Category Archives: Stocks

Insider Selling Soars In “Cautionary Sign” To Market

One month ago, when Apple finally crossed above $1 trillion in market cap, Goldman’s chief equity strategist David Kostin said that investors had been focusing on the “wrong $1 trillion question”, adding that the correct question was: what amount of buyback will companies authorize in 2018? The reason was that according to the latest estimate from Goldman’s buyback desk, stock buyback authorizations in 2018 had increased to a record $1.0 trillion – a result of tax reform and strong cash flow growth – a 46% rise from last year.

https://www.zerohedge.com/sites/default/files/inline-images/buybacks%20goldman%201%20trillion.jpg

The upward revision was warranted: according to TrimTabs calculations, buyback announcements swelled to a record $436.6 billion in the second quarter, smashing the previous record of $242.1 billion set just one quarter earlier, in Q1. Combined, this meant that buybacks in the first half totaled a ridiculous $680 billion which annualized amounted to a staggering $1.35 trillion, indicating that Goldman’s revised estimate may in fact be conservative.

Furthermore, with many strategists warning that August could be a volatile month, Goldman remained optimistic noting that  “August is the most popular month for repurchase executions, accounting for 13% of annual activity”, implying that a solid buyback bid would support the market in a worst case scenario which never materialized as the S&P rose to a fresh all time high at the end of the month.

https://www.zerohedge.com/sites/default/files/inline-images/buybacks%20goldman.jpg

Based on the Goldman data and estimates, it is probably safe to say that August was one of the all-time record months in terms of buyback activity. That companies would be scrambling to repurchase their stock last month was not lost on one particular group of investors: the corporate insiders of the companies buying back their own stocks.

According to data compiled by TrimTabs, insider selling reached $450 million daily in August, the highest level this year; on a monthly basis, insiders sold more than $10 billion of their stock, the most of any month this year and near the most on record.

https://www.zerohedge.com/sites/default/files/inline-images/insider%20sales%20aug%202018.jpg?itok=EntYYHSK

“As corporate buying is at least taking a breather, corporate insiders are ramping up share selling as the major U.S. stock market averages are at or near record highs,” TrimTabs wrote in a note.

In other words, as insiders and management teams authorized record buybacks, the same insiders and management teams were some of the biggest sellers into this very bid, which one would say is a rather risk-free way of dumping their stock without any risk of the clearing price declining. It also suggests that contrary to prevailing expectations, stocks are anything but cheap when viewed from the lens of insiders who know their own profit potential best.

There is another consideration: September is traditionally the most volatile month for the stock market (especially the last two weeks), and it may be the insiders are simply looking to offload their holdings ahead of a potential air pocket in prices.

As CNBC further notes, September is usually the worst month for stocks, possibly explaining why corporate executives sold so much stock last month. Data from the “Stock Trader’s Almanac” show the S&P 500 and Nasdaq both fall an average of 0.5% in September. The Dow Jones Industrial Average, meanwhile, averages a loss of 0.7% in September.

TrimTabs summarizes this best:

“One cautionary sign for U.S. stocks is that corporate insiders have accelerated their selling of U.S. equities,” said Winston Chua, an analyst at TrimTabs. “They’ve dedicated record amounts of shareholder money to buybacks but aren’t doing the same with their own which suggests that companies aren’t buying stocks because they’re cheap.”

Finally, as we noted yesterday, the September selling may have started early this year in an ominous sign for the rest of the month:

it’s already been a tough start to the month of September for the S&P 500, which has fallen for the fourth day in a row. This is notable, as LPL Financial notes “going back to the Great Depression, only two times did it start down the first four days. 1987 and 2001.

And with insiders dumping a near record amount of stock, it may be the case that the selling is only just getting started.

 

Source; ZeroHedge

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Which Emerging Markets Will Run Out Of Money First?

