Macro Once Again Takes the Driver’s Seat

Equities start the day lower as Macro once again takes the driver’s seat. Now I don’t live in the UK, I visit often and I love it but I am not a resident of that proud nation so I can’t exactly speak to this Brexit thing. Should they stay in the EU? Shouldn’t they? Who knows, that’s up to them to decide. From what I understand this is more of an “immigration” issue than anything else and we all know how much press that’s getting here in the US of A. What I do know is that the market has NOT priced in Brexit… but it is currently trying to do so. VIX soaring, Yields falling, Stocks quaking, Clients pausing, Oil plummeting, all of these things are the net result of an event the market can’t get its arms around. REMAIN has been the de facto outcome for a long time, in fact gambling sites STILL make REMAIN as the favorite. But every time we see a poll saying EXIT is leading the market has to re calibrate and that process is brutal and unfocused. There is NO ONE that knows what Britain leaving the EU would do to the Pound, the FTSE, all the European Stock indices, and the price of Curry in the West End. No one. So should you panic? Dump stocks? Run for the hills until you get “clarity?" (still cracks me up that people think that’s a thing). No, don’t be short sighted. Whether Britain is in the EU or not doesn’t have a long term impact on the corporate cash flows of 500 stocks in the S&P. It’s a blip, a re-pricing, an event that tips the cart but one that ultimately fades into history just like the rest. Guess what the market also digested? World War 2. When you fly from your home to that glorious vacation spot with blue waters and Corona’s sometimes you fly thru turbulence along the way. Right now the fasten seat belt sign is on but guess what, that beach is still waiting for you down the line and the turbulence will eventually pass.

After the open it was a whole lot of this. I mean weren’t we within 1% of a new all-time high just last week? Thanks Brexit. I will say this; everything I saw today was exactly what you’d expect capital markets to do as they grapple with an unknown event. Credit markets weaken, Financials weaken, Sovereign Yields fall, Dollar rises, Stock markets sell off, I mean this price action was straight out of central casting. Retail Sales beat but no one cared. The FOMC decides on rates tomorrow but no one cared. Curb Your Enthusiasm is coming back for another season but no one cared. Markets HATE uncertainty more than anything else and we are blanketed in it right now. Any winners at all? STZ, YHOO, SYMC, and PRGO but none were all that impressive save maybe PRGO. Losers were Energy, Materials, and Financials, led by SYF, COF, LUV, AAL, and NAVI. By lunch we were sitting around 2,070 hoping for another poll to come out. Sigh…is this how it’s going to be all the way until June 23? I’m guessing yes. Oh by the way, Deutsche Bank has the same market cap as Snapchat right now. Let that sink in (gotta give credit to @stockcats for that awesome tidbit).

The final hour brought a small rally on the realization that A) The Fed is not raising rates tomorrow and B) Brexit is WAAAY over blown. In fact, let’s end with this awesome link from David Merkel in which he sums it up perfectly: “Looking over this, the UK already depends less on the EU than most member states, making the exit less of a big deal for the UK and the EU. My view is this: leaving the EU won’t be a big thing in the long run for the UK. In the short-run, there will be some uncertainty and volatility as things get worked out. For the rest of the world, it will be a big fat zero, so ignore this, and focus on something with more meaning.” This is just another thing to fret over nothing more. Markets love to do this from time to time and Brexit is no different than Cyprus Banks or Italian Elections or American Debt ceiling fights. Remember those? Markets trembled while people thought the United States might actually default. COME ON MAN. 

Final Score: Dow -32bps, S&P500 -18bps, Nasdaq -10bps, Rus2k -25bps 

Volume was high. Our desk was better to buy. Buying in Health Care and Tech. Selling in Financials and Industrials. Shorting in Retail. News Highlights:

• Succinct Summation of the Day’s Events: Negativity / Uncertainty pervades the market because someone polled 50 people in the West End and they wanted to leave the EU. You can’t make this up
• Ok, this is not what we want to see from the Small Biz survey: “The biggest increase this month was Poor Sales, which was cited by 14% of all respondents and tied for its highest reading since April 2014”.
• This sentence should be copied / pasted any time macro rules the day: “There is always a risk of an uncertain event throwing a wrench into your best laid plans. I don’t think it’s necessary for investors to constantly shy away from volatility, but it’s worth remembering that unexpected shocks come with the territory when investing in risk assets”.
• Josh keeps it simple: “Here’s the thing, though, about it being binary – I don’t quite see it that way. A “remain” vote will not provide nearly as much upside as a “leave” vote will provide downside risk, even if we’re thinking that a good chunk of the $140 billion will come rushing back to stocks if the Brexiteers are defeated. The outcome may be binary (yes or no) but the gains / losses potential is not at all symmetrical.”
• Oh my people are hoarding cash. Do markets crash when this many people hold this much cash? “According to Bank of America Merrill Lynch's latest fund manager survey, investors surveyed by the firm now have 5.7% of their net holdings in cash, the highest percentage since November 2001. Recall that in November 2001 the US was mired in recession while dealing with the fallout of both the tech-bubble bursting and the September 11 terrorist attacks”.
• This chart just brings primal anger to the surface.
• I would watch this show
• Italy is just gorgeous

So tonight I have something unusual to end on. 2 videos…both breathtaking (you’ll see).

The first is a spectacular video of an amazing spot in Norway.

The second is an idiot falling off a bull. That idiot being me.

Have a good night.