Best of the Shower Curtain Ring Division

 

For those of you that did not smile when you read the title, it's a reference to the cult classic Plans, Trains, and Automobiles. The 1980's movie is a journey of two men just trying to get home for Thanksgiving. If you've never seen it, please watch it. I feel like that movie is similar to the major indices just trying to get to the year end in positive territory. 

There is still a lot to be thankful for. For one, we're not traveling for business as much this year having to deal with the Del Griffiths of the world. I'm happy not having to commute nearly 3 hours per day. I get to spend more time at home, granted much of it is still in front of the PC, but that's my choice. I'm thankful for a great group of colleagues that I get to work with everyday and a company to work for that has been so supportive this year. I'm thankful for the amazing content that people choose to share, much of it free. I've learned so much since starting this blog. In the end, we all meet great people along the way. I hope you all have a Happy Thanksgiving

Interestingly enough, last week was a quiet one in terms of overall market performance, but not on the news front. Many of the major assets tied to the North American markets closed within a 1% change for the week. Bitcoin was one of those few exceptions. It is on a meteoric rise and closed up 14% this week, and that makes three of the last five weeks it’s had that sort of run.

This week Tuesday us a big day for Earnings and President Elect Biden is supposed to announce some cabinet picks. Wednesday is were the Economic data action is, and then we get to stuff our faces and watch a lot of football. Sorry Canada, you have to work on Thursday, but the plus is that while it's not an official day off, things will be so light, you shouldn't have to do much work.  

Earnings Watch

We’re on the downside of another earnings’ season in North America with about 95% of the S&P 500 and Russell 2000 having reported. The TSX is slightly behind with 88% of names having reported. We’re still waiting on some retail names across all three names and none of the big Canadian Banks have reported yet. It’s a short week in the US with the Thanksgiving holiday on Thursday and a half day Friday. There are only a few Canadian Venture names brave enough to report on Thursday and Friday. Most reporting this week will be done by Wednesday morning.

My colleagues put together an excellent report to track earnings. As we come to the tail end of earnings season, 94% have already reported, we’re seeing well above average reports beating analysts estimates. 84.6% of the 474 companies that have reported have come in above expectations. That compares to 65% in the typical quarter, going back to 1994, and 73% over the past four quarters. I think this has a lot to do with companies not providing much in terms of guidance and the analysts not wanting to go out on a limb.

This Week in Earnings

I traded all three of last week’s names to watch. LB and TGT worked out very well, and LOW was a big miss. Rather than continue with all the text, I figured I’d switch up to the simple table to give you the main points that I usually refer to. 

• LB crushed all reports and the stock is seeing levels it has not seen since March of 2018.

• If LB crushed earnings estimates, TGT annihilated them. Same store sales grew 9.9%, digital sales grew 155%, and their same-day services grew 280%. The quarter was a great success and the stock saw multiple targets raised over the next couple of days. 

• LOW was the weak name of the bunch last week. While the company beat the top line estimates, it saw a slight miss on EPS. The real negatives came off the conference call as managements holiday forecasts were dim. 

For this week in Earnings, we’re starting to get into the slow period. I only have two names of real interest. I mean there are a bunch of big names that will definitely get lots of attention, but I’m not able to find any anomalies when looking at the data.

• Best Buy (BBY) has only 8 of the 25 included in the Starmine SmartEstimate. The others are out because of a revision cluster starting last week. I think those new reports had to do with Instacart launching same-day delivery of Best Buy products. Two five star analysts, Curtis Nagle of BofA and Chris Horvers of JP Morgan are both well above the mean garnering a bold estimate call. BBY hasn’t disappointed the Street since Q3 2012, that’s 31 consecutive quarters. There has been some call buying in the last week, and the deep OTM calls

• Deere & Co (DE) has a similar detailed estimate profile as BBY. They have only 6 of 18 analysts included due to recent updates. Though none of those analysts are five-star like BBY. This one also has more of an even profile on the options front too. The Predicted surprise did not exist until late October, but then increased with the updates in the last two weeks. The average revision is an increase by 47%.

Best of the Week:

Fascinating conversation around AI and Machine Learning. Dr. Chan runs a machine learning hedge fund for QTS Capital Management. He and Jeff discuss machine learning, decision trees, factors, the merging of AI and ML, the effects of machine learning on markets and much more. This is a great conversation if this topic fascinates you, but also if you’re more of a novic you will gain some insights to allow you to have more conversations with the machine trading group. My favorite part of the conversation, aside from Dr. Ernie telling Jeff he’s not a big fan of Star Wars, ouch, was the discussion around the differences between AI, ML, deep learning, and machine trading. Get well soon Jeff.
The Derivative The Mysteries and Makings of Machine Learning with Dr. Ernie Chan of QTS Cap - Listening time: 70 minutes

Best of the Rest:
Troy started on the mortgage trading desk at Salomon Brothers in the 1990s. He and Dean talk to some of his education there and what volatility was like, especially during the housing bubble. They wrap up with Troy's founding of Hollis Park to find value in MBS and different structured products. Troy does not see a well lit path for the Fed to back away from markets for at least the next decade. Well, Thursday saw Treasury Secretary Mnuchin state that he would defund several Fed lending programs.

