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Fixed Income

Austin Atlantic Asset Management - Money Markets: Spreads Move to Extremes - By S. Sean Kelleher, CFA


The short-term fixed income markets can be a source of great mystery for investors. For example, see if you can answer these questions:

  • What is the most actively traded financial instrument in the world by volume?
  • Who owns more T-bills: government money market funds or the U.S. Federal Reserve?
  • What is IOER? (hint: it has nothing to do the refrain from “Old MacDonald had a Farm”)

The money markets are important for all investors because they are one of the early warning signs of credit risk and supply/demand imbalances. Short term debt instruments are constantly repricing, forcing investors to make relative value decisions on a constant basis. As much as some other commonly monitored “Canaries in the Coal Mine” indicators like implied volatility and the shape of the yield curve, the money markets may hold valuable information regarding future economic conditions.

So, what is happening in these markets today? A lot….

  • First, the money markets are clearly saying “No Fed Activity” for the foreseeable future. On Display 1, the thick blue line represents the yield on U.S. Treasury Bills from 1 day to 12 weeks. With all maturities yielding 2.40% - 2.41%, the T-bill market implies no change to Fed policy through July; in fact, even one-year T-bills yield 2.40%. Meanwhile, the fed funds futures market is pricing in a 50% probability of a rate cut by October. If that comes to bear, 1 year bills are attractive and should rally.
  • The spread between highly-rated Commercial Paper (“CP”) and T-Bills is at a historic low. There are substantial supply/demand issues at work; CP outstanding balances has hovered right around $1 trillion since 2010, even though nominal GDP is up 42% in that period. Strong corporate cashflow has reduced the need for short-dated funding. Meanwhile, CP demand has been growing; prime money market funds, which shrunk in 2016 from $1.6 trillion to $545 billion due to money market reform, have grown 78% since the bottom.  Meanwhile, T-Bill issuance knows no limits; out standings are up 31% since 2010, and supply is growing with the federal deficits. Could CP yield eventually less than T-Bills based on these supply/demand imbalances? We’ll see.
  • While corporations are funding at attractive levels versus the U.S. Government, not so for broker-dealers. Repurchase agreements (“repo”) are the primary mechanism for non-bank financial institutions (like broker-dealers) to finance their trading positions. Repos are short term borrowing (mainly 1-7 days but as long as one year), are over-collateralized by a variety of assets (mainly Treasury securities), and trade at very different levels based on borrower. Display 1 only shows the rate for overnight repos collateralized by U.S. government bonds, which is generally what market participants refer to as the repo rate; in reality, this market ecosystem is much more robust.

 

For most of this decade, repo rates were below the Fed Funds rate. The Fed Funds market is an intra-bank, unsecured rate while the repo rate in Display 1 is secured by government securities. Broker-dealers are, unfortunately, facing the diminished capacity of the banking system to provide financing in the post Dodd-Frank world, pushing up repo rates. This is exacerbated by the recent Fed tightening, which has pushed up the Fed Funds Rate versus IOER as bank reserves have declined. Unfortunately, repo is difficult for retail investors to access; the easiest way is through money market funds, but the terms offered by these vehicles tend to be expensive.

 

Display 1                                                                                                                                                                             

Source: Bloomberg

Answers to our quiz:

  • The most actively traded security in the global financial system is overnight government repo. Daily volumes in 2019 have averaged about $400 billion. By comparison, SPY, the S&P 500 Index ETF, has averaged about $22 billion in daily price volume (source DTCC, Bloomberg).
  • Currently, the Fed owns about $375 billion U.S. T-Bills, while money market funds own over $1 trillion. Quantitative easing has bloated the Fed's balance sheet with Treasury notes and bonds (source: New York Federal Reserve Bank).

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Austin Atlantic Asset Management and its predecessor firms have been managing mutual funds for more than thirty years. Our team is a seasoned, diverse group of investment professionals, bankers, and traders comprised of alumni from Merrill Lynch, Goldman Sachs, Alliance Bernstein along with banks and credit unions. Leveraging experience and creativity, we drive value for traditional bank, credit union, and institutional clients by creating successful strategies and innovative products uniquely suited to serve investment mandates and objectives. See amffunds.com for more details.

