Useless But Important Information

Last week the big story was Fitch's downgrade of U.S. government credit. I heard quite a few people mention that this was not really a big thing. Many even said it was useless. This link to a piece from Macro Alf walks through many of the questions that hit me as I saw the news. Warren Buffett, no relation to Jimmy, has also said he's not concerned with Fitch's opinions. Seeing that story on Warren got me thinking of the song by Jimmy titled the same as this post. Only some of the lyrics really matched for this week. From the looks of it, markets were spooked by this. However, in my 'Best of' the host seems to think there could be another much bigger factor moving credit and other markets.

Before moving into the links this week, I wanted to stop and take a quick look at performance. First up is the equity sector performance year to date. Notice the differences between U.S. Large Cap and Small Cap below using the Russell indices. Large cap tech driven by the Magnificent Seven (*quick note that things didn't end well for most of them in the movie) is out shining small cap tech. Three sectors are keeping the Russell 2000 within shouting distance of its Large Cap brother. Energy and Health Care are positive in Small Caps while negative in the larger names, and Industrials showing a 20% increase versus only 11%. On the global side versus U.S. Large Cap, Utilities are slightly better, but still negative, and Industrials are also slightly better. Otherwise, all other global sectors trail the U.S. index.

There was a lot of red last week. Some commodities didn't even see positive territory. Crude continues its rebound. It's now up more than 22% from it's late June low and has a small resistance level coming from back in April. From there, it's a ways away before the next stopping point. The 50DMA crossed the 200DMA this week. This is on top of some positive futures positions from Non-Commercial traders. I've taken a bullish position in XLE via options to pair off some of the risk, because I'm worried about the impact of the Dollar. I'm not sure where that's going from here.

There's a bunch of info this week, so buckle up. I know we're in the middle of Earnings Season, but there's only so much time and I spent mine on other things this week.

Best of the Week

In this episode, Weston argues that it's not the debt issuance or the Fitch ratings change that is driving the volatility in U.S. debt markets. As you can see from the headline below, his argument is last week's unexpected announcement from the BOJ and recent activities are driving global yields. He shows a ton of charts that highlight how recent market activities are leading to pricing issues and distortion in JGBs, especially since the March meeting and then again this week. Weston actually calls Fitch's downgrade "meaningless & arbitrary." Towards the second half of this session, he reviews even more charts that look at historical correlations between Japanese markets and other global assets. Watch time: 67 minutes

Best of the Rest

The Fed's most recent Senior Loan Officer Survey was release last week. I got the idea to check this data from Callum Thomas' Weekly ChartStorm. As Callum noted in his quick summary of his version, "As rates rise, the cost of funding goes up and as it seems the difficulty of obtaining funding is now also going up as bankers take a more cautious approach given the murky macro." Is this going to be a problem? Money is becoming more expensive AND harder to obtain. Is the credit rating drop from Fitch likely to lead more in credit markets? Take a look at the inverse of the increasing spreads banks charge versus a log scale of the Russell 1000. Tighter standards tend to slow things down a bit for equities.

An excellent article from Louis-Vincent Gave on what's been the biggest surprises of the first half of the year. He starts off with China's underwhelming re-open and walks through why this is happening. In that segment, he shares a chart showing the Citi Economic surprise index for China. I thought it would be interesting to compare that to the indices for the U.S., G10, Emerging Markets and the Global index. Surprise number two is the failure of Silicon Valley Bank. Peace between Iran and Saudi Arabia is surprise number three. Food prices come in at number four. Currencies are surprise five with weakness in Asia and strength in LATAM. Louis notes some other honorable mentions, like BoJ's yield curve control polices highlighted by Weston above, and wraps with a SWOT analysis on everything.

I love Steven's ability to cover a huge amount of topics and stories in such a short episode. If you're like me and listen/watch a quicker speeds, it can be tough, so I slow it down a bit. This is a fast run through of a bunch of news stories around economic & trade data. Steven is a bit bearish and he thinks JP Morgan's call off for a recession is a bit over done. Watch time: 18 minutes

I found this Tweet, or whatever we're calling these now, interesting from Jeremy. He looks at some stats on the valuation NVDA is getting right now and what that has meant for such stocks in the past. This quote, "Imagine growing sales almost 20% a year more than typical stock for a decade but still lagging the market by 10% a year on price," just boggled my mind. Nvidia has quite the difficult path ahead of it.

Fascinating conversation around data and how it along with AI will help change the world. Futurist Michael Clark talks with David Mattin on how we can leverage this and augmented reality will change our lives. Data brings everything together. Years ago, my firm had a branding line that "Data is Just the Beginning," but I didn't realize just how true that was. This conversation should open your eyes to what the future might bring. Listening time: 65 minutes

One for the Road

Another one found via Barry Ritholtz's blog. This chart is a few years old now, but I'm sure not much has changed since the original paper's research. Something we need to think about. Plastics come from oil, require more energy to create, then further pollute the environment. We need to find better ways to get our goods. I saw an advertisement on Facebook for detergent that look like dryer sheets and come in a package. The issue is I'm not sure if that's less energy demanding or not, but I do know it's likely to have less residual pollution sitting in a landfill. I think we end up getting to something like the food labels with products, so we can decide on how we let that factor into our buying decisions.

Thanks for reading. It's 5 O'clock Somewhere, so I hope you're enjoying yourself.

Michael

Bonus Link:

For those that read to the end, Morgan Housel says you might be doing it wrong. I saw this post as I was finishing things up and wanted to include it. I don't often find my self quitting books. I think that's mainly because I find most via an interview with the author on a podcast and because I listen at 2.5x or faster. I have one book I've been trying to read for 2 years now. The content is super educational, but it's poorly written. Good thing I've heard about 10 interviews with the author and know most of what's there. So why do I keep going with it. Well, it's a hard cover and I read it when I can't fall asleep.