Long, fun lunch! And the drinking might continue for a while tonite!
The markets closed near the highs of the day and S&P futures are about 10 handles higher than the closing price.
I am putting out more (SPY) on the short side at $293.40 in the after hours as the S&P index is now within 15 handles of the upper end of my trading range forecast for the next three to six months (2950).
This moves me to between small and medium-sized net short of exposure as I have been making baby steps throughout the last two days. I had a sense that defensive/bearish positioning and the announcements of opening up of our businesses and society would fuel the animal spirits and could take us up to the top of the range and it has.
* Breadth was nearly 6-1 positive. * Oil was +$1/barrel. * Gold -$21/oz. * Bond yields rose by five basis points and the 10-year U.S. note closes at 0.69%. * Cyclicals and energy were upside leaders. * Packaged foods stocks ++ ( (THS) +$3 and (SJM) +$2.60) * Banks positive. * In terms of individual stocks, (VIAC) +10% in a delayed reaction to Thursday's better profits report. Twitter (TWTR) traded to near $30. * I saw a lot of short squeezes today and yesterday.
Thanks for reading my Diary and enjoy the weekend.
That's all I got!
Be safe.
Position: Long VIAC (large), THS (large), SJM (large), TWTR (large); Short SPY, TLT (large)
As we approach lunchtime and just for giggles, let's revisit and have a singalong to a column I wrote six years ago when Dr. Dre sold "Beats" to Apple (AAPL) for over $3 billion... "Nuthin' But a P/E Thang."
The point of the column was that there is a tendency to develop extreme observations and make profound conclusions based on every bit of corporate news (no matter how insignificant), particularly as it relates to some of our larger and higher-profiled publicly held companies.
I will skip the discussion of how Apple's acquisition of Beats was a rounding error and move on to the song:
Beats' cofounder Dr. Dre's first solo album (after leaving N.W.A.), The Chronic, was released in late 1992 by his company, Death Row Records. In doing so, he established his patented G-funk sound.
In collaboration with Snoop Dogg, Dre delivered his greatest hit, "Nuthin' but a 'G' Thang," on this triple-platinum album that is widely regarded as one of the most important and influential hip hop albums of all time.
Here is the original video of the hit song that reflects hip hop's early days of raw realism (parental advisory: explicit content).
This morning, I ("Dougie Fresh") updated the verses in an attempt to make them relevant to today's stock market (and to the extreme levels of speculation). So, let's start the day with a singalong that pays homage to Dr. Dre and Snoop Dogg's great hip hop hit "Nuthin' but a 'G' Thang" and features, in 2014, Tesla's (TSLA) Elon Musk and Netflix's (NFLX) Reed Hastings.
"Nuthin' but a P/E Thang" (featuring Elon Musk and Reed Hastings)
[Elon Musk] One, two, three and to the four Elon Musk and Reed Hastings are at the door Ready to make an entrance in order to get our stock prices up (Cause you know we 'bout to rip the shorts up) Gimme the microphone first, so my stock won't bust like a bubble Tesla and Netflix together, now you know you in trouble Ain't nuthin' but a P/E thang, baaaaabay! Two loc'ed out G's so we're craaaaazay! Rising valuations is the ticket that paaaaays me! Unfadable, so please don't try to short this (Hell yeah) But, uh, back to the lecture at hand Perfection is perfected, so I'm 'a let 'em understand From a young G's perspective And before me dig out a secondary I have ta' become inventive You never know when she could be investin' with her man, And tradin' with her man, and at the same time earnin' with her man Now you know I ain't wit that, Lieutenant Ain't no P/E high enough to get burnt while I'm up in it (Yeah) Now that's realer than real-deal Holyfield And now all you tradas and investas know how I feel Well if it's good enough to get broke off a proper chunk I'll take a small piece of some of that funky stuff
[Elon Musk and Reed Hastings] It's like this and like that and like this and uh It's like that and like this and like that and uh It's like this and like that and like this and uh Reed, creep to the mic like a phantom
[Reed Hastings] Well I'm freakin', and I'm creepin', and I'm streamin' But I damn near got caught, but my subscriber base keeps increasin' Now it's time for me to make my impression felt So sit back, relax, and strap on your seatbelt You never been on an on-demand ride like this befo' With a producer who can program original stuff and control the maestro At the same time with the dope rhyme that I kick You know, and I know, I flow some ol' funky shtick "House of Cards" adds to my collection, the selection Symbolizes that "Orange is the New Black," If ya' do, ya' have no clue O' what me and my homey Elon Musk came to do
[Elon Musk and Reed Hastings] It's like this and like that and like this and uh It's like that and like this and like that and uh It's like this, and we ain't got no love for those So jus' chill, 'til the next episode
[Elon Musk] Fallin' back on my Tesla with a hellified gangsta' lean Gettin' funky with a gigafactory like a' old batch o' collard greens It's the capital E, oh yes, the fresh L-O-N M-U-S-K, E-L-O-N ya' see Showin' alota charge when it's time to wreck a mic Pimpin' tradas and clockin' a grip like my name was Dolomite Yeah, and it don't quit I think they in a mood for some "S" series kit So Reed. (What up Dog?) We gotta give 'em what dey want (What's that, "S" series?) We gotta break 'em off somethin' (Hell yeah) And it's gotta be bumpin' (the road to Wall Street!)