For years, in fact for the duration of the US dollar’s use as a global carry currency, Emerging Markets – especially those with a currency peg – were a welcome destination for yield starved US investors who found an easy source of yield differential pick up. All that came to a crashing halt first after the Chinese devaluation in 2015 which sent the dollar surging and slammed the EM sector, and then again in recent months when renewed strong dollar-inspired turmoil gripped the emerging markets, first due to idiosyncratic factors – such as those in Turkey and Argentina…

https://www.zerohedge.com/sites/default/files/inline-images/turkey%20argentina.jpg

… and gradually across the entire world, as contagion spread.

And while many pundits have stated that there is no reason to be concerned, and that the EM spillover will not reach developed markets, Morgan Stanley points out that the real pain may lie ahead.

As the following chart from the bank’s global head of EM Fixed Income strategy, James Lord, shows, whereas returns have slumped across EM rates, outflows from the EM space have a ways to go before they catch down to the disappointing recent returns.

https://www.zerohedge.com/sites/default/files/inline-images/EM%20returns.jpg?itok=9AdbY0_8

One can make two observations here: the first is that despite the equity rout, EM stocks (as captured by the EEM ETF) have a long way to go to catch down to EM bonds as shown by the Templeton EM Bond Fund (TEMEMFI on BBG).

https://www.zerohedge.com/sites/default/files/inline-images/EM%20equity%20vs%20bonds.jpg?itok=6ljNGxw5

The second, more salient point is that a key reason for the solid growth across emerging markets in recent years, has been the constant inflow of foreign capital, resulting in a significant external funding requirement for continued growth, especially for Turkey as discussed previously.

But what happens if this outside capital inflow stops, or worse, reverses? This is where things get dicey. To answer that question, Morgan Stanley has created its own calculation of Emerging Market external funding needs, and defined it as an “external coverage ratio.” It is calculated be dividing a country’s reserves by its 12 month external funding needs, which in turn are the sum of the i) current account, ii) short-term external debt and iii) the next 12 months amortizations from long-term external debt.

More importantly, what this ratio shows is how long a given emerging market has before it runs out of cash. And, as the chart below shows, if we were investors in Turkey, Ukraine, Argentina, or any of the other nations on the left side of the chart – and certainly those with less than a year of reserves to fund its external funding needs – we would be worried.

So to answer the question posed by the title, which Emerging Markets will run out of funding first, start on the left and proceed to the right.

https://www.zerohedge.com/sites/default/files/inline-images/EM%20external%20funding%20need.jpg?itok=HxscRuEo

Source: ZeroHedge

Visualizing Every US Valuation Milestone From 1781: The Road To A Trillion Dollars

The market has been buzzing about Apple’s $1 trillion market valuation.

It’s an incredible amount of wealth creation in any context – but, as Visual Capitalist’s Jeff Desjardins notes, getting to 12 zeros is especially impressive when you consider that Apple was just 90 days from declaring bankruptcy in 1997.

Today’s chart shows this milestone – as well as many of the ones before it – through a period of over 200 years of U.S. market history. It was inspired by this interesting post by Global Financial Data, which is worth reading in its own right.

https://i0.wp.com/2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2018/08/market-cap-milestones.jpg

Courtesy of: Visual Capitalist

MARKET CAP MILESTONES

Over the last couple of centuries, and with the exception of brief moments in time such as the Japanese stock bubble of 1989, the largest company in the world has almost always been based in the United States.

Here are the major market cap milestones in the U.S. that preceded Apple’s recent $1 trillion valuation, achieved August 2nd, 2018:

Bank of North America (1781)
The first company to hit $1 million in market capitalization. It was the first ever IPO in the United States.

Bank of the United States (1791)
The first company to hit $10 million in market capitalization had a 20 year charter to start, and was championed by Alexander Hamilton.

New York Central Railroad (1878)
The first company to hit $100 million in market capitalization was a crucial railroad that connected New York City, Chicago, Boston, and St. Louis.

