Broken Pie Chart

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, explain why it's so hard to trade the VIX via options or VIX futures given the nature of the products and how VIX works. Supercore PCE, yeah that's a thing now, came in hot so what does that mean for the Fed and rates? Speaking of the Fed cutting rates, what if they don't cut this year? Later they explore how High Yield Bonds aren't showing any fear and comparing the High Yield spread, the long term annualized total return of the High Yield Bond Index, and how CCC Junk Bonds once were yielding a few years ago what short duration Treasury Bills are yielding now. Oh, and let's not forget to look at the SOX Semiconductor Index which just surged again to new highs.

What is PCE Supercore compared to CPI?

PCE Supercore comes in higher than expected.

What if the Fed doesn't cut interest rates and why they would or wouldn't cut this year?

What is the VIX Index

Explaining VIX Futures and VIX Options

Why its so hard to play the VIX using futures or options?

The VIX Futures curve

What the VIX Futures around the election are showing

What is the high yield spread?

Annualized returns for the High Yield Index since 1997

Examining times when high yield spreads spiked

CCC rated bonds yield to worst

What is a Yield to Worst for bonds?

SOX Semiconductor Index and future projected earnings growth

Remember when Cisco was thought to be the picks and shovels of the internet?

Has Cisco ever eclipsed its 2000 dotcom era highs?

Super Micro Computer joins the S&P 500 Index replacing Whirlpool

Comparing Super Micro Computer's revenues vs Whirlpool's

Largest companies by market cap in each decade

Mentioned in this Episode:

Super Micro Computer joins the S&P 500 Index https://www.cnbc.com/2024/03/01/super-micro-joining-sp-500-after-20-fold-jump-in-stock-in-two-years.html#:~:text=Super%20Micro%20Computer%20is%20joining,in%20extended%20trading%20on%20Friday.

Previous Week's Podcast:

Nvidia To the Moon | Implied Volatility and Earnings | Earnings and Markets Have Low Correlations? | Nvidia Cheap? https://podcasts.apple.com/us/podcast/nvidia-to-the-moon-implied-volatility-and/id1432836154?i=1000646788686

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 Nvidia's beat on earnings, their march towards $2trillion market cap, and how as earnings forecasts rise, even though the stock has made new highs, forward PE ratios go lower. Then, they explore what the options market via implied volatility was forecasting for an Nvidia move post earnings. Later, they review a comparison between the S&P 500 Index annual return vs the EPS growth to see if there is any relationship. Hint, it's not too correlated even when they compare the current year market performance against the 1 year forward actual earnings. All that and more will be explained including some recommendations.

Nvida's stock is rising while its forward PE just got cheaper

Nvidia's recent earnings beat including EPS growth, revenue growth, and gross and net margins

What would it take for Nvida to overtake Microsoft as the largest company in the S&P 500?

Implied move post earnings based on the implied volatility of the options market

Price of the at the money long straddle on Nvidia the afternoon of earnings

Regression analysis of S&P 500 Index annual return vs EPS growth

Correlations between market returns and earnings growth

Comparing correlations with same year market returns vs same year and 1 year forward EPS

Markets are forward looking

Probability of Nvidia reaching $3.06T in market cap in one year per options market

Mentioned in this Episode:

Where returns come from see start of page 23 in Semper Augustus group letter

https://static.fmgsuite.com/media/documents/db64b928-53d6-43a9-a4d0-a9d2f69f76ba.pdf

Previous Week's Podcast:

Put & Call Implied Volatility Mismatch? | US Dollar vs S&P 500 Correlation | Sticky Inflation | Japan Recession | Explaining Why Stocks Go Up (or down)https://podcasts.apple.com/us/podcast/put-call-implied-volatility-mismatch-us-dollar-vs-s/id1432836154?i=1000645873203

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, follow up on last week's PE ration (useless?) discussion explaining how stocks go up or down based on earnings, multiples, and other factors. Then they delve into correlations between the US Dollar Index and the S&P 500 Index. Later, the surprising fact that as Japan's Nikkei Index makes 35-year all-time highs they are in a technical recession. Finally, more evidence shows that inflation may be stickier and some that it may not. As always, they'll have some recommendations!

