Market notes

Risk on day, which really means currency debasement day. I didn’t check every asset class, but commodities generally up. Bonds and equities pretty flat. Things seem dangerously quiet, but we are in the dog days of summer.

Trading ideas

David Einhorn, who is very sceptical about $TSLA thinks that inflation will take off. He has taken a direct exposure to CPI via inflation swaps, a strategy not available to the retail investor. The article points out that simply shorting bonds does not work when the Fed is buying them hand over fist.

An interesting nugget is that he’s buying an air freight company, $AAWW. The idea is simple: most freight is carried in the bellies of passenger planes. If these are not flying, then specialist air freight firms will clean up. In theory!! And, of course, the stock is up 250% from its lows, so it’s probably not the right time to buy, as how difficult can it be to convert a passenger jet to flying freight? It’s not as though we have a shortage of baggage handling capacity or pilots!

I want to be bullish on Natural Gas. It’s a clean fuel (relative to oil or coal), it’s CO2 footprint is smaller, it’s easily transportable in pipes or tankers (OK, the latter are pricey compared to oil tankers, but many exist), “clean” energy tends to be very intermittent, and it seems to me that the only source of power that is sufficiently flexible to close the gap is gas (and CCGT generation in particular). However, this article makes the case that as soon as though production of gas looks as though it will get into balance with demand, cheap funds flow in and wreck everything. Maybe this time is different, and the Private Equity guys got burned once too often. We shall see.

Ask not for whom the IMF toils

It works for Wall Street, not for you, for the Argentinian taxpayer (although, I guess, he has a slight benefit).

Closing bell

The FX market never closes, but the equities markets do, thank God. No great moves, but the AUD seems to be going up against everything. This may be explained by a strong rally in many commodities, especially silver, which was up 7.8% in USD terms. $CVNA shot up insanely, although I read that it cratered a bit after hours. These fraud stocks need to be avoided in this market as they are like unexploded bombs. My list is here, although I don’t know that any are actual frauds: they are just stocks which some commentators have suggested have some sort of fraud going on. I have absolutely no idea whether the suggestions are true or not: I am certainly not going to trade on the basis of such a suggestion.

Worth listening to

I listened to Grant Williams talking to Michael Green. Green’s thesis is that markets have changed because of the rise of passive investing. The massive flows into passive funds changes totally the way that prices respond to flows. One thing I had not realized is that stock borrowing is now much, much cheaper than it used to be, because these huge passive funds that charge essentially zero management fees make all their money by lending out the stock they own. Green made some interesting points about option trading and pricing, and the relationship between option pricing and the Efficient Market Hypothesis. He also had some interesting comments on Jim Simon’s biggest problem running the Medallion Fund, but you have to listen to the whole thing because it’s packed with revelations.

I really think this idea is important. Maybe not quite as much as Mike Green does, but I think that the monotonic price behaviour of the SPX is a consequence of lock-step buying of all stocks as investors’ money moves from active to passive (as boomers cash out and millenials save more). The relative price behaviour of stocks is a function of the shape of the supply schedule for stock. The low free float of stocks like $TSLA and $AMZN must steepen this curve. The other factor, of course, is stock buybacks. With $AAPL, one of the most cash-generative companies on the planet, endlessly issuing debt to fund buybacks, (to neutralize the dilution that stock awards to insiders would otherwise cause), it’s hardly surprising that the stock price never goes down. It really doesn’t make any difference what it’s P/E ratio is.