Crash or Correction?
I remember telling my fiance (now wife of three decades) on Friday, October 16, 1987 that US equity markets would crash the following Monday. That hardly made me any kind of seer. The market action late on that Friday had been just gut wrenching. I remember the dread of that Monday morning commute. Watching fellow commuters from other walks of life, laughing on the "seven" train in Queens that morning. I remember being envious of their blissful state of ignorance, while resenting it at the same time.
I remember telling the other trading assistants in my firm to go the restroom and order lunch before 8 a.m. that Monday, as one could tell by 7 a.m. that there would be no time for anything other than maximum effort that day. All day. There was no electronic marketplace at the time. Every trade had to be audibly consummated at "the" centralized point of sale.
I have been asking myself, pretty much since October -- is this a Crash or Correction? It is not so easy to tell in real time these days, even on the trading floor of the planet's grandest securities' exchange. The hum of machines sounds much the same in between the excitement around the open and close on the slowest days as it does throughout the most violent.
Domestic equities, that at the large-cap level are anything but, enjoyed a third consecutive day of gains as two days of talks aimed at improving the current Sino-U.S. trade condition stretched into three. This, after a much more soothing sounding Jerome Powell had sung the market's favored tune last Friday.
It was almost easy to forget, if one is not directly impacted, that the Federal government had partially shut down. Even after the president's somewhat odd and very quick national address on Tuesday night, followed by the equally bazaar response from Speaker Pelosi and Sen. Schumer, it remains easier for market participants to focus on trade, on monetary policy, on the macro. The fact that Fitch may take a look at U.S. credit ratings should the suspension of the debt ceiling expire on March 1 may make for larger headlines this morning that the ongoing shutdown over border security itself.
Directly from the "tell me something I can't figure out for myself" department, the World Bank lowered forecasts for global GDP for both 2019 and 2020 in their semi-annual estimates made public on Tuesday afternoon. The World Bank... oh, you're going to love this... now forecasts slower growth for the U.S., the eurozone and China based on trade conditions, market volatility, and currency valuations. This, by the way, takes the World Bank's expectations for U.S. growth down to 2.5% in 2019, and 1.7% in 2020, while guiding Chinese growth toward 6.2% in both years.
After lowering the World Bank's expectations, and citing the reasons why, Ayhan Kose, the economist who led the effort, according to the Wall Street Journal, noted that this depressing outlook might improve if some of the planet's trade disputes were resolved or if financial markets calmed in the wake of a softer Federal Reserve bank going forward. Thanks, detective. Some of us get paid to state the obvious. The rest of us actually have to figure stuff out.
Never Say Die
In the movies, the guy with the hockey mask is nearly impossible to kill. Even when down, don't turn your back on Jason. Sears Holdings Corp. (SHLDQ) is proving just about as resilient. The firm survived yet another deadline on Tuesday afternoon, as the board agreed to allow its leader, Eddie Lampert, to participate in a bankruptcy auction to be held this coming Monday in New York. In what has become one of the most interesting business stories of early 2019, that Sears board had already rejected a $4.4 billion bid made by Lampert that included the forgiveness of a number of loans made by his other firm, ESL Investments, to Sears.
Buy the stock here for a lark? The most one could lose is $0.35. A net profit of a nickel would be a return of 14.3%. Not for me, but for day traders... a definite maybe.
The Good With the Bad
I thought it interesting enough to note that according to Hedge Fund Research's broadest index, hedge funds in aggregate suffered the industry's worst year (-4.07%) since 2011, but... and this is a huge but... that beats the S&P 500. That index returned -4.38% for 2018. Of course, I did mention that it was HFR's broadest index that beat the S&P 500. According to the Financial Times, HFR's equity hedge index retreated 6.9% for the year. Equity-based hedge funds were apparently soundly beaten by both macro and currency funds.
Hard Not to Notice
On Monday, news broke that a number of banks, brokers and high frequency traders were behind an effort to launch a new stock exchange that will aim to compete against the New York Stock Exchange, the Nasdaq and approximately 40 or so other venues where your trade may end up. This new entity will be known as the Members Exchange, or MEMX for short. Do you care?
The truth is that most retail traders have no idea where their order winds up, and wouldn't know if they actually had benefited from the best execution available at the time. That's a result of the incredible speed of execution in the modern marketplace as much as it is the market's fragmentation. I wish no one ill will, and I may indeed benefit from where we are now in an environment of reduced cost structure. That is true.
What is also true is that I have no doubt in my mind that there has never been a market model as fair to all parties as was open outcry. Sorry to say, but in my opinion, nothing since has been an improvement. What could possibly be more fair that an ongoing, two-sided auction at a centralized point of sale? Hmm? What could be more transparent than being forced to bid and offer audibly at that point of sale, and then upon completion of a trade, inform the counterparty of just who you are and who you clear through?
Think micro-second execution by algorithms that race each other "in the pipes" across those 40 something points of sale that include dark pools are fair? Transparent? They're called dark pools for a reason. Just a kid with an opinion.
Thought You Were Busy?
Following the CES (Consumer Electronics Show) dog and pony show out in Vegas this week? If you are, then you may have noticed how busy old Sarge fave Intel (INTC) has been. I say old Sarge fave, because as this name has gone through various ups and downs, including instability at the CEO position, my faith had slipped a bit. It was easy to be distracted by others in the space: The sheer celebrity status of Nvidia (NVDA) CEO Jensen Huang, or the quiet, but obvious competence of the best CEO in the business... Lisa Su of Advanced Micro Devices (AMD) .
Sure, I have traded my long position in Intel. I mean the stock traded sideways for six months in a fairly predictable range. I am not inert. That said, I cannot remember when last I was completely flat this name. It certainly was not in a very recent year.
Since the Bank of America upgrade last Friday on valuation, Intel has announced the availability later this month of the ninth generation of Intel Core processors, which will now feature a top end of i9 for the first time. The firm has previewed the new Lakefield hybrid CPU architecture, as well as updating the Ice Lake 10nm mobile PC platform that will integrate with the firm's Sunny Cove micro-architecture. More than your brain can make sense of? Don't feel alone. Point is that the firm is competing aggressively.
In addition, Intel announces that they are working with Facebook (FB) on a new AI chip that should be finished later this year. The firm has also announced that its Mobileye unit has entered into two partnerships in China meant to focus on bringing autonomous travel to mass transit.
You may recall that Intel handily beat third-quarter EPS expectations, while posting its best quarter in terms of revenue and revenue growth that I can remember. The firm also raised guidance at that time, for the fourth quarter. My verdict? It's time to remove the word "interim" from Interim CEO Bob Swan's title. I think this fellow is earning his keep. Did I mention that the firm pays the investor 2.5% just to own the shares. Knocks $1.20 off of net basis per year without doing a thing.
--Sarge Rating: Buy (reiteration)
--Target price: $55
Economics (All Times Eastern)
08:20 - Fed Speaker: Atlanta Fed Pres. Raphael Bostic.
09:00 - Fed Speaker: Chicago Fed Pres. Charles Evans.
10:30 - Oil Inventories (Weekly): Last +7K.
10:30 - Gasoline Stocks (Weekly): Last +6.89M.
11:30 - Fed Speaker: Boston Fed Pres. Eric Rosengren.
13:00 - Ten Year Note Auction: $24B.
14:00 - FOMC Minutes.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (WDFC) (.95)