August Bull and Baird Blog

August 13, 2013

Equities start the day higher but remain stuck in a Hyperloop. Check that link to see what I’m talking about because we are going hyper-nowhere. But that’s fine, we’ve come a long way and need to digest these gains before testing the upside. Markets correct one of two ways, Price or Time, and I think we are going thru the time version right now. So what about valuation? Shouldn’t we be checking EV/EBITDA or Price/Sales or some other arcane metric only 11 people care about? Sure, why not. Click on this puppy to look at a fantastic chart from BAML showing why we AREN’T overvalued. Ok, I guess one of the metrics (Shiller CAPE) shows we are, but every time I hear that one I think of lobster rolls and sandy beaches so it’s hard for me to focus. The other 14 show we aren’t exactly stretched, so anyone screaming “top” has to contend with the data. Here’s how I see the rest of the year playing out: I think we take August off, trade sideways for a bit, maybe lower, then rally into year-end as Europe provides another leg up. Wait, did I just say Europe is going to provide a leg up? That’s right. Economic data over there is improving at a pace that demands your attention. The slope of the line is what matters and Europe is on the upswing.

After the open we played “chase unchanged” like we have for the past two weeks. Mkt up in the morning? Sell it. Mkt down in the morning? Buy it. So yea, morning price action looked like this. Retail Sales were inline this morning but no one seemed to care. Also in the “is anyone watching this” camp was the 10yr Yield, which pushed up against 2.72%. Quietly making new highs…love to see it. Here’s a thought experiment for you: Where does the S&P go if the Fed doesn’t taper in Sep? Because this kind of action in bonds proves that tapering is CONSENSUS. Higher? Kind of higher? A bit higher? Pardon me while I rub my hands together in anticipation. BBRY was on the wire today saying they put together a committee to “explore strategic alternatives.” Is that right? You got a 10% gain outta that headline? Hmmmm….these guys might be onto something. I need to explore strategic alternatives for the stuff in my basement. The sum of the parts valuation down there has to be epic (later it was reported by JPM and RBC that there was little interest from buyers and the stock did this). What else? Nothing really, aimless summer price action. Winners MU, TXT, CME, LLY, and XRX. Losers FSLR, JCP, MAS, BTU, and LCC (gov’t suing to block merger with AMR). By lunch we sat near the highs, 1,695, waiting for the inevitable selloff back to unchanged.

In the afternoon we got another example of why you have to be on Twitter. Carl Icahn tweeted (directly to his followers) “We currently have a large position in $AAPL” and this is what happened to the stock. If you were following Carl you got that news first....before any news service/wire got it. Don’t sleep on Twitter! We closed right where we were at lunch, 1,695, and to be extremely blunt, nothing meaningful occurred today. In fact nothing has really happened in the month of August so why would Tuesday be any different? We still need a catalyst for the next leg higher and until then we’ll grind sideways with people out of office. End of summer markets…FEEL THE EXCITEMENT!

Final Score: Dow +20bps, S&P500 +28bps, Nasdaq +48bps, Rus2k -16bps.

News Highlights:

· Thought provoking stuff from JPM’s Feroli. What if GDP potential in the US is 2% now? What if technology and demographic trends have moved against us? (further reading on that topic here, from late July).
· How about this headline? The credit crunch is officially over. For the first time since the start of the financial crisis, banks have more lent out then they did in late 2008. In mid-July, according to the Federal Reserve, which reports the figures with a lag, banks had $7.33 trillion in loans outstanding. That was slightly more than the $7.32 trillion banks had extended in October 2008, the last time credit peaked.
· I love it…no matter what the market does we always have some negative data point on the horizon. Now it’s September angst: “Because, on projections of current news, September shapes up as a volatile month, with way more downside risk than upside potential. September sure looks like a month for taking less risk rather than more, for having more money on the sidelines rather than less and for thinking about protecting gains and principal rather than rolling the dice.” Keep writing these stories people!
· I swear to God this was me last Friday night
· And I swear to God I’m going to swim here one day (Malta)
· I love this quote: “It may seem counterintuitive, but if you have something in your portfolio that you’re complaining about, it’s a good sign you’ve built a diversified portfolio.”
· Look at the following chart from Bespoke and tell me you are worried about the market. In the NFIB Small Business optimism index most companies cite Taxes and Gov’t as their biggest problems. But that’s not what I want you to look at, look at the chart showing “poor sales” as a concern. It’s at its lowest level in 5 years. i.e. Small Businesses citing “poor sales” as their biggest concern continues to FALL.
· What sorcery is this and how do I acquire one?
· You could visit this beach in FL if you wanted to. Easy as pie, might be a horse ton of bugs though (Shired Island).

I have a couple links for you tonight. All 3 showing people doing dumb / impossible things

The first is a human slip and slide….with a loop.

The second is a guy using a leaf blower on his dog. Don’t know why but it cracks me up.

The third is 2 guys bowling a strike…with a ping pong ball.

Have a good night.