May Bull and Baird Blog

May 16, 2013

Equities start the day slightly lower as every economic data point misses. Apparently no one cares though because 11 of the last 13 sessions have brought new all-time highs, which is a heck of a streak. I mean it’s not as impressive as my run of downing Wheat Thins before bed last night (I was 30 for 30, BOOM) but it’s still an eye opening move. Most of this glorious price action was kicked off by my boy Tepper after he went all crazy bullish on CNBC Tuesday and I wanted to point you towards this Yahoo Finance poll to drive home a point about sentiment (for those of you playing at home, Tepper is the head of Appaloosa, a savvy equity Hedge Fund in the great state of New Jersey). Now before we continue make sure you click that link. I’ll just sit here and sing that stupid Lumineers Ho Hey song that is so insanely overplayed I might break something if it comes on again. Ok, you back? Here we go. Tepper is a smart guy, one of his main reasons (and mine) for being bullish is “why fight the Fed?” Yet if you look at that poll over 58% of respondents ARE fighting the Fed, they either don’t wanna buy or are outright selling. If you’ve followed me for awhile you know I’m constantly looking for obscure things in dark corners of the internet (take it easy) that might help us understand why the market does what it does. This kind of data point, along with the Gallup one I posted on Tuesday, is one of them. They reinforce the fact that one of the MAIN drivers of the rally is still with us: disbelief / underinvestment. When your siblings and college buddies are calling the market a bubble it isn’t one. By the way, does anyone remember the time when we didn’t label price increases of any kind a bubble? So sick of that word.

After the open we saw a bit of early weakness off that macro data I mentioned earlier. Let’s rundown what missed expectations shall we? Weekly Claims (360k vs 330k), Housing Starts (853k vs 970k), Philly Fed (-5.2 vs 2.0), and my DNKN Iced coffee (sometimes they make it vanilla white with too much sugar..frustrating). So one would think the market puked off bad data right? Nope, it was once again shrugged off. We really are in one of those good news is good news, bad news means more Fed markets. You just have to deal with it, it happens. Speaking of the Fed, take a look at this awesome chart I pulled from a speech given today by Dallas President Fisher. Interrogative: does that dashboard make you think the Fed is ready to reduce QE anytime soon? I don’t see a lot of needles in the green and Fisher even says “The dashboard also indicates that at quarter’s end, we were cruising along at near stall speed—note the ‘Engine stall’ red warning light.” Anyway, back to the market. Over 490 stocks made new 52 wk highs today and check the deets: 132 of them were financials, 71 Industrials, 69 Consum Disc. Just what we wanna see right? Especially that financials number. But what about losers? 55 stocks made new 52wk lows and using a mkt cap > $250mm filter 40 of them were material stocks. Names like AEM, AU, GG, NEM, AUY. That’s right, gold and silver stuff. Again, that’s something I view as good for the tape, the gold trade is still melting down which means all that “world is ending” money needs to find a new home. By lunch we sat on 1,656 down a whopping point.

The final half of the day saw the market quietly slide to the lows where it closed down 8 pts to 1,650. I know, I know, it’s weird to see the market close down but we’ll get thru these trying times if we stick together. What caused the selloff? Nothing in particular, so don’t look for reasons where there are none. I’m going to end tonight’s recap with a masterful bit of optimism from my perennial favorite Josh Brown. When you read this passage I want you to think to yourself “there are trades in here” and “someone will get rich only by being optimistic about our future”. Anyway, here we go: “The economy is rebuilding itself atop the ashes of the old one. Traditions are being trashed as we make new ones, vestigial institutions - the US Postal Service, terrestrial radio, the 9-to-5 cubicle career - are being gutted, their idiosyncrasies as endearing as they are irrelevant. There is a natural gas renaissance, there is a manufacturing renaissance - Middle America is an Emerging Market. There is an oil boom - in America! We are minting millionaires in Utah and South Dakota and Montana at an amazing rate. There is a healthcare revolution. There is an alternative energy second act. Berkshire Hathaway is building the largest solar project on earth. Electric cars are coming - for real this time. Everyone is coding. Everyone is mobile. We walk around with computers in our pocket more powerful than the NASA equipment that first put men into orbit. We've ventured out of the trenches and have not had our heads blown off.
We've taken a few steps forward and it feels good. So take a few more.” Final Score: Dow -28bps, S&P500 -50bps, Nasdaq -11bps, Rus2k -32bps.

News Highlights:

  • I’m making this guy an honorary American (He’s Welsh). Apparently he has mad soccer skills too.
  • So if you are bearish on housing this might be your favorite chart. Something is going on with the price of Lumber, which is typically highly correlated to housing stocks (HT DP for the chart).
  • And this infographic will give you great context on the last 3 years of the US housing market
  • Quote of the day from a BAML piece: Panama successfully issued a 750mm 40yr bond with a 4.3% coupon. Note that in the past 50yrs, the 30yr US Treasury bond has only traded below 4.3% for just 10% of the time frame. I believe this is appropriate (Is there a better “I wanna drive fast and listen to music” song?)
  • You have to laugh at Wall St sometimes, I swear stuff like this is all over the place. Can you believe someone looks at that and says “yea, there’s conclusions to be had here”
  • New column by Santoli looking at the current bull market: Nothing says this rally has to roll on long enough for this bull-market swagger to escalate into all-out risk binge on fabulously overvalued stocks. But if the market is destined to enter the sort of full overshoot to the upside that would encourage such a public frenzy, we’re not quite there yet
  • Let’s have a look at the history of Forward PE’s shall we? (its gotta be more interesting than the stuff on History channel) The mean of the monthly forward P/E of the S&P 500 since September 1978, when the data start, is 13.7. The recent valuation-led rally may simply be a reversion to the mean, as the P/E has rebounded from 12.1 at the end of last year on November 14 to 14.4 yesterday. The bull market’s trough P/E was actually 10.2 on October 3, 2011. The bull market’s peak P/E was 15.1 on October 14, 2009 before the bears distracted us with their Endgame scenario, which depressed P/Es. Reverting above the mean to 2009’s peak would put the S&P 500 at 1744, up 5.2% from yesterday’s close.
  • Has to be the worst own goal ever.
  • Anyone worried about inflation looking at these numbers? Bueller? *Pulled from here*
  • We’ll end tonight with a super short video. Actually it’s not even a video, it’s a .gif, but it’s got a lot of funny packed into 7 seconds. It’s a video of a guy eating cotton candy…played backward.

http://i.imgur.com/QbRqqf1.gif


Have a good night.