April Bull and Baird Blog

April 24, 2013

Equities start the day higher as we get more earnings than you can shake a stick at. Heart of the order coming up but let’s circle back to that later, I want to address this Twee-pocalypse we saw yesterday. Right around noon central time, as I ate my overpriced cafeteria salad, the market decided to perform a Crazy Ivan. As we frantically searched for a reason I jumped onto Tweetbot (the best app for Twitter, trust me) and saw “bomb at White House, President Obama injured”. You know the rest of the story by now: the market dropped 1% only to recover it all 2 minutes later after the AP came out and said “yea we got hacked, our bad”. So what can we learn from this goat rodeo? Here’s how I see it 1) If you aren’t on Twitter you are doing it wrong, especially in our industry. News breaks there first, you absolutely must be watching it during the trading day. But while it breaks news first twitter is awful at analyzing news, so be cautious. 2) There are computers / algos that scan headlines and stand ready to impact the market. Those computers can cause enormous dislocations without regard for common sense (see flash crash). This is important, and the reason why computers will never replace humans in trading. As the market plummeted I decided not to chase it lower with my client orders. Why? Because I can use human intuition and judgment where a computer can’t. A bomb in the White House reported by 1 random tweet? No confirmation at all? Other people in my Timeline saying “im standing next to the White House, there is nothing going on”? Client trust is our lifeblood, events like this prove that guarding their orders / assets with a human brain will never be replaced by Skynet. Now, more than ever, clients need a technologically savvy river guide who won’t get distracted by random currents and eddies.

After the open we had our hands full with abject boredom. For the first half of the day the market hovered around unchanged like Homer Simpson at a seafood buffet, which was crazy given the amount of companies reporting. We also got a teaspoon of macro data from Durable goods but it missed as bad as Spring in the Midwest showing a 5.7% decline in March (looking for 3% decline). Let’s move on to stock movers because the list is long and distinguished, like my eating achievements (took down 20 MCD nuggets the other day...BOOM). There were 4 score and 7 years worth of misses from such names as VOCS, EW, RHI, JNPR, T, AMGN, and PG. There were a couple winners like R, YUM, GD, and BRCM but if you’ve been playing along at home you’ve noticed that earnings (particularly top line) are doing about as well as this guy at sit-ups. The fact that we are trading around 1,578 is pretty amazing. AAPL reported last night and apparently sentiment isn’t as bad as it gets because the stock went nowhere (good take here by Felix Salmon). So we had lots and lots of noise yet very little index movement...odd. By lunch we were still sitting on unchanged hoping no one would tweet about Ben Bernanke. Can you imagine? Seriously, if there was some vast tweet-spiracy to reduce the market to rubble wouldn’t you choose Bernanke over Obama? That might make a good economic thriller book. Wait…no one steal my idea.

The 2nd half of the day saw a run at 1,583 (up about 25bps) but ultimately a close at 1,578.78, which is EXACTLY where we closed yesterday. A metric ton of earnings and the market ended completely flat….what’s there to say about that? Nothing really, sometimes the market acts silly. But we are near the yearly highs, even with all these bearish cries. Tomorrow is fresh day for knowledge, stuff you can’t learn in college. So I bid you good night, let’s hope these earnings don’t cause a fright. Final Score: Dow -29bps, S&P500 flat. Nasdaq -4bps, Rus2k +51bps.

News Highlights:

  • After hrs earnings movers (as of 415pm ET): ZNGA -13%, QCOM -5%, AKAM +8
  • Two things keep me up at night (besides my awful pillow). The first is a fairly standard chart on what sectors do well in what part of the cycle. You’ve seen it before, but let me remind you that Staples / Utils / Health Care are all doing great. The second is this random factoid:the median bull market has historically lasted 50 months, and we are currently in our 49th bull month. Put those two together and I’m staring at the ceiling at 3am.I was digging thru my spreadsheet of “awesome CEO quotes” yesterday and I ran across this gem. It’s an oldie but I’m willing to pull it out every now and then for a laugh: "The Urban customer, we always talk about, is the upscale homeless person, who has a slight degree of angst and is probably in the life stage of 18 to 26 ... The Anthropologie customer is a bit more polished, a bit more older and she has much less angst ... She tends to be a homeowner and she tends to be in a relationship and more likely than not, married with children." — Chief Executive Officer Richard Hayne, September 2012 Analyst Day. Who knew angst was such a trackable metric? I gotta tell you, I feel like I have heaping helpings of it. Someone point me to an URBN stat.
  • Every time I see this thing I’m still blown away by it (over 1800 ft high)
  • Mark Hulbert in Marketwatch ponders our weak earnings and actually works a Wile E Coyote reference in: “The stock market reminds me of the cartoon character Wile E. Coyote, after he has run off a cliff and is temporarily suspended, in mid-air. It’s funny then, since viewers know that gravity will soon kick in.” I’m actually jealous I didn’t think of that one first.
  • Take a look at the Top 10 Fastest Growing US Industries (2003-2013). How many parents of the Class of 2007 told their recently graduated child (who they just spent $150k on) “Hey, you should really go develop a social game instead of that corporate thing”.Got a few lifetips for you here. Trust me, you wanna click this link. I bet 50% of you do that first one this summer.
  • The author of this article ponders buybacks and dividends and how they continue to push the market. “Most importantly, during the current earnings season, US corporations continue to announce dividend increases and more share buybacks. Previously, I’ve shown that this corporate cash flow into the stock market--which totaled $2.1 trillion for the S&P 500 since stock prices bottomed during Q1-2009 through Q4-2012--has been driving the bull market since it began”.
  • I know you are trying to be all hipster chic here but this is a recipe for disaster. It may look urban sweet but it’s gonna be a wet mess.
  • We’ll end tonight with a look at how animals eat their food. Well… how animals would eat their food if they were a human. The fact that the other guy doesn’t bust out laughing every time is amazing.

 http://youtu.be/qnydFmqHuVo

 Have a good night.