Bull and Baird Blog - April 13, 2016

Equities start the day higher as Jamie Dimon once again rides to the rescue! Love him or hate him, Dimon is an immovable object in an industry constantly being scorned. He goes about his daily life trying to keep his bank on top and who could blame him for that, a good CEO would always do thus. Anyway, enough back slapping and fawning admiration, did JPM actually crush earnings or what? I mean not really…they didn’t blow the doors off and report a new type of credit card that charges people for even looking at it. They reported a decent quarter but the bar for them to hurdle looked a bit like this. I spoke about this very thing yesterday and JPM may have just proven my point:  no one owns this sector, everyone hates this sector, it’s the only industry group trading below 1x book value and every headline you read about them is as dire as they come so you could say expectations are as bad as they get. So what we look at is not the news, but the REACTION to the news, and it was overwhelmingly positive. That being said we can’t draw any major conclusions just yet. We need to see C and BAC and WFC and a few other banks report before we can say “maybe their house isn’t falling over, maybe it’s just leaning a bit.” Chinese export numbers were also good but let’s circle back to that in a bit so I can make a hastily drawn conclusion to prove an untestable hypothesis (I’m the king of that). First, let’s see what happened during today’s wild and wacky session.

After the open we got, dare I say it, more of the same? A continuation of this slow, grinding higher market where people look around and say “why was I so negative in January”? Retail sales stunk but no one cared. Oil inventories were high but no one cared.    All the early winners this year like Consumer Staples, Utilities, and Telecom were summarily booted to the curb in favor of pain train places like Financials, Industrials, and Materials. BTU declared bankruptcy, the 20th coalRecap company to do so in the past decade continuing a trend towards alternative energy. Coal…I mean welcome to the history books.  Financials though…financials were the sizzle on the steak. JPM +4.2%, C +5.6%, MS +5.2%, Anton’s checking account -28%, BAC +3.9%, it was smash and grab all thru the sector. You know what?  Let’s not get crazy here. All of ONE bank has reported so far, let’s not usher in a new golden era just yet. Are expectations too low for these things?  Maybe, maybe not.  Today would have you believe that yes, they are too low, but let’s circle back on Friday after we’ve seen a few more hit the tape. Losers were everything “safe” like RAI, MO, CPB, KMB, and HRL. Smokes, food, and diapers:  get out.  By lunch we sat on 2,078, up 0.5% with people marveling at everything from transports to energy.(Speaking of Transports, how awesome is a 1) break of the 200 day  2) a retest  3) continuation higher. Simply gorgeous).

The rest of the day was up and to the right and people rediscovered their joy of stocks. I mean jeez….even GPRO was up big. JOY was up big...a MINING stock.  What’s next, is 3D printing going to be all the rage again? Restaurant review sites back to $10B valuations? So China, I was supposed to mention my thoughts on that right? China had better than expected Export numbers last night, great, let’s sound the all clear and buy up all of Shanghai. But that’s kinda what’s going on the past few weeks to be honest. Data is improving, crude oil is improving, maybe banks are improving, maybe China is stabilizing. Back in Jan/Feb the world was ending and recession was near and bear markets were all the hot rage. But now it’s different, the tone has changed to one of…dare I say it…cautious optimism? Which is hilarious to me, 100% I can’t believe what I’m seeing hilarious.  Price truly does make the news doesn’t it? You would think that a headline comes out, people analyze the news, price improves/falls, and the world keeps on spinning. But no, it’s actually the other way around. Price improves/falls, some news comes out, people extrapolate that things must be improving/ worsening and the world keeps on spinning. Right now people think things are getting better, that the headwinds we faced JUST 8 WEEKS AGO have abated and maybe, just maybe, new highs are imminent. Why is that? What changed? Prices are higher, that’s it. 2,080 on the S&P has made people feel good again about the world again.  God Bless the USA. 

  Final Score:  Dow +106bps, S&P500 +100bps, Nasdaq +155bps, Rus2k +218bps. 

News Highlights:

  • Succinct Summation of the Day’s Events: JPM earnings better than expected with a bit of positive data out of China. All of a sudden people are saying “maybe the tail risk is to the upside?”
  • Or put another way: “The picture for first-quarter earnings may not be ideal, but markets have already priced in a worse scenario than we anticipate, paving the way for potential future gains”
  • My guy worries about the multiple thoughSo even if this earnings season were to pull off that epic beat resulting in flat growth, a return to the record close of 2,130.82 would require pushing the P/E to more than 19.3. And again, that 19 figure seems to be the lid -- the highest it got in the last six years was just a hair below it: 18.9886.
  • My favorite flat in London is the £600k basement that is “uninhabitable in Kensington”. For 600,000 GBP. That’s 600. Thousand.
  • Well screw it…everything is a bubble“Startup tech stocks may be overvalued, but so are public equities, so are houses, so are government bonds,” said Thiel, speaking Tuesday at the LendIt USA Conference in San Francisco.“Silicon Valley is quite far from it. If the bubble is in cash, illiquid startup investments may be a place to hide.”
  • This right here? It’s a swimming pool
  • I’m going to open a bunch of these in the Midwest but without the stupid hats
  • Things that make Michael angry:  “For a while, this was working out nicely for him. He was gaining enough notoriety thanks to Keeping Up with the Kardashians that his appearance fee rose to impressive numbers: He could pull $70,000 or $80,000 a night in the U.S. At one high point, he scored a $250,000 deal for a series of appearances in the UK.”
  • People still..STILL hate this bull marketFund managers cash levels in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Cash in April (5.4%) is still near the highs and is supportive of further gains in equities.

Every now and then I run across a blog post or a piece of writing that truly inspires me.  That makes me sit up and digest every word on the page. This is one of those and I pray you read it start to finish because it is truly worth your time.  I promise

http://paulgraham.com/vb.html