Market Outlook for May 19, 2024

0:00 - 9:19 CPI
9:20 - 21:54 GME and attention-driven trading
21:55 - 28:37 Nominal rates
28:38 - 31:05 Real yields
31:06 - 32:22 Mortgage rates and OAS
32:23 - 42:12 ABR
42:13 - 51:16 AUTOS
51:17 - 1:07:37 Gold and Copper
1:07:38 - 1:14:34 SPY
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CPI:
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Copper Report:
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Redfin:
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Earnings calendar at sectorspdr:
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This Week in Earnings:
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SPGlobal MBS Index
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Money Market flows:
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Freddie Mortgage Rates:
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Treasury:
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SOMA
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EFFR
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Forward Curves:
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Economic calendar:
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[@CurtisSmith115]

Congrats on the ABR trade. I tend to agree that short videos during the week on stuff like that would be well received (in terms of viewers). For example, a video describing the thought process, trade plan and execution on the ABR trade would be fascinating (obviously after the trade so no one steps in front of you). I am still at the very inexperienced level, and when the market is doing odd things I can't quite figure out why. The same thing usually happens when big economic reports come out during the week and the market reacts in the opposite way to what I think e.g. we had a low productivity print a few weeks ago and the market rallied. Short videos on those reports or movements in certain underlying's would be interesting.

[@shqipe333]

Chess grandmasters often struggle to explain their moves to broad audiences. They have more of a “feel” for the position and intuitively know what the right move is just from the sheer amount of time they’ve played the game or from seeing similar positions. Do you believe these feelings translate to investing/trading and other aspects of life? Do you struggle to fully describe certain market behaviors or trends you see to your audience? Thanks Dr!

[@johnnash4323]

Hi Mark, do you look at option premium as a % of strike price or margin? for example for TLT June 90 puts at 67c, that's 0.7% of strike price, assume 30% margin requirement, would the premium be 2.5% of the margin required? Earlier you mention you like premium of >6%, were you referring to 6% of strike price or margin?

[@publius7928]

I would absolutely imagine that shorter (~15-20 minute) videos covering impactful events / data releases in near-real time would be well received by viewers.

[@witoldmatuszek8736]

Thank you very much, these videos are highly appreciated.

[@Krakenatmyjokes]

2 Applied series questions, on Options. 1. In a paper trading account, I've earned several times 50% of the premium to exit the trade on a PUT option (URA), within less then 10 days. Therefore, I closed the trade. If this behaviour is replicated in a real TFSA pr RRSP will authoritize consider that a short term trading ? I've searched IBKR and Government rules and I am not finding a satisfying answer. 2. It's been more then 8 months that i've been practicing a theta sleeve allocations of 5000$, in paper account. I've finally been able to earned more then 700$, after many experimentations that cost me double in loss. I see a story, the tailwind and the headwind. I listen to many different inputs (like you) to have some insights on the market. I mainly stay at the ETF levels. I learn about the industries. I've barely done balance sheet valuations. I read the 10k to know the management and what are their outlook within the industry. And it seems me to be enough. How sustainable is that method in your opinion, during different market conditions ??

[@Zlotty-vv1wf]

Might be an oversight but if you calculate the % change from Apr. to Mar. 2024 for Shelter; it's actually 0.378% not 0.469%.

[@mihail4391]

Thank you Professor!

[@xMohJeex]

I sold a call on GME. The next day it was at 77% profit. The transaction cost (spread) is obscene though, so I only did one as a trial.

[@davidscz]

Hi Dr Mark, 1) May I know what is your current take on consumer discretionary sector? 2) Do you have any thoughts on Lululemon? It seems to be trading below valuation - probably macro 3) on Selling Puts - what is the deciding factor between 1 month vs 5 months (or any period)? I usually sell puts on a company that recently crashed in stock price and trading below valuation due to temporary events (higher IV), but I prefer 1 month due to the probability of another significant decline being lesser (assuming this is a company with growth in earnings, healthy balance sheet - i.e recent UNH, Meta crash) - I may have room for improvement - any thoughts?

[@mihail4391]

Looking at IBKR options screen, there is an ‘Exchange’ drop down which contains AMEX, SMART, BATS, BOX etc. Am I right to assume that these mainly differ in commission amount they charge? Is there anything else I should be aware of?

