The Whipsaw Song
I saw a good word to describe last week, whipsaw. A title didn't immediately come to mind, so I hit the ole interwebs and found this. That's legendary trend following trader, Ed Seykota. Things were quite insane in the US equity space last week. Facebook lost more notional value ($230B) in one day than any stock, EVER. That’s more than value than 99% of companies in existence. Heck, that's larger than the GDP of Greece, New Zealand, and the Ukraine, just to name a few. Amazon smoked its bottom-line estimates and was up 13.5%. Peloton was down 14% on the week until about mid-day Friday. Then it started to creep up and exploded after the close on acquisition rumors. Snap went to the moon surging 58% a day after being down 23%. I’m not touching an opinion on the whole Spotify situation, but the stock was all over and did see some upside during the week for the first time in a while. Paypal was the worst performer in the S&P 500 this week, falling 23%.
In the wider markets, most US indices were positive on the week. Telecom was the only negative sector on the week. Canada and LATAM were very strong. European indices were mostly negative with Germany and Belgium being the worst performers. China was closed in Asia all week, but most other markets were down.
The two crypto currencies I follow, BTC and ETH, had very strong rebounds this week and even broke a bit of a down trend they were in. In commodities, Crude, Nat Gas, and Gasoline were all higher by 9%, 15%, and 10% respectively. The metals I follow were off. Treasuries were being sold quite aggressively and the 10-year is now approaching 2%.
The German 10-year yield peeked above zero for the first time since May 2019, and that means every major country is above zero now for that tenor.
I think the US CPI this Thursday holds the key to the next week or so. The Reuters' polls show an average expectation of +7.3% in the YoY numbers, 5.9% in the Core, and 0.5% in the month over month. With the main CPI, Reuters polled 27 economists and the range is only 7 to 7.6%, so anything outside that will probably move markets considerably. Another Economic number to watch is the University of Michigan Consumer sentiment, which is out Friday. That number is expected to continue its downtrend, the Reuters’ poll estimate is 67.5. These are the lowest numbers in 10 years and the number hasn’t spent much time below 70 in the last 50 years.
A few other quick charts before I get into the really good stuff.
From Goldman via The MarketEar. This shows the buybacks announced. Goldman estimates more than $5.5B coming in daily from these companies. https://themarketear.com/posts/ca5ji7mhEe
I can't remember where, but I heard or saw something about intra-day volatility of the S&P 500. I went to DataStream to chart this. It's the spread between the intraday high and low averaged out over 5 days to smooth it a bit. I also took a look at some global indices. China has a bit of a spike there in back in July of last year, and the S&P hit a 3.3% right at the end of January. Each of the indices has come off a bit are still elevated from their averages.
The iShares iBoxx High Yield Corporate Bond ETF (HYG) has been on the move to the downside over the past few months. It’s down about 5% since September and most of that coming since the new year. Now, that’s nothing compared to the 22% drop during 2020 Covid crash. The one thing I’ve noticed is the increased volume in options and particularly the puts. The Open Interest is rising too. I don't see the ATM implied vol much higher versus six months and one year ago. When you look at the implied vol chart, while puts have stayed about the same, the calls are much cheaper.
Earnings’ Watch
Last Week
As mentioned in the open, it was quite a week for those reporting. There were 183 names that reported with a market cap over $5B and 17% of those moved more than 5% on their first trade after reporting. Even the ultra mega-cap names moved quite a bit. Alphabet was up 9.9% after a strong beat. Amazon was up 12% after AWS had a smokin quarter. FB didn’t have such a good report and was down more than 24%. T-Mobile was another stock with a stellar report. On the downside, we had Paypal and Spotify that were two of the worst names and they really took a beating.
This Week
The earning’s party continues this week, but less tech and more consumer and health care. Four $200B plus companies (PFE, KO, DIS, PEP) report this week. Regeneron Pharma is one name I’ll be watching. It’s got a beefy -8.9% Predicted Surprise and had it estimates for this quarter cut in half over the last month. On the upside, Bristol Myers is the name I’m looking forward to. It has a smaller 2.3% Predicted Surprise, but some nice momentum in the estimates.
