Bull and Baird Blog - August 16, 2016

Equities start the day lower as the month of endless vacations grinds on. August, I mean what can we say about August other than “recipient is out of office” should be the motto? Got a big distribution list to fire off your amazing commentary to? Save it for September. Hey, at least we have this Olympics right? Nothing better than Gold medal Badminton and Archery to pass the time. So here we sit, with the market treading water on new all-time highs, waiting for the other shoe to drop. I mean it has to right? What’s going to be the big catalyst that causes the market to finally sell off from these fake, central bank induced sky high levels (channeling my best Zero Hedge there). China? Sure why not, China is always a good fear. Centrally planned economy with a pegged currency prone to wild swings in GDP, basically the boogeyman. Fed rate hikes? Definitely, Yellen is probably out to submarine your fancy stock returns. Valuations? I love me some Shiller PE / Price to Sales / CAPE worries, those are some of the best. Fund Flows? Don’t get me started, all that cash leaving mutual funds has to be the top. Actually wait…none of those are the catalyst that will mark the top. You know what will be? A recession. That will be the top and no one will be able to time it at all. I mean I thought we were about to enter one earlier this year and look how that turned out for me. Now there will be clues to look for like a yield curve inverting or a substantial drop in vehicle sale or a turn in the job market but it won’t be obvious at all. Look, Bull markets don’t die of old age and they don’t end on “valuations” so please ignore naysayers and those calling “top” every time the S&P ticks higher. Enjoy the dog days of August because the Summers die one by one, how soon they fly on and on. 

After the open we actually saw the market grind lower for the first time in days. Why? Because nothing goes up in a straight line my friends, you need the occasional pullback to keep things fresh and exciting. Hey let’s talk HAIN for a second shall we? One of the biggest losers today was Hain Celestial, which fell 26% after delaying their annual earnings report due to “accounting issues”. Ouch. Anyway, besides having an awesome name HAIN is the proud owner of many healthy / exciting brands one of which is Blueprint Cleanse. Anyone ever done one of these? I have, I mean there’s nothing like spending $200 to drink liquid grass clippings and cayenne infused lemonade for 3 days all in the hopes of “cleansing impurities in your system”. What do people do to “cleanse” their systems that DON’T have access to cold pressed vegetative juice mixes? Shhh, let’s not talk about that. Maybe they just grind up their own lawns and drink it, who knows. I will say their Cashew Milk is all world good but at $12 for 16 fl oz’s these guys have pitched a tent in crazy town. OK, what else moved today? DKS +7%, GK +17%, FTNT +6%, VRSN -7%, TJX -6%, and ATVI -5%.  Housing Starts beat and CPI was roughly inline so not much from the macro front to guide the boat. By lunch we sat on 2,183, down 30bps, as the market simply took a breather from all this “new highs” nonsense. Anyone miss swimming as much as I do? Track and field sucks. Go back to Mykonos Euripedes the discus thrower.

The rest of the day saw even more downside and we closed at 2,178, a loss of half a percent. Should we be worried? I don’t think so, frankly I’d love to see the market retest the 2,135 breakout area just to finally put the past behind us. Anyway, let’s take a quick look at a chart shall we (courtesy of @ukarlewitz)? Now if you want a reason to believe “it’s different this time” then this might be Exhibit 1. Households just aren’t levering up like they did in the past to buy stupid useless stuff they don’t need (like juice cleanses). Maybe the lessons of fight club have finally sunk in? Anyway, that chart should make you feel good, if and when we do enter the next recession households will be in way better shape to survive it.

Final Score: Dow -45bps, S&P500 -55bps, Nasdaq -66bps, Rus2k -86bps.  

Volume was low. Our desk was better for sale. Buying in Energy and Tech. Selling in Semis and Retail. Shorting in Machinery.

News Highlights:

  • Succinct summation of the day’s events: Lower for most of the day because it happens. Can’t go up every single day
  • Why is Michael Phelps so good? “Genetically, you could not engineer someone more suited to swim faster than anyone before him. Phelps stands at roughly 6’4″, has the lower body of a running back, the torso of a power forward, and the wingspan of a center. Proportionally, he is built to swim because of the power and leverage that he is able to generate while reducing drag in the water. Additionally, he is double jointed which is why he is able to utilize the dolphin kick off his starts and turns so much more effectively than everyone else. Further, Phelps’s ability to recover in between races is freakish.”
  • LPL Financial asks “what happens when all 3 major indices make new highs together?” "This event doesn’t appear to be a major warning sign for equities. There could be a near-term pullback or consolidation, but bigger picture this looks like more of a positive than a negative."
  • Couple results from the BAML survey via Reuters"'Investors are less bearish, but sentiment has yet to shift from 'fear' to 'greed'. As such, we expect stock prices to rise further until bonds throw another tantrum,' said Michael Hartnett, chief investment strategist at BAML." I’d say I agree with that conclusion, these new highs do not feel euphoric.
  • Ok, time for a MAJOR test here. Buybacks are falling, let’s see if they are the only thing “propping” up the market. "Buybacks announced for the second quarter's earnings season between July 8 and August 15 totaled an average of $1.8 billion a day, the lowest volume in an earnings season since the summer of 2012, according to TrimTabs Investment Research."
  • This is actually bearish: "Hedge funds that aim to profit from long and short bets have raised net equity holdings in the past three months, with bullish positions now exceeding bearish ones by 22.7 percentage points. That’s higher than 97 percent of the time since Credit Suisse Group AG began tracking the data in 2009. Perhaps not coincidentally, marketwide readings of short interest just posted the biggest decline in four years."
  • Lots of awesome analogies in this one: “The strategy of focusing on short-term outcomes, like judging a plan with a two decade time horizon on a month’s worth of performance, for example, will guarantee disappointment. Sometimes an investor can be fundamentally rock solid but experience disappointing investment results for several years. A good case in point would be the tremendous underperformance by globally diversified portfolios relative to their U.S. centric counterparts the last 6 out of 8 years. Investors often confuse effort with performance. Nothing could be further than the truth. Hyper-active hard-working investors often greatly underperform the market. In other words, sometimes luck plays a big role in outcome over short periods.”
  • What the heck is a trundler?
  • Now that’s a pool!
  • Kind of encapsulates life right?
  • I thought this was only the stuff of cartoons?

Tonight we’ll end on amazing goals from one of the best Olympic sports there is…Team handball!  (thanks JR).   First one best one.


Have a good night.