The Death of Retail

The Death of Retail

Summary:E-commerce is disrupting traditional retail and continues to expand with a sales growth rate of 14% year-over-year.AMZN / WFM exemplifies how the retail landscape is shifting – SHLD exemplifies the hardships of a restructuring.A new age of consumer spending has seemingly taken some of the retail sector by surprise. Brick and mortar stores are battling a time where 95% of Americans are within arm’s reach of their smartphone 24/7 and e-commerce sales are consistently growing at a rate of 14% year-over-year.¹Are statistics like this only the beginning, or are concerns overblown? To find out, investors should start from the top.The Macro Retail Environment There is no question that the Internet is a key player to any modern omnichannel sales strategy. However, according to the St. Louis Fed, surprisingly enough, e-commerce retail sales as a percentage of total retail sales currently stands at 8.5%, per the latest quarterly update in May 2017 – The pervasiveness of this trend and its aforementioned growth rate is concerning to players who haven’t gained a foothold in this channel yet.E-commerce has penetrated retail sales in a material way, but in some sectors more than others. According to sector analysis broken down by the North American Industry Classification System in the latest US Census Bureau’s Annual Retail Trade Report, the “electronic shopping and mail-order” sector is dominated by e-commerce; where online sales drive 68% of total sales.² Within this sector, we have online behemoth Amazon. Interestingly enough, Amazon is reported to power 43% of the American online retail market in 2016, according to Slice Intelligence.³ The use of robotics including cloud, industrial automation, virtual service...
How to Interpret Fed-speak

How to Interpret Fed-speak

Summary:The Beige Book is a great resource for investors looking for macro themes and insight into the Fed’s anecdotal inputs.The Fed has discussed implementing a “caps” strategy in order to reduce securities holdings.Short term traders might also be interested in the Fed Minutes for a specific trading opportunity.Everyone knows the Fed is data dependent, it’s a famous phrase used in all of their statements. “The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” as the Fed put it in their latest release1. But what should investors exactly look at when deciphering the Fed?Just like how technical traders base their decisions off a particular oscillator or how a fundamental investor gets an edge by following a particular section of an earnings release, the Federal Open Market Committee (FOMC) and market participants alike, digest numerous data points and anecdotes to paint a mosaic of the US economy and craft policy accordingly. Generally speaking, this comes from the 12 FOMC members, which is structured as follows: seven board governors, the President of the Federal Reserve Bank of New York, and four other reserve bank presidents. All FOMC members present their case on economic conditions. Moreover, non-voting reserve bank presidents also voice their opinion. Some of the variables these officials take into consideration can be found in two key releases.Many investors are already aware of these releases, but glance over them. Just about any economic calendar has these events highlighted, but lack mainstream in-depth following. The content of these reports doesn’t always move the market as much as an FOMC Meeting Announcement, energy...
The Calm before a VIX Pop: Options and Volatility Strategies

The Calm before a VIX Pop: Options and Volatility Strategies

Summary:Markets are near highs and volatility is near lows, historical data shows that a low VIX can be taken advantage of for short term trades.Seasonality of VIX closing prices vs. mean and median levels since 1990.Macro reasons to consider trading protection.Volatility is near multi-year lows as the major indices have been trading just under all-time highs. In February, the Dow Jones Industrial Average crossed above 20,000, the S&P 500 traded above 2,300 and the VIX temporarily broke below 10.This is all occurring at the same time macroeconomic uncertainty is quantifiably at an all-time high, the Fed and other global central banks are unwinding the biggest monetary intervention ever, waves of populism are electing new political administrations, and aggressive stock valuations are the norm.For context, the below charts quantify and depict a number of the above topics. Starting off with equity returns and current volatility levels.Low Implied VolatilityThe SPY (SPDR S&P 500 ETF Trust) is up 60% cumulatively over the last 10 years. As such, volatility derived from its options is near all-time lows. Other major products like the Russell 2000, Dow Jones Industrial Average, and NASDAQ 100 (as measured by the IWM, DIA and QQQ respectively) are also at relative lows implied volatility wise. Depicted below from Interactive Brokers (IB). (https://www.interactivebrokers.com/en/index.php?f=14099#tws-software)The VIX (Implied Volatility on S&P 500 30-Day Options) is another measure of volatility and complacency. As depicted below from IB, the CBOE’s VIX is hovering at 10-year lows. But what happens when the market inevitability has a hiccup? In the next chart, we explore what happens to the volatility of options on the SPY.Across the term structure (each...
Tech Trend: How to Play Cybersecurity

Tech Trend: How to Play Cybersecurity

Summary:The cybersecurity market is estimated to be worth $101-$170 billion by 2020 vs. $88 billion currently.The majority of executives and IT staff are not confident in their current infrastructure.By 2030, there will be over 49 billion connected devices, or about 6.5 devices per person.The internet has been growing at an incredible clip…but so has cybersecurity threats. The internet of things, mobile applications and other connected mediums have woven their way into our daily work lives and at-home routines. Criminals view this as an opportunity to subtly connect to your smart device in order to steal your personal or professional data; however, billions of dollars are getting put to work to prevent such an occurrence.Specifically, the security market is estimated to be an $88.8 billion dollar market by the end of 2016, according to Gartner – a public firm that specializes in IT research and advisory services. Executives are clearly demanding that their IT departments batten down the hatches and prepare for a more sophisticated battle. Other sources have the security market growing at a compounded annual growth rate of 9.8%.Despite the investments to thwart these criminals, C-Suite executives are still concerned. A recent survey from the NYSE indicated that 66% of surveyed board members are not confident that their companies are properly secured from cyber-attacks. In a separate report, conducted by Barkly Cybersecurity, 50% of information technology and security professionals surveyed were not confident in their respective efforts to protect their firms’ data.With all this concern, the future holds even greater capital flows into cybersecurity. Conservative estimates foresee the cybersecurity market being worth $101.6 billion by 2020. More aggressive...
Monetary Policy World Tour

Monetary Policy World Tour

Key Points:The Fed is preparing the U.S. market for an interest rate increase; odds favor one increase by the end of the year—specifically, the December meeting.Draghi and the ECB didn’t deliver on extending their asset purchase program but will if they have to.The BOJ “stands ready to use every possible policy tool” if necessary to achieve their policy objectives—especially key as they shift their strategy.Alpha can be found in any corner of the globe, but before capital can be put to work, the fundamentals must be taken into consideration. Nowadays, one of the biggest drivers of returns is central banks. Accordingly, below is what you need to know for each major central bank, from where they stand to what expectations are being priced in, as well as the effectiveness of their current policy as measured by economic activity and inflation.The Federal Reserve – USAAs expected, The Federal Reserve left interest rates unchanged in their September meeting. Fed Chair Yellen did, however, hint strongly at one hike by the end of the year, but slowness in numerous indicators dashed those plans for the September period. Prior to the announcement, rate hike odds were at 18%. For the next meeting, November 2nd, the market has rate hike odds at 7.2%. For the last meeting of the year, December 14th, the market is giving a significant edge to a hike. There is a 64.3% chance the benchmark rate is upped to 50-75 bps, 30.8% chance of being unchanged, and a very slim chance of 4.8% to the 75-100 bps range.Business fixed investment, inflation, and energy prices have kept a cap on inflation...