[@guis3468]

thanks a lot for this series, where do you get the NAV of ABR?

[@MarkMeldrum]

You can calculate it from the balance sheet with the outstanding share count, or you can pick it up from the conference call if they make reference to it there.

[@es-cfa]

Thank you Mark for these outlooks. I wanted to ask if you could explain to us in more technical detail how you place your orders on options (specifically the price). Do you follow a checklist each time, or is each case different?

[@financewithsamson]

Do you feel that the CFA is the best way to gain the education needed to pair with experience ? Additionally, in your opinion, are there other sources of education outside of fundamental and advanced college finance courses and the CFA which make sense for those looking to become successful investors/traders?

[@benr7233]

Hey Mark, just want to thank you. Your videos got me through all 3 levels of the CFA. I have a question on ABR. I started looking at the business and I was curious how the earnings respond to a cut in rates. As I understand, they make variable rate loans so shouldn't the yield achieved on new loans be lower (assuming constant spread) and reduce earnings or would the reduction in rates lead to more loan demand which would more than offset the lower rate? Thanks again, really appreciate all your work.

[@Xavier_HODL]

Anyway to be able to buy Canadian stocks while being an American? Specifically using Webull?

[@CurtisSmith115]

I remember you did a lean hogs, live cattle trade last year, did you continue to add to your position while the spread increased? Looks like the spread is slowly starting to come back to the mean reverting level.

[@johnnash4323]

Hi Mark, I am studying PM level 2, and in your managing market risk video for level 2, you mentioned stop loss limit, which reminds me for example when you shorted ES futures back in 2023, you sold put options to hedge out when it worked against you, that's called drawdown control. But alternatively you could also close the position in 2023, why did you choose to sell put options at the time? and did you have a pre-defined rules on when you start engaging in risk management? or is it based on situation and you use your intuition?

[@MrPhilipc13]

Looks like Goodyears taken a leg downwards towards 12, now may be a chance to start thinking about building position selling puts. I am wondering on your general thoughts about their road back to profitability and extent of volume growth lowering unitary costs

[@HectorYague]

Hello Mark. Is there any specific market condition in which you prefer gaining exposure through long calls vs owning the underlying (through selling puts)?

[@chada9636]

Curious if you made any changes to your ES short position with the latest market moves up and if your conviction has changed with the market sentiment so bullish?

[@zaydomar2998]

Hi Mark, I tend to agree with your REIT hypothesis. Have you looked at Alaris (AD.UN) which is an industrial REIT, with a low payout ratio (around 40%) but a dividend yielding around 8%. Are you only looking at residential reits or are you also looking at some industrials?

[@evanelston858]

Hi Mark, when looking at Beta, is there a market consensus on which lookback period to use? Is it 1, 3, or 5 years? Or does it change depending on macro factors? An example of this is should you use 3 year Beta to avoid the initial covid reaction or should you use 5 year to include it?

[@Chris-inv]

Hi! I've two questions :) 1) I've been trying to better understand IV after your ABR trade. In the live outlook, you mentioned ABR reached 60% IV. Which option expiration did you mean? I haven't been able to find that 60% in the historical IV with Interactive Brokers (it shows the maximum IV was 4.25% on May 14 for May 24 options). What am I missing? 2) Let's assume you did all your trades when the stock reached 15, and instead of going down, the stock ran up to 20 and stayed there for a couple of weeks. Is the decrease in IV over those two weeks more profitable than the loss amount of your call options (given the higher price, as I recall you sold calls at a maximum of 16)? Thank you!

[@xMohJeex]

I've read that the PE ratio has no correlation to where prices will go 1, 3 and 5 years into the future. That is to say, the PE ratio being at 20 or 21 says nothing about whether it would go to 25 or down to 15 in the future, or just stay at 20. In any case, with volatility this low, it makes sense to be a buyer of options not a seller as you said. What do think of a strategy of holding calls on SPY, and if the market goes against you (and volatility spikes), then selling puts to finance the cost of those bought calls? Sort of a risk reversal, but you only put one leg at a time, and only put the other leg if the market becomes favorable for it.

[@camdavignon954]

Could you give a brief overview of the tax implications of the trading style you employ? Specifically, short-term vs. long-term capital gains and earning option premiums.

