Bull and Baird Blog - April 12, 2016

Equities start the day higher as the IMF once again lowers its global growth forecasts. If you were looking for something to sit alongside Death and Taxes, IMF forecasts being “too high” would fit in nicely. Hey, I missed you guys, like a lot. Between Spring Break, work travel, taxes and the fact that it still snows in my home town in April I haven’t had a chance to commune with you fine people. Did I miss anything? Has the market gone anywhere in the past two weeks? Let’s take a look……aaaaaaand it’s sideways. I’m sure a ton has been said over that time frame but ultimately price is all that matters and right now price is saying “zzzzzzz”. But hey, earnings season has arrived, it’s catalyst time baby!   Time to read thru endless conference calls about strong dollar, weak demand, weather, and tepid global growth then draw a broad conclusion that will be proven wrong within a month or two.  Rinse and Repeat.  Speaking of earnings, this is the only chart you need to look at to realize their importance (h/t @_SeanDavid). Sentiment rises and falls, Central Banks create acronyms and programs, Oil flips and then flops, but earnings are what ultimately drives stock markets. By the way, that chart is also good at refuting the notion that our market is “Central Bank driven”. Oh is that right? Janet Yellen and Ben Bernanke managed to grow SPX earnings every year from 2009 to 2014? (whether they have peaked or not is a topic for another recap). Anyway, let’s see what the crazy happs were today. 

After the open it was all about that Texas Tea, black gold, the thing we’ve worried about for 4 straight months. A random headline from Interfax about Russia and Saudi Arabia agreeing on a production cap (gotta be like the 10th time a headline like this has appeared) hit this morning and Crude managed to break its 200day MAVG for the first time since 2014. The problem is that the 200day for Crude is still downward sloping so while this is a positive step it’s not like we can ring the “all clear” just yet. Bottoms are made by sentiment bouncing up and down then getting actual confirmation from the data, we just need that second part to happen now.  Obviously energy was the big winner and if you look at some of these moves they are simply breathtaking: CHK +33%, WLL +12%, TDW +21%, SWN +15%, if you were a beaten up oil company your stock looked like a tech IPO today. The other sector that did well today was banks if you can believe that. I swear, I have never seen a sector with worse expectations going into earnings than banks right now.  Be it capital markets or a flat yield curve or energy exposure or a global slowdown the reasons for hating them are numerous and diverse.  If there was EVER a case for jumping over a broomstick this has to be one of them.  I feel like, short of these guys reporting a record number of dogs and cats murdered in their boardrooms, that things can’t possibly be as bad as the market expects right? Losers were JNPR, MNK, AA, and FAST. FAST is always one of my favorites to watch in the industrial sector and their earnings last night weren’t exactly blockbuster so I guess we won’t get too excited about a definitive bottom there. By lunch we sat on the highs, 2,059, up 0.9% as everyone cheered the fact that gas is more expensive now. 

We continued to rally the rest of the session as the bears got squeezed into the close. I guess, as earnings start up in earnest, the bullish case has morphed into 1) it’s not as bad as we think  2) oil has bottomed  3) china is stabilizing and 4) credit has stopped freaking out. We also have Global PMIs on the upswing so maybe the “worst case scenario” for the next 3 to 6 months is “general malaise continues” instead of “raging worldwide recession.”  I guess the grind will continue for the foreseeable future though, interest on trading desks seems extraordinarily light right now so I’m not sure who’s even on what side to be honest. Who out there is ragingly bullish? Anyone? Who out there is still ragingly bearish (minus Zero Hedge and Hussman)?  Anyone? Is AAII Neutral going to make a new high here? Earnings, please, for the love of God, kick this market into a new gear, I’m begging you.   

Final Score:  Dow +94bps, S&P500 +97bps, Nasdaq +80bps, Rus2k +104bps. 

News Highlights: 

  • Succinct Summation of the Day’s Events:  Crude oil back above its 200day, risk on followed.  The bull case is that oil has bottomed and things are “stabilizing” here.  Jury still out though.
  • This link got a lot of pub on Finance Twitter today.   It’s a frank look at the challenges facing the asset management industry.   I wonder though, is it really different this time?  Aren’t there always struggles facing those who manage other people’s money?   As if it’s EVER been easy.
  • Dennis Gartman in January of this year"Crude oil will never trade back above $44 'in my lifetime"  I mean whatever, I made a bad call too in January but holy cow.  Here’s Barron’s Feb 8 cover too.
  • How many jobs will our kids have before age 32?   At least 4!!    "A college degree used to slot you into a 40-year career. Now it's just an entry-level point to your first job," says Guy Berger, the LinkedIn economist who analyzed the career trajectories of 3 million college graduates.
  • I’m not sure that’s what I’d do up there
  • Doug Short looks at current valuations and what that might mean going forwardThe S&P 500 is likely to decline severely during the next recession, and future index returns over the next 7 to 10 years are likely to be low.  Given this scenario, over the next 7 to 10 years a buy and hold strategy may not meet the return assumptions that many investors have for their portfolio.  Asset allocation in general and tactical asset allocation specifically are going to be THE important determinant of portfolio return during this time frame. Just buying and holding the S&P 500 is likely be disappointing.  
  • The 10 biggest risks to our economy debunked?   We’ll take it!!
  • You call that a pushup?   Please
  • Ok, here’s a tip from your old pal Michael.  When this is one of your main selling points for million dollar condo’s in Chicago“We expect that there will be Chinese parents who purchase condos for their children to live in while they attend Northwestern, or the University of Chicago," ….You are probably WAY late to a trend.   I mean COME ON MAN.
  • I’ll never go here but boy does Iceland look amazing
  • Ok, we’re gonna end with a random rant.  You often hear this thought process in financial media:  “The eight-week advance in the Nasdaq Composite remains characterized by a lack of volume. This reflects a less-than-eager posture among institutional participants to own stock. It certainly differs from that normally witnessed in the early stages of a brand-new bull market. The urgency is simply not there. This characteristic was also present in 2015, a year in which the Nasdaq was up 5.7%.”  Which leads me to wonder what the world will look like when this “passive vs active” civil war reaches its conclusion.   Say everyone jams into ETFs and index funds, what will volume tell us then?   Has volume ALREADY lost its informational component?  How can we look at the current distribution of “volume” and even know how much of it is true client activity and how much is algo / ETF / noise?    Does this all end with the following headline?  “The year is 2024, 68 shares of stock traded on all US Exchanges in what was the busiest session in two months”.  What an odd time it is right now.
  • Go Pro Line of the Winter!   I’ll miss skiing for another year.


We’ll end tonight with one of the craziest stunts I’ve seen on TV.   We obviously don’t get to watch “Britain Has Talent” or whatever the heck it’s called now so thank God Youtube exists.   Whoa.




Have a good night