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Lucid Stock Languishes as Investors Wait to See Dreams Turn Into Reality

InvestorPlace - Stock Market News, Stock Advice & Trading Tips LCID stock has sold off since the EV maker began production and may not mount a comeback until the company can deliver on its promises. The post Lucid Stock Languishes as Investors Wait to See Dreams Turn Into Reality appeared first on InvestorPlace. More From InvestorPlace Stock Prodigy Who Found NIO at $2… Says Buy THIS Now Analyst Who Found Microsoft at $0.38 Names #1 Pick for the AI Boom America’s #1 EV Stock Still Flying Under the Radar.....»»

Category: topSource: investorplaceOct 13th, 2021

Just How Big Is China"s Property Sector, And Two Key Questions On Policy And Tail Risks

Just How Big Is China's Property Sector, And Two Key Questions On Policy And Tail Risks While the broader US stock market was giddily melting up in the past week, things in China were going from bad to worse with Evergrande set to officially be in default on Oct 23 when the grace period on its first nonpayment ends, and with contagion rocking the local property market - which as we explained last week just saw the most "catastrophic" property sales numbers since the global financial crisis - sending dollar-denominated Chinese junk bonds to all time high yields. So even though it is now conventional wisdom that China's property crisis is contained (just as its concurrent energy crisis is also somehow contained), we beg to differ, and suggest that the crisis hitting the world's largest asset class is only just starting and is about to drag China into a "hard landing", with the world set to follow. And yes, with a total asset value of $62 trillion representing 62% of household wealth, the Chinese real estate sector is not only 30 times bigger than the market cap of all cryptos and also bigger than both the US bond and stock market, but is the key "asset" that backstops China's entire financial system whose deposits at last check were more than double those of the US. In other words, if China's property sector wobbles, the world is facing a guaranteed depression. So given the escalating weakness in China’s property sector, which has been in focus given intense regulatory pressure on developers’ leverage and banks’ mortgage exposure, and consequent contraction in sales and construction activity, it is natural to ask how significant a hit this could pose to both China's and the global economy. To help people get a sense of scale, below we excerpts some of the key findings from a recent note from Goldman showing just how big China's property sector is. A wide range of estimates for the scale of China’s property sector — up to about 30% of GDP — have been reported in the media and by other analysts. Different definitions of the scope of the sector largely account for the disparity. The most important distinctions are what types of building are included (residential, nonresidential, or all construction including infrastructure), what economic activity is included (only the construction itself, or all the value-added embedded in the finished residence e.g. domestically produced materials), and whether related real estate services are also included. A narrow definition of “residential construction activity as a share of GDP” could be as low as 3.6% of GDP. Expanding this to include all related domestic activities - e.g. materials like metals, wood, and stone produced domestically and used in housing construction, as well as services like financial activities and business services used directly or indirectly by the housing sector - would account for 12.4% of GDP. Adding nonresidential building construction and its associated activity would take it to 17.7%. Finally, including real estate services—which show a high correlation with broader property trends—would take the number to 23.3%. (All these numbers are based on detailed 2018 data, and exclude infrastructure spending not directly related to residential and nonresidential buildings.) The property sector’s share of the Chinese economy has grown fairly steadily over the past decade, after surging in the stimulus-fueled recovery just after the 2008 financial crisis. Digging into the definition of the “property sector”, there are three main questions that need to be kept in mind: 1. What types of construction? One important difference is in what types of construction activities are included. Construction broadly consists of three categories: residential housing, nonresidential buildings, and infrastructure-related construction. In China, residential construction appears to be about half of total construction—the rest is either non-residential building construction or civil engineering works, plus a small amount of installation/decoration activity. Specifically, residential and nonresidential buildings represent around 70% of total construction, and residential floor space under construction is typically about 70% of total floor space under construction. Note that this ~50% share for residential share of total construction is not unusual in international perspective. For example, the residential share is similar in the United States—though it reached into the 60-70% range during the peak years of the housing bubble—and has been about 40-50% in South Korea for some time. 2. What types of economic activity (only construction, or everything necessary to complete the finished building)? An even more important distinction is what types of activities one counts. Strictly speaking, the construction industry itself represents about 7% of China’s GDP. This represents wages, profits, and taxes from the construction sector (regardless of what type of construction or what end users). This is the value added of the construction sector itself, or the narrowly defined activity of building things. However, the construction industry uses a lot of output from other sectors – both materials (cement, wood, steel, etc.) and services (transportation of materials, financial services) to create finished buildings. Put another way, there are a lot of “backward linkages” from the construction sector: a home purchase requires not just the value added from construction industry, but also the value added from the “upstream” industries that provided the materials and were otherwise involved in the completion of the finished product. To gain some intuition for this, in the chart below, Goldman shows how much of each industry’s domestic value added ultimately goes into “final demand” of the construction industry (purchases of property by consumers or investment in property by businesses). For example, about one-third of value added in “wood products” goes into construction, about one-half of basic metals value added goes into construction, and essentially all of construction’s value added goes into construction final demand. (Note that this includes direct and indirect requirements—for example, basic metal output that is sold to firms in the metal fabrication industry that then sell to the construction sector would be counted as part of final demand for construction.) The next chart shows what fraction of the final demand for construction is provided by each sector. Roughly speaking, if we think about this as “the total domestic value added embedded in an apartment”, almost 30% of this is provided by construction activity, 8% from nonmetallic mineral products, etc. From the perspective of total domestic value added from all industries embedded in the final demand of the construction industry, the overall construction industry’s final demand accounts for roughly one-quarter of China’s GDP. This estimate is based on China’s most recent (2018) “input-output” table—which indicates the final output of each industry, as well as how much input is used from every other. 3. Should real estate services be included. Some analysts focus on property construction only, while others add the “real estate services” sector e.g. the leasing and maintenance of buildings when estimating the impact of the housing sector of the economy. These activities contribute roughly 6-7% of GDP in China. In many countries, real estate services are somewhat less volatile than housing construction. The likely reason is that real estate services relate in part to the stock of existing buildings than the flow of new building construction. Even if there were a housing crash and building construction stopped, most real estate services could theoretically continue.  As evidence of this, in the US housing crash, construction sector GDP fell by ~30% peak to trough but real estate services never declined. That said, in China the “real estate services” sector has been significantly more volatile, almost as volatile as the construction sector itself. Contributions by type of demand and activity Taking these three factors into consideration, Goldman next shows estimated shares of China’s activity in the next chart, and breaks down construction into its main components while showing the share attributable to real estate services. The “sector activity” column shows the share of GDP accounted for directly by activities of that sector. In other words, companies and workers engaged in all types of construction activity accounted for 7.1% of China’s GDP in 2018. The “final demand” column shows the share of GDP accounted for by all the domestic economic activities embodied in final demand for that sector. In other words, the demand for buildings and other construction also generates demand for materials and other types of services — and adding the value added in construction and all of these “upstream” sectors together gives the numbers in the right column Putting the above together, the size of China’s property sector therefore depends on the question we want to answer: What share of Chinese economic activity do workers/companies involved in residential construction represent? Here, one should look at domestic value-added (the left column). This is 7.1% for overall construction and just 3.6% for residential construction only. How much economic activity is driven by demand for residential property construction? Residential property demand drives 12.4% of GDP (right column, second row in table), because in addition to the construction activity it creates demand for all the materials and other services involved in building construction. What about the impact of total demand for property construction? Including non-residental buildings as well as residential, and the total upstream requirements of both, we want to look at the “domestic value added in final demand” of construction of residential + nonresidential buildings. This is 17.7% of GDP (12.4%+5.3%). How much of the economy is at risk from a property downturn? Here, we could potentially add end demand