Cold. The kind of chill that hurts the bones. Wet. Inside and out. Boots, socks. Everything soaked. Windy. Need to turn one's back, just to speak. Just to breathe. Amid conditions like this, what else can go wrong? Wait. What's that? A large green can on the back of a small beige truck. "Is there any coffee left in that thing?" A nervous kid looks up. "If there is, it's old, but it's all yours." Quickly gathering my guys, it's okay now. All morale improved with just one cold, disgusting tin cup of black coffee. The wind will ease. The rain will not stop, but it will at least warm slightly. The heart needed convincing what the brain had never forgotten. "You've got this.." No. Forget that. Team. Always. "We've got this."
Just four months ago, equity markets may or may not have entered a bear market. Several very smart people were indeed convinced that was the fact. Four months later, that idea appears as folly when seen in the rear view mirror. The condition, however was not folly in the least. A lot of investors did sell assets, and did lose capital. Some have been on the sidelines ever since. The S&P 500 as well as the Nasdaq Composite closed on Tuesday at higher levels than either of those two broader indices had ever closed before. Note that intraday records are yet to be breached, but that amounts to nothing more, really... than a hill of beans.
Earnings season is off to a much better start than most had anticipated. Prospects for improved global growth are much better than previously thought. The U.S. economy has reacted very well to the FOMC's decision to allow the yield curve some breathing room after the central bank's forced partial inversion nearly caused a compete collapse in the velocity of money earlier in the first quarter. China's economy turned for the better in response to stimulus. That said, the PBOC now cuts some of the long-term funding that the central bank supplies to that nation's banks. Voila! The Shanghai Composite has been stuck in reverse since Friday. Evolution? Yes. Chess? In a way.
The Atlanta Fed's GDPNow snapshot of first quarter U.S. domestic economic growth now stands at 2.8%. Much higher than anyone anticipated. Private sector economists are lower than that, but almost everyone is above 2%, and virtually not a soul is still below 1.5%. Should the first look at the first quarter on Friday show growth that improved the pace from the final revision to the fourth quarter (2.2%), does that re-pivot the Federal Reserve? Good question.
I will tell you this. In Chicago, where they trade Fed Funds Futures, there is now a minuscule probability being priced into that market that a rate hike could occur in 2019, and that unlikely probability actually starts becoming visible as soon as the next policy meeting on May 19th. This Monday, the Bureau of Economic Analysis should finally catch the PCE data up to current (Still in the wake of the partial government shutdown) with numbers on February and March performance. Thankfully, the Bureau of Labor Statistics has been a little more on the ball, and we do have up to date CPI data to ponder.
We know from those numbers that in March, core inflation slowed to 2.0%, while at the headline, consumer level inflation popped out of a down-trend, printing at 1.9%. We also know that oil prices, and thus... retail prices for gasoline, like a frightened horse, have left the proverbial barn. If put in a position where the central bank feels that they must control inflation, they will act, and that would be justified. Those April numbers (that we will not see until May 10th, or nine days ahead of the next FOMC meeting, will be key to the rest of the year. Sell in May? Old wives' tale? The adage does merit some attention, not to mention consistent past performance.
The answer is to skate with your head up. Is the ordeal over? Yes, that ordeal is over. For now. A new round of trade talks between Washington and Beijing kicks off next week. What if both nations are emboldened by recently improved domestic economic performance? What if China wants to keep buying Iranian oil? What if in the termination of waivers regarding U.S. sanctions in Iran, China sees opportunity to curry regional influence? Cold War? I have warned on that possibility for some time now. What if the Fed is forced to combat inflation before the yield curve has been fully repaired? A 12 basis point 3mo/10yr spread does not exactly inspire the bold. Still stronger dollar? Hide in small caps? Not if they can't borrow.
Know what? We don't know how so many factors play out. We do know a few things though about ourselves. We are smart. Have you spoken to your friends lately? They have allowed themselves to dumb down. We're really smart. We don't panic. We know how to defend ourselves. Even in the face of adversity, we figure it out. We also know that we need not fear, and you know why. In short, they can throw anything at us. We've got this.
