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Frank Fahey: Market News for the Prepared Mind: 8.14-8.21.2017

August 14, 2017

“Chance favors the prepared mind.” -Louis Pasteur

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” -Jesse Livermore

“I love to talk about nothing. It’s the only thing I know anything about.” -Oscar Wilde

“Computers have enabled people to make more mistakes faster than almost any invention in history, with the possible exception of tequila and handguns.” -Mitch Ratcliffe

“Better to have a simple model backed by excellent people than the other way around.” -Paul Carrett

NB: Sorry for the delay in posting. It always helps to hit “post.” Next week’s blog will contain on Index and VIX information. I will be in pursuit of the total eclipse.

The S&P 500 sold off 35.51 points to 2441. Last week’s 1.43% drop was the largest since November 2016. The bulk of the damage was done on Thursday when the SPX lost 1.45%. The sell-off was preceded by a market which was setting new records for lack of movement. Thursday’s skid was preceded by 58 consecutive trading sessions without a move, in either direction, exceeding 1%. This near absence of movement culminated in a record 16 straight sessions without a 0.3% move up or down. Both streaks ended with Thursday’s sell- off.

Financial talking head various blamed the ratcheting up of US-North Korea tensions and the long-legs of the current bull market. The nation’s debt ceiling limit, a statutory limit of outstanding debt obligations, needs to be raised, per the Trump administration, by September 29. Other sources are predicting a need for an increase earlier in September.

The congressional debt ceiling showdown created a crisis in 2011. It resulted in the most volatile week for financial markets since the 2008 recession. The S&P 500 was down as much as 10.6% the week of August 5. 2011. Congress will not be back inside the Beltway until September 5. Will Congress be able to reach a another bipartisan agreement in 2017? Ignore the debt ceiling negotiations at your own risk.

Here is an overview of the US market behavior last week and for 2017 YTD:

Data Source: OptionVue8

The VIX shook off the dog days of August by closing the week at 16.04 – the highest close since November 8, 2016. The gain for the week was over 54%. The VXST – the CBOE Short-term Volatility Index – was up 81% for the week. The term structure of the front three monthly futures narrowed while gaining from 15% to nearly 37%. The number of short positions in VIX futures hit a record high the previous week. The explosion in volatility was partially fueled by traders covering short positions.

Here is an overview of last week for the VIX and related products:

Data Source: OptionVue8

The wild cards for the week are North Korea, the debt ceiling, and The POTUS’ twitter account. The week of August 14 brings reports on consumer spending, retail sales, housing starts, manufacturing and industrial production, as well as the minutes of the last Fed meeting.

This earnings season winds down over the next two weeks. The highlights include: Sysco, Urban Outfitters, Coach, Jack Henry, Staples, TJX, Advance Auto Parts, American Eagle Outfitters, Dick’s Sporting Goods, Home Depot, Target, L Brands, Cisco Systems, Ross Stores, Wal-Mart, Gap, Applied Materials, Estee Lauder, Footlocker, and Deere and Co. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“A man without ethics is a wild beast loosed upon this world.” -Albert Camus

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing.” -Jesse Livermore

“A point of view can be a dangerous luxury when substituted for insight and understanding.” -Marshall McLuhan

“What we learn from history is that people don’t learn from history.” -Warren Buffet

“Freedom is what you do with what’s been done to you.” -Jean-Paul Sartre

Monday, August 14: 

Economic: No major announcements.

International Economic: Eurozone Industrial Production – 5:00AM.

Earnings:

Tuesday, August 15: 

Economic: Retail Sales – 8:30, Empire State Manufacturing Survey – 8:30, Import and Export Prices – 8:30, Redbook – 8:55, Business Inventories – 10:00, Housing Market Index – 10:00.

International: Germany GDP Flash – 2:00AM, Great Britain CPI and PPI – 4:30AM.

Earnings:

Wednesday, August 16: 

Economic: MBA Mortgage Applications – 7:00, Housing Starts – 8:30, Atlanta Fed Business Inflation Expectations 10:00, EIA Petroleum Status Report – 10:30.

International Economic: Great Britain Labour Report – 4:30AM. Eurozone GDP Flash – 5:00AM, Japan Merchandise Trade – 7:50PM.
Other: FOMC Minutes – 3:00PM.

Earnings:

Thursday, August 17: 

Economic: Weekly Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, Industrial Production – 9:15, Bloomberg Consumer Comfort Index – 9:45, E-Commerce Retail Sales – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International Economic: Great Britain Retail Sales – 4:30Am, Eurozone Merchandise Trade – 5:00AM.