for real estate services to the above calculation. This would be another 5.6% of GDP, suggesting 23.3% of the economy—nearly a quarter—would be affected. Finally, if one adds all construction and all real estate and all their associated activities, we get just over 30% of the economy (24.5%+5.6%), although it is worth caveating that this may be an overly broad definition for the property sector, as it includes infrastructure-related activity, which if anything is likely to be ramped up by policymakers in the event of severe property sector weakness. * * * Yet even a nice big, round 30% estimate for how much China's property sector contributes to GDP, does not encompass all the potential spillovers from a construction sector downturn. There are at least three others: Second-round effects. A shock to construction (or any other sector) implies a drop in wages and company profits in that sector. This in turn implies lower income for the household and business sectors — and incrementally lower consumption and investment respectively. Such “second-round” or “multiplier” effects aren’t included in the estimates above. Fiscal spillovers. Land sales represent an important part of local government revenues in China (roughly 1/3 in gross revenue terms). Governments acquire land usage rights from rural occupants and sell them at a premium via auctions to developers. If land sales revenues fall because of a housing downturn (through some combination of fewer successful auctions and/or lower land prices), budgets will be squeezed, which could limit local governments’ spending and investment. Spillovers abroad via imports. As the world’s largest trading nation, China does not get all of its construction materials and other intermediate inputs domestically. In addition to the estimates above, which focus on domestic value-added, about 11% of the total value added embedded in China’s construction final demand is from foreign sources. (This is about 3% of China’s GDP, although it makes more sense to look at each trading partner’s exposure relative to the size of its own economy.) So, if we wanted to look at the total size of China’s construction sector in terms of driving economic activity, regardless of where that economic activity occurs (perhaps to compare China’s construction sector to other countries with different levels of import intensity) the figure in the top right cell in Exhibit 3 would be 3% larger. Putting it all together, and China's property sector emerges as the mother of all ticking financial time bombs. * * * Which brings us to what is Beijing's latest policy action (if any) to prevent this potential financial nuke from going off, and what are any additional tail risks to be considered. Well, as noted above, China's property sector began the week with sharp price falls across the board, with China's junk bonds cratering to near all time lows and with signs that the concerns are spilling over to the broader China credit market with spreads widening across the board. Some key updates: Recent news suggest China property stresses are building up. A number of China property HY developers have made announcements over recent weeks regarding their upcoming bond maturities. On 11 Oct, Modern Land launched a consent solicitation to extend the maturity on its USD 250mn bond due on 25 Oct by 3 months Xinyuan Real Estate announced on 14 Oct that the majority of holders of its USD 229mn bond due on 15 Oct have agreed to an exchange offer. Note that Fitch considers both transactions to be distressed exchanges. Furthermore, Sinic announced on 11 Oct that they are not expecting to make the principal and interest payments on its USD 250mn bond due on 18 Oct. These indicate that stresses amongst developers are building. Meanwhile, the grace period on Evergrande's missed coupon payments is ending soon. Evergrande missed coupon payments of USD 148MM on 11 Oct. This came after missing an earlier coupon payment on 23 Sep. The earlier missed coupon has a 30-day grace period, which ends on 23 Oct, and should that not be remedied in the coming week, the company will be in default on this bond. With Evergrande USD bonds priced at around 20, a potential default is unlikely to have large market impact, though if the company is able to remedy the earlier default, this could provide a positive surprise for the market. Despite these mounting risks, the market staged a sharp rebound at the end of the week, with news emerging that policymakers are seeking to speed up mortgage approvals (if not followed by much more aggressive easing, this step will do nothing but delay the inevitable by a few days). And while Goldman's China credit strateigst Kenneth Ho writes overnight that valuation is cheap across the lower rated segments within China property HY, market direction hinges on whether they will be able to refinance and avoid defaults. In particular, he notes that with $6.2bn of China property HY bonds maturing in Jan 2022, policy direction in the coming two months will be key. And since Goldman remains in the dark as to what Beijing will do next, as it remains "difficult to foresee how policy developments will play out in the coming weeks", Goldman prefers to wait for clearer signs of policy turn before shifting lower down the credit spectrum. * * * This brings us to what Goldman calls two key questions on China property - policy and tail risks, which will dictate the direction of the China property HY market. As discussed in depth in recent days, Beijing's tight regulatory stance is increasingly affecting a broader set of developers, as slowing activity levels are adding to worries across China property HY. For the period from early August to the first week of October, the volume of land transactions cratered by 42.5% compared with the same period last year, and for property transaction volume, this fell by 27.0%. Difficult credit conditions and weak presales add pressure to developers’ cash flows, and these factors are what led to the pick up in defaults and stresses in China property HY. Therefore, unless there are clear signs of an easing in policy direction, Goldman warns that tail risks concerns are unlikely to subside, and these will dictate the direction of China property HY market. As noted by Goldman's China economics team, credit supply holds the key to China’s housing outlook in the near term, emphasizing the need for policy adjustments in order to stabilize the housing market. Incidentally, the latest monthly Chinese credit creation numbers showed a modest miss to expectations, as total TSF flows came in at 2.928TN, just below the 3.050TN consensus, and up 10.1% Y/Y, lower than the 10.3% in August (the silver lining is that M2 rose 8.3%, up from 8.2% in August and above the 8.2% consensus). That said, given the sharp slowdown in residential property activity levels over the past two months, policy stance appears to have relaxed over the past two weeks if somewhat more slowly than most had expected. The table below summarizes a number of policy announcements and news reports that suggest some easing of policies are taking place. That said, the announcements and policymakers’ statements do not signal a large shift in overall policy direction yet. For example, the more concrete measures such as home buyer subsidies and the reduction in home loan interest rates are conducted at a city, and not national, level. And whilst Bloomberg reported that the financial regulators have informed a number of major banks to accelerate mortgage approvals, the precise details are lacking. The recent actions are therefore mostly in line with the overall policy stance. On one hand, policymakers remain focused on the medium term goal of deleveraging, and will want to avoid over-stimulating and reflating the property sector; on the other hand, policymakers have stated that they want a stable property market and to avoid systemic risks from emerging, suggesting that they would seek to avoid over-tightening. The problem is that they can't have both, and one will eventually have to crack. Goldman is somewhat more optimistic and writes that finding a balance will take time, adding that "given the need to balance the competing policy objectives, further measures could continue to emerge piecemeal, and visibility on the timing and the type of policy actions are limited." Furthermore, there may need to be further downside risk towards the property sector before we see a more decisive change in direction in the policy stance. This means that tail risks concerns are unlikely to subside, despite signs that policy direction is gradually shifting. * * * Assuming help does not come on time, the next key question is how fat is the tail as large amounts of bonds trading at stressed levels. Currently, the China property market is pricing in elevated levels of stress. Their price distribution is shown below indicating that 38% of bonds (by notional outstanding and excluding defaulted bonds) are trading at a price below 70, and 49% of bonds are below a price of 80. Are market prices overly bearish on tail risk, or are they accurately reflecting the stresses amongst property developers? With policymakers likely to maintain their medium term goal to delever the property sector, it is unlikely that tail risk concerns for higher levered developers will not subside. However, how “fat” the tail is will depend on the policy stance over the next two months. A big challenge going forward is that there are sizeable bond maturities in the next year, which will heavily influence tail risk. As noted above, a number of developers have conducted or are seeking to complete distressed buybacks, and defaults rates amongst China property HY companies are soaring. As such, the policy stance in the next two months will be critical. As shown in Exhibit 2, China property HY bond maturities are relatively light for the remainder of 2021, but pick up substantially in 2022, with USD 6.3bn of bonds maturing in January alone! A full list of bond maturities from now to February 2022, is shown below. It goes without saying, that should policy easing over the next two months be insufficient to ease the financial conditions amongst developers, there could potentially be a meaningful pick up in credit stresses at the start of 2022 just as the Fed launches its taper and just as a cold winter sends energy costs to unprecedented levels. Finally, for any investors seeking some exposure to China's HY market assuming that the worst is now over, Goldman agrees that while valuation is cheap across the lower rated segments within China property HY, the key determinant on market direction won't be valuation, but rather hinges on whether developers will be able to refinance and avoid defaults - i.e., can the Ponzi scheme continue. Tyler Durden Sat, 10/16/2021 - 18:00.....»»

