Welcome To Fed 2.0: Here Is A One Minute Orientation
A new era for the Fed kicks off today. Gone is the era of monetary policy for the sake of the economy, guided by principles of economic balance in the face of shifting data. Fed 2.0 is guided by three factors: Global monetary policy, primarily concerned with the BOJ and ECB Politics Survival Global monetary policy: The Fed knows the unsustainable nature of allowing other developed countries to borrow at zero interest rates while the United States pays ~2%. Either the rest of the world needs rates to move up or the U.S. has to bring rates down. It seems the Fed has decided today that the rest of the world isn't budging. Politics: The Fed doesn't have any friends in Congress and especially The White House. Back against the wall, they have to bow to political pressure. Survival: If the Fed doesn't do what our political leaders insist upon, it will be compromised to the point of what will essentially be dissolution. What does Fed 2.0 mean for the financial markets? Radical volatility in everything from government debt to equities The inability for the Fed to be effective when needed, such as in a recessionary period, without resorting to drastic measures that will properly absorb the radical nature of the volatility in the Fed 2.0 financial markets It's really as simple as that. The function of the Fed has permanently changed. To expect the nature of the financial markets in reaction or in proportion to this change to remain constant is foolish and naive. Adjust expectations for everything...
Earnings Exhaustion
As of this moment, before pandemonium breaks loose as a result of the Fed either succumbing to the whims of the President, deciding to cut rates or taking the opposite approach of hurling rolled up turd balls at the Commander in Chief in the form of no cut at all, the markets have decided that they have had enough of the earnings soap opera. Witness the reaction to earnings reports today: MDR -39% GVA -25% IT -19% SSNC -16% Our own GRUB falling by 8%. The list is deep and somewhat depressing. It's not necessarily a function of earnings being terrible, but rather a market that has advanced substantially in recent months paired with an audience that is very frankly bored, at this point. It's becoming obvious that market participants are demanding new forms of entertainment in order to remain engaged with their capital. That's a problem for the short to intermediate term. By no means does this problem change the longer-term picture of a market that is going to chomp on bear testicles into year end. However, in the near-term investors should not underestimate the power of seasonality from August through September paired with a market audience with fleeting interests. The most prudent approach in such circumstances is to swap aggressive beta for conservative beta. There's no reason to go into full on bear mode in the least bit. However, some prudence is required here in order to preserve gains year to date, as well as have capital available to rotate into more aggressive names for what should be a spectacular year end rally. As long as the music keeps playing there's no reason to do anything but dance....just make sure you're in rhythm. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended...
Is It Time To Go Full John Rambo On The Markets?
Given the markets recent propensity for rewarding what has been working with only minor shifts in volatility along the way, there is a better than even chance that investors have become somewhat lackadaisical in their attitude towards risk. This can lead to sudden expansions of volatility, such as what is being experienced in the SaaS sector today as a very simple, micro example. Trends in the markets are not all built the same way. There are trends in the market that while proving profitable can also blow up in an investors face very quickly, leaving only those with a hairpin trigger attitude towards risk with all limbs intact. Understanding this simple fact, the most reasonable question to ask is which trends should be participated in and which should be avoided as we are entering the historically turbulent August-October period of trading? The answer, per the usual, is exceptionally simple. Unless you enjoy gut wrenching portfolio volatility, high beta names should be avoided until a risk reset takes place. There are investors who are hoping to catch up from missing the entire first half bull market of 2019 who have hopped onboard the high beta technology train in an effort to make up for opportunity lost. It's a virtual guarantee that the markets will apply a camel clutch to these investors until they tap out at some point in the near future. There is nothing more loathsome to the market gods than investors who fail to look fear in its eyes, missing opportunities to buy when it is the most uncomfortable (think December and January 2019), instead opting to wait until its a warm and fuzzy environment, supported by fundamental data that's favorable with friends discussing how great their portfolios are doing. Markets lash out against such displays of cowardice in often violent ways. Understanding that these character traits are inherent within financial markets, at times like this investors would be well-suited to maintain a bullish posture while turning their attention to less volatile ways of cultivating market gains. Zenolytics has recently been pounding the table on financials as one way of taking advantage. Public private equity giants, such as KKR, continue to look appealing. And if you're still hungry for conservative beta then single family residential reits, such as INVH, look promising. There will be a time to go full Rambo into high beta again this year. Right now just isn't that...
