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By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Chicago Quantum July 29, 2022 Our first video is about the GDP advanced read by the Bureau of Economic Statistics. It confirms that the US economy looks pretty good, but is shrinking on a real basis (accounting for inflation). Things are moving, like that jogger on a treadmill at the health club in winter, but not fast enough to go anywhere. This is why we feel busy, and jobs look good, but we are not creating any lasting growth. I worry about this all the time, as the wealth of the country's poorest is going to pay for fuel, heat, rent and food. Earnings are up a little, but savings are up 3x more than income growth. People are nervous and saving their money. Rainy day funds...for those who can afford it. In our video we outline the story. We also explored the action of the stock market. Net-Net this is not a market acting like we are in a recession, nor is it acting like a period of rising interest rates. This is an enthusiastic market in an upswing, with strengthening market breadth. We are as surprised as anyone to see this. We discuss the details in our video. Point after point show the market rising in the face of bad news. Amazon has a bad quarter, and the stock is up double digits after hours and pre-market. US Federal Government passes a law to help semiconductor companies, and the established player stocks all drop. OK, that is normal...our government is picking winners and losers with our tax dollars and it upsets the natural order of things. Pre-market moves across economically sensitive industries is pretty mixed. Finally, our model shows price volatility to be flattening out this week. It is elevated, significantly, but the growth has stopped for now. The stocks picked by our CQNS UP run are consumer discretionary, food and beverage, and insurance brokers. The B2B industrial stocks and of course, Berkshire Hathaway B-class shares. A few weeks ago they were picking the NASDAQ large cap darlings like Apple, Microsoft, Google, and others. Those have now run up very quickly, blown out their volatility bubbles, and are back down on the list again. The model is now saying that consumer staples are the group that is consolidating and could either stay flat, or recover. GLTA!
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By: Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure Inc. An Illinois Investment Advisor July 28 pre-market analysis
Equities
VIX
Global equities up too. US Fixed Income
Commodities
US Dollar
Europe
Money Managers
Market Breadth
Physical Miners
Crypto
US Banks
COVID
By: Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure Inc. Today we covered a great many topics while we wait for the FOMC release at 2pm ET. One important topic was to repeat an answer to a question posed by a potential retail investor client. Myron is his name, and he asked: "Can I get some good tips for free? What should a little guy like me invest in?" By way of background, Myron was on a job interview and had some investments he made this year in stocks. He did not remember all the tickers, did not know what the companies did, and did double his money on one trade, but not sure about the others. He bought them on a whim. For a retail investor with limited capital, what I suggest is to take money that you can afford to put to work for five years. Money you won't need for five years for living expenses. In Myron's case, that was $25,000. For the first $10,000 (he is a US citizen), I suggest going to Treasury.gov, or Treasury Direct, and buying I-Series US Savings Bonds directly from the US Treasury. You can lock in a 9.62% interest rate for the first six months. They promise to pay a little 'real' interest after making up for inflation. This is awesome for investors, and there are even some potential tax benefits. We recommend the first $10,000 go into I-Series US Savings Bonds. The next $15,000 goes into a low cost, passive, index equity mutual fund. We like the ones that track the S&P 500 Index although it is 100% ok if you want to put some into a passive index equity mutual fund that mirrors the Nasdaq Composite 100 (although there is significant overlap), and some into the Russell 2000 (small caps). The S&P 500 is our favorite, and provides the best risk-return tradeoff for a retail investor that cannot do the due diligence or run the quantitative models required to find an edge. The fund manager we use personally is Vanguard and have invested in their S&P 500 Admiral Class index fund since the 1990s. Fidelity also has a low-cost fund that should be fine. Also, we are setting up a relationship with The Charles Schwab to be our custodian for client funds. It is likely they have a comparable product as well. The key is to find a very low cost mutual fund (maybe pay 6 or 9 basis points per year in expenses) and to reinvest dividends. In year two, rinse and repeat. Put another $10k into US Savings Bonds and another $15k into US equities and watch your money grow. As your retirement nest-egg grows, and your income grows, there are other types of investments to consider. Hope that helps. This is Jeffrey Cohen. Please click on our youtube video and hear the discussion for yourself. Also, if you like the video, please subscribe to our YouTube channel. It helps spread the word! Oh, and watch out for today's FOMC announcement. We are very surprised that the stock market was set to rise early this morning (hours before market open), bonds were up, the US Dollar was down, and it was a 'risk-on' day. Watch out for Whiplash at 2pm ET today when the same trading organizations consider whether