Category: blogSource: zerohedge11 hr. 40 min. ago

James Gorman: We’re Seeing Fruits Of Long-Term Strategy

Following is the unofficial transcript of a CNBC interview with Morgan Stanley (NYSE:MS) Chairman & CEO James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, October 14th. Following is a link to video on CNBC.com: Q3 2021 hedge fund letters, conferences and more Morgan Stanley CEO Gorman: We’re Seeing Fruits Of […] Following is the unofficial transcript of a CNBC interview with Morgan Stanley (NYSE:MS) Chairman & CEO James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, October 14th. Following is a link to video on CNBC.com: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Morgan Stanley CEO Gorman: We’re Seeing Fruits Of Long-Term Strategy JIM CRAMER: Chairman and CEO James Gorman. Welcome to “Squawk on the Street,” thank you for, for coming in to talk about how well your, your bank is doing. JAMES GORMAN: Happy to do it as long as you don't ask me to go on Jeopardy, Jim. CRAMER: No, we're gonna hold off on that. That's a different, different subject. But, you know what, you deserve to be on because, you know, what is the best wealth management business in the world. 300 billion in new money this year, what is happening that people can bring in 300 billion in wealth management? GORMAN: Yes, it's amazing. I mean the team's done an unbelievable job. The reality is we're managing, you know, over four trillion, nearly four and a half trillion and with success comes success. We have a lot of clients who feel very comfortable with the brand, the platform. The technology we've invested in through E*TRADE. I mean it's just, it's all come together. This has sort of been our dream for over a decade and finally we're seeing the fruits but I mean, 12 years ago or so, I think our assets were about 500 billion. So, they've gone up, eight, nine times in that period and as you know, this is very sticky money. It's a great business so we're thrilled. CRAMER: Well that's what we're going to talk about. At one point, Morgan Stanley before you came in, had what I regarded as episodic earnings. They’d be good, and then bad and good and bad and therefore it's very hard to give a price earnings multiple. The business that you're bringing in, including by the way E*TRADE, is really sticky and steadily growth, growth, secular growth. And I'm wondering what you when you sit around your board meetings, doesn't someone say, you know what, how come we're still at 12 times earnings because this is a secular growth story, it's not cyclical, I'm trying to understand why you're not given a greater price. GORMAN: Yeah, well it's getting there. I mean to be fair we were, you know, we were sub 10 and I thought that was just nuts. We’re now managing if you put wealth and asset management together, which gives us the balance, that's about six and a half trillion on that we're generating revenues of over 30 billion. Just that, and that's very sticky but on the other hand the investment bank and what it's done the resurgence of fixed income after it was restructured dramatically in 2015. You know, equities is number one, the investment bank itself and M&A is on fire, the equity underwriting. So, Jim, it’s this balance and speed concept that I've talked about, and, you know, we're starting to get the multiple. I mean we're getting the recognition, you look at some of the other pure wealth players in the marketplace, they're trading at, you know, 20, 30 times earnings, you know, we'd love a piece of that and I think our investors are starting to understand that so it's getting there. CRAMER: Well I think it is. I mean if you added buy now, pay later, I guess we get 30 times earnings. I’m always struggling about the love of Robinhood and how important it is and I want to stack that up against you and I want you to include a company that you bought at the time was called Solium but it's a company that you've made into Shareworks, who is a younger investment base and whose base is larger? GORMAN: Well first I have a lot of respect for Robinhood. I mean what they do introducing a lot of young investors to the marketplaces. I know you've said this and I believe that that's a good thing and as long as they’re prudently investing they understand the markets go up but they also go down then, you know, we're, they've got ,they've got a real winner so a lot of respect for what those guys have done. But, you know, we've sort of done the same thing but we've done it within the Morgan Stanley platform and brands so maybe it doesn't get that kind of recognition solely as a technology company. I mean that's basically 300 programmers they gave us an opportunity to get into the workplace space between Solium and E*TRADE and our existing business, we're touching over 30 million households and they’re wealthy households, right. There's significant money and by the way they want to borrow and they want to park their cash there, they're taking out mortgages, so it's got multiple verticals so if we can, we can go after to help these people find financial stability and that's what I'm really excited about. It's the combination of the traditional advisor model, the E*TRADE direct model and the solely Morgan Stanley workplace model. We're getting people at work, you're getting them online and you're getting them through an advisor and that to me is the magic mousetrap. DAVID FABER: James, it’s David. You know, I’m looking at your stock price which is not doing much of anything right now and I'm wondering, is it the perhaps because people think when it comes to capital markets, this thing just can't keep going at this rate. You pointed it out, of course, whether it's fixed income or now equities, you know, the outperformance of expectations, the percentage gains, year over year or from ’19. I don't know if you've ever seen anything like this in your career but can it continue at this rate? GORMAN: Oh, sure, sure it can and listen the market, you know, I don't have a problem when I see the market if our stock is at $100 I don’t know I haven't, I can’t look at the screen right now because I'm looking at your camera but we’re at that or about that, you know, we were $50 a year ago, the stock was up 34% I think in 2020 during COVID. We’re up 40 plus percent this year already. I mean it's, it's, you know, the market cap is over 180 billion it's had a phenomenal run, but there's a whole lot more to go. I mean if you, if you take that thread that Jim was pulling on about the mobile expansion and you take the fact that we built these enormous businesses that have huge scale advantages and, and to operate on a global basis, as you know, David in M&A and capital markets across borders, that's not an easy lift. You don't just turn up one day and say that's the business I want to be in. You got to build that over decades. So, I think they're incredibly resilient, the share gains that we've done through the institutional side, you know, have worked out great and I think it's gonna keep going. I'm really positive on the story— FABER: You do I mean because— GORMAN: We brought a market environment so— FABER: Right but we watch it no I mean, we're here at the New York Stock Exchange. We see the listings happen for a long time it was Chinese companies then it was SPACs then it was now it's just straight IPOs. That's one part of capital markets activity but you really expect that you're always, I mean that you're going to maintain these kinds of growth rates when it comes to equities under a fixed income for the next year or two? GORMAN: You know, yeah, we're not going to compound at this level but look at some of the other things going on, I mean you've got global GDP growth in pretty much every major economy in the world is going through global GDP growth. We've got enormous fiscal stimulus. We've got record low interest rates, people want to transact, you've got the, you know, the move from commercial lending to capital markets across all of Europe is still in the very early days so, you know, I'm not uncomfortable in saying we've got we clearly have a growth platform out there, whether it will be at the level we're seeing right now in M&A, obviously not. That's our pipeline suggests that's with us for a while to come, but that's not going to be, you know, over the next five years. We're not going to maintain that kind of growth, but the resilience of the model, the scale advantages, we've got the efficiency ratio now