CU and Seasonality

By Jeff Kelly on September 8, 2023

The big news in college football is the victory by the CU Buffalos over TCU last Saturday. It was a huge win for the CU program and their new coach Deon Sanders. I was never a big fan of Sanders in his playing days. A great player but there was always lots of hype surrounding him.

The hype is still there to be sure. However, it’s hard to argue with what he’s teaching, or maybe preaching is a better word, to these players. Hard work, belief in something greater than yourself, respect, dignity, becoming great people, citizens, and fathers. The story of how the season unfolds is a tale still to be told.

There will be critics and haters because of Sanders’s style. It can be a bit much. If the team wins, the players graduate, and are good citizens, there’s not much more to discuss. Either way it will be a big story this season.

The market has been dealing with its share of haters the last few weeks as well. August was a poor month and September is off to a difficult start as well. The normal seasonal factors don’t turn positive until October.

Particularly troubling is the action in the financial stocks. This week has also seen a break in the price trends of some leading technology names. When we have a few companies representing such a large part of the averages, the performance of these stocks skews the daily outlook. Sometimes it exaggerates strength or weakness. This week we saw both. One day with technology strong the averages were down a modest amount while the average stock took a beating. It goes both ways. Next week we will get the Consumer Price Index (CPI). This will headline a big week of data. Given the seasonal tendencies, any move will likely be exaggerated. We continue to look for weakness into October. The seasonal factors turn positive after the first week of October. We see a better outlook for the 4^th quarter.

CHARTS FROM THE WEEK PAST

“FHLB lending has gone parabolic, surpassing 2007 levels and attracting high-profile clients like Signature Bank and Ally Bank. While this could signal banks’ increased liquidity needs for mortgages, the overall slowing of lending raises questions. Is this borrowing spike a red flag? For confirmation, attention is shifting to alternative liquidity sources; if we start to see explosive borrowing at the Fed’s discount window, then we have an awkward discussion, and while it’s not time to hit the panic button, the caution flags are waving.” Source: Hedgeye,Tier 1 Alpha, 09/05/2023

The outperformance of the U.S. markets in the last 15 years is striking.

Could we be close to a turning point?

“Soft landing” is the consensus view.

No one is searching for recession. It was the view in 2000 and late 2006. How did that work out?

The 4^th quarter of a pre-election year are usually strong.

Aggregate YY Visits to retail locations decelerated again to -4.8% from -3.3% last week (after a slight acceleration last week), with 5 Wk Avg visits continuing the downtrend from -2.9% to -3.4%.

Redbook Retail Sales decelerated this week from +4.2% to +4.1%, the divergence between visits and Redbook comp sales remains perplexing.

S&P 500 earnings revisions have stabilized vs. historical averages.

Energy leading the way with 96% of stocks above the 200-day moving average.

Technology is a close 2^nd with over 80% above.

Government spending surges in 2023.

More is on tap as the IRA (inflation reduction act) kicks into high gear in2024-25.

The Fed has cut its balance sheet by a cool 1 trillion Dollars.

Several problems are coming in October.

Student Loan Payments Begin, Childcare Center Support Funding Expires and there is a possibility of a Government Shutdown.

Manufacturing new orders and ISM survey still point lower.

Despite the hoopla around the reports, non-farm payrolls revised lower every month this year.

Capital expenditure continues to decline.

Interesting decomposition of EPS growth here.

Pretty wild that IBM grew pre-tax income faster than Apple in the periods being compared, and that Apple turned 5.7% pre-tax growth into 12.8% EPS growth (plus got another 14.4%! annualized return from multiple expansion).

September is set to be a big month for corporate debt issuance.

CPI in Germany is much higher than in the U.S. Bonds are not priced appropriately in Europe.

Debt to income ratio for homeowners taking out the highs from the financial crisis.

Treasury bonds have never fallen for 3 years in a row.

We are setting up for rates to at least pause and likely move lower.

Net interest cost the lowest in 60 years despite interest rate increases.

Significant decreases in childcare facilities.

Interest rate increases are far and away the biggest driver of housing affordability declines.

Difficulty paying for usual household items and 401K hardship withdrawals are on the rise despite good jobs numbers and pay increases.

Airbnb is becoming a problem in many cities.

WEEKEND HOMEWORK

Herb Greenberg looks at AI-The promise and the Peril.

The Hype, Hope, and Reality of AI

A great Podcast looking at Multi Strategy funds.

Will England, the CEO and Co-CIO of Walleye Capital. Walleye is a multi-strategy hedge fund headquartered in Minnesota that manages around $5 billion. Our conversation is a primer on multi-strategy hedge funds, which have become a force in markets through the success of firms like Millenium, Citadel, Point72, and Balyasny. We discuss the operational complexity behind the model, which managers best fit this type of investment style, and what happens in stress events like the Gamestop short squeeze in early 2021. We also talk about performance culture, the All Blacks, and Will’s experience as a US National Team rower. Please enjoy my conversation with Will England.

Invest Like the Best with Patrick O’Shaughnessy | Will England – A Primer on Multi-Strategy Hedge Funds

Have a great weekend!