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Morning Commentary

More Signs of Prosperity  

By Charles Payne, CEO & Principal Analyst
8/8/2018 9:35 AM
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Signs of Prosperity: Silicon Valley

Much has been made of the big tech names that have powered the stock market over the last couple of years, as some of the unicorns have come public to less-than-stellar debuts. The fact is the spigots have opened again in Silicon Valley, and the funds are flowing. According to the Bloomberg U.S. Startups Barometer, there has been a 40% increase (8.6.17 to 8.6.18 and up 111%) since the inauguration of President Trump.

Exits, which include entrepreneurs selling or going public, climbed 56% year-over-year, and that fuels excitement and attracts even more funding. 

Trade War

For months, a chorus of financial experts predicted the economy and the stock market would crash because of ill-advised trade battles. Conventional wisdom has varied from not fighting them in the first place to perhaps gathering our allies to help push back against China (and of course, looking the other way, with respect to the lack of fairness in those relationships).  

Now, those experts that called for - in many cases, have wished for- a stock market collapse are saying: “well, the market would be even higher.” They never lose the debate because they are smarter than everyone else, even folks that have seen and lived the damage of unfair trade for decades. They just move the goalpost or will blame future economic hiccups and pullbacks on tariffs (“see, we told you so”).

Yesterday, the market chimed in and suggested the same, even though or maybe because China’s media has gone ballistic with bombastic comments about China’s resolve. And how the same tariffs are employed by China regarding vicious imperialistic weapons when employed by others (maybe that was American media…I get confused).

Positioning for Resolution?

On Tuesday, the Dow Jones Industrial Average saw strong gains from names with the greatest Chinese exposure, including Boeing (BA) and Caterpillar (CAT).   

However, it was the action in the Shenzhen Stock Exchange that really caught my eye. The Shenzhen rallied 2.75% but is still down 47.0% from May 1, 2015. It could be an intermittent bounce of an exchange that’s down significantly, or it might be a sign that smart money sees a resolution sooner rather than later.

Shenzhen Stock Exchange 5-Year Chart

Jobs Boom

The number of job openings in America edged up to another all-time high in the month of June. The 6.66 million jobs is a great testament to the American economy. There is a job opening for every person without a job in America (see chart). The biggest % increases are in the following:

I’m surprised there aren’t more people quitting their jobs; overall, this was another great symbol of America’s rapidly evolving job market.

Steady Consumer

I continue to say the new American consumer is much better at self-regulating their spending. The latest example comes from the Federal Reserve report on consumer credit. In June, consumer credit increased $10.2 billion, well short of consensus of $16.05 billion. The reason for the shortfall was the $185 million decline in credit debt after it popped by $9.6 billion in May.

The Message of the Market

Market breadth continues to improve, which is critical for the largest equity indices to breakout to new highs. Still, losing issues are getting hammered, which keeps the ratio of advancing to declining volume extremely close.


Short Squeeze

I’m not a fan of shorts, and I think they have too much leverage to beat down companies breaking the will of shareholders regardless of the fundamental story. The smaller the target, the more leverage shorts have to create carnage. The big shorts also get airtime on television and well-placed and timed articles in key publications. 

I understand shorts can play a healthy role in the market, and we suggest shorting from time to time, but in recent years, it has gone from identifying overvalued and vulnerable stocks to destroying companies.

For a long time, the name that Wall Street hated the most has been Tesla (TSLA). Despite their disdain and nonstop attacks on the stock, Telsa has foiled the shorts over and over. In fact, I found a headline saying Tesla was the “biggest headache” for short sellers for the year of 2013.

We should get more clarity on the offer to take Tesla private at $420 a share this morning.

During the session, there were other stocks with monster short positions that rallied, including the Turtle Beach Corporation (HEAR) and Mallinckrodt (MNK).

Tesla Motors Inc. has ranked as one of the biggest headaches for short sellers this year

Market Watch

May 22, 2013

After the close on Tuesday, several earnings reports triggered short squeezes:

Today’s Session

Let’s see how the shorts strike back, because they will, and often they do it immediately after suffering giant paper losses.  Major equity indices are on a roll, so let’s see how much profit-taking there is this morning.

The reason why more aren't changing jobs is the same reason I'm not. I'd take a severe pay cut which doesn't work for me.
It was interesting to see where one of my previous employers a decade ago actually pays a few cents shy of what my pay rate was. When taking inflation into account the people working there now make $3 per hour less.

Brian Bigelow on 8/8/2018 10:24:56 AM
Brian, is sounds to me from your comment that the market value of jobs like yours has gone down over time, and that's why employers aren't raising wages for those jobs. The best solution is usually to grow the economy to increase the number of jobs available so there are more jobs than qualified applicants. Then wages will rise. Take care.

George Elliott on 8/8/2018 1:57:29 PM
Shorts should be regulated much more stringently. The Exchanges should not be gamed like a Casino to the detriment of retail investors. For all the speculators,hedgers,option traders it's like playing poker. As a long term buy and hold mostly investor for my retirement I feel that I'm at a disadvantage to these other folks.
And btw the current administration should get totally on economic messages and stop all the other noise except National Security.

garro on 8/8/2018 2:22:02 PM
The shorters,hedgers,option traders,etc treat the exchanges like a casino. As a long term buy and hold (for the most part) investor trying to build a retirement portfolio I often feel cheated by the actions of the gambling guys of Wall Street.

garro on 8/8/2018 2:26:52 PM

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