Disco Inferno
I don’t even know where to start. We started the week out as normal one, then it turned into Disco Demolition Night at Comiskey park. If you don’t know what that means, check this out. I spent the entire weekend trying to figure out how each market interacted with one another. Rates, Energy, Currencies, and Equities were all involved in this party. It was a true global macro event last week. I’m never going to cover it all, but it was one wild week. CPI ripping, Rate volatility, Energy continuing its run, the Dollar dominated most currencies, and equity markets were shaken on the Ukraine news. There's also a bit of a different format for all the info in this post. Sit back and enjoy. I have a ton of content to share.
I’ll skip the normal markets update, because I could be here all week. The first thing I’m going to highlight is the Eikon Interest Rate Probability app, which is showing bets on a bunch of hikes coming across the globe. The thing is, if you look closely, there’s some real volatility around US rates, especially Thursday and Friday. The Yield Curve is starting to flatten too. We heard from Joseph Wang a couple of weeks ago, and I found this interview with him very informative in digesting last week’s events.
Bullard Backs "Supersized" Rate Increase | Weekly Roundup
I’m in Jesse’s camp. I’m not sure the Fed has the stones to keep rising in a bad economy with an equity market in the crapper. We’re not there yet but rising crude might help with some of that.
Can The Fed Afford To Tighten Into An Economic Slowdown?
This all started on Thursday with the CPI print that was “unexpected”. I use the quotes because I don’t know how this was unexpected. Then the real fireworks show started around noon with the news conference on the situation in the Ukraine. All sorts of assets started jumping around. Crude was one of the best performers minus the volatility indices. It seems like some of the fundamental reasons that originally had oil prices on the rise took a bit of a backseat to geopolitical worries, which if you think about it, are sort of related.
Declining Oil Inventory Contributing To Higher Oil Prices
This Josh Young tweet shared what we might expect from some markets, particularly Energy, in an inflation environment. This doesn’t consider the events in the Ukraine.
Reminder of what happened in the markets in the last major inflationary period
Before we move into Earnings, let’s look at what the financial community will have on their minds to start this week. Of course, all eyes will be on Eastern Europe. It really doesn’t matter asset class or strategy you are involved in, almost everyone will be impacted by this is some form. Rates will be the other big thing this week. There will be a lot of inputs to this market too. We’ll hear from four of the regional Fed Presidents. Bullard is speaking again after sending the rates market into a tizzy last Thursday. Also, the FOMC minutes are due out on Wednesday. The economic calendar is packed too. In the US, it will be driven by housing. I’m interested to see if the rising mortgage rates have impacted Existing Home Sales. We also will get GDP from Japan; CPI from Canada, Netherlands, and Japan; and Retail sales from Canada, UK, and the US. This will give us a good look at how the consumer is faring.
Earnings Watch
Last Week
It was a big week for small caps, as only 20 of the more than 330 companies that reported had a market cap over $50B. More than 70% of the companies reporting with a market cap over $1B beat on either the top and bottom line. However, just over 50% had their first trade higher and less than half ended the week higher. The two largest names reporting provided some excitement. PFE beat on the bottom line but missed Revenue and traded lower. Disney provided some strong numbers and traded up quite strongly but traded off its highs. Coke and Pepsi were meh. There were some fireworks in the smaller names. Some big moves on big beats or misses and heavy trading in names like Seagen, Zillow, New Relic, and Goodyear Tire.
This Week
Looks like the show will continue this week. We’ve got big names, some interesting numbers, and some big names with interesting numbers. NVIDIA, Walmart, and Cisco are our biggest names, but I don’t see anything in the numbers there. Our next tier has some fun data. Deere shows a 3.5% Predicted Surprise, which is decent, but Airbnb has a much more impressive 21.2% Predicted Surprise with some momentum on the EPS estimates. The one name I really have on my notepad is Lucid. It has a 7.1% Predicted Surprise, which comes from a recent UBS update to the numbers. There are only a few analysts on this name, so it’s a little hard to get a definitive read on it. The tidbit here is that it has HUGE short interest of 20% of float, so if it does beat there could be a nice squeeze. There are tons of little gems in the data this week. One final name for you is ROKU with a -13% Predicted Surprise, EPS off 16% in last week.
Best of the Week
Short Vol has been a popular trade for many years now. A few times that trade blew up in trader’s faces. This article from the CME shows how the Fed’s BS impacts volatility across a few asset classes. Below is the chart of the S&P, they also look at the NASDAQ 100, the Long Bond, and Gold implied volatility. Why did I pick this as the ‘Best of’ this week? Well, the events last week are foreshadowing QT as the least, if not a rising rate environment. Last year, we saw a huge amount of volatility, even after the COVID lows hit. If the pros are going to start slinging options around like the Joes have been doing, then the party becomes full blown bender.
