Michael Corcelli

How long will U.S. Equity Boom Last?

Alexander Alternative Capital - Pokemon Go

MIAMI (July 25, 2016)  ---While crazed fans of “Pokemon Go” rushed to play Nintendo’s new game, many investors cashed out of the game developer’s stock as the shares plunged 18 percent in Tokyo today. Shares of related companies such as McDonald’s Holdings Co. (Japan), the game’s exclusive launch partner, also fell as Nintendo said its hotshot game would bring it limited financial benefits.

Overall, investors in the broader market had similar sales-minded ideas today amid another decline in oil prices and, perhaps, a notion that the markets are beyond overheated after setting record highs. And with the earnings reporting season for the second quarter about one-third of the way complete, the lukewarm earnings growth results raised some anxiety among those looking at Apple’s forthcoming report. There may be implications for the broader market if the report falls flat of investor hopes and expectations.

Long-suffering investors in the internet firm Yahoo finally caught a break when management announced it is being acquired by Verizon for $4.8 billion. The next question: will shareholders cash out or stick around for Verizon’s yield?

As we have argued before, it’s hard to see how the U.S. equity boom can sustain itself when the rest of the world is not doing well.

-- The United Kingdom is poised for a recession as it seeks to work through its Brexit thicket.

-- China’s capital outflows are up month over month from $25 billion in May to $49 billion in June.

-- Japan, whose central bank meets this week, is staying away from “helicopter money” to stimulate its economy. Its government and the bankers are finding that negative interest rates are no prescription for long-term growth.

-- Brazil, which had hoped for a major lift from the Summer Olympics, is hamstrung by corruption and huge logistical problems leading up to the Games.

In the world of corporate funding, new debt issues for July have been five times the average previous Julys. Investors are soaking up as many issues as companies can pump out. Companies issuing debt and conducting stock buybacks are fueling the equities boom. But the question is, how long can that trend last? That one issue has us upside down.

Hedge funds have reduced positions in gold as equities produced all-time highs. We didn’t. If the dollar is not strengthening, what’s the urgency to reduce the positions in gold? And if oil weakens while the dollar does not strengthen, what does that say for oil?

Oil and Gas Markets

Prices are continuing their decline into the low 40s after the number of oil rigs operating in the U.S. rose for a fourth consecutive week to 371, according to Baker Hughes.

We admit we’re still outside the box, looking for a bottom of $33 a barrel.

While upside analysts note that supply and demand are headed for a balance, observers might consider an intriguing article in today’s Wall Street Journal, which reports that “millions of barrels of oil” are sloshing around in worldwide storage locations that are beyond the reach of industry trackers. Fleets of tankers are reportedly riding low at anchor in places like Singapore and other Asian ports, parked there by oil companies and trading firms that see no need to publicize how much oil is on board. Complicating the picture are notoriously untrustworthy reports out of places like Angola, Brazil and Nigeria, the latter of which is in the grips of a sabotage campaign against its oil and gas industry.

It’s a dilemma that complicates the oil pricing picture and a more volatile market.

On the domestic natural gas front, spot prices decreased at most locations around the nation during the report week of Wednesday, July 13, to Wednesday, July 20, according to the U.S. Energy Information Administration. The Henry Hub spot price fell 9¢ from $2.81 per million British thermal units (MMBtu) to $2.72/MMBtu. At the New York Mercantile Exchange the August 2016 contract fell by about 8 cents, ending at $2.658/MMBtu.

Alexander Alternative Capital - Machine Learning Algorithms


Machine Learning Algorithms at Alexander Alternative

On Tuesday, we’re going live with our Machine Learning Project to help us with multi-factor investing.

Machine learning is the technology that enables computers to get smarter.

In the words of Google Chairman Eric Schmidt: “We are probably living in the most defining period of human history. The period when computing moved from large mainframes to PCs to cloud. But what makes it defining is not what has happened, but what is coming our way in years to come.”

For Alexander, that means using machines to learn from many factors that human minds don’t pick up. Our machine, which was built from scratch, will look at multiple variables and spot things that traders can’t spot. It is multi factor investing.

We’re releasing it in a way where it might help us add to our profitability and if it does really well, it will become its own stand-alone strategy. For right now, it’s going to augment our decision making process for what we do.

Florida Alternative Investment Association

We’re also pleased to announce two forthcoming hedge fund events in the second half of this year that will be conducted in South Florida and sponsored by the Florida Alternative Investment Association   (FLAIA) .

The first event, “Opportunities in the Energy Space 2017, will take place on October 21 in Miami.

The second event, “Global Macro Perspective in 2017,” will take placed on November 29, also in Miami.

Watch this space for more details.

Our Watch List this week:

Tuesday:

--U.S. Federal Open Market Committee starts two days of meetings on interest rates.

Wednesday:

--FOMC issues statement on rate situation. No action expected.

Thursday:

--Bank of Japan starts two days of meetings on rates.

Friday:

-- BOJ expected to announce its rate decision.


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