Best of the Week
I love these deep dives into segments of markets that I have little to no experience with. Jeff has two guests from different points in the lumber supply chain. Lumber is such a small market, but it tends to be a leading indicator for the economy. Stinson and Kyle walk through how lumber makes it to market, why there are dislocations, why we lost so much of the source lumber and how we can possibly change this. Both of these guys are a sort of middleman and make markets in lumber. They talk about how not many of the producers use the futures market to hedge. Producers tend to have the ‘let it ride’ mentality. Also, discussed is carbon capture and sustainability of different sources of wood. Below is a look at the front month Continuous Lumber contract and the curve on Refinitiv’s Eikon.
Wood is Good! With the Lords of Lumber: Stinson Dean and Kyle Little - Watch time: 87 minutes
Best of the Rest
This one wasn’t what I expected when I saw the title. Ryan has actually created a DCF (discounted cash flow) model to value Ethereum. He has shared this model too, if you’re interested in this. He describes it as the primary money of the internet. The idea is the new update in ETH burning tokens from the revenues, which acts like a stock buyback reducing supply. Coming later this year there will be a proof stake merger that will send an on-chain cash flow to holders acting like a dividend. This allows you to model the cash flows. If you’re a DCF fan, this is a fabulous listen.
Why $ETH is going to $3T | Ryan Allis – Listening time: 68 minutes
As we’ve discussed here before, ESG is a hot button topic. Hamish has a slightly different point of view than the typical person with a title like his. I found some of his arguments fascinating. He’s not a fan of ESG ratings, as he feels they can be at odds. My biggest issue with sustainable investing is it’s putting pressure on us to be at a faster pace than we’re ready for. Much of the structure to support it, just isn’t there yet. Hence our approach of $100 oil again. However, his definition of sustainability really made me think. He defined it as “essentially the ability to generate wealth without jeopardizing the ability of the future generations to generate wealth.” For fans of SI or ESG, this is not one to miss.
Janus Henderson's Hamish Chamberlayne – sustainable investing & technological reliance – Listening time: 44 minutes
Mary Daly has been a Fed govern for more than three years. The challenges for her and her colleagues are quite a bit different than in previous cases. As inflation takes hold, how does the Fed combat that while trying to keep the job market strong? She thinks we need to offer sustainable support and do things gradual and not be disruptive. She thinks if the data cooperates, March could see a rate increase. The thing I thought of listening to her is there is no way the Fed is hiking rates more than two or three times. She made the point that spending right now is focused on goods and not services, so this is hitting the consumers hard as prices rise. She wouldn’t say it, but that’s effectively the definition of transitory. Once COVID passes, we’ll see a rise in services spending and a cooling of orders 20 Amazon packages a week. I know my wife can't be the only one.
The Exchange: San Francisco Fed boss Mary Daly – Listening time: 45minutes
A year after the Reddit/GameStop uprising, the WSJ looks at what happened. This article is only a short summary of the author’s new book. One name I don’t remember hearing that the article mentions is Bill Gross. Yes, that Bill Gross. He sold options and made roughly $10M as GME hit the skids. What the article showed to me was what many of us professionals in finance thought, the big shops would come out winners in the end. Yes, the Reddit crew caught some asleep at the wheel, like Melvin Capital, but mostly there was a ‘sold to you’ mentality from the pros on that squeeze. It was like Melvin’s trip made everyone aware and they flipped the script. The responses on Twitter about the conspiracy are quite fun to read.
Who Really Got Rich From the GameStop Revolution?
Every once in a while, HedgeEye shares some of their paid content on the podcast feed. This conversation was outside the normal finance conversations Keith and guests have, but it was a crossover of two aspects I love, sports and finance. CJ Wilson was a solid professional. I loved his analytical approach to pitching. It’s very similar to the ideas investors or traders have. Plan for certain situations and execute when those come up.
Real Conversations: C.J. Wilson, Former MLB Pitcher & Entrepreneur - Listening time: 61 minutes
There’s an undercurrent to the return to the office. Workers have come to love the benefits of working from home. I am a huge example of this, last week I’d been working from about 6 different locations while being able to help my aging in-laws with some health issues. I didn’t miss a beat because I have my laptop and connect via my phone. As of right now, I’m writing this from the lobby of an auto repair center. The issue is that many of the companies they work for think there are limits to creativity and innovation, as well as impacts on collaboration and culture. I think both points are fair. I’ve missed connecting with my colleagues not in my direct line of work. I’m looking forward to returning on a part time basis, but it’s impossible to calculate the positive impact working remotely has had for both my life and job.
Remote work isn’t the problem. Work is.
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