Alpha Trader

This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the economy with Joe Brusuelas, chief economist at RSM US.
Politicians and market participants can't get complacent about the economy despite a string of positive reports, says Brusuelas. The economy is only operating at 80% capacity. While there have been "V-shaped" recoveries in financial services (markets), manufacturing, and housing, the service sector remains highly impaired. The result is a "K-shaped" economy, with the upward part of the K representing those select industries bouncing nicely, and the lower part of the K representing the devastating damage elsewhere.
As for another major fiscal stimulus package, Brusuelas is certain it's needed. For those who say the economy continues to rebound despite the previous stimulus running out at the end of July, he reminds that much of August's celebrated economic numbers - including last Friday's nonfarm payrolls (1.37M jobs added, unemployment rate tumbling to 8.4%) - takes data from early in the month, i.e. prior to the true effect of the exhaustion of the stimulus benefits. Brusuelas suspects that economic reports in September and October will be a far better measure of how the economy has responded to the money running out.
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Canaccord Genuity Chief Market Strategist Tony Dwyer for a second time joins hosts Aaron Task and Stephen Alpher on the Alpha Trader podcast.
"There is no precedent to how high valuations can go," said Dwyer, making some news on Monday by pulling his 3,300 target for the S&P 500 (SP500). I have no idea what multiple you pay for an "unlimited" Fed, says Dwyer. 20x? 24x? 30x? 100x?
Dwyer is bullish, but not just because the Fed's new framework and massive U.S. debt loads likely mean 0% policy rates for many more years. There also appears to be a synchronized global recovery at hand. Things won't go up in a straight line - in fact, the current level of frothiness suggests a correction could soon hit - but Dwyer thinks investors ought to be ready to buy any dips.
Dwyer reminds that the "market" of late is essentially a small handful of names that seemingly go higher each day. For much of the rest of the equity universe, it's been a bit of a struggle. He expects leadership might soon change though, with cyclical plays like energy (XLE) and the banks ([[KRE]], [[KBE]]) primed to benefit from the global recovery.
There's plenty more, including why the current period is way more like 2009 (start of major bull market) vs. 1999 (end of major bull market), the outlook for another fiscal stimulus package, and why zero rates forever might not necessarily drive gold higher and the dollar lower.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the markets with Gary Shilling, president of A. Gary Shilling & Co.
A bull on long-dated Treasurys since 1981, Shilling remains so today, not scared away by a 30-year yield at just above 1%. Helped along by very narrow number of names, the S&P 500 is at a record-high, but the economic scene remains quite troubling, says Shilling. What the bond market really cares about, he says, is inflation, and the spread between the 10-year TIPs and 10-year Treasury yields recently narrowed to just 50 basis points, suggesting investors expect nearly no inflation over the next decade. He's telling clients to buy long-dated Treasurys, whether in cash form, ETFs like the iShares 20+ Year Treasury Bond ETF (TLT), or futures contracts at the CME.
As for what bonds might be saying about stocks, Shilling notes that yields this year began falling on January 2, but equities didn't pay attention until mid-late February. He's seeing something similar afoot this summer, with the 10-year yield falling from 0.90% in early June to the current 0.64%. Should equities begin paying attention again, the S&P 500 could be set up to fall 30%-40%.
There's plenty more, including what Fed Chairman Jay Powell might say at Jackson Hole this week and what could get Shilling to change his mind, and instead position himself for sharply higher inflation.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Seeking Alpha contributor and editor of The Lead-Lag Report, Michael Gayed. Gayed is also portfolio manager of the ATAC Rotation Fund, which has managed to walk between the raindrops in 2020, returning about 60% year-to-date.
Prior to the wide-ranging interview with Gayed, Task and Alpher mull Friday afternoon's big news - the disclosure of a $500M stake in Barrick Gold (GOLD) by Berkshire Hathaway ([[BRK.A]], [[BRK.B]]), alongside major cuts in holdings of Wells Fargo (WFC), JPMorgan (JPM), and Goldman Sachs (GS). Warren Buffett, of course, has made no secret over the years of his disdain for investing in the yellow metal, and whether it was The Oracle himself, or Ted Weschler or Todd Combs who made the Barrick purchase remains to be seen. Nevertheless, the news lit a fire under Barrick and the gold miners (GDX) in general on Monday, not to mention maybe playing a role in lifting gold (XAUUSD:CUR) almost back to the $2K level.
The ATAC Rotation Fund is highly tactical and designed for low correlation with broader markets - rotating into Treasurys when indicators point to high volatility, and into equities with leverage when indicators point to low volatility. The fund's signals got it into Treasurys in late January and back into equities in late March - hence, the big gains in 2020. Key to the indicators - the behavior of utilities (XLU) and long-dated Treasurys (TLT).
