Morning Market Thoughts

Good morning. The futures are pointing to a much higher open, with the Dow 30 futures up about 100, and the S&P up around 10.50. Traders are enthusiastic because of a sense of clarity coming from Chair Yellen. Yep. In prepared remarks to the House Financial Services Committee, Yellen will say that she doesn’t know whether the economy will get somewhat stronger or less strong than current projections. Well, it’s nice to hear honesty coming out of Washington. But the important news isn’t that the Fed doesn’t really know if their projections are accurate. The important news is that she said that the Fed funds rate wouldn’t need to rise much to get to a neutral policy. That’s kind of a big deal because it signals that the end of rate hikes is nearing, even though there have only been a few of them.

She made some comments on inflation, but they aren’t important. The Fed has been so wrong for so long about inflation that I just skimmed that part of the text. The big news is that the Fed is going to begin shrinking the balance sheet this year (September, probably), but that it isn’t seen as an active policy tool. Translation: It’s going to be very gradual, and you probably shouldn’t make any decisions based on the impact of the shrinkage. Oh, and in the next few years, we might need to hike just a few times. In teency, weency, itsy bitsy steps.

Traders like what they are hearing, because it removes some uncertainty. And there has been plenty of uncertainty in many different areas of the market landscape, so the knowledge that the Fed isn’t going to do anything stupid is really great news.

Thoughts on the GOP healthcare bill: Um,…. Whatever.

Amazon ($AMZN): Amazon’s prime day seems to have been a success. Amazon sold a ton of its own products (about three times as many Echo speakers), and other sellers ramped to about 50 times more items. As a result, Amazon is now trading above $1,000 premarket. If Amazon holds this level in the morning, I think it’s likely to test the upper edge of its range and hit $1,020 fairly soon. After all, earnings are just 15 days away.

Re/ IPOs. You are probably familiar with the trading action of Snapchat ($SNAP), which is probably going to change its name to Aw, Snap! The stock is up a bit premarket on an oversold bounce, but it is down about 10% below the opening price of $17, and the restriction on stock sales will be lifted at the end of this month. No telling where the stock will be when restricted stocks become available on the market. I’ll just caution you against thinking you’re picking up a deal on this stock. Hype does not equal value. Just because someone says it’s so doesn’t make it so. One of the many sleazy things about Wall Street is its shameless ability to treat the public as a dumping ground for crap. Disgraced Henry Blodgett summed it up in an email back in the bubble days of 1999-2000 when he wrote to colleagues that “we’ve gotta put some lipstick on this pig.” Translation: Somebody do something to make this pimple look like a beauty mark on Cindy Crawford so we can unload it onto the public. (He’s now the founder of “Business Insider”, so it’s all good. Few remember that he was barred from trading forever by the SEC).

I would suggest shying away from Blue Apron ($APRN), because everybody else has. We get a couple of this type of meal delivered each week. All the ingredients measured out, and we just have to cook them. It actually makes me feel like a chef. Not much harder than my meals from my bachelor days when I’d cook some hamburger, and eat half of a head of lettuce with salad dressing poured on it while leaning over the sink. Really saved on the cleanup. But Blue Apron already has a lot of competition. We never use Blue Apron — for no reason other than we use somebody else. It’s a habit…and there is competition. And habits are hard to break.

Similarly, when Uber goes public, just imagine Hank Blodgett saying, “We’ve gotta put some lipstick on this pig” when you hear the “experts” on TV touting the stock, and all the hedge fund managers (who got in on the first or secondary round of financing) saying what great growth prospect Uber has, and that they’ll be buying more stock (Think, David Tepper touting Snap when it opened for trading, saying that he thought it was a steal at $17 and that he’d be buying more. Right.)

So don’t fall prey to the hype. Focus on stocks that are working out of flat bases within an uptrend. You can buy any stock you want. You aren’t encumbered by investing themes. Your investing theme should be that you buy stocks to make money. So use the pattern that has the best track record. Flat bases within an uptrend. Basically, you’re buying a stock as it walks up the stairs from lower left to upper right…and you’re buying it on the step…just as the stock starts running to the next step.

See you in the forum!

–Dan

Market Update

Leave a Comment