How Balance Sheet Shrinkage Impacts Volatility
Best of the Rest
As we spoke about above, there’s a lot of talk about rising rates. The post on Net Interest dives into banking this week. Marc does a good job of going into detail on retail and commercial banking and how that business is affected by interest rates. The article is not just looking at US Banks either, he covers some differences between the US and Europe with its negative rate environment.
Positioning for Rising Rates
Don’t let a terrible headline sway you here. This article is really about how derivatives help portfolio managers reduce risk and manage their book. Without access to derivatives, long only PMs will have to sell positions to get defensive in bad spots. This could cause some issues by having to sell good liquid positions or worse illiquid one costing PMs a bunch of money. Post the GFC, regulations have limited access to OTC derivative markets, which has helped some, but impaired others.
Restricting access to derivatives
These guys get a bad rap. Some are crooks, but many provide a valuable service to the investment community. There has been some research that proposes a 10-day holding period after the research reports are released. The research says that those that use anonymity do so to manipulate stocks. Carson Block has said the professor who did that research is “a corporate lobbyist masquerading as an academic.” Block shared some of his own research that showed some inconsistencies. Other researchers have found that most targets of the shorts have gone down significantly over time.
Are Activist Short Sellers Misunderstood?
Many throw around the terms Fiduciary and Best Execution, but I’m not sure they all know what it takes. They might know the definition, but definition and execution are a bit different. This article highlights some of things investment advisors are missing. This is not a shot saying anything dirty is going on, but sometimes the right thing can be expensive. The problem is that it’s hard to say if these lackadaisical procedures are because of the pandemic and the remote working. The author works at Able Noser, whose firm helps asset owners monitor some of this. Refinitiv is working on helping this for the asset managers by giving them real time access to cross broker data in one place.
Best Execution: “Trust But Verify” Is Still the Soundest Path for Asset Owners to Ensure Complete Fiduciary Transparency
Tracy and Joe have been killing it on ‘Odd Lots’ lately. This week, they interviewed legendary author Michael Lewis. Michael has written a few books on Wall St. topics, and he’s re-releasing one of my favorites, Liar’s Poker. It’s one of the first books I read when I started on the trading desk. Michael rehashes some of the book and how it applies to today’s environment.
Michael Lewis on Why the World Is Still Reading “Liar’s Poker” - Listening time: 48 minutes
Quick few Tweets on Fixed Income ETF bond flows. Michael notes that the selling was driven by the largest outflow in history from high-yield bond ETFs, equaling $7.6B.
Investors pull $1.5bn from bond ETFs in January on inflation fears
Earnings Watch
Last Week
It was a big week for small caps, as only 20 of the more than 330 companies that reported had a market cap over $50B. More than 70% of the companies reporting with a market cap over $1B beat on either the top and bottom line. However, just over 50% had their first trade higher and less than half ended the week higher. The two largest names reporting provided some excitement. PFE beat on the bottom line but missed Revenue and traded lower. Disney provided some strong numbers and traded up quite strongly but traded off its highs. Coke and Pepsi were meh. There were some fireworks in the smaller names. Some big moves on big beats or misses and heavy trading in names like Seagen, Zillow, New Relic, and Goodyear Tire.
This Week
Looks like the show will continue this week. We’ve got big names, some interesting numbers, and some big names with interesting numbers. NVIDIA, Walmart, and Cisco are our biggest names, but I don’t see anything in the numbers there. Our next tier has some fun data. Deere shows a 3.5% Predicted Surprise, which is decent, but Airbnb has a much more impressive 21.2% Predicted Surprise with some momentum on the EPS estimates. The one name I really have on my notepad is Lucid. It has a 7.1% Predicted Surprise, which comes from a recent UBS update to the numbers. There are only a few analysts on this name, so it’s a little hard to get a definitive read on it. The tidbit here is that it has HUGE short interest of 20% of float, so if it does beat there could be a nice squeeze. There are tons of little gems in the data this week. One final name for you is ROKU with a -13% Predicted Surprise, EPS off 16% in last week.
Best of the Week
Short Vol has been a popular trade for many years now. A few times that trade blew up in trader’s faces. This article from the CME shows how the Fed’s BS impacts volatility across a few asset classes. Below is the chart of the S&P, they also look at the NASDAQ 100, the Long Bond, and Gold implied volatility. Why did I pick this as the ‘Best of’ this week? Well, the events last week are foreshadowing QT as the least, if not a rising rate environment. Last year, we saw a huge amount of volatility, even after the COVID lows hit. If the pros are going to start slinging options around like the Joes have been doing, then the party becomes full blown bender.
How Balance Sheet Shrinkage Impacts Volatility
Best of the Rest
As we spoke about above, there’s a lot of talk about rising rates. The post on Net Interest dives into banking this week. Marc does a good job of going into detail on retail and commercial banking and how that business is affected by interest rates. The article is not just looking at US Banks either, he covers some differences between the US and Europe with its negative rate environment.