to reverse their bets. By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Today is a typical Summer day in the markets. Low conviction to most moves, and a few 'big plays' to keep people interested while most of (us) are vacationing. Interest rates are inverting. The long duration US Treasury securities are up, having recovered fully from their June falls. Short-term interest rates continue to rise, with bank deposit rates over 2%, FDIC insured, with $1 or $100 minimum deposit. Retail showing more strain. Walmart $WMT is down almost 10% pre-market as they warn that their $60B in inventory will require a sale to clear, and that consumer demand is down due to fuel and food costs. We are not sure there isn't some 'labor market' stress in there as well reducing sales in the stores. We personally saw retail suffering due to labor shortages with reduced hours of operation, messy stores, and longer lines in all retail we visited on our vacation. Other 'safe' dividend stocks have been much weaker than normal. AT&T $T and Verizon $VZ are both down significantly based on concerns that consumers will give up their expensive plans for phone and internet. Another worry is they keep their plans, but they do not pay their bills (or pay them later). We also see weakness in old tech and old financial services ($IBM $INTC) and ($AMP). We do see strength in regional banking, with bank stocks rising on stronger earnings and higher interest rates (short rates) which will allow them to make more profitable loans (in theory). Also, the decline in longer interest rates allows them to lower the price of their mortgages while still maintaining their profit margins. Banks like an inverted yield curve, but not a recession. This could be a short-term bounce higher. We track $KRE as an ETF that tracks US regional banks. We see fixed income getting stronger on lower long-term interest rates, while the Federal Reserve Board FOMC is likely to continue raising short-term interest rates. This could break the system and cause an inverted yield curve, but the market seems to be saying 'What, me worry?' US Covid numbers are up to 120k new cases per day and about 6k new hospital admissions per day. Even our President has Covid. Finally, we comment on President Biden's industrial policy of hope and prayer. This is not encouraging. We suggested the President create a 10-point action plan to recover our US economy, assign 100 Federal Employees to implement each step of the plan, and to track and report on progress to the American people monthly and quarterly. He should also present the plan and open up his Twitter lines to comment and feedback. Did he miss anything? Anything to remove? Will it work? Fine tune in the churn of the market and public opinion. This will help us all work together to recover our economic growth. It is our opinion that a politician should not change the definition of 'Recession' just because we might be in one. That is changing the goal posts in the middle of a Chicago Bears football game, or lowering the basketball hoops in the middle of a Chicago Bulls game. Maybe making the goal larger during a Chicago Blackhawks game. Sure, we would love it to see our teams win for a few moments, but then everyone else gets the same treatment, and all we did was make the games easier...and that is not the point. We will run our model tonight to look at market volatility and update our website with new data.
Good luck in the markets and watch out for the slow days of Summer. By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. Market is set to rise today. Happened on large index futures bets 30 minutes before opening. US Dollar is weaker today, and this helps commodity prices (priced globally in dollars) to rise. Just a remember...the market may be going up this morning, but the longer-term trend is bearish and market breadth was significantly negative yesterday. Fixed Income: ~20:1 new lows to new highs US Equities: ~40:1 new lows to new highs. Variance is flattening but at a significantly higher level. It did not rise yesterday (lol) because the market fell then rose to close with a very small gain or loss. Intra-day moves were significant, ~2% yesterday, but the close paints the tape. US Treasuries are stronger at the longer end (10-year and 30-year). Solid gains in long bonds. However, the short bonds are down, and short-term yields are up. 1-year US Treasury Yields were ~ 3.15%, which is higher than 10-year UST Yields of < 3%. This is a significant inversion of the yield curve and a 'harbinger of bad things to come.' Harbinger...or sooth-sayer or oracle of doom *(recession, correction, decline). Our black swan event on the horizon is war with Russia and NATO. We realize that sanctions against Russia are going to cause poverty and economic pain across Europe due to the cut-off in energy supplies (if it persists). Zero Hedge article naming Deutsche Bank article made me sad this morning. It shows Germans chopping wood, or burning books and furniture, to stay warm. That is poverty in action, and unrealistic. It just means cold, sickness and death across Europe. Let's hope the worlds reaches a peaceful settlement to the crisis in Ukraine, or a decisive and swift victory. By Jeffrey Cohen, Your Investment Advisor Representative US Advanced Computing Infrastructure, Inc. A non-discretionary investment advisor in Illinois. We are very bearish on today's US Equities markets in this video. However, it is all 2nd order effects and macro-economic factors at this point. Lots of indirect causes and malaise. We think the market has only one way to go in the short-term, and that is down to continue the bear market decline.
