Alpha Trader

The eight episode of Alpha Trader features longtime energy trader Bob Iaccino of Path Trading Partners.
Asked to handicap this week's OPEC meeting, Iaccino doesn't expect additional production cuts (nor does he see the cooperation for cuts in the future). One reason is OPEC's dwindling influence over the global crude market. He notes the previous cut had little effect, and OPEC likely realizes it would take a drastic reduction to really move prices higher. Another reason is the Saudi Aramco IPO - the company is now answerable to shareholders instead of The Kingdom, and is likely to have greater focus on things like profits and dividends.
On whether the beat-up energy sector (XLE) might be a good investment, Iaccino isn't so sure. Not "big on correlations," Iaccino believes that if you've got an opinion on crude oil, you ought to be trading crude oil futures, not energy names, nor ETFs like [[USO]].
Prior to chatting with Iaccino, Task and Alpher talk about Monday's tariff news - first the president re-imposing tariffs on Brazil and Argentina, and then Commerce Secretary Ross reiterating that December 15 is the deadline for China to make a deal or face higher tariffs. If 2019 has been the year when companies were able to sail past the difficult tariff news, will 2020 be the year when higher costs catch up?
The Fed meets this week, and isn't expected to continue with the rate cut cycle - news that surely won't sit well with the president. The central bank takes heat from everyone, but with the end of rate cuts (for now), it's worth considering whether the Fed has accomplished the so-called "soft landing."
Speaking of the economy, the early overall holiday sales picture is looking strong, with the online juggernaut continuing, but retailers like Walmart (WMT) and Target (TGT) adjusting very well, particularly with their in-store pickup initiatives. Amazon (AMZN) has been the category killer, but if Walmart and Target - with their well-located real estate - are going to become distribution centers, perhaps the onus is now on the House of Bezos to adjust.
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The seventh episode of Alpha Trader features Jim O'Shaughnessy, who helms O'Shaughnessy Asset Management, and is the author of several book on the market, including the seminal What Works on Wall Street.

"Arbitraging human nature is the last sustainable edge," says O'Shaughnessy when asked if "what worked" when that book was published (1997) still works today. In other words, yes, systematic and rules-based strategies still have a place for investors looking for alpha.

Passive investors, suggests O'Shaughnessy have one point of failure - things are cruising along, the market drops 20%, they start reading the headlines, panic, and sell ... often at the bottom. Active investors have an additional point of failure - that they will abandon a possibly successful, but underperforming strategy at just the wrong time.

Turning to the more practical, O'Shaughnessy talks about one favored strategy, and that's buybacks. It's underperformed of late, but the data going a long way back is pretty definitive - companies that are active in returning cash to shareholders do significantly better over time than those who spend the money otherwise. To be more specific, large-cap companies that are cheap, operate with low leverage, and are high-conviction in their buybacks (5% or more of the float) are the ones you want to look for.

Prior to chatting with O'Shaughnessy, Task and Alpher get ready for Black Friday by looking at some recent retailer earnings - in particular strong numbers from Walmart (WMT) and Target (TGT). Results and the 2019 price charts (up and to the right) suggest the consumer is doing just fine and both companies have successfully navigated the China tariffs.

The hosts also consider the rise in animal spirits as evidenced by what's quickly become a sizable wave in M&A activity. It might prove to be a harbinger of a Santa Claus rally as investors place bets on who's next to be taken over.
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The sixth episode of Alpha Trader features not one, but two guests, with hosts Aaron Task and Stephen Alpher speaking to longtime gold trader Scott Bauer and stock market strategist Ryan Detrick.

First up is Detrick, who talks about the record-breaking length of this economic cycle - currently 124 months and counting. While this may suggest the bull run is getting long in the tooth, Detrick notes nominal GDP has grown just 50% over the 10 years, or roughly inline with post-war economic up-cycles. It suggests to him that there's room to run.

Detrick also reminds that the Fed has just completed a series of three 25-basis point rate cuts. The central bank did the same in 1975, 1995, and 1998, and on average, the S&P 500 was up 10% six months later and 20% a year later.

As for sectors, Detrick is excited that the financials (XLF) and industrials (XLI) look to be rotating into market leadership. Another favorite headed into 2020 is technology (XLK). But aren't stocks expensive? At 17.5 next year's earnings, says Detrick, the valuation of the S&P 500 isn't all that fancy when you factor in just 2% inflation.

And the question on everyone's mind: Holiday rally? Detrick checked the stats for years (like this one) where the S&P 500 has been up 20% YTD going into November. In those years, the market was green in November 100% of the time (7 out of 7), and green in December 86% of the time (6 out of 7).

