Economic Outlook

Warren Buffett Sold His Last 3 Canadian Stocks

In 2020, Warren Buffett has been lying low. Preferring to play his cards close to his chest, he hasn’t revealed much about what he’s been buying and selling. However, once every quarter, he is forced to reveal what he was up to in the quarter before. As it turns out, the “Oracle of Omaha” massively reduced his exposure to Canadian stocks this year.

In the second quarter, Warren Buffett sold out of Restaurant Brands International completely. That move was well publicized, leaving two Canadian stocks in his portfolio. He has trimmed both of those positions throughout the year as well. If this continues, Buffett may be out of Canadian stocks completely by the end of the year. That’s not a great sign for the Canadian economy but — as you’re about to see — there’s a silver lining. CLICK for complete article

Is All The COVID Vaccine “Good News” Priced In?

In discussing yesterday’s market action, overnight Rabobank’s Head of Macro Strategy Elwin de Groot, writes that following the vaccine-inspired rally, “the market seems to have reached a delicate balance now where on the one hand, many investors are willing to long beyond the temporary resurgence of the virus as there is ‘light at the end of the tunnel’, whilst others remain concerned that the upcoming months could still prove rather challenging. This balance was well-illustrated by the performance in the S&P 500 yesterday, where the market opened lower, then regained almost fully the opening losses but then slipped again towards the end of the trading session. Yes, with the S&P only a whisker from its all-time high it is obviously ‘risk-on’, but somehow if feels different.

This point was on full display this morning when in the third consecutive good vaccine news released since Pfizer’s covid news last Monday, in which the company followed up with an increased effectiveness estimate (from 90% to 95%) which should make the company’s application for emergency US authorization be accepted smoothly, the stock response was lukewarm at best, with futures now having faded the entire post-update spike higher…CLICK for complete article

DraftKings Gets New $100 Price Target With Strong Market Share, Brand

Two of the best performing online sports betting stocks are sized up with new ratings from Loop Capital.

The Analyst: Loop Capital analyst Daniel Adam initiates coverage on DraftKings Inc with a Buy rating and $100 price target.

The analyst also initiated coverage on Penn National Gaming with a Hold rating and a $69 price target.

Total Addressable Market: Loop Capital lists the total addressable market for online sports betting and iGaming at $30 billion, which is higher than other analysts are projecting. Adam said analysts are viewing New Jersey as a mature market and basing the market size on the state, although he thinks New Jersey is far from mature.

Adam said the market size could be $34 billion to $40 billion based on 75% of the U.S. population having access to online sports betting….CLICK for complete article

New Study Finds The Fed Put Is Very Real And Dates Back To The Mid-90s

For some of us, the idea of a Fed put hasn’t even been up for debate over the last several decades. We know it exists and, in fact, most of us believe it is the Fed’s main (and perhaps only) actual mandate: making sure markets only go up.

But that doesn’t mean the rest of the “straights” aren’t catching on a little late. And to them, we say better late than never.

And so now, a new study called “The Economics of the Fed Put” featured in Barron’s appears to show conclusively that the Fed put actually exists. The study’s authors, Anna Cleslak, a finance professor at Duke University’s Fuqua School of Business, and Annette Vissing-Jorgensen, a finance professor at the University of California, Berkeley’s Haas School of Business, found “compelling evidence” of the Fed put dating all the way back to the mid 1990’s.

For their research, the authors looked at “decades’ worth of minutes and transcripts of meetings of the Federal Open Market Committee, the stock market’s performance between those meetings, and the federal-funds rate.” CLICK for complete article

Buffett Indicator: Why Investors Are Walking Into A Trap

“The stock market is not the economy.” Such has been the “Siren’s Song” of investors over the last couple of years as valuation expansion has been the sole driver of the market’s performance. However, given that corporations derive their revenue from economic activity, the “Buffett Indicator” suggests investors may be walking into a trap.

Understanding The Buffett Indicator

Many investors are quick to dismiss any measure of “valuation.” The reasoning is if there is not an immediate correlation, the indicator is wrong. As I discussed previously in “Shiller’s CAPE – Is It Just B.S.”

The problem is that valuation models are not, and were never meant to be, ‘market timing indicators.’  The vast majority of analysts assume that if a measure of valuation (P/E, P/S, P/B, etc.) reaches some specific level it means that:

  1. The market is about to crash, and;
  2. Investors should be in 100% cash.

Such is incorrect. Valuation measures are simply just that – a measure of current valuation. More, importantly, when valuations are excessive, it is a better measure of ‘investor psychology’ and a manifestation of the ‘greater fool theory.’”

What valuations do provide is a reasonable estimate of long-term investment returns. It is logical that if you overpay for a stream of future cash flows today, your future return will be low.

“Price is what you pay. Value is what you get.” – Warren Buffett

Such is what the Buffett Indicator tells us as it measures “Market Capitalization” to “GDP.” To understand the relative importance of the measure, we must understand the economic cycle….CLICK for complete article

Indecisive Markets, RealClearPolitics, Infection Surge, Moderna, Disney Earnings

Trading volume was low enough Wednesday to indicate a lack of conviction, or conviction that did not spread across enough managers to truly change the narrative.

Just how forward looking are markets supposed to be? How are markets supposed to price in various “certainties” opposed to obvious risks, and over what timeline?

The Dow Jones Industrial Average finally took a powder on Wednesday, but really didn’t go anywhere. The S&P 500 popped to the upside for 27 points, or 0.77%. This used to pass for an impressive day, back when markets were slower, and price discovery a more well-developed process. Now this sort of day makes for a small, though positive candlestick and little else. The Nasdaq indices, both the Composite and the 100, turned in far more impressive performances. Both ran more than 2%, putting a halt to rather nasty looking two-day losing streaks.

While traders may have clearly bought the dip across the realm of what we refer to as “growth” (semiconductors, software and the internet) while allowing the week’s early winners (Energy, Materials, Financials and Transports) to flounder for a day, this action came on dramatically lower trading volume. Not low, holiday style trading volume, but lower trading volume. Low enough to indicate a lack of conviction, or conviction that did not spread across enough managers to truly change the narrative. At least not yet.

For example, at the New York Stock Exchange, declining volume beat advancing volume by roughly 7 to 5, but with winners actually beating losers by a hanging chad or two. Up at the Nasdaq Market Site (Texas bound?), winners did beat losers by less than 4 to 3, while advancing volume beat declining volume by something close to 7 to 4.

Wednesday’s action, to me, shows indecision. How about those small-caps, highly sensitive to prospective economic growth? The Russell 2000 closed flat on the day, very difficult to do in the electronic era, while it’s sibling, the S&P 600 surrendered 0.66%. Remember, on my screen any move less than half of one percent remains orange, while anything greater turns either green or red. Odd to see two indices that essentially track the same class of security shaded differently…CLICK for complete article