The most famous of all crypto-currencies has enjoyed something of a rebound of late. Though off of it's overnight highs in the $5600's, that is a long way from the depths experienced late in 2018 above $3200. I am not involved in Bitcoin, and I do not see the case for higher values given the lack of broad public acceptance as a medium of exchange or a store of value. That said, there likely is a place in the global economy for a secure, internationally recognized, exchange-able digital currency. This would be especially useful in nations where the domestic currency has become near worthless. Venezuela would be such an example where such an option would have been helpful.
My thought, and it's just a thought, is that in order to retain monetary power, or power itself, the global central banks that already control money supply for the major reserve currencies will eventually either create their own, or simply convert the IMF's already in existence Special Drawing Rights to something more readily usable at the consumer level. That keeps regulation and supply in house so to speak.
How interesting is it that overnight, Bitcoin finally experienced the "golden cross" that fans and investors had longed for. The 50 day SMA at $4538 now stands $40 above the 200 day SMA. While that should have caused an algorithmic response to the upside, Bitcoin is lower this morning. That might be simply due to the fact that news is making the rounds that Coinbase has laid off 30 or so people in Chicago who were working on improving the trading environment for the high-frequency crowd.
My thoughts? Yes, had the HFT crowd come to Bitcoin markets, volumes would have increased. Then again, as an investor/trader, and not as one running an exchange, I find this a positive for honest price discovery based upon supply and demand. At least you have that.
As of the end of March, Netflix (NFLX) stood with long-term debt of $10.3 billion. That was up from $6.5 billion one year prior. On Tuesday, we learned that the firm plans to borrow another $2 billion or so in an aggregate mix of dollars and euros. This deal is expected to be finalized sometime on Wednesday (today), and is thought to likely bear a BB- rating, which is, yes you guessed it... well below investment grade. Well below. As in less than almost.
Netflix has already warned investors that the firm will likely burn through $3.5 billion for the full year 2019. In addition, according to the Financial Times, with an average yield in the U.S. for corporate debt rated at BB- running close to 4.75%, the U.S. tranche of this Netflix deal is expected to yield is expected to price with a coupon above 5.6%. I shorted the name on that news on Tuesday. Easy score, I thought. Your pal spent the rest of the day massaging that position, until finally able to claim a small victory for the day just prior to the bell. Made money, yes. More work than I bargained for? Of course.
Though not daring enough to carry a short position in this stock overnight, you know how I feel. The firm has to create it's own content, not to mention it's own deep pockets.
Just a quick glance at some fundamental numbers, Netflix stood recently with $3.35 billion in cash on hand and Operating Cash Flow of -$2.82 billion. The kids that are coming to play in the space? The Walt Disney Co. (DIS) runs with $4.46 billion in cash and with Operating Cash Flow of $14.16 billion. Apple (AAPL) ? You don't even want to go there. $86.43 billion in cash with Operating Cash Flow of $75.83 billion. Looks to me like Netflix is bringing a knife to a gunfight.
I will continue to do nothing more than day trade NFLX. For now, the cult is behind them, as are the institutions. I know the volume in the stock has been dramatically lower over the past two days than in the days prior, but just take a look at just who is running this debt offering. Goldman Sachs. Morgan Stanley. JP Morgan. Wells Fargo. Deutsche Bank. In other words, the sell side is well represented here. Four of those five have rated the equity a "buy" over the past week, with three of them placing a price target of $450 or higher on the shares. Just so you know.
Economics (All Times Eastern)
10:30 - Oil Inventories (Weekly): Last -1.396M.
10:30 - Gasoline Stocks (Weekly): Last -1.174M.
Today's Earnings Highlights (Consensus EPS Expectations)
(Disney, Apple, Facebook, Lam Research, and Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS, AAPL, FB, LRCX or MSFT? Learn more now.)