AT&T (1924)
The first company to hit $1 billion in market capitalization – this was far before the breakup of AT&T into the “Baby Bells”, which occurred in 1982.

General Motors (1955)
The first company to hit $10 billion in market capitalization. The 1950s were the golden years of growth for U.S. auto companies like GM and Ford, taking place well before the mass entry of foreign companies like Toyota into the domestic automobile market.

General Electric (1995)
The first company to hit $100 billion in market capitalization was only able to do so 23 years ago.

THE OTHER TRILLION DOLLAR COMPANY

Interestingly, Apple is not the first company globally to ever hit $1 trillion in market capitalization.

The feat was achieved momentarily by PetroChina in 2007, after a successful debut on the Shanghai Stock Exchange that same year.

https://www.zerohedge.com/sites/default/files/inline-images/market-cap-petrochina.jpg?itok=F-t3kyGu

And as we noted previously, the $800 billion loss it experienced shortly after is also the largest the world has ever seen.

Source: ZeroHedge

Is This Why Tesla Executives Are Fleeing? Investors Want To Know

Is Tesla The New Theranos?

I originally started following Tesla as I felt it was a structurally unprofitable business nearing a cash crunch as hundreds of competing products were about to enter the market.

https://www.zerohedge.com/sites/default/files/inline-images/11325d20-260e-46c8-87de-fb9bbec62749.jpg?itok=QPDAqoOh

As I’ve studied Tesla more closely, I’ve come to realize that Elon Musk appears to be running a Ponzi Scheme disguised as an auto-manufacturer; where he has to keep unveiling new products, many of which will never come to market, in order to raise new capital (equity/debt/customer deposits) to keep the scheme alive. The question has always been; when will Tesla collapse?

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-Bullshit-Conversion-Cycle.jpg?itok=O2KMdlapTesla’s Bullshit Conversion Cycle is the key financial metric underlying this scheme (from @ProphetTesla)

As part of my research on Tesla, I decided to read Bad Blood by John Carreyrou, the journalist who first uncovered the Theranos fraud. It is the story of how Elizabeth Holmes created Theranos and then lurched between publicity events in order to raise additional capital and keep the fraud going, despite the fact that the technology did not work. The key lesson from Theranos for determining when a fraud will implode is that there are always idiots willing to put fresh money into a well marketed fraud – so you need a catalyst for when the funding dries up.

The other salient fact was that most senior employees actually knew that something wasn’t quite right, but feared losing their jobs or getting sued if they did anything about it. Therefore, employee turnover was off the charts but no one was willing to risk their career by saying anything publicly. However, when Theranos started risking customers’ lives, the secret got out pretty fast. This is because most people are inherently ethical – especially when they know that their employer is doing something immoral, like releasing flawed lab results to sick patients. Eventually, some employees felt compelled to become whistle-blowers and started to reach out to journalists and regulators. This started a cascading event.

First, one intrepid journalist took the career risk to write about the Theranos fraud. Then other whistle-blowers felt emboldened to step forward and contact this first journalist, as they also wanted their story told – especially as they had already reached out to government regulators who were too scared to investigate a politically powerful company.

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-30-27.jpg?itok=G3zMzfEt

Once a few good articles had been written about Theranos, the dam broke open and the feeding frenzy began. Other journalists, smelling page-clicks rapidly descend on Theranos; more workers spoke out, more incriminating evidence came to light and then there was a sense of voter outrage. Finally, the regulators who were first contacted by the whistle-blowers many months previously, felt compelled to act – at which point the fraud collapsed and the money spigot shut off.

