Blood on the Streets

 

This week I've heard the famous Baron Rothschild quote about half a dozen times, but I thought Ted Seides made the best point. I listened to Ted's new book, "Capital Allocators: How the world's elite money managers lead and invest" over the weekend. Ted reminded readers/listeners that everyone seems to forget the second half of the Baron's quote. The first part is 'the time to buy is when there's blood in the streets," but the second part is "even if the blood is your own." Crypto had yet another rough week with China mentioning possible restrictions down the road. Will this break the supposed diamond hands crypto investors claim to be? I saw something that roughly 30% of holders of BTC are holding at a loss. It's only about 15% of ETH holders. I’ve got another section of links below where I share some news links, but also some of the liquidation stats. JP Morgan also noted that many institutions have moved from crypto to gold. Gold has caught a bid again. Last week it ended the week up 2%, but it’s up 10% since the end of March.

On the equity side of things, the SPX had its first back to back weekly losses since Feb, and it has only had three consecutive weeks of losses once since the March 2020 selloff. Most major European and Asian indices ended the week higher, but not by all that much.

It was a decent week for economic data reports. German PPI up 5.2%. Japan GDP fell at more than 5% annualized pace and CPI was a small downtick, but apparently there was a huge drop in cell phone fees that impacted this. UK retail sales were 100% greater than expected at over 9% for monthly change. I’ll be tracking the EU data as it opens up to vaccinated travelers.

In the US, Existing home sales were lower than expected with lower supply. The thing we didn’t expect out of last week on the Economic front was the Fed commentary on considering changes to monetary policy based on strong data. US equity markets traded a little choppy after the 2pm release, but ended the week higher from that point. Treasury yields jumped a few basis points, but dipped again early the next day.

Earnings Watch

Last Week

Of the 52 names that I was watching last week, more than 80% beat on both the top and bottom line. However, only about 50% traded higher on the good news. This seems to be a trend. Some of it is because companies are not providing guidance, like HD and LOW. Kohls was the worst on the retail side of things. It took a beating after reporting, what looked like good numbers, on Thursday. The thing is some of the underlying numbers we’re as good as the headlines. It traded about 10x its normal volume. On the positive side, Lightspeed had a huge surge in top line numbers and forecasted more growth. The stock opened up 7% and ended the week more than 20% higher.

I know I’ve changed this view a few times, but I’m still trying to perfect it. I like this because it shows the larger more popular names Preferred Earnings, which takes into account those names where EPS isn’t the primary, and updates to estimate since reporting along with the top line performance. Since we’ve seen that the headline numbers do not tell the whole story, the last four columns are performance on first trade, full day, the week, and the first day’s volume.

Speaking of retail. Follow my colleague Jharonne for more info on how the retail specific companies are doing. She gets into restaurants and other retail same store sales and growth and provides some excellent insight on this area.

Q1 2021 Retail Scorecard

This Week

With most of the big retail names now done, we’re really into the tail end of this season. There’s a small exception with the major Canadian banks reporting next week. They’re not nearly as large as their American cousins, but it’s still something to pay attention to for North America. Otherwise, we’re going to see less than 5% of the major index names reporting. There are still some retail names to pay attention to like Dick's Sporting Goods, Best Buy, Costco, and the Dollar stores (DG & DLTR). Nvidia is the biggest name this week, reporting on Wednesday. 

Equity Capital Markets

Squarespace had a few solid days of trading off its direct listing Wednesday. Oatly also had a nice start to its public debut. I don’t see any noteworthy IPOs or unlocks this week. No IPOs globally show an estimated value above $400M. There is a big named direct listing in Zip Recruiter.

This is more of a news story, but it’s sort of linked to ECM.

Robinhood to allow users to buy into IPOs, ahead of its own market debut

The Deals team at Refinitiv put out a note last week when we passed a big milestone in the SPAC IPO market. While things have slowed a bit, it’s still an impressive chart.

SPAC IPO proceeds reach $100 billion milestone

Best of the Week

I’m not a bond expert. Heck, I’m barely a bond novice. I thought this was something a little different. Using High Yield spreads, via the ICE BofA High Yield Option Adjusted Spread, and their momentum to indicate where we are in the business cycle and track which groups perform better in those environments. Why the high yield spread though? Verdad says it combines the pricing of both the risky assets and the “risk-free” assets. The neat thing is this is not just about equities. They show the returns for small and large cap equities, IG and Treasuries, as well as Gold and Oil futures.

The Best Macro Indicator

Best of the Rest

As mentioned above, crypto got a little cray cray last week. I heard someone mention that Elon is sort of like the kid in this 2011 Volkswagen commercial. He thinks he’s the one moving crypto, but it's really the big guy, China, moving these markets. There was a screenshot going around last week that I couldn’t find again, but it showed the Liquidation data coming off byyt.com. Something close to 800k traders were liquidated over a 24 hour period.