[@nimazarrabi2605]

Thanks for these great videos - Have you read any insightful report on the growth in demand for private credit as opposed to bond market or bank loans as a source of capital for companies? Do you have any view on whether private debt will become the main source for companies who look to raise debt? As an equity investor, do you have a preference for the company to use private debt or corporate bond (assuming it’s big enough to issue bonds)?

[@evanelston858]

Hi Mark, would it be wise to begin studying your free 2018 CFA content while we wait for our L1 results or would it be a waste of time since the material is so dated?

[@emilianomedina177]

Has BN (Brookefield) every corssed your path yet? It is trading well below its NAV and I cant find a reason why that is the case.

[@tykepope]

Weren’t they defaulting on some commercial real estate loans?

[@TrentGuiness]

Professor, you have mentioned in past videos that a portion of your portfolio is outsourced to a JPMorgan hedge fund. In terms of correlations, how does that outsourced allocation affect, if at all, the discretionary positions you take yourself? Do you avoid certain positions because they might also fall into the manager's purview, thus getting you double exposed? Or do you treat them as two independent portfolios altogether and thus you trade disregaeding whatever the manager might do himself?

[@binghugh]

Dr. Mark. As mentioned in the applied series, after we entered "Ample Reserve Regime", the Fed started paying an interest at fed funds rate on reserves sitting on their balance sheet, which is almost the entirety of liquid cash banks are keeping with the Fed. I can't help but to think this policy is fundamentally inflationary, as the fed is required to inject large sums into the banking system in the form of interest payment. What consequences do you think this policy created on the dollar based economy in the US and the rest of the world?

[@tjloehnert]

Do you think it would be worth it for smaller retail traders to pay for subscriptions to Koyfin or Seeking Alpha?

[@brunopoles6311]

Mark in which phase of the business cycle do you think we are and why? Initial recovery, early expansion, late expansion, slowdown, contraction

[@DanielPark-fj7ub]

How would you evaluate the criteria for assessing a good investment of principal residence in Canada? If you could explain in specifics, that would be very helpful. As an example: 1. Interest Rate vs. Price, should you time the market? 2. City (like Vancouver / Toronto) vs Rural Area, at what price ratio would it affect the choice over the other 3. We have immigration numbers data, however should the demographic & wealth of region's population be considered as an important factor? 4. Rent Price to Ownership ratio in metro cities have well risen above 20; is this ratio as relevant in the Canadian market? Thank you for your insight!

[@gregorybainathsah7284]

How do things like VAT affect a company's financial statements? They're typically taken as % of cash sales, so I'm not sure if a company's Revenue is taken gross/net of VAT, and if "Cash Equivalents" is taken gross/net of VAT

[@CurtisSmith115]

Would you describe your primary strategy as value investing?

[@Shivastorm88]

I recognized GME and AMC for what it was, and nearly shorter them (I waited one day too long). I didn't want to sell call options because of the risk of the run-up lasting a bit longer than expected, so I was going to buy deep OTM puts. Would there have been another efficient way to short them other than short calls or long puts? I obviously would have had to pay a hefty premium due to the insane IV if I had bought put options

[@Mike-ht1ou]

You mentioned the recent run up in copper prices are partly due to the momentum traders coming in. I am thinking of adding more positions to COPX but don’t want to get caught in the momentum unwind. For long term holding would you suggest to add increments until I reach my set allocation or to wait for a pull back. I believe in the short term it is hard to justify the run up to $5 for copper as a few month ago chinese smelters shut in excessive capacity which does not suggest an increase in copper demand yet.

[@EwaZloty]

Hi Mark, curious to hear your thoughts on what would be the most tax efficient way to proceed with a brokerage/margin account in Canada for a buy and hold strategy (given both RRSP & TSFA are maxed). Potentially looking at eligible vs non eligible dividends on Canadian and US equities or equities with long term growth potential as capital gains can be deferred to a later date. I understand this is very circumstantial, but some general rules to look out for would be useful. Thanks!

[@CoffiBot2dotoh]

Off topic, but do you know where I can find the original constituents of the S&P 500 (March 4th, 1957)? I'm doing research for backtesting.