The information contained in this report was prepared by Austin Atlantic Asset Management Co., and may be distributed by one or more of its affiliates, including Austin Atlantic Capital Inc., an FINRA and SIPC Member. Although this report is derived using information generally available to the public from sources believed to be reliable, Austin Atlantic Capital, Inc. makes no representation that it is accurate or complete. The material contained herein is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any security.

Read the prospectus carefully before you invest or forward funds. Investors should consider the Fund's investment objectives, risks, charges and expenses carefully before investing. The Fund may not be available to investors in all states, and this does not constitute an offer in those states. The prospectus contains this and other investment information about the Fund. To receive a prospectus, please contact the Fund's Distributor, Austin Atlantic Capital Inc., at (800)982-1846. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. Mutual Funds that invest in securities issued by the U.S. Government or its Agencies are not insured by the U.S. Government, the FDIC or any other government agency.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Austin Atlantic Asset Management and is being posted with Austin Atlantic Asset Management’s permission. The views expressed in this material are solely those of the author and/or Austin Atlantic Asset Management and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


23989




Technical Analysis

ChartSmarter - Discretionary Holding Its Own: WLH TWNK YETI TXRH


Entry summaries:

WLH: Buy stop above 20.20.  Stop 19.

TWNK: Buy here.  Stop 12.75.

YETI: Sell stop to short below 27.  Buy stop 30.

TXRH: Short at 53.50.  Buy stop 55.75.

Discretionary Firm:

  • The consumer seems to be alive and well. Of course the bull argument is in the numbers, the bear case is that money being spent is on credit on money shoppers do not really have. All that matters to market participants is PRICE action, and that is hard to deny. Below is the ratio chart comparing the XLY to the S&P 500 and it shows the stocks within are behaving well. The largest component in the ETF is AMZN and it is on a current 3 session winning streak, and is in the process of forming a handle on a 9 month cup base (potential pivot is 1964.50). The third largest weighting in the XLY is MCD, and it CLOSED just shy of the round 200 number and is looking for a 10 week winning streak depending on Fridays finish. Investors are loving it, pun intended.

Hard Landing:

  • The Jet acquisition was supposed to be a threat to the "AMZN effect", but a look at the ratio chart contrasting the two stocks show its may be muted. Or is there room for two behemoths in the consumer space? I think the latter. The chart below displays the weakness of WMT up against AMZN, but the WMT chart is holding up well on its own. It did record its second straight reversal on earnings today, although it still trades just 5% off most recent 52 week highs. Looking at one year returns however shows a similar path with WMT higher by 18% and AMZN by 20%. Of course AMZN is a higher beta name without a dividend. Both will work for shareholders.

Examples:

  • The leisure space has been a strong one, and below is a best of breed play HLT and how it was presented in our 5/7 Consumer Report. The round number theory came into play with the 90 figure with 11 of the last 12 sessions CLOSING above the figure, with the lone exception being 5/13. It is demonstrating solid relative strength this week higher by nearly 3%, nice follow through after the week ending 5/3 rose 6%. The stock now trades at all time highs.

Special Situations:

  • Homebuilder higher by 82% YTD and lower by 21% over last one year period.
  • Higher 14 of the last 20 weeks, doubling in the process from the round 10 number in late December to 20 figure in early May.
  • Seven of the fourteen weeks in the last 20 rose by at least 6%, with just one losing the same amount.
  • Enter with buy stop above bull flag pivot of 20.20. Break carries measured move to 24.50.
  • Entry WLH 20.20.  Stop 19. 

  • Food play higher by 24% YTD and 5% over last one year period.
  • Higher 20 of the last 28 weeks, after a nice bounce off very round 10 number last November. Up 40% since.
  • Three straight positive earnings reactions higher by 7.2, 6.4 and .5% on 5/9, 2/28 and 11/8/18.
  • Enter here after recent gap fill and hold of secondary offering.
  • Entry TWNK here.  Stop 12.75.

