There is no doubt that I was a nerd. I mean it. I don't mean that in any self-deprecating way. Sort of a badge of honor.
I have already told you that I was the kid who sat on his bunk reading the Wall Street Journal. I had one of those high "GT" scores where they ask you to accept a slot in OCS (Officer's Training School) all the time. Not my cup of tea. I was happy digging holes in the ground, and getting good at small-unit tactics. I never wanted to run anything larger than a section (two squads), though I have served as platoon sergeant through necessity. I just really liked the "hands on" experience of really knowing the folks around you. Know a few people well, as opposed to knowing many, but less well.
Even on Wall Street, sure I ran what used to be called "zones" on the trading floor of the New York Stock Exchange for a major investment bank, but I was always happiest as a "hired gun"... just me, a whole bunch of numbers and a P/L ratio. Numbers behave the way they are supposed to -- if you're right. People? They are undeniably human. That complicates matters.
When I was nineteen, we were out at "the stumps' (29 Palms) for some desert training. The high temperatures experienced in the Southwest this week reminded me of those days in the Mojave Desert, though I do not remember having to suffer through any temperatures above the low 120s.
Anyway, my unit organized a weekend trip. You paid a fee, which got you a room and two-way bus fare. Individuals could choose either Las Vegas or Disneyland. Remember, these are infantry Marines. Long story short, the day of the trip arrives -- there are seven buses. Six buses filled to capacity headed to Vegas. One bus, just seven individuals, headed to Disney (DIS) . I look around at the other guys. Hey, it's the church guys. We'll have fun.
As it turns out, on line for Space Mountain that day, we meet a church group of young college students, mostly women about our age who would spend an entire day with us. Good, clean fun. I doubt the Vegas crew did more than get drunk and spend their money.
Some might refer back to the children's board game "Chutes and Ladders," some an old-fashioned wooden roller coaster such as "The Cyclone" at Coney Island. I think Disney's Space Mountain might be more appropriate here. A roller coaster in the dark. How fast? How high? How low? Only the wind in your face and the way you get thrown around in your seat as a means of perception.
You saw how the markets reacted to the Fed minutes on Wednesday. We did write you 24 hours ago in this column to let you know that this time, the minutes mattered. At 2.p.m. ET, swoosh. A little support a half an hour later. The dip buyers hung in there past 3 p.m.. Then, it was.... sold to you, bucko, as the profit-takers took charge. Despite the S&P 500 having traded at new all-time intraday high Wednesday morning. Despite Apple (AAPL) briefly kissing the $2 trillion level for market capitalization, and despite both Target (TGT) and Lowe's (LOW) placing exclamation marks on the happy stories told a day earlier by their respective competitors Walmart (WMT) and Home Depot (HD) .
That selling has now reached around the globe and comes back to us at zero dark-thirty in the form of equity index futures.
Wednesday's regular trading session certainly makes for somewhat complex observations. Trading volume as usual, hollowed out through the lunchtime hours. One (okay, at least I) expected to see more volume weighted toward the last two hours than is routine, but that does not really appear to be the case. That's positive. In fact, aggregate NYSE trading volume decreased from Tuesday. Another positive? Hmm... let's just say not negative. That said, all 11 sectors did close in the red, financials just barely, led by the banks that shaded green. Losers beat winners at both of New York's primary equity exchanges, while declining volume beat advancing volume, not truly in a rout though.
By the way, Sarge fave Zscaler (ZS) remains hot after an early August selloff, still three weeks out from earnings. Investors may want to note that the transports and small-caps did manage to keep their heads above water for the day as the market rolled over.
Blame the Fed?
Well, yes, at least for this still minor selloff, and not because there was anything wrong in the FOMC minutes, but because there was some honest assessment of economic direction and where that direction might take monetary policy.
The deal is this: As a nation, our core group of key economic thinkers see the Covid-19 crisis continuing to "weigh heavily" upon economic activity. I think that's a "no brainer." Those words though... "weigh heavily", they matter, especially in the era of price discovery that is measured in speed and triggered by keyword reading algorithms, not the result of ongoing, well-developed levels of aggregate demand versus aggregate supply. Such is life.
There is apparently discussion among those at the FOMC regarding more accommodative inflation targeting. Indeed, we discussed this among ourselves in this column on Wednesday morning.
So, does an average 2% inflation target more than a hard 2% inflation target mean the Fed is expecting a spate of inflation? I am. Why wouldn't they? Does the lack of progress by our legislators in getting a large next phase fiscal package to those in need, as well as small businesses make the Fed more likely to increase asset purchases at the September 16 announcement?
Markets won't have to wait that long for the next potential signal, though. The Kansas City Fed's Jackson Hole symposium will be held albeit in virtual format next week. That's right, Thursday night former VP Joe Biden accepts the DNC's nomination for President, the Republican national convention then runs Monday through Thursday, and then our central bankers will speak next Thursday and Friday. There will be enough news to cover.
Ask The Sarge
1) Does the acceleration of Intel's (INTC) announcement of an accelerated $10B share repurchase program (part of a previously suspended $20B authorization) make Intel a buy? Or, does this smack of desperation after the shares have declined 23% though a quarter that saw rivals Nvidia (NVDA) and Advanced Micro Devices (AMD) make historic runs higher? Just me, here. I think INTC becomes tradable on this news. I am unconvinced that this is the chip name that belongs in a narrowly focused tach portfolio. Depends on how broad the exposure that the individual is willing to tolerate.
2) Was Wednesday, August 19, 2020 the only day in history that Apple (AAPL) ever trades at a $2T market cap? The short answer is "no." Yes, the name does face risks as relations between the U.S. and China deteriorate. China is not only a manufacturing hub for Apple but also represents roughly 15% of Apple's global consumer market. While it is true that Apple easily outperformed an uninformed consensus for the past quarter, this is really a story of reassigning a new valuation to a stock. Not to be valued as a purveyor of electronic consumer hardware, but to be valued as a broad, service-based provider of a multitude of now necessities to an audience held captive by the hardware. This has forced already exposed portfolio managers to add. Where does it end? Now at 29 times forward-looking earnings, these shares may become wildly volatile. As someone under-exposed myself (no direct ownership), I look forward to the opportunity to get run over given that opportunity.
3) Who's next to $2T? Amazon (AMZN) . That's my story, and I'm sticking to it.
4) Do we buy back the shares of Nvidia (NVDA) sold earlier this week? In short, of course. Put it this way, even though adding to NVDA up here will undoubtedly increase net basis, we are here to make money not post statistics. You took some off up there, and bought it back down here? Even if it goes lower, you have successfully extracted capital while leaving position size in place. That's part of winning. The data senter beat expectations. That was iffy. Gaming continues to outperform. I see that as gaining strength over the second half of the year. Other parts of the firm were expectedly soft, but they are works in progress (automotive). The greatest danger to Nvidia's continued dominance is its own extremely high bar for excellence.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 963K.
08:30 - Continuing Jobless Claims (Weekly): Last 15.486M.
08:30 - Philadelphia Fed Manufacturing Index (Aug): Expecting 21.1, Last 24.1.
10:30 - Natural Gas Inventories (Weekly): Last +58B cf.
The Fed (All Times Eastern)
13:00 - Fed Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (ROST) (-0.29)