Excuse me as I kiss the sky
There has never been a better time in history to sell the major indices. Well, that’s because they’re at all-time highs. Let's just hope we're not Wile E. Coyote in a Road Runner cartoon. Aside from the continued march higher, A couple of big M&A deals were announced last week. The official announcement of the Salesforce (CRM) acquisition of Slack (WORK.O). S&P Global and IHS Markit announced a $44B all-stock deal. Talks of delisting Chinese stocks from US exchanges continued, and it’s not what I originally thought with those stocks moving to the OTC market. OPEC+ kept us waiting, but they’ve announced a small production hike of 500k barrels per day for next month.
Earnings Watch
Wow, my names to watch were a bit crazy last week. Zoom (ZM.O) had a killer quarter. The top line revenue of $777M was up 367% from last year and was a 12% surprise from analysts expectations. And that’s still accelerating revenue growth. EPS were $0.99/share, which is up 10x from last year and was a 29.7% surprise. So, why did the stock get sold? Well the forecasts for vaccines and a drop in margins seems to have spooked investors.Cracker Barrel (CBRL.O) reported better than expected numbers as well, but I think this is one of those names where analysts were just a little reluctant to be aggressive. The top and bottom line look good at first glance, but comparable store sales dropped more than 16% and more of its restaurants are being forced to close under restrictions.
This week’s calendar is light again, only about 50 names reporting in the US and Canada. The names that are reporting though are some big ones. Adobe (ADBE.O), Oracle (ORCL.O) and Broadcom (AVGO.O) on the technology front. Also a few retailers in Costco (COST.O), Lululemon Athletica (LULU.O), and one of my favorite companies, Brown-Forman (BFb). I really don’t have anything that catches my eye to check out.
Best of the Week:
An excellent article from Institutional Investor on Short sellers. This is on the longish side, but worth understanding how a short can sometimes come into play. I’ve shared some interviews with those that do work on the short side. It can be a very tough, sometimes even dangerous business, to be publicly short on a name. This article reviews one of the ways a smaller research shop can make money off a great find. For some reason there is a lot of cognitive dissonance around short opinions. For some reason, the masses are good with positive reports sending stocks shooting higher, but not with negative reports. Companies are obviously against this information being exposed, and these reports can lead to legal battles. This articles reviews how people that find the negative info can profit from it without being exposed to the legal battles and attacks.The Dark Money Secretly Bankrolling Activist Short-Sellers — and the Insiders Trying to Expose It
Best of the Rest:
Yahoo Finance Paul Tudor Jones sees 'massive boom' after COVID-19 vaccine gets released
Charles joined Michael Covel to help understand this time, which could be at the crossroads of history. Charles is a Libertarian, and Michael unpack much of the last 50 years or so of fiscal policy’s effect on the economy.
Charles Goyette on his book, "The Last Gold Rush…Ever!" - Listening time: 54 minutes
Equities & Derivatives
I’ve been meaning to write about this for weeks. Tesla (TSLA.O) is being added to the S&P 500 at the December year end rebalance. It will be one of the largest ever adds in the history of the index (*rough back of napkin math I think it will be around 45M shares!), so that means a lot of selling of the other names to make room. It’s not just a one name out sort of selling. The index committee has chosen to do the entire add in one fell swoop. Most people don’t know, but the index actually has some flexibility in how it adds/deletes names. This means December 18th will be one of the largest trading days of the year. Take a look at what the index rebalance day looked like last year. Most major index families, minus Russell, rebalance on this day. Mark Rzepczynski wrote about how the Equal Weight Index might be the most simple and cheap way for safety from this from the high weights of the top names.An equal-weighted index as an alternative to Tesla's addition to the S&P 500
Tesla to join S&P 500, spark epic index fund trade
One of my sources for great content is the MacroOps weekly blog, the Dirty Dozen. This is a dozen topics that come out on Monday mornings, usually after I publish my post. As I look at the Earnings reports every week, I thought this info from Barclays is very relevant. I love how they showed a normalized number of the surprises. It’s one reason I’ve started to share the Coefficient of Variation when showing the names to watch for the week. This shows the dispersion of the underlying broker estimates.
