Bull and Baird Blog - January 5, 2016

Equities start the day lower as the wheels seem to be coming off. You know everything seemed to be going fine lately right?   We were chugging along, showing off our slick stock picking prowess and then 2016 hit and BAM, this happened. It’s been awhile since our last update so let’s spend some time catching up shall we? (I missed you guys) 2015 ended up being the great year of nothing, a forgettable 12 months where the market went nowhere and the only people who made money were either dividend clippers or fans of the FANG stocks. Booo, ain’t nobody got time for a 1.3% year, don’t they know we have spiraling college payments ahead of us? So what about 2016, shouldn’t we be looking forward right now? Yep, but Wall St strategist seem to be lukewarm about our prospectsTen Wall Street strategists tracked by research firm Birinyi Associates expect the S&P 500, on average, to finish the year at 2220. That is good for about an 8% gain. 8%?   WHHATTT? Since when does the ever bullish Wall St hive mind predict single digit returns? What is this world coming to? To make matters worse, my favorite prognosticator Byron Wien has gone full blow bear in his 10 surprises for 2016! Dogs and Cats my friends, the horrible end to 2015 has bled into the new year and now everyone is predicting doom and gloom! But isn’t that a good thing? Don’t we want people to predict the end of this bull market?  In some ways yes but in other ways no because they could be right. One thing’s for sure, as long as China has a raging forest fire in their stock market we aren’t going anywhere anytime soon. What a mess over there, when you ban selling stocks you know things have gone off the rails. Anyway, let’s see what happened today and then I’ll give you my top 3 predictions for 2016 to end the recap.

After the open we got a heck of lot of sideways price action with no discernible intraday trend. Crude higher? Buy stocks. Crude lower? Sell stocks. Europe green? US green. All kinds of random movement because people are still shell-shocked from yesterday. Speaking of yesterday, should we care that the first session of the year was so bad? No, not at all: “Since 1928 the S&P 500 has lost more than 1% on the first trading day of the new year 14 other times, and after such occurrences, the index typically rallied the rest of January and the rest of the year, rising an average 3.3% and 2.9%, respectively, according to Bespoke Investment Group.” See? Anyone can make stats work for them it’s magic!! Ok, what were the movers on this fine Tuesday?  FIT came out with some kind of Casio calculator watch remake and promptly got smoked. Well done guys. TWTR is debating upping their character limit to 10,000 words and promptly got smoked. Well done guys. Energy stocks opened for trading and promptly got smoked. Well done guys. On the flip side FSLR rallied 8% because Goldman likes their prospects, HAR gained 3% because they bought a cyber security company and everyone loves that phrase, and MU posted a 2.5% win because it has been absolutely decimated for a year straight. You know what chart flies under the radar right now? Equity market volumes, it is entirely possible they bottomed in 2014 (I use the 200day MAVG of volume in that chart). Last year featured the first YoY rise in number of shares / ETFs traded since the black plague rolled thru Europe. I guess that’s a somewhat good sign for the overall equity business? Yes, no, maybe? Anyway, by lunch we were trading just shy of unchanged in a relatively meaningless session.

The last few hours brought nothing new and we closed slightly higher on what ended up being a rather forgettable day (why do I always end up writing on flat days and not the big one’s?  I’m an idiot). Ok let’s finish up with my top 3 “take them to the bank” predictions for 2016. As always these are for entertainment purposes only so don’t go over to Ladbrokes and bet the ranch. 1) The Carolina Panthers will win the super bowl over the Denver Broncos and no one will watch it. Seriously who wants to see these two teams face off? ugh. 2) Marco Rubio will win the GOP nomination and lose to Hillary Clinton. Trump will fade when it comes to the ground game, he just doesn’t the necessary troops to slog thru all the primaries. 3) The S&P will close at 2,120 (roughly 3.5% gain). I think we get one last up year before this cycle finally sputters to an end. I’m basing that on $125 in earnings and roughly a 17 multiple. Plus everyone is starting to turn bearish so I want to be on the other side of this “the bull market is ending in 2016” trade. Bonus prediction!! 4) ESPN will go over the top. Disney, realizing that declining subscribers are holding back its valuation will begin to offer ESPN a la carte in a skinny bundle and that will mark the end of the “1000 channel” cable era.  Our kids will laugh at the fact that we paid $100 a month for stuff we never watched. Anyway, Happy New Year my friends, let’s get this puppy going right! 

Final Score:   Dow +6bps, S&P500 +20bps, Nasdaq -24bps, Rus2k +16bps

News Highlights:

  • Succinct Summation of the day’s events: Bit of a hangover session from Monday’s shellacking. Not much data / macro so we aimlessly drifted.
  • Cullen’s top 10 predictions for 2016. I think 3 and 8 are locks.
  • Look at how many countries are in downtrends, unbelievable.
  • So a Hedge Fund named Nevsky Capital is shutting its doors after what could be called a “solid run” at investing over the past 15 years. Ok, that stinks, another smart shop closing its doors. Here is a bit of the letter they wrote and I want to point you to this quote because it really does encapsulate the market we transact in: “Truly – to mix metaphors – butterflies flapping their wings now regularly create hurricanes that stop out fundamentally driven investors who cannot remain solvent longer than the market can remain irrational.”  They are so spot on and this is why you need good partners in the equity business.  So many random things happen that can absolutely wreak havoc, don’t trust your stuff to a machine that goes haywire when it reads a bad headline.
  • I actually agree with this, tech has become really stale latelyPeople are getting bored with new smartphones. Only 48% of consumers plan to buy a smartphone in the next 12 months. That's down 6 points from last year — the first drop since Accenture started doing this survey almost a decade ago.  In other words, the mobile revolution has mostly run its course, and everybody's waiting for the next big thing to buy.
  • I’ve actually done ONE of these. And I will never do the rest
  • 361 Capital has a great update this week, go give it a read. This stat blew me away: Of every additional $1 Americans spent for items online this year, Amazon captured 51 cents, according to a recent estimate by analysts at Macquarie Research
  • This picture makes me feel like I’m sitting right next to her
  • Ever seen an avalanche bury a guy…on a busy city street?
  • This is a very under discussed topic: Household debt service is near decade lows. People just aren’t a levered up as they used to be and that’s a good thing

Tonight we are going to end with one of the luckiest guys on the planet. Watch this car crash (your jaw will drop) and look how close he came to the Perly gates.

https://youtu.be/S5NWcdq4Wf4?t=69 

Have a good night