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-executive-departures.jpg?itok=TEBxT2PFExecutives Fleeing Tesla Is A True Bull Market “Up And To The Right”

We’ve already seen the mass exodus of senior Tesla executives. When they say they “want to spend time with their family,” it really means they “want to spend less time in prison.” Next, we have the first whistle-blowers—there will be MANY more. Currently there are at least 3 different ones feeding information to journalists. Using past frauds as a guide, once we get to this point of the media cycle, the fraud usually unravels pretty fast.  Given the perilous state of Tesla’s finances, they are in urgent need of new capital. The question is; who would want to invest new capital when Tesla is now admitting to knowingly selling cars without testing the brakes in order to hit some arbitrary one week production target? When a company admits that it will sacrifice vehicle quality and even risk killing its customers to win a twitter feud and start a short squeeze, regulators must step in. The question is; what else has Tesla done illegally to hit its targets? We know that Tesla long ago passed over the ethical threshold of selling faulty products that have killed people—what other allegations will soon come to light? Elon Musk demanded that Tesla stop testing brakes on June 26. Doug Field, chief engineer, resigned on June 27. Is this a coincidence? Of course not—Doug Field doesn’t want to be responsible for killing people. I think Tuesday’s article will speed up the pace of Tesla’s bankruptcy quite dramatically and I purchased some shorter dated puts after reading it.

Tesla is the fluke stock-promote that found a way to address society’s fascination with ‘green technology’ and the ‘next Steve Jobs.’ Elon Musk eagerly stepped into the role of mad scientist and investors gave him a free pass. It now increasingly seems that everything he’s done for the past few years was simply designed to keep the share price up, keep the dream alive and raise more capital – as opposed to creating shareholder value. Along the way, customer safety has been ignored in order to hit production targets and appease the stock market. In addition to not testing brakes, a recent whistle-blower has accused Tesla of installing over 700 dangerously defective batteries into Model 3 vehicles.

I suspect there will be many more allegations as whistle-blowers come out of the woodwork. It really is the Theranos of auto makers. I suspect it will all end soon. Theranos and Enron both collapsed within 90 days of the journalists getting up to speed. The reporters now know the right questions to ask and Tesla will be out of cash by the time they are all answered.

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-33-07.jpg?itok=kqXN3GzmStock Promotion In Overdrive Lately. What’s Elon Trying To Distract People From?

Besides, Elon Musk isn’t even all that innovative. Hitler already tried this same automotive customer deposit scam 80 years ago (From Wages of Destruction)

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-34-55.jpg?itok=Cc-tNH4U

Source: ZeroHedge | Submitted by Kuppy Via AdventuresInCapitalism.com

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“Short-Tempered” Musk Reportedly “Snapped” At Staff Working 12-Hour Shifts In Model 3 “Production Hell” Week

https://www.zerohedge.com/sites/default/files/inline-images/Elon%20Musk_0.JPG?itok=x0ZWpkN6

The conditions at Tesla’s production facility leading up to meeting its Model 3 production goal have been reported as nothing short of hellish as Elon Musk “barked” at employees working 12 hour shifts, bottlenecking other parts of the company’s production and reportedly causing concern by employees that the long hours and strenuous environment would cause even more workplace injuries and accidents.

2017 Was The Biggest “Money For Nothing” IPO Year Since Pets.com

Over 80% Of 2017 IPO’s Had ‘Negative’ Earnings – Most Since Dot-Com Peak

2017 was a banner year for many things – record low volatility, record high complacency, and record amounts of money printed by the world’s biggest central banks, among many others.

All of which heralded the belief in the super-human, ‘can-do-no-wrong’ venture capitalist… and of course the ‘exit’ cash-out moment.

108 operating companies went public in the U.S. in 2017 with the average first day return a healthy 15.0% – well above the average 12.9% bump seen since the start of the 21st century.