And what are those indicators saying now? It's a bit cloudy, says Gayed, noting the absolute yields of Treasurys suggests deflationary pressure, but the underperformance of the utility sector suggests reflationary pressure. In the short term, at least, Gayed suspects the reflationary forces will win out.
There's plenty more, including the growing chance of a major selloff in Treasurys, why we should pay attention to the soaring price of lumber, and how Gayed might position his fund for a "two crash" scenario. Finally, we get into Gayed's recent article, "The Greatest Disconnect Between Stocks And The Economy Continues," and how COVID-19 has exposed capitalism's weaknesses.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with CMEGroup Chief Economist Blu Putnam.
The big news over the weekend was the president signing a number of executive orders to keep stimulus monies flowing, but Putnam is wary of the legality, and notes it's the states that have to pay at least some of the extra unemployment money, and they're currently tapped out. He suggests viewing the president's actions as less the final word on the stimulus, and more as a continuing negotiation with Congress.
Checking "nowcast" indicators like flows through TSA security checkpoints, restaurant seating/reservation numbers, and commuter rail traffic, Putnam believes the fast economic bounce seen in May and June pretty much stalled in July.
Bottom line: People's behavior has changed - if not permanently, then certainly for at least a significant period of time - and that's going to mean a pretty drawn out recovery. What about a vaccine? Even if one does come, says Putnam, it's not going to be like flipping a light switch.
Turning to monetary policy, Putnam notes the enormous amount of government debt the Fed is now monetizing. It's driven down not just interest, but also rate volatility. That in turn has left investors of all types trying to capture some sort of yield by moving out the risk curve. That's helped create not just a bull market in stocks, but a bull market in gold, which - thanks to the expansive monetary policy - now finds itself more and more correlated with moves in stocks.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the Fed, gold, the dollar, and the big bull move in stocks with Quoth the Raven himself, Chris Irons of QTR Research.
"The Fed is running the biggest long con in human history," Irons has previously said. By that he means the U.S. central bank for years has chosen the path of attempting to paper over any economic difficulties, rather than allowing markets to clear. The Fed's actions in response to the pandemic amount to papering over on massive amounts of steroids. Indeed, says Irons, the Fed's sole mandate these days has devolved into keeping the stock market rising in order to give the impression that all is well.
It takes a lot of money printing to keep this ball rolling, says Irons, noting the Fed's Neel Kashkari recently said, "We have infinite money" to throw at the current crisis. This sort of heresy against the tenets of responsible central banking has to have consequences (timing to be determined). Among the possibilities: Hyperinflation, a sovereign debt crisis, a major bull market in gold (XAUUSD:CUR), the loss of reserve currency status for the dollar ([[UUP]], [[UDN]]).
Don't get the impression Irons is all doom and gloom, though. There's plenty more, including why he thinks the economy will bounce back better than many think, why we're about to get a deluge of great news on Covid-19 treatments and vaccines, and why the S&P 500 should continue to rip higher.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher speaking with Lyn Alden Schwartzer and Chris DeMuth. Lyn is the founder of Lyn Alden Investment Strategy, and co-author of the Stock Waves service on Seeking Alpha. Chris is the founder of Rangeley Capital and author of the Sifting the World service on Seeking Alpha.
First up is DeMuth to talk about Special Purpose Acquisition Companies, otherwise known as SPACs or blank-check companies. SPACs have been around for some time, but in 2020 appear to be on their way to seriously challenging IPOs as the traditional way for firms to go public. That might be good news, thinks DeMuth, given the shortcomings of the IPO process.
That doesn't mean DeMuth is a fan of all SPACs. In fact, he notes "brutal headwinds" faced by SPACs, and says the odds of a SPAC ultimately succeeding aren't good. Having said that DeMuth says the selective investor can find big winners in the space. Key criteria: Size - they should be larger than the typical SPAC; they have experienced sponsors; they were brought public by a quality underwriter; they ultimately purchase well-known brands familiar to the investing public.
DeMuth then goes on to discuss two SPACs which should fulfill the above criteria: The recently gone-public Bill Ackman vehicle, Pershing Square Tontine Holdings (PSTHU) and Conyers Park II Acquisition Corp. (CPAAU).
Up next is Alden Schwartzer, who currently is expecting a broad, but not particularly deep correction in the equity markets. Her outlook over the next few years, however, gets more interesting.
You might not know it by the performance of the averages lately, but over long periods, an index of equal-weighted large caps tends to outperform an index of market-weighted large caps. That doesn't mean there aren't sizably long periods where market-weighted dominates (such as right now). According to Alden Schwartzer, we're nearing a setup where that action is about to reverse, and equal-weight will again be the place to be. An example of a market-weighted index - the S&P 500 ([[SP500]], [[SPY]]). An example of an equal-weighted ETF - the Invesco S&P 500 Equal Weight ETF (RSP).
