Make No Mistake, The Rally Isn’t Fake
Equities start the day higher as I’m about to jinx this whole thing! Look, I’m a fairly optimistic guy, barring my horrible bear market call in Jan 2016 I’ve been solidly bullish for a while now. I mean what’s not to like? Let’s do a quick round up shall we? It’s 62 degrees in the upper Midwest, I mean I was skiing in Michigan in a t-shirt. What planet am I on? European PMIs are soaring like Eddie the Eagle proving that the global growth story is still intact. The S&P is up 5% just 7 weeks into the year because stocks literally go up every day. Guys like Warren Buffett are poking around for companies to buy (in this case Unilever) which is always a good sign. Philly Fed put up a stupid print last week because apparently Pat’s and Geno’s are killing it (this bodes well for GDP too). Unemployment is low, wages are rising, housing prices are firm, and monetary policy is STILL accommodative. But but but Mike… what about valuation? Isn’t the market super expensive right now? Sure, as of now it’s trading around 17x forward (above its 20 year avg), but you know the last time it was trading at these levels? 2004. You know how far it rallied before topping out back then? Another 43%. Wow, what a buy that would’ve been! Let’s break it down: as I see it the current rally is composed of two parts. 1) Actual economic / earnings growth. World economies are #growing and so are earnings (5% top line and 4.5% bottom line). That’s real and indisputable. 2) Our new administration and what it “might do.” This part is harder to quantify and subject to the biggest “sell the news” risk. What our new government can do to regulations / taxes / stimulus is up in the air but the market is acting like they can do a lot. Here is where “disappointment” may set in and where I think the most risk lies right now. But make no mistake, the rally isn’t fake, a large part of it is real and could continue for longer than you or I think.
After the open it was up and to the right for the 58th straight day. Seriously, people be quoting all kinds of things like RSI, MACD, PSI, LBS, Oscillators, and QED but this puppy is going to run until the final person piles in. What does it feel like to be a short right now? This. Will that change one day? Sure, but we’ll never see it coming. What should we be looking for? I’d argue the first sign of weakness will be a huge late day selloff where it feels like the last person has finally jumped in the pool. We got a couple flash PMIs from Markit today which showed mid 50s in both services and manufacturing so meet the new boss, same as the old boss. Ok, what do we got for movers today? Looks like QSR is going to acquire PLKI for around $1.8B. Popeyes Chicken and Biscuits? Place is heaven on earth, get the red beans and rice and thank me later. EXAS rose 16% so it looks like more people are taking a… actually forget it. Other winners included SJM, MDLZ, SNI, and WMT. Losers were FCX, RRC, TSN, and KHC. Can we circle back to KHC thing again for a minute? Should we be worried that Buffett walked from that deal? I have zero insight into why the deal fell apart but it sounds like Buffett just picked up stakes and left. Maybe it got too expensive? Should we worry if Buffett is starting to think things are too expensive? Have you ever seen anyone change their mind about something this fast? By lunch the market sat on 2,360 up 0.3%. 2,360… jeeez… we broke 2,300 on Feb 9…
The rest of the day was another new high and a close at 2,365 up 0.6%. Whew, if you blink or spend 2 hours out of this market you miss a fresh record. But… while we all marvel at the indices here in the US there are others abroad who are quietly making significant moves. The Euro Stoxx may only be up 1.5% YTD but the chart looks like a corner has been turned. Brazil is up 14% (in dollar terms), UK is up 1.8%, Germany is up 4%, Hang Seng is up 9%, and Japan is up 1.5%. This isn’t just about us, the world may be finally waking from its slumber. Did I just print the top by saying that? It’s entirely possible but I did tell you the Packers would beat the Cowboys and the Pats would win the Super Bowl so that should count for something? Right? Anyone? Final Score: Dow +58bps, S&P500 +60bps, Nasdaq +47bps, Rus2k +75bps.
Volume was average. Our desk was better to sell. Buying in Software and Retail. Selling in Financials and Telecom. Shorting in Financials. News Highlights:
- Succinct Summation of the Day’s Events: it feels like every single dip is being bought…even intraday. CNN needs to change “Fear and Greed” to the Gordon Gekko indicator.
- You know what? I’m not against this at all: “And now a new school in Maine, called the Adulting School, is dedicated to teaching skills like these to fledgling adults so they can become successful grown-ups. The school offers private social media groups and live events at local bars and restaurants. At these events, attendees can learn skills like how to network as a pro or how to fold a fitted sheet.” They should also hire some financial advisors to talk about Compound Interest.
- 4 traits Financially Successful secure people share. This is the most impt: “Internal compass: This means your frame of reference when judging your results is inwardly focused, rather than outwardly focused. In other words, you do things your way. Financially secure people in the report used terms like 'having my own yardstick' as a tool to counter the self-defeating impulse to 'keep up with the Joneses.'"
- You know people are sitting there saying “hurry that stupid train up.”
- Great tweet on Unicorn valuations. Makes me think that both private markets and public markets are bad at pricing things. *sigh*
- I am 100% on board with the theory of “peak renter.” The notion that millennials would rent forever was the dumbest thing since synthetic CDO Squared.
- I am also 100% on board with Malcom Gladwell. “Malcolm Gladwell is taking aim at Stanford University's request for charitable donations. In a series of tweets on Tuesday he lambasted the elite school, linking to a request from Stanford for gifts to help support student financial aid. "Stanford has $22.4 billion in the bank, tax fee," he tweeted. "You might as well send your check to the Sultan of Brunei."
- Are people handcuffed to the market? Maybe, Marks seems to think that’s the case. "Civilian enthusiasm for stocks, at least from my perch, is nowhere near euphoria, but at the same time stocks are expensive on basically every single metric. So people are paying more for stocks as they make new all-time highs, and yet the “feel” is more this is gonna end badly than I don’t care just get me in. How can these two contradictory things exist simultaneously and what is creating this disconnect?"
- I’m putting my foot down honey. NO dinner table here, I need a place to read my books and use the laptop. Wait... a table could double as… NO
- Indonesia doesn’t look half bad.
- Australians have the best accents EEEEEVER. I don’t know what’s going on here but I wanna be in that conversation.
We’ll end tonight on an awesome prank. You know this is the highlight of this guy’s life, he’ll be telling this story every few months until he dies.