Sell offs are healthy, though not comfortable
There was no specific reason that the market sold off yesterday and sold further today. Market participants took the market up too far and too fast. Of course, I have been saying this for weeks at this point, and you are all probably tired of me saying so. This is good for market participants, especially the neophytes who have recently joined our ranks. I hope this action serves as notice that stocks can go down, which is all to the good. A sell off is the way that a market renews the rally. I know the concept that market volatility to the downside being a positive occurrence is counter intuitive. Just look at it from the classic “supply and demand” rule of economics, selling ultimately creates a new supply of buyers. Also, there are a lot of investors and traders that have missed this huge move and are looking for a chance to get in. A few days of selling may prove enticing to those who thought themselves smart money who are now on the outside looking in and want to get into the game. It also serves as a caution to many of us who were in on the rally from the start and perhaps let some positions go too far. If you took a big hit on a position whether because you were late to the party or you let something grow too far, time to trim those positions. You will feel better.
Fed conference, “We aren’t worried about asset prices”
Powell was asked whether he regrets the boost in asset prices since it contributes to wealth inequalities. He fairly swatted the question away and stressed that the fed had to act in order that the financial markets would not seize up. He went on to state that he will continue to maintain liquidity until the economy returns to 3.5% unemployment. Powell says further that they are “not thinking about raising rates, we aren’t even thinking about thinking of raising rates.” Powell went out of his way to state that it was clear that 3.5% had no effect on inflation. In fact, he said that at the time the epidemic came there was no sign of inflation so even 3.5% wasn’t NAIRU, Non-Accelerating Inflation Rate of Unemployment, the theoretical level of unemployment below which inflation would be expected to rise, meaning that Powell would like to see unemployment even lower. Chairman Powell displayed empathy for those who are unemployed, and that he wanted to do what he can to get employment back to a healthy growth path. In responding to questions he made it plain that he wanted to see further fiscal action from Congress but did his best not to overstep. I found Chairman Powell to be very supportive of the real economy and our stock market.
New IBM (IBM) CEO signaling cancellation of facial recognition, here’s the truth
I quote this from CNET, but this news was broadcast widely and in the guise of furthering social justice: “IBM announced Monday that it's withdrawing from the general-purpose facial recognition market, saying it worries that the technology is being used to promote discrimination and racial injustice.
"IBM firmly opposes and will not condone uses of any technology, including facial recognition technology offered by other vendors, for mass surveillance, racial profiling, violations of basic human rights and freedoms, or any purpose which is not consistent with our values and principles of trust and transparency," CEO Arvind Krishna said in a letter to congressional leaders on Monday.”
My take: Here's the sad truth. IBM lags in artificial intelligence and machine learning. I think this is a case of “turning lemons into lemonade." IBM can no longer afford to fund failing projects just to push the brand. It must shut down facial recognition, and all the attendant technology, but couching it in social justice terms shouldn’t fool anyone. This is a bit opportunistic, and virtue signaling in a very self-serving way.
To add to the storyline of subpar performance, the IBM Cloud suffered a major outage last night, and with that, multiple services that are hosted on the platform also are down. It looks like the problems started around 5:30 pm EST June 9 and spread from there. This was reported to be a worldwide problem and involves a networking issue. I just picked this up from some tech blogs. I know it might seem a bit petty, but the closeness of these two occurrences was too tempting to ignore. I don’t blame Mr. Arvind, he is new to the post, and I wish him luck. Blame his predecessor for the sorry state of IBM. Under the circumstances perhaps I too would take the expedient way out. I just wish he didn’t go out of his way to cover himself over it. What does this mean for the trader? Stay away from IBM. Instead of looking for excuses, and flowery pronouncements, Mr. Arvind should be plotting IBM’s world domination, or at the very least become remotely relevant once again. I'm not a buyer of IBM stock.
Retail Investor Participation
On CNBC JJ Kinahan of TD Ameritrade attested to the flood of new accounts. What was interesting was that their Investing Education videos have three times the traffic with a concentration on "Investing Basics."
My Take: Kinahan said this to reassure, my take naturally is contrary. While it's virtuous to gain knowledge, trading skills take years to hone. I highly doubt that all these neophytes are opening accounts to buy dividend-bearing ETFs and hold them for a decade. No, the vast majority will buy the riskiest, and "toppy" names. How do I know? Well, I was once, a beginner too, just like you all were. So let's not sneer and feel some empathy. If we are about to enter a parabolic euphoric period, a bunch are gonna make some fast money and then lose a fortune.
Further Green Shoots
Yesterday the NFIB published some encouraging news about small businesses. Small business confidence improvement with a rise of 4.5 points to 94.4 in May in Small Business Optimism.
My Take: It's from the small businesses that employment growth will accelerate. The large corporations will realize that if they have the productivity that they do from people working from home, then a lot of relatively highly paid senior supervisors will be superfluous. In addition, the sheer productivity of the tools that are available will put a ceiling on new hiring. The small corporations also will avail themselves of these great productivity tools but we know that the small corporations will use technology to find new business sectors and niches that the big corporations might overlook. In the end, it's productivity that leads to higher-paying jibs and new demand for jobs. So I do hope that the Fed and Congress continue to find ways to support small businesses, that is how we are going to shorten the unemployment rolls.
My Trades: VTIQ became Nikola Trucks (NKLA). I suggested participating in VTIQ via the warrants. That warrant is now NKLAW. If you followed me into this trade you should have some good alpha. The stock fairly doubled on Monday, and yet the warrants did not follow them nearly as far as they should have. I thought this was a further opportunity for alpha and held on to some of my warrants until today. Today I thought better of it, and I decided to sell half, and I might sell the rest tomorrow as well. Sometimes it's best to not be too greedy. I made plenty, perhaps it’s time to move on and let someone else take it from here.