Careful Now
Myself? I had nearly forgotten that this Monday coming is a market holiday. Just seems like there have been too many of those of late.
Ridiculous feeling, I know. Counter to the way most people think, but most people work for someone else. A day off, especially one complete with wages paid for the period, would always be welcome. Once one finds himself or herself, either through intent or circumstance, out on their own, a day off becomes a burden. One less day that one is able work over a given period in order to meet obligations that aggregate throughout said period.
Much of Wall Street (not all) works without the safety net of a base salary (This is why the TV stays muted when someone working for the large banks or brokers comes on; they are not measured up against their own performance in real time, and in addition.. everything they say has gone through their legal departments first.).
This is where the term "Short weeks are always long" comes from. This is not because a four-day workweek drags on, feeling like a longer week. This is because short weeks become dangerous for those who live and feed their families through either performance (P/L) or commission.
Oh, don't feel sorry for us. That is not the intent here, We have both good to great years (where we think we are brilliant) and we have years that would make a more "normal' full-time job with a set paycheck and a close-to-reliable average workweek in terms of hours seem very nice. (Those are the years when we do not feel so brilliant.) The intent here is to warn, that when a holiday shortens a week, as it will next week, or shortens an already short month such as February, that risk-taking can expand across traders in general.
Every trader knows what they need to produce on average per day in order to first cover costs, next support dependents, and lastly to produce discretionary income. Vacations? Strictly optional. I have taken two weeks over the past 12 months, but there have been many years where I took none. In fact, in the wake of the last financial crisis, I went three consecutive years without a day off while serving in the reserves on weekends and part-time at night locally for an hourly wage. I was one of the lucky ones.
There are only 19 chances to make money in February, which is the fourth consecutive month slowed down by at least one market holiday. In contrast, the trader will get to step to the plate 23 times in March. Much better odds. Even if goofing off just a little bit might be mandatory on the 17th. Many monthly bills such as mortgages and rents run at the same level each and every month, Even telecom, cable or utility bills are often averaged in order to avoid spikes in either direction.
Just consider that if trader A knows that he or she needs to average a $200 profit every day, or $1,000 per week, that on a four-day week that $1,000 total remains the same. Now, the producer must earn $250 per day. Throw in a bad day -- or a bad week, because they are inevitable -- and suddenly some traders are left trying to hit five-run homers as a billing period winds down.
Traders will jump the gun on what looks like a forming technical signal in an effort to earn an extra buck. Traders will write uncovered calls or puts for the premium when maybe they shouldn't. The risk-taking can become almost desperate for some. Understand? It's one reason why sometimes things that make no sense at all actually do make sense. Now, throw in the tendency to avoid carrying risk over a long weekend. Could be less fun than a barrel of monkeys today. The Stanford Band play only happened once.
Bitcoin
Bitcoin has captured the imagination of investors as more large businesses seem to not just accept its existence, but look to facilitate its use. Still, I think regulatory risk is not being properly priced in. The central banks will not surrender their established power over money supply without a fight. National treasuries will not allow parallel economies to exist outside of their ability to tax and spend.
At some point, a cryptocurrency probably will replace cash, but not fiat. The crypto that ultimately gains broad acceptance will be fiat itself and will be used in such a way as to stamp out underground economies, not enhance them. At the end of the road, I see a digital version of the SDR, the International Monetary Fund's Special Drawing Right, currently a global reserve asset, possibly replacing non-reserve fiat currencies, and maybe even one day reserve currencies themselves.
At that point, the driving force will be tax-revenue creation. Pay a guy $25 a week to mow your lawn? Sales tax. Pay a neighborhood kid $50 to paint your fence? Sales tax. Put money in a savings account bearing negative nominal interest rates imposed by a revenue-hungry national treasury department because there is no cash economy? Ahh... There is no strong box filled with cash just in case. Now, you get it.
U.S. Treasury Secretary Janet Yellen is already setting the stage. Madame Secretary is pointing out the dark side of cryptos.... the financing of terrorism and the laundering of profits for the drug trade. Not saying bitcoin or cryptos are done for. Just pointing out that upside potential is being priced in without the full cognizance of tremendous overt downside risk. In other words, I just don't know, but I do know what to consider.
Equities
For the most part, large-cap equity indices have moved sideways for a few days. Indeed, even the smaller-cap indices have come close to not moving.
There are exceptions. Cannabis stocks are running up and down at will. Guess I shouldn't have sold those Tilray (TLRY) puts. They're in the money now. Gee whiz.
