The Waiting is the Hardest Part
We’re just in a wait and see pattern. Wait and see if we get stimulus. Wait and see what happens with the election. Wait and see what happens with Google’s new antitrust lawsuit. Wait and see if Bitcoin actually turns the corner it’s looking around right now. This week we start the week waiting on earnings from five of the largest companies in the world. So many markets seem to be like a spring waiting to uncoil. As Tom Petty once wrote, "The Waiting is the Hardest Part."
Outside of Earnings this week, we have a couple of events that I’m paying attention to. Robin Hood’s Investor Conference is on Wednesday and Thursday. They have some big names presenting during their virtual format like Larry Kudlow, Cliff Asness, David Einhorn, Ken Griffin, and more. Also, Spartan Energy Acquisition Corp (SPAQ) shareholders are voting on the proposed merger with automaker Fisker.
Earnings’ Watch
We’re back into the real meat of Earnings’ Season. Over the next two weeks, 60% of the companies and market cap of the S&P 500 will report. This week we get the mega mega caps reporting in Apple (AAPL.O), Microsoft (MSFT.O), Amazon (AMZN.O), Alphabet (GOOGL.O), and Facebook (FB.O). These names will probably drive the overall market this week, unless we get answers on one of those topics above. Of the big names reporting, not many have any big Predicted Surprise numbers. I did notice that the implied volatility (30D ATM) for each of these five names is on the rise over the last four months, but they have started to reverse that trend or flatten out in the last few weeks.
Looking at the names I was watching last week, the results were mixed. Albertson’s (ACI) fared pretty well. The Street was expecting $0.26/share and they beat by 128% reporting $0.60. The stock opened up 6%, but ended up giving about half those gains back by the end of the week. Yet, Las Vegas Sands (LVS) did not report as predicted. The Street was expecting a loss of -$0.73/share and they beat by 8% or $0.06/share. A few analysts updated their numbers between my note and them reporting on Wednesday, but the SmartEstimate was still predicting a big miss. The stock opened up 7.2% on Thursday and added another 2% on Friday to end the week up 10.3% from its pre-earnings close.
Names to watch this week:
- Gildan (GIL.TO/GIL) reports on Thursday. It’s a cross-border Toronto/NYSE name. Ten brokers cover this mid-cap name, and three of them have not updated their estimates at all since July. With four brokers updating their estimates in the last two weeks, we’ve got a huge expected surprise of 70% using the TSE listing or 50.3% using the NYSE listing. They have slightly different estimates, but I’ll use the Canadian listing as it’s the primary. Be on the look out for updates this week before they report. GIL doesn’t have weekly options, so the monthly options are pricing in roughly a 6% move, and put/call ratio is 5.6:1. However, OI and volumes are very small here.
- Avis Budget (CAR) is a name to watch this week. They also report on Thursday. Their estimates aren’t all that high and are still well off last year’s numbers. However, they are looking much better than the previous two quarters. The big thing to watch this week is an update from Barclays. Their EPS estimate is from early August when consensus was much lower and their -$0.29/share estimate is extremely off the mean of $0.15/share. The SmartEstimate has removed them and other slow to update brokers and is showing a $0.20/share number or a Predicted Surprise of 30.7%. Interestingly enough, their Revenue estimates are the same age, but are inline. Like GIL, Avis Budget doesn’t have weekly options, so using the monthly options, it looks like options are pricing in an 11% move this week.
- Let’s look at one on the negative side of things. One of my former employers, Ameriprise Financial (AMP), reports on Wednesday. Their EPS have come down tremendously over the last month. From about $4/share down to the mean of $1.71. The current Predicted Surprise is 19.7% with a SmartEstimate of $1.38. This large difference is mainly due to the $4.00 estimate still on the books from Citi’s August report and William Blair’s $4.05 estimate. The company issued negative guidance on September 28th. William Blair and UBS are showing much higher than others in the Net Income metric. AMP has the lowest implied volatility of these three names. The implied move is about 5% and the 25 Delta skew is higher than the other names here at 8.9.
Best of the Week:
Stephanie Kelton wrote the book on MMT. No, seriously, she actually wrote the book on it. She talks with Erik mainly about the ideas from her ‘Deficit Myth’ book. Kelton’s part of the show is quick and it goes from about 14 minute mark to the 44 mark, but the market update at the front and chart review at the end are always a great update on macro markets. I picked this as the best of the week, because a basic theme of MMT is also waiting for inflation.Stephanie Kelton on Modern Monetary Theory - Listening time: 90 minutes
Best of the Rest:
Remember the story of the guy that used Bitcoin to purchase a pizza? Yeah, the Bitcoin ended up having a value of roughly $131M in today’s prices. Well, last week PayPal announced that it will allow users to hold Bitcoin and other digital currencies in their accounts. Bitcoin and other digital currencies have been performing well of late, especially last week. It also looks as if the US government is afraid of being left behind, as Fed Chair, Jay Powell, said last week that he’s open to collaborating on a digital US Dollar. As Bruce Willis’ character John McLean said in ‘Die Hard’:
PayPal to allow cryptocurrency buying, selling and shopping on its network
Powell: Fed open to private sector collaboration in possible digital dollar
Traders are starting to pay attention too. The Market Ear team shared this chart from JP Morgan that shows some increasing interest in futures and options on Bitcoin.
https://themarketear.com/posts/cPqHMLwQDv/image/0
Until last week, I had never known anyone that actually used Bitcoin besides for trading purposes. Justin shared a previous experience using Bitcoin for a great purpose in this post. I think this shows the power and impact the crypto world can have on personal banking. Now, if we can just dampen the volatility, so we're not paying $131M for two pizzas.