under 70%. I mean all these things are real, then when you double the dividend which we did, you're giving investors, you know, a 2.8% yield at 100 bucks. I mean that's not for nothing, right, and you're buying back about 3% of stocks so investors are getting a return of 7% before we get any of that through. CARL QUINTANILLA: James, one of the headlines from the call was about crypto where you said it's not a huge part of the business demand from our clients. Is that because it's early days, do you expect that to change? GORMAN: You know, Carl, you know, I’ve said this before I think crypto, you know, it's not a fad. It's not going away and obviously the blockchain technology supporting it is a real innovation. We're not seeing among very wealthy clients they might put, you know, I talked to people maybe 1% of their portfolio in it. Nobody's putting 10% of their portfolio into it. So, it's an interesting thing I mean a lot of people want to participate, they don't know how crypto is all really going to play out. I see, you know, Bitcoin this morning I think it's trading. I don't know 55,000, 60,000. So, a lot of people made a lot of money on it but it's not, it's not a core part of their diversification strategy. It's an option that they're playing out and with very wealthy people. Now with some of the younger folks, it's it's different. They, they're using, they've got less money at risk and frankly they're at a stage in life they can take more risks so you're seeing more, more interest at that level. E*TRADE had much more interest than the traditional Morgan Stanley client base. CRAMER: That makes sense. James, you have drawn a line in the sand with people coming to work, people showing up, being able to judge someone as a first-year associate, second year, third, very traditional and I've always felt very right. Pushback? People think that you're wrong, people not wanting to go to Morgan Stanley versus other places, what is the culture right now on this issue? GORMAN: Yeah, I don't think there's been a decision I've made that I haven't had some pushback it's, I tell people you don't get just the good bits of being a leader, you get the good and bad bits and some of it is people don't like it when you make decisions. And by the way that counts for everything from what you put in programming on the show to, you know, what's going on in politics. So that's okay, I can deal with that and, you know, fundamentally what I said was and, you know, the quote I use which got a lot of attention was, “If you can go to a restaurant, you can go to the office.” What I didn't say Jim was and you've got to be in the office five days a week forever. Clearly, we've moved to a more flexible work environment but we'd like to see people in and around their colleagues at least several days a week. I mean, let's that's how we do our best work, that's where our best innovation happens from bringing people together and training and developing them. I mean it's okay for me working from home. I've, I'm at the tail end of my career. For the kids who are 25, they want to be in and around and learn from the seniors so again we'll be flexible and we are being flexible, but we still want to see you in the office some of the time job dependent, etc. We've had some folks as you would imagine on the trading floor they’ve been in five days a week from the get go and that's what their job demanded. Client facing people have to do what the clients want, so we'll be flexible, but we're certainly intentional. I think it's very important to share your learning and development skills with the young kids. FABER: Yeah, I think there's no doubt. I do sense frustration from some of your peers, James, though in terms of people not showing up on Fridays and yet knowing at this point as you say flexibility is part of the allure for other employers and seems to be something that you simply have to provide regardless of whether you want to. Do you agree? GORMAN: I don't know. I mean, David, you know, it's interesting some of the early companies that came out and said, you can absolutely do whatever you like in terms of working, they've retracted from that. I mean it's not every employee gets to choose exactly how they work in the same way they don't choose how they get paid or when they get promoted. Now there's got to be a balance in this so you're not going to please everybody on this topic. What I've said is between now and the end of the year, we're still in the category of what can we do from a health and safety. In New York City, for example, we require you to be vaccinated to come into the buildings. Guess what? 96% of our employees are vaccinated and they showed us their attestation cards. Other parts of the world, they're not even open. Now, you know, Australia, where I grew up, I mean they've barely opened the economy up yet they're still, you know, in lockdown phases in different parts of the country. By 2022, ‘23, then we'll really see what the right model is by business group and then by individual. CRAMER: Well, I've got to tell you James, the stock is down which is a rare opportunity because this was a great quarter. My charitable trust owns it. We talk about it a lot when it comes to the CNBC Investing Club and I just can't thank you enough for coming on and explaining why your bank is different and positive and I think much better than almost everybody else in the industry. James Gorman, CEO of Morgan Stanley. GORMAN: Thanks, thanks guys and by the way, the stock being down it's not all bad news. We are in the middle of a big buyback program so I’m okay— FABER: There you go. Alright. Updated on Oct 14, 2021, 12:20 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 14th, 2021

Futures Surge As Banks Report Stellar Earnings; PPI On Deck

Futures Surge As Banks Report Stellar Earnings; PPI On Deck US equity futures, already sharply higher overnight, jumped this morning as a risk-on mood inspired by stellar bank earnings, overshadowed concern that supply snarls. a China property crunch, a tapering Fed and stagflation will weigh on the global recovery. Nasdaq futures jumped 1%, just ahead of the S&P 500 which was up 0.9%. 10-year Treasury yields ticked lower to about 1.5%, and with the dollar lower as well, oil jumped. Bitcoin and the broader crypto space continued to rise. Shares in Morgan Stanley, Citi and Bank of America jumped as their deal-making units rode a record wave of M&A. On the other end, Boeing shares fell more than 1% after a Dow Jones report said the plane maker is dealing with a new defect on its 787 Dreamliner. Here are some of the biggest other U.S. movers today: Occidental (OXY US) rises 1.6% in U.S. premarket trading after it agreed to sell its interests in two Ghana offshore fields for $750m to Kosmos Energy and Ghana National Petroleum Plug Power (PLUG US) rises 3.3% premarket, extending gains from Wednesday, when it announced partnership with Airbus SE and Phillips 66 to find ways to harness hydrogen to power airplanes, vehicles and industry Esports Entertainment (GMBL US) shares rise 16% in U.S. premarket trading after the online gambling company reported its FY21 results and reaffirmed its FY22 guidance Perrigo  (PRGO US) gains 2.8% in premarket trading after Raymond James upgrades to outperform following acquisition of HRA Pharma and recent settlement of Irish tax dispute AT&T (T US) ticks higher in premarket trading after KeyBanc writes upgrades to sector weight from underweight, saying it seems harder to justify further downside from here Avis Budget (CAR US) may be active after getting its only negative rating among analysts as Morgan Stanley cuts to underweight with risk/reward seen pointing toward downside OrthoPediatrics (KIDS US) dipped 2% Wednesday postmarket after it said 3Q revenue was hurt by the surge in cases of Covid-19 delta variant and RSV within children’s hospitals combined with staff shortage Investors continue to evaluate the resilience of economic reopening to supply chain disruptions, a jump in energy prices and the prospect of reduced central bank support. In the earnings season so far, executives at S&P 500 companies mentioned the phrase “supply chain” about 3,000 times on investor calls as of Tuesday -- far higher than last year’s then-record figure. “Our constructive outlook for growth means that our asset allocation remains broadly pro-risk and we continue to be modestly overweight global equities,” according to Michael Grady, head of investment