Month: January 2022

Two days day after Microsoft barely avoided a collapse into the hawkish Powell abyss, and one day after Tesla reported earnings that sent its stock crashing, investors held on to hope that at least the world’s largest company and one of the very few gigacaps generals still standing, Apple, would somehow pull a rabbit out of its magic hat of tricks and report solid earnings pulling the Nasdaq out of what appears to be an almost certain bear market.

It won’t be easy: while the holiday quarter is always Apple’s largest, this time it’s also expected to be Apple’s largest in its history. On the Q4 earnings call, CEO Tim Cook said Q1 2022 revenue would top Q1 2021 revenue of $111.4 billion. So, at the very least, Apple needs to hit that mark to appease investors (any miss here and welcome Nasdaq bear market). But that may not be enough, since Wall Street consensus is even more aggressively, calling for Apple to report revenue of $119.05 billion, clearly an all-time record (Cook said in Q4 that Q1 earnings will have been even $6 billion stronger if not for the ongoing impact of the global chip shortage).

The bullish case is that if Apple beats Wall Street expectations on the iPhone, Services Mac, and Wearables/Home/Accessories, it would be reporting new all-time highs in terms of revenue for those categories. Surely that would be something Apple will tout heavily in its remarks. On the other hand, even the smallest weakness will be hammered by a market that so far has shown zero forgiveness now that the Fed is in hike it till you break it mode.

So with that in mind, was Apple able to save the Nasdaq from freefalling after hours and potentially starting the next bear market?

It appears that – at least at first glance – the answer is a resounding yes as Apple has done it again, and after reporting not only a record quarter that was up 11% Y/Y, but also a big beat on the top and bottom line, its stock is rising sharply after hours and pulling the Nasdaq along with it.

Here are the details from the just concluded holiday quarter:

• Revenue $123.95 billion, beating estimates of $119.05 billion, and up +11% y/y
• EPS $2.10 beating estimates $1.90, and up from $1.68.

Some more headlines:

• IPhone revenue $71.63 billion, +9.2% y/y, and beating estimates $67.74 billion
• Mac revenue $10.85 billion, +25% y/y, and beating estimate $9.53 billion
• IPad revenue $7.25 billion, -14% y/y, and missing estimate $8.11 billion
• Wearables, home and accessories $14.70 billion, +13% y/y, beating estimate $14.16 billion
• Service revenue $19.52 billion, +24% y/y, estimate $18.64 billion
• Greater China rev. $25.78 billion, +21% y/y
• Gross margin $54.24 billion, +22% y/y

Earnings snapshot:

Commenting on the quarter, CFO Luca Maestri said that “the very strong customer response to our recent launch of new products and services drove double-digit growth in revenue and earnings, and helped set an all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO.

Maestri also said that the company was returning even more cash to shareholders: “These record operating results allowed us to return nearly $27 billion to our shareholders during the quarter, as we maintain our target of reaching a net cash neutral position over time.” This is up from $24 billion last quarter.

Tim Cook was just as happy: “This quarter’s record results were made possible by our most innovative lineup of products and services ever. We are gratified to see the response from customers around the world at a time when staying connected has never been more important. We are doing all we can to help build a better world — making progress toward our goal of becoming carbon neutral across our supply chain and products by 2030, and pushing forward with our work in education and racial equity and justice.”

The stock initially couldn’t believe just how good the results were but has since regrouped and is surging higher, up over 4% in after hours trading and helping boost the Nasdaq.

Developing

By Ted Dabrowski and John Klingner of WirePoints

Square this one up for us, Gov. Pritzker. On January 3rd, you said that only 5 percent of COVID patients in Illinois’ ICUs were vaxxed.* The implication was that Illinois is suffering from a “pandemic of the unvaccinated.”

But since your comment, nearly 40 percent of all COVID deaths have been breakthroughs.  Illinois has experienced 1,007 breakthrough deaths over the last four weeks.

That’s a massive disconnect. How can the vaxxed make up so few of the ICU patients – those most at risk of dying – and yet end up comprising so many of the total COVID deaths? 

Wirepoints can think of a couple scenarios that explain that disconnect, but we’re simply not armed with the data that would allow us to confirm them. IDPH doesn’t provide the hospitalization data we need, let alone more detailed data on breakthrough demographics and comorbidities.  

Which brings us to the actual point of this piece: The governor shouldn’t make comments that can’t be confirmed by publicly released data from the Illinois Department of Public Health.

This is far from the first time this has happened. Gov. Pritzker and Dr. Ezike have made statements throughout the pandemic that couldn’t be independently verified.

And that erodes trust, if there’s any left.