What Bitcoin Taught Me About Risk & Reward In Investing & Life
I’ve been doing a lot of event driven trading lately. Trading around earnings, the Fed, some dislocations and other random ideas. Trading is only a small portion of my total portfolio. I liken it to my use of sport gels when out training for hours at a time. They’ll get you through the workout, but you really cannot rely on them for the main part of your diet. That’s where Value investing comes in. It’s the vegetables of your diet. Completely necessary, but will not always taste the best. I shared an article last week about one of the best quant value shops closing its doors, but this week we've got a few defending value. Pzena’s quarterly newsletter makes a stand of sorts. Pointing out arguments for why value is still a good choice. Jesse Felder’s article would be included just on the basis that it quotes Monty Python, but he does make some good points about the differences between quantitative value and traditional Ben Graham value type investing. He actually argues that quant value may not even really be value investing. Finally, my colleagues also put out of note this week asking some questions about events that could lead to the rise of value again.
U.S. Election Chart of the Week – Is Value Dead?
University of Florida Professor, Jay Ritter, joins the IFP to discuss all things on capital raising. Obviously, the trends in SPACs have been top of mind lately, so Steve discusses the whole process with Jay. This is a very good educational discussion if you need a refresher on the hows, whys, and whos of capital raising.
“Mr. IPO” on SPACs, Direct Listings, & Public vs. Private - Listening time: 50 minutes
While not exactly the same as the capital raising a company does, Wes Gray and Meb Faber talk about how to start and ETF. This is a detailed discussion around the different processes that go into getting an ETF to trading. They cover the differences for a smaller niche shop and the mega shops like Vanguard or Barclays. The most interesting part for me was the discussion around limitations of family offices and how RIAs might be able to use this in place of Separately Managed Accounts (SMAs).
Best Idea Show – Wes Gray, Alpha Architect - An ETF Centralizes Everything Into One Product - Listening time 87 minutes
We’ve seen some mergers in the Oil industry of late. Last week it was ConocoPhillips (COP) announcing a deal to acquire Concho Resources (CXO). This seems to be a last ditch effort by companies to stay in business. As oil hovers around $40, this makes profits a challenge. Bankruptcies have been a huge problem for the industry. This NYT article sort of summarizes the challenges and the recent deals.
Oil Industry Turns to Mergers and Acquisitions to Survive
Miami International Holdings, Inc, Chairman & CEO, Tom Gallagher joined the Options Insider Radio to discuss his firm’s growth. The MIAX initially opened as an option exchange in 2012 with plans to open a stock exchange aimed at Latin America. The parent company is now a major options market, acquired the Bermuda Stock Exchange and Minneapolis Grain Exchange, and invested in bitcoin derivatives exchange LedgerX.
To Options And Beyond - Listening time: 37 minutes
Some good charts that show Amazon’s dominance of late.
https://twitter.com/borrowed_ideas/status/1318369213535408128
Last week I shared a few articles on retail sales numbers. I thought this was a good follow up piece. It highlights many of the dislocations in different categories of “retail.”
There are two main parts to this. The first Ben highlights how gigantic of a mistake Sony made in 1996 paying $20 million for Spider-man, when they could have all the Avengers for $25 million. Yes, that’s an ‘M’ at the front of that word. Disney would pay $4 Billion for those same assets that Sony passed on. Even with the recent COVID restrictions on movies, one could argue that the value is still even more than that. He tries to smooth that mistake over by telling you about how it wasn’t a given back then. He then transitions the bond bull market and how today everyone feels rates will not return to higher levels. It’s a good post to show you may be an expert, but there are no crystal balls out there.
I could share something from the Visual Capital nearly every week, but this one hits home. ;) This group of charts breaks down the last twenty years of home prices across the country. On average, the value of a home is up 106% in since the turn of the century.
Charting 20 Years of Home Price Changes in Every U.S. City
James Clear’s Atomic Habits is one of my all time favorite books. He joins Jim O’Shaughnessy’s Infinite Loops for a great discussion. I have this towards the end because it has less of a direct focus on business, but the discussion is super relevant to business and life in general. If you find this conversation insightful, I highly recommend James’ weekly 3-2-1 newsletter.
James Clear – Constructing Habits & Systems - Listening time: 61 minutes
I’ll end on a lighter note. I’m a quant by nature. I always found myself using models to make decisions. For example, this weekend my wife and I found we needed a new car. I spend Sunday building a multi-factor model to measure new vs. used, finance, lease or cash purchase, and all sorts of other inputs. Anyhow, this article is for all you nerds out there. It’s a quantitative look at movie box office results. It’s a fun and different look at movies.
A Quantitative Look at the Movie Business
Thank you for reading. Have a fantastic week.
Michael
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