Profit taking has found the energy sector. Information Technology has gotten hot, but that's a semiconductor story created through unwelcome scarcity. Not a positive story. You kids saw the Philadelphia Semiconductor move 3.5% higher on Thursday, which took the Technology sector SPDR ETF (XLK) 1.1% higher. But did you see the semiconductor equipment providers? KLA Corp. (KLAC) +9%, Lam Research (LRCX) +7.5%, Applied Materials (AMAT) +6.7%, ASML Holding (ASML) +4.3% and Brooks Automation (BRKS) +3.4%. Both KLAC and LRCX are former Sarge stocks of the year, and BRKS is also a former Sarge fave. Long any of them lately? Of course not, and there is no excuse, at least for LRCX or BRKS as those two tested not only the 21-day exponential moving average (EMA) but the 50-day simple moving average (SMA) as well.
At least the president is planning an executive order to review supply chains. That's what we need, Bureaucrats who have never run anything with a bottom line taking weeks or months to tell us what we already know. "Operation Warp Speed" for wafer fabrication. There, there, Mr. President, you don't need to study anything. I just gave you the answer. Looks like the right stocks already know, too.
'Stand By to Stand By'
According to Bloomberg News, aggregate trading volume across all U.S. equity exchanges has averaged 15.8 billion shares per day over the past 20 days. This is massive, gang, in case you haven't been following. Yes, retail trading has exploded. I get that. I want you to notice something else, too. The vast majority of this trading has been confined to Nasdaq-listed names, but not the big tech stocks. Check this out...
Trading volume directly attributable to the S&P 500 has not hit its 50-day simple moving average since Feb. 2. Dow Industrials? Same. Small-cap S&P 600 trading volume has only hit its 50-day SMA once since then. The Russell 2000 has been more active, but trading volume has tailed off this week. Dow Transports? Haven't hit their trading volume 50-day SMA since Jan. 29. It gets more interesting.
Nasdaq Composite trading volume has NOT dipped below its own 50-day SMA since the half day on Christmas Eve, and not on a full trading day since Nov. 13. Yet -- and this is a big yet -- the Nasdaq 100, where all the mega-cap tech stocks are, has not seen its trading volume even reach its 50-day SMA since Jan. 29. So, we know that this surge in trading volume is taking place at the Nasdaq, but for the most part, this growth is not in high-profile tech names, nor in smaller-caps. Is all this volume in special purpose acquisition companies (SPACs) that really have some investment but produce no revenue?
I had a drill instructor when I was a kid. Scary guy. Sometimes you didn't see him coming. That was tough. Individually. Other times, if we as a group were not getting something done correctly or quickly enough, his face grew red, his "Smokey Bear" cover pulled down almost over his eyes, his knife-hand thrust out toward the poor kid who happened to be closest, his other hand on his hip, and in a low guttural voice he would tell the platoon, "Stand by to stand by." It was a warning that our entire day was about to go downhill. Well, gang... "Stand by to stand by." Something ain't right.
Fun With Math
I bet some of you read the information released on Thursday by the Congressional Budget Office (CBO). Reading the piece, I saw that federal debt had reached 100% of GDP last year and that the CBO now expects federal debt to reach 107% of GDP by 2031. Never mind the annual deficit projections that get us there. I said to myself, "Self, those numbers just don't look right. Better do the math for yourself," and that's what I did. Gang, it's much, much worse than you think. Stay with me.
For fiscal year 2020 the U.S. economy contracted roughly 3.5% to $20.93 trillion, according to the Bureau of Economic Analysis (BEA). Total U.S. federal obligations, or debt -- no adjustments, what the U.S. government owes anybody else -- comes to $27.9 trillion. That alone is a debt to GDP ratio of 133.3%. Sounds terrible, doesn't it? I'm just getting started.
You see, any measure of total economic output is contained in GDP. You buy a candy bar later today, that's economic activity. It counts. Well, then, if consumer expenditures and government spending below the federal level count toward GDP, then should not the debt of households, businesses, financial institutions and state and local governments be added to federal debt in order to derive an honest debt to GDP ratio? You want that number? You better sit down.
Total U.S. debt, once you count all of it, comes to $82.4 trillion. That's right. The honest debt to GDP ratio is really 393.4% -- almost 400%. One: Always do the work for yourself. Two: I told you to sit down.
Economics (All Times Eastern)
10:00 - U of M Consumer Sentiment (Feb-adv): Expecting 80.8, Last 79.0.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 299.
The Fed (All Times Eastern)
10:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (D) (.84), (ENB) (.60), (MCO) (1.93), (NWL) (.48)
