12.15.13: Interesting Reads from our Weekend Immersion

Every Saturday and Sunday morning, I crawl up in the corner table at my weekend breakfast joint and read the following:

1.) ThomsonReuter’s “This Week in Earnings” with SP 500 earnings detail by quarter and the Weekly Revision Report;

2.) The last 6 months we’ve added the Factset “Earnings Insight” written by John Butters;

3.) The Weekly Review by Scott Leuffer of ISI Group. Scott is part of the sales team and sends us what he thinks ISI’s research highlights were for the week. When we get it, it is a “must read”.

4.) Bespoke’s Week In Review, and Sector Snapshot. The 25 – 30 page weekly summary Paul Hickey and staff put out every Friday afternoon, evening is an absolute MUST read.

5.) The weekend Barron’s, Weekend Investor’s Business Daily, and the Chicago Tribune Sports section (to see what the local hacks are saying about the Blackhawk’s), always tucked away for me by the local paper guy at one of the few “paper stands” left around downtown Chicago;

We used to get the Saturday New York Times and the Wall Street Journal, but reading another negative article by Gretchen Morgenson can’t be withstood. Actually Gretchen writes the weekly column on Sunday, but that is the prime reason we stopped buying the Sunday NYT. You’d think after one of the worst 13 years stretches for the US equity markets since the Great Depression, they’d occasionally throw in a positive fluff piece for the idiot bulls.

6,) Actually we are spending more and more time on Twitter, even at breakfast, as guys like Josh Brown, Ryan Detrick, Eddy Elfenbein, Jon Najarian, BuckDeerStocks, Phil Pearlman, and a host of others post steadily from 7 am through 11 pm, 7 days a week. Thankfully, I’m single or I would have been beaten to death with a baseball bat long ago, sitting at a neighborhood watering hole, having dinner and catching up on “Tweets”. (Thankfully I put the cell phone away during workouts, or there would never be any respite.)

Those who have other favorite weekend reading materials, please send them to me so I can extend the workweek even longer and spend even more time at my job.

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We’ll start this week with Jeff Miller’s “A Dash of Insight”. Another great read on taper, et al. The only point that I can add to Jeff’s discussion is that given continued “disinflation” there is no cost to continuing QE. It isn’t like the Fed is risking runaway inflation by continuing to leave QE in place, as from my understanding it was a program designed to specifically impact mortgage spreads and thus help housing (to some extent). Love Jeff’s point about QE being just 1% – 2% of daily Treasury market activity. Puts the whole program in perspective;

Ryan Detrick notes that this week is options expiration week. Per Ryan, not surprisingly, this week’s seasonal performance data is still bullish.

As noted in our Weekend Earnings Update yesterday, I expect 2014 to be positive for SP 500 earnings, but the stock market could lag with an active Fed. Think 1994 and Greenspan’s 6 rate increases, which he was widely vilified for at the time. SP 500 EPS grew 19% in 1994, while the SP 500 rose 1% on the year. We have a historical SP 500 EPS and total return data post coming shortly to the blog.

UKarlewitz is the latest addition to our Twitter feed. Excellent tweets such as this one showing that strong years in SP 500 come in two’s, not three’s. Might warrant a more cautious stance. Also this post on the valuation divergence between Developed and Emerging markets is quite telling.

Finally, the reputable and highly-esteemed Josh Brown, with a Tweet we picked up from Jeff Miller’s post on market valuation measures relative to historical norms. If there is one link I would want to send to clients between now and year-end, this would be it.

Our blogging helps us put our thoughts to paper and in the process crystallizes our thinking. Right now, I’m wondering how do I reconcile Ukarlewitz’s historical pattern data, which sounds like is calling for a tough 1h ’14 (which could be the case if “taper” is for real, and the Fed decides to start draining liquidity, however slightly), with Josh Brown’s valuation tweet, which for all practical purposes is saying what we’ve been telling clients: the SP 500 remains reasonably valued, and we are nowhere near market extremes for a 20% correction that Ned Davis is calling for in this weekend’s Barrons. The answer ? I’ll let the market tell us the first week of January. The first 1,5, and 10 trading days are very important tells as full-year indicators.

Our fixed-income accounts and positions are now 1.) Individual taxable and tax-exempt muni’s, (even in IRA accounts), closed-end funds, both municipal (NUV, MEN) and floating-rate (JRO), the TBF (unlevered Inverse Treasury) and cash. With the exception of Blackrock’s floating-rate fund, and one or two positions in Dan Fuss’s Loomis Sayles (flagship) Bond Fund, we have exited open-ended funds entirely, and had done so by mid-summer.

Per Bespoke, the “average” year-end 2014 target for the SP 500 of the 18 broker’s providing an estimate is 1,930 for a gain of 8.71%. The highest expected gain is 13.4% and the lowest is a loss of 1%. The average year-end estimate for 2013 was 1,531 and thus missed or underestimated 2013’s SP 500 performance by 13.73%, all of this data per Bespoke.

Good chart of the IWM, from This Week on Wall Street bloggers, which include Gary Morrow. The TBT chart caught my eye as well. We sold all of our IWM a few weeks ago, but truth be told we were late getting in, and I only wanted it for an end-of-year 2013 push. We find more value in the large-caps, the SP 500 and the SP 100.

Per Bespoke, Telco and Ute’s now most oversold of all the 10 SP 500 sectors. Both sectors together comprise just 6% of the SP 500 by market cap. Both sectors performed very well during the “dividend trade” which was the 2011 and 2012 trade. Don’t have any exposure to either. If Fed doesn’t taper, then both could bounce, although we have no plans to own any positions in either sector. Telecom is down to just 6 companies in the entire sector per Thomson. Why not just fold Telco into Technology and reduce the SP 500 to 9 sectors ?

Interesting post from Jeff Carter of Points&Figures. What is the most important start-up skill ? Sales. I would know, having never have had a sales job and now running my own RIA with absolutely no distribution, etc. I was an analyst on the Street, and know the numbers, but I depend on word-of-mouth to bring in business. That worked in the late 1990’s when the market was getting lots of attention, but as soon as the headlines turned negative, new business dried up. Truth be told, I’ve thumbed my nose at sales positions in the past, but I wish I had those skills today. I really wish I had spent time at a wire house as a broker after college since that would have taught me how to cold call, how to cultivate business, how to network, etc. Clients have become clients because they knew me in some form or fashion, which is a compliment, but I never really learned the “skill” of selling, even soft-selling. The fact is I am more comfortable doing spreadsheet work, valuation work, and analysis. It is not doing me a whole lot of good right now.

Blaine Rollins @361Capital is one of the best reads all week. Usually comes out Monday nights so we’ve done all our homework the prior two days. Still love this work. Blaine packs a ton of info into a very digestable piece.

To wrap-up the weekly links, @ChessNWine is a new technician we are following. Here he talks about Facebook (FB) one of our home runs this year.  We sold 25% of our original position at $54.25 in October. Looks like it is ready to move higher per Chess. Our internal earnings-based valuation model puts in intrinsic value on FB of near $110. Morningstar now values FB closer to $35. Average the two and you get a $70 – $75 intrinsic value.

Thanks for reading. Time for the Bear’s – Brown’s and then the Blackhawk’s tonight.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

 

 

 

 

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