Bitcoin, Ethereum prices fall after China reiterates ban on crypto services

https://twitter.com/wrnrm/status/1395006487936786433/photo/1

I think this chart agrees with Mr. Novogratz. In addition to this Visual Capitalist chart, I will share Refinitiv’s DataStream chart of corrections with a nice little table to show that this instrument has spent more than 50% of the last ten years in a drawdown of more than 50% and two-thirds of that period in a 40% drawdown. The crazy bull run might have ended, but things haven’t gotten quite dangerous just yet.
Crypto bull Mike Novogratz calls bitcoin plunge a ‘liquidation event,’ feels like capitulation
https://www.visualcapitalist.com/bitcoin-historical-corrections-from-all-time-highs/

Mike Green hasn’t been a fan of Bitcoin for awhile. He’s quoted in this article as saying, “it’s like driving up a hill with no brakes.” There’s a link to his debate with Anthony Pompliano, which is really a good learning experience both for and against the asset. We saw one of the big negatives last week in the downside volatility. This article puts together a lot of the arguments I learned a lot from this one that stands against all the Bitcoin zealots.

The Case Against Bitcoin

Sentiment

Nice short piece from JC Parets from All Star Charts showing how magazine covers do a wonderful job of calling tops and bottoms. Unfortunately for them and the regular investor, it’s a contrarian indicator.

Short Their Optimism

Over the last few months, the story has been call buying from retail traders/investors. It seems now, smaller options traders are buying more put options. Sentiment Trader is tracking the trend in the Equity Put/Call ratio. He notes that when this sort of protection is bought, equity markets perform quite well.

When Options Traders Have Done This, Stocks Returned 50%

Keeping the sentiment theme, well sort of. This is more about the behavior of the retail investors. The main theme is that when the market goes up individual investors think their portfolios will have a beta greater than one, but on the downside, beta would be lower than one.

Heads I win, tails I don’t lose

We saw some of the impact of economic data or commentary again last week, but as the Capital Spectator notes, “identifying which way the macro wind is blowing isn’t getting easier.” The point of this article is that the noise will continue to make some of the reported numbers volatile. The second half might start to normalize.

Beware The Surge In Economic Noise

Rob Arnott is really not a fan of MMT. He thinks retail hasn’t had this much of an impact on markets since the 1970s. Low interest rates aren’t that much help to stocks. If that were true, why are the returns in Europe so much worse than the US. He’s convinced EV stocks are in a bubble the same as internet stocks of the 2000s. Basically, they’re all priced as if they’re going to win. As a value guy, he shared that he’s bullish on emerging markets value, and surprisingly UK value. If you’re interested in hearing a few arguments for value, listen to this conversation with one of its biggest backers.

Rob Arnott, Research Affiliates - Modern Monetary Theory Does Not Work - Listening time: 49 minutes

This is an older interview, but some of the recent press led me to sharing this. Whether you agree or disagree with Cathie’s investment thesis, you have to agree she’s done an amazing job from a business perspective. She highlights coming up in a less than easy environment for women, and still dealing with some of that today.

Cathie Wood: Conviction - Listening time: 51 minutes

Back in the mid 00s, I worked on an equity portfolio trading desk that was right next to our bond desk. We were a small bond shop and these guys only did a small amount of business, except when we won a large multi-asset transition. Then they were trying to trade hundreds of bonds. Their desk would be so busy for the first day or two, rarely putting down the phones. It was old school and something fun to watch. Electronic Portfolio trading was still young in the equity space then, and I think that’s now where the bond market is. Things are electrifying, which will allow traders to become more productive with the easier things and focus around harder traders. Just as we’ve seen happen with equities.

Deciphering the Size of the Portfolio Trading Market

A nice summary of how the press can misrepresent some of the data coming out of our industry. CNBC and other outlets have noted a large negative delta position taken by Scion Capital, run by Michael Burry. Tell me you didn’t just think of Christian Bale when his name came up. Anyway, Burry has been shown to own north of 8,000 put as of the March 31st 13F filings. The press is valuing that position at $534M based on the total stock price and that’s not how options work. Drew walks us through some assumptions here and gives it a rough estimate of $200M. It’s still a big bet, but not >$500M.

Clarifying some of the misinformation on Scion/Burry’s short bet on Tesla.

One for the road

This one is literally one for the road. Ford released the info on its new F-150 Lightning, and it looks amazing. So many features. I’m sure you heard about the one where it can power your house for days. This truck breaks one of the two last remaining barriers, in my opinion, before electric can become mainstream. The cost being a huge hurdle. With parity on price, we just need to solve the charging station issue.

The Most Radical Thing About Ford's F-150 Lightning? The Price

Speaking of the road. I’ll be travelling next weekend for the first time in 14 months, so the blog will be off next week. Markets are closed in the States for the Memorial Day holiday.

Thanks for reading. Hopefully your week ends up in the black.
Michael