Great Stuff 9-18-2019

Just Rolled Into the Shop

Ever have one of those moments driving your car where things just don’t feel right?

A slight pull to the side, an engine stutter, a weird hitch while shifting gears … and then everything goes back to normal. There’s no engine light, but you have a feeling that orange beacon of doom could pop up at any time.

That describes what happened to the U. S. financial markets this week … albeit poorly.

The hitch in the markets was a spike in overnight lending rates, which soared north of 9% due to increased demand for cash. The Fed funds rate tagged 2.25% … the top of the Federal Reserve’s target range of 2% to 2.25%.

To keep things under control, the Federal Reserve quietly injected tens of billions into the financial markets — the first time since the 2008 financial crisis. On Tuesday, the Fed lent $53 billion in cash to provide money market liquidity. The central bank injected another $75 billion into the financial markets last night.

According to TD Securities, bank reserves are the problem:

We think that the culprit is the scarcity of bank reserves, which are the only asset that provides banks with intraday liquidity. Reserves have been declining since 2014, and we expect them to decline further as Treasury’s cash balance increases and currency in circulation grows.

The Takeaway:

For now, the problem appears to be fixed. Overnight lending rates are back down.

I know this is heavy jargon for many investors, so I reached out to Banyan Hill expert Michael Carr for an explanation:

Banks and large financial firms lend each other money overnight for short-term liquidity needs. Maybe a bank needs a few million dollars to meet Federal Reserve requirements for a day. It borrows and repays the next day when borrowers repay loans to the bank and deposits come in.

Thousands of banks settle up every night. Some have excesses, while others need a few bucks. The same is true for brokers, traders on margin and others in finance. Those with extra cash lend money to those who need. It’s normal. 

This process works well and keeps money moving through the economy … most of the time. Sometimes, the excess funds just don’t add up to enough. That happened in 1998 when Long-Term Capital imploded and in 2008 when everyone imploded. 

There were other crises. They aren’t always big and life-changing. But this is a liquidity crisis. 

I have read this week’s situation was caused by corporations withdrawing cash for taxes. That’s a known and regular event. Known events don’t cause crises.

This is a liquidity crisis, and I’m certain the Fed was working late last night. Maybe they solved it, and we should all sleep while they work. Or, they didn’t solve it, and we have a crisis on the horizon. It took about six months from the time a couple of Bear Stearns funds collapsed in February 2008 before the rest of the system collapsed. 

For now, all we can do is watch. But a large fund, a bank or an insurer was in crisis this week, in my opinion. 

Thanks, Michael!

To find out how Michael Carr uses this wit and wisdom to make you money, click here.

Great Stuff, The Good, The Bad and The Ugly

The Good: Facebook Glasses, They Do … Something?

Great Stuff 9-18-2019

Remember when we all laughed at Google’s smart glasses? I mean, nobody was going to pay that much for goofy headgear for their phone. And then Snap Inc. (NYSE: SNAP) came along and made them actually work.

Facebook Inc. (Nasdaq: FB) remembers … and now it’s moving into the smart-glasses market with its own altered-reality version under the code name “Orion.”

The infamous “sources familiar with the matter” told CNBC this week that Facebook has partnered with Ray-Ban maker Luxottica to develop the glasses.

But Facebook’s version of smart glasses goes way beyond Snap’s implementation. The glasses will reportedly allow users to make calls, show user information and record and livestream video on social media.

While this all sounds really cool and could put a hurt on Snap’s glasses, neither Facebook nor Luxottica have commented on the report. In other words, Facebook’s smart glasses are still a long way out … if they even exist.

Also, I’m getting a real Black Mirror vibe from this whole thing. Anyone else see the “Nosedive” episode?

The Bad: Chewy’s Dog Ate Their Earnings

Great Stuff 9-18-2019

Who’s a good boy? Who’s a good boy?

Wait — no Chewy Inc. (NYSE: CHWY)! Bad Chewy!

After last night’s earnings report, the online pet products retailer clearly needs more paper training. Chewy almost made it. Almost.

Revenue, third-quarter guidance and full-year forecasts all topped expectations. Earnings, however, came up short.

For the quarter, Chewy said it lost $0.21 per share, missing analyst targets by $0.10 per share.

That was a wide enough margin to prompt a sell-off, sending CHWY shares down nearly 7% on the news.

However, selling may be overdone. Chewy is still in its growth stages after going public back in June.

Spending is going to remain high while the company rolls out the cash on marketing and customer acquisition. In other words, if it can keep revenue above expectations, earnings should eventually follow.

The Ugly: Fed up With the Ex

Great Stuff 9-18-2019

Things are getting ugly with the ex. You know the type: the one who always blames everyone else when things go wrong.

All Wall Street wanted was in-line earnings, revenue and guidance … that’s not too much to ask, right? But FedEx Corp. (NYSE: FDX) was unable to deliver. The company missed on earnings, missed on revenue and put its full-year forecast well below Wall Street’s expectations.

FedEx’s excuse? The U.S.-China trade war, an investigation by China into how it handled Huawei documents and the company’s recent split with Inc. (Nasdaq: AMZN).

“Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations,” CEO Fred Smith told investors.

It was too little, too late, however. The breakup is going about as you’d expect, with FDX cratering more than 13%.

Great Stuff's Comic Corner

Great Stuff 9-18-2019

Boy, it doesn’t take long for sentiment to shift in finanical headlines. The market is fresh off a 5% rally from its August lows, and already, rags like MarketWatch are pushing headlines such as “Stock market’s eerie parallels to September 2007 should raise recession fears.”

No wonder we’re all drinking more spirits lately. However, you still won’t find me with a can of White Claw in hand. As a Kentucky boy, bourbon is the only way to go. If I want water, I’ll drink Bud Light.

Great Stuff: How to Be a Successful Investor

I’m still riffling through all the great stuff left over from this year’s Total Wealth Symposium. Man, is there a lot of excellent market advice in there!

Today, we have one of the free videos … this one between Banyan Hill experts Ted Bauman and Charles Mizrahi.

In this clip, Charles and Ted discuss their approaches to investing. They dive deep into the trade-off investors face between buying into companies with slow and steady growth versus risking it all on a momentum play when the underlying value of the stock isn’t as stable.

Here’s the video:

Finally, if you weren’t able to attend this year’s symposium and didn’t sign up for the live-stream — you better have some darn good excuses! — I’m here to save you from missing out on the opportunity of a lifetime!

Right now, you can get access to every presentation … every workshop … every investment opportunity … every recommendation … right from the comfort of your own home.

Pause. Rewind. Rewatch. All the things you wish you could do with real life — they’re all yours. But you have to act now. This offer won’t be available for long.

Click here now to get in!

Until next time, good trading!


Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing