What Are Retail Investors Buying Right Now?

Submitted by Nicholas Colas of DataTrek Research

Today we want to expand on our recent thoughts on “What are retail investors buying right now?” We showed last week, courtesy of Fidelity Investments data, that mom-and-pops are still adding to positions even on breakouts in US equities. Further, the names at the top of the retail investor league table tend to be single stock Tech names rather than ETFs. Yesterday, for example, Fido’s retail customers were net buyers of NVDA, AMZN, and BABA and those names were the most heavily traded.

One way to assess general interest in any topic is to see what “Autofills” as you start typing into a search engine box. For example, enter “Buy a” into Google, and in NYC the autofills are: "Star", “bitcoin", “car”, “domain”, “dog”.

We assume the first is a holiday gift idea and the second a reflection of the ongoing crypto craze. And “Bitcoin bites dog” does seems to capture the spirit of the age… Autofill works, after all, by using Big Data analysis to guess what you might type next based on how other users in your area completed the same initial text.

To see which specific equities search engine users express the most interesting in purchasing, we typed “Buy stock in” and then noted what Google, Yahoo and Bing came back with in terms of autofills.

For Google “Buy Stock In” the autofills were: Amazon, bitcoin, Apple, Tesla, Weed

For Yahoo!: Marijuana, Amazon, Facebook, Disney, Tesla

For Bing: Amazon, Nike, Wal-Mart, Google, Netflix

Not surprisingly, technology companies dominate popular investment interest; do not, however, slough this off as less-informed retail investors just buying what they know. The point here is that the general population thinks these are the most attractive investment ideas – stocks they want to, or wish they could, own.

This is one (of several) reasons we question the sustainability of any rotation out of the large cap Tech sector in the context of a continued bull market for US stocks generally. Simply put, for many individual investors technology IS the US equity market. And if those stocks do not continue to rise, their enthusiasm for allocating incremental capital to equities may well diminish. Will they trust a US stock market where financials or industrials are the leadership names?

It is hard to imagine “Buy stock in Citibank/JP Morgan/Wells Fargo” ever making it to the top of the autofill charts.

Meanwhile, South Korean Industrial Production Crashes

With South Korean stocks soaring in the face of nukes from their northern neighbor and a credit-crunching China, it appears the South Korean economy just caught down to reality...

South Korean Industrial Production crashed 5.9% YoY in October - the biggest plunge since Feb 2013 - driven by a 17.5% collapse in auto production.

Economists had forecast a 3.0% surge in IP this month.

Of course, for the rampant buyers of South Korean stocks, none of that matters...

What If The "Exuberance" Is "Irrational"? Then Hold On To Your Hats...

As discussed earlier, Goldman"s entire S&P500 price forecast for 2018 and the next three years is based on two things: tax reform passing, but more broadly, something that David Kostin dubbed "Rational Exuberance", to wit:

“Rational exuberance” best describes our forecast for the trajectory of the S&P 500 during the next several years. Earnings drive stocks over time and should support the index rising to 2850 at year-end 2018, 3000 at the end of 2019, and 3100 by the close of 2020, representing a price gain during the next three years of 20%. Our price targets imply a modest expansion in forward P/E multiple to 18.2x at year-end 2018, a flat multiple in 2019, and a contraction to 18.1x in 2020.

As Kostin describes it, "rational exuberance" is defined by "above-trend US and global economic growth, low inflation, low albeit slowly rising interest rates, and underlying corporate profits boosted by pending corporate tax reform likely to be adopted by early next year."

So far so good, but as Kostin also explained, absent tax reform passing, the S&P will not only not hit 3,100 in 3 years, it may well be lower: "Assuming tax reform passes, we forecast S&P 500 adjusted EPS will jump by 14% to $150 in 2018. Equity investors will be rewarded as the index advances by 11% to 2850 at year-end 2018 and delivers a total return of 13% including the 2% dividend yield." Meanwhile, "If tax reform fails, S&P 500 will fall near-term by 5% to 2450."

It was not clear what would happen to Goldman"s 2020 S&P price target of 3,100 if tax reform does not pass.

