Please click the image below to view our February 2021 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.

Whereas the focus of the investment world last week was on the most heavily shorted stocks, this week it has turned to the metals market as silver is having a tremendous day.  In today’s Morning Lineup, we highlighted a few reasons why the squeeze in SLV is an entirely different animal than what was seen last week. Taking a further look at this, positioning this time around for silver looks quite different than it did for stocks like GME. Whereas GameStop (GME) had more shares short than exist in the market, silver positioning is actually net long.  In the chart below, we show the speculator net positioning (as a percent of open interest) for silver as per Commitment of Traders data released on Friday which we also covered in Friday’s Closer. Net positioning (positive readings mean a net percentage of open interest is long and vice versa for negative readings) is in the 77th percentile of all weeks since 1986. That is also at the highest level since mid-February of last year.  Prior to that, the last time speculator positioning was as long was in late November of 2017. In other words, at least for futures contracts, a retail pump of silver would be targeting a metal that speculator sentiment is already pretty positive on.

Additionally, in terms of the ETF tracking silver (SLV), short interest as a percentage of shares outstanding is by no means at any sort of extreme either.  While the most recent bi-weekly data did show a sharp uptick in the first half of January, short interest as a percent of share outstanding is not at an elevated level. Pulling that data forward to today, 3.72% of shares outstanding are short. That is in the 60th percentile of all readings since 2006 when the ETF began trading. It’s also well off the peak of 11.75% in June of 2011. So again, if SLV was to be a target for a short squeeze like GME, there is not nearly the same base of shorts as we saw in GameStop (GME) and other stocks last week.

That also goes for individual mining stocks.  In the table below, we show the Russell 3000 stocks that are part of the GICS Level 3 Mining and Metals industry.  As shown, precious metal related names, especially those of the silver sub-industry, are flying higher today with Hecla Mining (HL) and Gatos Silver (GATO) both up over 20% as of this writing. Another silver mining giant, Coeur (CDE), is also up double digits today.  Despite this, these do not have particularly high levels of short interest. In fact, steel makers like United States Steel (X), Cleveland Cliffs (CLF), and Allegheny Technologies (ATI) all boast far higher short interest as a percent of float. In other words, while silver and related stocks may be the target of retail investors this week, the “short squeeze” possibility is not the same as what was observed last week. Click here to view Bespoke’s premium membership options for our best research available.

Silver got off to a very strong start to February this morning as front-month futures traded up as much as 12.76% at the highs.  Prices have since pulled back from those opening highs, but silver is still up around 7.5%.  Another proxy for the metal, the Silver ETF (SLV) experienced a record opening gap of +11.04% this morning; the first time ever it gapped up more than 10%.  The next largest gap up on record was a 7.76% gap in October of 2008. As shown in the charts below, front-month futures (based on settlement price) are now at their highest level since August 10th of last year, although earlier today it was even higher at its best level since 2013. Even after having pulled back intraday, silver futures are still on track to see a single day move in the top 1% of all days since 1975.

As of this writing, silver is up 7.4% on the day.  In the table below, we show the past times since 1975 that silver was up at least 7% in a single day without another occurrence in the prior six months.  The last such move was the equity market bottom of the bear market last year.  Prior to that, you would have to go back to 2014 to find another time that silver experienced that large of a move.  Across these past instances, performance has held a negative bias. Over the following weeks and months, median returns have been negative and silver has been higher less than half the time.Click here to view Bespoke’s premium membership options for our best research available.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Short Squeezes

The Piggly Wiggly Squeeze by Nick Maggiulli (Threader)

Today, iconic Southern grocery store Piggly Wiggly (a pioneer in the modern self-serve model) is privately held, but back in the Roaring Twenties it was the subject of a monster squeeze. [Link]

Hedge funds lose $30 billion on VW infinity squeeze (Mox Reports)

At the height of the financial crisis, Volkswagen was the subject of one of the largest short squeezes in the history of the financial markets thanks to some very impressive financial machinations by Porsche. [Link]

Legal Troubles

DoorDash Can’t Duck Restaurant’s False Advertising Suit by Nicholas Iovino (Courthouse News Service)

Delivery company DoorDash was dealt a blow this week by a federal judge who allowed a class action suit by restaurants to move forward. The suit alleges that the company set up pages for restaurants on its platform which labeled them closed or unavailable when they refused to partner. [Link]

