DAILY DIARY
Calling It a Day
Thanks for reading today and enjoy the evening.
Bizarre Times
Oil just goes red.
Stuck on Top
Mr. Market is stuck at the highs.
Some Good Afternoon Reads
* On coronavirus
* Why Iowa?
* Zero Hedge permanently barred from Twitter.
Exactly What's Going On Here? Markets Soar, Disastrous Democratic Iowa Primary, and Tesla's Unrelenting, Unhealthy Surge
I wanted to repost my opener as it was published very early this morning (and some have missed it):
* S&P stock futures are gapping much, much higher
* Iowa's Democratic disastrous primary "non-results" are still delayed - so, it's on to New Hampshire?
* Telsa's shares are trading over $800/share this morning (look for an equity or convertible offering in the near future?)
* Perhaps all three of these surprises are interrelated!
"That lesson is, that in an interconnected world and in an era of rising political, geopolitical, policy and economic uncertainties, we should always consider the unexpected..."
- Kass Diary,Straight Outta Wuhan
Investors wake up to a 40 handle rise in the S&P futures (and a more than +110 handle climb in the Nasdaq futures), a disastrous and broken Iowa Democratic primary (which still has not delivered voting results) and another gap up in Tesla's (TSLA) shares to over $800/share.
As to the rise in stock futures, I have no idea why they are so strong. (I start the day in a small net long position.) Though I can make up some reasons for all of you, I honestly have no bona legitimate reasons that I can point to. Even the morning financial shows are perplexed and not offering bona fide reasons for the pre-market strength in equities.
Another overnight surprise was the delay in the Iowa voting Democratic primary results (apparently caused by a broken app) - a failed tallying process that is bound to reverberate politically. Thus far, there has been no meaningful explanation delivered by the Democratic Iowa party officials to explain the remarkable screw up. (Perhaps the voting disaster in Iowa is tied into the rise in equity futures as the same party (Democrats) that has warned about election fraud and voter suppression can't get their own election action together in Iowa - thus aiding or contributing to President Trump's rising election odds).
Finally, there is Tesla - which is trading in the pre-market over $800/share. Yesterday, 47 million shares of Tesla traded at an average price of $750/share - equating to a nominal value of $35 billion or more than one quarter of its market capitalization (in one day). That was greater than 1.6x the nominal value of Spyders (SPY) traded ($22 billion) and over 1.5x the nominal value of Amazon (AMZN) and Apple (AAPL) trading combined on Monday. Tesla's shares (+85% year to date) are now trading 80% above the 50 day, 36% above the 10 day. The daily and weekly RSI both are over 90. The monthly RSI is over 80. It won't be the shorts who knock this down with a short interest ratio at 1.4 days to cover. It will be the longs who kill the stock.
While Tesla may be the "future" and the company has established first mover advantage in autos and batteries, the shares are dramatically overvalued, and it's recent ascent radically eclipses the previous speculative urges of past cycles.
Tesla will not automatically brush our teeth, nor will it walk our dog, heal the sick, cure the blind, solve global warming and deliver for world peace.
Iomega? Chump change.
Tilray (TLRY) ? An odd lot when compared to Tesla.
Tesla is a one off, an outlier - 2020 style. A speculative stock who's unprecedented rise in market cap is probably more than all the past speculative excesses combined! Perhaps this morning's speculative surge in Tesla's has grown infectious with the broader market (as manifested by the extraordinary strength in stock futures).
(Note: I fully expect Musk to capitalize on the amazing January and February climb in the shares of Tesla. (Listen up Elon), a smart move would be to announce a large secondary, or more likely, a convertible issuance.
Bottom Line
Perhaps the strength in stock futures is tied in with the failure of the Iowa Democratic primary (to provide the results on a timely basis) and to the continued speculative vault in Tesla's shares.
It's almost as if we are witnessing two more viruses - one of a political disaster and another of an unprecedented speculative (and unhealthy) rise in a popular but controversial stock (Tesla).
Once again, in an interconnected world and in an age of growing uncertainties, we should always consider the unexpected.
And the unexpected is being featured on the front stage this morning.
Tweet of the Day
Subscriber Comment of the Day
This has been my contention - as expressed in my Diary and in my 15 Surprises for 2020.
From Neil The Real Deal:
Kudlow acknowledging potential for Chinese to buy less than under Phase I deal - Coronavirus Could Impact U.S.-China Trade, Exports Under Phase 1 Deal Will Take Longer Because Of Impact On Chinese Buyers
Chart of the Day
Only three points to go!!!!
Here is the RSI of Tesla (TSLA) (almost 97!):
Note to Myself
I start the day small net long.
I will not end the day small net long.
The Book of Boockvar
Nevermind:
Nevermind. A 1.3% rally in the Shanghai comp after a 7.7% drop on Monday is seemingly enough to forget about the S&P 500 decline on Friday. I agree that whatever disruption this virus spread brings, the impact is temporary and will mostly go away in a few months but I can't ignore what the yield curve is saying in terms of its belief on the trajectory of growth. I say trajectory because too many only look at it for estimating a recession or no recession. The 3 month/10 yr spread is back to flat today from an inversion of 4 bps on Friday but it was steep by 22 bps just two weeks ago and 28 bps one month ago.
