December Bull and Baird Blog

December 19, 2013

Equities start the day slightly lower as Ben says goodbye, but not before unleashing, what I like to call, a Mini taper (cue the pinky). Unlike Dr Evil’s tiny counterpart this mini taper brought nothing but joy and singing throughout the land. +166bps yesterday? Are you kidding me? That’s as tasty as a dinner at Scampo. Is there a single person around who said “Fed will Taper, buy stocks?” If there was they need to stand up and soak in the accolades. So my view was the Fed wouldn’t taper and stocks would rip. Do I get any credit for that? Probably not, being right for the wrong reasons is called luck (well said KeithMc). Just goes to show how impossibly hard this game is. Have wrong view…still be bailed out. Whew. Anyway why exactly did the market rally so much yesterday? Well I think it’s a combination of three things 1) removal of uncertainty. As we all know markets hate uncertainty, so the Fed has given us a road map for how they will remove QE (10B a meeting). 2) Good economic data is just that...good. I’ve said this a few times before but it bears repeating. In the end people getting jobs and companies making money and homes being built are just flat out good for stocks. Now I know we had all of that in 2007, I get it, it’s not ALWAYS the answer to why stocks go up. But look around you, does it feel like a bubble? Are your neighbors levered up and talking about stocks? Mine aren’t (well minus that one guy who I hate). 3) Enhanced forward guidance. Super dovish language that raised the bar on when they will start tightening. So what is the bear case now? Is it zombies? Should I be buying a crossbow?

After the open, it felt like the market wanted to go higher but didn’t want to be greedy about it. You know at cocktail parties when you find those really tasty appetizers, the one’s with cheesy goodness, and you go after them hard because no one is around? Then you start talking to your boss or some woman in a gorgeous dress and suddenly they come around again and you pass so you don’t feel too guilty? That was the tape this morning. After a 1.6% rally it spent the morning saying “no, I can’t go higher, not again. I’ve already taken too much”. Yet it started looking around, nervously, hoping no one would notice it going higher and by lunch it had dropped all pretenses and headed straight for the queso dip with a spoon. Have I mentioned one of my favorite tells finally broke out? (I did on Twitter, sorry if this is a redux). GS…look at GS go…exactly what we want to see for fresh market highs. What didn’t do so well? Exactly what you’d expect: Bonds and Gold. The bull case for Gold is eroding faster than the Sphinx but it’s worth watching in 2014. Why? Because I can’t find a single gold bull anymore. Not here, not there, not anywhere. They will not buy it Sam I am, They will not buy that Gold and ham (I don’t know how I feel about that, I’d probably give myself a C-). By lunch we sat on unchanged pondering what the best dinner is for Christmas Day. I argued Beef Tenderloin but a lot of people say Turkey. Humbug to that. Turkey had its day, this is a meat holiday.


The last hour brought nothing new, in fact today was a consolidation day. Frankly im shocked we weren’t lower after that huge move yesterday so this is setting up quite well. Let’s end on this thought: the investing world wondered whether Ben and his merry band of PhD having wonkheads could thread the needle on monetary policy. Could they find a way to unwind QE without unravelling the whole ball of yarn. So I ask you…did they just do it? Did they just thread the needle or does that remain to be seen? I’d argue they did, that their mini taper was subtle enough to calm the market and firm enough to begin their path towards normalized policy. I think history will embrace Bernanke like a son coming home from college, with a warm hug and gentle words. So long Ben and thanks for saving us from the abyss. Final Score: Dow +7bps, S&P500 -6bps, Nasdaq -31bps, Rus2k 73bps.


News Highlights:

  • Christmas Carol of the day God Rest Ye Merry Gentleman by the Barenaked Ladies! Love this one.
  • Felix Salmon on Why Companies Raise their Dividend: “It’s here that dividends start being a lot more attractive than stock buybacks. It’s exactly the same reason that you’d much rather get a thousand-dollar raise than a thousand-dollar bonus. Dividends aren’t bond coupons: they can go down, if they have to — and, in hard times, you can be sure that they will go down. But in general, no company will set a dividend this year which it doesn’t think it can meet next year, and the year after that, and the year after that. A dividend is a company telling the market that the cash it’s throwing off today isn’t some kind of exceptional good fortune, but is rather something that shareholders should get used to, year in and year out for as far as the eye can see.”
  • QOTD from Neil Irwin in the WaPo: “Bernanke’s chairmanship has been a fight for the idea that good policy can make people’s lives better, and he has exhibited the courage to take risks to make it so. For that alone, he deserves our thanks”
  • Ok you’re stumped on a last minute gift for one of those “best friend couples” you have. Your old pal Mike has you back. Just buy 4 of these, trust me.
  • Speculating on 2014. Some good one’s in here like this: The best performing stocks of 2014 will come from an industry very few people expect. The best performers in 2012 and 2013 had 3 common traits: a) they came from industries that almost everyone hated at the beginning of each respective year. Those industries were hated, because they lost many investors a lot of money in the previous several years. b) those industries were highly shorted c) after underperforming for > 2-3 years, more and more members from those industries suddenly started to appear on the 52-week high list
  •  Top Social Media stumbles in 2013. The Luton airport one is just mind blowing. The #askJPM one was hilarious.
  • Winners: ORCL CAG COG X CAN

So I don’t have any brothers, a sister who I love but no brothers. One of my best friends in the world, we shall call him DK, would be the kind of guy I’d love to have as a brother. He’s my boy. So anyway my friend is follically challenged. You know…not much of a party on that dome of his. If we were actual brothers I have no doubt I’d do this to him. In fact I may do it anyway.