Fed Day Panic! My Trading Strategy

I started investing for my supper in mid-1997. There are 8 FOMC meetings per year. That means I’ve traded, parsed and scrutinized about 150 scheduled Fed statements in my professional life. There are no words to express my regret over the time wasted doing so.

The suffering wasn’t without gain. I’ve learned something about FOMC statements and I want to share it with you here, for free. Get your pencils ready because this is the the best financial advice you’ll ever get from me or anyone else. It’s a strategy you can apply 8 times a year for the rest of your or the Federal Reserve’s life, whichever ends first.

Jeff Macke’s 100% Guaranteed Advice on Trading Fed Statements:

Do nothing.

Make no adjustments to your portfolio based on anything Fed Officials say today. Brokers are the only people who win today. Everyone else you know or see on TV is just spinning their wheels.

 

The FOMC intentionally writes statements so as not to contain radical shifts in policy or thinking. Don’t take my word for it. Read them for yourself if you’d like. Let me know when you get to the announcements that shocked the world in a sustainable way:

Federal Open Market Committee Meeting Statements 2011-2016

Years ago, before even I was old enough to pay attention, Fed news conferences mattered. In 1979 Paul Volker announced his plan to kill inflation at a press conference on a Saturday evening during Columbus Day weekend. That was real news. What you’ll see today is tired ritual. That’s the point of transparency.

On a meeting to meeting basis the only changes are tweaks to banal observations about factors like gas prices or wages. If you’re paying attention day to day there’s nothing newsworthy in a Fed statement by design.

Trading strategies built around Fed releases (“Fade the first move!”, “sell ahead of the statement” etc ad nauseam) are based on superstition and an inherent need to feel busy.

Betting on coin tosses is easier to game than FOMC reactions. Really. You can read up on it here. (NB: If you work in finance and have to stay in the office after 2ET today save the article for later.)

The S&P 500 has support at 2000 and better support at 1950. If you need me I’ll be trying to get CMG management on the phone to discuss trends. Nothing non-public. Just some clarity. Because that kind of information is how you make money. The FOMC pressers are just a boring reality TV.

 

 

 

 

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The New York Times continues to make the case against Donald Trump. As well they should. A free and antagonistic press is a cornerstone of democracy.

I like democracy. What I don’t like, what Americans historically don’t like, is having smug elitists dismiss middle America using shoddy math, lousy data and quotes from tweed-wearing “demographers” (picture Tom Hanks’ “Professor of Symbology” in the DaVinci Code).

If voters on both sides are angry maybe it’s because they’re sick of being taken for idiots.

Here’s a breakdown of the NYT’s faux-data driven piece on “The Geography of Trumpism” from Saturday’s front page.

I tried to include a lot of pictures in deference to the Times’ editorial staff.

 

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For the second time this week a stock is crashing on hedge fund research.

j2 Global is down 20% after Citron published an unreservedly negative research report online. I’ve only had a chance to glance through the write-up. Andrew Left at Citron is a smart guy. I’m sure he’s done a ton of great work on JCOM. That work isn’t the core of what Citron put online.

What Citron published is a really smart version of trolling. If you wrote a research report about a person you fired for stealing it would come out something like Citron’s published work on JCOM.

By all means, judge for yourselves. Here’s the Report.

Slide 12 is an early favorite of mine though, again, I haven’t had a chance to read the work carefully:

 

Left is an “activist short”. He was famously, vocally, short Valeant way back when Bill Ackman was a genius investor.

There’s nothing illegal about taking a huge position then trashing a company. Whitney Tilson essentially announced Lumber Liquidators is giving people cancer earlier this week. I don’t know if Whitney is a doctor but I’m positive he had a bearish position when he announced his findings.

I’m a big fan of the First Amendment. I have a connoisseur’s appreciation of what amounts to talking trash on television. I openly tell my children the reason they aren’t allowed to swear is because they don’t know how to do it as well as daddy. [Note: Mrs. Jeffmacke doesn’t condone this policy].

But should making money by front running your own news releases be legal?

In the right hands, getting short then loud creates a real negative catalyst from the air. It’s like taking out a huge homeowner’s insurance policy then burning your house down only it’s legal.

Is everyone comfortable the this process? Do normal investors fully grasp how much money is being made by a very small group of traders with the power to completely destroy a company in public?

Millions and millions of dollars are being made today by a slideshow with some numbers and a ton of poop emojis.