Explaining how EPS earnings per share works

How the PE can change due to earnings going up or the multiple going up

How a stocks movement from one year to the next can be attributed to earnings and multiples

How the correlation between the US Dollar Index and the S&P 500 Index has flipped of late

Why a lower dollar helps large multinational companies earnings

Congratulations, Japan is making all-time highs while in a technical recession

What is a technical recession that everyone is now calling 2 quarters of negative GDP growth

Car insurance premiums rose another 20% year over year…inflationary?

How lagging price changes may continue to be sticky for inflation

Looking at how OER Owners Equivalent Rent has been trending lower

How higher rates may have put pricing pressure on rents

How market returns and earnings growth aren't the same every year

Mentioned in this Episode:

Historical Returns on Stocks, Bonds and Bills: 1928-2023 NYU Aswath Damodaran https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Previous Week's Podcast:

Is the Forward PE Useless?| S&P 500 Election Seasonality | Gen Z vs. Gen X Special https://podcasts.apple.com/us/podcast/is-the-forward-pe-useless-s-p-500-election/id1432836154?i=1000644953963

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, ask whether forward PE ratios are predictive of future market direction? Then they review how the S&P 500 Index has performed during each presidential election going back to 1996. Does it matter which party (Republicans or Democrats) are in office for markets? Is Tesla going to get kicked out of the Magnificent 7? Later Jay and Derek are joined by two Gen Z'ers (Zander and Bobby), to explore what their views are on money, markets, and take some questions.

Explaining what the forward PE is for the S&P 500 Index

What are the current forward EPS estimates for the S&P 500 Index

What if Forward PE ratios don't tell us too much about future direction for markets?

Cocoa futures go parabolic during latest spike

Where cocoa beans come from

Delinquencies on auto loans rise

Seasonality in markets during presidential election years

Stock market returns when Republicans vs Democrats controlling presidency, senate, and house

Magnificent 6? Is Tesla going to get kicked out of magnificent 7?

Gen Z trading options

Does Gen Z really invest as much as the media suggests?

Where does Gen Z get their financial education online?

Quick explanation on the option greeks

How stocks are discounting the known future of companies

Surprising data on historic stock returns vs real estate

Mentioned in this Episode:

Cocoa prices soar https://www.ft.com/content/c163633a-cd9e-4962-8b7f-3d6c44463405

Historical Returns on Stocks, Bonds and Bills: 1928-2023 NYU Aswath Damodaran https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Previous Week's Podcast:

Too Focused on Fed Rates?| META Earnings Implied Volatility | NAV Erosion Mythhttps://podcasts.apple.com/us/podcast/too-focused-on-fed-rates-meta-earnings-implied-volatility/id1432836154?i=1000644131131

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 and Powell press conference market reaction. Plus, they look at META and Apple option's implied volatilities did or didn't predict the post earnings moves. 1994-95 experience in Fed rates and bond yields compared to today. Later, they set the record straight on what NAV erosion is, why the Shiller PE may not be predictive of markets, low response rates to economic surveys, and correlation between CPI and shipping container rates.

Fed Meeting Powell press conference roiled markets for all of 1 day

Who is right, the bond market or the stock market on rates?

Typical moves in bond yields around fed meetings and outside of fed meetings

The Fed Funds rate and the 10-year treasury bond yield aren't as related as you think

Looking back at the 1994-95 Fed rate hiking and easing cycle

META blows out earnings and adds the most market cap ever in one day

Looking at META options implied volatility pre-earnings to see if it got it right

Reviewing Apple's ATM straddle, implied volatility, and post earnings move

Confusion around what the meaning of NAV erosion is

Total return which includes dividends vs price return.

