Things you need to know.
- Markets UP, Rebellion stocks DOWN….and Bezos is OUT! (his choice)
- AMZN and GOOG blow the house right off the foundation!
- Oil kisses and pierces $55/barrel…Goldy re-its $65/barrel by summer 2021
- Mark Cuban opines on GME, I push back…. Waiting for his call…..
- Try the Rigatoni.
BOOM!..And it was an explosion yesterday! Both UP and DOWN as investors tried to sort it all out and concentrate on the fundamentals when deciding where to put their hard-earned dollars. AMZN and GOOG…… BLEW THE DOORS, THE WINDOWS AND THE ROOF OFF THE HOUSE – when they reported their earnings after the bell – both rose in the afterhours session adding to the gains seen during the day….……..Then the news hit the tape…..
Jeffrey Bezos stepping down as CEO at AMZN and moving into the Executive Chairman role….(a surprise announcement) – now we have to get know Andy Jassy – or just ‘Jazzy’ – as the media now refers to him – expect the cable channels to dissect this announcement piece by piece as they get to know who exactly Jazzy is….What does he think? What does he support? How will he lead?..Now to be clear – this was a methodical, well-reasoned choice and the markets are going to have a hard time finding anything negative about this choice….I mean surely someone will have an issue with it – someone always does…but that won’t matter – Jazzy has now been crowned King of the Castle!
By the closing bell – the major indexes were all celebrating…. moving significantly higher – the frenzy surrounding what is now known as the Reddit Rebellion all closed significantly lower….tumbling out of control as reality set in……
The Dow adding 475 pts or 1.5%, S&P’s up 53 pts or 1.4%, the Nasdaq up 209 pts or 1.56% and the Russell up 25 pts or 1.19% and the Transports up 273 pts or 2.2%! Every sector in the in the S&P rising nicely…with investors once again focused on the recovery trade….Consumer Discretionary – XLY adding 3.5% – think of names like AMZN, TSLA, HD, MCD, NKE, LOW, SBUX, TGT, TJX, GM, DGN, CMG, F, EBAY, MAR, HLT…are all names included in this ETF – all surging as investors see light at the end of the tunnel and they all have businesses that actually produce revenues, are in growth mode, reported strong earnings and make fundamental sense. (This is not rocket science….) Behind those names we saw strength in Tech – XLK + 1.8%, Communications – XLC + 1.04%, Financials – XLF +0.7%. even Utilities gained nicely – XLU + 0.51%……the laggard? Real Estate – XLRE at +0.16%…. but recall – this sector had a great day on Tuesday…..so don’t despair….
While………. The Rebellion Rodeo fell apart….GME -60%, AMC – 41%, BBBY – 16%, BB – 20%, and the Silver Trade – yeah – that’s down too….after its unexplainable rally on Tuesday morning….
Shares of GME plunged by 60% or $135 to end the day at $90/sh….
(Remember – on January 11th the stock was trading at $19….and then the raid on the short sellers began after two home schooled analysts, a handful of professionals and some really big money (think Chamath and Lonnie boy) started to chat it up…….…..traders – both professional and amateur – not investors – took the stock up to $483/sh by January 28th in what was an unbelievable show of support aimed directly at ‘the establishment’, so unbelievable that many of the ‘more seasoned types’ watched in awe as the comments were posted to twitter and in the main street media (MSM) made zero sense, showed a complete lack of understanding of valuations, pricing and investing, and then the brokerage house of Robin Hood – began to come apart at the seams – restricting trading in these names as their financial condition deteriorated and they were unable to clear the trades – causing the ‘retail trader’ to scream bloody murder…..raising the ire of Lizzy Warren and a few others…with many in the sub-reddit chat room calling for GME to trade to $1000/sh – as if that would make it happen?)
And as the price fell yesterday the screams for justice heated up…. with many not understanding why the price was falling and how come it was not going to $1000! And this morning, GME is down once again…. trading down another $4 or 4%…..bringing the total 6 day loss to more than 82%….and only going lower…..because it got completely divorced from reality….and so – I hope it is a lesson learned. Now to be clear, no one is saying that you should not own the stock, they are just saying – Use your head for something other than a hat rack….do the work, understand the story, look at the fundamentals, and then back into what its current valuation should be, not what you WANT it to be…. And that goes for the others as well….
In fact Mark Cuban (@MCuban) and I (@KennyPolcari) went back and forth on Twitter last night about this….with Mark suggesting that people hold on (if they could), why sell it into a falling market? And me suggesting that why would you continue to own it UP here? After it has fallen $300 and is likely going to fall another $80…His response: ‘a guy who built Chewy – put $75 mil for 12% of the company should mean it’s a buy!’ Yeah…. he paid $4/sh….very different than the $450/sh that the reddit traders were paying last week – and then I asked him – What would the Mark Cuban say if this were a Shark Tank scene? (Answer: he would laugh them off the stage…telling them that they do not understand valuations and why would anyone ever come on this show so ‘unprepared’!) And what would Mr. Wonderful say: “Stop the madness….you are going to get crushed!”
I did – offer via Twitter – to ‘chat’ with Mark if he so desired… saying- “Give me a call to discuss”……so far – my phone hasn’t rung…..but the day is young. I remain hopeful….
