Market Axxcess 5.10.22 – Bryan Goligosky

Last week was like a messy Thanksgiving feast of economic news and monetary moves, now it’s time to loosen the belt and find a place on the couch to let it all digest.

And so far, it’s looking like Pepto-Bismol and long naps are the call, as it’s been an upsetting week, month, and year for equity and fixed income markets. After this morning’s rout, the three major indexes are all down double digits, with the NASDAQ off a full 25% year-to-date. Yeouch.

On Thursday we get a look at the Mr. Boogeyman again, and how nasty he got since the last sighting. What is a Boogeyman? It’s an old trading term where the Boogeyman is the thing you think is out there but haven’t yet seen. Now that everyone knows the Mr. Boogeyman is real, we threw on the surname to make it official.

 

In a deep dive piece last June, we told you in very explicit terms that the Bogeyman was not hiding out under your bed. He was coming, and he was as real as a heart attack. Since this is a family program, we give you Mr. Boogeyman’s ten-year-old daughter. And as I’ve been told, she can be twice as scary when tasked with the challenge.

Every week now headlines cross the tape that read “Fed Governor so and so says we must be diligent…” and “Former Fed Governor so and so says we won’t get moderation until the fed funds rate hits X.” Bottom line, talking head speak is as ubiquitous on Wall Street as rice is in China. That said, there is for sure an apologists parade going on right now for those who should have known better but did nothing. Come on guys, you had one job.

Since we are making the rounds this Monday, here is the rate picture. And this is just the mellow little two year. The rest of the rate curve looks similar.

At least the relationship between interest rates and equity valuations is still intact. Alas, there is no risk-free rate, is there now? Great quote, from a pretty good older investor, with the subtle backdrop of the face of Half Dome in the background.

At this point, we are well outside of ‘earnings season’, which is usually the first month after a quarter closes out. Some companies have odd dates ending each period, some just take a while to report. This is what the shoulder season looks like this week, courtesy of yahoo!finance.

Earnings calendar

Monday

Before market open: Coty Inc. (COTY), Blue Apron (APRN), Duke Energy Corp. (DUK), Palantir Technologies (PLTR), Tyson Foods (TSN)

After market close: Vroom (VRM), Simon Property Group (SPG), Lemonade Inc. (LMND), Novavax (NVAX), AMC Entertainment (AMC), Plug Power (PLUG), Zynga (ZNGA)

Tuesday

Before market open: Hyatt Hotels (H), Warner Music Group (WMG), Peloton (PTON), Norwegian Cruise Line Holdings (NCLH), Planet Fitness (PLNT)

After market close: Roblox (RBLX), Occidental Petroleum (OXY), Coinbase (COIN), Sofi Technologies (SOFI), Allbirds (BIRD), Rocket Cos. (RKT), Wynn Resorts (WYNN), Electronic Arts (EA)

Wednesday

Before market open: Yeti Holdings (YETI), Olaplex (OLPX), Krispy Kreme (DNUT)

After market close: Disney (DIS), Rivian Automotive (RIVN), Bumble (BMBL), Sonos Inc. (SONO), Beyond Meat (BYND), Dutch Bros. (BROS)

Thursday

Before market open: WeWork (WE), Six Flags Entertainment (SIX)

After market close: Affirm (AFRM), Figs Inc. (FIGS), Toast Inc. (TOST)

Friday

No notable reports scheduled for release

That’s what we have for you to start the week. These moments in markets where new regimes show up and then take hold are not easy to navigate, no matter who you are. Mistakes are everywhere and made by everyone. The world is not coming to an end, risk assets that made you the most money for the past two years are simply getting thrown sacrificially into the fire. The difference this time is the Fed isn’t there to throw water on it. Instead, they are the change agent with lots of logs to add to white hot stoke.

This Week in the Markets 4.7.22 By Bryan Goligoski

Short notes this week as me and the Vid decided to tangle. Some get off easy. Some not so much. I fall in the latter camp and it feels like a fully loaded 18-wheeler just merged into my lane without so much a signal. I now apologize for my sins as this is an axle wrapping unlike any other axle wrappings.