Week In Review: Earnings Swings, Financials, Gold, GRUB and SNAP
Here's how we are looking at the markets after this past week. In no particular order: As reported this week, Warren Buffett loves Bank of America and there is a high likelihood that you should too. To be fair, BAC has been a recommended position in conservative portfolios for our Turning Points Premium Service so there is some partiality at work here. Nevertheless, financials as a sector are in possession of numerous attributes that can create a virtuous cycle of epic proportions into the the end of 2019. It's a sector that is a no-brainer type of opportunity over the long-term given the way everything from the macro to the micro has lined up. If there is further bullish momentum this week, especially following the FOMC meeting, there are going to be a lot of bears throwing in the towel. The negative potential catalysts are disappearing by the day. At the end of this week, assuming the market remains pinned at or near its highs, both negative potential catalysts from the Fed and earnings will be eliminated, leaving bears wondering what they have to pin their hopes on moving forward. A come to Jesus moment awaits. Gold has a place in every investors portfolio at this moment in time. Not for the short or intermediate term, but rather for the very long-term. Global central banks are guaranteeing a positive outcome for gold over the next several years. GRUB reports this week. This is going to be widely watched report given the competitive threat GRUB has faced from names such as DoorDash and Postmates. Expecting very good things, as Zenolytics previously outlined how GRUB has nothing but upside into the second half of this year. After releasing earnings this past week it has become clear that KKR is now a growth stock trading at 10 times forward earnings with a 2% dividend yield. The company is printing money as investors are throwing capital at them in desperation for returns from a trusted source. The company grew earnings by 36% year over year. Fee generating assets under management are growing by double digit percentages on a sequential basis. After releasing earnings this past week, it has become clear that SNAP is well on its way to a full recovery of its post-IPO disaster, getting closer to Zenolytics target price of 100% upside from the recommended price of $11. The SNAP of 2019 is the SNAP that should have debuted in 2017. For one reason or another, whether related to hubris, greed or otherwise, the company decided to go public before they had a viable revenue growth strategy. That decision has become...
A Negative Confluence Of Events
A negative confluence of events is taking shape in the markets today. It's important enough in magnitude that it will likely last into the end of this week, at least. Here's the list: SOX blew off yesterday. While it didn't touch the brick wall of resistance at 1640 discussed yesterday, it did get within 15 points of that mark. The wasted energy of the market simply meandering around while the SOX was begging it to come along for a ride into the stratosphere amplifies whatever downside that is to come. Yields have decided that it's a good idea to completely disregard whatever correlations the equity market has become cozy with, persistently rising today in the face of a weak equity market. This is not an accommodating signal for equities, in general. Facebook is facing a fairly formidable short-term top with its high tick at 208 today. It wouldn't be surprising to see this top sustain for some weeks, at least. AMZN and GOOG report tonight. Their earnings will surely be good. Their guidance won't be. All of the targets of pending governmental probes are going to become extremely conservative and modest in the words they choose to describe earnings going forward. Facebook last night was the first example of this. The Russell is experiencing a significant expansionary thrust to the downside off of a key trajectory. This is a negative technical development for an index that has been lagging significantly in 2019. The S&P is still stuck in the mud at 3000. Not simply because this is a neat round number. Rather, there is an army of resistance from different points in time that converge here. This one is going to take time as discussed ad nauseam here in recent months. Bottom line: Play it safe. This isn't an area to be touchy-feely with the...