  • Leisure play higher by 85% YTD, but not trades 25% off most recent 52 week highs.
  • Potential three week losing streak would be first since last December. Down 5.5% this week AFTER prior two fell almost 18%.
  • EIGHT consecutive CLOSES below 50 day SMA, after never being below line. Rejected cold at round 30 number on 5/14.
  • Enter with sell stop to short below bear flag pivot of 27. Break carries measured move to 17.
  • Entry YETI 27.  Buy stop 30.

  • Casual dining laggard lower by 12% YTD and over last one year period. Dividend yield of 2.3%.
  • SEVEN consecutive negative reactions losing 11.6, 4.3, 6.4, 4.9, .9, .4 and .8% on 4/30, 2/20, 10/30, 7/31, 5/1, 2/21 and 10/31/17.
  • Both 50 and 200 day SMAs sloping lower and 30% off most recent 52 week highs in strong market unacceptable.
  • Enter short on breakdown into bear pennant at 53.50. Break carries measured move to 48.
  • Entry TXRH 53.50.  Buy stop 55.75.

Good luck.

Entry summaries:

Buy stop above bull flag WLH 20.20.  Stop 19.

Buy after recent gap fill TWNK here.  Stop 12.75.

Sell stop to short below bear flag YETI 27.  Buy stop 30.

Short into bear pennant breakdown TXRH 53.50.  Buy stop 55.75.

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Click here to learn more about ChartSmarter research available through IBKR Account Management.

The author does not hold any positions in the financial instruments referenced in the materials provided.

ChartSmarter is a website dedicated to the art of technical analysis. We focus on both daily and weekly timeframes with a strong emphasis on Japanese candlesticks. Incorporated into our work is the use of traditional technical strategies such as head and shoulders, triangles, gap fills and round number theory. Inside each daily report we highlight 5 names on both the long/short side depending on the overall market conditions. 

The author has worked within the financial industry for more than 25 years, but for the last 8 has centered in primarily of trading capital using technical analysis.

The opinions expressed by the author are his own. Trades or positions discussed by the author are neither a solicitation to buy or sell a security, nor are they investment advice. Recipients should always do their own due diligence before buying or selling a security. Every reader is responsible for his/her decision to buy or sell a security.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from ChartSmarter and is being posted with ChartSmarter’s permission. The views expressed in this material are solely those of the author and/or ChartSmarter and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


23987




Stocks

BlackRock - Why Stability May Be Enough For Cyclicals


Can cyclical stocks continue to trounce defensives? Russ discusses.

Cyclicals rule. After getting trounced in Q4, year-to-date more cyclically oriented stocks and sectors have trounced “defensive”, less-cyclically exposed names. The trend has been even more pronounced during the past month. For example, in April financials have outperformed healthcare by 1200 basis points (bps, or 12% points)!

While healthcare’s under-performance has been in large part driven by growing concerns that, depending on the outcome of the 2020 election, U.S. healthcare policy could undergo a seismic shift, divergent sector performance has not been confined to financials and healthcare.  Month-to-date the technology and consumer discretionary sectors are both up more than 4%, while utilities stocks are down on the month and consumer staple names are up just about 1%.

Can this continue?

Two factors suggest that it can, although probably at a slower pace: defensive sectors are still not that cheap and economic expectations may already reflect enough pessimism.

Starting with valuations, both the S&P 500 utilities and consumer staples sectors are currently trading at a 2-3% premium to the broader market. Although the premium may be justified for staples, as these companies tend to have structurally higher profitability, it looks out of place for the slower growing utility sector. Since the financial crisis U.S. utility stocks have tended to trade at about a 10% discount to the market.