This week we are going to pass over the geopolitical and top-down macro. Those horses have been ridden hard and put to bed wet. Curve inversion has everyone planning the next recession and certain smart people like Bill Ackman are comparing Russia’s invasion of Ukraine to the start of World War Three. Though this image looks like it came from Star magazine.

As regular readers know, we are big fans of Bill Dudley as he has had a very special perch on Wall Street for a couple of decades now. This week he opined that ‘If stocks don’t fall, the Fed needs to force them.’ That’s not a small statement, but one that is agreeable. Inflation is indeed a big problem, and that goes for asset prices as well. Bottom line, if you own equities, you’ve made your money for this cycle. And while we are no market technicians, it’s hard not to notice that two thirds of a head and shoulder top is in place.

First quarter earnings will start coming out in earnest beginning next week, and they are coming up against tough year over year comps. If there is a contraction, as FactSet is predicting, that will be the first down quarter in seven. Run for the hills? Negative. But don’t be surprised when there is an overhead lid on shares while they absorb the torrid pace of growth they have experienced since 2020.

  • Source: FactSet

Down to the sector level, growth is led by energy, energy, and energy. A mad rally in the price of crude is the reason. Out of the consumers pocket, and straight into those who pull petro products from the ground. Industrial companies and consumer discretionary are both looking at contractions of size. Blame it all on rising prices and Joe and Jospehine Six Pack are sitting on their wallets, sweating inflation out.

  • Source: FactSet

While it didn’t end the way we predicted, the men’s college basketball tournament came through for advertisers as it drew an additional 4% viewership for the national title game over last year. Overall, viewership is up 13% from the 2021 lows. The comeback win by Kansas was not only historic, it was legendary producer, Bob Fishman’s final game after 39 years in the producers chair.

The historic loss by North Carolina, after leading by 18, is a great example of how anything can go from far right tail to far left tail through a matter of decisions, actions, and events. And while we love the Tar Heels, the Jayhawks are good people as well. And head coach Bill Self is as classy as they get. Hubert, your time will come.

With that, I’m crawling back into the rack, literally, with a new appreciation for how much Covid can pound the body. Enjoy the week and enjoy that we only we get one trip around this rock of ours, make it a good one.

 

This Week In The Markets – Bryan Goligoski

Two weeks forward, and the global economy’s inbox for unintended consequences of a Russian invasion of Ukraine is now full, and Microsoft doesn’t have a work around for this one yet. From any angle, unless you are sitting long every oil major, minor, and spec driller this is a problem. A big one.

The spike in crude to $130 Tuesday morning was on the heels of news that there would be a full on western ban of Russian oil exports, which Germany quickly dismissed. We do not disagree with the Russian oil ministers’ position that anything looking like a ban could trigger $300 crude prices. But what does it matter? It’s all China, all day, each and every day.

If anyone out there is listening, here is our ‘from every rooftop’ advice. The U.S., and the rest of the free world, should stay a million miles away from playing chicken with Putin over control of commodity prices. Sadly, he has the upper hand even while playing with a smaller stack of chips. We should tell Russia to pump every barrel they can, pull every Mcf of natural gas from the ground, sell every ounce on nickel they have, and so on. Why? The absolute last thing central bankers need right now as they try to fight inflation is a commodities price spike, and that’s exactly what they are getting. Guess who is smiling through his little rat faced teeth?

Editor’s Note: Between the time I started writing on Wednesday morning, and when this went to publish on Thursday, oil corrected more than 10% and the risk on trade went ballistic. Take my advice, President Biden and others, don’t mess with inflation. Play a successful game of chess, to Putin’s checkers. Do whatever you can, by any means possible, to break the fever on prices.

Bringing this full circle to what our Federal Reserve is up against, Jeff Gundlach, one of the best in the business of seeing what’s coming next, thinks inflation could easily top out north of 10% in the near to intermediate term. This situation is far worse than it was a short six months ago.