[Reed Hastings] It's where it takes place so I'm a ask your attention Streamin' like a boss but I ain't lynchin' Droppin' the funky sub numbers that's makin' the tradas mumble When I'm on the mic, it's like the competition, they all crumble Try to get close, and you'll get smacked My billionaire homie Elon Musk has my back Never let me slip, 'cause if I slip, then I'm slippin' But if I got "Arrested Development," then you know I'm straight trippin' And I'm a continue to put the DVD delivery down, put the mack down And if those short-sellers talk smack, I have ta' put the smack down Yeah, and ya' don't stop I told you I'm just like a clock when I tick and I tock But I'm never off, always on, 'til the break dawn N-E-T-F-L-I-X, and the road they call Wall Street Puttin' the programming together Like my investa Icahn, no one can do it better
[Elon Musk and Reed Hastings] Like this, that and this and uh It's like that and like this and like that and uh It's like this, and we ain't got no love for those So jus' chill, 'til the next episode
Market conditions this morning look reasonably consistent. Bulls will need to push above Dow 24250 and S&P 2950 perhaps to gain credibility. Watch as it goes along.
Equity traders somewhat distressed that rates continue to move lower and negative rates threaten - inconstant with economic bounce back.
* But it will matter in the late summer/early fall
April payrolls shrunk by 20.5 million, awful but not as bad as the estimate of -22 million. A big part of that differential was within manufacturing where 1.33mm jobs were lost vs. the estimate of -2.5mm. The household survey saw a loss of -22.37 million and combined with the 6.4 million person decline in the size of the labor force resulted in an unemployment rate of 14.7% from 4.4% in March. The only place where hiring was steady was, you guessed it, the Federal Government. Keep in mind that the U3 unemployment rate only includes those in the labor force which includes those that are looking for a job. Many people who lost their job are not looking and thus not included in this figure. The U6 is more inclusive as it includes many of these people and this rate jumped to 22.8% from 8.7%. Use that for now as more reflective in the current state of things.
Average hours worked surprisingly was steady at 34.2 instead of falling to 33.5 as estimated. But, aggregate weekly hours worked fell to just 93.9 from 110.3. Wages rose more than expected but of course on a narrower base of workers.
Bottom Line
We can analyze the internals every which way but when the jobs lost were due to a purposeful shutdown, it has a different context rather than if it was from a natural economic downturn. We need to shift the focus now to how many businesses will reopen in the coming months and quarters, and how many of these lost jobs will come back.
Here is the 20-year chart of the U6 employment rate:
S&P futures spiked (+30) overnight based on no apparent "new" news. I started the day with a market neutral net exposure. As I mentioned late yesterday, as we move towards the top end of my trading range expectation (2550-2950), I plan to move back to net short. Upside reward is now dwarfed by downside risk. However, I am giving Mr. Market a wide berth before adding short exposure as machines/algos "buy higher", individual investor sentiment remains bearish (I would like to see a shift here before shorting), benign and near zero interest rates (large risk premia and advantage of S&P dividend yields against short term interest rates), and a possibly elevated valuation based on a low projected risk free rate of return.
How to Succeed on Financial Twitter and Financial TV
* Make your argument confidently and never qualify or condition your investment presentation and case.
