Bull and Baird Blog - February 29, 2016

Equities start the day higher as Leo finally gets his Oscar. You know things are right when Leonardo Di Caprio has the same amount of Oscars as Three Six Mafia. I mean when it comes to art, you can put his performance in the Revenant or The Departed of Wolf of Wall St right next to “It’s Hard out Here for a Pimp.” Hey, today is Leap Day! We definitely needed a recap on Leap Day, I can’t miss the opportunity to moan about the fact that it happens in February. Hey guys, we’re gonna give you an extra day once every four years but we’re putting it in one of the coldest, darkest months. Enjoy! I mean who are the AD WIZARDS who came up with this? Speaking of cold and dark, how is the market doing lately? Actually...not that bad to be honest. We’ve managed to avoid the pit of despair below 1,850 but we also can’t rise up to glorious heights of 2,000. We’ve entered this new range of 1,850 to 1,950 because A) there is no recession which would be the catalyst to plunge stocks lower and B)  there is no growth which we need to rip stocks higher. Instead we are stuck in this rolling bear market where sectors get taken out one by one.  Why did we rally over the past two weeks? Because sentiment was godawful and even in a bear market you see the occasional “way too many people are negative” rallies, but that doesn’t mean the trend has changed. In fact, take a look at this post by Josh in which he talks about MKM Partners latest technical update. The 10 month MAVG is key, we all watch it, and it continues to roll over. This is one of the best “trend” indicators we have and it is NOT signaling the all clear so tread carefully at these levels. Anyway, well done to Leo and Spotlight and all the other winners last night. Thank you for bringing your wonderful craft into our world. 

After the open everything was up or as we like to call it “month end”. Gold, Stocks, Bonds, Oil, you name it and it was higher this morning. That being said, it was super mega ultra quiet. When I looked at my trusty volume monitor it showed us about 20% below a normal day’s pace. Blah, guess everyone was worn out from another insane month of volatility. Ok, we’re gonna need to ramble to fill this space. How exactly did Chris Rock raise $65k in cookie sales last night? I mean even if a box was $100 he’d need to 650 of them and that’s a lot of Do-si-Dos. Maybe there was a few blank check pledges and a “get me those Peanut Butter Patties by Tractor Trailer next week” type things. Super Tuesday is tomorrow, at least we’ll get an entire day of “this person is good, this person is bad, this person should drop out” even though nothing will change no matter who gets elected. Politics…an even bigger waste of time than the “Best original sound editing design” award. Winners were SIG, CNX, OKE, CF, NFX, and QRVO. Losers were VRX, ENDP, SWN, MNK, RHT, and MNST. Hey you know what I saw this weekend? You won’t believe this….honestly I was stunned. Someone using a Blackberry…WHOA. And the crazy part? He works at my firm! Our restaurant analyst, David Tarantino, who by the way does a spectacular job for our clients, can’t let go of his little chiclet keyboard waffle! Time to pour over the last conference call from BBRY, see if he got a mention. “Monthly Active Users were steady last quarter at one”

The final hour was nothing but a selloff. Above 1,950 this market is a screaming sell. Has been, will be, still is, don’t chase the upside please. VRX had a horrible afternoon after it announced a fresh SEC inquiry. Look, this may not be a widely held stock like AAPL but it will definitely weigh on overall market sentiment. It’s a big company held by a lot of large institutions, you can’t minimize the knock-on effects. We closed on the lows, 1,932, down 75 bps as even typical month end price action couldn’t save us. Ok, so February ends with a small monthly loss but that’s WAY better than the down 6% we saw at the half way point. The market is in a downtrend, it may not be severe like in a crisis but it is lower. These bounces you see are driven by sentiment not fundamentals so don’t chase your tail all over the place. Hopefully March brings us a warm spring and better economic data because we desperately need both to start feeling better about ourselves. The tone is still very morose out here, SPX 1,950 did nothing to change that. Did I mention it’s leap day? Anyone out there have a birthday on Leap Day? How do you decide what day to celebrate it during a normal year?  

Final Score:  Dow -74bps, S&P500 -81bps, Nasdaq -71bps, Rus2k -32bps.        

News Highlights: 

  • Succinct Summation of the Day’s events: Month end brought us a morning rally but an afternoon selloff. The trend remains lower, all rallies into the 1950’s will get sold unless something changes in the macro picture.
  • Morgan Housel is so good, just go read this right now.  “It's hard to believe that over the last 100 years the S&P 500 rose 273-fold, but adjusted for dividends it rose 18,520-fold. Never has so little attention been paid to a portion of investment returns that matters so much.”
  • Why exactly am I doing my kids homework and how stupid is Base 10 math? I agree with this author: “The fact is, so much of the homework assigned to kids these days has a parental component. I have a smart, independent, motivated daughter, but it would take her three days to cut out 100 pictures of something for her project.”
  • A recession in the US remains elusive (why we see buying down in the 1800s): “To be sure, we'll learn more when the jobs report for February comes out Friday. And the world still offers plenty of threats, such as Europe's persistent economic malaise, potential shock waves from a slowdown in China and deepening distress in emerging markets more broadly. For now, though, the available evidence suggests that the U.S. economy is on the same, slow growth trajectory it has followed for the past several years.”
  • Oh man, the Millennial PR machine is kicking into high gear!! “Already, we’ve learned how to be fiscally responsible — with the most student debt of any generation in history, we’ve had to. More than any other generation, we eschew expensive possessions like cars and large houses, opting instead for bikes and shared living spaces. Sure, we would like to own all that fancy stuff someday, but we realize that we can’t have everything we want.”
  • Tell me you can watch this without shedding at tiny tear
  • You absolutely have to love Buffett’s long term optimism: “In a period of global economic weakness and excessive short-termism, it can be helpful to be reminded that there will always be challenges in the short-term. And while it would be irrational to be excessively optimistic all the time, it’s useful to remember that the greatest deterrent to most people’s wealth accumulation remains their excessive focus not on what can go right in the future, but on what might go wrong.”
  • David Merkel ponders the World in Debt:  “My view is this: the next major credit crisis will be an international one, and will involve governments that can’t pay on their debts. It won’t include the US, the UK, and certainly not Canada.  It probably won’t involve China.  Weak parts of the Eurozone and Japan are possibilities, along with a number of emerging markets”.
  • Only insanely rich people can build a room with so much nothing in it.
  • Does your wifi suck? Yes? Your upstairs bedroom gets one bar and you can’t finish that episode of Game of Thrones without it buffering endlessly? Spend $500 to fix it.
  • Silicon Valley…I mean it may as well be a different world.

Since it’s almost the end of ski season we are going to need one last look at the absolute best sport ever. This guy makes insane videos, you GOTTA watch the whole thing.

https://www.youtube.com/watch?v=HhabgvIIXik&feature=youtu.be

Have a good night