Category Archives: Stocks

What Was Going On With MGM Resorts In September, Just Before The Terrorist Attack?

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On Tuesday, September 5th, 2017,  the board of MGM Resorts International decided to approve a $1 billion share repurchase program. At $17.7 billion today, the program represented a significant portion of its current market cap. By the end of the week, MGM’s CEO, James Murren, had coolly divested himself of 80% of the shares he owned in his company. The divestment came just days before the ex-dividend date on September 8th, 2017.

The sales were originally disclosed in a document filed with the Securities and Exchange Commission (SEC). Murren had previously divested 57,269 shares on July 31st and August 9th, 2017.

It’s currently unclear why Murren chose to sell when he did. To date, MGM’s stock has not experienced a significant decline in value due to the repurchasing program. It could be interpreted to run against the company’s interests for the CEO to convey a sense of urgency in the selling of his shares by disposing of them immediately after the commencement of his company’s share repurchase program. It’s also strange that the CEO of a company would sell more than half of their stake (let alone 80%) in the company that they represented.

Mr. Murren and his fellow board members were not the only speculators who were bearish on MGM’s prospects. Billionaire investor George Soros also bought $42 million worth of puts on the company, according to SEC filings from mid August.

That point being made, it needs to be asked why any profit-oriented CEO of any company would sell 80% of his personal stake in his own corporation, especially after he thought it was in the business’ best interest to initiate a massive share repurchase program which one would theoretically assume to reduce the number of shares in the company and increase the price of each share, ceteris peribus.

Why would the individual with the most information about the company sell 80% of his shares immediately after the commencement of a program that most would consider positive for the stock? Shouldn’t he want to hold on to his shares? Is there something he knew, that others didn’t, that lead to so much movement in such little time? What a week!

On September 5th, 2017, 18 analysts were bullish on MGM, 1 had a hold rating, and 1 had a sell rating. Taking the events of September and October into consideration, has MGM’s picture heading forward improved, or worsened?

… and finally, should James Murren’s membership on the DHS Infrastructure Advisory Council mean anything to investigators and shareholders?

By William Craddick | Disobedient Media

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Fed Warns Markets “Vulnerable to Elevated Valuations” [charts]

Hussman Predicts Massive Losses As Cycle Completes After Fed Warns Markets “Vulnerable to Elevated Valuations”

Buried deep in today’s FOMC Minutes was a warning to the equity markets that few noticed…

This overall assessment incorporated the staff’s judgment that, since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets…

According to another view, recent rises in equity prices might be part of a broad-based adjustment of asset prices to changes in longer-term financial conditions, importantly including a lower neutral real interest rate, and, therefore, the recent equity price increases might not provide much additional impetus to aggregate spending on goods and services.

According to one view, the easing of financial conditions meant that the economic effects of the Committee’s actions in gradually removing policy accommodation had been largely offset by other factors influencing financial markets, and that a tighter monetary policy than otherwise was warranted.

Roughly translated means – higher equity prices are driving financial conditions to extreme ‘easiness’ and The Fed needs to slow stock prices to regain any effective control over monetary conditions.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_FOMC11.png

And with that ‘explicit bubble warning’, it appears the ‘other’ side of the cycle, that Hussman Funds’ John Hussman has been so vehemently explaining to investors, is about to begin…

Nothing in history leads me to expect that current extremes will end in something other than profound disappointment for investors. In my view, the S&P 500 will likely complete the current cycle at an index level that has only 3-digits. Indeed, a market decline of -63% would presently be required to take the most historically reliable valuation measures we identify to the same norms that they have revisited or breached during the completion of nearly every market cycle in history.

The notion that elevated valuations are “justified” by low interest rates requires the assumption that future cash flows and growth rates are held constant. But any investor familiar with discounted cash flow valuation should recognize that if interest rates are lower because expected growth is also lower, the prospective return on the investment falls without any need for a valuation premium.

At present, however, we observe not only the most obscene level of valuation in history aside from the single week of the March 24, 2000 market peak; not only the most extreme median valuations across individual S&P 500 component stocks in history; not only the most extreme overvalued, overbought, over bullish syndromes we define; but also interest rates that are off the zero-bound, and a key feature that has historically been the hinge between overvalued markets that continue higher and overvalued markets that collapse: widening divergences in internal market action across a broad range of stocks and security types, signaling growing risk-aversion among investors, at valuation levels that provide no cushion against severe losses.