It’s not just Citron. Anyone able to front run the publication of the Poop Emoji Report on JCOM is raking it in right now. Citron’s reputation is growing, as is Left’s bank account. I would be shocked if there weren’t a dozen people who got short ahead of this being published. This isn’t a war crime but a decent amount of cash is flowing to a group of people who traded on material non-public information ahead of its release. Obviously JCOM bulls are getting pounded.

Good on Left. But should this be legal? Because I don’t think it should. It feels really wrong.

As a student of Stupid Prosecution it feels different getting short and loud than hyping a company. It’s hugely problematic for a company to get hammered this way. The only thing happening at JCOM right now involves dealing with Citron’s Poop slides and the 20% stock crash. Being attacked by a short creates genuine fundamental problems for companies. Even when the short is wrong.

Ask Herbalife.

This all seems like the kind of thing the government would look to stop. Getting short and loud is behavior that makes the public correctly distrust the market.

It’s not illegal but it’s not right.

 

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1. The handsome European man will do whatever he has to in terms of stimulus. It doesn’t matter what he says. Just enjoy his accent and keep him away from your wives and daughters.
2. European Misery is just another form of American stimulus. If that sounds harsh you can blame FDR.

 

Support for the S&P500 is 1950. Until then you have my permission to do whatever works best for keeping you personally loose. To that end, here’s a video by a guy who looks like a less-handsome relative of mine with a bad shirt explaining what a Mid-Atlantic accent is:

 

 

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Yesterday I wrote about Dick’s Sporting Goods earnings report as a “tell” for the retail sector.

I don’t have a position in DKS but I have about 50% of my portfolio tied up in retail stocks despite the economy showing signs of going utterly pear-shaped.

Investing isn’t about being smarter than everyone else. It’s about being smarter and/or faster than the masses. The idea is to find a particular set of specific measurable performance metrics or trends shortly before they become conventional wisdom then get long as you can stand and wait for the world to catch up to you.

Two important points on this strategy:

1. Timing is critical. Early is the same as Wrong. I want to be about a month ahead of the pack. Any longer than that and it’s time to rethink.
2. You have to understand the other side of your theme perfectly. When chess prodigy Bobby Fischer ran out of opponents he practiced against himself. You’d be amazed how hard that it is to compete against yourself in anything without cheating. Don’t invest until you can make a perfect case for how and why you could be wrong. Seek dissenting opinions.

 

My Thesis

I think this is the year Wall St rewards companies for spending on their core business rather than doing more buybacks. Specifically, I am investing in retailers that are a) growing their online business faster than the low teens rate of overall US ecommerce b) investing with the goal of seemlessly integrating on and offline… Customers don’t make the distinction between on an offline. It’s all just selling stuff. c) are willing to take an earnings hit in order to spend.

That last point is counter-intuitive. I want to be long stocks that are warnings-proof. Short interest at DKS is up >3x since last May. Most of them were betting earnings would miss. My bet (on retail in general) is earnings misses will be foregiven. If that happens the shorts are hosed. They have to cover because their catalyst (earnings miss) didn’t work.

We’ve seen Best Buy, Macy’s and JWN go up after bad reports (though in the case of JWN it took a while). So when DKS missed and fell 8% pre-market my question wasn’t why shares fell (they missed, duh) but if the stock could bounce, ala BBY:

 

It did. Here, in nearly indecipherable but surprisingly useful form are my notes on the the surprises during the conference call that triggered a 9% rally from when DKS reported to the close of trading. If the rest of the retail sector continues to trade this way you can expect to see a lot more people getting on the retail train.

Those are the folks I want to sell to at higher prices.

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Shares of GoPro are off as much as 10% today and 15% for the week. The drop comes at the end of a month-long 45% jump that effectively snuffed the hopes and dreams of any bears hoping to ride the one-trick company to zero.

By way of answering many, many questions on why I wouldn’t short a POS like GoPro  I give you the stock’s 5-day chart:

 

GPRO is off 15% in the last 2 days. Shares had jumped 45% since February 4th. Year-to-date GPRO is now down 30%. Calling the turns is insanely hard. Catching the middle of moves can work… right up until it doesn’t. Like today.

Day-trading a pig-show like GoPro is a full-time job. It costs money to short, either borrowing costs or put buying. You can swing trade, jumping in and out to catch the middle of moves but that’s less a trading strategy than playing Russian Roulette with your money. You may go on a great run but the downside is severe.

 

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Dick’s Sporting Goods reports this morning.

Estimates for Q1 stand at 54-cents on $2.28b. Full year is $2.89 on $7.31b. The co already warned for Q4.

Here’s my real-life pre-release cheat sheet*:

At this point you may be sick of retail coverage. You may prefer sexier stocks doing business in the cloud or selling $10 hamburgers. Or maybe you’re looking to scrape some goop off the bottom of the wreckage field that is energy.