strategy and chief economist at Aviva Investors. “However, we have scaled back that position marginally because of growing pains which could impact sales and margins.” Europe's Stoxx 600 index reached its highest level in almost three weeks, boosted by gains in tech shares and miners. The Euro Stoxx 50 rose over 1% to best levels for the week. FTSE 100 rises 0.75%, underperforming at the margin. Miners and tech names are the strongest sectors with only healthcare stocks in small negative territory. Here are some of the biggest European movers today: THG shares advance as much as 10%, snapping a four-day losing streak, after a non-executive director bought stock while analysts at Goldman Sachs and Liberum defended their buy recommendations. Steico gains as much as 9.9%, the most since Jan., after the insulation manufacturer reported record quarterly revenue, which Warburg says “leaves no doubt” about underlying market momentum. Banco BPM climbs as much as 3.6% and is the day’s best performer on the FTSE MIB benchmark index; bank initiated at buy at Jefferies as broker says opportunity to internalize insurance business offers 9%-16% possible upside to 2023 consensus EPS and is not priced in by the market. Hays rises as much as 4.3% after the recruiter posted a jump in comparable net fees for the first quarter. Publicis jumps as much as 3.7%, the stock’s best day since July, with JPMorgan saying the advertising company’s results show a “strong” third quarter, though there are risks ahead. Kesko shares rise as much as 6.1%. The timing of this year’s third guidance upgrade was a surprise, Inderes says. Ubisoft shares fall as much as 5.5% after JPMorgan Cazenove (overweight) opened a negative catalyst watch, citing short-term downside risk to earnings ahead of results. Earlier in the session, Asian stocks advanced, boosted by a rebound in technology shares as traders focused on the ongoing earnings season and assessed economic-reopening prospects in the region. The MSCI Asia Pacific Index gained as much as 0.7%, as a sub-gauge of tech stocks rose, halting a three-day slide. Tokyo Electron contributed the most to the measure’s climb, while Taiwan Semiconductor Manufacturing Co. closed up 0.4% ahead of its earnings release. India’s tech stocks rose following better-than-expected earnings for three leading firms in the sector. Philippine stocks were among Asia’s best performers as Manila began easing virus restrictions, which will allow more businesses in the capital to reopen this weekend. Indonesia’s stock benchmark rallied for a third-straight day, as the government prepared to reopen Bali to tourists. READ: Commodities Boom, Tourism Hopes Fuel Southeast Asia Stock Rally Ilya Spivak, head of Greater Asia at DailyFX, said FOMC minutes released overnight provided Asian markets with little direction, which may offer some opportunity for recouping recent losses. The report showed officials broadly agreed last month they should start reducing pandemic-era stimulus in mid-November or mid-December. U.S. 10-year Treasury yields stayed below 1.6%, providing support for tech stocks.  “Markets seemed to conclude the near-term narrative is on pause until further evidence,” Spivak said. Shares in mainland China fell as the country reported factory-gate prices grew at the fastest pace in almost 26 years in September. Singapore’s stock benchmark pared initial losses as the country’s central bank unexpectedly tightened policy. Hong Kong’s equity market was closed for a holiday In rates, Treasuries were steady to a tad higher, underperforming Bunds which advanced, led by the long end.  Fixed income is mixed: gilts bull steepen with short dates richening ~2.5bps, offering only a muted reaction to dovish commentary from BOE’s Tenreyro. Bunds rise with 10y futures breaching 169. USTs are relatively quiet with 5s30s unable to crack 100bps to the upside. Peripheral spreads widen slightly. In FX, the Turkish lira was again the overnight standout as it weakened to a record low after President Recep Tayyip Erdogan fired three central bankers. The Bloomberg Dollar Spot Index fell and the greenback slipped against all of its Group-of-10 peers apart from the yen, with risk-sensitive and resource-based currencies leading gains; the euro rose to trade above $1.16 for the first time in a week.  The pound rose to more than a two-week high amid dollar weakness as traders wait for a raft of Bank of England policy makers to speak. Sweden’s krona temporarily came off an almost eight-month high against the euro after inflation fell short of estimates. The euro dropped to the lowest since November against the Swiss franc as banks targeted large option barriers and leveraged sell-stops under 1.0700, traders said; Currency traders are responding to stagflation risks by turning to the Swiss franc. The Aussie advanced to a five-week high versus the greenback even as a monthly jobs report showed employment fell in September; the jobless rate rose less than economists forecast. The kiwi was a among the top performers; RBNZ Deputy Governor Geoff Bascand said inflation pressures were becoming more persistent China’s yuan declined from a four-month high after the central bank signaled discomfort with recent gains by setting a weaker-than-expected reference rate. In commodities, crude futures extend Asia’s gains with WTI up ~$1 before stalling near $81.50. Brent regains a $84-handle. Spot gold drifts through Wednesday’s highs, adding $4 to print just shy of the $1,800/oz mark. Base metals are well bid with LME copper and aluminum gaining as much as 3%.  Looking at the day ahead, we’ve got central bank speakers including the Fed’s Bullard, Bostic, Barkin, Daly and Harker, the ECB’s Elderson and Knot, along with the BoE’s Deputy Governor Cunliffe, Tenreyro and Mann. Data releases from the US include the September PPI reading along with the weekly initial jobless claims. Lastly, earnings releases will include UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Market Snapshot S&P 500 futures up 0.6% to 4,382.50 STOXX Europe 600 up 0.9% to 464.38 MXAP up 0.7% to 196.12 MXAPJ up 0.6% to 642.66 Nikkei up 1.5% to 28,550.93 Topix up 0.7% to 1,986.97 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite little changed at 3,558.28 Sensex up 0.7% to 61,190.63 Australia S&P/ASX 200 up 0.5% to 7,311.73 Kospi up 1.5% to 2,988.64 Brent Futures up 1.0% to $83.98/bbl Gold spot up 0.2% to $1,796.13 U.S. Dollar Index down 0.25% to 93.84 German 10Y yield fell 1.5 bps to -0.143% Euro little changed at $1.1615 Brent Futures up 1.0% to $84.13/bbl Top Overnight News from Bloomberg A flattening Treasury yield curve signals increasing concern Federal Reserve efforts to keep inflation in check will derail the recovery in the world’s largest economy China’s factory-gate prices grew at the fastest pace in almost 26 years in September, potentially adding to global inflation pressure if local businesses start passing on higher costs to consumers. Turkish President Recep Tayyip Erdogan fired monetary policy makers wary of cutting interest rates further, driving the lira to record lows against the dollar with his midnight decree Singapore’s central bank unexpectedly tightened its monetary policy settings, strengthening the local dollar, as the city-state joins policymakers globally concerned about risks of persistent inflation Shortages of natural gas in Europe and Asia are boosting demand for oil, deepening what was already a sizable supply deficit in crude markets, the International Energy Agency said A tropical storm that’s lashing southern China mixed with Covid-related supply chain snarls is causing a ship backlog from Shenzhen to Singapore, intensifying fears retail shelves may look rather empty come Christmas A more detailed look at global markets courtesy of Newsquawk A constructive mood was seen across Asia-Pac stocks with the region building on the mild positive bias stateside where the Nasdaq outperformed as tech and growth stocks benefitted from the curve flattening, with global risk appetite unfazed by the firmer US CPI data and FOMC Minutes that suggested the start of tapering in either mid-November of mid-December. The ASX 200 (+0.5%) traded higher as tech stocks found inspiration from the outperformance of US counterparts and with the mining sector buoyed by gains in underlying commodity prices. The Nikkei 225 (+1.5%) was the biggest gainer amid currency-related tailwinds and with the latest securities flow data showing