Other: European Central Bank Minutes – 7:30AM.

Earnings:

Friday, August 18: 

Economic: Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International Economic: Germany PPI – 2:00AM.

Other: Dallas Federal Reserve Bank President Robert Kaplan to participate in a moderated Q&A session at the Dallas County Community College District Conference Day 2017 in Dallas, with audience Q&A.

Earnings:

Monday, August 21: 

Economic: Chicago Fed National Activity Index – 8:30.

International Economic: No major announcements.

Earnings:

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Frank Fahey: Market News for the Prepared Mind: 8.7-8.14.2017

August 7, 2017

“Chance favors the Prepared Mind.” — Louis Pasteur

“Today’s scientists have substituted mathematics for experiments, and they wander off through equation after equation, and eventually build a structure which as no relation.” — Nikola Tesla

“I love to talk about nothing. It’s the only thing I know anything about.” — Oscar Wilde

“Do you know who you are? Don’t ask. Act! Action will delineate and define you.” — Thomas Jefferson

“Better to have a simple model backed by excellent people than the other way around.” — Paul Carrett 

The talking heads are discounting new highs for the Dow Jones Industrials (DJIA.) It is a case of “Pay not attention to the man behind the curtain!” The naysayers’ arguments focus on two specific areas – the limited number of components in the average (30) and the components of the average are weighted according to nominal stock price rather than their overall relative economic size.

These factors lead to a situation where individual stocks can have a disproportionate effect on the performance of the index. This effect was apparent last week with Apple (AAPL) and 3M (MMM) propelling the DJIA to all-time new highs, and the previous week when Boeing (BA) had the same impact. The net result was the DJIA hit new highs on eight consecutive days.

The broader based S&P 500 (SPX) provides a less biased view of US equity markets. Market capitalization and number of components (500) prevent an individual stock from significantly moving the index. The SPX is not moving. It, too, has set a new record. The SPX has gone 12 trading days – nearly 2 ½ weeks – without a move up or down of 0.03%. This is the longest streak on record . “Nothing” is the new trend.

Here is an overview of the US market behavior last week and for 2017 YTD:

Data Source: OptionVue8 

The dog days have affected the VIX and related products, in the same manner they have affected the major equity indexes. The VIX is hovering above all-time lows. The markets are not moving. Europe is on vacation.The A-team traders in NYC are in the Hamptons enjoying the fruits of last year’s bonuses. The trading desks across the world are staffed by the B-team. They live in fear of making mistake and raising the hackles of the alpha dogs. Their trading mantra is Primum non nocere – “first, do no harm.”
Know, that these desks do not have the depth of experience to rationally respond to the black swan – the unexpected volatility event. This lack of experience can magnify panicked responses to unknowns. Be wary.

Here is an overview of last week for the VIX and related products:

Data Source: OptionVue8

The coming week includes consumer price readings and public speeches by four Fed officials. Thursday’s jobless claims and producer price data are other reports which could possibly engender some sort of move in the markets. Congress is on vacation. President Trump is on vacation. It should be very quiet. Maybe, too quiet?

It will be another blockbuster week for earnings. Earnings announcements will continue at a steady pace this week. The two stocks engendering the largest levels of interest are Nvidia (NVDA) and Priceline (PCLN) I am interested in both issues. I am far more likely to trade the NVDA announcement than the PCLN announcement.

I do not like the risk/reward ratio in Priceline.com. I will probably just watch and learn from PCLN price and implied volatility movement. PCLN closed at $2032.77 last week. Priceline’s average move for the past few earnings announcements has been nearly 7%. I will avoid a trade where the trade range expectations are plus or minus (+/-) $150. The at-the-money front month straddle is trading about $100.

It is not a “retail trade.” It is too difficult to control risk at these prices. There a number of other trading alternatives for the week. The alternatives include: CBS, Tyson Foods, Marriott Int’l, Tripadvisor, Walt Disney, Fossil, Ralph Lauren, Henry Schein, Monster Beverage, CVS Health Michael Kors, Mylan, Perrigo, Avnet, Nvidia, Nordstrom, Macy’s. Kohl’s, and J C Penney. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“You need chaos in your soul to give birth to a dancing star.” Friedrich Nietzsche 

“Now came the dog days—day after day of hot, still summer, when for hours at a time light seemed the only thing that moved; the sky-sun, clouds and breeze-awake above the drowsing downs.” – Richard Adams 

“A point of view can be a dangerous luxury when substituted for insight and understanding.” – Marshall McLuhan 

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre 

Monday, August 7: 

Economic: Gallup US Consumer Spending Measure – 8:30, Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30.
International Economic: Germany Industrial Production – 2:00AM.