Apollo CEO Leon Black to Step Down Following Review of Jeffrey Epstein Ties by Miriam Gottfried (WSJ)

The CEO of Apollo Global Management is resigning after an investigation into his relationship with deceased former financier and alleged sex trafficker Jeffrey Epstein showed 9 figure payments for “tax advice”. [Link; paywall]

Crypto

Ray Dalio calls bitcoin ‘one hell of an invention,’ considers it for new funds by Erik Schatzker (BNN Bloomberg)

The man behind the biggest hedge fund in the world has lots of technical praise for Bitcoin and is considering investing in crypto going forward. [Link]

Harvard, Yale, Brown Endowments Have Been Buying Bitcoin for at Least a Year: Sources by Ian Allison (Coindesk)

University endowments have been buying crypto on exchanges, with purchases dating back roughly 18 months, with a source estimating “some pretty nice chunks of return”. [Link]

MicroStrategy and Bitcoin: the Mother of All Fat Tails? by Bill Miller (Miller Value)

Crypto charts have gotten parabolic enough that income-focused value investors are busily racking up positions in convertible bonds in order to get exposure. [Link]

COVID

A Chick-fil-A manager stepped in to save a South Carolina drive-thru COVID-19 vaccination clinic by Mary Meisenzahl (Business Insider)

Chick-fil-a does a huge multiple of competitors’ weekly revenues per location despite being open one less day, and a key to its success is the performance of its drive-throughs. So it’s not a shock that the experience of running one is paying off at COVID vaccination sites. [Link]

Mortality Rates From COVID-19 Are Lower In Unionized Nursing Homes by Adam Dean, Atheendar Venkataramani, and Simeon Kimmel (HealthAffairs)

Union protections that insured PPE access for nursing home workers helped to prevent spread of the virus around homes and therefore limited mortality rates. [Link]

Bubbles

If It Looks Like a Bubble and Swims Like a Bubble… by James Mackintosh (WSJ)

A list of attributes which make the recent equity market bubble (especially its most frothy sections) pretty hard to deny. [Link; paywall]

It’s not just GameStop. Market bubble fears are rising by Matt Egan (CNN)

Another review of how the current equity market environment looks in real time like the kind of situation that was after-the-fact clearly a bubble in the past. [Link]

GameStop

Steve Cohen’s Point72 Loses 10-15% Amid Month’s Hedge Fund Carnage by Katherine Burton (Bloomberg)

The carnage for short sellers this week spread to Point72, which helped deliver more capital for besieged short sellers Melvin Capital and also booked double-digit losses. [Link]

Famed GameStop bull ‘Roaring Kitty’ is a Massachusetts financial advisor by Chris Prentice and Pete Schroeder (Reuters)

The Reddit trader that has ridden GME to profits in the tens of millions is a financial advisor who was recently employed by insurance giant MassMutual. [Link]

Innovation

Parkinson’s Meds Are Hard To Grab. So TikTok Users Crowdsourced A Solution. by Kait Sanchez (The Verge)

An online community came together to support Parkinsons sufferers with an innovative design for pill bottles which can be very difficult to navigate. [Link]

Ecology

Shark Populations Are Crashing, With a ‘Very Small Window’ to Avert Disaster by Catrin Einhorn (NYT)

Human fishing has led to a catastrophic plunge in shark populations around the world, with existing protections inadequate to protect species which have been navigating the deep for hundreds of millions of years. [Link; soft paywall]

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Have a great weekend!

In the table below, we show the 20 stocks in the Russell 3000 that currently have the highest short interest as a percentage of float.  It should come as no surprise that GameStop (GME) still tops that list with 122.97% of float short as of the most recent data for mid-month. That is even after a 21.36 percentage point drop from the end of 2020 when 144.34% of shares were short. It was also the most heavily shorted stock then.  The runner-up is Dillard’s (DDS) which currently has 83.04% of shares sold short compared to over 90% at the end of 2020.  Again, despite that sizeable decline in the percentage of shares sold short, it was also the second most heavily shorted stock one month ago. Of the rest of the top 20, there are six other names with lower short interest than the end of last year.  Looking across the rest of the most heavily shorted stocks, Sumo Logic (SUMO), American Well Corp (AMWL), and Sunpower (SPWR) are the stocks that have seen their short interest as a percentage of equity float rise the most.  In terms of stock price performance, SPWR has been the one with the biggest rally having doubled YTD.  The only other stock that has doubled YTD in this cohort has been GME.

