Broken Pie Chart

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial discuss the idea that the stock market is in a Goldilocks period based on sustained higher margins and earnings growth. Then, they discuss how out of the headlines the Fed has already started easing by reducing their balance sheet runoff each month. Why reducing the Overnight Reverse Repo usage (RRP) isn't restrictive but rather was a reaction to demand for short term treasuries by money markets. Later they talk about how interest rates are below long run averages despite what everyone tells you on CNBC and why high rates may not be a problem. Finally, they look at corporate earnings and profit margins for the S&P 500 Index and how they've growth over the years, gold prices vs oil prices as a predictive model, and yes some shipping container inflationary commentary.

Growth in S&P 500 earnings per share analyst projections

How net profit margins for the S&P 500 Index companies has growth over the years

Why this might be a hated bull market despite some goldilocks market aspects

What could derail this market?

Why profit margins continue to be higher and why they do or don't have to revert to the mean

The Fed balance sheet explained

How the Fed is going to be reducing the amount of bonds running off the balance sheet.

How the Fed is restrictive and easing at the same time

Explaining what the Overnight Reverse Repo Market (RRP) is

Why the Fed reducing the balance of Overnight Reverse Repos isn't restrictive policy

The order of how the Fed may ease (hint, it may not start with interest rates)

The 1990s bull run with higher interest rates and lower profit margins

Maersk container shipping operating hints at higher costs due to capacity, fuel, and congestion

What does higher container shipping costs mean for inflation and prices?

Do Gold prices project out what oil prices will do in the next 19 months?

Explaining the cost of hedging and how it is very cheap to put on downside hedges right now

The cost of a 1 year 10% out of the money put option

The cost of a 1 year ATM at-the-money put option

Using low or no cost collars to hedge the downside

Using long put spreads to hedge or buffer the downside

Mentioned in this Episode

Explaining High Dividend ETFs and Stocks and How Reinvesting Dividends Works to Build Share Count and Compound Returns

https://podcasts.apple.com/us/podcast/reinvesting-high-dividends-deep-dive-unemployment-the/id1432836154?i=1000654585450

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore is back with Jay Pestrichelli, CEO of ZEGA Financial this week to discuss the Jay Powell Fed decision and the latest in employment and inflation. Then, they do a deep dive into dividend reinvestment. Specifically, analyzing the idea of acquiring more shares and can dividends reduce or eventually pay down your initial cost? They then do a deep dive into how the time premium works on options.

Lowest year over year wages since 2021

Unemployment ticks up.

High dividend stocks and dividend reinvestment deep dive

Acquiring more shares through dividend reinvestment

Compounding dividends through dividend reinvestment and increasing share count.

What is shareholder yield?

What is buyback yield vs dividend yield?

Fed higher for longer is now consensus.

What is time value of an option

Looking at option premium and time value through the market maker lens

Exploring the SPX 6000 Call option expiring Dec 31st, 2024, premium and time value

How options are priced

How market makers taking the other side of customer orders have to hedge their positions

Components of unemployment report labor force size vs employed and unemployed

Selling option premium to create high dividends

Mentioned in this Episode

Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306

Now Its 1 Fed Rate Cut? | Nvidia Options Volatility Implied Move at Earnings | Sell in May and Go Away in Election Years? | Inflation Higher Than 1970s? https://podcasts.apple.com/us/podcast/now-its-1-fed-rate-cut-nvidia-options-volatility-implied/id1432836154?i=1000653836218

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore discusses the declining probabilities for Fed interest rate cuts in 2024. Plus, how PCE Supercore did not make the case for Fed rate cuts. Later, looking at the analyst's expectations for earnings growth within the S&P 500 Index. Finally, comments on a paper showing how using the pre-1983 methods to compute CPI Consumer Price Index show we had higher inflation that the 1970s.

Declining Fed Funds rate cut probabilities for 2024.

Explaining how implied interest rates from Fed Funds futures are computed.

The case against rate cuts seems to be buoyed by sticky US CPI Supercore measures.