Other: St. Louis Federal Reserve Bank President James Bullard to discuss the U.S. economy and monetary policy at the America’s Cotton Marketing Cooperatives 2017 Conference in Nashville, with audience and media Q&A – 11:45AM, Minneapolis Federal Reserve Bank President Neel Kashkari to take part in a moderated audience Q&A session at the Sioux Falls Rotary Club event in Sioux Falls, SD – 1:25PM.

Earnings:

Tuesday, August 8: 

Economic: Motor NFIB Small Business Optimism Index – 8:30, Redbook – 8:55, JOLTS – 10:00.
International: Germany Merchandise Trade – 2:00AM, France Merchandise Trade – 2:45AM, China PPI & CPI – 9:30PM.

Earnings:

Wednesday, August 9: 

Economic: MBA Mortgage Applications – 7:00, Productivity and Costs – 8:30, Wholesale Trade – 10:00, EIA Petroleum Status Report – 10:30.
International Economic: Japan Machine Orders – 7:50PM.

Earnings:

Thursday, August 10: 

Economic: Weekly Jobless Claims – 8:30, PPI-FD – 8:30, Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International Economic: Japan Tertiary Index – 1:30AM, Great Britain Industrial Production – 4:30AM, Great Britain Merchandise Trade – 4:30AM.

Other: William Dudley New York Federal Reserve Bank President will deliver opening remarks and join a panel of New York Fed economists to answer questions after the presentation of the Economic Press Briefing on Wage Inequality in the Region, in New York – 10:00AM.

Earnings:

Friday, August 11: 

Economic: CPI – 8:30, International Trade – 8:30, Baker Hughes Rig Count – 1:00.

International Economic: Germany CPI – 2:00AM,

Other: Federal Reserve Bank of Dallas President Robert Kaplan to speak at the University of Texas at Arlington Accounting Department Sixth Annual CPE Day in Arlington, Texas, with audience and media Q&A – 9:40AM, Minneapolis Federal Reserve Bank President Neel Kashkari to take part in a moderated audience Q&A session at the Independent Community Bankers of Minnesota Annual Convention in Bloomington, MN – 11:30AM.

Earnings: None meeting criteria.

Monday, August 14: 

Economic: No Major Announcements.

International Economic: Japan GDP, 7:50PM, China Industrial Production & Retail Sales – 10:PM,

Earnings:

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Frank Fahey: Market News for the Prepared Mind: 7.31-8.7.2017

July 31, 2017

Data Source: OptionVue8 

In his song “Rock ‘n’ Roll”, Lou Reed summed up the reasons for VIX weaknesses better than any market mavens – “ There was nothin’ goin’ down at all, not at all.” VIX futures and options were little changed this week. However, shorter term volatility indexes and VIX related products showed some strength last week while moving off levels near all-time lows. Financial talking heads continued to focus on the weakness VIX as being a potential precursor to a market correction.

Here is an overview of last week for the VIX and related products:

Data Source: OptionVue8

The first week of August is light on economic data. It includes June Factory Orders on Thursday and the June US Employment Situation Report on Friday. Vehicle sales on Tuesday will the first piece of information on July’s consumer data, while factory orders on Thursday will close out June data on manufacturing. The lack of economic data does not preclude volatility being injected into the markets.

Naysayers are looking at a number of potential sources of volatility in the market. North Korea’s bellicose behavior has yet to inject any fear into the markets. Week employment numbers on Friday could expose chinks in the bull market. The fourth component of Fang, Apple (AAPL) is announcing earnings after market close on Tuesday. Weaker than expected earnings could inject volatility into the markets. The chaos inside the beltway is a significant contributor to unease among financial talking heads. Earnings continue with the most active week of this earnings season. Earnings highlights for the coming week include: CME, Allstate, Cummins, Phillips 66, ADM, Pfizer, Mosaic, Ecolab, APPLE, Emerson Electric, Simon Property, MetLife, Mondelez, Exelon, Time Warner, Occidental Petroleum, Prudential, Marathon Oil, Yum! Brand, Kellogg, Viacom, Apache, and Berkshire Hathaway. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“You need chaos in your soul to give birth to a dancing star.” — Friedrich Nietzsche 

“There’s no success like failure” – Bob Dylan 

“Avoid running at all times.” – Satchel Paige“ 

“August brings in sharp focus and a furious boil everything I’ve been listening to in the late spring and summer” – Henry Rollins 

Monday, July 31: 

Economic: Chicago PMI – 9:45, Pending Home Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00.

