morning review - 081310

8/9/2019 Morning Review - 081310

1/11


2/11


3/11

3

Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]

Beth Reed: 212 448 6096 or [email protected]

Now, before you read that as a negative enough signal to go out and actually buy some SDS, consider what kind of market we need to see to make thatsecurity pay off in size. We have attached a simple analysis that shows how many down days of 1-5% declines we need to see to get the SDS to 50, or 100. A summaryof that table:

From current market levels, you need to have 21 sequential down days of 1% to see the SDS at $50. Yesterdays close was $33.38. To see 100, you need 56days of the same percentage decline.

The real payoff in the SDS is, of course, an uninterrupted series of really rough days for stocks. You only need 5 down days at 5% to get over $50 for theSDS, or 12 similar days to get over 100. The fund has only closed over $38 twice in 2010 on February 8 and again on July 2nd. No coincidence, of course, thatthose were the two best tradable lows for the year.

To sum up, the leveraged short funds serve a purpose even if you never actually trade them. By measuring their popularity, you can get an interesting take onmarket sentiment. Demand for popular funds like the SDS will actually decline when stocks are oversold. And, of course, their prices will rise to noticeably higher levels perhaps even new highs when we have had a string of losing days.

By both measures, U.S. stocks do not look cheap enough to buy, even with the recent selloff.

S&P 500 SDS

Current level: 1,086 33.3 50.0 100.0 If SDS at 50 If SDS at 100

1% Move in the S&P 500 1,076 34.0 21 56 889 625

2% Move in the S&P 500 1,065 34.7 11 29 888 617

3% Move in the S&P 500 1,054 35.3 7 19 933 628

4% Move in the S&P 500 1,043 36.0 6 15 886 614

5% Move in the S&P 500 1,032 36.7 5 12 885 618

# Days to get SDS to: S&P 500 Would Be:

SDS M oves at 2X Inverse the Daily % M ove of the S&P 500

Month Total BGZ DUG DXD FAZ SDS SKF SMN SPXU TWM TZA

January 7,390.3 309.6 219.9 553.2 1,057.2 3,201.2 717.9 154.7 174.6 473.8 528.2February 7,701.7 288.1 190.0 592.1 1,049.6 3,517.5 746.5 156.6 198.2 460.4 502.7

March 7,511.4 268.6 196.6 552.4 1,231.1 3,240.0 576.9 135.7 226.9 520.9 562.3

April 7,113.5 256.4 181.3 497.4 1,060.5 3,194.6 580.5 122.2 218.4 494.9 507.3

May 7,319.5 265.0 158.5 538.7 937.3 3,530.5 597.6 131.4 238.5 468.6 453.4

June 8,045.3 314.8 150.3 573.3 983.8 3,698.6 637.7 148.6 330.5 569.7 638.0

July 7,724.1 303.3 146.4 522.1 1,059.6 3,521.4 556.5 115.8 358.6 516.3 624.1

Assets U nder M anagement at M onth End ( in $ mil lions)


4/11

4



15,000,000

16,000,000

17,000,000

18,000,000

19,000,000

20,000,000

21,000,000

22,000,00023,000,000

24,000,000

25,000,000

Direxion Dai ly L arge Cap Bear 3 X Shares (BGZ)

YTD Change:18.6%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

UltraShort Oi l & Gas ProShares (DUG)

Shares adjusted to reflect 1:5 stock split on 4/15/10

YTD Change:-48.9%

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

Direxion Daily Financial B ear 3X Shares (FAZ)

YTD Change:

44.3%

80,000,000

85,000,000

90,000,000

95,000,000

100,000,000

105,000,000

110,000,000

UltraShort S&P500 ProShares (SDS)

YTD Change:28.2%

1000

1050

1100

1150

1200

1250

80,000,000

85,000,000

90,000,000

95,000,000

100,000,000

105,000,000

110,000,000

Ult raShort S&P500 ProShares (SDS) Share Count vs S&P 500 Index

SDS S&P 500 Index


5/11

5



15,000,000

16,000,000

17,000,000

18,000,000

19,000,000

20,000,000

21,000,000

22,000,000

23,000,000

24,000,000

25,000,000

UltraShort Dow30 ProShares (DXD)

YTD Change:10.9%

20,000,000

22,000,000

24,000,000

26,000,000

28,000,000

30,000,000

32,000,000

34,000,000

36,000,000

38,000,000

40,000,000

UltraShort F inancia ls ProShares (SKF)

YTD Change:-20.3%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

UltraShort Basic M ateria ls ProShares (SMN)


YTD Change:35.6%

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

12,000,000

UltraPro Short S&P500 ProShares (SPXU)

YTD Change:164.4%

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

UltraPro Russel l2000 ProShares (TWM )

YTD Change:57.6%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

Direxion Dai ly Small Cap B ear 3X S hares (TZA)


