Alpha Trader

This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with veteran Wall Street technician and current Realmoney.com columnist Helene Meisler.
Was that it? The great correction of early 2020 was a relatively brief and shallow one. Just days after a bit of fear entered the markets, the major U.S. averages are marking (or close to) new all-time highs. Meisler expects another modest move down is necessary to wring out a few more of the excesses that were evident a few weeks ago.
The moonshot in Tesla (TSLA) is the very definition of parabolic, says Meisler, and while the move down has been panicky (as one would expect), she's looking at the $650 area for support. That discussion leads to a bullish idea: The anti-Tesla, i.e. energy.
The sector has underperformed for some time, and January's plunge might have been the washout necessary for a bottom to form, says Meisler. The ESG fad (or not a fad), the rise of Tesla, fracking ... At some point the bad news has been priced in. Meisler is keeping her eye on the Energy SPDR (XLE), noting it's managing to hold above support even as oil is making new lows.
Another underperformer has been the banking sector, and Meisler thinks the chart of the KBE Bank Index (KBE) vs. the S&P 500 (SPY) has already put in a bottom.
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This week's Alpha Trader podcast features Wolfe Research Managing Director John Roque, and Jerome Levy Forecasting Center Director of Research Sri Thiruvadanthai.
Roque's technical indicators prior to last week were clearly pointing to a coming correction, and the coronavirus scare was the excuse needed for markets to begin heading down. Folks are already wondering when to buy the dip, but Roque notes the move lower has been very modest both in terms of points and time. With the S&P 500 (SPY) at around 3,250, Roque's got his eye on 3,100 before he might consider turning bullish again.
The action has been particularly ugly in energy (XLE), with one midcap index Roque follows down a full 23% just in January! On this, the charts are pretty clear to Roque - crude oil (USO) looks set to test its 2016 lows in the low-$30s (vs. the current $51). Gold (GLD), on the other hand, is looking very good on the charts, plus - as is typical - sentiment is lame, and the yellow metal remains "underowned" by most. Roque's looking for a new all-time high this cycle, surpassing $1,921 seen in 2011.
Before we get too bearish on equities, Roque reminds that the Federal Reserve bank is always at the ready to support markets with whatever tools it has.
The U.S. budget deficit is now forecast to top $1T this year, or 4.3% of GDP, and stay at or above those levels for the foreseeable future. Sri Thiruvadanthai isn't a full-on believer in Modern Monetary Theory (which is wholly unconcerned with deficits for a government that prints its own money), but those folks do have some valid points, he says - most importantly, that default can't happen unless a political decision is made to do so.
The flip side of the choice not to default, however, is inflation, and that is certainly a valid concern at times, says Thiruvadanthai. This, however, isn't one of those times. The Fed has missed its inflation target (from the downside) for eight years running, he says, and the streak looks to be going to nine in 2020.
More concerning to Thiruvadanthai is that the deficits are so high given 50-year lows in unemployment. It suggests to him that "beneath the hood" the economy isn't as strong as it seems, and is being propped up by the deficit.
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The one-way stock market has gotten its excuse to reverse course a bit with the coronavirus panic. Even with the skittishness, hosts Aaron Task and Stephen Alpher note it's only been the most modest of pullbacks so far. Even if inclined to buy-the-dip (and the hosts lean that way), there's no need to rush to do so.
The question at hand: Is the market in a 1999 topping-out scenario or a mid-90s correction within a major bull market? Paul Tudor Jones, Seth Klarman, and even corporate gadfly turned stock-picker Ralph Nader are in the 1999 camp. Bridgewater honchos Ray Dalio and Bob Prince, and Appaloosa's David Tepper, on the other hand, remain bullish. Dalio - holding court at Davos last week - declared "cash is trash."
Dalio's partner Prince even suggested the boom/bust cycle is kaput. The globe's major central banks are in a box, he says, not wanting to hike because of secular deflationary forces, and not wanting to ease in order to have some bullets in the chamber should a downturn hit.
