April
04
Tags
Wall Street Wars: Biden, Trump and Seinfeld Take Center Stage
By David Nelson & ChatGPT
Fade in applause Jerry on stage
JERRY
What’s the deal with March Madness in the stock market? I mean, one minute we’re cruising down the highway and the next minute we hit a pothole the size of Texas.
And what do we do when we hit that pothole? We start digging through our glove box for a 2008 playbook. It’s like a game of musical chairs, but instead of chairs, it’s investors scrambling to find a safe haven for their money. And when equity managers start looking at balance sheets instead of income statements, you know, things are getting serious.
Bloomberg Data
In just over three weeks we saw the S&P 500 do a round trip with a near $2 trillion swing in market cap. It’s like a game of dominoes. With Silicon Valley Bank, Signature and rising concerns across the entire financial services industry, falling one after the other.
Bloomberg Data
And the VIX, it was all over the place like a cat on a hot tin roof. Now, we’re in a new game. The game of earnings. Who’s got them and who doesn’t? And with increased regulation and the threat of fintech giants like Apple looming over the horizon, it’s going to take some serious hustle for these companies to keep up.
Enter Joe Biden stage left
Joe, come on over here. Tell us what you’re thinking.
PRESIDENT JOE BIDEN
Folks. It doesn’t matter if you’re a big bank or small one in the heartland. Your costs are going up. That’s just the way it is. (Joe seems confused)
What was I saying? Oh, yeah. The crisis has made Americans realize that they have choices when it comes to their money. Money markets, treasuries, CDs, those things haven’t been attractive for a while, but now people are looking at them again. But folks, there’s a bigger issue here. The failure of regulators to enforce the rules that were already in place is a big problem.
We may have contained the systemic risk this time, but we need to make sure that something like this doesn’t happen again. And let me tell you, the failure of California regulators and the Federal Reserve is a big deal. I mean, we need to investigate this. Maybe they should have stepped in sooner. I don’t know. But what I do know is that we need to make sure that we have the right regulations in place.
So, I’m going to write some new ones. That’s what I’m thinking.
JERRY
Thanks, Joe. Really helpful. What’s the deal with markets? Am I right? I mean, they’ve been all over the place lately. The VIX did a round trip and so did stocks. But hey, investors are piling into stocks on the heels of a better-than-expected PCE.
Bloomberg Data
For over a year now, investors have had to justify equity valuations in a rising yield environment. And as soon as the Fed started raising rates, long duration equities started falling with technology leading the way. It’s like, what’s going on here? The S&P 500 is still at a hefty 18.7 times earnings. That’s a little concerning. But if you look under the surface, the equal weighted index is just16x. So, it’s not all bad news.
Bloomberg Data
I got to talk about these mega-cap giants, Apple, Microsoft, Alphabet and Amazon. They’re all over $1 trillion in market cap with two over $2 trillion, that’s insane. Their valuations, they’re high too. Apple is at 27 times earnings. Microsoft is at 30x Alphabet 18, and Amazon is a whopping 39 times earnings. It’s like, whoa.
Bloomberg Data
But you know what? It kind of makes sense. These companies are like fortresses with their balance sheets and ability to self-fund their working capital?
And Apple, I mean, the iPhone in your wallet, it’s like a consumer staple, right? It’s as much a staple as the cola you drink or the detergent you use. So, it’s a defensive move, right?
It’s like, it’s like they’re the superheroes of the market, fighting the battle against the craziness of it all.
Donald, my good buddy, what do you think of all this?
Former President Donald Trump enter stage right
DONALD
Okay, let me tell you, this thing we’re talking about. It’s a big thing, really big. And people are saying all kinds of things about me, believe me. But I got to be honest with you, I’m a little confused about what exactly we’re talking about here.
Maybe somebody can explain it to me, but until then, we’ll just have to wait and see, because that’s what winners do. They wait and see, and I’m a winner. Let me tell you.
We need to make America great again. While the banking crisis has eased somewhat, investors are still paying hefty premiums for protection. It’s like they’re preparing for a storm, even if it never hits.
Bloomberg Data
Even JPMorgan, they’re not going unscathed. Credit default swaps have improved since the Silicon Valley Valley Bank collapse, but there’s still not where they were before the crisis unfolded.
