Latest Commentary

January 19, 2021

The Real Cost of Free College

, Commentary 1/19/2021


8:10 am ET

Corporate executives, those with the most knowledge of the workings of their respective companies, are not as optimistic about their company’s stock valuations as one would expect given the excessive sentiment exhibited by investors.

, Commentary 1/19/2021


7:45 am ET

Gamma Band Update is Published

, Commentary 1/19/2021


7:10 am ET

With employment, inflation, and retail sales data for December already released, the pace of economic data for the remainder of the month will slow. Of interest, this week will be weekly initial jobless claims and an assortment of housing data on Thursday.

The Fed is entering their self-imposed media blackout period for voting members in anticipation of the FOMC meeting next Wednesday. Non-voting members are allowed to speak publically, but their opinions tend to carry less weight in the markets.

The corporate earnings calendar will pick up in earnest this week, with banks and transportation companies predominately on the calendar.

This past weekend, Neil Irwin of the New York Times published an interesting article. He provides a better appreciation of the potential inflationary impacts based on how consumers might react to the vaccine, large stimulus, and high savings rates.

Is Inflation About To Take Off?  That’s The Wrong Question.

NEWSLETTER IS OUT!

Everyone Is In The Pool – More Buyers Needed

New Momentum Growth Stock Screen Included

, Commentary 1/15/2021

January 15, 2021

**Markets will be closed on Monday for Martin Luther King’s birthday.


11:00 am ET

The quote of the day comes from Danielle DiMartino Booth in regards to the Fed tapering QE.

“I think investors are getting a little ahead of themselves, anticipating the Fed beginning to tighten when they are not even thinking about thinking of taking such measures.”


10:20 am ET

The Technical Value Scorecard is published.

, Commentary 1/15/2021


9:10 am ET

Retail Sales and PPI came out at 8:30 as shown below. Retail Sales were much weaker than expected for a second month. Most noteworthy, the control group which feeds about 30% of GDP, was down -1.9% and last month’s figures were revised lower from -.5% to -1.1%. PPI was a mixed bag, but like CPI, is not showing concerning signs of inflation. PPI excluding food and energy fell from 1.4% to 1.2% on a year over year basis but was up .4% on a monthly basis versus .1% last month.

, Commentary 1/15/2021

The graph below courtesy of Bespoke is very interesting. Per their tweet- “Third largest decline in Non-Store (Online) sales in the last 20+ years? During a pandemic when people are staying at home?”

, Commentary 1/15/2021


7:30 am ET

Last night, Joe Biden released details of his $1.9 trillion stimulus program. A summary, courtesy of CRFB, is shown below. Of note, the stimulus will release about a third of the money in the next few months and delay the rest of the stimulus toward the latter half of the year. This should help even out economic growth through 2021.

, Commentary 1/15/2021


7:15 am ET

We start the day with an interesting Bloomberg article which was focused on a survey conducted by the ECB. The survey asked 72 European non-financial companies the following question- “Focusing on your own business/sector, how would you assess the overall long-term effects of the Covid-19 pandemic on the following?” Based on the results below, it appears, in aggregate, they expect to be suffering from the pandemic well into the future. From a profit perspective, they are counting on enhanced productivity to offset lower prices and sales. Employment and wages may suffer as a result of a weaker business climate. Reduced sales and potentially higher input costs are a distinct possibility in the U.S. as well. As such, we presume many U.S. companies will try to boost margins in a similar fashion. Such a paradigm does not bode well for labor.

, Commentary 1/15/2021

January 14, 2021

3:25 pm ET

For the most part, Jerome Powell continues to shy away from putting a timeline on when the tapering of QE purchases might begin. Today he said: “The Fed will communicate exit early and clearly when it is time.” That said, he did acknowledge the economy could be back to the pre-COVID peak “fairly soon“, which could imply the Fed might be tapering “fairly soon.”


12:45 pm ET

Yesterday we shared the absurdity of Door Dash’s (DASH) valuation. Today we share another. With a market cap of $110 billion, Airbnb now has a market cap higher than the 6 largest hotel chains combined– Marriott, Hilton, InterContentintal, Hyatt, Wyndham, & Choice).


