Go to Your Happy Place

 

I love finance because you never know what is coming even when you think you do. Last week was quite a bit volatile across many markets. Whether it was the BoC becoming the first and maybe only hawkish central bank moving the Canadian Dollar and rates or Biden’s new tax plan moving nearly everything else. Lumber be damned, new home sales were amazing compared to estimates 1.02M vs 886K expected. This was the highest since 2006. Existing home sales weren't as strong as expected though, but not too far off. However, we saw a second negative number on the percent change side. Looks like those 2020 robust numbers pulled out a lot of the supply, just like a lot of other products.

I had my eye on the BTC correction, and thought that it’s path sort of resembles the ‘Happy Gilmore’ plot. If you’ve never seen it, watch the trailer here. Now give me a little space here, you’ll see.

• Happy Gilmore is a guy that sees an opportunity to correct a problem by joining a long established, sort of stuffy, organization. He’s an outsider that the current players see as an annoyance, but the fans love him. He succeeds early, but faces some troubles. There are a few things keeping him at bay from becoming a real player. I think we’re still waiting to see if BTC can win the “gold jacket.” The tax plan might be the stands falling on the green. Can BTC make the putt? Here’s my attempt at the characters:
• Happy Gilmore is BTC. A new hot shot performing well, but out of its league in prestige and experience.
• IRS guy who takes Grandma’s house is easily Central Banks. Money debasing has led to the rise of crypto.
• Grandma is the middle class, who is in need of rescue from the bad Central Bank decisions.
• Shooter McGavin is the non-believers, the traditionalists that are trying to value BTC like an equity or bond.
• Virginia, public relations for the Tour, didn’t really get Happy at first, but fell in love with him. That’s definitely the banks.
• Tour Commissioner, Doug Thompson, is so the SEC. Really trying to limit the damage Happy does to the reputation of the Tour, but eventually will give in.
• Chubbs Peterson is Happy’s coach and shows him the way. That’s totally Michael Saylor. The first CEO to use BTC as a Balance sheet item.
• Otto, the caddy, is obviously Dogecoin. Dirty homeless guy adds no value and is just along for the ride.
• Mr. Larson, the former boss & fan is Elon. A big imposing figure cheering on BTC, but is really not what he seems. Probably the second worst pick.
• Hal (bad orderly at Grandma’s nursing home) - Hal is the reason Happy needing to succeed quickly are legislators. BTC has to become so popular and intertwined otherwise legislators will try to hold it down. This is the biggest stretch.
• Lee Travino is traditional asset managers. Just looking on in disbelief.
• Donald, the unruly fan hired by Shooter to heckle Happy, is President Biden’s tax plan. It might shake up BTC, but in the long run.
• Bob Barker is the 2018 correction. Happy got out over his skis being a bit cocky and Bob whooped his butt
• *I couldn’t find a character to play Ethereum. Happy probably needed a best friend along for the ride that also plays, but is not quite as popular. Oh well, I tried.

I hope that gave you a bit of a laugh to start your week off.

I’ll get back to reality now. This week is a HUGE earnings week and there are just a few other things on the calendar. The FOMC meets in the US this week. I really don't expect much surprise there, but you never know. Of the other Economic data, GDP is a big one on Thursday, but also U Michigan Sentiment on Friday interests me. Sentiment has been trending up, but still has a bit to go to get back to the 2018-19 levels.

Earnings Watch

I think Netflix was the biggest news on the Earnings’ front last week. To be honest, I’m not sure why everyone was so surprised that subscriber growth slowed. I mean conditions were perfect leading up to this past quarter. They might not be growing as fast, but this business is on pace to be a giant cash cow. Harley Davidson had a great reporting week and ended the week up 19%. I was watching Silvergate, because of Cathie Wood’s involvement. It surprised to the upside on Earnings, but the stock sold off more than 13%.

As mentioned, this week is HUGE for earnings. 182 S&P 500 names or 52% of the market cap are reporting. Mainly because all five of the big are reporting. This hasn’t happened in something like 10+ years. Canada is busy too with 31 names and 15% of market cap reporting north of the border. It’s not just large cap either, 400+ names in the Russell 2000 report for 24% of its market cap. A names have on my calendar is Canadian National Railway up north. After the M&A battle with CP over KSU, I want to hear if any more comes out of their Q&A. Tesla is always fun, but the recent accident will probably be a huge focus on their call. Visa & Mastercard should be able to provide more insight into reopening based on where sales are coming from. I could go on forever this week, but let’s stop there.

Equity Capital Markets

UiPath had a solid first week of trading, ending the week up 35%. The unlock I highlighted didn’t do much at all. I did see this table from the Renaissance Capital team. Highlighting the terrible performance of direct listings for the first day buyers. CEO Brian Armstrong sold over $290M worth of stock in the first day or so and the Coinbase stock is slowly moving lower.

This week the biggest IPO on the docket comes out of Asia. SK IE, a ~$2B battery company will price on Monday, but not list until May 11th. The US has a few smaller IPOs expected. The larger two are Aveanna Healthcare @ $688M and Endeavor (entertainment) @ $511M. There are a few lockup expires I’m watching. Root has about 10% of outstanding, but 50% of the free float unlocking. Leslie’s has 25% of outstanding and 44% of float opening up for trading.

Best of the Week:

This is one of the best podcast episodes I’ve listened to this year. Preston first came to my attention a few years back as the host of ‘We Study Billionaires’. He's got an amazing personal history, but the basic idea of that podcast was Buffett value. Now, Preston is all in on Bitcoin. He and Bill really get into how he thinks through the idea, how to think through big calls, and how be brave enough to completely change your mindset. This episode is not really about what to think, but more the ‘how’ side of things. Bill is becoming one of my favorite people to listen to.