a substantial shift by foreign investors to net purchases of Japanese stocks during the prior week. The KOSPI (+1.5%) conformed to the brightening picture amid signs of a slowdown in weekly infections, while the Singapore’s Straits Times Index (+0.3%) lagged for most of the session following weaker than expected Q3 GDP data, and after the MAS surprisingly tightened its FX-based policy by slightly raising the slope of the SGD nominal effective exchange rate (NEER). The Shanghai Comp. (U/C) was initially kept afloat but with gains capped after slightly softer than expected loans and financing data from China and with participants digesting mixed inflation numbers in which CPI printed below estimates but PPI topped forecasts for a record increase in factory gate prices, while there was also an absence of Stock Connect flows with participants in Hong Kong away for holiday. Finally, 10yr JGBs were higher after the recent curve flattening stateside and rebound in T-notes with the US longer-end also helped by a solid 30yr auction, although gains for JGBs were capped amid the outperformance in Tokyo stocks and mostly weaker metrics at the 5yr JGB auction. Top Asian News Chinese Developer Shares Fall on Debt Crisis: Evergrande Update Japan’s Yamagiwa Says Abenomics Fell Short at Spreading Wealth China Seen Rolling Over Policy Loans to Keep Liquidity Abundant Malaysia’s 2020 Fertility Rate Falls to Lowest in Four Decades Bourses in Europe have modestly extended on the upside seen at the European cash open (Euro Stoxx 50 +1.1%; Stoxx 600 +0.9%) in a continuation of the firm sentiment experienced overnight. US equity futures have also conformed to the broader upbeat tone, with gains seen across the ES (+0.7%), NQ (+0.8%), RTY (+0.8%) and YM (+0.7%). The upside comes despite a lack of overly pertinent newsflow, with participants looking ahead to a plethora of central bank speakers. The major indices in Europe also see a broad-based performance, but the periphery narrowly outperforms, whilst the SMI (Unch) lags amid the sectorial underperformance seen in Healthcare. Overall, the sectors portray somewhat of a cyclical tilt. The Basic Resources sector is the clear winner and is closely followed by Tech and Financial Services. Individual moves are scarce as price action is largely dictated by the macro picture, but the tech sector is led higher by gains in chip names after the world's largest contract chipmaker TSMC (+3.1% pre-market) reported strong earnings and upgraded its revenue guidance. Top European News German 2021 Economic Growth Forecast Slashed on Supply Crunch U.K. Gas Shipper Stops Supplies in Another Blow to Power Firms Christmas Toy Shortages Loom as Cargo Clogs a Major U.K. Port Putin Is Back to Building Financial Fortress as Reserves Grow In FX, the Dollar and index by default have retreated further from Tuesday’s 2021 peak for the latter as US Treasury yields continue to soften and the curve realign in wake of yesterday’s broadly in line CPI data and FOMC minutes that set the schedule for tapering, but maintained a clear differential between scaling down the pace of asset purchases and the timing of rate normalisation. Hence, the Buck is losing bullish momentum with the DXY now eying bids and downside technical support under 94.000 having slipped beneath an early October low (93.804 from the 5th of the month vs 93.675 a day earlier) and the 21 DMA that comes in at 93.770 today between 94.090-93.754 parameters before the next IJC update, PPI data and a heavy slate of Fed speakers. NZD/AUD - No real surprise that the Kiwi has been given a new lease of life given that the RBNZ has already taken its first tightening step and put physical distance between the OCR and the US FFR, not to mention that the move sparked a major ‘sell fact’ after ‘buy rumour’ reaction. However, Nzd/Usd is back on the 0.7000 handle with additional impetus via favourable tailwinds down under as the Aud/Nzd cross is now nearer 1.0550 than 1.0600 even though the Aussie is also taking advantage of the Greenback’s fall from grace to reclaim 0.7400+ status. Note, Aud/Usd may be lagging somewhat on the back of a somewhat labour report overnight as the employment tally fell slightly short of expectations and participation dipped, but the jobless rate fell and full time jobs rose. Moreover, RBA Deputy Governor Debelle repeated that circumstances are different for Australia compared to countries where policy is tightening, adding that employment is positive overall, but there is not much improvement on the wage front. CAD/GBP/CHF - The next best majors in terms of reclaiming losses vs their US counterpart, with the Loonie also encouraged by a firm bounce in oil prices and other commodities in keeping with a general recovery in risk appetite. Usd/Cad is under 1.2400, while Cable is now over 1.3700 having clearly breached Fib resistance around 1.3663 and the Franc is probing 0.9200 for a big figure-plus turnaround from recent lows irrespective of mixed Swiss import and producer prices. EUR/JPY - Relative laggards, but the Euro has finally hurdled chart obstacles standing in the way of 1.1600 and gradually gathering impetus to pull away from decent option expiry interest at the round number and just above (1.5 bn and 1 bn 1.1610-20), and the Yen regrouping around the 113.50 axis regardless of dovish BoJ rhetoric. In short, board member Noguchi conceded that the Bank may have little choice but to extend pandemic relief support unless it becomes clear that the economy has returned to a pre-pandemic state, adding that more easing may be necessary if the jobs market does not improve from pent-up demand, though he doesn't see and immediate need to top up stimulus or big stagflation risk. In commodities, WTI and Brent front month futures are continuing the grind higher seen since the European close yesterday as the risk tone remains supportive and in the aftermath of an overall bullish IEA oil market report. The IEA upgraded its 2021 and 2022 oil demand forecasts by 170k and 210k BPD respectively, which contrasts the EIA STEO and the OPEC MOMR – with the former upping its 2021 but cutting 2022 forecast, whilst the OPEC MOMR saw the 2021 demand forecast cut and 2022 was maintained. The IEA report however noted that the ongoing energy crisis could boost oil demand by 500k BPD, and oil demand could exceed pre-pandemic levels in 2022. On this, China has asked Russia to double electricity supply between November-December. The morning saw commentary from various energy ministers, but perhaps the most telling from the Russian Deputy PM Novak who suggested Russia will produce 9.9mln BPD of oil in October (in-line with the quota), but that Russia has no problem in increasing oil output which can go to 11.3mln BPD (Russia’s capacity) and even more than that, but output will depend on market situation. Long story short, Russia can ramp up output but is currently caged by the OPEC+ pact. WTI Nov extended on gain about USD 81/bbl to a current high of USD 81.41/bbl (vs 80.41/bbl low) while its Brent counter topped USD 84.00/bbl to a USD 84.24/bbl high (vs 83.18/bbl low). As a reminder, the weekly DoEs will be released at 16:00BST/11:00EDT on account of the Columbus Day holiday. Gas prices have also moved higher in intraday, with the UK Nat Gas future +5.5% at the time of writing. Returning to the Russian Deputy PM Novak who noted that Nord Stream 2 will be ready for work in the next few days, still expects certification to occur and commercial supplies of gas via Nord Stream 2 could start following certification. Elsewhere, spot gold and silver have been drifting higher as the Buck wanes, with spot gold topping its 200 DMA (1,7995/oz) and in striking distance of its 100 DMA (1,799/oz) ahead of the USD 1,800/oz mark. Over to base metals, LME copper is again on a firmer footing, owing to the overall constructive tone across the market. Dalian iron ore meanwhile fell for a second straight day in a continuation of the downside seen as Beijing imposed tougher steel output controls for winter. World Steel Association also cut its global steel demand forecast to +4.5% in 2021 (prev. forecast +5.8%); +2.2% in 2022 (prev. forecast 2.7%). US Event Calendar 8:30am: Sept. PPI Final Demand MoM, est. 0.6%, prior 0.7%; YoY, est. 8.6%, prior 8.3% 8:30am: Sept. PPI Ex Food and Energy MoM, est. 0.5%, prior 0.6%; YoY, est. 7.1%, prior 6.7% 8:30am: Sept. PPI Ex Food, Energy, Trade MoM, est. 0.4%, prior 0.3%; YoY, est. 6.5%, prior 6.3% 