Special Report: Listen to the Music

Recently things have dramatically changed.   In Sept ’22, Chicago Board of Options Exchange opened the market Zero-Day Options.  This is pure gambling.  Note July 2024 Barron’s cover.

Ok, speculators are speculating, that has been going on since long before the Dutch Tulip market.  How is that impacting the markets?   There is more than one market for stocks.   The New York Stock Exchange, you know the images we see with guys with loud jackets screaming and flashing gang signs (much more electronic now) have specialists that match buyers and sellers of stock.  This may be similar to an auction.

The NASDAQ (National Association of Securities Automation Quotation) is comprised of Brokerage Firms that act as “Market Makers” for shares of stock with computerized trading.  These firms pledge to hold an Inventory of Stock for the companies for which they are Market Makers.  This ensures that there is a fair, accurate and liquid market for NASDAQ listed firms.  Think of a Market Maker as a grocery…they have to keep inventory where an auction matches buyers with sellers.

Options can cause a little anxiety in the system.   When speculators buy heavily on a particular stock with call options (betting a stock to go higher), the “Market Maker” often goes into the open market to buy stock to hold in reserve in the event that a stock reaches a particular strike price.  The challenge for the Market Maker is to maintain the appropriate amount of stock in inventory so they don’t hold overpriced securities.  This is a complex system.  

Let’s return to Market Music.

The world beyond AI stocks has seen significant declines and, in our opinion, offers much better risk/reward prospects.  Anyone who has been in the securities business for longer than 20 minutes has heard the Dow Jones Transportation Index (a basket of companies including:  Airlines, Trucking, Shipping and Rail) is a leading market indicator.

This 10-year chart shows the pain of many companies following a brief Covid recovery. 

Off their local highs Delta DAL -14%, United UAL -17%, Southwest Air LUV -22%, and American AAL -32%. The U.S. government says TSA data looks fine, yet the Transports keep underperforming. The TSA has daily data near the recent highs for the number of people scanning their boarding pass with a TSA agent, and it continues to show no signs of the economy slowing down. “Friday, June 28th, was the 4th busiest day ever for TSA – our officers screened 2.93M individuals at airports nationwide.”  According to The Bear Traps Report July 7. 2024

***JETS is an exchange traded fund that tracks along with a collection of airline stocks.

Total Credit outstanding rose $11.4 billion after a revised $6.5 billion gain in April, according to Federal Reserve data released Monday. The median forecast in a Bloomberg survey of economists called for an $8.9 billion increase for May. The figures aren’t adjusted for inflation. Revolving credit, which includes credit cards, advanced $7 billion, also the most in three months. Non-revolving credit, such as loans for vehicle purchases and school tuition, increased $4.3 billion. Many Americans who have whittled away their pent-up savings accumulated during the pandemic are relying on credit cards and other payment methods to spend. Combined with the rise in the cost of living, that’s further straining household finances and points to a slowdown in consumption. That may explain a recent pullback in consumer spending. Retail sales barely rose in May and prior months were revised down, according to the latest data. The monthly consumer credit report doesn’t include mortgages." – BN

The markets have taken notice.   Here are the 5-year charts of Visa and Capital One.  Both have had significant divergence from the S&P 500. 

With all of this negative news are there any opportunities?  Yes!  Again, if we Listen to the Music, the World is full of opportunities.  Now is the time to seek them out!

The World, like the US, is waiting to see how our elections play out.  We believe there are several places to find value well before the election.  Think back 8 years.  November 9th, the pundit was predicting Doom and Gloom for the United States.  Donald Trump was going to take us back to the Stone Ages with his protectionist policies and the markets were sure to crash.  The opposite was the result and DJIA and S&P rocketed for the following several months.