Correlation between CPI year over year change and container shipping rates

JOLTS Job Openings Less Turnover Survey response rates drop

How economic surveys sample small amounts to gauge total economy

Shiller PE CAPE Ratio and predictive power

Mentioned in this Episode:

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

BLS Bureau of Labor Statistics January 2024 employment report https://www.bls.gov/news.release/pdf/empsit.pdf

Previous Week's Podcast:

What Option Volatility Means for Markets | Is the Market Too Dovish on Interest Rate Expectations? | Does the Fed Need an Economics Lesson?

https://podcasts.apple.com/us/podcast/what-option-volatility-means-for-markets-is-the/id1432836154?i=1000642385904

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 it at once again where they analyze Tesla's implied volatility right before earnings vs what happened. Did the option's market misprice premiums? Also, in the episode they talk about Bitcoin's drop as a sell the news buy the rumor example while Derek argues that Bitcoin's volatility make it unusable as a currency to transact business. Later they dive into some data showing that when markets are up 20% the year before the election, election years historically have never been down and does that mean anything for 2024? Finally, they talk about China's selloff relative to US markets and how everyone thought emerging markets would be the thing in 2023.

Bitcoin in a bear market drawing down greater than 20% from pre-ETF launch high

Bitcoin at least in the short term seems like people bought the rumor but are selling the news

Can Bitcoin be a currency if it drops 20% within a month?

What is an option's implied volatility mean vs an option's historical volatility

Looking at the price of the at the money straddle on Tesla right before earnings

How to figure out what the options market is pricing in for a 1 standard deviation move

Post Tesla earnings did the markets accurately price in how much Tesla moved after earnings?

2023 was up > 20% so what does that mean for election year based on some data?

Election year and the markets

China's stock market gets a little rocky but no bearing on US markets?

Emerging markets were picked at the beginning of 2023 to close the gap on US markets

Emerging markets still underperforming the S&P 500 Index

Explaining how companies earnings in S&P 500 Index are aggregated together not weighted

Comparing Apple's earnings in a quarter to Starbucks and why the big 7 matter most right now

Semiconductors weighting in the S&P 500 Index hits a high

Semiconductors as the picks and shovels, bluejeans play for AI?

Mentioned in this Episode:

What Option Volatility Means for Markets | Is the Market Too Dovish on Interest Rate Expectations? | Does the Fed Need an Economics Lesson?

https://podcasts.apple.com/us/podcast/what-option-volatility-means-for-markets-is-the/id1432836154?i=1000642385904

Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?

https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619

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 discuss whether the Fed grasps how prices historically always rise. That prices never drop and inflation dropping doesn't mean prices go down. Then they discuss the forward earnings estimates showing growth for the S&P 500 Index while comparing price to sales compared to January of 2022. Later, they discuss what the option volatility markets are signaling for the S&P 500 over the near term. All that and more plus is the market pricing in too many rate cuts?

Is the market pricing in too many rate cuts?

What the option volatility markets are signaling for the S&P 500

Inflation dropping doesn't mean prices go down

Supply side inflation vs demand side inflation

Why throwing money (stimulus) into the economy during a supply side problem was misguided

Reviewing option market volatility and what the volatility indicators are telling us about markets

The volatility of volatility (VVIX) movements of late

Forward earnings estimates point to growth expectations for the S&P 500 Index

Mentioned in this Episode:

Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?

https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619

Bitcoin ETF Sell the News? | Expect Stock Market Corrections | Value vs. Growth | Travel Inflation Cooling?https://podcasts.apple.com/us/podcast/bitcoin-etf-sell-the-news-expect-stock-market/id1432836154?i=1000641595251

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 of ZEGA Financial join up to discuss the run up and selloff in bitcoin around the bitcoin spot etf launches. Is it the obvious buy the rumor sell the news situation? How CPI components like lodging away from home and travel pricing are starting to cool. Later, examining the value vs growth debate and whether this is the year for value to finally have its day. Plus, forward PE valuations and how they have fluctuated over the last 2 years.

Bitcoin ETFs finally launch

Bitcoin prices rally ahead of the ETF launch and selloff on launch day

Buy the rumor sell the news?