International Economic: Germany Retail Sales – 2:00AM, Germany Unemployment Rate – 5:00AM, Eurozone HICP Flash – 6:00AM, Japan PMI Manufacturing Index – 8:30PM, China PMI Manufacturing Index – 9:00PM.

Other: Bank of Japan Minutes – 7:50PM.

Earnings:

Tuesday, August 1: 

Economic: Motor Vehicle Sales, Personal Income and Outlays – 8:30, Redbook – 8:55, PMI Manufacturing Index – 9:45AM, ISM Manufacturing Index – 10:00, Construction Spending – 10:00.

International: Germany PMI Manufacturing Index – 3:55AM, Eurozone PMI Manufacturing Index – 4:00AM, Eurozone GDP Flash – 5:00AM.

Other: Cleveland Federal Reserve Bank President Loretta Mester to be the keynote speaker at the Community Bankers Association of Ohio Annual Convention in Cincinnati – 11:00AM, San Francisco Federal Reserve Bank President John Williams to discuss “Monetary Policy’s Role in Fostering Sustainable Growth” in Las Vegas, with audience and media Q&A – 2:30PM.

Earnings:

Wednesday, August 2: 

Economic: MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, EIA Petroleum Status Report – 10:30.

International Economic: Eurozone PPI – 5:00AM, Japan PMI Composite – 8:30PM, China General Services PMI – 9:00PM.

Earnings:

Thursday, August 3: 

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30,Weekly Jobless Claims – 8:30, Gallup Good Jobs Rate – 8:30AM, Bloomberg Consumer Comfort Index – 9:45, PMI Services Index – 9:45AM, Factory Orders _ 10:00, ISM Non-manufacturing Index – 10:00, EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00, Money Supply – 4:30.

International Economic: Germany PMI Composite – 3:55AM, Eurozone PMI Composite – 3:55AM, Eurozone Retail Sales – 5:00AM

Earnings:

Friday, August 4: 

Economic: July Employment Situation – 8:30, International Trade – 8:30, Baker Hughes Rig Count – 1:00.

International Economic: Germany Manufacturers’ Orders – 2:00AM.

Other: Bank of England Announcement and Minutes – 7:00AM.

Earnings:

Monday, August 7: 

Economic: Gallup US Consumer Pending Measure – 8:30, Labor Market Conditions Index – 10:00, TD Ameritrade IMX – 12:30.

International Economic: Germany Industrial Production – 2:00AM.

Other: St. Louis Federal Reserve Bank President James Bullard to discuss the U.S. economy and monetary policy at the America’s Cotton Marketing Cooperatives 2017 Conference in Nashville, with audience and media Q&A – 11:45AM, Minneapolis Federal Reserve Bank President Neel Kashkari to take part in a moderated audience Q&A session at the Sioux Falls Rotary Club event in Sioux Falls, SD – 1:25PM.

Earnings:

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Frank Fahey: Market News for the Prepared Mind: 7.24-7.31.2017

July 24, 2017

Data Source: OptionVue8 

This will be a very big week for announcements – earnings and economic. The last week of July sees the release of major economic reports; new and existing home sales, as well as durable goods and the S&P CoreLogic Case-Shiller Home Price Index. The events with the ability to be major market movers are Fed’s July meeting and the first estimate on second-quarter GDP.

The FANG stocks (Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google/Alphabet (GOOG) (GOOGL) have been the fuel powering this leg of the current bull market. Three of the four FANG stocks are announcing earnings this week.

It is earnings season! Earnings announcements will be coming fast and furious this week. The week starts with an after-the-close announcement by Alphabet (GOOGL.) Earnings highlights for the coming week include: Alphabet, AT&T, McDonalds, Mondelez Int’l, Eli Lilly, 3M, Biogen, Caterpillar, Amgen, Kimberly-Clark, DuPont, United Technologies, Facebook. Ford, Gilead Sciences, Coca Cola, Boeing, Procter&Gamble, MasterCard, Comcast, Amazon.com, Verizon, Intel. Starbucks, Dow Chemical, UPS, Bristol Myers Squibb, Merck, Chevron, and Exxon-Mobil. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“You need chaos in your soul to give birth to a dancing star.” Friedrich Nietzsche 

“Always go too far, because that’s where you’ll find the truth” – Albert Camus 

“A point of view can be a dangerous luxury when substituted for insight and understanding.” – Marshall McLuhan 

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre 

Monday, July 24: 

Economic: PMI Composite Flash – 8:30, Existing Home Sales – 10:00.