We extract signals about the preferences of investors toward speculation or risk-aversion based on the joint and sometimes subtle behavior of numerous markets and securities, so our inferences don’t map to any short list of indicators. Still, internal dispersion is becoming apparent in measures that are increasingly obvious. For example, a growing proportion of individual stocks falling below their respective 200-day moving averages; widening divergences in leadership (as measured by the proportion of individual issues setting both new highs and new lows); widening dispersion across industry groups and sectors, for example, transportation versus industrial stocks, small-cap stocks versus large-cap stocks; and fresh divergences in the behavior of credit-sensitive junk debt versus debt securities of higher quality. All of this dispersion suggests that risk-aversion is rising, no longer subtly. Across history, this sort of shift in investor preferences, coupled with extreme overvalued, overbought, over bullish conditions, has been the hallmark of major peaks and subsequent market collapses.

The chart below shows the percentage of U.S. stocks above their respective 200-day moving averages, along with the S&P 500 Index. The deterioration and widening dispersion in market internals is no longer subtle.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_huss.png

Market internals suggest that risk-aversion is now accelerating. The most extreme variants of “overvalued, overbought, over bullish” conditions we identify are already in place.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_huss1_0.png

A market loss of [1/2.70-1 =] -63% over the completion of this cycle would be a rather run-of-the-mill outcome from these valuations. All of our key measures of expected market return/risk prospects are unfavorable here. Market conditions will change, and as they do, the prospective market return/risk profile will change as well. Examine all of your investment exposures, and ensure that they are consistent with your actual investment horizon and tolerance for risk.

Source: ZeroHedge

It’s Over For Tech Start-ups

It’s over for tech start-ups — just look at today’s earnings reports

  • Blue Apron and Snap had disappointing earnings reports on Thursday.
  • Both companies have been targeted by one of the Big Five — Blue Apron by Amazon, Snap by Facebook.
  • Start-ups and investors should look to the margins, or prepare to face the tech giants.

Two newly public tech companies reported earnings on Thursday, and both were ugly for their investors.

Meal-kit preparer Blue Apron missed earnings expectations by a wide margin in its first earnings report since going public in late June. It reported a 47 cent per share loss instead of the expected 30 cent loss, blaming high customer acquisition costs and staffing a new distribution plant in New Jersey.

The stock dropped 17 percent and is now trading at about half its IPO price.

In its second earnings report as a public company, Snap disappointed Wall Street with its user growth numbers for the second consecutive time and fell short on earnings.

The stock dropped about 17 percent after hours. It’s now off about 33 percent from its IPO price.

Blue Apron and Snap have a lot in common. They’re consumer focused. They have devoted followers. They’re losing money hand over fist.

And both were targeted directly and aggressively by two of tech’s biggest companies.

Between the time Blue Apron filed for its intial public offering, on June 1, and when it went public, on June 28, Amazon announced that it was buying Whole Foods. The speculation that Amazon would use the purchase to improve its home delivery service sent demand for Blue Apron’s IPO down, and the company slashed its IPO range from $15-$17 down to $10-$11.

Then, reports emerged that Amazon had already launched a meal kit, which was on sale in Seattle.

In the case of Snap, it was Facebook. Mark Zuckerberg and company had been fighting to blunt Snap’s growth ever since its co-founder, Evan Spiegel, rejected his buyout offer in 2013. It began to see progress with the launch of Instagram Stories in August 2016, which duplicated Snapchat’s own Stories feature. Over the next year, it gradually copied nearly every major Snapchat feature in its own products.

Less than a year after launch, Instagram Stories has 250 million daily users and is growing at a rate of around 50 million every three months. Snap has 173 million and grew only 7 million during the quarter.

The experiences of these companies are discouraging for start-up investors and founders who dream of someday creating an Amazon or Facebook of their own.

The five big tech companies — Alphabet (Google), Apple, Amazon, Facebook, and Microsoft — have attained unprecedented wealth and power, with trillions of dollars in combined market value and tens of billions of dollars in free cash flow.

They also need to satisfy Wall Street’s appetite for growth, which means they have to get new customers or earn more money from existing customers, quarter after quarter, year after year. One way to do that is to expand into new markets.

https://sc.cnbcfm.com/applications/cnbc.com/resources/files/2017/08/10/SNAP_chart.jpeg

They’ll gladly outspend their smaller competitors on product development and hiring while undercutting them on price.

