Expectations Blockage – Short Spectranetics Corp (SPNC)

It’s important to understand how to evaluate a company. But it’s even more important to know how to evaluate other investors.

It all comes down to expectations. What is the majority expecting? How can they be surprised? These factors are what move a stock’s price.

And nowhere is this phenomenon more prevalent than in growth stocks. 

Take The Spectranetics Corporation (SPNC) for example. From 2012 to 2015, this cardiovascular medical device maker rocketed 345%.  

How’d this happen? Did it have consistently strong earnings? Read more

The Fed Already Tightened 3.25% And Probably Doesn't Know It

The Fed Already Tightened 3.25% And Probably Doesn’t Know It

  • As seen in the Shadow Federal Funds Rate, the effective interest rate was as low as -3% in April of 2014 before the Fed started tightening.
  • The current rate of 0.25% means the Fed has already tightened by 3.25%.
  • There is no way the Fed will stick to its proposed rate hike schedule. If it does, we should expect crippling deflation, a market crash, and a resulting depression.

“Don’t Fight The Fed” is a Wall St. adage as old as the Central Bank itself. The reason for its staying power is that it’s absolutely true. Interest rates set by the Fed are one of the single most important factors affecting stocks and the wider economy.

The Fed Funds Rate affects the interest you pay on a car loan, the demand for housing, the hurdle rate for a company to make capital expenditures, the discount rate used to value companies and their stock, and much more. Read more

Long Bonds: A Safe Haven In Volatile Markets

Long Bonds: A Safe Haven In Volatile Markets

  • Long dated US treasuries do well in times of market volatility and provide their best returns during bear markets.
  • US debt is viewed as a safe haven when markets are in turmoil and investors flood into them.
  • Recessions are deflationary and inflation expectations plummet. This increases the expected real return on bonds.
  • Lower growth and lower inflation lead to a lower federal funds rate. This rate is transmitted throughout the yield curve and results in lower yields across multiple durations.
  • A potential ease in selling pressure from China will also help propel bonds higher.

Read more

Short UPS: What Brown Can't Do For You

Short UPS: What Brown Can’t Do For You

  • Amazon’s potential delivery service is not a significant threat to UPS.
  • The real problem they face is a slowdown in the economy.
  • The faltering economy along with lower oil prices and a stronger dollar are tanking UPS’ stock price.

When it comes to the United Parcel Service (NYSE:UPS), investors love talking about the threat of Amazon (NASDAQ:AMZN). There’s constant chatter that Amazon is creating a delivery network to crush UPS. And that’s why you should sell.

Yes, it’s true. You should sell UPS. But not because of Amazon. Amazon may be a long-term threat, but investors are blowing it out of proportion. The real reason you should sell is because of massive macroeconomic headwinds. These macro drivers trump any problems Amazon may cause.

UPS is in the business of making deliveries. They’re the busiest and most profitable when the economy is booming. But that’s not what’s currently happening in the US. Our economy is slowing.

The faltering economy along with lower oil prices and a stronger dollar are killing UPS.

But before we get into that, let’s first clear up the confusion about Amazon. Read more

ConocoPhillips: The Dividend Isn't Worth The Potential Squeeze

ConocoPhillips: The Dividend Isn’t Worth The Potential Squeeze

  • A bet on ConocoPhillips is a leveraged bet on oil.
  • Why there’s a good chance the dividend will be cut.
  • There are safer plays for a dividend investor looking to put money into an E&P.

I’ve heard many income investors pitching ConocoPhillips (NYSE:COP) as a great value at its current price and 6.4% dividend (one of the higher yields among large E&Ps). Their analysis relies on two assumptions. First, current oil prices are unsustainable and will soon rebound. Second, ConocoPhillips’ dividend is sacred to management and is therefore safe from being cut.

I believe these investors have fallen prey to a bit of recency bias and a lot of wishful thinking. Dig into the assumptions and you find that buying ConocoPhillips as a value income play is far from a sure thing – and in fact comes with quite a bit of downside risk.

A bet on ConocoPhillips is a bet on the future price of oil. Read more

Stop Listening To Blowhard Oil Bulls

Stop Listening To Blowhard Oil Bulls

Some investors truly deserve a gold medal. The mental gymnastics they execute to avoid evidence contrary to their beliefs is amazing.

Instead of objectively assessing the avalanche of data that runs against their long-held opinions; they spin, distort, and bend over backwards to twist reality into what they want to be true.

Why? Because nothing is more important to these people than proving themselves right… even if that ultimately means staying wrong.

This human foible is perhaps no more prevalent than in the financial commentary space. And currently, the greatest examples of this are the indefatigable commentariat of oil bulls. Read more

2016 Is Shaping Up to Be a Year of Market Volatility After a Difficult 2015

2016 is shaping up to be a volatile year for financial markets. In order to get an understanding of how major asset classes will perform this year, let’s review their performance in 2015.

2015 Returns Read more

Shorting Wheat Feels Like A Trap

Shorting Wheat Feels Like A Trap

  • There are many factors depressing the price of wheat including the general commodity bear market, wheat’s global supply glut, a strong dollar, and good weather.
  • But with overwhelmingly bearish expectations for wheat, is there any room left to the downside?
  • We believe expectations are too bearish and that El Niño is a strong candidate to surprise overly short investors and cause prices to rebound hard.

Every once in awhile you run across an irresistible chart pattern. A pattern that tempts you like no other. Even as a practitioner of , your trigger finger still itches at the sight of it. You can’t wait to jump in and ride that beautiful trend.

That’s the sensation we get when looking at wheat futures (/ZW) to the short side.

Wheat is pushing up against a huge support line. The horizontal extends all the way back to 2007. Break that level and look out below…. Read more

Singapore Can’t Escape The Asian Currency Wars (Long USD/SGD)

  • The yuan devaluation will put upward pressure on USD/SGD.
  • The MAS must react to keep their economy from contracting.
  • Singapore is very vulnerable to currency shifts due to a large import/export market.

Singapore, an economy known for its disciplined monetary and fiscal policy, has managed to get caught in the crossfire of a currency war with no easy way out.

Ever since Abenomics, Asian currency wars have been a dominant theme for macro investors. A currency war begins when one country decides to devalue their currency in order to stimulate export demand. But neighboring countries with stronger currencies have a harder time competing for exports so they begin to devalue as well. What ends up happening is a “race to the bottom” where both countries end up devaluing their currencies into oblivion in order to stay competitive in the global marketplace. Read more

Apple: There Will Be No Asian Miracle

 

  • Although cash flush, AAPL isn’t exciting investors anymore
  • Its growth story hinges on China, where the macro picture is deteriorating
  • India shows lukewarm demand as well
  • AAPL isn’t innovating like they used to and is instead depending on stock buybacks

Read more