With a record low benchmark rate, the Reserve Bank of Australia kept interest rates unchanged at .75%. They sounded patient on how the virus impact on their biggest trading partner plays out and they looked past the influence of the bush fires but reminded us all that "It remains prepared to ease monetary policy further if needed." Notwithstanding this cutting rates from here though won't be stimulating anything that is not already being stimulated. While no central bank will say they can't do anything more, it does seem the RBA realizes they've already done a lot. "With interest rates having already been reduced to a very low level and recognizing the long and variable lags in the transmission of monetary policy, the board decided to hold the cash rate steady." The Aussie$ is up slightly after a slide seen this year on China worries. The ASX rallied .4% while Aussie yields were little changed.
It's sort of gone under the radar but the Bank of Japan has really scaled back their pace of QE to the point where their monetary base stopped growing back last June. Due to the desire for a steeper yield curve and major pushback to the ETF purchases where they own more than 3/4 of that market, they've dramatically shifted gears. It's really just the ECB and Fed right now that has goosed the size of their balance sheets recently.
BOJ MONETARY BASE
Post UK election, we've seen a lift in all their business confidence indices (now needed to be followed by hard data) and today's Markit construction index rose as well. While still below 50 it was up 4 pts m/o/m to 48.4, 1.3 pts above the estimate. That's the smallest print below 50 since May 2019. Commercial work showed the least slowest pace with residential also showing some signs of improvement. The pound is up a touch to back above $1.30.
UK MARKIT CONSTRUCTION PMI
Did Investors Mute EF Hutton?
From Danielle DiMartino Booth:
- QI forecasted strong January ISM New Orders, but the rebound's durability is in question; a positive ISM anecdote on the leading global chemicals sector and the breadth of global manufacturing PMI new orders-to-inventories spreads bode well but pre-date coronavirus
- Two key hard data trends - the manufacturing workweek and industrial production -- must turn decisively bullish to confirm the positivity in the ISM and global PMIs; the combination of the coronavirus and the collapse in global transportation could derail the nascent recovery
- The historic volatility of the PMI new orders-to-inventories spread suggests it wouldn't take much to reverse the move; a re-strengthening in crude oil prices via stronger global demand, however, would validate this positive signal and green flag the momentum trade
If you grew up in the 1970s, you had no choice but to watch television commercials, unless, of course, you left the room to get a snack. At least the advertising agencies of that era came up with catchy jingles and memorable marketing magic to fill the small screen. Remember Mikey from the Life Cereal commercial? Or Mean Joe Greene from the Coca-Cola ad? Budding future Wall Streeters recall another commercial for the stock brokerage founded by Edward Francis Hutton and his brother, Franklyn Laws Hutton. Its slogan remains etched in our collective memory: "When EF Hutton talks, people listen." EF Hutton had some serious Street cred back then. For several decades, it was the second largest brokerage firm in the country.
Investors listen to bellwethers. And while WHO and CDC may be more important acronyms at the moment, ISM (short for Institute for Supply Management) always carries weight in judging the fundamental backdrop.
Before delving into January's report, a quick note on ISM's survey period. Though the Institute generally sees respondents wait until late in the month to submit their perspectives, there was nary a word on the coronavirus in yesterday's release. We'll have to wait for February's survey to get a cleaner read on the damage to the global supply chain.
The better-than-expected January ISM report initially triggered a three-basis point intra-day jump in the U.S. 10-year Treasury yield. And then traders bought the dip. To be sure, the headline index, New Orders and Prices Paid all came in above the market's, but not our, expectations. January 27th's Feather flagged the rebound in New Orders (you're welcome). And yet, like those doubtful bond traders, we recommend you curb your enthusiasm. We're not sold on the durability of this green shoot.
ISM's Customers' Inventories index checks-and-balances New Orders. When it leans "too low," restocking is the (re)order of the day and vice versa. Enter December Customers' Inventories, which fell to a 10-month low of 41.1 and flagged the rebound in New Orders. The January uptick in Customers' Inventories to 43.8 suggests February's New Orders impulse won't be as strong as January's 52.0. Backlogs, or future demand, did improve but remained in contraction corroborating the potential for a chillier February.
Stepping out to the global picture, we can't help but be encouraged by an anecdote in yesterday's ISM as it pertained to our favorite leading cyclical industry: there are "small signs of increased global demand in the chemical segment." The breadth of global manufacturing purchasing managers' indices (PMI) new orders-to-inventories spreads backs this nascent sign of future strength.
We track this short-run demand/supply guide to industrial output across forty-one countries, thirty-seven of which had been reported for January, a month in which the percentage of countries with new orders-to-inventories below zero (excess supply) fell to 22% from December's 41%.
Inverted above in blue, this breadth-alizer test reveals a burning desire to restock. It's flashing a strong, but tentative, bullish signal for two key cyclical indicators - the manufacturing worker workweek, one of 10 feeders to the U.S. Leading Index, and industrial production, one of the four horsemen of the business cycle used to date recessions by the National Bureau of Economic Research.
