The Impression That I Get
The hardest thing about writing this blog is knowing when to stop reading or listening to new content and just start writing. There are tons of stories every week, some of which you have seen and some which are new to you and me. As I write this, JP Morgan and PNC are trying to put the finishing touch on bids for First Republic Bank. This one is too good to skip over. I've never had to ask for a bail out, and I'm glad I haven't yet because I'm sure it isn't good. That's the impression that I get. A once prominent bank in the U.S., they are now hanging on by dear life. There are a couple of excellent article from Yahoo on this. Yes, Yahoo Finance is a solid source of journalism. The first covers why this process is taking on some reluctancy from larger banks. The second is a shot across the bow of the Fed and FDIC for not handling this with enough force. That man pictured is Jim Herbert, the founder and Executive Chairman of First Republic. He was the CEO for 37 years and I'd be willing to bet he's been on the phone with other leaders in his industry trying to make them an offer to provide him and his bank with some help. I've been thinking that he's trying to make a lot of offers, but
This week I have a few charts I wanted to share that are providing different signs. Before that, let's take a look at last week's performance. Lot's of red on there Non-U.S. equities were off a bit. Most commodities were in the red, except Nat Gas and Gold. Bitcoin had itself a decent week. The Dollar was off a tick on strength in the Euro and Pound, but buoyed some by Yen weakness. One thing to note that I have covered before, but not much this week is to keep an eye on Japan. Things are changing with their monetary policy.
The S&P is getting a bit top heavy according to this JPM report I saw via The Market Ear.
But it's also showing signs of strength rising off the 200 day moving average more than normal in bear markets, so we might be in that area of conflict. There's a good article here, which takes us through some historical instances of rallies in bear markets that relates to this data.
Another piece of info is the high spread on the VIX futures. I was alerted to this from Jim Carroll, aka @vixologist on Twitter. The front month and second month spreads are extremely high. Both are almost 2 standard deviations about average over the last year. As noted in Jim's Tweet, people are paying up for protection or just gambling on a big event to the downside.
Before we move onto Earnings, this week we also have some PMI data out from many G10 countries and the big event here is the Fed meeting on Wednesday. Just under 85% chance we see a 25bps hike according to the futures. The rest is no action. I've also included the next meeting in June, which shows the likeliest of scenarios of 25bps hike and hold.
Earnings' Watch
Last week was a monster week and in general things went half decent. I'm not a huge fan of promoting all the "beats" when the downgrades had been quite considerable in the past few months. That said there was still some success last week. You've all probably seen the reporting on the big names. Well, all these are big names, but the less than super gigantic names. Comcast had a nice beat and performed solidly. UPS didn't really do so well though. One that really perplexed me was Intel. Again, didn't get a chance to fully listen to the call, but according Reuters summary guidance was positive. The stocked opened the day up more than 7% and slid a bit to close Friday up about 4% on a terrible quarter and a loss.
This week is another gigantic week of reporting. A third of the names in S&P 500 and Canada's TSX report. Plus, we also get the real start of the small cap names with more than a third of the names and market cap reporting for the Russell 2000. It's going to be a very busy week again.
Everyone will have their eyes on Apple, but don't miss some of the big international names as well. Shell has a large Predicted Surprise on the negative side. Airbus has a smaller -2.5% Predicted Surprise, but it's EPS estimate is off more than 30% in the last month. One of the positive end is Novo Nordisk in Germany, which has a nice 3.8% Predicted Surprise and is high on the Analyst Revision model from Starmine in the 97th percentile after bucking the trend in downside revisions. A U.S. name to look at is Estee Lauder with a 6.2% Predicted Surprise from Starmine.
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Best of the Week
This is a first in the nearly 100+ blog posts I've done. MacroHive has the 'Best of' two weeks in a row. Bilal does an excellent job bringing fascinating guests to talk about intriguing topics. This week Zar Amrolia joins to discuss his impact on the history of electronic trading. Today, trading most assets electronically is just as easy as booking a movie ticket. The thing is all the math and tech behind it wasn't always there. Zar reviews the beginnings while at Deutsche Bank and running the Autobahn product. One topic, which we've been discussing at LSEG of late is Outsourced Trading, but that's for the buyside, Zar is talking about doing that on the sellside too. This was a wide ranging conversation around the innerworkings of the sellside and how things evolved over the last 30 years or so. Listening time: 37 minutes
The link wouldn't work for this one, but it was good enough to share anyway. Dean does an excellent job of reviewing some facts on volatility, but also opens with some other topics that are impacting markets today. He described it as a duck market, which looks calm on the surface, but crazy below. The debt ceiling issue has Sovereign CDS rates for the U.S. rising to very high levels comparatively. Here's the 10 facts though:
Listening time: 25 minutes
A nice article covering the benefits of securities lending to the ETFs you may hold. This highlights some of the high rates of return some funds have. Take a look the POTX ETF, which earns nearly 3% on just lending. The article also covers some of the nuts and bolts of how this process works, how this is priced, and what are the risks. It also covers the benefits, but you can see those directly below.
A very solid article that covers, as the title notes, what was learned from the 2011 debt ceiling debate. The article runs through a number of charts like rates, indices, sectors, and valuations. The big point made is that these the current events are not exactly the same. In fact, there are a number of differences beyond the political actors like the Fed rates, equity valuations, inflation, but the largest difference is the Federal budget deficit, which is currently about 7.1% and widening versus 9.3% and shrinking then.
Harley Bassman joins the Grant's team in this episode. The big reason for sharing this is his comments like, "the yield curve is the wrong price unless the world ends tomorrow" or "the bond market is wrong." Harley is the "Convexity Maven" and convexity is basically non-linear returns. Hence the episode name. There's also some discussion around the debt ceiling and implied volatility, using Harley's MOVE index. The final point I'll share is the comment that mortgage bonds are trading cheap. The are trading at a 175bps spread to the U.S. 10 year, whereas those average about 75 bps. This interview covers some topics that I don't usually get into, as they are not my area of expertise. Listening time: 34 minutes
One for the Road
I think this link title speaks for itself. Apparently, this has happen to other world leaders too though. So Jay probably shouldn't be crucified.
Thanks for reading. No blog next week, as I'm on the road to run the Pittsburgh half marathon, as a sherpa and pacing my wife, who is looking to finish her first.
Thank you for the shoutout!