11.3.13: Weekend Reading Worth a Look

November 3, 2013 at 5:16 pm | Posted in BBY, interest rates, S&P 500, Uncategorized | Leave a comment
  • JPM’s US Equity and Earnings Insights: We should have had this on the weekend earnings update, published yesterday, but Joe Tanious of JP Morgan’s Market Insights Group published a piece on “A Look at US Equities” on 10/28, talking about the impressive run for SP 500 earnings and the fact that the market is reasonably valued, i.e. “stock prices that are not yet overly expensive”, and that “US equities still have room to run”. Of the three JPM contributors to year-over-year EPS growth, (i.e. Revenue share, Margin share, and Buyback share), Tanious and his team conclude that, “Currently, moderate revenue growth, margin expansion and consistent share buybacks are all contributing, pushing y/y earnings growth into the low double-digit range.” Y/y SP 500 earnings growth isn’t yet in low double-digits, but it sounds like JPM is thinking it will get there. So do I, in 2014, but that also doesn’t mean that the SP 500 will be up as much in 2014, as it was in 2013.
  • Norm Conley on the huge equity mutual fund inflows in October (here), The JAG sentiment index here showing that, according to Norm’s shop, the SP 500 might even be a little oversold today, and how the drop in Industrial Production in 2008 (here) was the largest in the post WW II economy. If you aren’t following JAG_Norm on Twitter, then you need to be;

 

  • Are the mo-mo groups cooling off ? We sold all but a small position in our IWM (Russell 2000 ETF) after underperformance in October and then again last week. Here is a chart pulled off Ryan Detrick’s Twitter blog on the Russell 2000. We went into the IWM for a trade-up into year-end starting in August, to get clients positions in a pretty strong momentum group. We could have bought biotech’s, but thought the R2k was the better risk-reward. The BBH or HOLDR’s biotech ETF was down last week too, and underperformed the SP 500 in October. Netflix, Facebook (FB), Tesla and (TSLA), are also off their highs. (Long a small position in IWM and FB.);

 

  • We updated our Facebook analysis and earnings / revenue revisions on Friday afternoon here. We think this trade still works for a few more months. We took some of our FB position – about 25% – off the table, pre-earnings, but feel comfortable with the remaining position. If Tesla struggles after reporting this week, expect the group to struggle. The key piece to that FB blog post is to observe or note the growth rates on 2013 and 2014 EPS and revenue revisions;

 

  • Josh Brown and Barry Ritholz might be building the modern asset management firm with a new social media template for the next 10 years. Barry announced this week, a new initiative with Bloomberg here. Most asset managers like myself, start with managing the money and then try and get exposure from writing and investing, etc. Barry’s blog – The Big Picture – has been a “go-to” source for the last 10 – 12 years for readers looking for insightful market commentary, and Josh saw a meteoric rise via blogging and Tweeting, (all quality information, which is very insightful, and which covers a LOT of ground), which eventually got Josh on CNBC’s Fast Money shows. Just to be clear, this is in no way a criticism of either guy, but rather a compliment as to how they have seized the social media moment so to speak, and have started to build their brand. Being a small advisor with my own book, and the only person doing research, trading and writing, it is tough to balance all the hats. I use blogging, tweeting, and www.seekingalpha.com essentially for research and to thoroughly vet my opinions and research in public, so that I can get opposing views on my conclusions and opinions. I want readers to reach out (as one reader of the earnings commentary did last week with a thoughtful comment on what he was statistically seeing for Q4 ’13 earnings) and give your critical opinions (hopefully thoughtfully delivered, rather than the typical insults or personal attacks found on message boards.) Congrats to Barry and Josh on the template for building name recognition and presumably asset growth from social media presence;

 

  • Both Barry (here) and Josh (here) wrote this week, on how to reduce the noise levels around your investment or research inputs, and how to better filter and digest the vast quantities of information launched at those of us in the business each week. From whom are you getting your bets information ? We list ours weekly right here. Hopefully readers find www.Fundamentalis.com and @TrinityAssetMan tweets of some value. I am part of the noise, I just hope readers find it helpful;

 

  • Jeff Miller of A Dash of Insight with his weekly update. Another must read, from a guy actually managing money every day. Jeff’s firm is larger than mine, but we try to get together for lunch every few months in the Chicago burbs, and talk about the markets, economics, politics, the business of managing money, social media, etc. etc. Terribly bright guy, who is very approachable and accessible;

 

  • Want to be optimistic ? Looking for reasons to be optimistic for stock market returns the next 3 – 5 years ? Fantastic article from Jeff Kleintop: note the 2nd distribution table and the “SP 500 5-year annualized return” and the cluster around the last decade. I am telling clients today, that it was just in March and May of 2013, that we ended a 13-year consolidation of the SP 500, one of the longest stretches of flat returns for the index in decades. “Reversion to the mean” is a powerful statistical concept;

 

  •  Valuewalk.com is a good little blog. Find many helpful insights on their Twitter Feed. Here is an article on emerging market pessimism: not sure I buy into it;

 

  • Our holdings that report this week are CME and Whole Foods as two of the biggest. CME reports Monday morning, 11/4. Whole Foods Wednesday night November 6th, after the bell per Thomson. It has been a good earnings season, but we think q4 ’13 will be better;

 

  • Watching the 10-year Treasury yield: the weekly chart shows the 10-year treasury yield bounced right off the 200-week moving average just under 2.50%. That is a bearish sign for the 10-year in terms of price. Watch 2.70% as a yield trade above 2.70% and it is pretty clear that 3% is back in the game. The 2.70% yield are is the 50-day moving average on the TNX (yield chart);

 

  • Scouring around the 2013 underperformer universe looking for names that are bottoming. Basic Materials qualify, as do some Energy names. Will have more towards year-end. One think I am thinking about is whether JC Penney will be to 2014, what Best Buy was to 2013: BBY was up 360% in 2013, from roughly $11 per share in late December to today’s +$40 price. I’ll take that next year.

We’ve spent a substantial part of the weekend writing so it is time to relax. Thank you for reading and giving up part of your valuable market time. Hopefully you find this blog, not so much part of the noise, as part of your beneficial reading every week.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

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