The durability of the global reflation narrative HAS TO translate from the soft data signal (breadth) to hard data trends (manufacturing workweek, industrial production) for us to turn decisively bullish on global growth and the long-cyclicals trade. Today's chart shows this breadth metric leads turning points in factory worker hours and industrial output. But any number of hiccups could derail a rebound. To that end, there was no validation of building strength in manufacturing payrolls given January U.S. employment index remained in negative territory.
That's where Coronavirus and Dow Theory intersect. The outbreak will slow Chinese industrial activity for longer than usual during the seasonally slower Lunar New Year period. And transports will be hammered as outbound port and air freight volumes are curtailed until further notice - or at least until the containment quotient is great enough to fire up production again. You'll know it when you see it in crude oil prices.
Mind you, pre-coronavirus, U.S. transports was still on its back which was reflected in yesterday's ISM commentary of, "continued signs of a slowdown in manufacturing" from the Transportation Equipment sub-sector.
Our breadth-alizer has higher volatility than the two pillars of industrial activity - workweek and production. That means it wouldn't take much for future PMIs to backslide turning a bullish January into a bearish February and (even) March.
One month never makes a trend, especially given the risks to February's data from the coronavirus. Best not to jump to conclusions from one ISM survey or round of PMIs, even if EF Hutton was doing the talking.
Exactly What's Going On Here? Markets Soar, Disastrous Democratic Iowa Primary, and Tesla's Unrelenting, Unhealthy Surge
* S&P stock futures are gapping much, much higher
* Iowa's Democratic disastrous primary "non-results" are still delayed - so, it's on to New Hampshire?
* Telsa's shares are trading over $800/share this morning (look for an equity or convertible offering in the near future?)
* Perhaps all three of these surprises are interrelated!
"That lesson is, that in an interconnected world and in an era of rising political, geopolitical, policy and economic uncertainties, we should always consider the unexpected..."
- Kass Diary,Straight Outta Wuhan
Investors wake up to a 40 handle rise in the S&P futures (and a more than +110 handle climb in the Nasdaq futures), a disastrous and broken Iowa Democratic primary (which still has not delivered voting results) and another gap up in Tesla's (TSLA) shares to over $800/share.
As to the rise in stock futures, I have no idea why they are so strong. (I start the day in a small net long position.) Though I can make up some reasons for all of you, I honestly have no bona legitimate reasons that I can point to. Even the morning financial shows are perplexed and not offering bona fide reasons for the pre-market strength in equities.
Another overnight surprise was the delay in the Iowa voting Democratic primary results (apparently caused by a broken app) - a failed tallying process that is bound to reverberate politically. Thus far, there has been no meaningful explanation delivered by the Democratic Iowa party officials to explain the remarkable screw up. (Perhaps the voting disaster in Iowa is tied into the rise in equity futures as the same party (Democrats) that has warned about election fraud and voter suppression can't get their own election action together in Iowa - thus aiding or contributing to President Trump's rising election odds).
Finally, there is Tesla - which is trading in the pre-market over $800/share. Yesterday, 47 million shares of Tesla traded at an average price of $750/share - equating to a nominal value of $35 billion or more than one quarter of its market capitalization (in one day). That was greater than 1.6x the nominal value of Spyders (SPY) traded ($22 billion) and over 1.5x the nominal value of Amazon (AMZN) and Apple (AAPL) trading combined on Monday. Tesla's shares (+85% year to date) are now trading 80% above the 50 day, 36% above the 10 day. The daily and weekly RSI both are over 90. The monthly RSI is over 80. It won't be the shorts who knock this down with a short interest ratio at 1.4 days to cover. It will be the longs who kill the stock.
While Tesla may be the "future" and the company has established first mover advantage in autos and batteries, the shares are dramatically overvalued, and it's recent ascent radically eclipses the previous speculative urges of past cycles.
Tesla will not automatically brush our teeth, nor will it walk our dog, heal the sick, cure the blind, solve global warming and deliver for world peace.
Iomega? Chump change.
Tilray (TLRY) ? An odd lot when compared to Tesla.
Tesla is a one off, an outlier - 2020 style. A speculative stock who's unprecedented rise in market cap is probably more than all the past speculative excesses combined! Perhaps this morning's speculative surge in Tesla's has grown infectious with the broader market (as manifested by the extraordinary strength in stock futures).
(Note: I fully expect Musk to capitalize on the amazing January and February climb in the shares of Tesla. (Listen up Elon), a smart move would be to announce a large secondary, or more likely, a convertible issuance.
Bottom Line
Perhaps the strength in stock futures is tied in with the failure of the Iowa Democratic primary (to provide the results on a timely basis) and to the continued speculative vault in Tesla's shares.
It's almost as if we are witnessing two more viruses - one of a political disaster and another of an unprecedented speculative (and unhealthy) rise in a popular but controversial stock (Tesla).
Once again, in an interconnected world and in an age of growing uncertainties, we should always consider the unexpected.
And the unexpected is being featured on the front stage this morning.