Preston Pysh - From “Value” to Bitcoin - Listening time: 106 minutes

Best of the Rest:

@SpacGuru joined the Absolute Return podcast with Julian to discuss SPAC market in general. He is an experienced Wall St guy that remains anonymous via Twitter. The major theme of this conversation is the viability of SPACs as an investment. I loved the point he made on how CNBC’s Cramer will talk bad about SPACs in the morning, then promote them on his show in the evening. He also talks about how the news misrepresents performance success for IPOs vs SPACs. They really get after CNBC here.

Leadership Chat: SPAC Investing With SpacGuru - Listening time: 54 minutes

You’re not misreading that headline below. Risk.net awarded Credit Suisse an award for risk innovation. Yes, that 👇 Credit Suisse. The same one that lost $5.5B because of a lack of risk management. The dominos continue to fall at the Swiss bank. They’ve resized, aka downsized, their prime services and are raising an additional $2B in capital. Looking at their scores in the Starmine Combined Credit Risk model vs. other European banks. You can see this in the spike in the 5Y CDS. Prices moved up about 50% in March only to come back in April.

Risk innovation of the year: Credit Suisse

Credit Suisse to boost capital ahead of further Archegos hit

Credit Suisse to resize prime services business following ‘unacceptable’ $5.5 billion loss 

Two different survey results posted on The Trade the day after one another. They both tell a similar story. Traders revert back to what they know in volatile markets. The first article refers to a survey by The Trade with analysis from Aite Group. There’s a ton of good info, if you click on the survey link. The one that the article highlights is the chart below. Check out where the increases are VWAP, Participation, and TWAP. Those were the first algos back in the day. For those of you that trade, trading large orders without an algo is not fun at all. The second article highlights the result from JP Morgan. They polled 200 equities traders globally and found that 28% had done more high-touch trades during the virtual office environment of 2020. These two articles combined give you a picture of how the buyside goes back to its roots when things go haywire. For those of you on the sellside, this is why good algos are fantastic, but nothing beats great service.

Traders turn to tried and tested algo strategies in market volatility

Equities traders looked to high-touch trading in volatile market, JP Morgan survey shows

A little more from the buyside here. Patrick, who is the CEO of one of the more forward thinking asset managers, allows Paul to give some insight on how the buyside works. Paul is a long time veteran of the industry. This is an excellent resource for those of you that have limited experience.

Paul Enright - The Buy Side Primer - Listening time: 86 minutes

Short selling is hard, and I don’t think I’d ever really have the guts to do it. Shorting in this environment is certifiably insane. This is a really well written article on shorting. Kris shows what makes it difficult and how firms can use options to be short.

Shorting In The Time Of ShitCos

The two forces are demographics and flows, but Ben provides a bunch of charts to explain how Boomers are still moving markets.

The Two Most Underappreciated Forces Driving Markets Today

I can’t believe I’m still writing about this, but it will not go away. This is a story about swinging for the fences and connecting. Well, I guess we’ll see if it plays out. The subject of this article “invested” $180k in Dogecoin @ 4.5 cents. With the coin hitting +40 cents last week, he became a millionaire, but only on paper. He said his plan was to ride it until it’s worth $10M then take some out. The coin dropped 50% last week, but as you can see below (as of Sat morning) jumped 22% again. You really need to have a steel stomach to be able to ride this rollercoaster. But he has faith in his leader. “A reason why I put my savings into dogecoin is Elon Musk,” he said. “I think the guy is a genius.”

‘I just became a dogecoin millionaire’

As I wrote about last week, I’ve asked myself how and why so many times over the past year. Here’s another. Michael was on fire this week, so I’ve got back to back from him here. Michael highlighted a WSJ report in this one that refers to the 125:1 leverage available on some futures via Binance.

Liquidation

It’s really all about the chart. It’s estimated that there are more than 100,000 Bitcoin millionaires out there.

Coins on the Sidelines

Last 24 hours of the Real Vision survey. Dogecoin is more overweight than coins like Ripple, Litecoin.

https://twitter.com/RealVisionBot/status/1385662449949585409

 

Here’s another story of the charades we tend to see people falling for during bull markets. I remember seeing these types of things in the late 90s too. A few good trades and everyone thinks they can be a pro. I wonder when they watch Mike Trout hit the ball 450ft or Messi score the most unreal goal, do they think they can do that too? This is the story of a company that seems to profit off those irrational thoughts.

The Curious Case of First Union Capital

Sentiment Trader is highlighting insider selling this week. I saw another chart, but couldn’t refind it that showed the insider to seller to buyer ratio at a record level. Jason notes that this signal isn’t necessarily a sell signal, it’s not a good look. I took a quick look using the Refinitiv insider data. You can see the SPX constituents are pretty heavy to the sell side over the last week and month. The 7D ratio is outlandish and the 1 month ratio is 20:1 sellers to buyers. 99% of the notional bought in the last month is from one insider at one company, Evergy.

Investors buy (on margin) as insiders sell

One for the road

This is a masterclass in business. Nick took his ability to think like a trader into a business that didn’t normally work this way. Listening to this one, I did a lot of double takes. Nick’s ability to pivot and think quickly was forged in the trading pits of Chicago. I love that Real Vision posts these interviews on delay, because they are evergreen. You don’t have to listen to this one right away, but I cannot recommend it more. Like our ‘Best of’ above, it’s about learning how to think in a way that differs from your normal process.

Nick Kokonas: Derivatives Trader Turned Fine Dining Visionary - Listening time: 112 minutes

Thanks for reading. Remember, just tap it in.

Michael