Duck, Duck, Goose
Stocks sure have taken flight. I almost named this opening "Musical Chairs," but in that game every time the music stops someone who is left without a seat must leave the game. "Duck, Duck, Goose" is a far more inclusive game. Players take turns tapping one another on the head, identifying the tapped player as "it," and then that player gives chase round the entire circle of players only to ultimately tap someone else. "Duck, Duck, Goose" was kind of fun. More fun than "Chutes and Ladders," a game that I suspect we all will get to play soon enough.
Some stocks appear to have recently gone parabolic, hence the story of Tesla (TSLA) . While the run in that stock (up 743% in 2020, up 15.6% year to date) has made CEO and founder Elon Musk the richest person in the world, passing Amazon.com (AMZN) CEO Jeff Bezos (both worth more than $180 billion), that title will likely bounce around like an inflated ball at a pool party as either one of these stocks is capable of a multi-percent move on any given day, and that is where the wealth is built for both of these fellows. What I found surprising, as I had grown up thinking of him as the world's richest man, is that Berkshire Hathaway (BRK.A) , (BRK.B) CEO Warren Buffett has fallen all the way to seventh place, worth an estimated $78 billion, at least as of Thursday. Buffett was in fourth place a year ago.
A Violation of Code
Speaking of Tesla, this is a name that readers may recall I was foolish enough to short earlier this week, and add to twice on the way up. You probably needed to follow me on Twitter to see the whole story. I was then fortunate enough to realize that I was wrong in time to literally save my shirt. That trade actually turned a pedestrian profit ($7 per share), which is a danger in and of itself. I violated my own code of discipline, not when initiating the small trade. I did see an intraday sell signal. When adding. Dollar cost averaging is fine as an investment strategy. Dollar cost averaging is both dangerous and impulsive as a short-term trading mechanism when specifically used for defensive purposes.
When adding twice to keep my average price in the ballpark of the last sale. I got away with it, which can be the worst thing that can happen. Winning or "not losing" when actions are not supported by either good reason or practiced method is not the result of talent or experience. This is luck, and that's all it is. Once one gets off easy after making a mistake one's own code of discipline is weakened and must be strengthened anew. This is how lax standards and intellectual laziness become habit. This is how danger lurks.
My advice, if asked, would be to understand when one gets away with a breakdown in code and to treat that result as failure, and not victory. In this case, I must work to ensure that I do no foolish "shot taking" anytime soon. My confidence in my own infallible code of discipline must be restored. For those not quite understanding this, even when one maintains high standards for long periods of time these things do happen. This was not the first time, and it may not be the last. Honest self-assessment, then internal correction, is part of this job. Perfection is impossible. Seeking the best mental, the best intellectual, the most complete spiritual and most physically capable version of oneself is.a lifelong requirement. We are all capable of achieving our best selves. Make it so.
A Dangerous 12 Days
I do not suggest that President Trump is not capable of finishing his four-year term. I do suggest that the next 12 days will be difficult as the actions in D.C. earlier this week have provoked a number of the president's closest supporters and advisers to resign or turn in a new direction politically.
Some call for impeachment. I don't think there is even time for that. Some political opponents of the president have called for the invocation of Article 25 of the Constitution. That, even if pursued, would have Vice President Pence sworn in for what, a couple of days, and leave him somewhat paralyzed atop a skeleton of an administration. Has anyone thought about legislating a new date for this (and only this) inauguration? Just me, the kid from Queens, thinking out loud.
Don't get me wrong. I don't like either side. I really don't. But is it not more dangerous to have a lame-duck president who seems to be in a bad way, with an increasingly reduced circle of advice around him, or someone who probably doesn't want the job, to take it on for only a few days, than it would be to swear in someone set to serve the next four years just a few days early with a full or growing circle of advice?
Just asking. Not just for me, but for some kid with a rifle stationed on the line in South Korea, or taking this to a much scarier level, some career naval officer you never heard of currently commanding a nuclear submarine somewhere beneath the surface of the Pacific Ocean. What if he or she gets an order that he or she doesn't quite understand? Or questions the legality of? Twelve days.
