The Kangaroo Market
According to Merriam-Webster, a kangaroo court is “a mock court in which the principles of law and justice are disregarded or perverted.”
Now, you’ve heard of kangaroo courts before, right?
But have you ever heard of a kangaroo market?
On Friday, Berenberg Capital Markets analyst Jonathan Stubbs forwent the usual “bull” or “bear” designation for Wall Street activity. Stubbs dubbed this the “kangaroo market” live on the air on CNBC.
Now, Stubbs was most likely making a pun on soaring market volatility.
Heading into 2020, the CBOE Market Volatility Index (VIX) traded in a comfortable range below 20, indicating very little volatility or market fear. Since January, however, the VIX has spent most of its time above 30, indicating a heavy degree of volatility and investor fear.
In short, the VIX tells us what we already know — that stocks are volatile. That market spikes and 2%-plus plunges are now commonplace.
But, revisit that definition of “kangaroo court” again. See anything that might apply to the new kangaroo market?
If you said price-to-earnings ratios or stock valuations … ding, ding, ding! We have a winner!
In this new kangaroo market, stocks trade in — to paraphrase Merriam-Webster — a mock market, where pricing stocks according to a company’s earnings and revenue is disregarded or perverted.
In this market, Barstool Sports founder Dave Portnoy is the new Warren Buffett … according to Portnoy himself, that is. “I’m just printing money … I should be up billions!” says Portnoy. Warren Buffett is “washed up!”
Now, I’ve never been a fan of investing like Buffett — mostly because his sheer amount of investing capital makes it impossible for you or me to “trade like Buffett.” But “trade like Portnoy” is the new market hotness — among retail investors, at least.
This new speculative trading model — which, let’s be honest, is fueled by the Fed’s unlimited stimulus and bored sports betters — is exactly what gave rise to the kangaroo market.
So, Mr. Great Stuff, how do I deal with this new market? Do I need a bigger knife?
Crocodile Dundee references aside (That’s not a knife. This is a knife!), what you need is a healthy dose of Great Stuff to keep you grounded in reality and a main course of solid trading research designed to take full advantage of the kangaroo market volatility.
Market analysis expert Mike Carr didn’t just find a better way to trade in volatile times — he created a better way: One Trade.
It’s one trade once a week. That’s it.
No following hundreds of stocks. No suffering through market whipsaws while your stocks plummet. When the Dow kangarooed last week, Mike recommended closing out a 105% gain … but some readers wrote in to tell him about profits of 308%, 412% and even 650%!
The Good: Walify Your Shopmart
I’ve said before that I believe Shopify Inc. (NYSE: SHOP) has big things coming down the pike … but I didn’t expect this big!
Walmart Inc. (NYSE: WMT), the world’s largest retailer, just announced a partnership with Shopify to expand its third-party online marketplace. I don’t know that I can stress how big a deal this is for Shopify … and Walmart. The tie-up puts the duo on an online collision course with e-commerce king Amazon.com Inc. (Nasdaq: AMZN).
It’s no secret that Walmart is the king of brick-and-mortar retail sales. The company is coming up big in the e-commerce space, with revenue growing 74% last quarter. But Walmart needs that extra push to really compete with Amazon online. Shopify is that edge.
As for Shopify itself … having a client like Walmart in its corner is huge. But it’s not only Walmart. Shopify will help the retailer sell products from small- and medium-sized businesses. You know, those businesses that took a back seat on Amazon during the early days of the pandemic?
You may remember that Great Stuff closed out our position on Shopify last month for a 110% gain. We’re closely looking at getting back into SHOP after this news. The only thing that keeps us from pulling the trigger is the overwhelming market volatility.
In short, there will be better prices for an entry point for SHOP. Stay tuned to Great Stuff for further updates.
The Bad: What the Cluck?
When I heard that Pilgrim’s Pride Corp. (Nasdaq: PPC) CEO Jayson Penn was taking a hiatus to focus on his legal defense, my interest was piqued. When I found out it was due to “chicken price-fixing” allegations, I nearly keeled over laughing.
Yes, I know that price fixing is a very serious allegation … even if it’s with chicken.
Despite being accused of fowl play, Penn maintains his innocence. But we all know talk is cheep and that actions speak louder than birds. It’s up to his legal defense to keep Penn from being tarred and feathered.
The whole situation has Pilgrim’s Pride investors feeling a little peckish. PPC shares are down more than 13% since the Justice Department announced the indictments. And we’ve only chicken-scratched the surface.
Pilgrim’s Pride will try to maintain stability through Penn’s absence, putting Chief Financial Officer Fabio Sandri at the top of the company’s pecking order for now.