Maybe you want to debate Apple some more or chase Tesla. Can Disney regain its downtrend?

I get it. Those are sexy stocks in the headlines. I was asked me about Palo Alto Networks as I was getting prepped for a routine colonoscopy last week. (The answer: “Too much risk just to get back to even. Go for ANF if you want the same danger seeking rush with more upside. Can I get the Michael Jackson drug now?”)

If you want cocktail party chatter stocks go play with Valeant. I hate cocktail parties in general and giving stock picks at said parties in particular. Professionally speaking I’m in it for winning, making money and scratching my creative itch, in no particular order.

Retail is where the money is in stocks right now. That alone makes the sector sexy as far as I’m concerned but I’m sort of a hussy that way.

 

5 minutes ago I dubbed this basket of stocks-I-own MALT just because I wanted to respond to something I heard my friend (name drop!) Becky say on the TV. It stands for Mr Awesome Likes These. Later I realized MALT is also the first initial of these stocks in order of performance year to date (Macy’s, ANF, LULU and Target).

I prefer Mr Awesome Likes These but the company initials might make a better mnemonic strategy.

 

Dick’s

Retailers are shaking off horrendous earnings and exploding to the upside when they hurdle the lowest of bars. URBN thinks it’s a pizza chain and shares are up 10% after they avoided blowing up by more than expected last night. These stocks move big and have been reacting well. In part that’s because merchants started reporting near the market lows February 11th.

Something else is going on here. The retailers were sticky before the market cratered. Dicks is up 25% in 3 months, a period during which they guided lower! The stock is way outperforming shares of the companies whose product it sells. Nike and UA have been slumping while Dick’s keeps chugging along.

BBY shares are up 8% since the miss. They never really even dropped. JWN sounded like lost children on their call and the stock has already recovered. With futures lower this AM and Dick’s set to report any minute I think DKS shares are your market tell of the day.

There are a lot of moving parts to this story. If you do conference calls, tune in to DKS through the webcast at 10am. Management is a hoot (the quarter they chucked golf under bus is legendary) and the company has its finger on the pulse of things you wouldn’t expect like fashion via Athleisure.

Some stocks are for buying (like the MALT group!). Dick’s is just one to watch.

Rememeber: it’s about guidance, stock reaction and brands.

Enjoy! And… Just because I’m not mature and it must be said… I don’t know why the company has kept the name.

• I know the notes look chaotic. That was also true of yesterday’s Shake-Shack cheat sheet, which ended up mostly being a bubble shaped hamburger when I realized how insane SHAK’s valuation is. Do your best to make sense of what I’ve written. I promise there’s value in there somewhere.

 

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Over the last 12 hours Donald Trump has used his fingers-of-unusual-size to escalate his war on SuperPacs and Big Media.

 

See also: The President America Deserves

I love Trump openly doing a professional level heel gimmick. Politics has been compared to wrestling for years. Until now that’s been an insult to wrestling and hack writing.

Now it’s finally true. Here’s a compilation of former MN Governor Jesse Ventura cutting promos. Note well the implausible boasts, endless name-dropping and totally unsubstantiated claims:

How is this different than Trump claiming to be self-made gazillionaire with enormous, graceful fingers? Trump isn’t just a Heel. He is a *great* Heel. That makes a decent percentage of the media public Marks. It’s not a compliment.

In wrestling parlance, Marks are the ones not in on the bit. They don’t get that they’re supposed to be calling the Heel a liar. They’re  supposed to be outraged, maybe even a little afraid. That’s how the show works. The Heel barks, the Marks get enraged and there’s fight in the parking lot.

Without a reaction the Heel can’t exist. There is no show if no one cares. Take one fake controversy: How much is Trump worth?

The correct answer is: He’s rich.*Shrug.

Wealth isn’t really a number. It’s how you shop. The richer you are the less often you have to look at price-tags. Trump has enough money to live like an Emir with bad taste. That makes him rich.

There is no practical distinction between having $3billion or $10billion. What matters to Trump is getting people to argue about the number.

If the media is fighting over Trump’s net worth they aren’t doing things like pointing out the Great Wall of China was built using the bones of slave labor and didn’t work as a defense.

Mission Accomplished:

There have always been Heels. Before he became a universally beloved hero Muhammad Ali was  monster Heel. He claimed to be inspired by Gorgeous George, a flamboyant, despised wrestler in the 1950s. “It doesn’t matter if they pay to see me get whupped” Ali shouted, “as long as they come to the arena”.

