June Bull and Baird Blog

June 3, 2013

Equities start the day higher as we get a fresh month in which to fret over. Can you believe how goofy May was? I’ve never seen so much angst over a month in which the S&P returned 2%. You’d have thought we were Robb Stark’s wedding guest by the way it ended (that show is insane, if you have any attachment to a character at all they will most likely die). I said last Wednesday that “I think you’ll get a chance to buy equities lower” and to be “more patient” and I’m going to reiterate those thoughts. Price action has been unfavorable for a week now and Friday’s dump was the coup de grace. Basically we’ve limped into summer where catalysts will be as scarce as Stark children so I don’t see any reason to rush back in. The real action you need to be watching though is in the bond market where yields have taken a sudden spike higher. All this “tapering talk” is putting crazy pressure on bond managers to have a plan for the Fed’s exit and you can see a bit of scrambling going on. Is the Fed’s exit imminent? I don’t think so, but you can view this as a mini dry run. You can also view this as “there’s been nothing for the market to worry about so people are searching for scary stuff” but that’s a topic for another recap. For now I think you avoid equities (until you see new highs) and any Frey wedding you get invited too. Just send a set of steak knives. Actually don’t send knives they appear to have plenty of them…..for people’s backs (I’m bitter).

After the open we got the worst ISM Manufacturing reading since 2009 (49.0) and that was enough to wipe out all our pre mkt gains (to be fair, those gains felt like they were built on toothpicks and kindergarten glue). The problem, as I see it, is that it’s becoming difficult to tell whether we are still in one of those “good news is good news and bad news is good news” type of markets. Since the primary worry of the day is Fed exit should I be rooting for ISM beats or misses? This is like watching your wife’s team plays yours in the Superbowl, what exactly should I be cheering for here? So while we dipped into negative territory this morning the selloff didn’t feel all that blustery. Beta names like TSLA, CRM, LNKD, NMR, and GRPN got smacked but names like these get the stuffing taken out of them in downdrafts. Why was the selloff so quiet? Probably because it’s Monday, and no matter what the tape is doing Mondays are usually quiescent (I’ll take Q words people never use for $500 Alex). There weren’t even any single names worth mocking so other than a bad macro data point (and another overnight Nikkei selloff) there wasn’t much to bore you with. By lunch we sat on 1,629 down 1 whole point.

The last few hours saw a rally and a close at the highs. Up 9 pts on the day…not too shabby right? Any reason for the late move? Probably half due to Lockhart (see my news highlights) and half due to the fact that tomorrow is Tuesday and the market goes up every Tuesday (I’ve tried to jinx it multiple times, never succeeded). Rather uneventful day so let’s wrap it up with one final thought: Japan and the U.S. have been THE place to be in 2013 but they are both showing signs of fatigue. That doesn’t mean their run is over, it just means you need to play a bit more cautious. 1,625 to 1,675 is no man’s land…don’t bother between there. Let the breakout happen before you make a fresh decision. Right now the market is trying to figure out what to do with the Fed and no one has an edge on that. Sometimes there’s nothing to do and I think this is one of them. Final Score: Dow +92bps, S&P500 +59bps, Nasdaq +30bps, Rus2k +65bps.

News Highlights:

  • QOTD from Lockhart: “There certainly seems to be an acute fixation on the timing of any adjustment to the asset purchase program and I guess I would just encourage everyone to not lose sight of the bigger picture. Any adjustment is not a major policy shift. The high level of accommodation will stay in place.”
  • In the same vein, here is an article arguing that the Fed’s not tightening anytime soon: We’re in the backstretch of the recovery. We’re now into month 47 of the current economic recovery. The average expansion in the post-war period has lasted 63 months. That means we’re probably in the 6th inning of the current expansion so we’re about to pull our starter and make a call to the bullpen. The odds say we’re closer to the beginning of a recession than the beginning of the expansion. That puts the Fed in a really odd position and not likely one where they’re on the verge of tightening any time soon.
  • Put this picture in the running for the Pulitzer right now (Turkey)
  • Another quote, this time from Bernanke’s graduation speech at Princeton “Life is amazingly unpredictable; any 22-year-old who thinks he or she knows where they will be in 10 years, much less in 30, is simply lacking imagination. ...”
  • Great article from Barry: Are you trying to get rich, or stay rich? What I try to explain to these highly educated, highly intelligent people is that they absolutely can achieve the same success in markets that they have as medical professionals — they just have to put the requisite time in, immersing themselves in finance (like they did in medicine) for a decade or so. It is usually around this moment that the light bulb goes off, and the cause of prior mediocre performance becomes understood
  • Imagine what computers will look like in another 25 yrs. Will they just be thin sheets of glass?
  • Read this quote and ponder its magnitude: “Every day, every week, every month that passes, people's portfolios are incrementally yielding less because they have older-dated (higher yielding) investments that are rolling off," Carroll said from his Charlotte, North Carolina office. "They have this quandary about what to do." That money will have to find a home..
  • Look what $115m gets you in NY. Not sure what the deal is with that statue though…
  • Things Michael should’ve invented #83
  • Whatever happened to “Demotivational” posters? They were always so good.

We’ll end tonight with a very brief look at unintended consequences. I guess if you’re gonna set up a camera near a boat launch you should give yourself a bit more room.

http://youtu.be/4vQYpsHryZY

Have a good night.