SOX Faces A Reinforced Brick Wall Of Resistance At 1640
The SOX has decided to go rogue in recent weeks, exploding on the upside while pretty much every other sector decides summers are meant for range contractions on light volume. Yesterday we discussed the wasted firepower at work when the SOX spins its tires, without any of the major averages following on the upside. In an ideal leadership scenario, especially with such a powerful move by semiconductors, the troops following behind shouldn't be afraid to come out of their bunkers. Yet here we are with major averages remaining range bound. The clock is ticking here as the SOX is coming up on a reinforced brick wall of resistance at 1640. For good measure there is another reinforced brick wall behind it at 1690. The chances of the SOX getting through this level without a substantial reset are as pretty close to zero as you can get in the markets. The question every investor needs to asking at this moment is what happens to the rest of the market when the gallantry of the SOX subsides? Sectors such as SaaS, Fangs and financials may not be enough to create the momentum needed to allow the S&P to clear the 3000 level in a convincing way, causing continued aimless meandering over the short to intermediate term. Conservative optimism remains the proper course of action until further notice. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement...
How Much More Ammo Can The Market Waste?
Let's begin with a simple premise: The reason investing is difficult is because the market constantly changes the key to the locks. Just when something begins to seem reliable, it pummels investors into oblivion while wiping their tears with a steel scrubber. Put simply, the market inherently sets traps that investors are all too willing to fall into. Recently it seems that the market is setting a new trap for investors who have come to rely on the SOX as a proxy for market leadership. Let's be clear before proceeding so as not to mince words, the SOX is one of the most reliable proxies for market leadership out there. It works time and again for judging the voracity or flaccidity of a market rally or emerging reversal. However, the SOX can also be subject to "lock changing" dynamics, whereby its usefulness becomes compromised. Recognizing these points of compromising utility for an indicator of value is an important insight to gain, as it not only preserves precious basis points of outperformance, but can aide in creating extraordinary results. Investors are facing a moment in time here where it is easy to look at the SOX, notice its hot performance over the past couple of weeks, coming to the simple conclusion that this means the markets are getting set for an upside explosion. After all, the SOX always leads, right? Not necessarily. There are also times when a leading indicator of market voracity will waste all of its energy attempting to lead the markets into paradise, only to have the markets shrug off the effort. The wasted ammunition of this attempted push eventually cycles back, creating a negative mechanism that proves highly counter-productive over the short-term. The wasted effort of the SOX to push the markets forward needs to be considered here just as much as its propensity to lead the markets. If the Nasdaq, especially, refuses to acknowledge the SOX's diligent work, then the resulting rebellion on the downside will be a heart-rending moment for the bullish camp. Time is of the essence. Giddy up. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website....
Week In Review: Textural Changes Of A Subtle Nature Bearing Serious Consequences
We're in an interesting spot here. Let's take a step back and observe what is occurring: The Fed, through various speeches by officials over the past few weeks, has virtually guaranteed the market a 25 basis point cut next week The market has stopped reacting to good earnings by awarding companies with any value creation whatsoever Bad earnings and/or guidance are being punished inordinately a la NFLX being down 16% this past week Financials despite being in possession of a value equation that hasn't been witnessed since the financial crisis can't attract investors, even after raising dividends, buying back stock and delivering generally good earnings Small-caps continue to be a ticket to underperformance having been completely orphaned by investors in 2019, which is unusual during a rally as powerful as this one Gold continues to outperform Silver has joined the party recently with its largest rally in 3 years All of these fundamental developments are occurring as the S&P continues to be in a dog fight with some very real resistance in the 3000 area. What we are seeing with these mostly bearish fundamental developments is a textural change in the markets that, while being subtle in nature at the onset, possesses some very real consequences over the near-term. By the Fed coming out promising a 25 basis point rate cut, we can now surmise, with a fair amount of accuracy, that the rate cut is factored in. The only way the Fed will be able to stimulate the markets over the short-term via policy action is to announce a 50 basis point rate cut, while continuing to sound the dovish horn. Judging by the seemingly timid, by the book character of the current Federal Reserve Board, they will not be willing to participate in any risque behavior. 25 basis points is all the market will get. We also can surmise, with a fair amount of accuracy, that the market isn't willing to create any further value in stocks irrespective of how brilliant their earnings. With the S&P camping around record all-time highs, investors either want to wait until the summer doldrums are finished to put more money to work and/or want further macro clarity in the months ahead. All the meanwhile, money is pouring into risk-off assets like gold and silver that protect investors from governmental faux pas in all of their colorful varieties. This is very suddenly a much different market environment than it was just a week or two ago. Textural changes of a subtle variety should not be ignored as these are the clues that a majority are not programmed to grasp, giving those who...