* Be smug.
* When met with hard questions (that require research/homework) fall back to a discussion of pets, hair, money or the Hamptons.
* Mention your home in the Hamptons as often as possible - as many are impressed and assume your possessions mean you really know a lot about investing.
* If on Fin TV, compliment the program's host, repeatedly.
* Make your investment arguments simple and seem obvious.
* Ignore the complexity of the investing mosaic.
* Answer every question, regardless of the subject and your sphere of knowledge, confidently.
* Disregard all prior investment mistakes as if they never occurred.
* Emphasize your most recent winner(s). Often.
* Do not mention your business experience at a Long Island stock brokerage boiler shop. If found out, make fun of it. Even use a humorous Twitter handle that references that background.
* If you have worked in government, mention it repeatedly as people assume you are then qualified to talk about any form of investment.
* Do not mention your lack of formal business or graduate school of business education.
* Do not mention you were an art history major in college
* Memorize 2-3 short bullet points which make the case for every investment.
* Avoid out of consensus and controversial ideas.
* Use as many fancy (and "inside baseball") investing words as possible.
* Speak at a lot of "conferences".
* Somehow accumulate a lot of Twitter (TWTR) "followers" as people like to be where others are.
* Go "low" and incessantly attack higher profile investment professionals on Twitter with inane and non substantive arguments.
* On FinTV talk as fast as possible so viewers have no clue what you just said.
* Never use the words: maybe, probably, might and could.
After seeing the Fed funds futures in December pricing in the very slight chance of negative rates and hearing Ken Rogoff on CNBC yesterday calling for a -3% negative interest rate, I feel the need to lay out the idiocy of implementing it. A while ago, I referred to it as poison for a financial system and the dumbest idea in the history of economics.
1)It's a tax. A tax on bank capital housed at a central bank that someone has to eat, either the bank itself or they pass it on to their clients. Taxes aren't stimulative.
2)It would blow up the $4 Trillion money market industry as money would flee and this money finances government repo's, commercial paper, CD's, etc...
3)It would damage bank profitability, which is the blood of small and medium sized business lending and a big help to large ones that also have access to capital markets. To remind you, the Japanese Topix bank stock index is down 92% in nominal terms since its peak in 1989. The Euro STOXX bank stock index is down by 89% from its 2007 high.
4)We're seeing in Europe that banks have passed on some of the tax on to retail deposits. There is a story today on BN that UBS is offering some of its high net worth clients a payment holiday for a few months from paying the negative rate penalty for keeping money at the bank. They are doing this because money is leaving the bank.
5)It hurts insurance companies and pension funds that have little low risk options in meeting their investment return goals.
6)It crushes the saver and retiree.
7)It has created a massive bubble in sovereign bonds that will be a complete mess when reversed considering the large debt taken on that NIRP encourages.
8)It therefore becomes a trap for central banks because of the potential damage to bond prices when unwinding it.
9)The Swedish Riksbank saw the error of its negative rate ways and got its benchmark rate back to zero, but only zero. Even the BoJ realized the damage done as they stopped at a negative rate of 0.10% years ago.
Moving on. Yes, today's U.S. payroll number will get all the news as it will be painful to see, knowing the lives impacted by it. But again, this was completely self inflicted and we must instead think about what it will look like in coming months and quarters as businesses reopen.
Looking overseas, Taiwan's April exports fell 1.3% y/o/y, a bit worse than the estimate of up 0.6%. Exports to China/Hong Kong jumped by 14% as China continues to reopen but shipments elsewhere to the region fell sharply. Exports to the US had a slight gain of 1.5%. Imports up .5% y/o/y were about as expected. The TAIEX closed up 0.5% as the entire region was in the green led by Japan.
The only thing of note in terms of April data in Europe was in the UK consumer confidence index which remained depressed at -33 vs -34 in March. The estimate was -37.
