Another Look At The Handy Zillow/Redfin Ratio
It's going to be worth keeping an eye on secondary names in the Ibuying space given the momentum that is taking place in the sector, led by Zillow. Have discussed Zillow extensively here in 2019. Most recently in a note titled "Here Is The Bottomline With Zillow At This Point In Their Business Cycle." The basic premise of the piece was that the markets have gone from skepticism about Zillow fully transitioning their business model to Ibuying to complete acceptance and love for the move. With that said, all Rich Barton has to do to keep the train moving is to continue gaining revenue momentum through the acquisition of homes. At the same time, their former bread and butter (Premier Agent) ad based business has to somewhat support the endeavor. In other words, the markets won't like Premier Agent revenue falling off a cliff. This is phase 1 of the transition of Zillow. In the phases that are to come in the quarters and years ahead, Zillow's inventory of homes will reach such a critical mass that it won't allow management to simply boost the share price in the same way they are being allowed now. The massive inventory that is to come will eventually freak the market out to an extent, creating urgency for management to come up with a creative means of capitalizing on being one of the largest homeowners in the country. This is a when not if type of dilemma the company faces. Where Zillow is currently within its overall business cycle, however, is the sweet spot. Their inventory of homes isn't scary yet. Their revenue growth can increase at a nice clip given the early nature of the concept. Competition hasn't yet figured out how to compete effectively with the 800 pound gorilla in the space. All good for now. Bringing us to Redfin. Today RDFN announced a partnership with the largest Ibuyer - Opendoor, which is undoubtedly an urgent response by both companies to Zillow's increasing momentum. While RDFN has a lot of catching up to do to ever reach Zillow's dominance in the space, the primary question from an investor perspective should be whether RDFN has enough going for it to ride Zillow's wave higher over the intermediate to long-term? Today's move by RDFN partnering with Opendoor is an official embrace of the Ibuying model by the CEO of the company who has expressed some skepticism about the business model of purchasing and selling homes in the recent past, mostly because of the balance sheet risk. This is notable given his experience and voice in the space. With a total addressable market...
Continued Perfection In An Otherwise Perfect Market
There is a really simple concept that all investors need to grasp about price: long-term bull markets accelerate on volatility contraction and die on volatility expansion. There is an elegant theory behind this phenomenon that is extraordinarily simple: volatility contractions signal orderly, planned, sophisticated buying. It's a signal that large bidders are beneath the market picking and choosing spots to accumulate equities. If you've ever traded size in a security, bidding for days and possibly weeks on end, you can witness this phenomenon for yourself. Volatility contracts as your bids stabilize the market. Volatility expansion on the other hand is the complete opposite of this. Markets top on expansionary, violent moves because it signals unorganized desperation to get in at any price. It is a sign that the last of the holdouts are simply throwing up their hands, screaming "get me in at any price." At the same time, shorts are forced to cover. What happens to the market in this type of scenario is that it gets hollowed out to an extent, becoming susceptible to future volatility in the opposite direction of the primary trend. Bringing us to the here and now. This market continues to be a practice in absolute price perfection. Volatility continues to contract on all the major indices right as the S&P 500 is flirting with a breach of a very important price point in the 3000 range. Individual sectors are practicing rotating corrections with one sector taking over on the upside right in time for another to take a rest, again, aiding in the overall contraction in overall volatility for the general markets. Perhaps most important of all is the fact that there remains a significant portion of assets that do not have nearly the equity exposure necessary given how far the market has advanced this year and how much better the economy is than advertised. These are latent bids in the market that will be forced to participate as the year wears on. The catalyst for these latent bids to come to life is very simply sand shifting through the hourglass as the calendar year wears on. The progressive tightening of the noose around the respective necks of the asset management community will only grow in intensity. Past September and past S&P 3100, there is not going to be a single reason in the world, apart from an iron clad investment mandate forcing the action, for an asset manager to be accepting of a 2% return in a fixed income instrument. Not a single one. In the meantime, the market isn't going to allow these latent bids to get in cheaply or...