Turning to gold (XAUUSD:CUR), Alden Schwartzer has been a bull for awhile, and continues to be so. However, with gold flirting with its all-time high (as of the time of Friday's recording; it pushed through that high on Monday), she wouldn't be surprised by a bit of a pullback here. Longer-term the fundamentals point to gold to move to well over $2,000 per ounce in coming years.
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This week's Alpha Trader features hosts Aaron Task and Stephen Alpher talking equities and gold with Scott Bauer, CEO of Prosper Trading Academy.
The S&P 500 (SP500) has been attempting and failing to bust through the June 8 post-crash high of about 3,230. Bauer fully expects the S&P to not just break out above that level, but to soon challenge the all-time high just shy of 3,400 (the podcast was recorded on Friday morning - the S&P did make it through 3,230, closing at 3,251 on Monday).
What's holding the market back, says Bauer, are the negative headlines about Covid cases and the related halt or reversal of economic re-openings. Take advantage of the volatility, says Bauer, who offers up an options strategy to do just that.
As to which names will lead the market to new highs, Bauer believes it will be the same mega-cap tech stocks that have already led the surge over the past few months. It's win-win, says Bauer, as these plays are in great position to benefit if the economy shuts down again or if economic growth continues. He's not at all a believer in any sort of significant rotation out of the likes of Amazon (AMZN), Google (GOOG), Apple (AAPL), Microsoft (MSFT) into laggard sectors like energy or financials.
In his previous appearance on Alpha Trader in November, Bauer made what turned out to be a very prescient call spread recommendation on gold (XAUUSD:CUR), so we were interested in hearing what he has to say today.
He's still bullish, noting the presidential election should team with Covid for plenty of headline risk in coming months. Despite gold's troubles during the March market panic, Bauer believes the metal remains a great place to be should markets go into "risk off" mode. As in November, he's continuing to play with upside call spreads.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Marc Chaikin, founder and CEO of Chaikin Analytics.
Prior to the chat with Chaikin, Task and Alpher discuss the remarkable run in Tesla (TSLA), and the beginning of Q2 earnings season, with many of the country's largest banks set to report results this week.
For Tesla, it appears poised to enter the S&P 500 as soon as this month, and at its current capitalization north of $300B, it would be a top ten market cap stock in that index. As for the banks, Q2 is widely expected to be their worst quarter since the financial crisis. They've been pretty well sold already though. The question before the court: Has what's sure to be an ugly Q2, and what might be a soft outlook been priced in yet?
Market momentum fueled by Fed liquidity and bearish market sentiment is a better guide than trying to parse the Covid-19 statistics, says Chaikin.
At this point, Chaikin - noting daily record highs in the Nasdaq 100 (QQQ) and a lagging S&P 500 (SP500) - isn't too worried about narrowing breadth and the sort of tech outperformance we haven't seen since 1999. This time is different, says Chaikin, fully aware of the meaning of that phrase. So much money today, he says, is pegged to strategies that force money into the mega-cap growth stocks leading the Nasdaq 100. Chaikin's tech favorites - Adobe (ADBE), Amazon (AMZN), Microsoft (MSFT), Nvidia (NVDA), and his stock of the week, Qualcomm (QCOM).
There's plenty more, including why Chaikin likes high-quality biotech like Regeneron (REGN), why he's not bottom-fishing in roughed up sectors like financials (XLF) and energy (XLE), and why it pays to lighten up whenever a stock spikes higher on earnings.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the second-half outlook with Brad McMillan, chief investment officer at Commonwealth Financial Network.
Prior to the chat with McMillan, Task and Alpher talk about recent market action. Among the items - a bull run that appears to be getting its legs again, and a pickup in dealmaking. Of the bull run, Task notes that an equal-weighted S&P 500 is down 9% since June 8. The move higher in the headline indices of late is getting even more focused on big-cap tech.
Of dealmaking, the hosts are interested to see Warren Buffett and Berkshire Hathaway ([[BRK.A]], [[BRK.B]]) finally putting some of their $137B to work with the $9.7B cash purchase of the natural gas transmission assets of Dominion Energy (D). There was also Monday's $2.65B purchase of Postmates by Uber (UBER), with Task pointing out that this is an all-stock deal. At least Uber thinks its currency is of pretty fancy value right here.
It's hardly surprising that the key to McMillan's outlook rests with what happens with the pandemic. For now, his base case is that we get Covid-19 under control and the economic recovery continues (even if at a slower pace than current). In that case, we're pretty much back to normal by early next year.
That doesn't necessarily mean McMillan's a big bull on the stock market at current levels. Instead, he sees stocks as pretty expensive even if earnings come back, and expects the S&P 500 to end the year about where it stands right now.
There's plenty more, including McMillan's take on the wild swings in jobs numbers we've seen, whether or not we get another stimulus package, and what he considers to be the most underrated economic statistic.
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