Energy & Commodities

Trading Desk Notes For May 8, 2021


Stocks, commodities and gold surge higher, the US Dollar falls

The S+P 500, the Dow Jones Industrials and Transports, and the TSE Index closed the week at All-Time Highs. The Transports (up ~145% since March 2020 lows) have closed higher for 14 consecutive weeks – for the first time in their 137 year history.

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What is everyone smoking when it comes to asset bubbles?


This morning: As the Federal Reserve wakes up to “elevated relative risks” and the rest of us scream “bubble”, the real questions are about real value. Why is a Bitcoin worth as much as Renaissance Art? Why is Dogecoin the top performing asset off the year when everyone knows it’s a joke? And when are people going to drink the proverbial coffee?

I am going to be sending US Federal Reserve governor and head of financial stability, Lael Brainard, her second coveted No S**T Sherlock award. This is not an insult – she is a very erudite, clever and talented central banker, but she really could not have stated the downright bleeding obvious any clearer than we she warned yesterday that some asset valuations are “elevated relative to historical norms… [and].. maybe vulnerable to significant declines should risk appetite fall.” (Check it out in the FT: Fed warns of hidden leverage lurking in the financial system.)


Who knew… ?

Measures of hedge fund leverage may not be capturing important risks..” or that the pandemic may “stress the financial system in emerging markets and some European countries..” Well… I am very glad someone has finally noticed… To think we all missed it.. (US Readers: sarcasm alert.)

If Lael really wants something to worry about, how about stock market volumes (declining) versus crypto-trading volumes – which topped $1.7 trillion during April. Again, check out the FT: “Crypto trading volumes boom as activity cools on stock markets”. It’s like watching a teething toddler chewing on a live electric cable.. and wondering what will happen next..

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Take A Bow, Jay Pow!

All that can be said about all of this is, ‘Congrats, Jay! You’ve officially blown the biggest stock market bubble in history.’ In all seriousness, however, there will undoubtedly come a time when concerns regarding financial stability will outweigh those regarding too-low inflation. Policies inspired by the latter may even precipitate the shift to the former. As a wise trader once said, “nothing like price to change sentiment.” For the moment, though, investors would appear to be applauding Jerome Powell’s historic accomplishment.

The Buffett Yardstick, or total market capitalization of the U.S. equity market relative to the overall size of the economy, now stands at a gaudy 270%. For reference, at the peak of the Dotcom Mania, this measure only reached 188% so we are now over 40% more expensive than the most expensive stock market peak in history! Another way to think about this is to understand that, at today’s valuation, the stock market would need to fall 30% overnight in order to match the peak of what is widely considered the greatest bubble in modern history.

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Google banks big in post-pandemic-peak Q1 earnings

  • Alphabet reported big beats on earnings and revenue for Q1.
  • The stock rose more than 4% in after-hours trading.
  • YouTube ad revenue grew nearly 50% year over year.

Alphabet reported huge beats on its top and bottom lines for its first quarter of 2021, as well as a new $50 billion stock buyback, which boosted the shares more than 4% in after-hours trading.

Here’s how Google’s parent company fared in the quarter relative to what Wall Street analysts polled by Refinitiv expected:

  • Earnings: $26.29 per share vs. $15.82 per share expected
  • Revenue: $55.31 billion vs. $51.70 billion expected
  • Google Cloud revenue: $4.05 billion vs. $4.07 billion, according to FactSet estimates.
  • YouTube ads: $6.01 billion vs. $5.70 billion, according to StreetAccount.
  • Traffic Acquisition Costs (TAC): $9.71 billion  vs. $9.25 billion, according to FactSet estimates.

Google’s revenue rose 34% from the same period a year prior. The company reported advertising revenue of $44.68 billion for the quarter. That’s a significant rise from $33.76 billion in the same quarter last year, making it the fastest annualized growth rate in at least four years, although the results were boosted by an easy comparable with last year’s quarter, as the onset of the coronavirus pandemic caused a steep drop in advertising spend.

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The numbers behind Elons massive Q1

Tesla posts record net income of $438 million, revenue surges by 74%

  • Tesla reported record net income of $438 million during the quarter, as well as earnings of 93 cents per share on $10.39 billion in revenue.
  • In its earnings release, the company said it has weathered chip shortages that have plagued the auto industry in part by “pivoting extremely quickly to new microcontrollers, while simultaneously developing firmware for new chips made by new suppliers.”
  • On an earnings call, CEO Elon Musk said the delayed new version of the company’s Model S sedan will be delivered starting in May 2021, and Model X deliveries will begin in the third quarter of the year.

Tesla reported first-quarter results after the bell on Monday. The company beat expectations handily, buoyed by sales of bitcoin and regulatory credits, but the stock dipped as much as 3% after hours as investors digested the numbers.

Here’s how the company fared in the quarter, compared with analyst estimates compiled by Refinitiv:

  • Earnings: 93 cents per share vs. 79 cents per share expected
  • Revenue: $10.39 billion vs. $10.29 billion expected, up 74% from a year ago

Net profit reached a quarterly record of $438 million on a GAAP basis, and the company recorded $518 million in revenue from sales of regulatory credits during the period. It also recorded a $101 million positive impact from sales of bitcoin during the quarter.







Equities: choppy near All-Time Highs, US Dollar: weaker, commodities: smoking hot!


Equities: choppy near All-Time Highs, US Dollar: weaker, commodities: smoking hot!

The S+P 500 index chopped up and down within a narrow range this week after surging ~9% the previous four weeks. Implied volatility was also choppy day-to-day, but it was close to one-year lows at the end of the week – a sign of complacency.

My view the past couple of weeks has been that the market is, once again, “priced for perfection” and is at risk of (at least) a mild correction sometime within the next few weeks. I’ve taken small, limited-risk positions in anticipation of a correction, but I’m wrong on that call so far. I’ll discuss my trade timing in the Trading section below.

The major stock indices have had spectacular rallies since the panic lows made in March last year. The S+P is up ~90%, the Nasdaq 100 is up ~110%, and the small-cap Russell is up ~135%. Last week I noted that the rally had been in two roughly equal parts, 1) March 2020 to November 2020, and 2) November 2020 to now.

What drove the rally?     CLICK HERE