What is CPI Supercore and PCE Supercore compared to CPI Core and plain old CPI?

Explaining how the US CPI Consumer Price Index used to compute inflation prior to 1983.

How measuring housing inflation changed in 1983.

Why did they change how CPI is measured to owners' equivalent rent?

Looking at the probabilities for rate cuts across different Fed FOMC meeting dates

What about Sell in May and Go Away in election years?

Explaining how to tell what the options market is implying for a 1-standard deviation move

Implied volatility around Nvidia earnings date scheduled for May 22nd

How to calculate the implied move in a stock based on the options market

Examining the at the money ATM straddle on Nvidia options expiring 2 days after earnings

Mentioned in this Episode

Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306

Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA

Previous Week's Podcast:

Market Correction | Mortgage Rates Higher | No Thanks 24-Hour Trading | Synthetic Options https://podcasts.apple.com/us/podcast/market-correction-mortgage-rates-higher-no-thanks-24/id1432836154?i=1000653114012

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Mike Puck from ZEGA Financial discuss Friday's selloff. It's official, we are in a 5% market correction. Looking back at other corrections greater than 5% from the highs. Mortgage rates move back up while 10-year treasury yields surge. Commodities are higher on the year but still down from all-time highs. Gold makes another all time high. Later they look at the value vs growth performance including the magnificent 7 stocks compared to the rest of the market. Finally, stocks and bonds are more correlated than people realize in higher inflation regimes.

Futures selloff overnight and why we don't need 24-hour trading in the stock market

Market corrections of over 5%

30-year mortgage rates are spiking again

Looking at the high yield bond market with spreads widening

10-year treasury bonds on the way to 5%?

Gold makes another all-time high

Stock and bond correlations historical look

Will bonds still be a good hedge against stocks?

Value vs Growth check in

Magnificent 7 vs the rest of the S&P 500 Index

Synthetic option positions

Listener question about knowing what positions make up what strategies

Duration of High Yield Bond Index vs time to maturity and Yield to Worst

Container shipping rates

Check in on where commodity prices are

Mentioned in this Episode

Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA

Previous Week's Podcast:

Market Selloff | No Rate Cuts? | Bitcoin vs Gold | CPI Inflation Sticky | VIX Curve https://podcasts.apple.com/us/podcast/market-selloff-no-rate-cuts-bitcoin-vs-gold-cpi-inflation/id1432836154?i=1000652413865

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss Friday's selloff. So, was it all the readjustment of Fed rate cut expectations? Is CPI Inflation putting the Fed in a box? Michael Saylor says Bitcoin is better than Gold. The rally in Gold that everyone is sleeping on. CPI Supercore trending higher showing services not goods are the culprit. Later they examine the VIX Futures curve as the front months rise. Finally, they talk about the continued bear market due to higher rates on 10-to-30-year US Treasuries from the March 2020 all-time highs against the stock market and high yield.

Michael Saylor Bitcoin vs Gold

Market selloff reasons

High Yield bonds vs equities

CPI Supercore trending higher lately.

CPI Core vs CPI year over year

VIX futures curve and explaining difficulty in picking how to play expected rise in volatility

US 30-Year Treasuries made all-time high in March of 2020 but down -44% since

What would it take for bond holders to get to break even?

Stealth rally in Gold and comparing buying physical gold to gold ETFs GLD and GLDM

Comparing inflation outlook between Democrats, Republics, and Independents

Earnings season arrives while banks reported but talked NIM net interest margins suffering

Mentioned in this Episode

Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA

Previous Week's Podcast:

Buying At All-time Highs Better? | S&P 500 Returns After Last Hike | Developed International Beats the S&P | How To Tell Whether Options Are Expensive https://podcasts.apple.com/us/podcast/buying-at-all-time-highs-better-s-p-500-returns-after/id1432836154?i=1000651729073

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, are back to explore surprising data about buying the market at all-time highs vs any other day. Plus, how do markets and bonds perform post the last fed hike? Later, while you were sleeping developed international markets outperform U.S. markets. And listener question "who do I know what a good price for an option is?"