Another way to look at relative value is versus interest rates. Since the financial crisis both sectors have often traded more in line with interest rates than the equity market. This is because many investors think of them as “bond market proxies,” i.e. less volatile stocks you own primarily for the dividend. After taking into account the recent backup in rates, both sectors look too expensive relative to the broader market.

To be fair, both sectors have been more expensive and could probably support premium valuations if economic expectations continue to fall. The challenge for defensive names is it looks like expectations may have already fallen too much.

Some interesting work by my colleague Kevin Bynum illustrates the point.  Looking at previous periods when economic surprises became unusually negative, defined here as periods when the Citi U.S. Economic Surprise Index dipped below -50, these periods tend not to last very long (see Chart 1). This suggests that the recent drop in the U.S. Economic Surprise Index may be fleeting, particularly given the recent easing in financial conditions.

Should the U.S. Surprise Index start to recover from its recent low of -67, this may support further cyclical out-performance. Historically, once the Surprise Index climbed back above -50, cyclical sectors outperformed defensive ones by an average of about 5% during the following six months.

The takeaway

After strong relative performance in Q4, it is not obvious that defensive stocks are particularly cheap. At the same time, assuming any stabilization in growth, particularly relative to expectations, cyclicals can continue to run.

 

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Originally Posted on April 30, 2019

Investing involves risks, including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 2019 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

©2019 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

USRMH0419U-830975-1/1

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this material are solely those of the author and/or BlackRock and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


23851




Macro

Interactive Brokers - Webinar - VectorVest - How to Manage a Portfolio in 10 Minutes


Jerry D'Ambrosio, Manager of Educational Content, VectorVest, LLC

Wed, May 22, 2019 12:00 PM - 1:00 PM EDT

Do you have a broken portfolio? I sure hope not! However, if you feel like your portfolio could use a little fine tuning, please join Mr. Jerry D'Ambrosio, Manager of Educational Content at VectorVest, as he shares some important tips and techniques on how to heal a broken portfolio.

 

Sponsored by VectorVest, LLC

If you can't make it, just register and we'll send you the recording.

Interactive Brokers LLC is a member of NYSE, FINRA, SIPC

Register Here

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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


23988




Macro

Thinknum Media - Vice Goes On Hiring Spree After $250 Million Debt Infusion - By Joshua Fruhlinger


At one point in time, Vice Media ($VICEMEDIA) was heralded as the future of media. Born of street zine roots, it emerged into a forward-looking source for alternative views on everything from tech to politics. And then, somewhat inexplicably, it got too big for its own britches. It sagged under over-estimated valuations, internal chaos, and a reportedly sexist workplace culture. Vice, the media company that invented modern edginess, lost its edge.

 

But after a year-long hiring slowdown that saw openings go from 80 to just 18, Vice appears to be turning things around a bit. The company has added roughly 50 new openings in early May, and early sign that the company is turning itself around with a new path forward.

This hiring spree comes on the heels of a $250 million debt investment from George Soros and other investors intended to help Vice turn itself around. From the looks of things, the first move for the company is to bring in some new talent who will do what Vice needs to do most: develop new, compelling, on-brand content that gets the media company back into circulation.

The new job listings include searches for a Politics Editors and reporters, a sign that Vice intends to improve its news profile leading into the 2020 elections. The company is also looking for an Authoritarianism Reporter and Breaking News Editor.

New job listings for a Benefits Analyst and Compensation Analyst are also indicators that the company will continue to accelerate hiring. Other openings in finance and development show a future that could include new product launches. The full list of new positions and locations: click here.

--

Originally Posted on May 6, 2019

Thinknum is a leading alternative web data provider capturing the digital footprints of over 400,000 companies worldwide across sectors, and provides rich toolsets for extracting intelligence in real time. 

Thinknum creates datasets from a broad array of public online sources, capturing ephemeral information on the products, operating markets, labor markets and more. Thinknum has 150+ clients across major corporations and investment firms. 

Request product demo here.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Thinknum Media and is being posted with Thinknum Media’s permission. The views expressed in this material are solely those of the author and/or Thinknum Media’s and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


23855




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