In the table below, we show the stocks that have seen the biggest changes in the percent of shares sold short between the end of 2020 and the most recent data as of January 15th. Those currently in the top 20 most shorted stocks are highlighted in gray. Across the entire Russell 3,000, 1,777 stocks have seen their short interest as a percent of short move lower in the two week period from the end of December to mid-January.  As shown, even after the massive short squeeze that has taken place, GME is actually not the stock that has seen the biggest decline in shorts.  Relay Therapeutics (RLAY) holds that title with a 22.62 percentage point decline.  That is even though the stock has experienced a relatively smaller move than some of its peers. Granted, a number of other stocks like nCino (NCNO) and Berkeley Lights (BPYU) to name a few have actually moved lower so far in 2020 and have also seen their short interest decline significantly. On the other end of the spectrum, WW International (WW) has seen its short interest rise the most. Click here to view Bespoke’s premium membership options for our best research available.

US funding markets are awash with liquidity thanks to ongoing QE purchases by the Fed and the progression of fiscal policy since the end of the year, as well as normal seasonal tailwinds that see more liquidity after year-end balance sheet constraints would roll off. Funding markets refer to collateralized, short-term lending via repo and related wholesale cash transactions.

Government money market funds that are allowed to conduct repo operations as well as buying Treasury and Agency debt are seeing roughly typical inflows, but those come on top of record share of overall money market funds. As a result, repo rates have been plunging. The secured overnight financing rate, which tracks the volume-weighted general collateral repo rate has fallen to 3 basis points above the bottom of the Fed Funds target range. While repo rates falling below the Fed Funds target range wouldn’t be a catastrophe and some parts of the market have gotten there, it’s not in the FOMC’s interest to have funding rates trading far outside its target policy rate range on a regular basis.

The solution already exists, of course: the NY Fed has a standing overnight reverse repo facility first introduced back in 2013 which is likely to start draining cash as investors seek higher returns than the repo markets offer. Reserve scarcity, which roll-off brought to bear in 2018 and 2019, is now reserve plenty, and so many reserves exist that the NY Fed will start draining them with reverse repos. Reserve balances will continue to grow this year thanks to QE purchases and an expected decline in the balance of the federal government’s transaction account at the Federal Reserve. Like what you see? Click here for a free trial to any of Bespoke’s premium membership options, including our Fixed Income Weekly note that features market analysis of this kind.

Similar to the Philly Fed’s index and Markit’s preliminary reading on the manufacturing sector, the Kansas City Fed’s manufacturing index exceeded expectations with a strong reading in January.   The index was expected to decline to 13 from last month’s reading of 14.  Instead, the index rose to 17 which is a new high for the pandemic period and is also the highest level since July of 2018.  Similarly, the index for expectations was considerably higher as it now sits at the highest level since September of 2018.  These readings are consistent with further acceleration in the growth of the region’s manufacturing economy.

Breadth across the report’s components was very strong with all but two (Backlog of Orders and Materials Inventories) higher month over month.  Only the index for Finished Good Inventories is in contraction, but even this index saw a move higher that stood in the top 94% of all monthly changes.  Additionally, a number of components are in the top decile of their historical ranges.  The indices for future expectations, on the other hand, were not quite as strong, but those also generally point to an optimistic outlook.

Demand appears to be healthy as the indices for New Orders, Backlog of Orders, Shipments, and Production all came in at the top 10% of historical readings.  While New Orders and Production sit just below their highs from October, Shipments and Backlog of Orders are at the highest levels since November of 2018.  As for expectations, each of these indices with the exception of Backlog of Orders reached the highest levels since 2018 as well.

Just as we have seen in various other readings on the manufacturing sector recently, prices continue to rise for both inputs and final goods.  The reading on Prices Paid for Raw Materials rose to a new high of 65.  That is a level that has not been seen since April of 2011. As for prices passed onto customers, the index for Prices Received for Finished Products did not see as dramatic of a move higher.  With an increase of 10 points (to 19) in January, it is at the highest level in two years. Click here to view Bespoke’s premium membership options for our best research available.