International Economic: Germany PMI Composite Flash – 3:30AM, Eurozone PMI Composite Flash – 4:00AM.

Other: Bank of Japan Minutes – 7:50PM.

Earnings:

Tuesday, July 25: 

Economic: Redbook – 8:55, FHFA House Price Index – 9:00, S&P Case-Shiller HPI – 9:00, Consumer Confidence – 10:00, Richmond Fed Manufacturing Index – 10:00, State Street Investor Confidence Index – 10:00.

International: Great Britain CBI Industrial Trends Survey – 6:00AM.

Other: FOMC meeting begins. 

Earnings:

Kevin O’Neill: Tom’s and Kevin’s Excellent Adventure

July 20, 2017

Overview

If you listened to the show on Wednesday, July 19^th, you know that Tom and I have embarked on an ambitious project. We’re going to design our version of a healthcare bill over the course of several shows. Why? Because nobody else has been able to craft something acceptable… and because both of us have a perverse idea of what’s fun. What do we plan to do with our proposal when we’re done? We’re going to make it the basis for saying “I told you so” for years to come.

Anti-Trust Law

For openers, we discussed anti-trust law and how it applies to health care… or to be more precise, how it isn’t applied to health care. For example, section 8.2 (e) of the Clayton Act says:

(e) Furnishing services or facilities for processing, handling, etc.

It shall be unlawful for any person to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.

In other words, the Clayton Act says charging different prices for the same service to insurance network purchasers vs individuals paying in cash is “unlawful,” yet that’s routine practice in the health care business.

The Clayton Act is but one example of common health care economics being at odds with anti-trust law, and these practices have become so common over the years that they have become accepted as standard. Can the mold be broken at this point? It can be broken. It is being broken. Check these organizations as examples:

Atlas MD

Surgery Center of Oklahoma

Both organizations have a published prices for their services that apply to everyone whether insured or not, Atlas for routine care and Surgery Center for major medical procedures. If you take a few minutes to browse their websites, you will find that health care pricing does not need to be a mystery that only a medical records and billing professional can decipher.

As we consider principles that underlie our proposal, expect following the law to make the cut.

Goals

Today we agreed on the following goals, the big, broad, issues we want to address. The goals have a “mom and apple pie” tenor; but they are important because anything we propose must address each one.

The goals are:

1. Provide access to quality health care for all.
2. Put downward pressure on the cost of routine care.
3. Put downward pressure on insurance premium prices.
4. Address the pre-existing conditions issue.

Have we missed anything?

Principles

We’re going to discuss principles next. Principles are the boundaries. Once we agree on them, all aspects of the solution must stay in bounds. This is my opening list of principles. Tom is likely to add a few of his own; and, despite the obvious brilliance behind each principle, he might object to a few of them. Tune in on Friday for the debate.

1. Purchasing insurance is a choice, but paying for medical care is a responsibility.
2. Contrary to the belief of too many elected officials, most people are not too stupid to manage their affairs. People who sign leases, purchase homes, buy cars, feed their families on tight budgets, and perform dozens of other important tasks every day are eminently capable of managing their health insurance and health care.
3. Uncoupling insurance from employment allows consumers to keep their policies as long as they pay premiums.
4. Individual insurance plans can be tailored to life circumstances.
5. Group insurance plans are, in most cases, economical.
6. Poor people should have the same kinds of choices everyone else has.
7. Non-insurance solutions (like Atlas MD) should be part of the solution.
8. Healthy lifestyles can and should be rewarded.
9. Nobody will be forced to buy or provide any products or services they consider unethical.
10. Competition is good. Therefore all laws that protect competition (antitrust and related) must be followed.
11. If there are restrictions or mandates, they must apply to Congress too.
12. Design the solution for the benefit of most (percentage TBD) and deal with those who don’t fit as one-offs.

Tweet or post me your additions to the principles. We’ll include them if we like them, and we’ll make fun of you if we don’t.

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