The focus at the moment is on the coronavirus, but this week will see some major Q4 earnings reports, Tesla (TSLA), Apple (AAPL), and Caterpillar (CAT) among them. Tesla's surge is arguably the largest single story in stocks over the past months, and Task wonders exactly how big a number will the company have to report to keep the momentum going. Instead of guessing, the hosts decide to see how the market reacts to either the good or bad news. They point to the recent case of Five Below (FIVE), which tumbled about 20% in response to disappointing holiday sales. Several sessions later, most of that drop had been recouped. A bull on the name might be inclined to stay so.
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Hedge fund manager and editor of Trading With Cody, Cody Willard joins Alpha Trader hosts Aaron Task and Stephen Alpher for this week's podcast.
The episode begins with a discussion of Tesla (TSLA), and Willard - who was a longtime bear on the company (but never short) - began buying close to last year's lows alongside the introduction of the Model 3. Making him even more bullish was the unveiling of the cybertruck. Willard believes every car on the planet over the next five-to-ten years is going to be using some version of the cybertruck's exoskeleton.
It's hard to find hated names in today's one-way stock market, so Willard - strongly bullish long-term - has been doing some trimming around a few long-held positions. "Feet to fire" though, Willard's favorite five stocks are Disney (DIS), Virgin Galactic (SPCE), Spotify (SPOT), Qualcomm (QCOM), and Cisco (CSCO), and Willard spends some time explaining why he's a fan of the companies. Task notes that Cisco kind of deserves the hated name moniker - after all it's down nearly 20% from since mid-summer 2019.
It's the truly revolutionary ideas and industries where we can find future 100- or even 1,000-baggers, says Willard, and space exploration has the potential to be the largest such revolution ever. People are spending too much time worrying about what demand might be for Virgin Galactic's $250K space flights, and not nearly enough time appreciating the technologies that will arise from such activity. Publicly-traded pure plays for space are tough to find beyond SPCE, but Willard is also an owner Aerojet Rocketdyne Holdings (AJRD) and Boeing (BA) on the space idea. He's also an investor in privately-help SpaceX (SPACE).
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Canaccord Genuity Chief Market Strategist Tony Dwyer joins Alpha Trader hosts Aaron Task and Stephen Alpher to kick off the podcast's 2020 season.
Dwyer was among the more bullish strategists last year - and he remains constructive on stocks - but the market's big rise leaves the S&P 500 (SPY) only about 5% below his 2020 target. At the root of Dwyer's bullishness last year was the Fed's about-face, with a switch to rate cuts throughout 2019 vs. the previous years' rate hike cycle.
Currently, a number of technical and sentiment factors are pointing to over-exuberance, says Dwyer, and he's expecting a modest pullback in stocks (timing to be decided upon). The bull market remains intact though, and Dwyer would be a buyer on the dip, particularly in economically sensitive sectors like financials (XLF), industrials (XLI), and information technology (XLK).
Dwyer believes there's been a generational shift in thinking at the Fed, with the central bankers now way more worried about the U.S. becoming the next Japan or Europe, rather than inflation getting to perky. It could be a "very, very long time" before the Fed embarks on another series of rate hikes.
Dwyer also weighs in on the Fed's massive injections of liquidity into the repo market. Smart folks can argue about whether this is simply necessary plumbing or a stealth QE, and Dwyer is happy to defer to their opinions. Bottom line, says Dwyer: "Who cares?" Call it whatever you wish, but the Fed is telling you it's going to inject tens of billions into the system each month. Invest accordingly.
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We're sharing an episode from our Value Investor's Edge Live podcast, hosted on our The Investing Edge channel, in place of our normal Alpha Trader show (which will return next week). This episode features our host, J Mintzmyer of Value Investor’s Edge, speaking with Oystein Kallekev, CEO of Flex LNG, about the overall LNG shipping markets, US-China potential, and IMO 2020 impacts. Shipping has been one of the most buzzed about sectors in the market in recent months, and J is one of the leading experts in the field. We hope you enjoy.
Topics Covered:

1:45 minute mark - Start of discussion- Market review: LNG sentiment now terrible?

4:15 - What market differentials exists between modern and older carriers?

8:05 - Precisely what sort of premium can investors expect to see?

9:35 - Any clear impacts or benefits from the US-China 'Phase 1 Deal'?

13:45 - Do steam propulsion LNG carriers have a future?

17:15 - Any major new technologies on the horizon? 2030 carbon reduction? 

22:15 - What about TFDE propulsion? Is there a clear future for these? 

26:00 - Are there any direct impacts coming from IMO 2020 regulations?

30:40 - Are you planning to increase your charter coverage into 2020?

35:35 - What are your capital allocation priorities with extra free cash?

40:05 - Will dividends be closely tied to earnings going forward?


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Alpha Trader concludes its first season with an interview of Michael Gayed, a prolific and well-followed Seeking Alpha contributor, and also the editor of The Lead-Lag Report.
Inflation expectations have bottomed out, argues Gayed, and if reflation is the theme going forward, that means good things for some lagging equity sectors - notably financials (XLF), emerging markets ([[EEM]], [[VWO]]), and commodities like energy (XLE). On the flip side, reflation would mean just the opposite not just for bonds (TLT), but for anything yield sensitive - REITs ([[IYR]],[[VNQ]]) come to mind.
The government needs inflation, says Gayed, to ease the burden of the many trillions in debt it owes. The Federal Reserve needs it as well, he contends, to allow it the room to raise interest rates from still-extreme low levels that it might have the space to ease during the next downturn.
When reading economic tea leaves, sometimes simple is best. The average home contains massive amounts of lumber, says Gayed. Thus lumber prices can be fairly directly connected to expectations for the future of construction and housing. And if you can figure what's going to happen with construction and housing, you've probably got a pretty good idea of what's going to happen with the economy. For the moment, the action in lumber (up big over the last few months) is giving Gayed confidence in his reflation theme.
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Alpha Trader's 11th episode features hosts Aaron Task and Stephen Alpher riffing on the year just passed, and mulling what might be to come in 2020.
Before getting into 2019, Task reminds just how poor 2018 was - with negative returns across pretty much every asset class of note. That red ink came alongside what turned out to be the end of a multi-year Fed tightening cycle. 2019 brought with it Fed easing, and the market responded by moving sharply higher. The "soft landing" having been achieved, the Fed appears happy (for now) to sit on the sidelines in 2020.
The current period reminds Alpher of the mid-90s, when markets had a bit of a rough go it in 93-94 while Alan Greenspan and company were hiking rates, but bounced in 1995 when the Fed eased a bit. The soft landing set the stage for several more years of a bull run. Staying in the mid-90s, Task digs out The Maestro's famous "irrational exuberance" quip, and says there's nothing approximating that right now. He notes a recent poll in which most respondents said the market was down this year (S&P 500 is up 27% at the moment)!
Being bullish for 2020 doesn't mean it's straight up from here, and the hosts remind the late-90s bull move had sizable hiccups in 1996, 1997, and 1998. They remark that there hasn't been a bear in a long run of Alpha Trader guests - from Eddy Elfenbein to J.C. Parets to Ryan Detrick to Jim O'Shaughnessy to Mark Dow to Jon Najarian.
Task also comes back to the Fed's repo operations which is injecting 10s of billions of dollars into the reserve system each month. He wonders if there's a parallel with the Fed's 1999 liquidity injections to stave off Y2K fears. The Y2K worry proved to be unfounded, and the Fed's goosing did little but help create the final blow-off top of the 90s bull market.
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Alpha Trader's 10th episode features longtime options trader Jon Najarian. Well-known for his CNBC appearances, Jon (along with his brother) is currently hanging his shingle at Market Rebellion.

Don't even try to profit by reacting to the headlines, says Najarian. The machines are way ahead of even the most sophisticated traders. Instead, he says, have a plan in place for what names/sectors are going to be able to sustain a move after the headline has worn off.

Getting to specifics, Najarian has put in place his plan for the trade war. He thinks there will be a resolution (and indeed both sides appeared to acknowledge a deal while this episode was being taped), but also that China - its economy under pressure thanks in part to trade - will continue to pump massive amounts of liquidity into the markets. His largest derivative position at this time is thus the iShares Emerging Markets ETF (EEM).

Najarian is a big fan of the CME's newish Micro E-mini futures contracts, which allow individual investors to get in the futures game with far lower capital than even the E-mini futures. And it's not just about opening a position with a very modest margin requirement, but small players can now more easily tweak those positions as the time and price changes.
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Alpha Trader's ninth episode features Behavioral Macro blog author and former hedge fund manager Mark Dow.
Dare we say, "goldilocks?" The economy continues to move forward without inflation moving higher, says Dow. As for asset prices, lingering fear of the financial crisis is keeping animal spirits somewhat in check. Add it up, and Dow sees the Fed happy to stay on hold well into the next year even as short-term rate markets are (kind of) pricing in another rate cut in 2020.
Dow puts to bed the idea that central bank liquidity is driving the economy and the stock market higher. He notes both the economy and stocks surged from 2015 on even as the Fed was pulling liquidity from the markets (until the recent rate cut cycle). Instead, we can thank the big surge in growth to the big post-election fiscal stimulus package, and as that's worn off, the GDP numbers have come down to more sustainable levels.
Dow reminds that folks are more likely to take on risk when they're comfortable in their jobs and their situations. And we can add in a third factor - when they see people around them making money. Those three items - far more than the level of interest rates - drive risk-taking.
How is Dow positioned going into 2020? He's long for the reasons stated above, but also because he believes there's a "shortage" of both high-quality assets like Treasury paper, and stocks. If you think the permabears are upset now because of their failed macro call, says Dow, wait until valuations go even higher as investors look to put money to work in a stock shortage environment.
Bitcoin is the most "pattern-perfect" asset he's ever seen, says Dow, and what the charts are telling him now is that it's dying. Assets in bull markets typically don't make significantly lower highs, says Dow, and that's what Bitcoin has done.
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