Ali was also a member of the Nation of Islam, a group that claimed white people were Devils and killed Malcom X for not being militant enough. That was scary. Trump’s plan to build a 2,000 mile wall and bill Mexico for it is just dumb.

When I was 10 Jesse Ventura created a local stir by claiming Carly Simon wrote “You’re So Vain” about him. The children of Ventura Truthers are currently writing 5,000 word blogs about Trump only being worth $2b.

Heels feed on hatred. They need it. If all these media smarts would deign to watch pro wrestling they would have realized this by now.

 

Win or Lose, Trump Has Changed the Game

According to NPR there will be $4.4b spent on campaign ads this year, up more than 15% from 2012. Bet on the under. Thanks in no small part to his phenomenal Twitter and television Heel skills (see also: Trolling) Trump is running his campaign for a fraction of the cost of his rivals. Trump dominates the news cycle. What’s the point of buying a 30 second TV spot when you can get a 15 minute segment for free just by infuriating people?

Here’s what Romney and Obama spent running against one another. At the rate he’s spending Trump getting the GOP nod would cost the networks millions in ad dollars.

Not only has Trump built his lead in the GOP race on the cheap but he’s spending about 1/5th what the Democrats are spending on their race. That’s remarkable considering the degree to which the Democrats are simply going the motions on the way to Clinton’s last big push.

 

Campaign ads are a relic. Trump has completely blown up the old formula of huge donors controlling the election process. That Trump has done it through blunt force only reinforces the magnitude of the shift. By the next election cycle every candidate who makes its this far will have a sophisticated social media ground game. By 2018 every candidate will understand and embrace the power of social media presence in politics. The ones who don’t won’t win. It’s that simple.

They won’t all be angry howlers like Trump. There are plenty of smart, likable people who understand social media. Unfortunately none of them happen to be running for President this year.

In tech terms, Trump is a bit like Napster, rudely clearing the way for the more elegant (and profitable) iTunes quasi-monopoly.

If the prospect of grass-roots candidates Tweeting their way to election wins doesn’t scare the hell out of the networks it should. In a cord-cutting world Big Media can’t afford to lose its quadrennial Golden Goose.

 

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Bear market rallies and American Greatness are both fueled by the blood of skeptics. We are a mighty yet insecure people, forever stuck in fight, flight or boast mode.

Despite America’s economic alpha-dog status we typically spend years of our investing lives in hiding, convinced the end is near. Crash calls sound all the smarter for having been wrong roughly 215 out of the 224 years the US stock market has existed.

The clock is always ticking on a bomb that seldom explodes.

In the last 6 years we’ve had three relatively large sell-offs driven by fears Greece would exit the European Union. (Note: Greece doesn’t matter even a little bit to America.)

There is nothing new. Ever. Worried about gridlock? Go look at 2011. Election stress? Please. Trump is H. Ross Perot with smaller hands. I don’t even remember what disaster traders were looking for last month. The S&P 500 has gone up more than 10% in three weeks. Seems safe to conclude the worst case scenario didn’t unfold. It probably won’t next time, either.

Try to remember that when this rally comes to an end, as it inevitably must. 2000 works as an upside S&P500 target. The easiest argument for a pullback is how embarrassing it would be to buy right now. We don’t need a better reason than that to give back a few percent.

I’m taking some profits (selling 1/4 positions) and calling it a week. The easy trade is done but worry not: you’ll be stunned at how soon we’ll come up with some Bogeyman to justify a pullback to support.

Here are you levels of note in post-Fear America:

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Bill Gross has had a huge career. He’s a giant. More specifically, he was The Bond King.

That was at Pimco, from which Gross was ousted. Lawsuits ensued. Gross is getting paid a King’s Ransom by Janus but being King isn’t about money. It’s about respect. Ask a kid who the king of the NBA is. He won’t say Kobe Bryant (highest salary). He probably won’t even say LaBron “King” James.

The King of the NBA is Steph Curry. Go ahead and ask the kids on the nearest court.

The King of Bonds is Jeff Gundlach. Ask any bond trader. Or Forbes magazine:

 

Some Kings go into retirement with dignity. Most deposed members of industry royalty, be it athletic or business either become bitter or hang around long enough to see their own back-lash. If you want a good interview about a screwed up company book the ex-CEO.

It’s very hard to be an ex-King. It’s hurtful and confusing. It would be lunacy to think such a dramatic change of a man’s station in life wouldn’t impact his view on the world.

So here’s the view from the the former Bond King. My take aways are: I never liked the bank stocks in the first place and Bill seems sad.

Probably in reverse order.

 

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