That doesn’t mean curtains for Blue Apron or Snap. Both companies could come up with a leapfrog innovation that catapults them (for a while). Young nimble companies overtake older and slower companies all the time — that’s how the Big Five started. Microsoft disrupted IBM. Google and Apple disrupted Microsoft. And so on.

But companies and tech investors need to be wise about the risks of betting on upstarts that are going up against these giants.

If you hope to make money through online advertising, you’ll be challenging Google and Facebook. If you’re doing anything in e-commerce, logistics or delivery, you’ll run into Amazon. In cloud computing, get ready to see Amazon, Microsoft and Google. If you’re building hardware, Apple likely stands in the way.

It might be better to focus on the niches that the Big Five don’t yet dominate. Their health-care efforts are still in early stages, and none is playing heavily in financial tech, drones or robotics. Microsoft’s power in enterprise software is blunted to some degree by other old giants like IBM, Oracle and SAP, plus newer players like Salesforce.

It’s always been hard to build a successful start-up. With the increasing dominance of the Big Five, it’s harder than ever.

By Matt Rosoff | CNBC

 

Tech-Wreck Continues – FANG Stocks Tumble Below Friday Flash-Crash Lows

It’s not over…

Felix Zulauf (via Barron’s round table)

Do you have any specific investment picks for the second half?

I don’t. Investors should tighten risk-management strategies to their portfolios. I expect the FANG stocks and the Nasdaq to have a big selloff. They could easily fall 30% or 40%. But I don’t want to end my Roundtable career on a bearish note. [Zulauf announced at the January Roundtable that he is “retiring” from the panel after this year.]

Once the bear market is over and the recession or economic crisis passes, stocks will go up again.

FANG Stocks just took out Friday’s flash-crash lows…

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/11/20170612_fang4_0.jpg

Source: ZeroHedge

FANGs Flash Crashed – Worst Day Since Election

FANG Stocks: Coined by CNBC business pundit Jim Cramer, the term refers to four publicly-traded tech giants Facebook Inc. (FB), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Google (GOOGL), which is now Alphabet Inc. All four of the companies are online or tech-centric, command massive market shares in their respective industries and are valued and traded at very high prices.

The sudden rotation out of growth/momentum stocks, highlighted earlier, sure escalated quickly…

… With growth getting dumped…

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/07/20170609_EOD4.jpg

… and AMZN flash-crashing:
https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/07/20170609_AMZN.jpg
Some zoomed in context:
https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/07/20170609_AMZN1.jpg
Even AAPL got hammered:
https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/07/20170609_AMZN2.jpg
In fact, all the FANG stocks were in trouble, on their biggest down day since the election:
https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/07/20170609_EOD3.jpg

BofA: This Entire Rally Has Been Institutions Selling To “Animal Spirited” Retail Investors

Important considerations for those who acquire and leverage real estate with financial market assets.


Another paradoxical observation emerges when combing through the latest Bank of America data.

First, as discussed earlier today, while a net 48% of surveyed fund managers had an allocation to equities in March, the highest in two years, this flood into stocks has taken place even as the highest number of respondents since 2000 admitted stocks were overvalued.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/20/bofa%20valluation.jpg

That was one part.

The other part is that while fund managers respond that they are loading up on stocks, what they are doing is very different, and as BofA’s Jill Hall reported overnight, the bank’s clients sold stocks for the fifth consecutive week led entirely by institutional clients.

According to the report, last week, during which the S&P 500 climbed 0.2% (but remained below its early-March highs), BofA clients were net sellers of US equities for the fifth consecutive week, in the amount of $891MM. ETFs continued to see muted inflows, while single stocks saw outflows. There was one smallchange: unlike the previous four weeks, when sales had been broad-based across client groups, net sales last week were entirely due to institutional clients, while private clients and hedge funds were net buyers for the first time in five and seven weeks, respectively. These two groups had been the chief buyers of equities post-election prior to the recent selling streak. In other words, while previously the great rotation was out of institutions and hedge funds to “animal spirited” rich retail investors, last week hedge funds joined the buy parade, perhaps pressured by a need to catch up to their benchmark at quarter-end, and buy any overvalued garbage they could find.

