The Market Radar

We anticipate monitor and comment on market-moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t afford to ignore us.

 

Don’t Free Ride.  Help Us Keep The Lights On.  Contribute by clicking on PayPal widget on the right-hand side of the blog.  

free rider

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One Of Our Best Trades Ever – Mike Trout

Trout_picture.png

The first time we ever saw Mike Trout play baseball it was like watching the real-life version of The Natural,  and thought someday people will say,

There goes [Mike Trout] the best there ever was in this game – Roy Hobbes, The Natural

Moreover, the dude is such a nice and decent guy.

What’s nice about it is Mike is such a good person,” Jim Quinn, the former mayor of Millville [Trout’s hometown], told NBC Sports. “You get some of these superstar athletes that have attitudes and aren’t really genuine, but Mike is a genuinely nice guy.” – GOODSPORTS

We began to hoard all things, Mike Trout.

We’re buyers of Mike Trout’s rookie card. – GMM,  September 1, 2012

 

Trout.png

 

QE?

We also knew QE was at our back and thought someday the Fed may begin to add baseball cards to its SOMA portfolio, especially if the POTUS collected them and would lean on the FOMC to ease monetary policy in order to inflate their prices  (note, FDR was an avid stamp collector).

 

 

We are pretty sure President Trump is not a big baseball fan as he yet to throw out a ceremonial first pitch on opening day,

Every president since William Howard Taft, the commander in chief famously known for his particularly rotund figure, has thrown a first pitch at an MLB game…Donald Trump, for whatever reason, has yet to engage in the ceremonial practice of throwing the first pitch on Opening Day.   – Complex.com

Fundamentals

Given, no Fed buying and QE backstop we will have to depend on fundamentals — Trout’s productivity — to add value to our trade.   And the fundies are still sizzling,

Baseball has been around for about 150 years and Trout — only 27 years old — is already in discussion for one of the best to ever play the game…Since his first full year in 2012, Trout has averaged 34 homers, 26 steals and 98 walks and has hit .310/.420/.579. No player in the game’s history has racked up more WAR through their age-26 season. Basically, any metric you want to use puts Trout at the top of the game – MLB.com

I played against some of the all-time greats. Mike Trout is better than all of them. – Dale Murphy

Trout_stats

 

What We Are Buying

Mike Trout Farm Hats.  See here.

Trout_hat

We have no doubt the appreciation of the Trout Farm hat, as a collectible, will beat inflation over the years and estimate our great grandchildren will cashing these for thousands of dollars.

Looking for a big price jump when Trout is elected to the Hall of Fame circa 2037!

Upshot

Relax.  Tune out the ugly politics.  Enjoy the new stock market highs.  Watch some baseball.  Watch the Warriors win their third straight NBA championship.

Then continue to sell this strength while there’s a bid.  We think the S&P makes a nominal new high at 3025-ish before the Big Dipper sell-off or bear market.

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The Most Successful “Garage Band” Companies

That we are aware of…

Apple
Steve Jobs and Steve Wozniak had withdrawn from Reed College and UC Berkeley respectively by 1975. Wozniak designed a video terminal that he could use to log on to the minicomputers at Call Computer. Alex Kamradt commissioned the design and sold a small number of them through his firm. Aside from their interest in up-to-date technology, the impetus for Jobs and Wozniak, also referred to collectively as “the two Steves”, seems to have had another source. In his essay From Satori to Silicon Valley (published 1986), cultural historian Theodore Roszak made the point that the Apple Computer emerged from within the West Coast counterculture and the need to produce print-outs, letter labels, and databases. Roszak offers a bit of background on the development of the two Steves’ prototype models.  – Wikipedia

Google
The Google first company was officially launched in 1998 by Larry Page and Sergey Brin to market Google Search, which has become the most used web-based search engine. Page and Brin, students at Stanford University in California, developed a search algorithm at first known as “BackRub” in 1996. The search engine soon proved successful and the expanding company moved several times, finally settling at Mountain View in 2003. This marked a phase of rapid growth, with the company making its initial public offering in 2004 and quickly becoming one of the world’s largest media companies. The company launched Google News in 2002, Gmail in 2004, Google Maps in 2005, Google Chrome in 2008, and the social network known as Google+ in 2011, in addition to many other products. In 2015, Google became the main subsidiary of the holding company Alphabet Inc. – Wikipedia