Investors will want to be cautious with PPC shares, because negative fallout from this indictment could leave them with egg on their face.
The Ugly: Selling Tomorrow
Anyone remember AT&T Inc. (NYSE: T)?
The company has been very quiet lately, probably focusing on paying down debt.
What? It finally launched HBO Max? When? May 27? Really? Wow, completely missed that. It might be because it didn’t launch on Roku or Amazon Fire TV. Of all the boneheaded decisions…
Anyway, I bring up AT&T to talk about today’s news that the company is reportedly selling its Warner Bros. Interactive Entertainment unit. In other words, AT&T is looking to sell its video game making division.
On one hand, AT&T has a lot of debt to pay down. As of the first quarter, AT&T dragged around about $164 billion in debt.
The company expects to get about $4 billion for its Warner gaming unit. Interested parties include Activision Blizzard Inc. (Nasdaq: ATVI), Electronic Arts Inc. (Nasdaq: EA) and Take-Two Interactive Software Inc. (Nasdaq: TTWO) — all of which have deep pockets.
On the other hand, AT&T is selling its gaming unit right before next-generation consoles launch this fall. Warner’s gaming unit holds the rights to popular franchises such as Harry Potter, Game of Thrones, Batman and Mortal Kombat. Many of these franchises will have sizeable demand on next-gen consoles.
AT&T may believe that now is a good opportunity to cash out on its gaming division, and it’s not wrong. However, the company could make considerably more than $4 billion in revenue from these franchises alone in the next console generation.
I commend AT&T for focusing on paying down its massive debt. But with this move, the company might be cutting off its nose to spite its face.
For our Chart of the Week, we once again turn to earnings excitement…
Sike! Did you expect another Earnings Whispers calendar? This week’s earnings are like the tuna wraps and celery dippers left over at the buffet. In other words … it’s quiet. Still, here are three earnings reports you need to know about:
- Oracle Corp. (NYSE: ORCL): reports Tuesday. Oracle is the OG database “Big Data” company. It took its time breaking into the cloud market … until now. It has the chops to dominate the cloud computing space, so I have a close eye on cloud revenue growth this week.
- Kroger Co. (NYSE: KR): reports Thursday. Ah, the pros and cons of being essential. Kroger will no doubt have high expenses for cleaning and, you know, caring for employees’ safety. But everyone, from the doomsday preppers to the most thrifty “suddenly a chef” folks, needs groceries sometime…
- Carmax Inc. (NYSE: KMX): reports Friday. The auto industry’s top disruptor right now (bite me, Vroom), Carmax is moving quickly to keep driving business by sanitizing after test drives, contactless pickup, home delivery and so on. I’m looking for any and all data on how the auto market is holding up.
The thing is, everything you’ve heard thus far in earnings season could be completely undone by what you read next.
Here’s our real Chart of the Week. Take a look…
What am I looking at? More data? I don’t do math on Mondays, you know…
Oh my friend, this is the talk of the town right here. Those bars show daily COVID-19 cases in the U.S. It shows cases declining through the lockdown, then rising after lockdowns were lifted. It’s why everyone from Wall Street down to your local Robinhood gambler is a bit freaked out right now — more uncertainty.
It’s anyone’s guess whether or not we’re headed for another lockdown situation — Wall Street’s and Main Street’s worst nightmare. But anyone can see that the downtrend in daily cases may be done for now, with several of June’s daily case counts breaking the trend line here for the first time since April.
This chart actually comes from a full dashboard of COVID-19 data pulled together by the Center for Systems Science and Engineering at Johns Hopkins University. If you haven’t checked out this site yet, bookmark it! (Or write down the entire web address on a Post-it note, if that’s your thing.)
So, the next time the market freaks out about COVID-19 cases on the rise…
Check this site! Seriously. Data is our sole ally when we can’t always trust supposed “facts” … and I’ll leave it at that.
Great Stuff: Another Week, Another Shot at Greatness
It’s another new week here at Great Stuff headquarters, and we’re glad you tuned in!
If you have feedback or suggestions for your favorite financial e-zine, why not drop us a line?
GreatStuffToday@BanyanHill.com is where you’ll reach us best.
And you might just find your rants and raves in this week’s edition of Reader Feedback. Of course, if you don’t want your email shared with the financial world’s beckoning maw, just let us know. Seriously — if privacy is your bag, you’re writing to the choir here.
So, tell us what’s on your mind! Have we forgone the bulls and bears? Is the kangaroo market here to stay? (It’s surely better than a “murder hornet” market … and whatever happened to those suckers, by the way? What quarantine week was that? Who am I again?)
Until next time, stay Great!
Editor, Great Stuff