GDP “good news” appears to have been greeted as “bad news”, providing more cover for Powell to do what he said he would do with rates and QT… and while the algos lifted everything overnight, sellers appeared at the cash open and it was a one-way trip to yesterday’s lows (or worse) for the rest of the day. Small Caps are down 5% from pre-Fed, Nasdaq is down over 3%, and The Dow is down around 1% only

On the day, Small Caps are down over 2% in a massive whipsaw and The Dow is clinging to unchanged after swinging up and down 1000s of points…

Wonder how many of these meetings happened today… or are imminent…

NOTE that the moment the S&P managed to get back to even from pre-Fed, selling pressure built rapidly. Clearly, the algos were in stop-hunter mode…

The standard MO of crushing VIX to ignite momentum went into action but that ended rather badly for the vol-sellers this time…

The Russell 2000 closed (for the first time in this cycle) in bear market and the S&P is very close to closing in correction…

In other equity news, TSLA was clubbed like a baby seal after rallying on solid earnings last night (for context, that is one Ford in lost market cap)…

A year ago today, GME hit its record high at $483. Today it is down 80% from those highs… but still up over 350% from the pre-WSB-chaos levels…

Source: Bloomberg

Puts were heavily bid today relative to calls…

Source: Bloomberg

Treasuries were very mixed today with the long-end heavily bid and massively outperforming as the short-end adjusted for The Fed’s more hawkish rate trajectory…

Source: Bloomberg

For context, this is massive shift in the curve’s correlation regime with a huge flattening screaming at a Fed Policy Error being imminent…

Source: Bloomberg

2s30s utterly imploded today after yesterday’s very brief steepening…

Source: Bloomberg

The 7s10s curve is on the brink of inverting (joining the 20s30s segment of the curve which has been inverted for 3 months). Bear in mind, apart from 3/9/2020, the 7s10s spread has not closed flatter than this…

Source: Bloomberg

In fact, the yield curve has been flattening from the 2Y maturity out since Powell’s Pivot in late November…

Source: Bloomberg

The short-end is now pricing an 80% chance of a 5th rate-hike by Dec 2022… (and a 25% chance of a 50bps hike in March)

Source: Bloomberg

Bitcoin slipped back below $36k…

Source: Bloomberg

Gold puked to $1800 amid hawkish Fed speak but buyers reappeared. However, as stocks started breaking down and rate-hike odds lifted, gold tanked back below $1800…

WTI fell back below $87 at today’s settle…

NatGas futures had a ‘moment’ into expiration today with the Feb 22 contract exploding over 50% higher into its close…

That’s quite a squeeze into contract expiration…

Finally, just like the overnight ramp last night reassured many dip-buyers, investor sentiment is at historically pessimistic levels…

Investor sentiment is at historic pessimism.

Worse than MARCH 2020.

Worse than DECEMBER 2018.

Even in 2008 – similar spikes led to violent Bear Market rallies.

And lastly – when investors finally got this negative, the 2000-2002 Tech Crash was *over*. pic.twitter.com/o1fhONVIHC

— Macro Charts (@MacroCharts) January 27, 2022

For some clarity on what just happened, where we are, and what happens next Brent Kochuba from SpotGamma and Darius Dale from ’42 Macro’ break down macro implications of The Fed Meeting and analyze the options markets impact…

February U.S. natural gas futures violently surged Thursday in what appears to be a delivery squeeze into expiration. 

Bloomberg’s Javier Blas had some early insight that something was amiss…

Something is happening in the US natural gas market

— Javier Blas (@JavierBlas) January 27, 2022

Around 1400 ET, natgas contracts for February jumped as much as 72% in minutes, the most significant increase ever since the contract launched in 1990, according to Bloomberg, citing a spokesperson for CME Group.

The spread between February and March contracts erupted. 

The massive squeeze came ahead of the February contract expiration and reminded us of the chaotic action surrounding crude futures expiration that.sent WTI prices crashing into deep negative territory in April 2020. Bloomberg sheds more color on the situation: 

Though hedge funds have been net-long on U.S. gas contracts, indicating they expect prices to rise, money managers still held substantial short positions, according to data compiled by Bloomberg. In a squeeze, traders exposed to wrong- way bets on lower prices are forced to close out those positions by purchasing higher-priced contracts.

Gas prices have been volatile in recent weeks as traders try to gauge whether winter cold will strain stockpiles of the power-plant and heating fuel. Although inventories are only 1% below normal for the time of year, exports have been near a record and production from shale basins has been relatively restrained. -Bloomberg

There’s no word on which firm(s) are responsible for the unwind or the damage it has unleashed. We suspect if this is anything like the 2018 implosion of Tampa-based OptionsSellers.com, there will be casualities in the days, if not weeks ahead.