What was clear is what would - according to Goldman - happen if the rational exuberance is, in fact, irrational. Here the bank notes that it is impossible to know ex post what flavor the current exuberance has: "Unfortunately, it is only in retrospect that one can definitively establish that assets have reached unsustainable levels. Greenspan was prescient, but three years early. Following Greenspan’s speech warning of the potential for excessive valuations, the S&P 500 subsequently more than doubled (+116%) during the next three years before the Tech bubble finally peaked in March 2000 at a forward P/E multiple of 24x."

So what would happen if the exuberance that awaits the S&P is, in fact, irrational? To that question, Goldman has a ready answer: "We would deem it “irrational exuberance” if the S&P 500 during the next three years followed the exponential trajectory of stocks in the late 1990s."

In such a case, Goldman predicts that the S&P 500 would trade at 5300 by year-end 2020 (a 105% rise from today). If slightly "less irrational" bubble over the next three years would mean stocks instead trade at a similar forward P/E to the Tech Bubble (24x), and would imply a year-end 2020 index level of 4050 (57% above today). During the three years post Greenspan’s speech, S&P 500 EPS rose by 26% ($40 to $50). Translated to today, Goldman calculates such a growth rate would imply 2020 EPS of $166 compared with our estimate of $163.

And for the visual traders, the light blue line in the chart below - i.e., the "irrational" one - would recreate the late 1990s exuberance in the context of today"s market.

Just Two Charts

Before the cash equity market opens, we thought these two charts may help...

FX carry is not helping...

 

And bonds ain"t buying it...

 

Bonus Chart - the yield curve just hit a new cycle low...

Is the Difference Now Permanent?

From the Slope of Hope: I will start off with a chart that, in a sea of tens of thousands of charts, stood out as shocking:

What the chart represents is the percentage drop from whatever the record high was. In other words, it shows the percentage loss a person would have had if they had bought at the highest point in the history of the market.

What stunned me about the chart was how for nearly half a decade stocks have been absolutely "pinned" to the top. There was a tiny dip in late 2015, but since that time, there hasn"t been a single drop in the market of even 5%, and even those tiny 1% and 2% drops have been utterly healed.

In other words, hell on earth for an equity bear. Absolute. Living. Hell.

Of course, equity bulls are doing fine, and those who didn"t trade the market prior to 2012 must figure this is the easiest thing in the known universe. Indeed, they probably feel like geniuses. Because all you do is deposit some money, pick a few random stocks, and voila, you have more money than before.

Why should anybody even bother working, with such easy money out there?

Of course, those of us who study markets for a living know that there"s a pretty simple reason for this unidirectional "market" of ours......

Hell, it even applies right down to the individual stocks!

So the question I ponder with increasing frequency now - - and it"s a question whose potential answer chills me to the bone - - is this: what if it really is different this time? And, more important, what if this difference is permanent?

What if, in the relatively brief history of public equity markets, it simply took this much progress in technology, central bank knowledge, and economic scholarship to finally figure out how to completely control the market without serious price inflation?

What if, as recent history shows, equities will merely increase in price in perpetuity? They might not move that swiftly, but they will, more or less, become more valuable, with a sprinkling of tiny drops here and there to make sure people don"t go completely hog wild.

Let"s think of this from a different angle: as you probably know, the market for diamonds is tightly controlled. De Beers has mastered the art of the cartel. If diamonds were simply in a huge global open market, with price discovery fully allowed, there is no doubt prices would be far lower (albeit more volatile), because they actually are NOT that rare or precious.

As it is, though, De Beers has balanced massive marketing ("a diamond is forever"........."how can you make two months" salary last forever?") with artificially-controlled supply to yield a market with pretty much zero volatility and a steadily increasing price.

Maybe the chart above is the future of stocks. I really don"t know.

But do you notice there"s no active public market for buying and selling diamond as a commodity? And that there aren"t any technical analysts for diamond charts? Or that there"s no national network devoted to news related to diamonds? It"s because all of that stuff would be drop-dead boring, because prices are controlled, and predictable, and not worthy of examination. Someone figured out how to control the market. And thus the "market" no longer exists.

God help us all............us chartists especially...........if this is the new world order for equities.