While looking for a bounce in gold in the short term, Scott Bauer isn't as bullish on the longer-term prospect for the yellow metal. Why? Gold this year has benefitted from geopolitical worries and sluggish economic growth. Over coming years, Bauer expects many of these concerns to fade and global economies to synch upward - both should work to pressure gold prices.

As for actionable trades, Bauer is looking at the options market, and taking advantage of the current low volatility and his bullish short-term outlook. Low vol means options are relatively cheap, and he's got his eye on a March call spread at the CME struck nicely above the current price. The potential payoff, says Bauer, is 5-to-1.

Longer-term, Bauer isn't a huge fan of options as the premium can get too expensive. Instead he would recommend the Micro Gold contract on the CME, which has much lower margin requirements, thus allowing individual investors easier entry and the ability to scale into larger positions.
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The fifth episode of Alpha Trader features hosts Aaron Task and Stephen Alpher talking to the WSJ's Greg Zuckerman, author of The Man Who Solved The Market: How Jim Simons Launched The Quant Revolution.

Already a highly accomplished mathematician and successful commodities trader, Jim Simons in his mid-40s wanted more, and took his particular set of skills to the far deeper world of stocks. Equities trading then (the mid-80s) was dominated by fundamental analysis, but Simons didn't know the first thing about dissecting a balance sheet or income statement.

Simons (and team) relied instead on harnessing massive amounts of data into purely algorithmic strategies for trading stocks. Money soon began rolling in by the truckload - since 1988, Renaissance Technologies' flagship Medallion Fund has generated average annual returns of 66% and trading profits topping $100B. It's also changed the financial world. Today, so-called quants are the largest players in the markets, accounting for about 30% of stock trading.

Renaissance is famously secretive, but Zuckerman somehow found a few to open up (just a bit), including Jim Simons himself. It makes for a fascinating story. Sorry, no trading strategies are revealed!

Prior to their chat with Zuckerman, Task and Alpher mull last week's big move higher in interest rates. The surge in yields across maturities for now does away with the inverted curve, though it's only modestly sloped upward. The 10-year yield, however, remains relatively low compared to levels seen just a few months ago. Was last week's action the start of a larger trend?

Also up for discussion is today's highly-anticipated launch of Disney Plus (DIS), and what that might mean for the world of streaming, Netflix (NFLX) in particular. At $6.99 per month, Disney's service is a good deal cheaper than Netflix's most popular plan. While large numbers of folks might not ditch Netflix for Disney, the days of Netflix's pricing power may be coming to an end.
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The fourth episode of Alpha Trader features hosts Aaron Task and Stephen Alpher talking to Jim Grant, the founder and editor of Grant's Interest Rate Observer.
The business of modern-day central banking, says Grant, is the business of manipulating the most sensitive price in capitalism - the rate of interest. If Jay Powell can't seem to get anything right, it's because the very nature of his job assures he'll be wrong. At least, notes Grant, Powell hasn't taken the U.S. down the path of negative interest rates (yet).
Of the pressure Powell is getting from the man who appointed him to the role, Grant reminds this sort of criticism goes back to the days of Andrew Jackson, but Jackson - with Twitter unavailable - was perhaps a bit more tasteful about it.
Turning to the credit cycle, Grant believes we're at a precarious stage. Exhibit A is Uber, which at the Grant's offices is known as "interest rates on wheels." The company has about $12B in losses over the past few years, and today sits no closer to profitability (or even a path to it). WeWork is a similar story that at least got sniffed out before being sold to the public. Over the course of a few weeks, it went from a $50B valuation to needing a bailout to stay afloat. Efficient Markets Theory anyone?
Grant then brings up a unicorn maybe you haven't heard about, and that's German fintech player N26. Its co-founder over the summer told the FT, "In all honesty, profitability is not one of our core metrics." This, says an incredulous Grant, "is the kind of thing that causes the market gods to hurl down thunderbolts at us mortals."
Moving to long ideas, Grant is a fan of Altria. Yes, it's in the business of selling a product many don't approve of, but the inelasticity of demand for cigarettes over the years has been nothing short of remarkable. Altria continues to generate an enormous amount of cash, allowing for a current dividend yield of 7.5% - positively mountainous in these days of microscopic interest rates.
Prior to chatting with Grant, Task and Alpher discuss the latest Fed rate cut and employment report. The Fed on Wednesday gave off the vibe that it's done with the "mid-cycle adjustment," and the strong jobs number on Friday, for now, is making the central bank look good in that assessment.
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The third episode of Alpha Trader features hosts Aaron Task and Stephen Alpher talking CME Group Chief Economist Blu Putnam, with topics moving from the Fed, to Brexit, and then back to these shores and the U.S. economy.
The Fed is surely cutting rates this week, says Putnam, but the FOMC is quite divided - some are arguing that rate cuts aren't needed, and others are pushing for an even faster pace of monetary ease. He's going to be very interested in how Fed Chair Jay Powell navigates these differences at his post-meeting press conference.
The Fed's new bill-purchase facility isn't necessarily normal open-market operations plumbing, says Putnam, but neither is it a new QE program. There was no doubt some stress in the repo markets earlier this month, but Putnam reminds that volatility in overnight rates was way higher in the 90s, so perhaps today's market participants have just been put to sleep by the past years' calm conditions. As for the QE question, Putnam says there's a big difference between what the Fed is doing today and its program of a few years ago: QE involved the purchase of vast amounts of long-dated paper, while the current actions involve only very short maturities.
Moving across the pond, Putnam says Brexit is going to happen in one form or another, but what we're seeing is a lot of jockeying about who leads the U.K going forward. The Tories are divided and Labour is divided - the question for both is how they can play Brexit and then come out in power next year and beyond.
Ahead of the talk with Putnam, Task and Alpher continue to scratch their heads about how rate cuts are even part of the conversation given a 3.5% unemployment rate. Is President Trump really influencing the Fed, or is Jay Powell's "mid-cycle adjustment" just an attempt at what in The Maestro's days was called the "soft landing?"
Earnings season is well upon us, and Task notes that larger amounts of S&P 500 companies than normal are topping estimates. Is it good news, or just a good job by managements of massaging expectations? And finally that nagging question - when does Amazon (AMZN) stop being a big grower and start paying a dividend?
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The latest episode for Alpha Trader features hosts Aaron Task and Stephen Alpher talking with J.C. Parets of All Star Charts. J.C. is pure technician - caring not a whit about any of the news, but instead purely focused on what the charts are saying. And what is he hearing? Stocks for the last couple of years have essentially been in a consolidation following an historically strong bull market. This sort of pattern typically resolves in a continuation of the previous trend - meaning a fresh bull run lays ahead.

