Hulk Smash!
Why do I have two pictures of The Hulk? Well, in the 'Best of' below Brent Kochuba is going to walk us through how crazy gamma got (Hulk on the left in Thor: Ragnarok) and how dealers have learned to harness it (Hulk on the right in Avengers: End Game). If you're an Avengers fan, you know Banner's secret is that he's always angry. It’s all about harnessing the Gamma as Dr. Banner finally learned to do.
There’s also a few arguing against inflation. I also found a group of articles discussing EVs. Green Energy and ESG as a possible bubble. I liked the info Goldman Sachs shared about Hedge Funds in their weekly podcast. Off that, there’s also a little section around market structure and volumes. Do not miss the Pzena discussion with Joel Greenblatt either.
Last week was a bit of a roller coaster for markets. Equities were up and down nearly every day. Bond yields were on the move higher again after a slight dip to start the week, but at least we also had a decent rebound in the Treasury auction after that fiasco with the 7yr. The Dollar is still trying to buck the huge weight shorts are putting on it. Bitcoin broke through 60k over the weekend and now looks to make the 58k ceiling a support level. Besides oil, which is in a nice upward trend, everything seems to be near an inflection point. Vaccines and the economic stimulus, or stimmies as the kids are calling it, are causing some rotations in the markets.
This week’s market should be mostly a non-event heading into quad witching on Friday. As you’ll hear from Brent in the ‘Best of’ this week, the run into expiration tends to be a bit of a nothingburger. We’ll probably just trend higher on the major indices into Friday. UNLESS, Uncle Jerome and the Fed throw a wrench at us on Wednesday. There is currently a 93% chance of no change being priced in, but it’s not the rate that worries me. It doesn’t have to be that. A change in tone or a comment could set things off.
It is going to be active in the North American ECM market this week. Three of the seven IPOs expected this week are more than $300M in Olo, Duckhorn, and Vine Energy, which is the first in the Energy space in a bit. We’re also expecting the direct listing from Coinbase, which will be so overbought that I wouldn’t be surprised if it didn’t open until afternoon. Then there are the unlocks of previous deals, which are having a difficult time of late. Last week, SNOW and DASH had a rough week seeing heavy selling volume. I think those two continue to see some pressure this week. There are four upcoming unlocks that might be worth looking at; Unity Software (U), American Well (AMWL), Broadstone Net Lease(BNL), and Sumo Logic (SUMO).
Earning Watch
Last week
Some of the names I mentioned last week had odd weeks. DocuSign might have been the most confusing. It moved up 17% between Monday’s close and Thursday afternoon’s report. Then it has an amazing report, only to sell off on Friday. Thor did quite well last quarter and raised future expectations. While it was up over 11% last week, it was a measured move with no gaps of volume spikes. Kind of like entering a highway with one of their RVs. AMC’s numbers were all horrid, but it was up 38% on the week.
- SNC saw some updates during the week, so the surprise came down a bit. The surprise here wasn’t as big as expected, but it was still a big miss on the top and bottom line. The stock opened flat, but then quickly traded lower on big volumes. It tried to rebound but sold off again into the end of the day. A number of new positive research was released after the close Tuesday and the stock traded up back to pre-announcement prices on Wednesday and ended the week higher.
- UNFI had a monster EPS beat of more than 50%, or about 45 cents per share. Almost the entire report was strong. The exception was revenue, which missed slightly, but had 12% YoY growth. The stock opened with a bang, then had another move higher into mid-day closing up very strong. Then on Thursday they updated guidance and the stock moved up even more and ended the week higher by nearly 30%.
This week
The names continue to trickle in to close out this quarter. There are not that many companies with a market cap greater than $1B reporting. This week the big fish are Chinese giants Tencent and Pinduoduo, plus Nike, Accenture, Volkswagen, and FedEx. A few other large caps I want to hear from are BMW, CrowdStrike, and Lennar. I have no names to follow this week. Some of the data is alright, but nothing that’s really writing about.Best of the Week
With no disrespect to Louis-Vincent, Brent’s section on Gamma and its effect on equities is must listen. Don’t get me wrong, I don’t want you to skip Louis. He’s a great 1A here. His point about bonds no longer being as good a hedge for equities as they used to be is just another reason to think about why the bullish bond run might be over. Below is a look at the daily correlations for the 10 year Treasury versus the Russell 1000 over trailing 90 days over the last twenty years. Louis point is good, but it has happened in the past during this bull run. Now, on to Brent. He shows a ton of charts on Weaponized Gamma. First it was Tesla, then GME and then RKT last week. Dealers have started to react faster to these Gamma Squeezes. We saw it last week with GME and RKT. Brent’s data shows it might not be over with GME. His content and views are a must follow. He also covers what to expect this week headed into quad witching. Cuckoo for Cocoa Puffs (guests: Louis-Vincent Gave, Brent Kochuba) - Watch time: 160 minutes (Louis is first 60, Brent is the next 45, thenBest of the Rest
Many traders are positioned for inflation, which you can see here from Pirates of Finance, and a lot more people seem to have an interest in it. Whether it’s short the USD, long Crypto or commodities, many positions are extended as if it’s a foregone conclusion. I’ve highlighted some of pro-inflationist lately, but I thought it was nice to finally hear from the other side. I think these two first two articles have made some good points on things going in a different direction. Like anything else, people get a little overzealous and assume the current projections much further into the future than will probably happen. In the Real Vision interview, Travis mentioned that he thinks much of the expansion in spending after things open up will just be a rotation from other areas. Steve & Travis are also a bond bulls, so they disagree with some of the things we heard from Louis above. In the third link below, Morgan Housel adds to this noting that one of the big inputs to the inflation argument might be being misread.Inflation Isn’t Happening, and It Likely Won’t. Here Are 7 Charts Showing This
Deflation and Insolvency Risks: Gold and Bonds’ Moment to Shine - Listening time: 106 minutes
The Fed Isn’t Printing As Much Money As You Think
Adam Rozencwajg On The Speculative Mania In Green Energy Stocks - Listening time: 58 minutes
Big Market Delusion: Electric Vehicles
As you can see, this has already been attempted just a few years back. There’s also a comment quoting something from Michael Mauboussin that a big reason EV failed was due to a factory fire.
https://twitter.com/corry_wang/status/1370880406686466051
Short Seller Adds Another EV Stock To Its Hit List
https://hindenburgresearch.com/lordstown/
Value Investing Masterclass: Joel Greenblatt and Rich Pzena - Listening time: 59 minutes
How Hedge Funds are Navigating a Volatile Market - Listening time: 17 minutes
Retail trading volume rivals hedge funds and mutual funds combined
This indicator shows the most speculation since 2000
Let’s talk market structure for a bit. Paul Rowady, director of research for AlphaCution, helps tell some of the stories around payment for order flow, market macrostructure, and how Robinhood is playing the average investor. He also rehashes how last year’s implosion of Ronin happened. Technology’s impact on capital markets has really prevented new players entering the US listed market making game.
Robinhood, PFOF and the Dark Underbelly of the Options Market - Listening time: 41 minutes
Commodity price surge leaves emerging currencies adrift
Ted Seides, Capital Allocators – I Want To Compound My Capital…But I Want To Do It Alongside Of People That I Respect And Trust - Listening time: 75 minutes
Verizon bond sale proves thirst for yield
Thanks for reading. Have a smashing week.
Michael
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