YTD Change:113.6%


6/11

6



U.S. EQUITIES

Shares of CSCO (-10.0%) faltered as the company posted quarterly revenue after the close on Wednesday that fell short of Wall Streets expectations. Thecompanys earnings of 43 cents a share excluding one-time items beat estimates by a penny. In other earnings news, retailer KSS (-2.7%) beat estimatesbut its full-year outlook fell short of expectations. Foodmaker SLE declined 0.7% after forecasting fiscal 2011 profit that missed estimates. In the autoindustry, General Motors reported a quarterly profit of $1.3 billion and secured a $5 billion credit facility relative to its reported IPO filing on Friday. Also,AAP advanced 5.2% as its quarterly net income increased 26% and it raised its full-year outlook.

Important Conferences/Corporate Meetings Today:BofA Merrill Lynch Specialty Pharmaceuticals Conference Southampton, NY

Important Earnings Today (with Estimates) From

Source: Thomson ONE

Three Day (High 1124.75; Low 1070.50):Prior Day SPX (High 1086.72; Low 1076.69; Close 1083.61):

S&P Futures

One Day (High 1087.50; Low 1070.50):

JCP: $0.05Source: Bloomberg


7/11

7



FIXED INCOME

Source: Bloomberg

Todays Important Economic Indicators/Events: Consumer Price Index: 0.2% Core CPI (less food & energy): 0.1% Retail Sales: 0.5% University of Michigan Consumer Sentiment: 69.0 Business Inventories: 0.2% Kansas City Fed President Thomas Hoenig speaks at 11:30am

Source: Bloomberg

Results were mixed for the Treasurys monthly 30-year bond auction. The $16 billion offering drew a yield of 3.954 percent, compared with the 1:00pmbid of 3.948 percent, while coverage at 2.77 times was lower than the 2.89 times at the previous sale. Average coverage over the past 10 auctions was2.61 times. Buyside participation was strong with dealers accounting for 35 percent of the purchases versus a 46 percent average, as indirect biddersbought 46 percent of the bonds versus a 10-sale average of 36 percent. Treasuries showed little reaction to the results.


8/11


9/11


10/11

10



Top Online Social Networking Stories

Latest Popular Digg.com Business Stories:Wheres relief for homeowners who played by rules? -http://articles.orlandosentinel.com/2010-05-20/business/os-kassab-foreclosure-solution-

05212020100520_1_underwater-homeowners-mortgage-payments-defaultThe Sweet Smell of Sour Grapes: Companies that Win Big Despite or Because of Conflicts - http://www.newsweek.com/photo/2010/08/04/companies-

that-succeed-despite-or-because-of-conflicts.html7 of the Worst VC Investments of All Time - http://www.focus.com/fyi/finance/7-worst-vc-investments-all-time/Chop-shop remark causes outrage - http://www.thehindu.com/news/international/article564908.eceCalculated RiskWeekly Initial Unemployment Claims increase, Highest since February - http://www.calculatedriskblog.com/2010/08/weekly-initial-unemployment-

claims_12.htmlCisco Comments: Mixed Signals, Recovery has slowed - http://www.calculatedriskblog.com/2010/08/cisco-comments-mixed-signals-recovery.htmlThe Big Picture6 Billion Errors Per Day, Minimum - http://www.ritholtz.com/blog/2010/08/6-billion-errors-per-day-minimum/Robert Reichs BlogAmericas Biggest Jobs Program the U.S. Military - http://robertreich.org/post/938938180/americas-biggest-jobs-program-the-u-s-militaryBespoke Investment GroupCiscos (CSCO) Worst earnings Report in a Decade? - http://www.bespokeinvest.com/thinkbig/2010/8/12/ciscos-csco-worst-earnings-report-in-a-

decade.htmlS&P 500 Performance After 2% Declines - http://www.bespokeinvest.com/thinkbig/2010/8/11/sp-500-performance-after-2-declines.htmlHigh Yielders Going Ex-Dividend - http://www.bespokeinvest.com/thinkbig/2010/8/11/high-yielders-going-ex-dividend.htmlUp 100% in 2010 - http://www.bespokeinvest.com/thinkbig/2010/8/10/up-100-in-2010.htmlLooks Like I Picked the Wrong Week to Turn Bullish - http://www.bespokeinvest.com/thinkbig/2010/8/12/looks-like-i-picked-the-wrong-week-to-turn-

bullish.html

The New York TimesDebts Rise, and Go Unpaid, as Bust Erodes Home Equity - http://www.nytimes.com/2010/08/12/business/12debt.html?_r=1The Baseline ScenarioWhy Wont Fiscal Hawks Discuss the Real Issues? - http://baselinescenario.com/2010/08/12/why-wont-fiscal-hawks-discuss-the-real-issues/


11/11

morning review - 081310

Documents