But of most note in years to come, we suspect, is the fact that over 80% of IPOs in 2017 had negative earnings… the most since the peak of the dot-com bubble in 1999/2000…

https://www.zerohedge.com/sites/default/files/inline-images/2018-05-19_9-52-14.jpg?itok=Ogatu-xI

Put a slightly different way, 2017 was the biggest “money for nothing” year since Pets.com… consider that the next time you’re told to buy the dip. Remember the only reason “the water is warm” is because it has been ‘chummed’ by the the last greater fool ready for the professional sharks to hand their ‘risk’ to…

https://www.zerohedge.com/sites/default/files/inline-images/2018-05-19_10-15-43.jpg?itok=r2KyPi-o

Source: ZeroHedge

LIBOR Has Been Surging, These Companies Are Most Vulnerable (video)

Over the weekend, ZH looked at the notional amount of non-financial Libor-linked debt (so excluding the roughly $200 trillion in floating-rate derivatives which have little practical impact on the real world until there is a Lehman-like collateral chain break, of course at which point everyone is on the hook), to see what the real-world impact of the recent blow out in 3M USD Libor is on the business and household sector.

To this end, JPM calculated that based on Fed data, there is a little under $8 trillion in pure Libor-related debt…

https://www.zerohedge.com/sites/default/files/inline-images/libor%20table%20jpm.jpg

and that a 35bps widening in the LIBOR-OIS spread could raise the business sector interest burden by $21 billion. As we wondered previously, “whether or not that modest amount in monetary tightening is enough to “break” the market remains to be seen.”

In other words, unless the Fed – and JPMorgan – have massively miscalculated how much floating-rate debt is outstanding, and how much more interest expense the rising LIBOR will prompt, the ongoing surge in Libor and Libor-OIS, should not have a systemic impact on the financial system, or economy.

What about at the corporate borrower level?

In an analysis released on Monday afternoon, Goldman’s Ben Snider writes that while for equities in aggregate, rising borrowing costs pose only a modest headwind, “stocks with high variable rate debt have recently lagged in response to the move in borrowing costs.”

Goldman cautions that these stocks should struggle if borrowing costs continue to climb – which they will unless the Fed completely reverses course on its tightening strategy – amid a backdrop of elevated corporate leverage and tightening financial conditions.

Indeed, while various macro Polyannas have said to ignore the blowout in both Libor and Libor-OIS because, drum roll, they are based on “technicals” and thus not a system risk to the banking sector (former Fed Chair Alan Greenspan once called the Libor-OIS “a barometer of fears of bank insolvency”), what they forget, and what Goldman demonstrates is what many traders already know well: the share prices of companies with high floating rate debt has mirrored the sharp fluctuation in short-term borrowing costs. This is shown below in the chart of 50 S&P 500 companies with floating rate bond debt (i.e. linked to Libor) amounting to more than 5% of total.

Here are some details on how Goldman constructed the screen:

We exclude Financials and Real Estate, and the screen captures stocks from every remaining sector except for Telecommunication Services. So far in 2018, as short-term rates have climbed, these stocks have lagged the S&P 500 by 320 bp (-4% vs. -1%). The group now trades at a 10% P/E multiple discount to the median S&P 500 stock (16.0x vs. 17.6x). These stocks should struggle if borrowing costs continue to climb, but may present a tactical value opportunity for investors who expect a reversion in spreads. The tightening in late March of the forward-looking FRA/OIS spread has been accompanied by a rebound of floating rate debt stocks and suggests investors expect some mean-reversion in borrowing costs.

Goldman also notes that small-caps generally carry a larger share of floating rate debt than do large-caps, which may lead to a higher beta for the data set due to size considerations.

In any event, the inverse correlation between tighter funding conditions (higher Libor spreads) and the stock under performance of floating debt-heavy companies is unmistakable.

https://www.zerohedge.com/sites/default/files/inline-images/GS%20libor%20vs%20corporations.jpg?itok=7X2aJ5oc

Finally, traders who wish to hedge rising Libor by shorting those companies whose interest expense will keep rising alongside 3M USD Libor, in the process impairing their equity value, here is a list of the most vulnerable names.

https://www.zerohedge.com/sites/default/files/inline-images/companies%20exposed%20to%20libor.jpg?itok=sTtXSX13(click for larger image)

