North Texas: Wow, Even The Robins Are More Exuberant Than Ever -- November 28, 2020

Beautiful, beautiful day in north Texas. Near DFW International Airport. It's hard to stay focused: the robins are chirping away. It seems I have never heard so many.

Wow, I'm glad Starbucks is closed. It would be on days like this I would bike to Starbucks and then sit there for six hours blogging. Now, in the comfort of my own home. Keurig coffee at 39 cents/pod and day-old donuts, six in a box for 99 cents (bought yesterday in anticipation for this morning). I will eat one and throw the rest away, but I'm not interested in any right now. Maybe I'll leave them out for the squirrels. LOL. 

Movies:

• TCM overnight -- The Fog (1980). Link here. I watched this movie last night, from about midnight to two in the morning; it was hard to watch -- but TCM always has a reason for showing what they show, so I watch
• look at that A-list of actors (?), to include Jamie Lee Curtis, Janet Leigh, and Hal Holbrook. The movie's budget: $1 million. Imagine how little these actors must have been paid if the budget included their salaries which I assume it did
• Janet Leigh starred in this movie alongside her daughter, Jamie Lee Curtis
• the two also starred together in Halloween H20: 20 Years Later (1998)
• from wiki, Janet Leigh -- 
• Leigh played mostly dramatic roles during the latter half of the 1950s, in such films as Safari (1956) and Orson Welles's film noir Touch of Evil (1958), but achieved her most lasting recognition as the doomed Marion Crane in Alfred Hitchcock's Psycho (1960), which earned her a Golden Globe Award for Best Supporting Actress and a nomination for the Academy Award for Best Supporting Actress. Her highly publicized marriage to actor Tony Curtis ended in divorce in 1962, and after starring in The Manchurian Candidate that same year, Leigh scaled back her career.  
• Hollywood: like it; hate it; tolerate it; whatever -- Hollywood fascinates me. It has to be an incredibly surreal place to live, both geographically and ethereally.  

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Economy

Do you remember that BofA study recently posted suggesting that the "Zillennials" were now in charge. LOL. Well, yesterday, Finance!Yahoo suggested otherwise, link here. Unfortunately it's behind Barron's paywall and will have to look for it later. The lede:

Good things come in threes, it’s often said, and so it seems appropriate that a triple play of positive developments lifted the Dow Jones Industrial Averageover 30,000 this week.

Barclays equity derivatives strategists point to a “perfect trifecta of outcomes” for the rally: a “decisive victory” scenario in the U.S. elections; news of effective Covid-19 vaccines; and positive surprises on third-quarter earnings—an average gain of 18% for S&P 500 companies, with more than 80% beating expectations.

Ah, yes, here it is:

That apparently has individual investors rushing to take advantage of the good news, pumping some $31 billion into stock funds in this past week, on top of $49 billion in the previous week, Barclays’ Maneesh Deshpande writes in a research note. 

So it’s altogether appropriate that this public participation should lift the blue chips past the 30,000 milestone. 

The Dow industrials remain Main Street’s measure of the stock market, says Quincy Krosby, chief market strategist at Prudential Financial, even though pros look down at the venerable average and track the S&P 500 instead (even though it’s not without its own shortcomings). 

And it’s not the dowdy Dow of old, even with the return of Honeywell International (ticker: HON) to the 30 blue chips three months ago, because that longtime mainstay manufacturer is a different company than it was when it was removed in 2008, she adds. Further attesting to the market’s more inclusive nature is the Russell 2000 index of small-capitalization (and mostly Main Street U.S.A.) companies, which also hit a record high. 

The biggest change, however, is that older investors are finally getting on board, according to Nikolaos Panigirtzoglou of J.P. Morgan’s global quantitative and derivatives strategy team. 

To paraphrase the Who’s Pete Townshend, he’s talking about my generation, who no longer hope we die before we get old. (We already are!) 