Georgia had the largest annual increase in April initial jobless claims of any state despite having one of the briefest COVID-19 lockdowns; education and travel exposure to China helps explain part of the unemployment rise that should persist in the academic sector
Ten million passengers passed through Hartfield-Jackson Atlanta Airport last July; for Georgia's source of international pride, a V-shaped recovery is not in the offing with domestic and international fliers travel-shy and one in five Americans out of work
Georgia's colleges and universities will be hoping for a safe return to school in the fall; population density in Fulton County (Atlanta) and the two biggest counties adjacent to it risks a Coronavirus second wave stemming from re-opening the state's economy
Everybody's got a fly, at least if they've got blue jeans. But it wasn't always as zippy, at least not until 1937's "Battle of the Fly." It was akin to video killing the radio star. That is, if you substitute "zipper" for video and "button" for radio star. Oh how the French fashion designers ooh-la-la'd. And Esquire magazine crowned the zipper the "Newest Tailoring Idea for Men." Its practicality was immediately captured in that it nixed "the possibility of unintentional and embarrassing disarray."
Squaring its universality today with the fact that it took 86 years from the time of its original 1851 patent as an "Automatic, Continuous Clothing Closure" requires a modicum of marketing savoir-faire. For that we have to thank the B.F. Goodrich Company's conceiving the much zippier name when it chose to use the fastener on its rubber galoshes.
In the state of Georgia, pride is taken in both the fly and the flight. Japanese manufacturing conglomerate YKK, the world's biggest zipper maker, has a huge satellite facility in Marietta that employs 45,618, landing it as the state's 11th biggest employer. And then there's the real peach, that source of international pride - the Hartsfield-Jackson Atlanta Airport, the world's busiest airport since the turn of the century and home to Delta Airlines. Last July, monthly volume passed the 10,000,000-passenger milestone.
Georgia cannot, however, boast the briefest COVID-19 state lockdown. That distinction goes to its neighbor to the north, South Carolina, which opened its beaches April 21 after a 15-day statewide lockdown. Georgia closed earlier, on April 2, and did not reopen its dine-in restaurants, hair salons and tattoo parlors until April 29. And while the state's businesses have no doubt benefited from the 62,440 visitors who've flocked to the state daily from surrounding states, its pride and joy airport remains in a state of shock.
As you can see in the yellow line in today's graph, since that momentous moment in July, passenger traffic has tumbled by 54%.
Sorry for the interruption, you say? Are we daft? Do we not know that today is nonfarm payroll Friday, the day we're poised to see the worst data release since the Great Depression? Why are we graphing airport traffic??
It wasn't until we dug into passenger traffic at the world's busiest airport, or lack thereof in a post-COVID-19 world, that we were able to wrap our heads around the blue line, Georgia initial jobless claims. That 1.527 million claimant figure is arguably meaningless. But what if we were to tell you that Georgia's 5,980% increase in claims over the same period a year ago is nearly triple the national average 2,052%? Georgia's initial claims are up more than any state in the nation and by a wide margin. The next worst state is Kentucky, where claims are up 4,740%. And that one we could explain with our eyes closed - it's both a top 10 manufacturing and auto state.
But Georgia? Does the Masters generate that many jobs? We knew we were missing part of the story given the brevity of the state's shelter-in-place order. A gander at today's table inset opened our eyes. Not only is Atlanta a transportation hub, it's an education magnet, one that China has clearly discovered given its top exports to the state are travel, education and passenger airfares. In other words, Chinese parents visiting their offspring they're educating at Georgia's fine institutions of higher learning, including the University of Georgia, Georgia Tech, Emory University and Berry College in Rome, Georgia, which holds claim of being the world's largest college campus.
But times are not the best for Georgia's colleges and universities. The University of Georgia system is working with all 26 of its campuses to devise a plan to reduce its staff by 14% in fiscal year 2021. This is, of course, not a challenge unique to Georgia. To name a few, the University of Michigan anticipates losses of $400 million to $1 billion this year across its three campuses. And California's massive university system booked losses of $558 million in March alone.
One thing is for certain and no doubt, to be closely watched by the scientists in Georgia's academic community hoping for students' safe return in the fall - the state's re-opening had better go without a health hitch. Fulton County, a.k.a. Atlanta proper, and neighboring Gwinnett and DeKalb Counties are the three densest in the state, accounting for 35% of Georgia's population of 10.7 million. They are also the three hottest COVID-19 spots in the Peach State.
Even if the re-opening is a success, it's unlikely Atlanta will reassume its crown as the world's busiest airport in V-shaped fashion. Domestic and international fliers alike will be travel-shy for some time to come -- to say nothing of budget-constrained, with one in five Americans out of work. It will take some time to zip back up the country's and world's economies.