More Details:

  • Clients were net sellers across all three size segments last week. Buybacks by corporate clients slowed from the prior week’s levels, and year-to-date continue to track their lowest of any comparable period since 2013.
  • Biggest buying of Health Care stocks in over a year
  • Clients sold stocks in eight of the eleven sectors last week, led by Consumer Discretionary and Industrials (which have both seen net sales for the last five weeks). Real Estate-the worst-performing sector in March-continues to have the longest selling streak (for seven consecutive weeks).
  • And amid the Fed rate hike last week, Utilities saw their biggest sales in three months. Health Care stocks saw the largest net buying, with the biggest inflows since last January and the first positive flows in six weeks, driven by institutional clients. This sector saw the greatest outflows of any sector in 2016 and has seen the second-largest outflows (after Discretionary) year-to-date.
  • Bearish sentiment, light positioning and attractive valuations are several reasons we are positive on Health Care stocks, where we see political risks as overly discounted. Other sectors which saw inflows last week were Materials and Telecom, where flows into Materials were the largest since last February.

Other notable flows: Broad-based sales of Disc. & bond proxies

  • Hedge funds, private clients and institutional clients alike were net sellers of Consumer Discretionary stocks last week-which typically underperform during tightening cycles-along with stocks in the bond-proxy sectors of Utilities and Real Estate. No sector saw net buying by all three groups.
  • Hedge funds’ net buying last week was spread across five cyclical sectors, while private clients’ net buying was entirely in ETFs and Financials stocks last week.
  • Pension fund clients were net sellers of US stocks for the second straight week, led by sales of ETFs and Real Estate stocks. Their biggest purchases last week were of Energy stocks. For more details, see Pension fund flows.

Finally, here is the breakdown of institutional, HF and retail client flow prior to US election through present. What it clearly shows is that the whole rally has been one “great rotation” from selling institutional investors to buying “animal spirited” retail traders.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/20/bofa%20clients%20sales.jpg

And when institutions sell enough, the bottom from the market is pulled, retail panics to sell as the S&P tumbled, institutions reload, and the whole cycle repeats. 

Source: ZeroHedge


110-Day Streak Is Over – S&P Drops 1% For First Time Since October

The S&P 500 is down over 1% this morning. While in the old normal that would be nothing much to note, in the new normal, this is the biggest drop since October 11th!

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1106.jpg

The 110-day streak without a 1% drop is over… this was the longest streak since May 1995

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1101.jpg

Below is a look at historical streaks of trading days without a 1%+ decline going back to 1928:

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/15/20170319_china1.jpg

VIX topped 12.5 for the first time since february and is breaking towards its 100DMA…

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1107.jpg

And for those expecting The Fed to step in and save the day… Don’t hold your breath!

And sure enough,

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1108.jpg

Source: ZeroHedge

2016 Ends With A Whimper: Stocks Slide On Last Minute Pension Fund Selling

Nobody has any idea what will happen, or frankly, what is happening when dealing with artificial, centrally-planned markets …

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When we first warned 8 days ago that in the last week of trading a “Red Flag For Markets Has Emerged: Pension Funds To Sell “Near Record Amount Of Stocks In The Next Few Days”, and may have to “rebalance”, i.e. sell as much as $58 billion of equity to debt ahead of year end, many scoffed wondering who would be stupid enough to leave such a material capital reallocation for the last possible moment in a market that is already dangerously thin as is, and in which such a size order would be sure to move markets lower, and not just one day.

Today we got the answer, and yes – pension funds indeed left the reallocation until the last possible moment, because three days after the biggest drop in the S&P in over two months, the equity selling persisted as the reallocation trade continued, leading to the S&P closing off the year with a whimper, not a bang, as Treasurys rose, reaching session highs minutes before the 1pm ET futures close when month-end index rebalancing took effect.

10Y yields were lower by 2bp-3bp after the 2pm cash market close, with the 10Y below closing levels since Dec. 8. Confirming it was indeed a substantial rebalancing trade, volumes surged into the futures close, which included a 5Y block trade with ~$435k/DV01 according to Bloomberg while ~80k 10Y contracts traded over a 3- minute period.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY6%20-%2010Y%20Intraday_0.JPG

The long-end led the late rally, briefly flattening 5s30s back to little changed at 112.5bps. Month-end flows started to pick up around noon amid reports of domestic real money demand; +0.07yr duration extension was estimated for Bloomberg Barclays Treasury Index. Earlier, TSYs were underpinned by declines for U.S. equities that accelerated after Dec. Chicago PMI fell more than expected.