11:30 am ET

New Report-  Real-Time Commentary Heat Maps

We recently found a series of charts in FINVIZ that help visualize valuations of S&P 500 companies and the current behavior of Wall Street analysts and investors. Instead of cluttering up the commentary space on RIA Pro, we thought you would better appreciate the charts and can share them more easily in an article format. Click on the heat map below to access the graphs.

, Commentary 1/14/2021


10:05 am ET

Will Joe Biden’s Fiscal Policies Float?

, Commentary 1/14/2021


10:00 am ET

Initial Weekly Jobless Claims were much higher than expected at +965k versus +784k last week. Of note, covered employment was reduced by 4.4m. These are jobs being permanently reduced. We do not know if this was a seasonal adjustment or year-end issue but if it’s real, it points to a weak jobs report next month.


6:45 am ET

After two strong Treasury Auctions of 10 and 30-year bonds on Tuesday and Wednesday, which helped push long-term yields lower by 10bps, Biden upset the trend with word that his new stimulus plan will be around $2 trillion. That is much more than the $800bn to $1.3tn range which was widely expected. The 10yr UST yield backed up to 1.11% overnight from 1.07% yesterday afternoon.  Stocks rose overnight on the news but have since given up their gains and look to open flat.

 

January 13, 2021

1:40 pm ET

Just when you think things can’t get crazier, Door Dash (DASH) is up another 6% today making it nearly 50% for the year to date. More startling, it now has the same market cap as FedEx (FDX).


1:15 pm ET

Yesterday’s 10-year UST auction and today’s 30-year auction were met with strong demand. As a result, the 10-year is down over 10bps from yesterday’s pre-auction high. It’s too early to know if bond yields peaked, but the strong demand for the auctions shows significant demand at current levels. This affirms what we have been watching with money flows as well.


1:00 pm ET

It appears the meteoric rise in cryptocurrency prices is on the central bankers’ radar. Reuters put out the following article this morning, ECB’s Largard calls for regulating Bitcoin’s “funny business”, in which ECB President Largard calls for regulations. Her concern appears to be money laundering but their regulatory authority will surely intensify if crypto continues to impinge on sovereign currencies. As we wrote two years ago in Salt, Wampum, Benjamins – Is Bitcoin Next? :

If BTC continues to gain in popularity there is little doubt in our opinion the government will seek control or at a minimum the personal data from the transactions. In fact the SEC has recently opined on the matter claiming that “tokens” such as BTC can be deemed securities and may need to be formally registered. This is just a first step but given the potential threat, we envision government will impose a way to remove the secrecy BTC offers, allowing taxation and legal supervision to occur.”


10:45 am ET

Are We In A New Bull Market?

, Commentary 1/13/2021


9:25 am ET

CPI was slightly higher than last month, meeting expectations for a 0.4% monthly increase. The Fed tends to rely on CPI excluding Food and Energy, as they consider price changes in those goods transitory. CPI ex-food and energy was underwhelming with the monthly rate at +.1% below last month’s +.2%. Year over year it was +1.7% versus +1.6% last month. There is little in this report that warns of pending inflation. All eyes to Friday’s PPI report.


8:05 am ET

As shown below, courtesy FINVIZ, the price of grains has risen sharply over the last few months. As a result, many producers of food products using grains or those relying on grains have stumbled. Kelloggs (K) for instance is down nearly 20% and sits much closer to its March lows versus its recent July highs.  The price action of GIS, CAG, and HRL among others, looks similar to K (shown below). When the “reflation” trade ends these will likely be good purchases but we warn that might be a while longer.

, Commentary 1/13/2021

, Commentary 1/13/2021


7:10 am ET

CPI will be released at 8:30 am. The current expectation is for monthly inflation to uptick to .4% from .2% last month.  Year over year inflation is also expected to increase from 1.6% to 1.7%.