What is a high or low price for an option?

Components that make up and drive option prices

Market performance post last fed rate hike

Bond market performance after last fed rate hike

MSCI EAFE developed markets international outperforms U.S. large cap

Why people aren't buying the inflation is lower narrative

S&P 500 earnings estimates continue to rise

Forward PE multiple on the S&P 500 dynamic

Unemployment drops as more people are working and in the labor force

How does immigration if at all impact employment data?

How far $100 gets you at the grocery store today vs 2019

Understanding the cumulative effects of inflation vs the year over year percent change

Why high prices aren't going back down as only the rate of future change adjusts

Mentioned in this Episode

How far does $100 get you at the grocery store post inflation? https://www.wsj.com/business/retail/inflation-food-price-of-groceries-2024-5010700b?mod=hp_lead_pos7

Previous Week's Podcast:

Most Record Highs Since 2013 | The Fed No Rush to Cut? | VVIX and VIX Super Quiet | Value vs Growth | Cocoa More Valuable than Gold? https://podcasts.apple.com/us/podcast/most-record-highs-since-2013-the-fed-no-rush-to-cut/id1432836154?i=1000651003743

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss Fed governor Waller (not Christopher Walkin) hinting the Fed should be in no rush to cut interest rates. Plus, we haven't seen this many record stock market highs since Q1 of 2013. So, what does that mean if anything? Examining VVIX and VIX which both are really quiet and low right now. Growth has outperformed value by quite a bit, but do some relative value charts hint value may have its time in the sun? Later, corporate profit margins continue to be strong despite many saying they must revert to the mean. Finally, no Cocoa is not worth more than gold per ounce despite what the internet says.

Fed Governor Waller says no so fast on the need to cut rates

Why would the Fed cut rates if the economy is doing well?

Most record stock market highs since Q1 2013 in Q1 of 2024

Corporate profit margins remain strong

The VVIX has been sitting below the 80 level

VIX index not showing signs of worry

Triple top in the Growth relative to Value chart?

Cocoa futures make another new high

Value of Cocoa futures vs Gold futures

Public service (PSA) difference between price return and dividend adjusted return in ETFs

Mentioned in this Episode

Why cocoa prices spiked and what it means for chocolate lovers from Bloomberg https://www.bloomberg.com/news/articles/2024-03-31/why-cocoa-prices-spiked-and-what-it-means-for-chocolate-lovers

Previous Week's Podcast:

The Fed Gets Bullish? | Markets Don't Go Down Just Because They Go Up | Yield Curve Inversion Record | Bitcoin Halving https://podcasts.apple.com/us/podcast/the-fed-gets-bullish-markets-dont-go-down-just/id1432836154?i=1000650266452

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss the Fed getting bullish by reducing unemployment estimates, raising GDP growth estimates, and doing nothing else but the market liked it. All while the yield curve inversion sets a record for longest in history. What is Bitcoin halving and what does it do for supply and demand? Looking at the stock market after going up a lot, why historically it can continue going (or not) up. Looking at 1995-1999 post Fed cut bullish moves. Why media explanations of 2 or 3 interest rate cuts by the Fed based on the median interest rate aren't entirely true. Tip, how to calculate the median of something. All that and plenty more this week!

What is Bitcoin halving?

How to calculate the median of Fed funds dot plot rate

What is the Fed dot plot

Fed GDP growth rate upped at the March meeting while unemployment rate lowered

Core PCE inflation year end estimate increased by the Fed

Is the Fed just going to let inflation run a little hotter?