8:30am: Oct. Initial Jobless Claims, est. 320,000, prior 326,000; Continuing Claims, est. 2.67m, prior 2.71m 9:45am: Oct. Langer Consumer Comfort, prior 53.4 Central Banks 8:35am: Fed’s Bullard Takes Part in Virtual Discussion 9:45am: Fed’s Bostic Takes Part in Panel on Inclusive Growth 12pm: New York Fed’s Logan Gives Speech on Policy Implementation 1pm: Fed’s Barkin Gives Speech 1pm: Fed’s Daly Speaks at Conference on Small Business Credit 6pm: Fed’s Harker Discusses the Economic Outlook DB's Jim Reid concludes the overnight wrap Inflation dominated the conversation yet again for markets yesterday, after another upside surprise from the US CPI data led to the increasing realisation that we’ll still be talking about the topic for some time yet. Equities were pretty subdued as they looked forward to the upcoming earnings season, but investor jitters were evident as the classic inflation hedge of gold (+1.87%) posted its strongest daily performance since March, whilst the US dollar (-0.46%) ended the session as the worst performer among the G10 currencies. Running through the details of that release, headline US consumer prices were up by +0.4% on a monthly basis in September (vs. +0.3% expected), marking the 5th time in the last 7 months that the figure has come in above the median estimate on Bloomberg, though core prices were in line with consensus at +0.2% month-over-month. There were a number of drivers behind the faster pace, but food inflation (+0.93%) saw its biggest monthly increase since April 2020. Whilst some pandemic-sensitive sectors registered soft readings, housing-related prices were much firmer. Rent of primary residence grew +0.45%, its fastest pace since May 2001 and owners’ equivalent rent increased +0.43%, its strongest since June 2006. These housing gauges are something that Fed officials have signposted as having the potential to provide more durable upward pressure on inflation. The CPI release only added to speculation that the Fed would be forced to hike rates earlier than previously anticipated, and investors are now pricing in almost 4 hikes by the end of 2023, which is over a full hike more than they were pricing in just a month earlier. In response, the Treasury yield curve continued the previous day’s flattening, with the prospect of tighter monetary policy seeing the 2yr yield up +2.0bps to a post-pandemic high of 0.358%, whilst the 10yr decreased -4.0bps to 1.537%. That move lower in the 10yr yield was entirely down to lower real rates, however, which were down -7.4bps, suggesting investors were increasingly concerned about long-term growth prospects, whereas the 10yr inflation breakeven was up +3.3bps to 2.525%, its highest level since May. Meanwhile in Europe, 10yr sovereign bond yields took a turn lower alongside Treasuries, with those on bunds (-4.2bps), OATs (-4.0bps) and BTPs (-2.3bps) all falling. Recent inflation dynamics and issues on the supply-side are something that politicians have become increasingly attuned to, and President Biden gave remarks last night where he outlined efforts to address the supply-chain bottlenecks. This followed headlines earlier in the session that major ports in southern California would move to a 24/7 schedule to unclog delivery backlogs, and Mr. Biden also used the opportunity to push for the passage of the infrastructure plan. That comes as it’s also been reported by Reuters that the White House has been speaking with US oil and gas producers to see how prices can be brought lower. We should hear from Mr. Biden again today, who’s due to give an update on the Covid-19 response. On the topic of institutions that care about inflation, the September FOMC minutes suggested staff still remained optimistic that inflationary pressures would prove transitory, although Committee members themselves were predictably more split on the matter. Several participants pointed out that pandemic-sensitive prices were driving most of the gains, while some expressed concerns that high rates of inflation would feed into longer-term inflation expectations. Otherwise, the minutes all but confirmed DB’s US economists’ call for a November taper announcement, with monthly reductions in the pace of asset purchases of $10 billion for Treasuries and $5 billion for MBS. Markets took the news in their stride immediately following the release, reflecting how the build-up to this move has been gradually telegraphed through the year. Turning to equities, the S&P 500 managed to end its 3-day losing streak, gaining +0.30% by the close. Megacap technology stocks led the way, with the FANG+ index up +1.13% as the NASDAQ added +0.73%. On the other hand, cyclicals such as financials (-0.64%) lagged behind the broader index following flatter yield curve, and JPMorgan Chase (-2.64%) sold off as the company’s Q3 earnings release showed muted loan growth. Separately, Delta Air Lines (-5.76%) also sold off along with the broader S&P 500 airlines index (-3.51%), as they warned that rising fuel costs would threaten earnings over the current quarter. European indices posted a more solid performance than the US, with the STOXX 600 up +0.71%, though the sectoral balance was similar with tech stocks outperforming whilst the STOXX Banks index (-2.05%) fell back from its 2-year high the previous session. Overnight in Asia equities have put in a mixed performance, with the KOSPI (+1.17%) and the Nikkei (+1.01%) moving higher whilst the Shanghai Composite (-0.25%) and the CSI (-0.62%) have lost ground. Those moves follow the release of Chinese inflation data for September, which showed producer price inflation hit its highest in nearly 26 years, at +10.7% (vs. +10.5% expected), driven mostly by higher coal prices and energy-sensitive categories. On the other hand, the CPI measure for September came in slightly below consensus at +0.7% (vs. +0.8% expected), indicating that higher factory gate prices have not yet translated into consumer prices. Meanwhile, equity markets in the US are pointing to a positive start later on with S&P 500 futures up +0.32%. Of course, one of the drivers behind the renewal of inflation jitters has been the recent surge in commodity prices across the board, and we’ve seen further gains yesterday and this morning that will only add to the concerns about inflation readings yet to come. Oil prices have advanced yet again, with Brent Crude up +0.69% this morning to be on track to close at a 3-year high as it stands. That comes in spite of OPEC’s monthly oil market report revising down their forecast for world oil demand this year to 5.8mb/d, having been at 5.96mb/d last month. Elsewhere, European natural gas prices were up +9.24% as they continued to pare back some of the declines from last week, and a further two energy suppliers in the UK collapsed, Pure Planet and Colorado Energy, who supply quarter of a million customers between them. Otherwise, copper (+4.4x%) hit a 2-month high yesterday, and it up a further +1.01% this morning, Turning to Brexit, yesterday saw the European Commission put forward a set of adjustments to the Northern Ireland Protocol, which is a part of the Brexit deal that’s caused a significant dispute between the UK and the EU. The proposals from Commission Vice President Šefčovič would see an 80% reduction in checks on animal and plant-based products, as well as a 50% reduction in paperwork by reducing the documentation needed for goods moving between Great Britain and Northern Ireland. It follows a speech by the UK’s David Frost on Tuesday, in which he said that Article 16 of the Protocol, which allows either side to take unilateral safeguard measures, could be used “if necessary”. Mr. Frost is due to meet with Šefčovič in Brussels tomorrow. Running through yesterday’s other data, UK GDP grew by +0.4% in August (vs. +0.5% expected), and the July number was revised down to show a -0.1% contraction (vs. +0.1% growth previously). The release means that GDP in August was still -0.8% beneath its pre-pandemic level back in February 2020. To the day ahead now, and on the calendar we’ve got central bank speakers including the Fed’s Bullard, Bostic, Barkin, Daly and Harker, the ECB’s Elderson and Knot, along with the BoE’s Deputy Governor Cunliffe, Tenreyro and Mann. Data releases from the US include the September PPI reading along with the weekly initial jobless claims. Lastly, earnings releases will include UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Tyler Durden Thu, 10/14/2021 - 08:29.....»»