Fed members, Brainard, Bullard, and Vice Chair Clarida will speak today. Over the last couple of days, a few Fed members have mentioned the possibility of tapering QE by year’s end. We will closely follow upcoming Fed speeches to see if this becomes a more common theme. Here are a few examples:

  • Fed’s Kaplan: If Economy Goes As He Expects, We Should Be Having An Earnest Discussion About QE Taper Later This Year
  • Fed”s Evans: Fed could taper in late-2021 or early 2022 if the economy is better.
  • Bloomberg- Fed officials said that more fiscal support and vaccines could lead to a strong economic recovery in the second half, setting the stage for a discussion of tapering

January 12, 2021

1:45 pm ET

The graph below compares 10-year implied inflation rates (blue) to 10-year UST yields (red). The difference between the two is called the real yield. As shown, implied inflation has risen about 50bps more than UST yields over the last 7 months, therefore real yields have fallen. Fed purchases of TIPs drive the implied interest rate up and purchases of nominal USTs drive nominal yields down. In a normal market, without interference by the Fed, nominal yields would trade higher than inflation expectations. With Treasury debt levels at historical extremes, the Fed cannot tolerate UST yields over 2% as this graph implies. Expect this divergence to continue and likely widen if the Fed has their way.

, Commentary 1/12/2021


1:00 pm ET

Over the last month or so, we have shown a good number of sentiment measures at extremes (including the one from first thing this morning), and in some cases at levels never been seen before. The table below, courtesy of  Crescat Capital, shows that a multitude of valuations measures also sit at record highs. The market can keep chugging higher but it worth reminding yourself that sentiment and valuations are in rarefied air.

, Commentary 1/12/2021


10:15 am ET

Welcome to the USSA.

, Commentary 1/12/2021


7:40 am ET

The NFIB small business optimism index took a hit falling 5.5 points to 95.9. Of the ten survey components respondents were asked about, nine were lower than the prior month. From an inflation perspective, the NFIB writes: “The net percent of owners raising average selling prices decreased 2 points to a net 16% (seasonally adjusted). Price hikes were the most frequent in retail (30% higher, 6% lower) and wholesale (26% higher, 13% lower). A net 22% are planning price hikes (seasonally adjusted).” This report jibes with other data pointing to no current inflation but the anticipation of inflation in the future.

Key findings from the NFIB are as follows:

 

  • The percent of owners thinking it’s a good time to expand decreased 4 points to 8%.
  • Sales expectations over the next three months declined 14 points to a net negative 4%.
  • Earnings trends over the past three months declined 7 points to a net negative 14% reporting higher earnings.

Small businesses account for over 60% of employment in America. This survey provides important data on the state of small business and what that may mean for inflation and employment trends.

 


7:00 am ET

The fourth-quarter earnings season kicks off this week with a handful of companies reporting earnings. Of note will be Delta Airlines and Blackrock on Thursday followed by a few large banks on Friday – JPM, Citi, and WellsFargo.

, Commentary 1/12/2021

The following chart, courtesy of Citi, was making the rounds on Twitter yesterday. It shows that market sentiment is literally off the charts!

, Commentary 1/12/2021

January 11, 2021

1:45 pm ET

Per BofA- Bitcoin “blows the door off prior bubbles.”  On the topic of bubbles, Tesla is up over 200% in less than two months. The only news of note was two Wall Street analyst reports which both set a price target lower than the current price.
, Commentary 1/11/2021

1:30 pm ET

Weekly Gamma Band Update

, Commentary 1/11/2021


Does Market Excuberence Match Reality?

, Commentary 1/11/2021


7:10 am ET

The week ahead will be important as the BLS releases consumer and producer price data for December. The reports will provide some evidence as to whether higher inflation expectations are playing out in the economy. CPI, due out on Wednesday, is expected to rise at a year over year rate of 1.2%, the same as November. PPI, being reported on Friday, is also expected to be flat versus November at 1.4% annually. Also on Friday, the University of Michigan will release its consumer sentiment survey which has an inflation subcomponent. Retail Sales will also be released on Friday.

Fed members have an active speech schedule this week. Of note will be Fed Chair Powell on Thursday afternoon and Vice Chair Clarida on Wednesday.

It could be another volatile week for bond yields. The Treasury will conduct its 10-year auction on Tuesday and 30-year auction on Wednesday. Both auctions may exert further downward pressure on bond prices. Biden’s stimulus plan is expected to be released later in the week. Bond investors will pay attention to the size and composition of spending, as well as any details on potential tax increases.  Initial rumors of a spending package “in the trillions” pushed yields higher Friday afternoon.

January 9, 2021

Trading Desk Notes for January 9, 2021. -by Victor Adair

(Good comments on why we sold IAU and GDX yesterday.)