Ok back to the markets….investors are clearly focusing on where the economy will be in the spring time, the vaccinations bringing us closer to immunity….and the global economy emerging from 12 months of hibernation…..and with earnings continuing to not only beat but to ‘smash it’ you can’t help but be bullish on America and other parts of the world. And while I too remain bullish – I am also a bit cautious near term…..while I love to see the market go higher -I continue to believe that we are just a bit ahead of itself….and would like to see it digest a bit and shake the trees a bit more…My guess is that the catalyst will be talk of rising inflation and rising rates…I mean we saw what happened earlier in the month when the 10 year went to 1.13% causing angst among the paparazzi as many analysts started to talk about 10 year rates surging to 1.3% or worse – 1.5%! And while I want to see the market back off, the market will do, what the market will do….so the answer is – as a long term investor – stay the course, stick to the plan, and focus on what matters and not on the noise. (and there is plenty of noise!)
Now this morning we wake up and find that US futures continue to advance…. Dow futures up 57 pts, S&P’s up 16 pts, the Nasdaq adding 100 pts and the Russell is flat. Asian markets ended higher and European markets are also building on their strong performance in the last two days.
The reason for the rise today? Better than expected earnings, more vaccinations, better eco data, the collapse of the Reddit frenzy and the rising sun over the Atlantic….but it’s beginning to feel exhausted again…..just sayin’…..Investors will continue to monitor what’s going on in DC…..in terms of relief, fiscal stimulus, regulation on tech, regulation in finance, regulation in energy, regulation in healthcare and other policy risks….cap gains hikes, fed tax hikes – both of which I don’t think happens this year….but do expect them to start to position it…..
Eco data today includes: Mortgage Apps, ADP Employment – expectations of +50k new jobs, Markit US Services PMI of 57.4 and ISM Services PMI of 56.7 (both measuring the same metric – the service sector – which is 75% of the US economy) and if they come in as expected they will suggest expansion….they would have to be below 50 to suggest contraction….and anything stronger than the expectation – will only speak to how strong the US economy is and what to expect on the recovery…..Now ADP is a ‘pre-look’ at Friday’s NFP (Non-Farm Payroll) report – and that report is expected to show a gain of 70k jobs….which is up from the negative 140k job lost last month…..and wait until next month – after Joey stopped the Keystone pipeline – and those lost jobs get tossed into the mess…..and not just pipeline jobs, but ancillary jobs around it…And if he bans fracking then the estimates suggest that we will lose another 15 million jobs but don’t worry – renewable energy jobs should ‘easily’ replace anything lost…..so it’s a ‘shift show’!
As detailed – European markets are all higher….earnings dominating the headlines…and the Italians are celebrating – the FTSE MIB index adding 2.6% in mid-day trading……Why? The rumor is that ‘Uncle Mario (Draghi) may be coming home to set up a new unity government in the mother country. Bank stocks rally – Banco BPM +5%, Intesa Sanpaolo +5.8%, UniCredit +4.9%, Infrastructure group Atlantia +5.2% rallies and even the post office rallied… Poste Italiano +6.5%. at 6:30 am the FTSE +0.35%, CAC 40 + 0.32%, DAX + 0.67%, EUROSTOXX + 0.78%, SPAIN +0.66% and ITALY +2.38%.
OIL does it! Not only did it ‘kiss $55/barrel’ it pierced it and is now up 33 cts at $55.09! What have I been saying for months??? And today – CNBC hosts Goldy on Worldwide Exchange and they continue to talk their book – calling for oil to trade at $65 by the summer….(this after they read my analysis! -which was nothing more than my ‘gut’ feeling) This whole ‘lack of demand’ argument is and has been wrong all along…..there is plenty of demand now and when the world opens it will only get stronger…..couple that with production cuts by OPEC, the closure of the Keystone pipeline, threats to US production and you have a recipe for higher prices….a challenge of the January 2020 highs of $57.4 – a 4% move from here is now in order…..
Gold sold off yesterday ending the day at $1833….in sympathy with the selling in silver…..it has broken all trendline supports but seems to be finding support right here at $1830…….Any further weakness could see it test the December lows of $1795 ish…
Bitcoin adding $568 – now trading at $36,211……
The S&P closed at 3826 – after exploding off of the trendline support line at 3719 only two days ago…..….Yesterday’s high of 3843 is just 40 pts below the all time high of 3870……It is so exciting – but remember – stay focused – do not get sidetracked…. It does not mean that we won’t see a push lower once the latest ‘feel good’ mood fades…And like I have been saying – the longer term investor has to eliminate the noise and focus on the plan…..today’s action will definitely be about what those explosive earnings mean, what today’s reports will show and what will Jeffrey do tomorrow…….(Answer: anything he wants!)
Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what Slatestone can do for you.
Take good care.
Consultant, Market Strategist
kpolcari@slatestone.com
Rigatoni w/Red Onions, Arugula and White Beans
This is a vegetarian dish that is easy and quick to make if you are not a vegetarian then feel free to add some Italian sweet sausage*.
Bring a large pot of salted water to a boil. Add the Rigatoni and cook until aldente – 8 / 10 mins.
In a sauté pan – heat up some olive oil, crushed garlic and a sliced/chopped “red” onion. Sauté until the onion is soft and translucent. Now add a can of cannelloni beans – juice and all and stir to heat up…about 4 mins or so. Now add the arugula – season with s&p and stir. Arugula will wilt – no worries. Drain the pasta – saving a mugful of the pasta water….return pasta to pot and add back 1/4 cup of the water to re-moisten. Next add beans and arugula – handful of Parmigiana cheese and toss. Serve immediately in warmed bowls with freshly toasted garlic bread.
Buon Appetito
*If you add the sausage – do it this way….grill the sausage…..remove and slice into bite size pieces….add to the sauté pan BEFORE you add the beans and arugula. Stir and cook for 3 mins or so….Then add beans etc….
*Or – take the sausage meat out of the casing and brown it first in a sauté pan and then add to the red onions and garlic BEFORE you add the beans and arugula.