Here Is What To Expect Once The S&P 500 Conquers The 3,000 Level
Cannot reiterate the following enough: the 3,000 level for the S&P 500 isn't just a cool, neat round number that creates a focal point of attention to the fact that the U.S. markets are pummeling the rest of the world when it comes to overall stock market performance. The 3,000 level also happens to be the meeting place for a number of trajectory points that have some very important DNA, spanning multiple decades for the markets. These types of price points happen to cause volatility, disarray and a general sense of unpredictability in equities. Paired with the attention that is naturally given to neat round numbers on major indices, the markets will take their time in digesting the 3,000 level. How so? Through unpredictable volatility that throws the masses off the scent of the market. And, let's be clear here, there are going to be plenty of catalysts for unpredictable volatility throughout July: Interest rate policy is far from clear following Friday's job report There is a better than even chance that fixed income investors across the curve are currently misallocated, resulting in interest rate volatility throughout the remainder of summer Earnings are going to be all over the place. Guidance, as well. The macro scene is compromising overall confidence in being bold and audacious. Cautious is the word Continuing macro gyrations from China to the Middle East show no signs of abating With investors suddenly taking note of the market with S&P 3,000, significant resistance coming into play that will take awhile to sort through and the aforementioned catalysts towards volatility, the markets will go through a grinding process for the remainder of summer. The good news is that once that grinding process is finished, there will be enough momentum off the 3,000 level to create a slingshot effect for the overall market. Past September, there is a significant chance the markets go into overdrive on the upside. S&P 3,100? Nope. S&P 3,300? Too conservative. Think S&P 3,500 plus by year end, making 2019 one of the best years ever for U.S. equities. That's the power of moving through this level and the slingshot effect that will take place as a result. That's also the power of a blowoff that forces the hands of the masses of investors who are misallocated into fixed income and other investments yielding at or near zero. While the thought of 500 point move in the S&P 500 may seem insane to some, given the current pervasive bearishness, chronic misallocation and inordinately low interest rates in the face of what is a healthier economy than most anybody suspects, a 500 point move is...
Economic Reality Is Making Bond Investors Look Dumb
With news of job creation blazing ahead unimpeded in June, bond investors are having to backtrack on their bets on Fed rate cuts in the months ahead yet again. In the meantime, there may be a realization today that it makes little to no sense to sit in a fixed income asset with a negative real rate of return when you have companies like JPM, as one very obvious example, spitting off a 3% dividend while trading at a 10x forward earnings multiple with the added bonus of a massive stock buyback recently being announced. The reality of the situation is that there is a significant chance that the entirety of the fixed income community globally is completely misallocated presently. The pervasive, perpetual fear of an economic slowdown that seems to be ingrained in the DNA of bond investors can only cost them for so long. At some point, perhaps in the very near-term, the reality of the relative value available in equities becomes apparent. What happens when literally trillions of dollars of misallocated capital globally realizes that the have been overly-pessimistic in their assessment of the economy? What happens when these same investors begin feeling pressure to deliver returns by actually embracing risk instead of settling for capital preservation at a zero real rate of return? While it may seem that equities are extended due to the unprecedented nature of the current expansion, the reality of the situation given global capital allocation favoring fixed income, may be that the persistent trend up in equities has quite a number of years left, with the added bonus of an acceleration in the trend up as capital is forced to seek real returns in excess of zero. 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...
Here’s How To Approach The Market As S&P 3,000 Is About To Set Off A Wave Of FOMO
The S&P 500 is about to deliver itself into a resistance nightmare with a move over 3,000. While investors celebrate this neat round number in the days ahead, with new record highs for the S&P, they should also be aware that the attention magnet neat round numbers attract around new highs doesn't necessarily go well with brick walls of historical resistance. Let's be clear here: Resistance and growing optimism in the face of round numbers and record highs does not equate to auto-bear mode. It simply means that investors shouldn't fall into the trap of automatically hitting the max allocation button if they have been underinvested recently. There are a lot of investors who missed this rally and are looking for a decent spot to get involved. What happens when S&P 3000 hits, CNBC has a scrolling "NEW RECORD HIGHS" with an animation of a bull riding a flag draped rocket to Jupiter and Mr. Underallocated Investor sees his neighbor is building a 3,000 square foot, mahogany laced dog house as an addition to his home? Panic buying. The buy button is about to be hit across Wall Street, which may continue this surge a bit longer. However, the fear of missing out on a trade is rarely the one you want to get involved in as an investor. Especially when its occurring around resistance that will create excessive volatility and a terrifically terrible risk/reward trade overall. All of those investors who missed out on allocating to equities when they should of are about to be hit with a massive dose of "I can't take the FOMO any longer." So here's what to do in each circumstance: If underallocated - Be selective in getting involved here. Financials are a good choice to start. They have room. Stay away from high momentum growth or anything else that has the potential to keep you up at night when the volatility equation gets turned on its head. You have the next couple months to allocate in the right spots before the market really gets moving past resistance. If overallocated/leveraged - Take profits selectively. As discussed, no reason to go into auto-bear mode. No reason to add here either. You've done well. Don't ruin it by becoming a pig. If evenly-allocated (defined as 75% or so exposure to equities) - You have to move to 100% exposure in the next couple of months. The 25% with a negative real yield has a very real opportunity cost. Mix up the allocation with tech and financials. Do it slowly through July and August in an opportunistic, deliberate manner. Have a happy 4th. Zenolytics...