Remember this guy? “I promise you every day when I woke up, I was checking for rogue waves…”

Here’s what people on Twitter are saying about the chaos. 

Hi friends. We have experienced another rogue wave in Natural Gas and you now have margin calls. Have a nice day pic.twitter.com/oQ4h5Tm7vO

— Thomas Thornton (@TommyThornton) January 27, 2022

The squeeze also rippled through later-month contracts. 

Shortly before the start of yesterday’s Fed announcement, Goldman Sachs No. 2 John Waldron, the investment bank’s president and a Wall Street insider if there ever was one, apparently decided to vent his frustrations with the Powell Fed in front of a live (if virtual) audience at a meeting of the New Jersey State Investment Council, and (apparently) one Bloomberg journalist.

During what the reporter later characterized as a rant encompassing many of the Fed’s failures in responding to the COVID pandemic, the senior Goldman banker complained that the Fed’s political “independence” has been hurt, which in turn has weakened its credibility with markets. For a preview of how this could play out in the long term, just take a look at how successful Turkey’s central bank has been at enforcing price stability.

The problem is that, thanks to its newfound political bearings, the Fed is more reluctant to take dramatic but ultimately necessary action for fear of damaging its public image (and also giving lawmakers reason to start another round of Fed bashing).

What’s gone on in the past couple of years has brought “into question the independence of the Fed,” Waldron said hours before the Fed’s meeting Wednesday. He questioned the Fed’s strength to act as an “independent, monetary policy engine that is doing what it thinks is right and not what’s expedient.”

“They have a chance here to do that, but I am a little worried about whether they’ll stand up and do it,” Waldron said at a virtual meeting of the New Jersey State Investment Council, where he was a speaker.

As BBG pointed out, the comments represented a “rare jab” by a senior banker. Typically, megabank executives carry water for the Fed by (among other things) appearing on CNBC to proclaim that they have complete confidence in the Fed’s ability to “thread the needle”, as JPM CEO Jamie Dimon recently put it. Even Waldron’s old boss, Lloyd Blankfein, took a break from retirement to make an appearance on “Squawk Box” the other day.

Waldron was reportedly responding to a question about whether the Fed will be able to continue with its planned tightening regimen should markets rebel (as they have). The Goldman banker also said in his reply that he was “not entirely convinced” the Powell Fed would have the nerve or the will.

While rate hikes are interesting and relevant, the executive said, what really matters is the ability and willingness to trim its balance sheet that has more than doubled in the last two years to almost $9 trillion.

“I’m not entirely convinced the Fed has the will to do it,” he said, adding that bond traders share his view. “I’m not sure they believe the Fed has the will either.”

Just hours after these comments, Powell tried to dispel the image that he has been too soft on inflation by delivering a decidedly hawkish Q&A where he stressed that the central bank wouldn’t hesitate to react aggressively if price pressures don’t subside. The FT summed up Powell’s tone in the title of its report on the briefing: “No more Mr. Nice guy”

While Dems might like to blame President Trump for the Fed’s newfound sensitivity to politics, President Joe Biden said just the other day that it’s the Fed’s job to stop inflation. Waldron also blamed the central bank for exacerbating economic inequality with a policy mix that at times seemed geared toward inflating asset prices (to the benefit of asset owners).

Waldron blamed Fed policies for the growing divergence in the fortunes of the rich and the poor, saying that those who already had wealth benefited by the monetary actions over the last decade. “Central bank policy has exacerbated inequality,” he said.

How might the Fed fix this? Waldron isn’t exactly optimistic about Fed Chair Jerome Powell’s ability to do what’s necessary to stop inflation. Unfortunately, there’s really only one man for the job: former Fed chairman Paul Volcker. Even more unfortunately: he died in December 2019 (ironically just months before the Fed unleashed its post-COVID easing).

He pointed to Paul Volcker, who led the Fed’s brute-force campaign against inflation in the late 1970s and early 1980s. Back then, the Fed raised interest rates by several percentage points in one go, leading to some of the fiercest public protests and political critiques of the central bank in its history. But, ultimately, the policies were widely credited with stabilizing the U.S. economy.

“We might need to bring back Paul Volcker,” Waldron said. “And have somebody that would be willing to kind of stay the course without regard to exactly what’s going on in the markets.”

The fact that a top executive at America’s most powerful bank would rather have a zombie leading the Fed than Jerome Powell is hardly a vote of confidence.

Then again, it’s also extremely possible that Waldron was simply talking his (or rather, his employer’s) book: Goldman has been selling billions of dollars in US equities in recent quarters (while its chief stock-market talking head David Kostin continued with his permabullish notes urging clients to BUYBUYBUY).

Of course, if Goldman wants to make money selling equities, it needs to convince somebody else (preferably retail) to buy. That’s just common sense.