Sick Of Bitcoin? Then Buy This Mystery Bubble Stock

Unhappy about the 30% decline in Bitcoin (after it has rallied 545% year-to-date), then how about this mystery bubble stock?

It has the same attractive vertical chart pattern...

It"s now more expensive than Bitcoin - so that must be good...

But you better hurry, because it seems that as Bitcoin collapses, so "investors" are rushing into this mystery bubble stock...

What is this mystery bubble stock? Simple, see here.

Restoration Hardware Shorts Annihilated After Company Announces 50% Of Stock Repurchased

Restoration Hardware shorts had it too good for too long.

After reporting abysmal numbers in Q3 2016, Q1 2016, Q4 2015 - when the company went so far to blame its own crashing stock price for poor earnings - RH stock more than doubled after its better than expected Q4 2016 numbers as long-suffering investors (not to mentioned squeezed shorts) assumed that that was finally it: that the company has finally turned the corner. It all came crashing again last quarter, when as we reported "Restoration Hardware Imploded After Terrible Guidance, Bizarre Disclosures."

Sadly for the shorts, who doubled down on their efforts to slam the stock, it all ended last night with a bank, not a whimper, when the company reported better than expected Q3 ESP and revenue and lifted its sales and profit forecasts for the year. On the subsequent analyst call, CEO Gary Friedman said he expects that RH, which has faced concerns about its high debt level, would generate about $400 million in free cash flow in 2017, once again reverting to the company"s infamous optimistic posture. That “should address any concerns about our balance sheet and debt ratios,” he said.

More importantly, the company also unveiled a full blown war with shorts, when in its press release it announced that since the beginning of the year, the company had repurchased an unprecedented 49.5% of its shares outstanding, spending a record $1 billlion on buybacks in the 6 months ended July 2017. To wit:

We have reinvested the $282 million of free cash flow generated in the first half, and the $263 million of cash and investments on our balance sheet at the beginning of the year towards the repurchase of our stock, which we believe is an excellent allocation of capital for the long-term benefit of our shareholders. We have repurchased 20.2 million shares to date in 2017, or 49.5% of the shares outstanding at the beginning of the year. Outside of the convertible notes that are due in June 2019 and June 2020, we had aggregate debt of approximately $504 million at the end of the second quarter, including a $100 million second lien bridge loan that we expect to repay in full by year end.

And here is what may be the most amazing cash flow statement we have ever seen: the company borrowed $460 million in 2017, and used virtually all of its available cash and working capital to repurchase stock.

The company also said that "we believe that our shares remain undervalued, and we will continue to evaluate further share repurchases based upon market conditions and our capital allocation priorities"even if it means conducting half a management buyout of the company just to punish the shorts.

That is all the panicked shorts needed to hear, and as of this morning, a historic short covering squeeze has ensued, with RH stock exploding higher by over 40%, on pace for its best day since the company went public nearly five years ago.

And speaking of short pain, there is plenty of it to go around: there was roughly $528 million in RH short interest at last check, and following today"s mauling, shorts are poised to take $231 million in paper losses if the share price closes at these levels, according to S3 Partners, quoted by the WSJ. That’s likely to encourage some shorts to get out of the trade, according to Ihor Dusaniwsky, head of research at the financial analytics firm.

Until today, RH was the second most heavily shorted stock among home furnishings brands, behind only Williams-Sonoma, although perhaps sensing the turn, the value of the short interest had declined rapidly since July, when short interest was at roughly $1 billion.

That"s eased up the cost of borrowing, which had been as high as 71% of the share price on an annualized basis but has since dropped to about 12%, according to S3 Partners. Still, that fee for most stocks is below 1%.

While the chart below shows now-dated information, management"s plan was clear: buyback as much stock as possible, and crush as many shorts as possible before reporting modestly good numbers and a sterling outlook. For now, it appears to have achieved its mission.

Still, the war between longs and shorts is far from over: between the end of last year and July 19, when the stock hit its highest closing level of 2017, shares climbed more than 150% as the company executed a share repurchase program. That was right around the time that short interest peaked, and the stock subsequently dropped 36% through Wednesday.

