Bull and Baird Blog - November 18, 2016

Equities start the day lower as USD continues its audition for the next Space X launch. 101.5 DXY? I’m about to kick off a “BullandBaird travels Europe a la the Griswolds” to show off my greenbacks in town squares. Is that a $20 bill you have?  Why yes, yes it is, bring me your finest cheese and wine pronto tonto. What a week this has been right? We’ve seen Financials and Industrials act like someone just invented the wheel and the checking account while Staples and Utilities have been puked up like 12 shots of Fireball mixed with Taco Bell. Now this may or may not be the start of the “Great Rotation” (bonds to stocks) but it is absolutely is the start of a Yellen to Trump Rotation (low vol / yield to risk on). The start….not the end….this is the first inning people. I’ve never been more excited to sit at a Trading desk than I have been the past few weeks. The opportunities right now are vast and deep, like my waistline. If you run money you must be absolutely salivating  at the chance to turn in your plate of veggies for one filled with prime rib and mashed potatoes. No longer do you have to hide in a FANG stock or buy a Utility at 23x PE, now you can look thru the Defense sector or the Banking sector or the Industrial sector for names that have been lost in time. Wait…what’s that….you are swamped by the crazy array of choices and need some help? Well my friend I just so happen to know of a place that does amazing Equity Research and employs the grayest 43 year old on the planet who loves to write about markets (my birthday is next week, send Xboxes). This is the time people, don’t sleep on what’s happening around you. There is change afoot…don’t get caught thinking about the past…. start thinking about your bright future! (here’s your moment of Zen too)

After the open it felt like market interest hit a brick wall. Friday, before a holiday week, after a huge surge in volume, I guess it was to be expected. Most of the morning was spent trolling the lows with weakness centered on Health Care, Utilities, and Staples (been so all week). Hey let’s talk fund flows for a second shall we?  In the week ending November 16 Lipper reported that equity funds saw inflows of $23.6B.  23B…with a B!! Cue up Dr Evil because that’s finger worthy. That’s the biggest inflow in nearly two years and the third largest on record. So Great Rotation right? Lock it down its happening? Maybe…maybe….it’s still too early to tell but this is the best chance I’ve seen in a long time. Money chases performance, it is thus and ever shall be so we need equity funds to start knocking the cover off the ball. Losers today were GPS -16% (Gap is still around?), UA -4% (literally can’t get out of its own way), FSLR -6% (great innovation tough business?), and ANF -13% (why so much cologne in the store? practically need a scuba mask to walk around). By lunch we had given up 0.2% on the S&P but we sat just 7 pts shy of the all-time record. Who else is excited for Turkey and Stuffing? I literally can’t wait. If you need a good gravy recipe hit up your boy, my wife makes one that will literally blow your mind. Full on turkey drippings, heavy cream, thick, viscous brown gold.  Oh my Homer Simpson mmmmmmmm.

The rest of the day brought us no relief from the horrible, savage, 5 point selloff and we closed at 2,182, down 23 bps. The Russell though….the muscle in the Russell is up 11 straight days…longest streak since 2003. Am I supposed to be bearish with the Russell breaking out? With Financials finally performing? With Industrials and Transports performing? With everyone in bonds funds? With interest rates at decade lows? With the Cubs winning the World Series? With a pro-business party sweeping U.S elections? With crude oil hovering around $50? With earnings finally growing again? With Sentiment nowhere near frothy? Should I continue here? Whoever made my 401k great again I thank you from the bottom of my heart, the last week and half has been magic. 

Final Score:  Dow -19bps, S&P500 -24bps, Nasdaq -23bps, Rus2k +47bps.

News Highlights:

  • Succinct Summation of the Day’s Events: Really a consolidation / digestion day. Rotation still in effect but quieter than past 5 days.
  • The difference between a Stat and a Fact…great article by Housel: “Millennials live paycheck to paycheck? Statistic. No generation saves money in their 20s? More factual”.
  • Another great Housel article here, definitely must read for senior managers everywhere.  “What are Sustainable Sources of Competitive Advantage”. This one is my favorite of the 5: The ability to communicate more effectively than your competitionBusiness success doesn’t necessarily go to those with the best product. It goes to whoever is the most persuasive.  Most business edges are found at the intersection of trust and simplicity. Both rely on the ability to tell customers what and why you’re doing something before losing their attention.
  • How exactly would this work? I mean is this a Nicholas Cage situation?
  • Look, this guy jumped from an airplane without a parachute. You need to read his thoughts on the entire thing
  • Think his wife got angry
  • They don’t call it Greenland for nothing !
  • It has a gun…I mean a gun people. Look at this thing.
  • One of my favorite macro writers looks at small caps (I wish this website worked at my firm…sigh).  It's worth stressing again, however, that the current case is very different from the others. RUT was at a significant low during or after a bear market in each of the others; in comparison, RUT is now already at a new high. On balance, the evidence suggests higher prices are ahead, but a strong gain like this into new highs has the slight whiff of euphoric capitulation.
  • 4 Takeaways from the first big “passive” investing conference: See what they are thinking here. The one I think that matters the most right now? This one:  “Meb Faber was the first to say it at the conference, but it was a consistent theme: active and passive is a meaningless distinction.  What investors should focus on is how much they are paying and what they are getting”.

We’ll end tonight with what I think is the perfect video for a Friday recap.  A bit of basketball mixed with a bit of rhythm.   Feelsgoodman.

https://www.youtube.com/watch?v=hqMZ9etBjeE&feature=youtu.be

Have a good night.