Bull and Baird Blog - August 20, 2014

Equities start the day flat as pretty much nothing happens overnight. I mean there was news of course but most of it is so revolting I don’t even want to mention it. Anyway, since there’s nothing market moving to discuss I have two options here. I can do this entire recap as Hodor or talk about this link I found on John Brown’s website. Let’s try the first one:  Hodor. Hodor. Hodor. Yea that’s not gonna work (was three too many? I struggled with how many to use). I guess we have to talk about stock market bubbles. If you clicked that link (all 6 of you can skip the rest of this sentence) you’ll see that anyone who is calling this market a “bubble” may either be trying to sell you something or they are just a perpetual fear monger. Only 41% of people, if given an extra $10k in cash, would put it into stocks. A full 56% would basically put it into their mattress. Whoa. So they must be afraid of valuations right? They’ve seen this HUGE stock market run and would rather play defensively? Nope, only 7% of respondents knew the stock market rose 30% last year. The majority thought it rose 10% and a full 21% thought it was flat in 2013. So riddle me this Batman: How can we have an irrational, bubble fueled stock market if no one is even watching and the majority of people would rather put cash in a tin can than equities? We can’t…and we don’t. I’ve always said in my recaps that the stock market is not a bubble. There may be crazy bubbles brewing in things like startups and apartment rent in San Francisco and bonds but I don’t believe the overall equity market is a bubble. That's my opinion, I may be wrong, but I’m sticking with it for now.

After the open we saw the same exact price action as yesterday, up and to the right. Absolutely no economic data in the morning so all we had to go on was “how do I feel about yesterday? Good? Ok then buy some more”. The biggest loser today was SPLS, who reported earnings pre-open and told the world they plan on closing more stores. Honestly can’t remember the last time I walked in a SPLS store…seems like one of those big boxers that would do better with less square footage. You have a whole row of pencils and printer paper? Ummmm. Other losers RIG, WFM, ISRG, and ADBE. On the flip side HD continued its march towards the moon climbing another $2 today. You have a whole row of adhesives and wood fasteners? Hey that works, take ‘em up! Other winners MNK, MYL, JEC, and LUV. By lunch we sitting on the highs, 1,984, waiting for the latest Fed minutes.

Which came at 1pm, hit the market for 4 pts (because people are irrational), promptly recovered (rational people took over) and we closed at 1,986, up 25bps, just shy of the record. Yellen is Friday and let’s hope she sings further dovish songs because it appears the tape is pricing that in. Good day today, lots of follow thru to be pleased with. Bubbles? Come on, half the country is too busy watching the E channel and scrapping for a job to care what the S&P does.  But that doesn’t mean we shouldn’t…

Final Score:  Dow +35bps, S&P500 +25bps, Nasdaq +1bps, Rus2k -43bps.

News Highlights:

  • Succinct Summation of Day’s Events: Quiet day where we got follow thru from yesterday’s rally. Nearly closed at a fresh all-time high. Another dip come and gone. Fed minutes read hawkish for a few minutes but no one cares. Yellen speaks Friday.
  • Great quote by Buffet here, love me some folksy wisdom:  Don’t do anything in life where, if somebody asks you the reason why you are doing it, the answer is “Everybody else is doing it.” I mean, if you cancel that as a rationale for doing an activity in life, you’ll live a better life whether it’s in the stock market or any place else.
  • Is a correction imminent? This author says no (Im in agreement): “We don’t expect a major correction until the yield curve flattens further—or when we see more of a buildup in corporate excesses. But a more modest correction of 5%–10% is certainly possible, given the change in sentiment and the midcycle change in the nature of growth.  Historically, these market inflections have seen the most crowded trades underperform: US tech stocks in 2000–2001 are a good example. In the post-2008 environment, investor flows into emerging-market equities offer a more recent example of crowding. Even more recently, the crowded long trade in the New Zealand dollar underperformed starting in mid-July 2014, and worsened because of bearish comments and intervention by the Reserve Bank of New Zealand on July 24.”
  • Man, don’t faint on a Shanghai subway.
  • Who is uncle carl’s new project? $HTZ
  • Here are the 50 most widely held stocks by large hedge funds.

We’ll end tonight with the thirstiest man on the planet.   Amazing this guy.


Have a good night.