Amazon
In 1994, Jeff Bezos incorporated Amazon. In May 1997, the organization went public. The company began selling music and videos in 1998, at which time it began operations internationally by acquiring online sellers of books in United Kingdom and Germany. The following year, the organization also sold video games, consumer electronics, home-improvement items, software, games, and toys in addition to other items.  – Wikipedia

 

Garages

         Hat Tip:  @tooskinnymariah

 

Harley-Davidson
Harley-Davidson is the iconic American motorcycle manufacturer. Founded out of a small shed in 1903 by William S. Harley and brothers Arthur and Walter Davidson in Milwaukee, Wisconsin. The Motor Company produces traditional cruiser motorcycles utilizing air-cooled V-Twin engines. – MotoUSA

Disney
Disney was originally founded on October 16, 1923 by brothers Walt and Roy O. Disney as the Disney Brothers Cartoon Studio; it also operated under the names The Walt Disney Studio and Walt Disney Productions before officially changing its name to The Walt Disney Company in 1986. The company established itself as a leader in the American animation industry before diversifying into live-action film production, television, and theme parks.  – Wikipedia

Mattel
Harold “Matt” Matson and Elliot Handler founded Mattel in 1945. The company sold picture frames, and later dollhouse furniture. Matson sold his share to Handler due to poor health, and Handler’s wife Ruth took Matson’s role. In 1947, the company had its first hit toy, a ukulele called “Uke-A-Doodle”.

The company incorporated the next year in California. Mattel became the first year-round sponsor of the Mickey Mouse Club TV series in 1955. The Barbie doll debuted in 1959, becoming the company’s best-selling toy in history. In 1960, Mattel introduced Chatty Cathy, a talking doll revolutionizing the toy industry, which led to pull-string talking dolls and toys flooding the market throughout the 1960s and 1970s.  – Wikipedia

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Mueller Report: Hollywood Can’t Make This Stuff Up

Wow!   We are still digesting the full redacted version of the Mueller Report.

We only had to get through the first few pages within an hour of its release on Thursday for us to conclude the House Democrats will have no choice but to move on Impeachment.   See our post, Impeachment Market – The Only Market That Matters Now here.

If we could make any investment right now, it would be the media that takes the report and runs with it.  Books, movies, conspiracy theories, and others will use the Mueller Report as the original source for the next 50 years, and beyond.   The Mueller Report reads like a Tom Clancy novel and makes the Bridge of Spies look like a Flintstones cartoon.

We find it interesting that most cannot abstract themselves from the heat of the political moment to recognize the historical importance and consequences of this document.  It is the classic case of the boiling frog fable.

We have pulled just a few money quotes from the first few pages, which we believe will resonate throughout history.   Don’t use it as an excuse not to read the entire report.

Keep an open mind and stay flexible.   Read the full report for yourself and do not depend on the spin from either side. 

Hollywood can’t make this stuff up.    

 

See the full redacted version of the Mueller Report here.

 

The Russian government interfered in the 2016 presidential election in sweeping and systematic fashion. Evidence of Russian government operations began to surface in mid-2016.  – Mueller Report, P. 1

IRA Poster

 

