"You play tricks on my mind
You're everywhere, but you're so hard to find
You're not warm or sentimental
You're so extreme, you can be so temperamental"
- Mick Jones (Foreigner) 1981
Maybe I'm Crazy
I don't know. I leaned into Thursday's selloff, somewhat aggressively. I started out buying a few shares in a few names. First it was Dollar General (DG) . I am one of those guys who does what he says and what he writes if he says he's going to do it. Picked up some Northrop Grumman (NOC) ahead of the U.S.-China powwow. I added to a number of existing positions as I thought I saw error in what the algorithms that control price discovery were trying to do. Not that I am a lightning rod myself, and not that buying the dip always works, but readers well know that in early March I kept accumulating while my peers were distributing. That worked out quite well. Indeed, I was almost exclusively a buyer on Thursday. The only name I sold was AMC Entertainment (AMC) . Opened close to $14.50. Sold to you, take badge number 986.
On Thursday afternoon, longer-dated Treasury securities went into dive mode and took much of our equity marketplace with them, Trading volume was fairly heavy relative to the rest of the week to that point, so while this was no broad capitulation we did at least see a wee bit of panic. Later on, I added to Dow Inc. (DOW) , ServiceNow (NOW) , Nvidia (NVDA) , Advanced Micro Devices (AMD) and Kratos Defense (KTOS) . The KTOS add admittedly was in self-defense. This is the part of the game I love so much. This is when they try to play tricks on our minds. This is when "they" think they are so smart because they can write algorithms that are so fast that mere humans can't keep up.
Oh, those mighty algorithms are so fast, they also have no idea that sometimes we spot them, we see what they try to do in real time, and we ambush them, while their worthless and weak masters don't even look up from whatever childish form of entertainment has captured their imagination for the moment... as long as we don't trigger an alarm. They are salaried. They are not hunters. May all of our adversaries show up on the field of battle so ill-prepared for a fair fight. May we never tire of seeking and punishing those of impure heart who dare take the field against us. May we never run out of energy or thirst for victory.
"Now facing one another
The stand-off eats at time
Then all at once a silence falls
As the bell ceases its chime"
-Tipton, Dowing, Halford (Judas Priest) 1984
So... Ring That Bell
I'll tell you what I see, and what I think. Keyword-reading algorithms saw a Philly Fed headline reading of 51.8. Blowout number largely on a blowout print for Prices Paid of 75.9, the highest print from the subcomponent in decades. Prices Received are growing, too, at 31.8, which is strong, but lagging far behind what manufacturers in the Philadelphia district are paying. This more or less backs up what we saw in the New York district earlier this week and reinforces the data that hit the tape for February inflation last week. Producer Prices were hot, while Consumer Prices were not. All, while Retail Sales rolled off of a cliff. Only sustained aggregate demand creates sustained velocity. Have you seen the St. Louis Fed's M2 velocity ratio? You don't want to. There isn't any.
See where I am going here? Materials cost more. Producer prices cost more. End user demand is not there unless Uncle Sam ships out the dough. Jerome Powell is right. The consumer-level inflation that we are all feeling is transient. February showed us what happened when the Trump money ran dry. Now, all of the sudden, everyone is seeing "Biden Bucks" land in their accounts. Yippee. We'll go to the well again. Stimulus provokes economic activity that becomes self-sustaining. This is not quite stimulus. Support meets immediate obligation. How much of this is merely support? Guess we are going to find out.
Remember, high-speed algorithms have taken over debt market price discovery, too, and there is money to be made in price overshoot. Hence, the almost daily overreaction to news events. So, long-term Treasury securities get pummeled because of the inflation bogeyman, but they missed one important thing, cowboy. Commodity markets knocked the tar out of oil prices on Thursday. Suddenly, China is sending signals that maybe they don't need so much oil, as U.S. inventories have not-so-suddenly built back up to unwelcoming levels. What did you think? Maybe they would produce less oil at $65 per barrel than they did at $45? Foolish mortals.
Then, There Is France
This news was the death knell for financial markets late Thursday afternoon. For those of you who were watching the "Claman Countdown" (starring Liz Claman), this story broke while I was on the air and was immediately picked up by keyword readers that knocked financial markets for another loop on heavy volume. The news for those who did not know -- because much of the financial media, even after the close, did not understand this for the catalyst it was -- is that starting today (Friday), the French government is putting several regions (including Paris) back under a strict social and economic lockdown due to a re-acceleration of transmissions of the SARS-Cov-2 coronavirus. Just an FYI, I have completely stopped watching financial TV in between the closing bell and "Mad Money." It has become painfully obvious that a number of folks who appear regularly on these shows either don't trade or don't understand markets, or both.
This out of France, though, is awful news. First, because people are getting sick. Second, because chances are it won't just be France. The European Union is behind the U.S. in its drive toward vaccination, and even in the U.S. the curve has stopped improving. So, this will slow global economic recovery.
The U.S. also tends to run about a month behind Europe pandemically, which is not so encouraging for our reopening story. This not only works to counter the inflation scare, this will also work against the rotation story that had until Thursday only been half-hearted at best anyway. This is key: If France is the canary in the coal mine, then, my friends, interest rates will stop going higher for at least the time being. If France is the beginning of a broader economic shutdown across the continent, foreign investors will seek shelter in U.S. Treasuries. No maybes about it. This is why I got so active buying the names that were beaten the most severely on Thursday. That, and because I'm cool.
So, am I some kind of genius? Not even close. I can be wrong, a lot. But I'll tell you this. Nobody will ever outwork me. Nobody. Except Jim Cramer. That guy is a walking algorithm. I wake up at 03:30 every morning and I try to figure it out every stinkin' day. I eat dinner with my wife. We watch some local news, and a "Happy Days" rerun, and then I get myself back to work until I go to bed.
Oh, I also will run a few miles every day. May even lift some weights that seem to get heavier as I age, but I can always see where the indices are and what names are painting "the tape" when I do that stuff. I sleep at night with business radio on in the background. That way, I already know what is going on in Asia and Europe when I rise. In high school, my math teacher used to make me take my trigonometry tests in isolation because she couldn't believe I wasn't cheating. I used to hand in a paper with no work and nothing but answers just to screw with her head. To her credit, she did later apologize for accusing me.
Rise with me today, brothers and sisters. Rise with me everyday. Shoulder to shoulder. Let them come. Let them ride in on us. They'll never see us. They thought they could defeat the humans, but they never quite killed us off. So, it is, not a lost war, but a guerilla war we fight. A little here. A little there. The enemy grows fat, soft and weak. We take from them what we need. We laugh. We laugh, and then laugh some more. Because we outwork them. Because we always will. Because we rock.
Who Else Rocks?
FedEx (FDX) rocks, that's who. I am long FDX, and I spoke about Thursday night's earnings release ahead of the fact on Liz Claman's show. Remember what I said regarding the $19.9 billion number for revenue expectations? I said "take the over." These are not fourth-quarter numbers, by the way. The fiscal third quarter for FedEx ran up to Feb. 28, so it includes negative impacts from the lousy weather that probably cost the delivery firm more than $350 million in operating profit. Yet, thanks to e-commerce and thanks to the rollout of the Covid vaccines, FedEx did hit the ball out of the park.
I am long FDX, and I would expect that name to act well here on Friday morning. I am not so sure how this impacts United Parcel Service (UPS) , a name that I am also long that has not done so well for me. That one is not really trading through the wee hours. Guess we'll know soon enough.
Economics (All Times Eastern)
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 309.
The Fed (All Times Eastern)
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Today's Earnings Highlights (Consensus EPS Expectations)
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