David Fuller and Eoin Treacy's Comment of the Day
Category - Autonomies

    Speculative Fervor in U.S. Stocks Surges to 'Stunning' Levels

    This article by Cormac Mullen for Bloomberg may be of interest to subscribers. Here is a section:

    At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

    Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

    “Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”

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    Email of the day on caution at potential areas of resistance

    “You have been calling for some ‘consolidation’ for equity markets for a number of weeks now (which I expected too), but this just hasn’t come to pass. Instead we have seen a relentless charge higher in virtually every market. You’ve stated that it’s liquidity driven which until recently at least, little participation from the professional money managers. Short term yields no longer can be relied upon as a risk indicator with the Fed deliberately compressing yields at the front end. To what extent, if any, has this recent episode viewed the way you look at markets through a charting lense. A despondent sceptic of this rally here, it seems the only winning strategy is just to ride the liquidity train, and rotate one’s positions towards riskier assets (travel, emerging etc) as the new safe havens (tech) reach maturity.

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    Europe's Stimulus Package Sparks "Mother of All" Market Dreams

    This article by Cecile Gutscher and Ksenia Galouchko for Bloomberg may be of interest to subscribers. Here is a section:

    There’s no sign yet that the stimulus package is anything more than a one-off response to an unprecedented crisis. Even so, investors are viewing it with a bullish lens. “It’s completely new territory for the European Union,” Michael Strobaek, global chief investment officer at Credit Suisse Group AG, said in a Bloomberg TV interview. “And that would make the European Union as an investment much more attractive for global investors.”

    That would represent a shift for European markets, which have been unpopular compared with the U.S. For example, European equity funds suffered from outflows more than any other major region this year, losing about $31 billion, according to data from EPFR Global and Bank of America Corp.

    Bond Buyers Toast EU Ambition in Moment They Were Waiting for Gary Kirk, a money manager at TwentyFour Asset Management in London, which oversees 17.8 billion pounds ($22 billion), is sticking with his U.S. bias. “It’s a bit early to get overly excited,” said Kirk, who’s waiting to see how the details are hammered out and whether it will pass muster with more austere governments in north Europe.

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    Doordash and Pizza Arbitrage

    This article by Ranjan Roy for themargins is a wonderful story of life imitating art. Here is a section:

    But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash.

    My first thought: I wondered if Doordash is artificially lowering prices for customer acquisition purposes.

    My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings.

    My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!

    If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You'd net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch].

    He thought this was a stupid idea. "A business as successful a Doordash and worth billions of dollars would clearly not just give away money like this." But I pushed back that, given their recent obscene fundraise, they would weirdly enough be happy to lose that money. Some regional director would be able to show top-line revenue growth while some accounting line-item, somewhere, would not match up, but the company was already losing hundreds of millions of dollars. I imagined their systems might even be built to discourage catching these mistakes because it would detract, or at a minimum distract, from top-line revenue.

    So we put in the first order for 10 pizzas.

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    Justice Department, State Attorneys General Likely to Bring Antitrust Lawsuits Against Google

    This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

    Both the Justice Department and a group of state attorneys general are likely to file antitrust lawsuits against Alphabet Inc.’s Google—and are well into planning for litigation, according to people familiar with the matter.

    The Justice Department is moving toward bringing a case as soon as this summer, some of the people said. At least some state attorneys general—led by Texas Attorney General Ken Paxton, a Republican—are likely to file a case, probably in the fall, people familiar with the matter said.

    Much of the states’ investigation has focused on Google’s online advertising business. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers. The Justice Department likewise is making Google’s ad technology one of its points of emphasis. But it is also focusing more broadly on concerns that Google uses its dominant search business to stifle competition, people familiar with the matter said.

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    Email of the day on inconsistency in medium-term trends.

    Eoin - appreciate your use of both the P&F and weekly chart against the moving average in your discussion of Microsoft.  When evaluating the consistency pattern of stocks (Microsoft and others), how do you "adjust" for circumstances such as COVID 19?  Clearly, Microsoft was negatively impacted like many other equities in the COVID induced meltdown, but has also rebounded more smartly than others.  Thanks, as always, for your insight and willingness to share same.

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    Email of the day - on when to use point and figure charts

    Thanks for your very clear and objective commentaries at moment. It is good that you are looking beyond the current crisis and thinking about what investments are likely to do best over the longer term. I notice that you have been referring to point and figure charts more recently. Under what circumstances do you find it best to use these, rather than a 'standard' daily / weekly price chart? Also, what do you recommend using for box size / reversal as an unleveraged investor, taking a medium / long term view?

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    Email of the day - on chasing outperformers

    With respect to the second note, and knowing your own preference to stay with the "winners" and cut the "losers", at what point do you look to valuations and question the sky-high prices people are willing to pay for these "winners"? I personally have a tough time chasing stocks that have already run, but for now at least, they just keep going, proving highly frustrating!

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    Market Keeps Distancing Itself From Economy

    This article by Mohamed A. El-Erian for Bloomberg echoes a common sentiment among institutional investors. Here is a section:

    The rate of labor force dislocation, albeit distressing, appears to be moderating. The weekly 3 million jobless claims number is the lowest in the last seven weeks and less than half the worst level.

    The report highlights the urgent and important policy priorities of dealing both with the implications of such a terrible shock to jobs and with ensuring that short-term problems don’t become long-term ones that are much harder to solve.

    With markets focusing on the improvement in the “second derivative,” that is a reduction in the rate of labor force dislocation, U.S. stocks rose. This widens an already considerable decoupling from the real economy and will fuel the debates on Wall Street versus Main Street, companies versus people and the well-off versus the marginalized. 

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    Email of the day on dividend champions and contenders

    I am really enjoying Mr Treacy’s comments of the day and look forward to it every morning.

    Mr Treacy in today’s update mentioned key sectors that have the most chance of trending up over the next decade – and alluded to a couple shares (e.g. Google and Apple) that may make it to dividend aristocrat list in 10-15 years.

    It would be great if Mr Treacy could provide a list of top 20-50 shares that have steadily increased dividends over the last 10 years and based on trends have the highest probably on making it to dividend aristocrat list in 10-15 years.

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