1995-1999 super strong S&P 500 market returns

New Yield Curve inversion record

High Yield debt maturity wall pushed out further

High Yield debt can be reduced by paying off, rolling, bankruptcy, or become investment grade

Looking at times when the market was up double digits over 30 days and what happens next

Mentioned in this Episode

What is Bitcoin 'Halving' and Does it Push Up the Cryptocurrency's Price? https://www.bloomberg.com/news/articles/2024-03-06/what-is-bitcoin-halving-and-does-it-push-up-the-cryptocurrency-s-price

Previous Week's Podcast:

Michael Saylor is Right on Bitcoin? |Worst Crash Since 1929 Coming? | Semiconductors Get Big Flows | 0 DTE Option Stats https://podcasts.apple.com/us/podcast/michael-saylor-is-right-on-bitcoin-worst-crash-since/id1432836154?i=1000649479605

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, talk through some examples of options trading in 0 DTE options on the SPX and Nvidia. Plus, a hedge fund manager says the worst crash since 1929 is coming. Looking at huge inflows into the semiconductor ETFs. Derek actually agrees with Michael Saylor's points on Bitcoin including whether it's a currency or property. Media mentions of stock market bubble are rising but so are continued mentions of AI. Finally, PPI producer price index comes in hot especially services while real retail sales still hasn't gone above its 2022 highs. All that and more this week.

Is Bitcoin a currency or property?

MicroStrategy's Michael Saylor interview on CNBC

Hedge fund manager says worst market crash since 1929 coming

How the same people make the same market predictions all the time

Semiconductor ETFs get massive flows of money last week

Examining detailed option data on SPX and NVDA 0 DTE options

Media mentions of "stock market bubble" are rising

Media mentions of AI and artificial intelligence jumped prior to the takeoff in AI stocks

PPI producer price index comes in hotter than expected

Services inflation now higher than goods inflation

Comparing US Deposits at commercial banks vs money markets

Money markets assets hit new highs

What do big money market balances mean for the stock market if anything?

Advanced real (after inflation) retail and restaurant sales

YTD 2024 ETF category flows bitcoin vs gold

Mentioned in this Episode

Michael Saylor CNBC interview about Bitcoin and whether it's a currency or property https://twitter.com/saylor/status/1767178599390458285

Previous Week's Podcast:

Worst Market Timing Ever? | Options Cost of Carry | Option Put Call Parity | Unemployment Bad News Is Bad News? https://podcasts.apple.com/us/podcast/worst-market-timing-ever-options-cost-of-carry/id1432836154?i=1000648820557

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss how the magnificent 7 stocks aren't all going up this year. Plus, reviewing what the worst time to buy stocks was and how investors would have done even if they had. Later, they explain why the last 10-15 years before retirement need growth but hedging. How Japan's central bank might take interest rates from negative to positive, shipping container rates, inflation, Nvidia probabilities and the 15th anniversary of CNBC's "Mark Haines Bottom" 3/10/2009.

What is the cost of carry for options

What is put call parity

Option market probabilities

What if you bought stocks at the worst time twice?

Drawdowns since March of 2000 and October of 2007

15 years since the Mark Haines bottom on CNBC 2009

Comparing stock market drawdowns 2000-2002, 2007-2009, 2018, 2022

Time in the market not timing the market

Japan interest rate probabilities

What may happen if and when Japan raises interest rates?

Japan's currency with a rise in interest rates and implications for US Dollar and Treasuries

Magnificent 7 stocks Tesla, Apple, and Google to name a few are down for the year

Nvidia and Eli Lilly keeping the S&P 500 Index up

Shipping container rates ease but still high, will we see that filter through CPI Inflation data?

Explaining the unemployment report

Mentioned in this Episode

15 year anniversary of the Mark Haines Bottom March 10th 2009 https://twitter.com/carlquintanilla/status/1766138788881826035

Previous Week's Podcast:

Why VIX Is Hard to Trade | SuperCore PCE High Again?| High Yield Bond Spreads | The Fed Is Not Cutting? | Semiconductors Surging (Again) https://podcasts.apple.com/us/podcast/why-vix-is-hard-to-trade-supercore-pce-high-again-high/id1432836154?i=1000647836923

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt

Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore's book Broken Pie Chart https://amzn.to/3S8ADNT

Contact Derek [email protected]

www.zegafinancial.com