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“They’re burning the furniture to heat the house”

Money manager Michael Pento says the biggest unreported story is the skyrocketing interest rate of LIBOR. What’s that? Pento explains, “LIBOR, and people don’t understand or talk about it, is the London Inter-Bank Offered Rate. This rate has gone from 0.3% at the end of 2015 to 2.3% today. The London Inter-Bank Offered Rate is the rate that is applied to $370 trillion of loans and derivatives and loans, from credit cards, to student loans, to auto loans are priced off of LIBOR. . .  That is the biggest reason why the stock market is rolling over because the cost of borrowing money. . . is going up very, very sharply. . .  All of this is going to hit a crescendo in October of 2018.” Pento Says gold prices are going way up because the Fed will no be able to raise interest rates.

Source: ZeroHedge

Stocks Suffer Worst Q2 Start Since The Great Depression

Well that really escalated quickly…

After last week’s “paint the tape ahead of a long-weekend” melt-up into the close, the first trading day of the second quarter was a bloodbath… In fact the worst since The Great Depression

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_10-52-02.jpg?itok=Xy96uhjj

As David Rosenberg (@EconguyRosie) summed up so precisely: New math: every tweet by @realDonaldTrump subtracts 70 points off the Dow. Keep ’em coming.

Woah…a ubiquitous opening bounce, then puked into Europe’s close, then another attempt to ignite momentum, fails and stocks puked into red for the year again…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_13-00-06.jpg?itok=TEWDVMM7

3rd dead cat bounce in a week…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-47-48.jpg?itok=9yMFSMDT

The S&P 500 and The Dow broke below their critical 200DMA… (Nasdaq is closest to its 200DMA since Brexit plunge) –

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-43-53.jpg?itok=9oVG27vQ

there was a desperate last few minutes attempt to rally ’em back above the 200DMAs – Dow ended back above its 200DMA

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_13-07-42.jpg?itok=nB1ATXIC

First time the S&P has closed below the 200DMA since June 27th 2016 (Brexit)

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-45-03.jpg?itok=SMbagwjR

VIX topped 25, leading the US equity index vols higher today…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-53-28.jpg?itok=RPb7OY-X

Tech led the tumble…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-41-10.jpg?itok=X0GdmeU0

Lowest close for NYSE FANG+ Index since January 5th…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-54-40.jpg?itok=-WasIrw2

With Tesla bonds…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-36-19.jpg?itok=voOKK-ju

and Stocks really ugly – We suspect Elon is regretting the April Fools’ joke…

Tesla Tumbles After Elon Musk Jokes About Bankruptcy

https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/bankwupt%202.jpg?itok=IlVldwxR

 

This morning shareholders of Tesla are hardly laughing, with Tesla stock tumbling as much as 5%, down to $254, the lowest level in a year.

 

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-00-42.jpg?itok=F2I2j8Ot

And the 10Y Yield dropping to neat two-month lows…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_10-44-00_0.jpg?itok=hNfTxkJj

Source: ZeroHedge

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The very next day…

Stocks Soar After Bloomberg Report Unleashes Amazon Buying Panic

https://www.zerohedge.com/sites/default/files/styles/teaser_wide/public/2018-04/amazon%20teaser%204.3.jpg?itok=atmpAlwa

It was generally a quiet day, with no macro news and equities range-bound, seemingly spooked by the ongoing verbal war between Trump and Jeff Bezos, where first in a tweet then a White House press conference, the president warned that US taxpayers will no longer subsidize Amazon “by the billions.” And, as has been the case recently, every time Trump spoke or tweeted, Amazon turned negative.

And then, just around 2:45pm, a Bloomberg headline hit, according to which  President Trump is not formally looking at options to address his concerns with Amazon, which immediately unleashed a buying panic first in Amazon and then across the broader market:

https://www.zerohedge.com/sites/default/files/inline-images/AMZN%20no%20action.jpg?itok=Z2EoABj1