The Empire Returns
Was it not just as day ago that we were discussing how tech stocks were now out of favor? Oopsies.
Tech roared on Thursday. The Technology Sector SPDR ETF XLK led the sector performance tables for the day at +2.7%. The group was led by the semis, as the Philadelphia Semiconductor Index tacked on 3.9%. Well, Renewable Energy Equipment led the sector again, but you know what I mean. By the way, hardware and software were also in demand. The whole sector had a nice day. Defensive sectors such as Utilities XLU have been taking it on the chin of late as bond traders continue to sell the long end of the curve, giving quick rise to yields out on the deep end as well as spreads between short-term and long-term rates. (This makes dividend payers less special.)
This condition is the backbone of the "stimulus trade," and markets are counting on it to produce growth and, unfortunately, inflation, as long as velocity picks up. Increasing money supply cannot do this alone. We know this by now. We have learned this through trial and error. Breadth was again excellent at both of New York's primary equity exchanges. Are we now overbought? We surely are close. The small- to mid-caps definitely are in my opinion.
I want to show you something. Year to date (this is Jan. 8), the Nasdaq Composite is already up 1.4%, the S&P 500 a cool 1.3%. How about the small-caps? The S&P 600 is already up 7.2% for 2021. Are you kidding me? I kid you not. How much does the stimulus trade matter to smaller businesses? Take a look at this chart since Democrat Joe Biden won the general election on Nov. 3.
The black line represents the spread between what three-month U.S. T-bills pay and what the 10-year U.S. Treasury note pays. The pink line represents the S&P 600. The trend for both changes after Nov. 3, and both really take off after the state of Georgia goes blue. Just some food for thought. Let's get these vaccines rolling so we can take this economy out for a spin. Governors!! Once you have supplies, distribution is then on you. Seems obvious, but it also seems obvious that some of you need your hand held.
... is December "Jobs Day." Helmets, flak jackets and full battle rattle. This one may get ugly.
... is the four-day Consumer Electronics Show, or CES 2021. Party on in Vegas? Not exactly. The Consumer Technology Association has hired Microsoft (MSFT) to create a digital platform as the show goes virtual thanks to the pandemic. It might not be as much fun, though there still will be a focus on the firms that present and those individuals who speak at the event.
You know who the keynote speakers are, right? There are four of them. Microsoft President Brad Smith, General Motors (GM) CEO Mary Barra, Verizon (VZ) CEO Hans Vestburg and all-time Sarge fave, the legendary CEO of Advanced Micro Devices (AMD) , Lisa Su, who like all of nature's finest beings grew up in Queens, N.Y. Let's go Mets!
Just a heads up, word has it that Intel (INTC) , Sony (SNE) and "consumer electronics giant" Caterpillar (CAT) are scheduled to hold news conferences at CES next week. Maybe there is a new bulldozer video game? Oh, and if CES is not enough for you, JPMorgan Chase (JPM) , Citigroup (C) and Wells Fargo (WFC) all report next Friday. Yes, "the season" is upon us. Rock on.
1) Mircon (MU) reported solid top- and bottom-line beats, as DRAM guidance gets hot. We gave you the heads up earlier this week. (So did half the sell-side.) MU was trading higher overnight.
2) Boeing (BA) settled fraud charges with the Department of Justice, agreeing to pay more than $2.5 billion in aggregate. About $1.77 billion goes to 737 Max airline customers, $500 million goes to a crash victims' beneficiaries fund, and $243 million pays off a criminal penalty. BA was trading down small overnight.
December Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 90K, Last 245K.
Unemployment Rate: Expecting 6.8%, Last 6.7%.
Underemployment Rate: Last 12.0%.
Participation Rate: Expecting 61.5%, Last 61.5%.
Average Hourly Earnings: Expecting 4.4% y/y, Last 4.4% y/y.
Average Weekly Hours: Expecting 34.8, Last 34.8.
Other Economics (All Times Eastern)
10:00 - Wholesale Inventories (Nov): Flashed -0.1% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 267.
15:00 - Consumer Credit (Nov): Last $7.23B.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly results scheduled for release.