The Bullish Nature Of The Blackstone/KKR Connection
KKR has been discussed here extensively over the years. In 2018, Zenolytics described KKR as a "long term compounder." Most recently, certain dynamics on both a macro and micro basis forced further discussion of the potential for the investment, as KKR was recommended again for conservative portfolios. One of the dynamics that will continue to fuel KKR on the upside in the near to intermediate term is that BX (Blackstone) continues to ride a wave of investor driven fury to the upside following news that they are converting from a partnership to a corporate structure. This has numerous advantages for Blackstone, both tax related and otherwise. However, one of the key advantages when it comes to share price is that conversion to a corporate structure allows for all kinds of institutional participation that wouldn't otherwise be possible when being a K-1 totting partnership. Blackstone has ridden the wave of new investor participation to what is commonly known on Wall Street as a "value unlocking" appreciation in share price. This value unlock in shares of Blackstone, which was terrifically undervalued prior to the conversion, has no end in sight as the piling into private equity leaders who are collecting fees from return hungry investors worldwide is only at mid-stride presently. To be sure, private equity has a special place in the current economy with low rates, return hungry investors and deals being flipped back and forth in as fluid a manner as anytime over the past decade. Bringing us to KKR. The boys over at Kohlberg, Kravis, Roberts & Co. benefit not just from the favorable economic landscape for private equity, but the lustful manner in which investors are chasing its primary rival Blackstone. That lust will naturally spill over to shares of KKR. In fact, they already have, as KKR shares hit a 10 month high yesterday. Perhaps more importantly, the multiple factors working in favor of private equity here with the added bonus of Blackstone suddenly being a favorite among investors creates a margin of safety in KKR that only further bolsters its positive attributes as an investment in the financial space. Margin of safety.... Check. Momentum in the sector.... Check. Outstanding fundamental backdrop.... Check. KKR remains a buy with a near-term target of $30. 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...
This Is Not The Spot To Be Buying Giant, Trade War Induced Spikes In The Market
For all of the euphoria surrounding tomorrow's market open on yet another trade war induced gap, it should be noted that the market is accelerating right into a reinforced concrete barrier. If the concrete barrier visualization is not enough, we have what is essentially a two day trading week coming up (nobody cares on Wednesday, market is closed on Thursday and everyone is gone on Friday) that will create liquidity gaps, making follow through a difficult endeavor. The S&P, in particular, remains in a mind-boggling resistance range that doesn't necessarily work well with liquidity gaps, lack of follow through and general holiday induced malaise in the markets. The resistance range faced at 3,000 plus requires the full participation and attention of Wall Street in order to be appropriately dealt with. For that reason, assuming an open to 2975 on the S&P 500 tomorrow, investors will looking to make anywhere from 25-50 points on the S&P in exchange for risk of approximately 50-75 points on the downside. A one to one risk/reward ratio at best, in other words. While the market may be setting the stage for a dramatic theatrical performance tomorrow morning, where investors are embraced with open arms, with promises of a perpetual feast in the offing, the market remains in a generally unfriendly position until the week of the 10th. Caveat Emptor mi hombre. 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...
