Today Markets broke out from the recent downturn, with all major indices rising more than half a percent. Our portfolio returned similar results, with Ford Motors (F) leading the gains. We were hampered somewhat by a slide in US Steel, which generated unrealized losses but due to the nature of the position the projected return is actually unchanged (it’s currently capped around 9%). We took a very small position in HD building supplies (HD) in anticipation of tomorrow’s earnings announcement, and we expect to close shortly thereafter.
We’re currently working on a widely diversified multi asset portfolio that we hope will bring stable returns to a large portion of the overall fund. We’ll have more information on that tomorrow, but we don’t expect the model to be complete until the middle of next week.
Back to older news – the first distribution since we took our position in Frontier Communications (FTR) preferred shares (FTRPR) is scheduled to occur in the next two weeks, and we’re anticipating a sharp drop-off in the value of those shares. If the drop is significant enough we will definitely consider growing (up to doubling) that position. The drop will likely occur as investors who were waiting for the next dividend to exit the position do so, there will be far more sellers than buyers for at least a few hours.
Today marks the second day of economic withdrawal, with all major indices and crude oil down. As volatility rose, gold prices have started to tick a little higher. Today’s drop may have been driven by disappointing housing and regional manufacturing data, despite strong Chinese economic reports.
Tomorrow’s activity will be driven by this afternoon’s release of the Fed’s ‘beige book’ – a comprehensive ledger of business activity meant to be used as part of the next monetary meeting between June 14 and 16. Expectations are rising that interest rates will rise again after this meeting, but we’ll know more about that this afternoon.
Our position in US Steel has already crossed the strike price of the call options, meaning our return would be capped at 9.14%. This far from expiration it is unlikely that the contracts will be assigned, but it is encouraging to see this upward movement despite weak manufacturing data and an otherwise market down day.
Markets slipped today following the extended weekend. In an unusual set of circumstances nearly every measurable index was down somewhat today. The major market indices (DJI, S&P), WTI Crude, Gold spot prices, and the US dollar all fell in a range between 0.3% and 0.1% today. Typically several of those indicators have an inverse relationship (the dollar and gold prices/the dollar and crude/crude and gold), but that wasn’t the case today.
In economic news, both personal income and spending were in line with estimates, but consumer confidence is down slightly. Sentiment towards current conditions rose slightly, but confidence in business performance over the next six months declined somewhat.
Overall it was a fairly news-less day, which in turn lead to slightly below average trade volume. This may have contributed to the slump in prices today. We were able to take advantage of a moderate price reduction in deployment of another buy/write position in US Steel. The expiration date for the position is late July, with an expected assignment and total return at just over 7%.
Oil Plummeted today on the outcome of the OPEC meeting. Member nations agreed to extend production cuts for a further 9 months. While this still comes as good news to world producers, investor sentiment had gotten a little greedy. Investors were expecting the extension to be at least one year longer, and for production cuts to be deepened. Cuts as they are now are just production levels at 2015, leaving most OPEC member nations at historically high production levels. Still, it was a little much to expect. Oil prices should recover as investors come to that same conclusion.
Our portfolio was dragged down today entirely on the fall in oil prices – SDLP suffered to the tune of 5% market capitalization loss. Again, we’re expecting that to normalize, the news was on the positive side of neutral in our opinion.
In other market news, SNAP was up strongly today – 2% at close. Due to the nature of that position we have no plans to make any moves before late August, though it is safe to say that we’re expecting good things. Our target return is currently a robust 8.5% for the three month holding period.
Markets were up mildly today. Russian officials have signaled their intent to enforce domestic oil cuts that would continue US producer’s gains this year. Gains were slightly lower than yesterday’s session as investors began to doubt the likeliness of Trump’s budget proposal passing Congress in it’s current form. The released document is almost exactly in line with expectations, with deep cuts in branches like the NPS, EPA, and oddly the Coast Guard, alongside a slashed corporate tax rate (down to 15%).
Our portfolio benefited from this market sentiment, with SeaDrill partners rising almost 6%. Their focus on future oil market performance benefited strongly from news of a continued supply cut – that means US producers will be requiring their services for the foreseeable future.
Oil prices climbed 2% today on expectations that OPEC member countries would agree to deepen production cuts at a scheduled meeting next week. The industrial sector was also up 1.3% in trading today on very strong earnings from General Electric and Boeing.
Analysts reported that the broader market sentiment was driven by much stronger than expected earnings from Deer and Company (DE), which beat earnings estimates by 46% sending them up 7.5% in trading today. I view this as unlikely – their market cap is relatively low to have had that strong an impact on investor sentiment. More likely I think is decreasing volatility as news of Michal Flynn’s pending investigation fade from the national attention. Volatility late last week was far up from a normal range, and despite strong gains Thursday and Friday the week closed down 0.6%. Today is more of that return to normalcy as uncertainty continues to fade.
Technology stocks surged today after the administration announced plans to virtually eliminate taxes on repatriated funds from operations overseas. This would take the form of a ‘one-time tax’ and it is unclear if it is simply meant as a one time measure, or an ongoing cut. In either case, many tech companies have literally trillions of dollars overseas and investors were excited by the possibility of that money returning to the US. The general technology sector was up 0.6% today, while the companies with the most to gain from this move (Apple, Microsoft, and Facebook) were each up more than 1.5% today.
Volatility continues to decrease as uncertainty surrounding the Flynn probes returns to normal levels. It is pretty likely that volatility will increase dramatically in coming weeks, this was just the spike on news that the probes were starting. Relatively few revelations have come to light so far, but it is fairly likely that at least something will come of these probes into possible collusion with a foreign power.