Bull and Baird Blog - November 2, 2016

Equities start the day lower as hell freezes over. Think about all the absolutely insane things that are happening right now 1) The Cubs are going to play the Indians in Game 7 of the World Series. Two fan bases who haven’t seen a championship since D-Day are going to play in front of 40 million people. I wanna buy FOX just for the cash they are gonna rake in tonight. By the way, how painful is the loss going to be for whichever team loses. If it’s the Cubs prepare for me to hate on the World. 2) Some dude with really crazy hair and a penchant for saying YUGE is closing the gap on his rival for President of the United States. Has the market priced in a Trump victory at all? No, but it’s certainly changing its expectations as we speak.  3) The S&P500 is on a 6 day losing streak and the cumulative losses are 1.8%. That’s almost hilarious if you think about it. 6 days of trading lower and the peak to trough is less than when Brexit happened. 4) SBUX came out with a hideous green cup that celebrates “Unity” and managed to drive a wedge thru its customer base. Look, Schultz, this is easy, pumpkin spice lattes from Oct 1 to Nov 1, red cups from Nov 2 to Dec 31, laugh all the way to the bank. McDonalds doesn’t do red shamrock shakes, don’t tinker with perfection.  5) The Fed is about to tee up a rate hike and no one is talking about it.  Stay tuned for some 1c analysis of the Fed decision later in this email.  6) Earnings are nearly over and both top and bottom line have positive growth rates yet no one is talking about it and 7) This guy. I mean wow (other than the man bun. sigh)

After the open we experienced a normal Fed day. Mornings consist of asking the question “what if they hike” while the market goes absolutely nowhere. Then, as we approach the actual decision, we start to ask “what if they NEVER hike” all while the market goes absolutely nowhere. Oil, we need to talk oil because my energy trader bugs me endlessly about it. Crude had the biggest build in 34 years, something nutty like a 4 standard deviation move (my favorite “sound super smart” stat) which hammered the commodity for 3%. Something something imports (jumped 2 mil barrels a day to 9 mil) even though we produce a ton of this stuff domestically?  Oil markets….make as much sense as delta hedging knockout options right? Ok enough of this Texas Tea thing we need to talk about why the market keeps selling off.   Most people think it’s the election and oil and interest rates and sentiment and while yes, it is a combination of all of those, I think this selloff is being magnified by liquidity issues. A fair number of people have flat out stepped to the sidelines in front of the Fed and the election so when you look at price action you need to do it thru a lens of suspicion. Anyway, let’s see what the Fed had to say.

At 2pm ET the Fed told us exactly what we already knew, they plan on hiking in Dec. “The case for a rate hike has continued to strengthen” was their words so ignore that at your own peril. You know who isn’t ignoring them?  Real Estate and Utility investors, those sectors continue to see significant weakness as they are undoubtedly loaded with far too many macro tourists. What inning do you think the “yield chase unwind” is in? 2nd? 3rd? Still early days there. Winners:  ABC / HSIC / ZTS / ANTM / KR.  Losers FTR / CERN / TGNA / PXD / EL / DNB. A few ups and downs in the afternoon but ultimately we closed at 2,097 which was the 7th straight day of stock market losses.  Ugh, not good at all.  Look, let’s be clear here, the market doesn’t “root” for a candidate.  It doesn’t want Trump to win or Clinton to win it’s just trying to discount the possible outcomes and right now they are as clear as a country river.   Near term volatility as the polls swing around is to be expected, it’s just part of the process, so put your stock market quotes on ignore and come back after the election.   Can I get a Go Cubs Go from the audience?  Pretty please?  Do you realize how big this baseball game is?   My heart can’t take it.  Actually….you know what?  Cleveland is guaranteed to win this.  I rarely make predictions but if you wanted a sure fire 100% cannot miss prediction it’s that Cleveland wins tonight.  They are just that good. Trust me, it’s over. Congrats Cleveland!! 

Final Score:  Dow -43bps, S&P500 -65bps, Nasdaq -93bps, Rus2k -131bps.         

News Highlights:

  • Succinct Summation of the Day’s Events: Fed are who we thought they were and we let em off the hook!! Market still struggling to price the election and the path seems lower.
  • Pondering the future of Investment Management: “We are at a point in time where the convergence of several factors has the potential to meaningfully change investing, and the business of investing over the next decade. There is a need to thoughtfully examine these factors and initiate a dialog on how the investment industry can best serve investors going forward”
  • Sometimes smart people can make bad decisions: “One of the most persistent fallacies is the reflexive association of wealth with wisdom,” investor Ed Borgato tweeted this week.”
  • Smartest macro guy I follow.  The BEST JERRY:  “Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view).  [a recession in 2017 is very unlikely]. Someday I'll make another recession call, but I'm not even on recession watch now.”
  • Ranch dressing….so good
  • Winter is coming
  • I literally found the bed I want to die in (after the Cubs win though)
  • This guy landed a quad cork, whatever that is. Maybe that needs to be a finance term…sounds fancy enough
  • Stat of the day from @ukarlewitz: Meanwhile, 70% of SPX has reported. Profit margins in 3Q at a new high even after energy margins fell to 9% to under 2% since 2014.
  • Where’s the rotation right now? “Investor preference has shifted from growth to value and from higher quality to lower quality companies. At the same time, investor appetite has shifted to higher beta companies that are more correlated to the EUR and U.S. government bond yields”.

So you know those firework videos where someone screws up and sets them all off early?  I love them too.  Anyway, tonight we have a firework video where an entire shopping district of them go off early.  GO CUBS

https://www.youtube.com/watch?v=Rp9ntI3M7SY&feature=youtu.be

Have a good night