Bull and Baird Blog - January 27, 2014

Equities start the day higher on a weak sauce bounce. Always hate to see futures higher after a big pounding, just invites people to dump all over it. As I watched Taylor Swift bounce around last night like one of those car lot inflatable men I had a few things circling my mind. Why does everyone say the sky is falling on a pullback? Has EM ever NOT been a threat to the whole world? Doesn’t Argentina have a crisis EVERY FEW YEARS? What do I tell my 8yr old son now that he finally hit me with the “Dad, how are babies made?” Has there ever been a more telling chart that this to start a year? Don’t people WANT dips to buy instead of chasing stocks? Is there anything more tiresome than Beatles worship? Can a market still be over believed when it gets pounded for 3% in two days? You think those Daft Punk helmets have fans in them? Now I wish I had an answer to all of these, especially the Beatles one because I must be the only person on Earth who thinks they are overrated, but unfortunately I’m stumped on most of them. I do recall that last year there were lots of reasons to sell stocks (Cyprus, Debt Ceiling, valuation) that seemed JUST as serious as an EM blowup but ultimately failed to dent the rally. Is it different this time? Maybe, maybe not. Maybe some nervousness is good for stocks. Maybe its not. Maybe the easy money has been made and now the waters will be much harder to navigate. Then again maybe this is a garden variety pullback. Let’s see how the week develops before drawing any major conclusions. Again, we are a whopping 3% off the all time highs (at the open) so let’s not do anything rash just yet. As the WSJ pointed out this morning on twitter (@WSJMoneyBeat), the S&P has broken its 50 day five times since Dec 2012. Each time the index bottomed within a week.

After the open it felt like bulls needed to climb this mountain to gain any sense of momentum. But alas, Hillary and Tenzing were nowhere to be found and an avalanche of selling pushed us lower from the start. I feel like “sell any morning strength the day after a stock market rout” should be taught in those fancy B-school places. I mean they teach that efficient markets voodoo why not teach real markets? New home sales missed but come on, have you seen the weather forecast? I wouldn’t look for a new home either. Actually maybe we should check new home sales below the 30th parallel, I bet they are soaring. Bids were non-existent all day long, it was painful to trade. We’re talking stock market depth of a parking lot puddle which made any sell order miserable to execute. At lunch we sat on the lows, 1,773, down another percent, thinking the day was going to go as bad as Friday. But a small bounce emerged out of nowhere, like a light at the end of the tunnel, and with 2 hours to go we managed to crawl back to 1,786, a few points shy of unchanged. To recap: an ugly morning but a small reprieve after lunch, let’s see how it all finished.

In the afternoon buyers started to peek over the top of their trenches like it was the Battle of Ancre. With an hour to go we were assaulting Bears in entrenched positions as the S&P traded green on the day. Why the reversal? Well a pretty simple reason actually, the market just got too oversold. It happens, in both directions, without any warning whatsoever. Unfortunately our assault on positive PnL went about as well as this guy’s circus career and we ended the day at 1,781, down 49bps. Are we really going to subscribe to the notion that Emerging Market blowups will be the end of this bull market? How many has it ended already…1? 2? The Fed hasn’t even TIGHTENED yet, it’s not like we are years into this process. Look, I get that Argentina and Turkey and all these other places I’ve never been can be scary to global risk. But here’s the thing….THEY ALWAYS ARE. Argentina has more crises than a 12yr old girl who lost her cellphone. This is a REASON to sell stocks, just like all the reasons we had last year. I think it calms down and we focus on earnings again. Remember those? We aren’t even talking about them right now, instead we are talking about currency cross rates no one cares about. Oh well, enough ranting, I guess play the hand we are dealt and not the one we want. We held 1,775 today, at least that’s one positive event. Final Score: Dow -26bps, S&P500 -49bps, Nasdaq -92bps, Rus2k -100bps.

News Highlights:

  • Good little overview of where we stand, with this fantastic conclusion: “For most unlevered investors, these wiggles in the market shouldn’t mean much. Bull markets do not terminate with consumer sentiment readings in the 70s and 80s – so we still feel that we’re in a long-term bull market. Pullbacks remove the brittle participants from the risk pool and reestablish where the long-term value is perceived to be – but they’re not much fun.”
  • Interesting factoid: China Installed More Solar Power in 2013 than the US has in its Whole History
  • This pizza could only be served in the great United States of America. (specifically Harrisburg PA). Wow. And for comparison, here is a traditional Japanese breakfast. Oh say can you see!!!!!!!
  • For all of you who think the market will end because the Fed stops QE…what do you have to say about this chart?
  • Is the worst of the selloff over? The WSJ throws a couple charts our way to find out.
  • Nice little article on this EM situation right here. Will recent price action separate the wheat from the chaff? The author seems to think so: “I don’t know where all these recent EM developments are headed, but we’re going to soon find out who’s been responsible and who hasn’t. Mexico, for example, will probably pull through just fine. Poland as well. But I’m not so sure about others. Until then, we can expect a little more volatility in our markets and a lot more in the emerging markets.”
  • Sigh….maybe one day
  • Sigh…I wish I lived in AZ
  • Sigh…I’ll never be this happy
  • Hey, Antonelli, suck it up, when life pushes you down
  • Winners: CAT / HRB / CVC / RHI / EA
  • Losers: PGR / XRX / ETFC / EW / YHOO

We’ll end tonight with the perfect metaphor for the past few days. My favorite part? How he knows he isn’t gonna make it halfway thru.

http://www.youtube.com/watch?v=WpCWqSI6alI

Have a good night.