Don't Bring Me Down

 

This week’s opening is going to be a bit shorter than normal, as I’m traveling and not able to sit down and think, but I also have a bit more content. Fellow Americans might have heard this song of late, as it was licensed for a Peloton commercial. Before I go on, this is a must see video. Unless you traded PTON. WARNING, do not be drinking anything when you watch this.

Last week wasn’t much fun. US Stock markets had their worst week in like two years. The S&P 500 broke its 200 day moving average for the first time in awhile and fell for the third straight week. Unlike last week, there were no sectors to hide in for equities. According to The Market Ear, about 40% of NASDAQ names are down 50% from 52 week highs. The one thing I have noticed has been the lack of a spike in the VIX. It’s slowly moving up into the 20s unlike the last few downturns where it ripped right into the 30s. I’m wondering if this means more selling to come. You know who else was selling? Crypto owners. Most major cryptos sold off and have continued their march lower. One thing I heard here was that many of the sellers were selling at a loss and that means they’re most likely short term holders.

For the week ahead, I’m really focused on the post open period in the US today. Equities might sell off at the open, but I’m looking to see if buyers step in. The Fed is meeting and we should see some more clarity on QE, but also more volatility.

Earnings Watch

This Week

We’ve got probably the biggest week in earnings. The three Trillion Dollar market cap names report. Tesla is always volatile and this quarter is no different. It’s showing a greater than 9% Predicted Surprise. Boeing is showing a 31% Predicted Surprise and its recent estimate history is quite volatile. Another name I’m keeping an eye on, but it’s not pictured here is Southern Cooper, which has a 10% Predicted Surprise and some positive momentum.

Best of the Week

This is a long 2 part episode. The first guest is Alex Gurevich. Alex talks with Kevin and Patrick about his new book. The book discusses the market during March of 2020. This will help you understand what it was like to be a hedge fund manager during that time. Alex also talks with the guys about current opportunities. Staying on a similar topic, the second interview is Harrison Kuperman, aka Kuppy, interviewing Mark Moss. These guys talk like you would at the bar with a friend but get into topics around hedge fund portfolio management. Don’t miss these two amazing interviews. The last 20 minutes or so are Kevin and Patrick talking charts.

The Trades of March 2020 (guests: Alex Gurevich, Kuppy & Mark Moss) - Listening time: 140 minutes

Best of the Rest

Barry’s episodes are always good, but this one was great. As an equity guy, I love to learn about the other asset classes. Barry talks with Tina Vanderstell, who heads GMO’s Emerging-Country Debt team. Tina’s experiences are just so impressive and I learned a ton. Tina spent time in Latin America. The biggest thing I learned from this was the risk EM bond traders face around emerging country debt and that emerging country bonds could trade in developed market currencies. I also found the discussion around hedging to be informative.

Tina Vandersteel on Emerging-Country Debt - Listening time: 76 minutes

There’s no shortage of great conversations in this week’s post. Here’s another one that came out of the Grant’s Conference. Bryan Lawrence is a fund manager at Oakcliff Capital. He starts with a conversation with a cab driver on trading. The two challenges are generating great returns and delivering those to others. Bryan is a highly concentrated value investor. He has extremely low turnover and generally runs with a huge cash position while he attempts to find his next investment. One of his major points was that the average money manager holds 185 positions, but how much can they really know about those companies?

Grant's Conference - Oakcliff Capital - A Stock Picker's Two Challenges - Watch time: 33 minutes

I’m sensing some changes are coming in the hedge fund industry. Many of you have probably seen the graphic of the number of major funds that underperformed the S&P 500. I’m not sure that’s the best measure, but either way it’s something traditional passive proponents point to. As we heard from Alex in the Market Huddle episode, Hedge funds are here to provide a hedge. There are thousands of small funds that are doing very well. Kuppy’s performance has been amazing. I’ve caught some of his trades myself. This article looks at some of the 2022 predictions from Agecroft Partners. These good points to think about. My top three from their top ten are number 3, record inflows, number 5 a focus on small/mid cap and global equities, and number 7 an increase for fixed income alternatives.

Top Hedge Fund Industry Trends for 2022

This piece touches on something that Bryan Lawerence mentioned as a benefit for the traditional mutual fund set up. Mutual funds have been losing the battle versus ETFs of late, but the ARK flows show where things can get off track. The WSJ article this is summarizing gets into the performance and flows too. The question many ask, did the ARK get built too fast?

How A Flood Swamped Wood’s ARK

Last week I shared some research around authorized participants and ETF liquidity. This week I found another report that shows the impact that high-frequency shops have on intra-day volatility. The paper found that when HFT withdrew the volatility increased by 30% over and above the normal. The paper also found that arbitrage speed slowed down during the COVID crisis period. The paper concluded the HFT does not stabilize markets during crisis periods. Below is one of the charts I liked from this paper. It shows how the HFT quotes disappeared and we saw less odd-lot trading during the COVID crisis in March of 2020.

Withdrawal of High-Frequency Traders and Intraday ETF Volatility during the COVID-19 Crisis

This one was intriguing. Essentially, Japan doesn’t do M&A. The author claims this is because the Japanese don’t have the expertise and because going into Japan is difficult. The size of Japan’s M&A is about 7.5% of the US equivalent.

Japan's Empire Builders

I’m not keen on just regurgitating news unless it’s something substantial. Crypto firm BitMEX Group has announced that it plans to acquire Bankhaus von der Heydt. The Bank was founded way back in 1754, so this is not some fly by night company. Now, the deal is subject to regulatory approval. You might know BitMEX from it’s 2020 run in with the CFTC, where it was hit with a $100M penalty. This will be a place to watch in 2022 and beyond.

BitMEX Group plans to acquire a 268-year-old German bank

One for the Road

This is exactly what the title makes it sound like. Shawn shares the benefits of being a positive person and how happiness is contagious. One of the things I found fascinating was that he found positive sellers did better than smarter sellers.

Shawn Achor | Leveraging the Happiness Advantage - Listening time: 53 minutes

Thanks for reading, Hoping you have an up week. 

Michael