, Commentary 1/08/2021

January 8, 2021

1:00 pm ET

Earlier this week we showed the dollar on a long-term scale to show that the recent sell-off is well within historical norms. Today we share 10 year UST yields. As shown, yields have certainly risen over the last few months, but remain well below all instances on the graph going back to 1970. Simply, the recent increase is meaningless on a historical basis.

The problem however is that as the economy has become more dependent on debt and lower interest rates to service the debt, the threshold for economic pain due to higher rates has increased markedly. We find it highly unlikely that the 10-year yield could get back to even 2% without economic weakness and problems in the financial markets.

, Commentary 1/08/2021


11:35 am ET

Fed Vice Chair Clarida put to rest the notion that the Fed might taper QE purchases this year, saying “can be quite some time before we think about tapering” & “my economic outlook is consistent with us keeping the current pace of purchases throughout the rest of this year.” He does expect an uptick in inflation in the months ahead but also believes it’s transitory. He also stated that he is not concerned with the 10-year Treasury yield above 1%.


10:00 am ET

The graph below, courtesy of Goldman Sachs, shows a large gap between actual volatility (light blue) and implied volatility (dark blue) which is what investors are pricing into options contracts. Will implied volatility fall back to the teens, where it was for the large majority of the post GFC era, or are VIX futures correct in implying a significant level of volatility lies ahead? It is worth noting that the surge in call option activity is providing a bid to the VIX and possibly distorting the historical relationship.

, Commentary 1/08/2021


9:30 am ET

The Technical Value Scorecard is published.

, Commentary 1/08/2021


9:00 am ET

Like the ADP report on Wednesday, the BLS employment report was weaker as the economy lost, in aggregate, 140k jobs. On a positive note, hourly earnings increased sharply. As we warned last month, December’s data has large seasonal adjustments which are likely greatly flawed due to irregular hiring patterns for the holidays. For example, earnings were probably higher solely because traditional brick and mortar retail and restaurants, which tend to pay low wages, did not staff up like prior years. To that end, food services and drinking establishments lost 372k jobs.

, Commentary 1/08/2021


7:15 am ET

The consensus estimate for today’s BLS payrolls report (8:30 am ET) is +65k, with a wide range of projections (-50k to +302k). If the consensus is accurate, this will be the sixth month of decelerating payroll growth and the first increase in the unemployment rate since April.
, Commentary 1/08/2021

January 7, 2021

1:30 pm ET

The graph below, courtesy of Arbor, compares 2yr and 10yr implied inflation levels. As they highlight with the dotted lines, a peak in inflation expectations occurred the last 7 times short term inflation expectations (2yr) equaled or rose above long term expectations (10yr). The chart argues that inflation expectations should decline rapidly in the near future or this time is different and inflation is truly taking hold.
, Commentary 1/07/2021

10:10 am ET

Grantham’s Correct: It IS A Market Bubble 

, Commentary 1/07/2021

Jeremy Grantham’s article, Waiting for the Last Dance, can be found HERE.


10:00 am ET

The following headline just hit the wires: “FED’S HARKER: COULD DISRUPT MARKETS IF WE TAPERED TOO SOON.” It’s clear from that comment the Fed knows QE is driving markets and the situation is hemming them into policies driven by markets, not economics.

Initial Jobless Claims last week were 787k versus 790k the prior week. Claims continue to stay at a stubbornly high level despite economic recovery. Just to reiterate prior comments, nearly 800k people were laid off just last week alone. Prior to the recent experience, the number had never been above 700k since at least 1967.


7:00 am ET

With a Democrat-led Congress and with it, projections for even greater deficit spending, the following WSJ editorial –Welcome to the Era of Non-Stop Stimulus is worth considering. The prospect of trillion-dollar deficits well into the future is high and with it comes benefits and consequences. In the short run, government spending drives the economy/ reduces recessionary impacts, but in the long run, it detracts from economic growth. Further, the Fed is all but forced to stay very active to help ensure the interest rate on the debt stays at very low levels. This is the macro trap facing our fiscal and monetary leaders. The graph below the quote from the editorial shows deficit spending has far outpaced the tax revenue, which in part highlights that the rate of spending is unsustainable without consistent help from the Fed.

But with President-elect Joe Biden now making it clear that the recent $900 billion stimulus will “at best only be a down payment” and the now $3.3 trillion of total stimulus spending “is just the beginning,” it sounds like America is headed into a program of permanent stimulus.

, Commentary 1/07/2021