Why value stocks have had difficulty outpacing growth

Cost of capital value stocks vs growth stocks

CPI travel components are cooling off bringing some pricing power back to consumers

Forward PE ratios

How the forward multiple has expanded after dropping in 2022

Why corrections are normal

Historically the markets suffer corrections but are often up for the year

1987 crash was big but market actually ended the year up

Once again why predictions and guessing market direction can be futile

Mentioned in this Episode:

Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?

https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619

2024 Predictions | Late Year Rally Bullish? | What if Investors Are Expecting Too Many Rate Cuts? https://podcasts.apple.com/us/podcast/2024-predictions-late-year-rally-bullish-what-if-investors/id1432836154?i=1000640245688

0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301

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 this week to discuss some hedging examples and how hedging is cheap right now. They even go through a few examples. Then they get into the sharp rise in container shipping costs before discussing the weaker PMI Services data. Later they note Bloomberg's data showing articles mentioning "soft landing" are the highest since the 2000-2001 recession. A fun segment where they go through data from Unusual Whales showing the 2023 returns from members of congress and which members traded the most including options. Finally, they discuss whether so goes January goes the rest of the year in markets is a good indicator.

The cost of hedging with options is cheap right now.

Examples of hedging using the S&P 500 Index ETF SPY and Nvidia

Zero cost collars to hedge downside risk.

Is good news in markets or bad news in markets good news?

Container shipping costs spike due to the Red Sea and Suez Canal re-routing.

PMI Services data shows employment dipped below 50, which is contraction.

What is the PMI Services Survey?

"Soft Landing" shows up in Bloomberg articles the most since the 2000-2001 recession.

Which members of the US Congress beat the markets last year 2023?

Unusual Whales publishes report showing number of trades and performance of US Congress

Which congressman traded over 4000 times last year?

What does January performance say about the rest of the year's performance in markets?

NY Fed global supply chain pressure index

Mentioned in this Episode:

Report from Unusual Whales showing 2023 members of congress trading returns https://unusualwhales.com/politics/article/congress-trading-report-2023

December ISM Services PMI report https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/december/

NY Federal Reserve Bank Global Supply Chain Pressure Index (GSCPI) https://www.newyorkfed.org/research/policy/gscpi#/interactive

2024 Predictions | Late Year Rally Bullish? | What if Investors Are Expecting Too Many Rate Cuts? https://podcasts.apple.com/us/podcast/2024-predictions-late-year-rally-bullish-what-if-investors/id1432836154?i=1000640245688

0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301

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, go through their 2024 predictions and review how right or wrong they were in 2023. Why predictions are so hard to make and why they are overrated. When markets go up over 10% in the final 2 months of the year historically what does that mean for returns the following year? How earnings growth and market returns are non-correlations. According to NAAIM Active Manager Equity exposure is now greater than 100% compared to the October lows where it was only around 30%. No surprise there as people are more bullish when markets are making highs. 2024 predictions covering interest rates, the fed, markets, earnings, gold, bitcoin, oil and more.

Reviewing the 2023 predictions and how wrong or right they were.

How investors and institutions tend to be more long stocks when markets are at highs

How investor psychology gets in the way of buying when they should be buying

Questioning that everyone sold stocks to go into money market funds.

How bank assets may have rolled into money markets due to low interest rates at banks

Comparing correlations between earnings growth in a year and the market returns

When markets are down greater than 22% in a year, what is the average return the next year?

What if investors are expecting too many Fed rate cuts?

S&P 500 Index price vs EPS during bear markets

When final two months of the year are up greater than 10% what are returns the following year?

NAAIM Active Manager Equity exposure now 103% vs under 30% during October lows

Mentioned in this Episode:

0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301

Everyone Betting on Rate Cuts | Blackrock Buying 44% of Homes? | Record Call Option Volume & VVIX and VIX Out of Synch? https://podcasts.apple.com/us/podcast/everyone-betting-on-rate-cuts-blackrock-buying-44-of/id1432836154?i=1000638850473

No, Wall Street investors haven't bought 44% of homes this year https://finance.yahoo.com/news/no-wall-street-investors-haven-015642526.html

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://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [email protected]

www.zegafinancial.com