April Bull and Baird Blog

April 10, 2013

Equities start the day higher as the Fed fat fingers its minutes. Apparently the wizards in DC leaked the notes late last night so they were forced to pump ‘em out at 9am ET this morning. What did they say? Basically more of the same: employment slowly improving, we are ready to act, some of us want to halt QE, the muffins at Treasury are super dry, etc. Will the Fed halt QE this year? I doubt it, but that’s just one man’s view. Remember that jobs report last Friday? Or the one before it? Not exactly booming are they? So I get the sense that any hawkish talk is mostly bluster. The thing to remember about the Fed is that most of the “we are debating stopping this whole QE thing” is symbolic. Bernanke is still Captain of the U.S.S. “You’ll get 0.01% on your savings account and like it” cruise ship. What else? Earnings are still ramping with only 17 companies reporting today. There was one pre mkt mover everyone had their eyes on HMA, which pre-released negative last night and was immediately ushered into the ER for severe trauma (we rate neutral). Other than that we started another slow day where everyone looked around and said “this thing has to selloff right?” and “what’s the symbol for Bitcoin on Bloomberg?” (I feel like I have to talk about these things a lot, you will be hearing about them endlessly soon).

After the open we punched thru the old intraday record of 1,576.09 in about 2 minutes. USA USA USA! The market continues to grind up worried bears into a pile of fur and teeth, it’s just amazing. Transports, Financials, Homebuilders, the three legs I’ve watched all year continue to remain in uptrends and that’s important. They take the occasional jab to the face but haven’t been knocked down just yet. Lots of new 52wk highs this morning from such fan favorites as ADBE, HD, M, PEP, UTX, and DIS. PFE broke out to a new 7 year high and apparently gelato shops want to add a new revenue stream for them. Crazy. CAKE also threatened its all-time high as apparently they are trying to push out a new “calorie conscious” menu. Love that place. In terms of sectors Tech and Financials did well which is a promising sign because they’ve lagged quite a bit lately (esp tech which has basically lagged since I ate too much dip on New Year’s Eve). Adding to the enthusiasm was our friends across the pond. Most of Europe closed higher by 2-3% today on the heels of this story in Reuters about extending bailout loans which I guess is just what the doctor ordered. Actually anything bailout related seems to be what the Doctor ordered. By lunch we sat on 1,587, up 1.2%, which represented a full on rocket launch breakout. Take that 2007.


Most of the back half was sideways grinding, but we did rally into the bell and close near the highs. Just a fantastic day for the bulls…but why? Why is always the question and never easy to answer (because there is often no reason). I do have one morsel to offer that may give some clarity. Leon Cooperman recently presented at a fundraiser and here is what happened: He explained that the Federal Reserve’s policies have created an environment in which there are no better alternatives to common stocks; cash, government bonds and high yield credit are all unlikely to make more money than equities. “I don’t see a better alternative” he said. Is that the whole reason why equities continue to rally? Of course not, but it’s part of it, and that’s important to grasp. U.S. Equity markets remain a deep, liquid, attractive place to invest while all kinds of storms rage not only abroad, but in other asset classes. Like Prospero in the Tempest, investors are looking to thrive on a U.S. based island. Final Score: Dow +88bps, S&P500 +122bps, Nasdaq +194bps, Rus2k +180bps.

News Highlights:

• So we saw a new all-time high today in the S&P. Guess what also saw a new all time high? Home prices in Washington DC. “The median price of a home in the District reached its highest point in history last month, according to the latest data from Real Estate Business Intelligence, a subsidiary of MRIS” Good sign if you are bullish on the market.
• So should we sell in May? Prag Capitalist checks out the theory (courtesy of CXO Advisory) “In summary, evidence from crude modeling over the long run suggests that stocks mostly do better during November-April than during May-October, but (with reasonable assumptions about return on cash, dividends and trading frictions) buying and holding stocks generally outperforms a “Sell in May” market timing strategy.”
• Headline of the day courtesy of Bloomberg “US Oil Production Rises to Highest Level since July 1992”. Why don’t we hear more about this? This is not only jobs, but cheaper oil and less foreign dependence. Such a great under the radar data point.
• Rick Reilly has a great “what you should do with 1 day at the Masters” article. I never really had any interest in going to see this…If you're really daring, try to sneak a peek at: a) one of America's finest wine cellars (I've seen it; first thing you notice is floor-to-ceiling Chateau Lafite Rothschild). Wait… what was I saying?
• I’ve seen some great places to have dinner by the water. You know, stuff like this. But I’ve never seen anything as amazing as this place. Why must the Maldives be so far from here.
• One of Blackrock’s top strategists talks about why the economy is stronger than it looks. His 3 points: 1) US Energy Industry is taking off (I just mentioned this) 2) Housing (just look at inventories as well as rising prices) 3) Corporations have indicated they plan to step up expenditures.
• What exactly were they thinking with this bridge? Maybe something to survive a Tomahawk missile attack?
• The smartest blogger about housing weighs in on mix shift: “Also there has been a shift from foreclosures to short sales. In all of these areas - except Minneapolis- short sales now outnumber foreclosures. This is worth repeating: Imagine that the number of total existing home sales doesn't change or even declines over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines sharply, and conventional sales increase significantly. That would be a positive sign - and that is what is now happening.”

We’ll end tonight with a look at a sport that I CAN'T BELIEVE didn’t take off in the US. It’s got everything: speed, agility, coordination, teamwork, people juggling while trying attack other people juggling. Frankly I’m surprised this didn’t replace the NFL.

Have a good night.