Financials Are Setting Up To Lead The Next Leg Of The Bull Market
It has been sometime since Zenolytics took a good look at financials. In fact, the last time a big call was made on the sector was February of last year, in a note titled Financials Are Setting Up To Lead The Markets Down. Since that last piece was published, financials have gone exactly nowhere. Well, let's be accurate here: they have declined by 2.85% as judged by XLF since February of 2018, making an investment in financials over the past 17 or so months about as noteworthy as an investment in a jar of peanut butter. The motionless nature of financials as an investment, however, is due for a rather abrupt change into the second half of the year as a number of factors are lining up in favor of the sector. Lest we forget that during the better part of 2018 the entirety of the financial corporate management community was licking their proverbial chops while salivating in embroidered leather buckets at the prospect of higher interest rates juicing corporate margins. The whole of the financial community from large all the way down to miniature sized companies were positioning themselves for the prosperous road ahead. Then the fall/winter of 2018 hit. The change in interest rates that is still with us to this day was dramatic in every way possible. From the manner in which the Fed pulled one of the biggest 180s in organized central bank history, to the way in which the long end of the curve is basically attempting to choke the Fed into submission, hoping to justify bond investors piling into assets that are yielding 2% in the face of an equity market in possession of an increasingly attractive earnings yield. While the entirety of the financial community was wringing their hands in anticipation of the prosperity to come, those hopes fell completely flat. The story here, however, is not that dreams were dashed and financial companies were positioned incorrectly for what was to come. The story here is how well financials have held up in the face of a completely unexpected outcome. In the midst of this comes news like what we received this past week. Major banks passed their stress tests, freeing up capital to pursue shareholder friendly endeavors, such as increasing dividends and buying back stock. And that's exactly what is happening. JP Morgan, Goldman Sachs, Bank of America and Citi to name a few all announced dividend increases and substantial stock buybacks. In what is a sector that has already experienced compression in earnings multiples, the prospect of large buybacks only makes valuations of these companies that much more attractive. Additionally,...
Some Random Thoughts On A Dull Market Day
Facebook's move into Libra and crypto create a really interesting dynamic moving forward for how money is treated in all its forms and uses. Aside from the obvious regulatory upheaval that one would expect initially, the potential good and evil applications of controlling both personal information and financial information on a transaction level are mind-numbing. One obvious question is does this make Bitcoin, Ether and the entire crypto ecosystem stronger or weaker? Does having what can potentially be a centralized, regulated player in Facebook make Bitcoin that much more appealing due to its decentralized, difficult to regulate nature? Or does it render other cryptos moot as Libra becomes the de facto crypto currency? Economic moral hazard aside, Facebook stock becomes that much more valuable given the high likelihood of success here. Wedbush came out with a $35 target on AMD today, trailing well behind our target of $41 for the stock. The dominant nature of AMD's offerings from both an economic and performance perspective won't allow for the stock to simply stop at its 2018 highs. New highs above $40 will be achieved this year. If you look at the market closely enough today, you can actually see, smell and hear it crawling to a grinding halt as the summer holiday season kicks into full gear. Zenolytics remains of the view that this will be a generally unfriendly, choppy market until after the 4th of July holiday. Financials as a sector look like they want to rip higher over the next few months, assuming a leadership role moving forward. This comes as optimism regarding the bond market reaches some sentiment highs not seen in years. In other words, interest rates on the long end are poised to move higher, which might just be what financials are looking forward to in the second half of the year. 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...
Return Of The Unfriendly Market
Shortly after last week's Fed meeting, Zenolytics posted a short note titled, The Buying Window For Equities Reopens As Bidders Lurk. In the final paragraph of that note a target of 3,000+ on the S&P 500 was observed as being perfectly reasonable by early this week given the importance of the level the market was mounting the rally from, along with numerous other factors working in the bulls favor. The market cooperated for a time, moving from 2920 to a high of 2964 on Friday. That was, however, as much gas as the market had for this trip. Therein lies the problem: Everything was in the markets favor over the past several trading days to put together a substantial move: Sentiment Price level started from (thrust) Price level moving towards (attraction) Interest rates Trade news With all of the aforementioned positive factors, the 3,000 level - in all of its resistance laden glory - should have acted as a Star Trek level tractor beam, pulling the S&P up to this level for a decisive test of its will to move forward. Instead, the markets got off to a glorious start and completely fizzled just as the window for a rally closed. Now we are in a volatile news window involving the G20 meeting, only to be interrupted by fund managers shifting their portfolios every which way but the right way into the end of the quarter. In other words, things only get sloppy from here. Volatility squared. The message the market is sending after such an abject failure to take advantage of the perfect window to rally is that it continues to be in the mood to chop. And chop it will. With headline risk only increasing as the week comes to an end, and with a holiday shortened, light volume trading week coming to start July, put a fork in the market until the week of July 8th. It's going to be a choppy, torrid affair until that point, at the very least. Market leaders demonstrating considerable relative strength with perhaps a gold stock or two thrown in for good measure is the way of the wise for the next couple of weeks. 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...