Naturally, chasing price, the WSJ reports that some analysts said they’re finding a lot to like in the stock after the earnings report. Bradley Thomas and Sameet Desai, analysts at KeyBanc Capital Markets, said in a note to clients that, “while our July downgrade to Sector Weight was predicated on valuation and leverage, we find ourselves increasingly positive on RH.”

And so, here come the sellside upgrades, dutifully following the surge in the price, just in time for the company to massively disappoint again in three months when it once again misses its wildly optimistic forecast, sending the stock crashing yet again and resetting this rather entertaining (if not for the shorts today) cycle.

Meanwhile, one question that has emerged: with RH repurchasing half of its outstanding stock, will there be naked shorts who are physically unable to cover their bearish bets, in the process prompting speculation of yet another Volkswagen-type event, as a scramble begins to cover at any price?

VIX Tops 15, Stocks Hit "Fire & Fury" Lows As Cohn Doubts Continue

Amended statements from The White House have left investors doubting whether Gary Cohn will "remain" at The White House and that has sent stocks plunging to "Fire & Fury" lows and VIX back above 15...

VIX back over 15...

For now, Nasdaq is leading the charge lower..

Nasdaq VIX is surging...

Nasdaq Tumbles Below Key Technical Support

The brief respite bounce after Europe closed has failed and US equity markets are tumbling once again.

Nasdaq is leading the drop...

With FANG Stocks erasing all the post-NFLX earnings gains...

S&P is near its 50-day moving average and Nasdaq just broke below its 50-day moving-average for the first time in over a month...

And Nasdaq VIX is back above 18.

The Stock Market Is Like Yellowstone: "It's Beautiful, But It Has A Volcano Underneath It"

Authored by Mac Slavo via SHTFplan.com,

Anyone putting money in the stock market at this point should have their head examined. The fact that the stock market had reached a record high for the ninth day in a row should be enough for any rational person to see that we’re in a bubble of massive proportions. But there’s also the fact that all of the big players in the investment community are backing out of stocks like there’s no tomorrow.

Sovereign wealth funds are pulling their money out of stock markets in developed countries, corporate insiders are selling stocks in their own companies, and infamous investment companies like Goldman Sachs are admitting that there’s a 99% chance that the stock market won’t keep rising like this in the near future. Berkshire Hathaway, the 7th largest company in the S&P 500, is sitting on a $100 billion dollar pile of cash that grows year after year, because as the stock market climbs to new heights, there aren’t many attractive investments left. You can’t buy low and sell high when there are no lows, and that should say a lot about current state of the economy.

The latest damning report on the stock market comes from Barry James, the president of James Advantage Fund. In a recent interview with CNBC he compared the global market to Yellowstone National Park.

“It’s beautiful, but it has a volcano underneath it.”

“Even though [the market] looks beautiful - setting new highs, good momentum, and earnings have been coming in strong, [there are] things to worry about,” explained the portfolio manager recently on CNBC’s “Futures Now.”

Aside from the rise of passive investing, which James says is creating a “herd mentality” among investors, he also believed that the earnings picture isn’t telling the whole story.

“In the 18 months ending in June, we saw companies that had no earnings, they were losing money, outperform those that were making money,” said James. He highlighted many stocks’ performances this year may not be reflective of their revenues.

And when you look at the data behind these stocks, you’ll find that we’ve been down this road before, and it’s not pretty. Much like Goldman Sachs’ prediction that the market simply cannot sustain itself at this rate, James sees evidence that we’re in for a crash sometime in the next year.

But the biggest threat to the market rally, according to James, is the current valuation levels of stocks.

“We went back to 1994 and researched team data that said [that if we look at cyclically adjusted P/E, one out of two times] the market was down in the next 12 months, and about one out of three times it was down more than 10 percent,” he said.

The stock market has defied all expectations for years. We’re in the one of the longest bull markets in history, which has also coincided with some of the worst economic growth numbers ever recorded, and that obviously isn’t sustainable. Every day that passes, the odds of our economy crashing go up a little more, and the investors who know this are getting out while they still can.

Dismal Chinese Trade Data Sparks Panic-Buying In US Stocks

Because nothing says "panic-buy" stocks like the worst Chinese trade data of the year.