We discussed multiple issues.
There is probably more that we discussed, such as our discussion with our daughter explaining how the government broke the US dollar and inflation is really high. It is bad for a 12-year old and her 19-year old sister. It is bad for everyone. We worry that the US Federal Reserve and the US Federal Government won't do what it takes to correct inflation, and we worry that they will do what it takes to correct inflation. Unfortunately, by waiting too long and letting the market forces do the heavy lifting, they only have lose-lose options. Those options will cause widespread global poverty. It isn't a good choice. We also worry that Russia will declare war on NATO. This is our black swan event concern and it will change things for the remainder of my lifetime, and likely most of yours. Good luck in the markets today. Jeffrey Cohen By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. We were up early today looking at the markets. Found a few key points to share.
Russia called a special session, EMERGENCY Session of their DUMA. Black Swan Event would be a War declaration against NATO. Bear Market Thesis: Market Breadth is negative 19:1 fixed income Equities 18.5:1 New Lows to New Highs. NASDAQ COMPOSITE 100 in a bear flag, testing the lower end. Overall CPI ‘shit the bed’ with evidence of inflation acceleration in June 2022. Shelter is up, along with food, energy, cars and most everything else. Don’t catch a falling knife today FOMO is a cost effective strategy today. If the stock is cheap today, likely to be cheaper tomorrow or next week. 19:1 New Low - New High Ratio (both corporate fixed income and US listed equities) COVID hospitalizations are up to almost 6k per day even though new cases are flat around 106k per day. By Jeffrey Cohen, Investment Advisor Representative US Advanced Computing Infrastructure, Inc. We saw 10 things in the market today.
Pre-market movers tended to be small, except $GOEV is up this morning 74%, and $TWTR is flat. Most of our 'hot' industry sectors are pretty flat today. $MULN is active this morning too. Riskiness of individual stocks has climbed again. Individual stocks have blown out their correlations, and risk (or closing price variance) is up ~20% just recently on both profitable company, and unprofitable company stocks. Those variances are significantly higher than the $SPY now. Also, the risk free return continues to rise, and so expected returns on stock market investments are down. Our conclusion from this is that stock prices must fall, all things being equal, to incent investors to re-join the market and invest fresh money. Our CQNS UP model picked new stocks. 11 to 17 stocks to get a 6 tick advantage over the $SPY in risk-return. These are large tech, money managers, chips, and a few very low risk stocks to even things out for the portfolio. This is a different answer than before, and worth looking at. This is where the model wants you to go...stocks that have already fallen ~50% and have started to stabilize. It does not mean they cannot fall further, but these stocks are starting to reach the 'zero slope' point in their stock movements. Our CQNS Down model is still picking similar stocks, and these are either zero profit companies, biotech, or in-play declining stocks like $CVNA Carvana. US Treasury bonds are up, back to prior support levels. This is because long rates are falling, and likely due to recession fears. In a recession, or in times of turmoil, people would rather hide their money in no-risk US Government bonds than put them into productive investments like building a factory. We also think the EuroDollar fall to parity is due to European big money coming to hide out in US Treasuries. Japanese Yen is also falling, with the US Dollar buying over 137 Yen. We think this is because Japan (Japan Central Bank) is weakening the currency to protect low interest rates and support manufacturing and the domestic economy. Mortgage backed securities are up slightly this morning, and mortgage rates are down slightly. Last night we did some homework and we think housing is showing weakness. This would result in some problems paying on recent mortgages as housing prices have been elevated. Nobody wants to carry a home mortgage that is under-water. Also, it is hard to refinance a home when the value falls. We still have poor market breadth. New Lows greatly outweigh (more than 10:1) in both US fixed income corporate bonds and US equities. Do not catch a falling knife. Those are continuing to fall, and fall farther into new low territory. Bitcoin is back to $20,000, or it's new support level. Commodities that are economically sensitive are down hard, either 3% or 4% down this morning, including copper, crude oil WTI and silver. Pre-market movers $GOEV $MULN $RGC. GLTA We noticed 10 things this morning before the market opened. Some are bullish and some bearish for US equities today.