The Market Just Posted A Sign On Its Front Porch Saying “Beware Of Dog”
It's no secret that Zenolytics has been consistently emitting bullish pheromones for a vast majority of 2019. That view is generally unchanged as of this moment when looking at the intermediate to long-term time frame. Over the short-term, however, the market did something peculiar this past week. To illustrate it properly, perhaps the best visualization is to picture a formerly friendly neighbor who unexpectedly purchases two large Rottweilers, puts signs all over his house saying "Beware of Dog" and draws the drapes. Your first reaction would be wondering what got under his skin? And your second reaction would be staying away from his house for fear of being bitten by his vicious new pets. That's what happened to the market this week, leaving investors with the question of what could be bothering it currently? And prompting the wise investors among us to decide that avoidance may just be the best policy. As always, the clues to a change in market behavior are very subtle at first. Among the subtle nuances that took place in the market this week: MSFT should not have reversed that gap on the type of numbers it had, but chose to do so immediately, in what is a sure sign of supply and worry that has crept into the skull of large investors NFLX couldn't catch a single bid after gapping down substantially Biotechs look like they are on the edge of a cliff Small-caps have been left for dead, with the Russell looking like it wants to punch investors in the face All of these subtle hints point to one big message: Investors have suddenly become cautious. They aren't willing to bid good earnings. They aren't willing to bid bad earnings in companies they love. They aren't willing to speculate in biotechs and small-caps. The "beware of dog" sign for the market should only be disregarded if you're into getting bit. Caution reigns in the week ahead, with a focus on reducing exposure while rotating from high (aggressive) beta to low (defensive) beta opportunities. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only...
Here Is The Short-Term Asset Allocation Move To Make After This Week
As the markets wrestle with a bit of instability this week, it's time to take inventory of what's right and wrong presently. We have the following equation that has emerged: Silver and gold are getting some big money inflows. This isn't a trade that's new to Zenolytics. In fact, the gold trade was recommended way back in December as a long-term asset allocation opportunity. More recently, silver was discussed as being in imminent breakout territory in the weekly review note posted this past weekend. Silver is on its way to having one of its best weeks in quite sometime, further confirming the secular metals bull market thesis. Semiconductors have been surprisingly resilient this week. The situation could encounter some volatility next week, as there are a host of earnings reports that could case some deviation from the calm route we have seen in the past few days. Major financials have reported this week and for the most part, earnings were good. If nothing else, the sector has further confirmed that despite compression in net interest margins, there is some value to be had in companies that are sporting 3% dividend yields while trading at a high single digit multiple to earnings and at the same time, buying back massive amounts of stock. Technology, in general, despite semiconductors attempting to carve out a bright path forward have been all over the place. It has become too unreliable over the very short-term to make any significant decisions. Of all the aforementioned sectors, financials remain in a position where they should be rotated into and away from high-beta technology. Whether deciding to express this through a position in C, JPM or USB as a few obvious candidates, financials are in a position to mitigate the prospects of continued market turbulence into the end of the month, while continuing to present a very real value proposition if an investor is inclined to hold them for a longer period of time. That's the asset allocation to make as the texture of the market has changed over the short-term and at the very least, should be countered through some reasonably conservative decisions. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11...