Bull and Baird Blog - January 29, 2014

Equities start the day lower as all hell breaks loose. Seriously it was a mess this morning, there was no good news to be found anywhere. Futures were puking, ice covers the land as far as I can see, the Ottoman Empire is falling apart, and my $15 steak was overdone last night. I’m serious; you better bunker down and stock up on ramen noodles and batteries stat. Take a look at how Alabama dealt with a couple inches of snow last night. Looks like a scene out of the Walking Dead TV show doesn’t it? Back in stock market land I spent the morning staring at a chart of the Turkish lira. Yea its earnings season, so what, people appear to care more about the currency of a country whose entire economy is smaller than the market cap of AAPL and XOM combined. Sigh…fun times right? I bet when you started the year you said to yourself “self, I’m gonna make sure I don’t let the South African Rand and the Hungarian Forint get me down. I’m gonna watch those things like a HAWK before I invest this here 401k money”. So there you go, instead of listening to me prattle on about UPS earnings or BA earnings we get to talk about emerging market currencies and how they affect global risk appetites. At least we got an FOMC decision today to shake things up a bit. Maybe a bunch of PhDs saved the day? (they are usually very exciting people) Let’s find out.

After the open we followed turkey around like it was slathered in gravy. Remember “risk on/ risk off”? It’s BAAAAAACKKKK. Russian ruble looking queasy? Sell $MA. Turkish Lira licking the pavement? Sell AMZN. You know, stuff that makes absolutely no sense. Sigh. I might use “sigh” a lot in this recap, sorry. Look, I get that all markets are intertwined and a butterfly hitting a car window in China can affect stocks in the US. I just get frustrated when we return to these kind of markets…I feel like we’ve come so far since the European Crisis era. We managed to bounce off the lows around lunch because some random currency across the Atlantic improved a bit and as I ate my slice of cold pizza the S&P sat on 1,786, down 35bps. Let’s end this paragraph because Bernanke’s final show was all that mattered. Did the mini taper continue? Read on my investing superfriend.

 

This is what we looked like as the decision approached and as the clock struck 2 the monetary gods proclaimed: more taper. Same as last time around, $10B off the top. You know what…we’re on own here people. The Fed still has training wheels on our bike but they have let go, and we are pedaling on our own. Scary? Sure, but I think we need to figure it out. Unfortunately the market didn’t embrace the decision with much gusto. We made successive new lows and when the bell rang we closed at 1,774, down 18pts. Even worse? 10yr yields are 2.68…ugh. That was a pretty bearish close and if we don’t hold this exact level tomorrow we are headed to 1,750 and then the 200 day. So that’s it people, it’s EM temper tantrum time and the Fed isn’t here to bail us out. What more can you do than ride it out in your best ideas? Find names you’ve wanted to buy dips on and deploy there. We need to let this run its course before we can figure out what the playing field looks like. When stocks wing around chasing Turkish lira there’s no playbook that makes sense other than caution.
Final Score: Dow -119bps, S&P500 -102bps, Nasdaq -108bps., Rus2k -135bps.

News Highlights:

  • I have an awesome paper for my PM’s friends right here. Saw it tweeted by @dasan and knew it needed some recap space. What’s so great about it? The first chart shows why cutting your losses, and letting your winners run, is so important. The fat tails tell everything. Give it some of your time.
  • I poked fun at the snow situation in the south because, well, that’s kinda my thing, but this first person account makes it sound like no fun at all. Stay safe. “The traffic [in Atlanta] usually is bad, but I have never been in my car for that long and not been going on a trip," Luiz said. "Typically, my commute is anywhere from an hour to an hour and a half, and it took me 10 hours and I still had 14 miles left to go."
  • Remember earnings? No? Let’s hear from Factset about them: “One dynamic that does not seem to be a near-term issue for the market is earnings. Q4 metrics have steadily improved during earnings season. According to FactSet, the blended growth rate for Q4 S&P 500 EPS now stands at 7.3%, up from 6.4% at the end of last week and the 5.9% seen at the end of the prior week. Of the 170 companies that have reported results for Q4, 74% have beat consensus EPS expectations, slightly above the four-quarter average. In addition, companies are beating consensus EPS estimates by 3.8% in the aggregate, back in line with the four-quarter trailing average after a sluggish start (and a weak Q3). Q4 revenue metrics have also looked better.”
  • History shows an EM crisis isn’t necessarily bearish for US stocks. One thing I will say is that EM is a far larger part of the world now than it used to be. EM GDP is nearly 30% of world GDP (was 16% in 1999). That does change things a bit..
  • Ever seen a Ferris wheel that worked with no power? Gotta love human ingenuity.
  • Is the DM shakedown CAUSED by EM? “How much does it really matter to the global economy if the likes of Turkey and South Africa are FX torched back to becoming cheap holiday destinations? Can we really justify huge panicky swings in the US top 500 hundred corporates because Erdogan and his mates are going to have to suffer a bit of austerity after years of dinning on cheap USDs?”
  • I feel like running or biking on this road would be life changing
  • Winners today: STX / DOW / MPC / VLO / ALTR / DD
  • Losers: YHOO / MKC / BA / AVP / KMI / TDC / KORS
  • My favorite gold medal EVER
  • Not all drones are bad…lots are good!
We’ll end tonight by going skiing. I’m a sucker for first person ski videos, especially when they are set to cool music I’ve never heard before. Enjoy!

http://vimeo.com/59881497

Have a great night.