1. The US Dollar is very strong. The Eurodollar down to almost $1.00. Other currencies as well like the Japanese Yen. One US Dollar buys 137.39 Yen as we write this (higher than we have seen in a long time). 2. Long-term US Treasury interest rate yields are down significantly, while short-term US Treasury interest rate yields are up significantly. This is moving us towards an inversion of the yield curve. This is good for those who hold investments in long-duration bonds. 3. Mortgage Backed Securities (MBS) were lower pre-market, but then they turned higher. MBS are up today. In fact, after lunch-time NYC time, they are up across the board (UMBS, GNMA both, at 4.5% and 5.0%). Mortgage rates are down 7 basis points to 5.77% for a 30-year fixed rate, fully amortizing, and conforming mortgage. 4. Commodities that are sensitive to economic activity (like Copper) are down today. However, they are not down very much, and are up in historical terms. 5. Most economically sensitive stocks were lower in pre-market, including all of the money managers, chipmakers, trucking and transportation, and crypto and physical miners that we track. The pre-market sell-off seemed very widespread and affected economically sensitive stocks. We also notice the VIX is up slightly, although it is up by historical measures as well. This suggests the market is starting to price in the volatility we have been seeing in stocks (rising in the past month +). 6. Many large cap European banks were lower. China videos showing a run on the banks are running wild on Twitter. Looks like the Chinese banking system is in trouble, and I wonder whether European banks have exposure to that crisis. 7. The NASDAQ Composite 100 index is trading in a consolidation pattern. It is in a down-trend and trading in a rectangular box as the price bounces up and down since June 16 with little direction. Which way will it break out? The trend lines point to further losses. 8. The stocks we call 'the Walking Wounded' were almost all down this morning. They are still down as we begin the afternoon trading day. This reminds us that Fear of Missing Out (FOMO) is a cost effective strategy in a down market. The stock you want to buy will likely be cheaper in a week or two. 9. The edge in our Chicago Quantum Net Score model is smaller again. Much smaller edge than buy and holding the SPY. The reason is two-fold. Stocks that kept the edge (those that move up and down aggressively) seem to have been blown out by recent liquidity bursts. The stocks that are atop our list are now consolidating stocks, or low risk stocks. My net-net is that the QQQ looks like a good bet because large stocks in that index are flat-lining (or matching rises to falls) after significant drops this year. 9.a. We spent significant time this weekend tuning and improving our genetic algorithm, monte carlo (not much help there), simulated bifurcator (did ok, not great), simulated annealer (poor) and particle swarm optimization (did ok). There is so little edge that our optimization models are struggling to find better answers. It could be that the edge just does not exist, regardless of how hard and long we search. 9.b. The risk free rate of return has a 'bump' in it for retail investors. The first $10,000 you invest each year in US Savings Bonds can be invested in i-Bonds that pay 9.62% guaranteed for the first 6-months of your investment. We are going to buy some. This is a great rate, and pulls money out of the stock market from retail investors (or at least it should). We recommend this investment for retail investors with up to $10,000 to invest for a period of 5 years. In that case, you do not lose interest on your investment. Here is the link to Treasurydirect.gov. 10. Corbus Pharmaceuticals Holdings, Inc. $CRBP is showing great market strength. It is up again in pre-market and during the trading session. It is still very low by historical standards, but it is up recently to $0.3241. We are very bullish on Corbus Pharmaceuticals. Be wary of banks that are holding long bonds and mortgage backed securities as investments. These are declining and may cause accumulated other comprehensive income (AOCI) to be strongly negative. AOCI is not reported in net income, or accounted for in EPS, so it seems invisible. However, it is a mark - to - market mechanism that impacts a company's equity (or book value). In the case of banks, this reduces their common or shareholder equity, which is their cushion against further losses. We watch this carefully, and saw it fall dramatically about a month+ ago, then recover just as dramatically 2 weeks ago (climaxing at quarter-end on June 30), and now is starting to fall again. If this continues, it will reduce the shareholder equity (or book value) of banks we follow that have large investments in these securities.  We just read two 'lightly documented' articles that discuss how auto loan delinquencies and home rent delinquencies are both rising. Auto loans a little, and rent must more. It was estimated that 15% of all renters are delinquent on their rent and face possible eviction.
Check these out. Still early days, but if these loans are securitized, or the rents are part of large REITS, we could see some systematic issues, and potentially demand destruction. https://www.zerohedge.com/markets/prepare-tidal-wave-evictions https://www.zerohedge.com/markets/prepare-auto-loan-crisis-delinquencies-begin-rise |
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