Positioning for Rising Rates
Don’t let a terrible headline sway you here. This article is really about how derivatives help portfolio managers reduce risk and manage their book. Without access to derivatives, long only PMs will have to sell positions to get defensive in bad spots. This could cause some issues by having to sell good liquid positions or worse illiquid one costing PMs a bunch of money. Post the GFC, regulations have limited access to OTC derivative markets, which has helped some, but impaired others.
Restricting access to derivatives
These guys get a bad rap. Some are crooks, but many provide a valuable service to the investment community. There has been some research that proposes a 10-day holding period after the research reports are released. The research says that those that use anonymity do so to manipulate stocks. Carson Block has said the professor who did that research is “a corporate lobbyist masquerading as an academic.” Block shared some of his own research that showed some inconsistencies. Other researchers have found that most targets of the shorts have gone down significantly over time.
Are Activist Short Sellers Misunderstood?
Many throw around the terms Fiduciary and Best Execution, but I’m not sure they all know what it takes. They might know the definition, but definition and execution are a bit different. This article highlights some of things investment advisors are missing. This is not a shot saying anything dirty is going on, but sometimes the right thing can be expensive. The problem is that it’s hard to say if these lackadaisical procedures are because of the pandemic and the remote working. The author works at Able Noser, whose firm helps asset owners monitor some of this. Refinitiv is working on helping this for the asset managers by giving them real time access to cross broker data in one place.
Best Execution: “Trust But Verify” Is Still the Soundest Path for Asset Owners to Ensure Complete Fiduciary Transparency
Tracy and Joe have been killing it on ‘Odd Lots’ lately. This week, they interviewed legendary author Michael Lewis. Michael has written a few books on Wall St. topics, and he’s re-releasing one of my favorites, Liar’s Poker. It’s one of the first books I read when I started on the trading desk. Michael rehashes some of the book and how it applies to today’s environment.
Michael Lewis on Why the World Is Still Reading “Liar’s Poker” - Listening time: 48 minutes
Quick few Tweets on Fixed Income ETF bond flows. Michael notes that the selling was driven by the largest outflow in history from high-yield bond ETFs, equaling $7.6B.
Investors pull $1.5bn from bond ETFs in January on inflation fears
Another Tweet from Michael that I thought was a good share was this one showing the short flow for Goldman Sachs Prime Book. The number on the left axis is the Z-score, so that’s a 4 standard deviation event. Below the Goldman chart, you can see the Refinitiv Most Shorted index since late 2019. From the March ‘20 bottom the index moved higher by +200% over the next year, but over the last year, we’ve seen those names fall 50% from their highs. That moves us into the next link below.
The shorting since the start of the year has been the biggest on record.
The shorting since the start of the year has been the biggest on record.
Keeping on the theme from above, we can see the performance of the most profitable names vs. the least profitable ones. This article shares some other charts from ACG Partners. Investors are punishing non-profitable companies that show any weakness.
Three charts explaining what has happened to SaaS stocks; is a bottom close?
Three charts explaining what has happened to SaaS stocks; is a bottom close?
This one starts out as a lesson in chemistry, then gets into some of the factors as to why the US is having issues with producing rare earth metals. You know those, they’re basically the future of the next gen electric infrastructure. Doomberg notes how the US had a monopoly on this space for several years, but let China take over due to the environmental concerns. They get into a specific company and valuation, but I’ve included this because of the lessons in the first half and how it shows the story of a space that will be uber important over the next few decades and factor in the US economic independence.
Not a Rare to Spare
One, ok maybe two, for the Road
The story has always been that blockchain will lead to real-world improvements. Well, it looks like we have our first attempt to break the mold. This amazed me when I read it. Real Estate company Propy is creating an LLC, whose only asset is a Florida house. This company will auction off and NFT for ownership of said company. This article summarizes the transaction and notes how Real Estate is the next industry digital assets are looking to infiltrate.
A Florida home to be auctioned as an NFT has attracted more than 7,000 potential bidders
I found this one going through the Blockworks’ Twitter profile. There are an awful lot of traditional companies starting to hire in the crypto space.
Companies hiring for crypto jobs
Not a Rare to Spare
One, ok maybe two, for the Road
The story has always been that blockchain will lead to real-world improvements. Well, it looks like we have our first attempt to break the mold. This amazed me when I read it. Real Estate company Propy is creating an LLC, whose only asset is a Florida house. This company will auction off and NFT for ownership of said company. This article summarizes the transaction and notes how Real Estate is the next industry digital assets are looking to infiltrate.
A Florida home to be auctioned as an NFT has attracted more than 7,000 potential bidders
I found this one going through the Blockworks’ Twitter profile. There are an awful lot of traditional companies starting to hire in the crypto space.
Companies hiring for crypto jobs
Thanks for reading. Have Super week.
Michael
Comments
Post a Comment