[@MarkMeldrum]

github.com/fja05680/sp500

[@tjloehnert]

When I sell calls on a position, I don't like to sell more than 45 DTE so I can take advantage of the time decay. Why did you sell calls on ABR with DTE of more than 45 days? Is it because of the way you have your portfolio setup with ABR? If so, can you explain more?

[@Jakesobieski]

They have higher IV, so he benefited from Vol crush

[@hk-ny7fi]

Hey Mark, could you please explain how it works when you sell a call on an underlying for which you have a synthetic long but no shares? If called away, does the broker (e.g IBKR) liquidate the synthetic and cover the short call? I ask as I don’t have the trading permission to sell naked calls but can do so if I have a synthetic long Would you recommend this strategy?

[@k2k468]

Mark, you are my guru ;)

[@jm8254]

Thank you professor

[@teejay_9]

Don't understand why rents are dropping and yet the shelter component in CPI is increasing? Shouldn't they move in tandem?

[@SomeOne-gi2gp]

I am trying to intuitively understand what a risk-neutral probability is. Could you please help?

[@daneomegan]

Can we get an update on the mstr/ibit trade?

[@buscapee]

No, robinhood doesn’t have a highlight screen. It just has good UI and is pleasant to use. Interactive brokers is very hideous. I played GME but only when it initially dropped, then went up I sold. Also played FFIE from 2.40 to 3.7 then sold the calls before it collapsed

[@hooksx]

Now tell us about all your embarrassing losses. I'll wait.

[@buscapee]

@@hooksx the numerous earnings plays that I have lost. Most recently, TSLA NFLX META.But that was just gambling. Normally, i lose with biotech and banking plays

[@tjloehnert]

What are your thoughts on Dave Ramsey and his philosophy of not having any debt? I don't agree with Dave Ramsey on everything but as Peter Lynch once said, "It's difficult to go bankrupt if you don't have any debt."

[@FineTrak]

Hello, As a younger investor (20s-30s), I'd be interested in seeing some growth and tech stocks covered in applied levels later down the road. What are the most important factors you would consider for growth stocks that are green flags? I personally like to see low forward pe ratio (generally applies to small/mid cap), strong growth percentages, good management, and strong fcf. Thanks!

[@camdavignon954]

Utilities have high debt and it will take years for their capacity to catch up to current demand. Doesn’t seem like a good sector to invest in at the moment. Am I focusing on the wrong things?

[@MrGivsaro]

Long time fan, but I question the CRE interest rate perspective. Blackrock and JPM have a vested interest in lowering rates so they can keep "extending and pretending" on their existing troubled assets. The view that supply side benefit will outweigh the inherent inflation from loose monetary policy seems like keynsian optimism. Would love to hear your thoughts on this. As always thank you for the videos prof. As always, love the videos.

[@Theo-po4fy]

Dr. Mark, regarding the recent development of S&P 500, are you now more or less confident with your shortly opened short ß positions?

[@CurtisSmith115]

Do you ever just buy a call or put when the volatility is at such low levels?

[@xiyuhu9968]

Dr. Mark, you mentioned that the auto industry is heading back to its usual oversupplied state and the pandemic induced numbers were an anomaly. Since auto manufacturers saw the positive effects of undersupplied market, why do they not stay in this state? Is it the nature of competition, game theory? I appreciate your time.

[@yojmb9]

Thank you as always for sharing so much wisdom with us, Mark! Re: homebuilders. Are you still bullish long term despite the run up, given the backdrop of expected mortgage rate decline in the future and no end in sight to housing supply / labor supply constraints? If so, what do you think of BLDR? It seems to be an emerging disruptor in the homebuilding space with the online design platform and material supply vertical integration. And the stock has been beast mode in recent years! It seems like a stock you’d be interested in, and their financials could provide additional insight into actual homebuilders future fundamentals, I think? If they show a decline earlier that could be a leading indicator of slowdown for homebuilders who will finish out those projects 3-6 months later. Thank you!

[@Foss98]

With regards to Gill the kitty, his original break down and reasoning for going short on GME was very sound. He was also pretty responsible, and wasn't trying to get his followers to move the market for him. It was only after the squeeze had begun did people flock to his channel in mass. My question is, what prevents a similar phenomenon from occurring in regards to your channel? While he did have a bit more of a gamer/live-streamer feel to his channel, the method, position disclosure and disclaimers were similar to yours. His video just caught groundswell. When will we see your niche stock prediction?

