Is That Too Much To Ask For?

Equities start the day lower because they need to start the day lower. Up 10% in a month, almost without a breath, generally doesn’t lead to even higher outcomes. The market needs about a WEEK of sideways where people start to question whether it has run out of steam. Is that too much to ask for? I’m practically begging for the market to slow down here. Let’s move on from macro for a second because there’s a story near and dear to my heart that we need to talk about. ATVI, Activision Blizzard, agreed to purchase King Digital last night for the tidy sum of $5.9B. First let’s get the disclosures out of the way, Baird doesn’t cover KING and we rate ATVI a Buy. Ok, so, the good people who make awesome games like Hearthstone and Starcraft decided they needed mobile users. Ok, fine, I get it. 500mm mobile users is a lot. Moms and Dads and Kids like to crush candy in the bedrooms and on the toilet so this acquisition makes some sense. What did they pay? $5.9 billion US dollars. Wow, that’s a big sum. Let’s review a couple other of my favorite acquisitions to see how it compares (this is all for entertainment purposes, don’t write me emails about how it doesn’t compare). The good people in Burbank CA who wear mouse ears on their head paid $4B for Star Wars. They also paid $4B for Marvel back in the day but let’s stick with the recent stuff. The good people in Redmond WA paid $2.5B for Minecraft because literally every single kid in the world loves the game, plays it daily, and watches some dude named Stampylonghead on Youtube. It’s a phenomenon. Anyway, what’s my point here. Oh yea, here it is. What is this fascination with mobile users? Do companies think games on phones and iPads have unlimited shelf lives? I played candy crush for 4 minutes and moved on. I played Draw Something (a game Zynga paid like $200mm for) twice and deleted it. I think the one metric companies will regret in a few decades is this rush to grab mobile users who are as fickle as the weather in New England. Anyway, gaming is awesome, I love the stuff ATVI puts out but this one seems odd to me. Ok let’s move on.

After the open, ATVI spent about 10 minutes lower before hitting a new all-time high in rapid fashion. So as it pertains to my rant, everyone basically gave me the finger. I thought the market would have a bit of mediocre sideways price action today yet it turned out to be another buy the dip event. For Bears everyday must feel like this. Stocks spent the first hour wobbling but turned positive and made their way to 2,109 by lunch. Energy was the big winner folks…wanna know why? Of course you do, otherwise you wouldn’t be reading this. Actually does anyone read this or do they just click the final link. Ok, all 4 of you reading (including my boy Adrian) here is why: BECAUSE NO ONE OWNS THIS SECTOR. BAML puts out that awesome Fund Manager survey and for the past, I don’t know, 6 months people have been saying “I’m underweight Energy”. The only explanation for this sector’s movement is that it’s under owned. I mean oil is still at $47, it’s not like the commodity itself has had a huge rebound. Yet the stocks that make up the S&P Energy sector are up 20% from their lows. Pain Trade. Pain for those who should own more of it and don’t (which we have to assume is everyone?). In fact, you could argue the S&P is doing the exact same thing. Punish people for disbelieving in its bouncebackability. Punish everyone for bailing on Cyclicals. Punish everyone for bailing on Materials. Punish everyone who brought their kids candy into my office and made me sick. Does anyone actually like Baby Ruth? I get that it’s steeped in history but frankly it sucks. It’s probably the last chocolate candy I’d choose from a bowl. Snickers is like evolution of what Baby Ruth should’ve been. Winners: PXD, CHK, MOS, ATVI, DVN, FCX, heck anything energy should be on there. Losers FIS, ADM, MLM, DNB, HPE, and AIG.

The back half of the day saw a small selloff but we still closed in the green. 2,109, up 25bps. Guess what my friends, we are less than 1% from a new all-time high. Let’s list the current wall of worry shall we? 1) China slowdown. 2) cmdty bust 3) earnings recession 4) Fed rate hike 5) slowing revenues 6) manufacturing slump 7) emerging market slump 8) valuation 9) high yield trembling and 10) economy on verge of contraction. Aren’t those great? I love them all like children. Have any of them actually ended the bull market? No, but you have to love the fact that we fret over them daily. When there is no wall of worry that’s when you head for the hills. Did I mention auto sales are having their best 2 month stretch in 15 years? Guess what doesn’t precede a recession…rising auto sales (h/t @ukarlewitz).

Final Score: Dow +50bps, S&P500 +27bps, Nasdaq +35bps, Rus2k +46bps

News Highlights:

Have to skip these because I need to run so let’s hit up the big finish 

Tonight we have Jimmy Kimmels famous “parents tell their kids they ate the Halloween candy” skit. I love this thing, he’s done it for years and I laugh every time. 

Check it out. https://www.youtube.com/watch?v=N1pTZTHZF4E 

Have a good night.