  • RUSSIAN SOCIAL MEDIA CAMPAIGN
    The Internet Research Agency (IRA) carried out the earliest Russian interference operations identified by the investigation – a social media campaign designed to provoke and amplify political and social discord in the United States. The IRA was based in St. Petersburg, Russia, and received funding from Russian oligarch Yevgeniy Prigozhin and companies he controlled. Priozhin is widely reported to have ties to Russian President Vladimir Putin………[redactions]
  • …The IRA later used social media accounts and interest groups to sow discord in the U.S.political system through what it termed “information warfare.”  The campaign evolved from a generalized program designed in 2014 and 2015 to undermine the U.S. electoral system, to a targeted operation that by early 2016 favored candidate Trump and disparaged candidate Clinton.   The IRA’ s operation also included the purchase of political advertisements on social media in the names of U.S. persons and entities, as well as the staging of political rallies inside the United States. To organize those rallies, IRA employees posed as U.S. grassroots entities and persons and made contact with Trump supporters and Trump Campaign officials in the United States. The investigation did not identify evidence that any U.S. persons conspired or coordinated with the IRA. Section II of this report details the Office’s investigation of the Russian social media campaign. – Mueller Report, P. 4
  • The social media campaign and the GRU hacking operations coincided with a series of contacts between Trump Campaign officials and individuals with ties to the Russian government. The Office investigated whether those contacts reflected or resulted in the Campaign conspiring or coordinating with Russia in its election-interference activities. Although the investigation established that the Russian government perceived it would benefit from a Trump presidency and worked to secure that outcome, and that the Campaign expected it would benefit electorally from information stolen and released through Russian efforts, the investigation did not establish that members of the Trump Campaign conspired or coordinated with the Russian government in its election interference activities.  – Mueller Report, P.5
  • IRA employees posted derogatory information about a number of candidates in the 2016 U.S. presidential election. By early to mid-2016, IRA operations included supporting the Trump Campaign and disparaging candidate Hillary Clinton. The IRA made various expenditures to carry out those activities, including buying political advertisements on social media in the names of U.S. persons and entities. Some IRA employees, posing as U.S. persons and without revealing their Russian association, communicated electronically with individuals associated with the Trump Campaign and with other political activists to seek to coordinate political activities, including the staging of political rallies. 5 The investigation did not identify evidence that any U.S. persons knowingly or intentionally coordinated with the IRA’s interference operation.  – Mueller Report – P.14
  • Collectively , the IRA’s social media accounts reached tens of millions of U.S. persons. Individual IRA social media accounts attracted hundreds of thousands of followers.  – Mueller, P. 26
  • From June 2016 until the end of the presidential campaign, almost all of the U.S. rallies organized by the IRA focused on the U.S. election, often promoting the Trump Campaign and opposing the Clinton Campaign. Pro-Trump rallies included three in New York; a series of pro-Trump rallies in Florida in August 2016; and a series of pro-Trump rallies in October 2016 in Pennsylvania. The Florida rallies drew the attention of the Trump Campaign, which posted about the Miami rally on candidate Trump’s Facebook account (as discussed below). /86  – Mueller Report, P. 31

 

Trump Tweets

  • IRA employees monitored the reaction of the Trump Campaign and, later, Trump Administration officials to their tweets. For example, on August 23, 2016, the IRA controlled persona “Matt Skiber” Facebook account sent a message to a U.S. Tea Party activist, writing that “Mr. Trump posted about our event in Miami! This is great!” /105  The IRA employee included a screenshot of candidate Trump ‘s Facebook account, which included a post about the August 20, 2016 political rallies organized by the IRA. – Mueller Report, P. 34
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BFTP: How Sustainable Is Earnings Growth?

BFTP: Blast From The Past

We posted the following last May when earnings and the market were all lathered up and on a sugar high induced by the corporate tax cut and weaker dollar in 2017.  Our lack of confidence in earnings growth has been confirmed by the following chart.

 

Earnings

 

We are expecting the S&P to make a nominal new high at around 3025 before the big dipper correction or a bear market.  We posted a plethora of our concerns, including valuationspeak margins, too much public and corporate debt, demographics, tectonic shifts in geopolitics, and domestic politics.   Add to that a bout of political instability coming this summer, the Summer of Discontent,  as the Democrats move to impeach Trump after the revelations of the Mueller Report.   Stay tuned.

How Sustainable Is Earnings Growth?

Posted on 

Not very.

We will leave the calculation for the entire stock market to the stock analysts.

Here’s why:

Just glancing over WalMart’s latest earnings release from the week, we see two one-off macro factors that helped WalMart’s earnings in Q1, and likely are the same for most companies:

  1.  Foreign exchange rate effect
  2.  The tax cut

Note that almost 40 percent of WalMart’s y/y revenue growth in Q1 was due to the exchange effect, and over 1300 bps of tax cut relief.  That is one-offs.

