June Bull and Baird Blog

June 13, 2013

Equities start the day…oh hey..is that you NSA? How are you, thanks for stopping by. Just your friendly recap writer trying to make heads or tails of the markets. nothing worth spying on here! Whoever we are mad at this week down with them ! USA USA USA. Anyway, what’s going on, other than Japan crashing? I’ll tell you what, we got more cross currents here than a class 5 rapid…..wow. Rates are going bonkers, EM is flipping out, Currencies are flying around like a 5yr old on a rope swing, and equities are saying “shouldn’t I be worried about all this?” But the question is why? Why all of a sudden is the Yen strengthening, EM imploding, the Nikkei crashing, the S&P quaking, and US rates surging? Well, there’s two ways I can answer this question. The first is to give you the complicated Wall St explanation: economics / central banks / macro data / correlation / blah blah blah. All the stuff you read where your eyes glaze over. The second way I can answer this is to cut to the chase, be honest and say “they were all insanely crowded trades”. Everyone was short yen. Everyone was long UST. Everyone was long Nikkei. Most people were long SPX (which is why it’s held up relatively well). I personally think we are seeing a garden variety unwind of very popular trades. I might be wrong, but that’s just my opinion (please don’t put me in a work camp NSA). That doesn’t mean the underlying data is worthless, it’s not. I simply think that if you are looking for an explanation for all this wonky price action mine is as good as any. Too many people doing the same thing…it’s a recipe for danger in markets. But let’s keep things in perspective: on a closing basis the S&P is 3.4% off its all-time high (as of today’s open). The slings and arrows of outrageous fortune cost us 3%? That’s it?

After the open we managed to ignore all the carnage around us and put together a decent rally. Macro data helped: Retail Sales came inline and Weekly Claims beat so that removed one reason for us to selloff. I guess the market qualified as “oversold” too since we closed Monday around 1,642 and opened today at 1,612. Any decent movers in this thing? GCI +34% (agreed to buy Belo corp for about $1.5B), PVH +10% (earnings), and SWY +7% (have you looked at a chart of SWY lately? This is a supermarket right? They sell peas and carrots?). Losers were RHT -1%, FSLR -1.4% and TIF -1.4%. In fact, only 3 stocks in the S&P fell more than 1% so it was a nice broad up-day. We rallied all the way thru lunch where we sat on 1,625, up about 0.75%. Not bad right? Basically defended the 50 day again and relieved some downward pressure.

This afternoon we heard from the man, the myth, the legend Jon Hilsenrath who dropped a “this bond buying thing ain’t over yet” article on us and we ripped to fresh highs! I get the sense Bears leaned a little to hard on this “fear” thing and now they will be forced to cover. We closed at 1,636, up 1.48%, and unless my math is wrong that’s the 2nd best day of 2013 (the first session is still the best). Can you imagine that? The 2nd best day of the year came amidst all this doom and gloom. We are only 1.9% away from a new all time closing high. Let that sink in as you think about crowded trades being unwound and how little that has to do with 1) an improving housing picture 2) an improving employment picture 3) an improving bank picture 4) an improving GDP picture and 5) an improving equity fund flow picture. Final Score: Dow +121bps, S&P500 +148bps, Nasdaq +126bps, Rus2k +179bps.

News Highlights:

  • Let’s start with a couple of links that should make you feel better about owning stocks. The first is a look at U.S. State finances. They are improving.
  • The second is a look at distressed home sales. They are improving. “Look at the two columns in the table for Total "Distressed" Share. In almost every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in many areas”
  • This is one of those “crowded trades”: A couple of months back, when Mr. Abe announced Abenomics (aggressive QE, purposeful increase in inflation, etc.), hedge fund wizards around the world flocked to what they saw as a “no-brainer” carry trade – short the yen (which QE should push lower) and buy the Nikkei (which would benefit from higher inflation and more trade from the lower yen). Scores of hedge fund managers reached for this too easy brass ring. For weeks and weeks, it all worked like a cash machine.
  • Your moment of Zen
  • Random chart of the day: U of Mich consumer confidence vs Real 10yr Treasury yields.
  • Josh thinks the tape is “exhausted”. He might be right, but it isn’t ready for a nap just yet. “You learn to read the tape over years and decades, not months and quarters. Everyone who can do it sees this exhaustion, even without confirming data. Rallies are being dumped on and signs of "distribution" are everywhere.”
  • Ok, Boston looks pretty cool (go Hawks)
  • The Rise and Fall of HFT. Good read, also includes what must be the worst trading error of all time. ….last August, Knight Capital crippled itself. Traders have taken to calling the implosion “the Knightmare.” Until about 9:30 a.m. on the morning of Aug. 1, 2012, Knight was arguably one of the kings of HFT and the largest trader of U.S. stocks. It accounted for 17 percent of all trading volume in New York Stock Exchange (NYX)-listed stocks, and about 16 percent in Nasdaq listings among securities firms.

I have two videos for you tonight.

The first will make you sick. This guy is insane.

The second will both surprise you and inspire you. Watch the whole thing, trust me.

Have a good night.