This morning’s report of XX did nothing to dissuade his argument…

Waiting on CPI release on Thursday morning at 5:30 am

And if the Fed has any credibility left, it will do what is right and step up when the times are toughest. Forget about the asset bubbles they helped create over the past twenty-four months and stop thinking they need to backstop every trade. Raise rates firmly, and with deliberate authority.

 

Let markets be markets once again. And remind everyone the world over that there are simply no crybabies allowed in the big casino. Sometimes you are at the Baccarat table on a hoppin Friday night at the Bellagio, and others you are playing $1 war at Caesar’s on a depressing Sunday afternoon waiting for the late flight home. I know at least one of these trades all too well. If you don’t appreciate this picture of Evel’s Caesar Palace fountain jump, I respectfully ask you to unsubscribe and lose my number. He didn’t nail the landing. We hope Jerome Powell does a better job of it, for all of us.

While markets might be dumb for a while, they are never stupid. This has been showing up with spikes in volatility indexes over the past few weeks, and daily 2% to 3% swings in the major averages. Rate hikes, what rate hikes? We have live shooting war going on with major global economic implications.

 

Aside from the human casualties, there have been financial ones as well. Case in point, the BlackRock Emerging Frontiers hedge fund. The $1 billion fund got clipped for 10% in February by leaning long into Russia pre-invasion. Keep in mind, this is a fund that has not lost you money in more than a decade.

There is a lot of boring stuff in the fund management business, and we hope and pray that nobody we know ever seeks to raise seed capital for another large cap growth or dividend aristocrats strategy. These, along with most everything else, are retreads run by guys and gals who can’t give up the glory days of a full 100 basis points of fee clipping. But frontier funds, these are a different kind of beast. And a cool looking beast at that.

We mention this because there are getting to be fewer and fewer grey places on the map. Places nobody knows about. But where they exist, so does opportunity. Jeff Gundlach sees it and is recommending investors tilt towards emerging markets during this dislocation. Let’s call this an early tease for April’s Mid-Current piece where we take you to Africa, Southeast Asia, and southern tip of the Americas in search of opportunity. So, pack the bug spray and dry socks, we are going adventuring.

Speaking of adventure, it has been just that in the world of innovation and money losing, yet public, startups over the past twelve months. Anyone on the long side of this trade can tell you that downward drop is significantly faster than the uphill climb.

 

As we have said many times before, we are no haters of Cathie Wood and ARK Innovation. We’ve followed her for the better part of five years and knew full well that she had a sizeable lead in the frontier investing area of innovation and disruption, however you want to define it. Like all mega trends, they go through phases where you can look like a genius, or a fool. Full left tail, right tail swings.

 

 

The take home of all of this is to learn to ride the bell curve of financial markets, and of life. Never fall too much in love with the two-sigma right tail moments or fear the dark times when the left tail takes you to the edge. It should all even out if you have a balance of choices. Just remember, those who stay too long hanging out where trouble is found, are going to find trouble. And they will have nobody to blame but themselves.

 

That’s what we have for you from the markets and the economy this week. To keep you entertained, and in touch with the human side of life, I’m going to read you in on the adventure I am embarking on. It’s a two day haul from Los Angeles to Stillwater, Minnesota via a motorcoach averaging 90 mph. The over under on how much gas I burn is $650.

The journey starts at El Cholo on Western Ave in Los Angeles where I will be enjoying a couple of perfectly crafted margos before the home team Loyola Cubs take on the Santa Barbara Dons in volleyball. Wheels up post-match.

And the journey ends with pizza and wine in cave at Luna Rosa in Stillwater on the bank of the LaCroix river.

That, my friends, is what they call culinary range. The reason for the trip, one that will end two days later in Red Lodge, Montana, is to take my late mentor John Tubbesing’s coveted collection of fly-fishing and hunting gear to its final home, the family residence at the base of the Beartooth Mountains and Yellowstone Park.

A grave robber I am not, but like hell I’m letting his fly-tying desk, split bamboo rod, and Browning shotgun fall into the wrong hands. This is a young version grasshopper with the master circa 1994 on the East Rosebud River. I do believe I made him proud in this lifetime, and I hope to do the same. See you on the other side, John. I never missed a hook set, the fish was simply lazy.

 

 

 

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