“The older cohorts of retail investors that tend to use funds for their equity investments appear to have been partly responsible for the big swing in equity markets between October and November. Younger cohorts, including millennials that tend to invest directly in individual stocks or individual equity options, rather than via equity funds, appear to have played a rather modest role,” he writes in a research note. 

We geezers finally got with it this month, buying stock funds in November after selling steadily in the market’s recovery since the March lows and plowing into bond funds, according to the bank’s tracking of Investment Company Institute data. 

That had effectively acted as a drag on Wall Street’s rally, he adds. Using NYSE margin accounts as an indication of equity flows by the cool kids, Panigirtzoglou finds that millennials were active buyers off the bottom but kept purchasing in the correction during September, the most recent month for which data are available. 

Call-option buying has remained elevated since June, but the small players’ role in the swings of the past few months probably has been modest, he maintains. What’s striking is that the influx of buying that pushed the Dow over 30,000 came during the surge in new coronavirus cases, hospitalizations, and deaths, Prudential’s Krosby observes in a phone interview. 

Yet it’s always said that the market is a discounting mechanism, and investors clearly are looking past the present to a much brighter future next year when one or more Covid-19 vaccines are likely to be widely available. 

Goldman Sachs economists anticipate that the first vaccines will be administered to high-risk groups in the U.S., starting in mid-December, producing significant health benefits in the first quarter. With widespread availability starting in April, they look for a sharp pickup in global economic growth beginning in the second quarter. 

But “we’ve already paid for next year’s economic and earnings growth,” says Michael Arone, chief investment strategist at State Street Global Advisors. Investors have pulled forward the anticipated positive outlook for 2021, he contends, which he sees producing 22% earnings gains and 4% gross domestic product growth. Arone sees the market’s strength persisting through year-end, although he worries that euphoria could take hold “when Uber drivers at LAX tell me what stocks they’re buying.” 

Sentiment measures are showing signs of froth, if not exactly irrational exuberance, with bulls topping the 60% level associated with near-term tops in the latest Investors Intelligence reading. 

The Dow’s surge past 30,000 has been noted everywhere, from the nightly newscasts to late-night talk shows, obscuring the signs of exuberance evident in the credit markets, even with the imminent end of the Federal Reserve’s backstop facility established during the near-meltdown in March. 

Exhibit A: $1.45 billion of 7.625% notes due March 1, 2026, from Carnival (CCL), the latest financing used by the cruise line to stay afloat during the pandemic. Yet even though the federal Centers for Disease Control and Prevention has raised its travel warning for cruises to level 4 (“very high”) from level 3, the Carnival notes jumped to 106 after being offered at par (100) last week. That move—equivalent to a jump of 1,800 Dow points—lowered their yield to 6.27%. 

Yield-starved buyers are snapping up a heavy slate of offerings in the corporate credit markets, says Cliff Noreen, head of global investment strategy at MassMutual. With the overall high-yield bond market yielding less than 5% (and half of its issues paying 4% or less), Carnival’s 7.625% coupons looked like bargains, even with their middling credit ratings of B2 from Moody’s Investors Service and single-B from Standard & Poor’s. 

Another sign of this desperate reach for yield was Peru’s ability to issue 100-year bonds—$500 million worth—at a yield of 3.30%, 1.7 percentage points above the 30-year U.S. Treasury’s yield. But a new centrist government in Lima and a surge in copper prices to a six-year high evidently convinced global bond investors to lend to the South American nation for a century, as our colleague Alexandra Scaggs reported. 

Of course, irrational exuberance remains most visible in the stock market’s marquee names. Doug Kass, who heads Seabreeze Partners Management, sends along a fascinating factoid from Zero Hedge: As of Friday, the market value of Tesla (TSLA), at about $565 billion, has surpassed that of Berkshire Hathaway (BRK.B). The bulls would say the kids are alright.

I'll leave this up for a couple of hours, then take it down, for obvious reasons. But I will archive it. 

Enjoy.  

One of my favorite pastimes: getting past paywalls. LOL.