Something "odd" ocurred at 0943ET. Stocks were lower and VIX higher, when suddenly...

Nasdaq was panic-bid...

VIX was monkey-hammered...

And "Most Shorted" Stocks were squeezed higher...

Of course, this week does line up for a melt-up...

Tech Wreck 2.0? FANG Stocks Suddenly Slammed, Nasdaq Dives, VIX Spikes Above 10

VIX is suddenly spiking higher (back above 10) and stocks lower - amid no obvious catalyst...

Nasdaq is tumbling...

As Dow Transports suffer their second biggest drop in 10 months...

And FANG Stocks dive...

NFLX and GOOGL are the big laggards today/this week...

We note that Bloomberg reported earlier that gains for Facebook and Amazon.com account for about two-thirds of the S&P 500’s 5 point gain.

Do Algos read Howard Marks?

Emerging Market Mania - Fed 'Tightening' Sparks Best Gains Since 1993

Emerging market stocks head into the second half of 2017 following their best string of monthly gains since 1993 as strength in the U.S. equities, economic growth in China and better-than-expected earnings boosted appetite.

While there are some concerns about growth in the technology sector in the second half, valuations haven’t reached a peak, said Jingyi Pan, a market strategist at IG Asia Pte in Singapore.

Second-quarter earnings results could be the key to whether stocks extend gains in the next six months, she said.

Bond Bloodbath Continues, Tech Stocks Sink To 2-Month Lows

It all started off well, dip-buyers moved in on quiet volume and everything was awesome. But then the cash market opened and selling started in both bonds and stocks, slamming both to 2-month lows...

The dead cat bounce in FANG stocks is over...

And the bond bloodbath continues...

As the dollar strengthens...

John Podesta denies ever holding stock in Kremlin-back company despite reports

"I didn"t have any stock in a Russian company"

(INTELLIHUB) — Hillary Clinton’s former Campaign Chairman John Podesta appeared on Fox Business on Thursday to talk about his secret House Intelligence Committee meeting over the ‘Russia election meddling probe’ but instead was unexpectedly bombarded with real and viable questions from “Mornings with Maria” host Maria Bartiromo.

During the segment Bartiromo asked Podesta if he finds it odd that “there has been so much attention on the Trump Campaign, his associates, and their potential collusion with Russia when , in fact, it’s really the Democrats who have deeper and stronger ties to Russia.”

The host asked Podesta about his widely reported ties to a Kremlin-backed company in which he was given 75,000 shares of stock, as previously reported by Intellihub in a March 27 report titled: “Report: John Podesta failed to disclose 75,000 stock shares in Russian financed company.”

“Maria that’s not true,” Podesta responded. “I fully disclosed and was completely compliant with, oh and by the way I divested before I went into the White House.”

To no surprise, Podesta, who is also the main focus of the online Pizzagate conspiracy, categorically denies Bartiromo’s claims and maintains the story is “not true,” despite existing evidence to the contrary.

“I didn’t have any stock in any Russian company, so go back and get your facts straight Maria,” Podesta said. “It’s not a Russian company.”

Via Intellihub

©2017. INTELLIHUB.COM. All Rights Reserved.

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Shepard Ambellas is an opinion journalist, analyst, and the founder and editor-in-chief of Intellihub News & Politics (Intellihub.com). Shepard is also known for producing Shade: The Motion Picture (2013) and appearing on Travel Channel’s America Declassified (2013). Shepard is a regular contributor to Infowars. Read more from Shep’s World. Follow Shep on Facebook and Twitter.

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Grocery stocks crashing after Amazon buys Whole Foods

Portal Abras/Flickr

Whole Foods stock was halted for ‘news pending’… and now we have the answer – Amazon to acquire Whole Foods Market for $42/share in an all-cash transaction valued at ~$13.7b, including Whole Foods Market’s net debt.

With 9% of the float short this stock, we can only imagine the squeeze onm this 27% premium over last night’s close.

Full Statement:

Amazon (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM) today announced that they have entered into a definitive merger agreement under which Amazon will acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO.

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

Via Zero Hedge