Though the dollar was weaker in Q1, it has rebounded sharply in Q2.  Thus a deleterious exchange rate effect is coming to Q2 earnings.  Not to mention higher gas prices and interest rates, which will negatively impact the non-energy and non—financial sectors.

 

May21_WalMart_@

May21_WalMart_2

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Remain In A Landslide

The latest Comres poll revealed that Remain would now win by 58 per cent to 42 per cent of the vote.  – CityAM

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Predictions Market On Fed Nominees

Prediction markets not pricing the confirmation of Stephen Moore and Herman Cain to the Federal Reserve Board.  Stay tuned.

Moore

 

Cain

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Impeachment Market – The Only Market That Matters Now

Taking a break from Holy Week to sift through the Mueller Report.

It is going to be very difficult, in our opinion,  for the House Judiciary Committee (HJC)  not to proceed with impeachment hearings.  If they begin, the Democrats will have the votes in the House to impeach (simple majority), which is a necessary condition but not sufficient for the removal of President Trump from office.  Conviction in the Senate will take 67 votes, thus we estimate it will take 20-22 Republicans votes.

We’re not making a political statement or being partisan but just trying to give our readers a heads up on the results of our brief analysis and how we see it playing out.  The odds of impeachment have gone from around 6:1 to 4:1 in the past two weeks.

We expect the market price at PredictIt to move up another 30-50 percent in the next few weeks, or 3:1 odds for impeachment.  Don’t think your gonna make that in Amazon in two weeks, though the shares might get an impeachment bump.

Speaker Pelosi is on record saying the votes aren’t there in the Senate and impeaching the President is futile and could come with a high political cost.  The release of the Mueller Report now ratchets up pressure on House Democrats to “perform their constitutional duties.”    Tough political spot.

The stock market, and markets in general, probably won’t start paying attention until HJC Chairman Jerry Nadler makes the announcement to proceed with hearings, which could be after Rober Mueller testifies.

Place your bets and pray for the country.

 

Impeachment

 

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The Free Rider Problem

DTTFI – Desperately trying to fix it! 

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He’s Back!

Tiger_2

 

Tiger_1

 

But can he reverse this,

 

Golf_1.png

                                  Hat Tip: @PlanMaestro 

and this, 

 

Golf_2

                        Hat Tip: @PlanMaestro 

 

 

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Is Trump Chasing Venezuelan Stocks?

Trump’s relentless pounding of the Fed for not pumping the stock market is concerning if not downright scary.  Makes us think he is envious of the YTD  500 plus percent return of the Caracas Stock Market Index (IBVC) and wants Powell to beat it.  Winning is everything even though winning may result in nothing.

More seriously,  the Fed’s independence and credibility are slowly being chipped away by the White House, which is probably setting up the Fed to take the fall for the next crisis or economic downturn. We raised these concerns last July.

Quantitative Tightening had almost no impact on monetary policy, i.e., the Fed directly reducing reserves and tightening credit, but has forced the Treasury to increase the size of its monthly note and bond auctions by $300 billion (plus/minus) annually.  Coupled with skyrocketing deficits, the Treasury has been floating an unprecedented  $1-1.5 trillion annualized of new marketable securities during an expansion.  As a consequence, long-term rates spiked in September and stocks collapsed.

It doesn’t take a Ph.D. to figure out the Treasury is now starting to crowd out markets and longer-term rates can only stay low if funding is significantly augmented with haven flows. The removal of QT will help by taking $300 billion of Treasury annual supply out of the monthly auctions.

Moreover, the debt ceiling will force Treasury, among other means, to fund itself running down its checking account at the Fed rather than increasing its outstanding debt further easing new supply and relieving pressure on long-term rates.

Fed Liabilities

This is only temporary, however, and there will be a “trampoline effect” or a new supply shock once the debt ceiling debate is resolved.  But, probably not before an ugly political fight.  Stay tuned.

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