Today’s CPI report confirms that the Fed pays lip service to the idea of quenching the inflation…

What we have right now 75bps FFR – is still very stimulative and pro-inflationary.If the Fed was genuine in its efforts to arrest the inflation, they would have raised 100bps, then 75bps, then 50bps and then 25bps….all last year

Today’s CPI report confirms that the Fed pays lip service to the idea of quenching the inflation…

This news from Target and WalMart last 2 weeks about their need to shed excess inventory due to shifting buying patterns tells us that these retailers can’t forecast changes in demand!

Amazingly, both of these mega-giants employ battalions of Data Scientists and millions of Data servers.The reality of a consumer who bought an extra pair of dumbbells and large computer screens to work out and work from home in lockdowns will not buy any of these for another 5-7 years!

Yet, both WalMart and Target failed to see a profound change in trend: they were still ordering more in-home merchandise as people wanted to break out and enjoy We call it a mean reversion – one of the most profound realities of life…WalMart and Target – I think you can do better!!

 

This news from Target and WalMart last 2 weeks about their need to shed excess inventory due to shifting buying patterns tells us that these retailers can’t forecast changes in demand!

Today’s another downward profit revision from Target confirms what quants know really well but fundamental investors prefer to ignore:

profit revisions tend to recur!It is a cockroach theory…

The rule of thumb – you need to see at least 3-4 negative profit revisions before the negative wave peters out, and, occasionally, it might take a couple of fiscal years!Fortunately, since Target is such an old business – we have data since 1992 on their earnings.Have a look at the Chart for earnings for Target:historically, negative earning revisions (downward pointing arrows) clustered in bunches of 5-6!

Therefore, revisit the profit guide-downs from the last quarter – we will see more of them.

Today’s another downward profit revision from Target confirms what quants know really well but fundamental investors prefer to ignore:

This is a BIG deal:

the mighty Microsoft just issued weak forward guidance.
Have a look how much MSFT benefitted from the Covid lockdowns and stimulus.

Microsoft’s earnings have doubled in 2 years!
Insane!
For all economic and fundamental reasons we should expect its earnings to drop at least 25-30% now to get back in trend.

We will have a lot of these earnings guide downs in the next few months.

This is a BIG deal:

Among the dearth of positive news in the Technology space, Salesforce stood out!

They beat and raised! – Sweet

but, at the same time they cautioned about “more measured pace of hiring going forward”.

That stands in strong contrast to the pattern of the behavior of their outgoing celebrity CEO, who is always “pedal to the metal”.

Again, our simple take is consistent with the broad trend in Technology is, unfortunately, down…

Wish I was wrong though!

Among the dearth of positive news in the Technology space, Salesforce stood out!

Why recession and a bear market would be painful….

The incomplete list of major drags on stock market is extraordinary heavy:

  1. huge slowdown in demand on Covid-related and demand pull forward
  2. reversal in Covid fiscal stimulus 
  3. higher taxes (on a margin)
  4. higher inflation
  5. higher regulation (of Technology, Crypto, Energy, Infrastructure)
  6. higher interest rates
  7. China slowdown

Besides these, you have nothing to worry about!

Why recession and a bear market would be painful….

The market wouldn’t find a bottom until it starts going down on bad news.

Just the fact that a relatively small SNAP was able to knock off 1.5% from Technology and 2.6% from Discretionary stocks tells us how early we are in the market selling process.

Remember, that the market never makes bottom on good news, it makes a bottom, when the last seller is gone.

Unfortunately, we are still very, very far away from that….

The market wouldn’t find a bottom until it starts going down on bad news.

How low can Bitcoin plunge?

I.e. what would be a bet-a-farm kinda bargain?
Two ways to frame this – fundamentally and technically: 
1) FUNDAMENTALLY: 
The dominant player among cryptocurrencies would have to a dominant blockchain protocol.
Yet, we’ve seen the dominant player in crypto yet.
Today’s landgrab is highly reminiscent of the dotcom bubble and the subsequent collapse of the early 2000s.
We can simplistically compare investing in Bitcoin to investing in Yahoo back then – at the height of the internet bubble. 
Just like an early entrant Yahoo was overtaken later by a far more sophisticated engine Google, now the chances of Bitcoin being overtaken by other more advanced blockchains protocols are very, very, very high….
One thing we know for sure, Bitcoin blockchain protocol is no longer the best, not even close

2) TECHNICALLY:
Historical charts of Bitcoin are hard to interpret. 
Naively, previous strong support levels emerge at the 7,500 – 10,500 levels.
But nobody wants to hear that.

How low can Bitcoin plunge?

What does it tell us that: Amazon seeks to Sublease, or even bail out of its warehouse leases as online sales cool?

This is a big deal. It is one thing when a young Peloton (having grossly miscalculated the size of the market) is shutting down its plants, but it is a whole different story when the mighty Amazon (that employs tons of Data Scientists and even economists to forecast) fails to do that.

1) Is the economy slowing down too fast?or, 
2) Were their long-term expansion plans so off the mark?Neither answer bodes well for Amazon and its stock…

What does it tell us that: Amazon seeks to Sublease, or even bail out of its warehouse leases as online sales cool?

Investors assume that the recession in Europe would be far worse than in the US because Europe would need to overhaul its commodities purchases.

Deliberately showcasing the contrarian stance, we think that the recession in the US would be just as bad, if not worse than in Europe, because:
1. The US has benefited from this insane, unreasonable fiscal and monetary stimulus. Now, we are facing massive payback on that demand pull-forward.  
2. The superstrong US Dollar makes European exports more competitive vs. the American services not just in the trans-Atlantic trade but globally. 
 – Just think where Americans would want to travel this summer: again to Mt. Rushmore or Italian Tuscany?
 – To that point, see how trading surpluses are ALREADY improving for many European countries
3. The US still has a structural and unsustainable budget and trade deficits that it has to address at some point
4. on the Commodities side – again it is mostly a wash: commodity pricing is so interconnected (with few hard-to ship categories like Natural Gas), so moves in Commodities globally would be very similar
5. The US has benefitted from this Technology boom (from Venture Capital down to hiring), and now that is colling down fast, really fast.
6. Europe (broadly speaking) was stricter and later with the post-Covid reopening, so it would get that reopening jolt now
7. And, last but not least: Europe is just so strikingly beautiful!

Investors assume that the recession in Europe would be far worse than in the US because Europe would need to overhaul its commodities purchases.