Making Parets even more optimistic is market sentiment. He notes that pessimism today - with equity markets globally more or less at all-time highs - is greater than it was last December, when markets were falling apart. Strong price action alongside terrible market sentiment is a "killer combination," he says.

It's not just stocks. Bitcoin, gold, and the dollar also have price charts, and J.C. has interesting outlooks on all three.

Ahead of the chat with Parets, Task and Alpher mull last week's surprisingly hawkish comments from the usually dovish Chicago Fed President Charles Evans. Markets have priced in another rate cut at the Fed's late-October meeting. Is a surprise in store?
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Eddy Elfenbein runs the must-read Crossing Wall Street blog and is portfolio manager for the AdvisorShares Focused Equity ETF (CWS). Elfenbein is notable for creating a Buy List of 25 stocks to get into at the start of the year, and then sticking with those names for the next 52 weeks. Also notable: Said list has topped the return of the S&P 500 for 13 straight years, and is set to do so again in 2019.
In this initial episode for Alpha Trader, hosts Aaron Task and Stephen Alpher talk markets with Elfenbein. To preview: With the S&P 500 possessing a yield well above nearly the entirety of the Treasury yield curve, Elfenbein has a hard time finding a reason to be bearish.
Checking the 2019 Buy List, Ross Stores (ROST) is among the stronger performers with a 34% gain. Elfenbein describes the company as very well-run, with management that tends to disappoint with guidance, and then thrill with actual results. Eagle Bancorp (EGBN) is having a rough run (down 13%), but Elfenbein remains a bull. Hurting the stock, says Elfenbein, are overblown worries about the bank's tangental connection to a financial scandal.
Among other topics covered is the implosion in WeWork (WE), and what that might mean for the markets. Far from the indication of a bubble, says Elfenbein, the WeWork saga may point to very healthy times. He reminds of a couple of decades ago when companies with no indication of any sort of real business model were coming public at multi-billion dollar valuations. Now that was a bubble.
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Welcome to the trailer episode of Alpha Trader - Seeking Alpha’s latest podcast which dives into the most important market news and provides insights on upcoming market events. In this trailer, hosts Aaron Task and Stephen Alpher introduce themselves by chatting about a couple of the best and worst trades of their career. The first full episode is scheduled for release on October 15.
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Alpha Trader is a weekly investor-focused podcast produced by Seeking Alpha that will dive into the most impactful market news and set the stage for upcoming market events. Hosted by Aaron Task and Stephen Alpher, episodes will be available every Tuesday, and will include discussions with market experts on topics relevant to active traders.
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