulus bill. Apparently, he didn't like the market's response to that, so he backed off that and by the end of the week doubled down a possible stimulus. US and Canadian markets were scared off and most indices dropped by about 2% in the last hour of trading on Tuesday. Even with that dip we ended the week higher by 3.5% on the .SPX after cooler heads prevailed. I think the stimulus talk will hang over the markets through the individual earnings reporting period and into the election. As of Saturday, many in Congress are balking at the President's newest offer on Stimulus. Who knows by the time you read this on Monday or Tuesday, things may have changed a few more times.

Aside from earnings, which I'll cover below, this week also has a few other events worthy of your attention. First off, bond markets and banks are closed today for Columbus Day in The States. It's also Thanksgiving in Canada, so look for muted volumes in the US markets. Monday also starts the confirmation hearings for Supreme Court nominee Amy Coney Barrett. Tuesday is when it gets busy. Apple (APPL.O) will give us a look at the iPhone 12 and Amazon's (AMZN.O) Prime Day begins. This year though Amazon will face some headwinds from other retailers with both Target and Walmart launching sale events to compete. Zoom's (ZM) Zoomtopia kicks off it's fourth annual virtual event on Wednesday. Zoom has speakers like Mark Cuban, Arianna Huffington, and Jensen Huang. 

Earnings’ Watch

We’re going to get back to some earnings’ activity this week. I’m showing sixty six names in the Americas with more than three analysts covering. The biggest names to watch are the Banks and other financials, plus a few others like JNJ, UNH,  and HON. Here are three names that I’m watching this week:

• Ally Financial (ALLY.K) reports Friday. The Starmine predicted surprise is 14.1% or $0.10/share, and that has come in considerably over the last couple of weeks. The SmartEstimate for EPS has come down $0.09/share and the mean has come up $0.10/share. I’m also looking at the Street estimates for Loan Loss provisions. Those have been coming down considerably as well. The SmartEstimate for that is $340 million vs. the mean of $370, which is about 7% better. Options expired Friday and are pricing in roughly a 7% move. 

• Alcoa (AA) has been the traditional company to kick off the season, but that’s not really the case recently. The company reports Wednesday this week and the Predicted surprises from Starmine are very negative. EPS surprised is predicted at 17% for a -$1.14/share mean. The revisions to the downside have been coming in with the biggest from BMO’s David Gagliano. He moved from $0.02 down to -$1.38 and his five star status from Starmine makes that a bold estimate as it comes in 20% below the mean. JPMorgan’s estimate is the standout though. They haven’t updated since mid-July and are coming in 111% above the mean at $0.13/share. Revenues are expected to come in down 13% YoY. Weekly options are pricing in a +9% move. 

• One I’m not sure how to read is Citigroup (C). The Predicted Surprise is 6.9%. The EPS numbers have had a sort of mini V-shaped run since the beginning of September. It seems to be a battle of five star analysts, of which there are five.  Two brokers have bold estimates 19% and 10% above the mean, two more are 3% & 5% above the mean, but RBC is 55% below the mean and has the lowest EPS number for this quarter. Their number isn’t that old coming in mid-September. They also have the highest Loan Loss Provision number by 6% or $300M.  Citi’s options are pricing in a 5% move this week.  

Best of the Week:

Patrick O’Shaughnessy is one of the best thinkers in finance and maybe business. Patrick is the CEO of O’Shaughnessy Asset Management (OSAM) and the host of his ever popular ‘Invest Like the Best’ podcast. This is a great discussion around the history of OSAM, but also how Patrick and his team have pushed the envelope outside the traditional asset management space. This is more a conversation about thinking and business than markets and investing, but it will challenge you to think. 

Special: Invest Like the Best on Acquired - Listening time: 104 minutes

Best of the Rest:

Two episodes this week featuring Patrick, but they are both very good. Patrick summed this conversation up perfectly in his follow up email, so I'm not going to try to re-invent the wheel. “COVID-19 has been an exogenous shock to the financial system. From an economic perspective, it appears that the US government's willingness to use fiscal policy has been effective in isolating the impacts of COVID and preventing larger negative spiral effects to permeate the economy. Fiscal policy's legitimacy as a bona fide policy tool continues to strengthen based on its effectiveness and the unlikelihood of reaching levels of fiscal injection necessary to see damaging amounts of inflation. Risks persist in the economy, but investors should take heart over the increasing sophistication and effectiveness of government intervention.”
Jesse Livermore - Upside Down Markets - Understanding Fiscal and Monetary Policy - Listening time 54 minutes

CNBC is not all that respected by traders, but it still seems to be on all day long on most desks. I listen to the ‘Fast Money’ show on replay, because there’s usually one or two tidbits to get out of the show, plus I find their banter fun. This snippet from BTIG’s Julian Emanuel is really good. His thoughts are that stimulus is coming regardless of the party that wins. Fiscal policy will push us higher in the US next year. He thinks it offsets higher taxes too. There’s a ton of opinions in this quick five minute segment.
Stimulus is Coming - Listening time: 6 minutes from the start

Danielle recorded this the afternoon of President Trump tweeting his version of ‘No Soup for You’. This quick discussion covers many of the global macro issues. Some good points here were that all of President Trump's actions are calculated. His Tweet came on the same day Jay Powell said stimulus was needed and he did so while the market was open to show he's running this discussion. She does give the President credit for making Americans aware of the problems China may cause. However, we've chose to focus on social media and soybeans, as China has focused on technology.  

Trump Says No Stinkin’ Stimulus with Danielle DiMartino Booth - Watch time: 25 minutes

The three things that dominate headlines are not and will not be what dominates your portfolio. Alex Barrow, @MacroOps, has a great thread on this with some charts and facts about what is actually happening in that hat or behind that mirror while Mr. Market attracts your attention with a flashy sleight of hand.

The Market’s Sleight of Hand

I thought this was a creative way to solve the problem with social security. It would also be a huge influx of assets for the bond market. Granted there are a ton of assumptions and unanswered questions, but these are the sort of ideas we need to try to work through to solve big issues like retirement savings for all.
The solution to the retirement crisis is still in its infancy

Miscellaneous

If you’re not familiar with what direct indexing is, I highly recommend you read this one. I think this structure could cause massive changes in the way individuals and maybe even institutions invest. The author thinks that they may challenge ETFs in the near future.

Direct Indexing To Challenge ETFs’ Dominance

I loved this post from Kris. His basic premise is that obscenely high valuations are possible because there appears to be someone that will take the asset off your hands in line with current prices. I think this lends itself back to the Mike Green idea around passive being a support to the high valuations. Kris notes that the number of deep fundamental work buyers is limited. Has the passive liquidity made us lazy?
Exceedingly high valuations are increasingly dependent on liquidity or "networks of confidence"

Circling back on one of latest week's topics. Jesse Felder's interview with Leigh Goehring covers a lot of the deep fundamentals that will drive energy for the next few years. This is mostly a discuss on oil. The big point he makes is that EVs will never meet the needs of internal combustion. He compares EVs to the Concord jet, not the grape. 
Leigh Goehring On The Generational Opportunity In Energy Stocks Today - Listening time: 60 minutes

This is just a fascinating story by the FT around the Mafioso using institutional finance instead of it’s well known street level crime.

Mafia high finance - Listening time: 20 minutes

Thanks for reading. Have a great week.

Michael