[@CurtisSmith115]

Hey Mark, just realised I made a mistake in the live Q&A and said that Buffet reduced his position in OXY. He didn't, he reduced his position in Chevron and added more to OXY. I misread the sentence. Sorry about that.

[@asg102]

That ABR trade was amazing

[@Shivastorm88]

Wrote a question in the previous market outlook, but I think it was removed. I was curious to hear your thoughts on the rise of income-generating ETFs. I know quite a few people that swear by them, even to the tune of multiple hundreds of thousands. Some of them are more on broad-based ETFs, but some of them will be on single names, yes, even Tesla. To me it feels like the mind of strategy where everyone using these funds are geniuses during a bull market, but once you hit a down market, there is a high risk of everything falling apart.

[@smart_beta]

Can some explain how he can replicate ABR's balance sheet?

[@CurtisSmith115]

I know you tend to ignore technical indicators, but is the extremely low VIX levels is starting to concern you?

[@thejokert8]

Won’t the market continue to go up as long as the government keeps printing money?

[@tjloehnert]

Looking at the recent 10Q for ABR, total equity was $3,234,308,000 and total shares outstanding is 188,514,660. $3,234,308,000 equity / 188,514,660 shares = $17.16 book value per share How are you getting a book value per share of $13.02 for ABR?

[@MarkMeldrum]

Remove non-controlling interest, remove preferred shares. $13.06/common share.

[@tjloehnert]

@@MarkMeldrum the financials show the following for March 31, 2024 Q1 2024 Total Equity = 3,234,308,000 Q1 2024 Noncontrolling interest = 134,623,000 3,234,308,000 - 134,623,000 = 3,099,685,000 equity Q1 2024 Common Shares Outstanding = 189,452,116 Q1 2024 Preferred Shares Outstanding = 42,585,589 189,452,116 - 42,585,589 = 146,866,527 3,099,685,000 equity / 146,866,527 shares = $21.11 Obviously I'm doing something wrong. What am I missing here?

[@tredikalexander]

Playing devils advocate here: I wonder if there was a correlation between your released 4 hr ABR video on your YT channel and the recent uptick seen in ABR. Nevertheless, capitalizing on the IV crush requires the necessary education and experience you mention.

[@dbehr4869]

How can the spread between TLT and HYG be sooo low? It is priced like there will never ever be any defaults!

[@smart_beta]

That's why they call it "Dumb Money".

[@KillerkingKoushikkhan]

@9:20 to @21:54 Best ever❤‍🔥

[@IamnotJokic]

Why?

[@fplbrunoo858]

Can someone call Berkshire and tell them to put their capital to use on these copper mines? They could do something similar to their utility business and put excess capital to use better than publicly traded copper miners

[@fplbrunoo858]

Looking at this as well, it makes no sense for copper/gold miners to pay out dividends/buybacks

[@Lee-jg2lr]

The lack of progress with gpt-4o is telling. Human thought us not predicting the next most likely token, these models have already stagnated. A whole lot of semiconductor companies not related to AI trade at absurd levels, if Nvidia spikes on earnings thats the night to open a short.

[@buscapee]

it is not that trading is difficult. It’s that you need to be disciplined. Most of the money I lost earlier was because I was impatient. Playing tech earnings and buying short dated options. Now I buy at least 90 days out and even when im wrong i can fix it with minimal damage

[@jazzyj2899]

i dont think trading short dated options/playing earnings and trading well are mutually exclusive. what do u mean by "fix it"? what sort of option plays are you able to do with these longer dated options that you werent doing with short dated plays?

[@buscapee]

@@jazzyj2899 I don’t trade with stop losses. Shorter dated options can become worthless very quickly if the position goes against you. And hedging shorter dated options is wasted cash imo. For the longer dated ones, I can buy hedges that have a higher chance of still making money while also protecting the downside of my actual position

[@buscapee]

@@jazzyj2899 for example, for MARA when it hit 15 a couple weeks ago. I bought 25c for 7/19. I got over 150% return, without fighting theta decay. And with much less stress than someone who would have bought monthlies. Pay more per contract but you still get the gains