Looking further back, the Treasury picture is one of “sell in December 2015 and go away” because as shown in the chart below, the 10Y closed 2016 just shy of where it was one year ago while the 30Y is a “whopping” 4 bps wider on the year, and considering the recent drop in yields as doubts about Trumpflation start to swirl, we would not be surprised to see a sharp drop in yields in the first weeks of 2017. Already in Europe, German Bunds are back to where they were on the day Trump was elected.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY6%20-%2010Y%202016_0.jpg

So with a last minute scramble for safety in Treasures, it was only logical that stocks would slide, closing the year off on a weak note. Sure enough, the S&P500 pared its fourth annual gain in the last five years, as it slipped to a three-week low in light holiday trading, catalyzed by the above mentioned pension fund selling.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY8%20-%20SPX_0.jpg

The day started off, appropriately enough, with a Dollar flash crash, which capped any potential gains in the USD early on, and while a spike in the euro trimmed the dollar’s fourth straight yearly advance, the greenback still closed just shy of 13 year highs, up just shy of 3% for the year. 

Meanwhile, the year’s best surprising performing asset, crude, trimmed its gain in 2016 to 52%.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY7%20-%20WTI%20YTD_0.jpg

The S&P 500 Index cut its advance this year to 9.7 percent as it headed for the first three-days slide since the election. The Dow Jones Industrial Average was poised to finish the year 200 points below 20,000 after climbing within 30 points earlier in the week. It appears the relentless cheer leading by CNBC’s Bob Pisani finally jinxed the Dow’s chances at surpassing 20,000 in 2016. Trading volume was at least 34 percent below the 30-day average at this time of day. A rapid surge in the euro disturbed the calm during the Asian morning, as a rush of computer-generated orders caught traders off guard. That sent a measure of the dollar lower for a second day, trimming its rally this year below 3 percent.

Actually, did we say crude was the best performing asset of the year? We meant Bitcoin, the same digital currency which we said in September 2015 (when it was trading at $250) is set to soar as Chinese residents start using it more actively to circumvent capital controls, soared, and in 2016 exploded higher by over 120%.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/bitcoin%20ytd%202_0.jpg

For those nostalgic about 2016, the chart below breaks down the performance of major US indices in 2016 – what began as the worst start to a year on record, ended up as a solid year performance wise, with the S&P closing up just shy of 10%, with more than half of the gains coming courtesy of an event which everyone was convinced would lead to a market crash and/or recession, namely Trump’s election, showing once again that when dealing with artificial, centrally-planned market nobody has any idea what will happen, or frankly, what is happening.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY1_0.jpg

Looking at the breakdown between the main asset classes, while 30Y TSYs are closing the year effectively unchanged, the biggest equity winners were financials which after hugging the flat line, soared after the Trump election on hopes of deregulation, reduced taxes and a Trump cabinet comprised of former Wall Streeters, all of which would boost financial stocks, such as Goldman Sachs, which single handedly contributed nearly a quarter of the Dow Jones “Industrial” Average’s upside since the election.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY2_0.jpg

The FX world was anything but boring this year: while the dollar soared on expectations of reflation and recovery, the biggest moves relative to the USD belonged to sterling, with cable plunging after Brexit and never really recovering, while the Yen unexpectedly soared for most of the year, only to cut most of its gains late in the year, when the Trump election proved to be more powerful for Yen devaluation that the BOJ’s QE and NIRP.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY3_0.jpg

The largely unspoken story of the year is that while stocks, if only in the US – both Europe and Japan closed down on the year – jumped on the back of the Trump rally, bonds tumbled. The problem is that with many investors and retirees’ funds have been tucked away firmly in the rate-sensitive space, read bonds, so it is debatable if equity gains offset losses suffered by global bondholders.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY4_0.jpg

And speaking of the divergence between US equities and, well, everything else, no other chart shows the Trump “hope” trade of 2016 better than this one: spot thee odd “market” out.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY5_0.jpg

So as we close out 2016 and head into 2017, all we can add is that the Trump “hope” better convert into something tangible fast, or there will be a lot of very disappointed equity investors next year.

And with that brief walk down the 2016 memory lane, we wish all readers fewer centrally-planned, artificial “markets” and more true price discovery and, of course, profits.  See you all on the other side.

By Tyler Durden | ZeroHedge