We need to get them back to where they were before, folks. We need to show the world that America’s financial institutions are strong and stable.
Bloomberg Data
But for some institutions, like Prudential, it’s even worse. The cost of insurance debt has risen since the start of the crisis, and we can’t let that happen.
Ryan Krueger, he’s a great American and huge friend and an insurance analyst at KBW. He told the CNBC fast money crew a station I don’t even want to mention, that commercial real estate exposure is a concern with the sector representing about 14% of assets.
But you know what, folks? Insurance is just that. It’s insurance… doesn’t mean the storm is going to hit, but it’s raining outside people and some bondholders are willing to pay up for a little protection.
And we need to make sure that they get protected folks. We need to make America great again. Jerry, help me out here.
JERRY
Okay, DT. So you think we’re through the worst of the banking crisis? Well, hold your horses, folks, because we still got a few more obstacles to navigate and it all starts with the earnings season. That’s right. It’s that special time of year when companies open up their books and we all get to play detective.
First up, we got the big dogs of the banking world Citi, JPMorgan, PNC and Wells Fargo. They kick off the festivities in just two short weeks and you know what that means people. Analysts will be circling like vultures, looking for any scrap of information they can get their hands on.
They’ll be asking the CEOs about their loan books, exposure to commercial real estate, and who knows what else. It’s like a game of 20 questions but with billions and billions of dollars at stake.
So buckle up folks, it’s going to be a wild ride and who knows? Maybe we’ll learn something along the way.
Jerry pivots to Joe
Hey, big guy. Any final thoughts?
JOE
Look, folks, I got to say, these estimates, they’re important sure but they don’t always tell the whole story. I mean, just look at this chart.
Bloomberg Data
See how the estimates kept going down even after we hit the COVID bottom in 2020. But here’s the thing. The market already knew what was up. It had already started to turn around showing signs of life again. So sometimes these estimates just don’t capture the full picture, you know?
It’s like trying to describe an elephant by just looking at its tail. You got to see the whole thing to really understand what’s going on.
Now, let me tell you, folks, it’s really confusing. I mean, really confusing. You see, last year, the Fed started to take away the punchbowl and start hiking rates, and then stocks went into a long slide. I mean, what’s going on here, folks?
And get this, it wasn’t until June last year that analysts got the message. I mean, we’re talking six months of rising estimates while stocks were falling. That just doesn’t make sense, does it? We need to get to the bottom of this, folks.
Jerry grabs the mic
JERRY
Donald, any last pearls of wisdom?
DONALD
Look, people. We’ve seen three rallies that turned out to be total fakes. Believe me, I know a fake when I see it. And even after Friday’s so-called monster close, we still got some serious hurdles to jump.
Bloomberg Data
But let me tell you, when we finally break through those resistance points, it’s going to be huge, really big. It’ll be the real deal and maybe the next leg of the bull market. And here’s the thing. The data might look bad now, but when we finally break through, it’s going to look even worse. But that’s just how it is. Sometimes you got to take a step back to take two steps forward.
JERRY
All right. I’m going to try to pull this all together and make some sense of it.
What’s the deal with the negativity? I mean, have you seen these analysts and market pundits? They’re all alike. The market’s going to crash. The sky is falling. It’s like they’re trying to scare us all into selling our stocks and burying the money in the backyard.
But then you got guys like Mike Wilson over at Morgan Stanley. He says; it’s the beginning of the end of the bear market, but still waiting for one last big drop.
And you know what? It could happen. But here’s the thing. When everybody’s looking for the same thing, it usually doesn’t happen.
It’s like trying to find a cab in New York City when it’s raining. The more you want one, the less likely it is to show up.
So, what’s the plan? Well, I’m sticking to my Independence Day call. Come July, we’ll start to see a shift in focus. Portfolio and fund managers like yours truly start thinking about 2024. Earnings should look up and we’ll be on the other side of the debt ceiling nonsense.
It’s like finally catching a break in a game of poker when you’ve been getting dealt nothing but junk.
You’ve got to stay in the game and wait for your moment to shine.
That’s it, folks. Joe, DT thank you both for being here and thank you folks for playing along with David and ChatGPT.
*At the time of this article some funds managed by David were long AAPL, MSFT, GOOGL, JPM and AMZN.
DAVID NELSON, CFA 