Troy Dixon, Founder and CIO, Hollis Park Partners - Listening time: 46 minutes
Mnuchin clawback of Fed funds 'deeply irresponsible,' Biden team says

Rates

Jim Grant joins the Sherman Show to discuss Central Banks, ultra low yielding securities, currency depreciation and debasement, and Central bank digital currencies. There is a lot of focus around the Fed here. JIm brings up a point that the oldest citation in the Fed position paper goes back to ONLY 2010. They are basically fighting the last battle. They believe they can actually control events, but Jim thinks they are sometimes benign and malevolent.

James Grant, Founder – Grant’s Interest Rate Observer - Listening time: 49 minutes

China was the latest to take advantage of super low global rates. They issued a five year 750M EUR tranche with a yield of -0.152%. The bonds are trading even higher now. They also sold longer term issues at rates lower than 1%. Looking at Eikon’s New Issue monitor, it looks like those 5Y notes were the third lowest yield this year with Austria and Luxembourg issuing at slightly lower rates back in March and April.

China borrows at negative interest rates for the first time

Dr. Dirk Willer is the MD and Global Head of EM FX and Fixed Income Strategy for Citigroup in NY. He and his team were the number one ranked EM strategy in FX and rates by Institutional Investor in 2019. This is a great conversation around Emerging Market. He talks about the US election, its impact on EM, Brazil’s fiscal numbers, China, and trading in EM markets.
Dirk Willer On Emerging Markets Rallying, EM Inflation And Latam Challenges - Listening time: 57 minutes

Equities

A couple of week’s ago, my ‘Best of’ was on the mechanics of short selling with S3 Partners. This is another short selling interview, but this time with a fundamental view. Jim Chanos is a legendary short seller. Jim tells us his philosophy on investing and why value investors have a hard time in markets like this. They also discuss some of today’s big shorts in Tesla and Uber, and touch on Bitcoin as well.

The Long (and Short) of it: A Cynic’s Take on Markets & Investing | Jim Chanos - Listening time: 56 minutes

Jack Schwager is famous for his Market Wizards series of books. His latest version, Unknown Market Wizards, focuses on people that are not well known to the wider trading community. Jack joined Michael Covel to talk about the book. The stats of these traders is unreal. One turned $2,500 into $50M and another that averaged 337% returns over a period of 13 years. The stories are amazing and I cannot wait to read this book.
Jack Schwager Interview with Michael Covel on Trend Following Radio - Listening time: 50 minutes

Marsten was one of the subjects in Jack’s book above. He was a musician by training, but moved on to programming. His company made him wealthy and then interested in trading. His chapter is ‘Don’t Quit your Day Job’ is good advice.

Marsten Parker - Market Wizard: The Spirit of Experimentation - Listening time: 65 minutes

Sentiment
Rob Iati, Director of Market Data Research for Burton-Taylor International Consulting, reviews how big a component of Alt Data that Sentiment has become. Sentiment has nearly a 7% market share, which is just behind Business Insights and Consumer Transactions. Rob’s firm shows that Alt Data is still hot and looks to be for the next 18 months and maybe more. To keep up with this, Refinitiv released the MarketPsych Media Sentiment (MMS) Indices this year, which attempt to use 34 different sentiment factors to forecast the next month’s price returns. There is some of this info on the desktop, but the value is really in the feeds.
The Changing Views of Social Media and its Impact on Trading

One more chart on sentiment. I saw this Tweet with a chart from BofA showing the expectations of fund managers.
Record net 73% of investors in BofA Fund Manager Survey expecting steeper yield curve

There are some conflicting signals in the Spuz. The Quantifiable Edges blog posted some historical “trades” on the SPX from 1960 to 2019. This along with Josh’s post on the Breadth indicator read that the SPX futures are about to head higher. However, this post by The Market ear shares some indications from Goldman Sachs and JP Morgan that there is tons of selling to do before year end. Goldman estimates $36B in month end positioning. JP Morgan thinks balanced funds need to sell $160B of equities globally to get back to their 60:40 allocation target. That’s a lot of equities for sale. With US equities being 50% of global market share, I’m thinking a lot of that will come from US large caps. That third link also leads to the SpotGamma chart below, which shows a decent gamma wall at 3600. This will supply enough resistance into possible strength.

Updating Thanksgiving Week Historical Odds

Pay attention to the new Breadth Thrust

There will be significant equity selling into month-end

Miscellaneous

Village Global hosted a special event that brought together 100+ angel investors for talks from the best of the best. In this discussion, Reid, Chamath, and Ben Casnocha covered what is broken about venture, risk when evaluating an investment, SPACs, diversification, and pricing in different rounds. 
Reid Hoffman and Chamath Palihapitiya on Angel Investing and The Future of Venture - Listening time: 39 minutes

The company I work for has done an amazing job responding to the changes in the way we work in the last eight months. Microsoft founder, Bill Gates, has a new podcast with actress and writer Rashida Jones, where they ask big questions. The first episode is about life after COVID. gives seven things he thinks will change. You can listen to the whole episode or read the summary from Inc magazine.
What will the world look like after COVID-19? - Listening time: 44 minutes

Life after Covid-19 will look a lot different than life before Covid-19, according to the Microsoft founder and philanthropist

Thanks for reading. Have a wonderful week.

Michael