Dirty Dozen - The Correction in Gold is NOT Over
I think the quote in this FT article from Jeremy Grantham would sell the paper all by itself. Ok, not many actually buy the physical paper any longer. Jeremy is quoted as saying, "There is as much craziness now as there was in late 1999 or 1929." That's a bold statement. There are quotes from other too about how this bull market is pushing everything higher.
The ‘everything rally’: vaccines prompt wave of market exuberance
Nice comparison from Dr. Ed of the current events with history of those of the 20th Century. Number four is my favorite, because many do not think of the 1920s as a high-tech revolution.
Nobel laureate, Robert Shiller, along with Laurence Black and Farouk Jivraj wrote this piece on stock valuation. There is an obvious mention of the CAPE ratio, aka the Shiller P/E, but they also mention the effect low interest rates have on increased CAPE ratios. To account for the low rates, the developed the Excess CAPE Yield (ECY), which “puts the long-term outlook for the world’s stock markets in better perspective.”
Making Sense of Sky-High Stock Prices
Conversation with Goldman Sachs’ Morgan Forman, who runs the US Index Volatility desk. This is a nice look into one of the services that the large banks provide clients. Morgan talks over some of the themes she’s seeing on the desk. Increasing the right tail, absence of systematic vol sellers, exposure to US equities is high and starting to worry some, and valuation spreads between growth and value are quite high.
Markets Update: What Investors Are Watching Going into Year-End - Listening time: 10 minutes
Structured products are HUGE in Asia, but have not really been a thing in the US or even Europe. Jason Baresma is the co-founder and CEO of Halo Investing. Jason explains Halo’s place in the market and how they can help investors with a sort of portfolio insurance. I thought this was a great conversation for those of you in the wealth space, but also just another informative topic to help expose you to ever more financial instruments.
The Structured Marketplace - Listening time: 37 minutes
*Click on the chart to see more education and info on the marketplace from Halo.
Capital Markets
This Axios article highlights that there are over 500 “unicorns” and they are forecasting that 2021 will make 2020 look small. Whoa, whoa, I meant on the Equity Capital Markets front. That might break a few charts. The latest blog post from the Refinitiv Deals Intelligence team shows 2020 was, well 2020, unusual.The unicorn stampede is coming
Capital markets records broken in 2020
Leadership Chat: Shift CEO George Arison - Listening time: 26 minutes
Miscellaneous
While this is more of a news story, I wanted to include this as “interesting” because Nottingham is a decent sized fund accounting / administration shop and it’s starting to move more of it’s offering into the ETF space. Back in October, they started offering the non-transparent ETF structure, and now they’re filing for mutual fund conversation. The company is the administrator of over $31 billion. While that might be not a huge impact, these will start to add up over time, and with the Dimensional news last month about more ETFs. I think this will start to become a huge story for 2021.
Nottingham Files for Mutual Fund to ETF Conversion
Retail, well brick and mortar retail specifically, has been a rough place to invest, work, or do nearly any business with during the pandemic. There have been bankruptcies, downturn in sales, and straight up closing businesses. This article has some great charts to give you a sense of what’s going on now. The Eikon chart below looks at the Refinitiv US Department Stores Index versus the S&P 500 over the last 10 years. It’s outperforming by 173%, so it looks like these stocks are doing ok vs. the broader index.
The death and rebirth of America’s department stores, in charts
A man can dream right? I’ve been to Hawaii a few times, I actually used to be able to go on business trips when I covered the Hawaiian banks. Ever since then, I’ve told my wife that I want to live there, but she doesn’t want to be too far away from family. If she weren’t a teacher, I'd take this offer in a NY minute. Many firms with Asia investments have offices there, and the US markets staff generally work from about 5 or 6am until about 2pm. They position most trades with brokers right after the close for the next day’s AM trading or mostly trade at/near the US markets close, depending on size.
Hawaii seeks to be seen as a remote workplace with a view
I just learned something. Appreciate that.
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