Category: blogSource: zerohedgeOct 14th, 2021

Futures Rebound From Overnight Slide As Oil Keeps Rising

Futures Rebound From Overnight Slide As Oil Keeps Rising US equity-index futures erased earlier declines, rebounding from a loss of as much as 0.8% helped by the start of the European session and easing mounting concerns about stagflation from rising energy prices, signs of widening regulatory scrutiny by China, and the upcoming third-quarter earnings which is expected to post a sharply slower pace of growth and beats than recent record quarters. At 730am ET, Dow e-minis were up 5 points, or 0.1%, S&P 500 e-minis were up 7.25 points, or 0.16%, and Nasdaq 100 e-minis were up 46.75points, or 0.31%. Oiil rose 0.3% to $83.86/bbl while the dollar dipped and 10Y yield drifted back under 1.60%. Gains in tech stocks kept Nasdaq futures afloat on Tuesday, while energy names rose as Brent resumed gains, trading around $84/bbl on expectations that a power crisis from Asia to Europe will lift demand and tighten global balances. Higher oil prices and supply chain disruptions have set off alarm bells for businesses and consumers ahead of the third-quarter reporting season that kicks off on Wednesday with JPMorgan results.  "We believe that market participants could stay concerned over high energy prices translating into further acceleration in inflation, and thereby faster tightening by major central banks," said Charalambos Pissouros, head of research at JFD Group. In the pre-market, Tesla rose 0.7% after data showed the electric vehicle maker sold 56,006 China-made vehicles in September, the highest since it started production in Shanghai about two years ago. Oil firms including Exxon Mobil and Chevron Corp gained 0.1% and 0.3%, respectively, as Brent crude hit a near-three year high on energy crunch fears. Here are the notable movers: China’s Internet sector is one of the “most undervalued” in Morningstar’s coverage, says Ivan Su, an analyst, adding that Tencent (TCEHY US) and Netease (NTES US) are top picks MGM Resorts (MGM US) rises 2% in U.S. premarket trading after stock was upgraded to outperform from neutral and price target more than doubled to a Street-high $68 at Credit Suisse Quanterix (QTRX US) jumped 20% in Monday postmarket trading after the digital-health company announced that its Simoa phospho-Tau 181 blood test has been granted breakthrough device designation by the U.S. FDA as an aid in diagnostic evaluation of Alzheimer’s disease Relay Therapeutics (RLAY US) fell 7% in Monday postmarket trading after launching a $350 million share sale via Goldman Sachs, JPMorgan, Cowen, Guggenheim Securities Westwater Resources (WWR US) rose as much as 26% in Monday postmarket trading after its board of directors approved construction of the first phase of a production facility in Alabama for battery ready graphite products TechnipFMC (FTI US) in focus after co. was awarded a substantial long-term charter and services contract by Petrobras for the pipelay support vessel Coral do Atlântico Fastenal, which was one of the first companies to report Q3 earnings, saw its shares fall 2.4% in premarket trading on Tuesday, after the industrial distributor said the Covid-related boost was fading. The company said growth in the quarter was slightly limited by either slower expansion or contraction in sales of certain products related to the pandemic, when compared to the previous year quarter. While there was an uptick in sales of certain Covid-related supplies, the unit price of many products was down significantly, the company said in a statement.  Third-quarter sales and profit were in line with the average analyst estimate "While investors want to believe the narrative that stock markets can continue to move higher, this belief is bumping up against the reality of how the continued rise in energy prices, as well as supply-chain pressures, are likely to impact company profit margins,” said Michael Hewson, chief market analyst at CMC Markets in London. In Europe, losses led by basic resources companies and carmakers outweighed gains for utilities and tech stocks, pulling the Stoxx Europe 600 Index down 0.1%. Metals miner Rio Tinto was among the worst performers, dropping 2.7%. European equities climbed off the lows having lost over 1% in early trade. Euro Stoxx 600 was down -0.35% after dropping as much as 1.3% initially, led by basic resources companies and carmakers outweighed gains for utilities and tech stocks. The DAX is off 0.3%, FTSE 100 underperforms in a quiet morning for news flow. Miners, banks and autos are the weakest sectors after China reported a sharp drop in auto sales; utilities, tech and real estate post modest gains. European tech stocks slide, with the Stoxx Tech Index dropping as much as 1.4% in third straight decline, as another broker downgrades TeamViewer, while Prosus and chip stocks come under pressure. TeamViewer shares fall as much as 5.1% after Deutsche Bank downgrades the remote software maker to hold from buy following recent guidance cut. Asian stocks fell, halting a three-day rally as uncertainty over earnings deepened amid elevated inflation, higher bond yields and the risk of a widening Chinese crackdown on private industry. The MSCI Asia Pacific Index slid as much as 1.2%, led by technology and communication shares. Alibaba plunged 3.9% following a rally over the past week, while Samsung Electronics tumbled to a 10-month low after at least five brokers slashed their price targets, as China’s power crisis is seen worsening supply-chain disruptions. “Given the run-up in tech so far, it’s not difficult for investors to harvest profits first before figuring out if techs can maintain their growth when yields rise,” said Justin Tang, head of Asian research at United First Partners. Shares in Hong Kong and the mainland were among the worst performers after Chinese authorities kicked off an inspection of the nation’s financial regulators and biggest state-run banks in an effort to root out corruption. The MSCI Asia Pacific Index is down 12% from a February peak, with a global energy crunch lifting input prices and the debt crisis at China Evergrande Group weighing on the financial sector. Investors are waiting to see how this impacts earnings, according to Jun Rong Yeap, a market strategist at IG Asia.  “Increasing concerns on inflation potentially being more persistent have started to show up,” he said. “This comes along with the global risk-off mood overnight, as investors look for greater clarity from the earnings season on how margins are holding up, along with the corporate economic outlook.” Japan’s Topix index also fell, halting a two-day rally, amid concerns about a global energy crunch and the possibility of a widening Chinese crackdown on private industry. The Topix fell 0.7% to 1,982.68 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.9% to 28,230.61. SoftBank Group Corp. contributed the most to the Topix’s drop, decreasing 2.4%. Out of 2,181 shares in the index, 373 rose and 1,743 fell, while 65 were unchanged. “Market conditions were improving yesterday, but pushing for higher prices got tough when the Nikkei 225 approached its key moving averages,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.  The Nikkei’s 75-day moving average is about 28,500 and the 200-day moving average is about 28,700, so some investors were taking profits, he said. Japan’s spot power price increased to the highest level in nine months, as the global energy crisis intensifies competition for generation fuel before the winter heating season. In FX, the Bloomberg Dollar Spot Index reversed an overnight gain as the greenback slipped against all of its Group-of-10 peers. Risk sensitive Scandinavian currencies led gains, followed by the New Zealand and Australian dollars. The pound was little changed while speculators ramped up wagers on sterling’s decline at the fastest rate in more than two years, Commodity Futures Trading Commission data show, further breaking the link between anticipated rate increases and currency gains. The yen steadied after three days of declines. The Turkish lira extended its slide to a record low after President Recep Tayyip Erdogan hinted at a possible military offensive into neighboring Syria. Fixed-income was quiet by recent standards: Treasury futures were off lows of the day, improving as S&P 500 futures pare losses during European morning, and as cash trading resumed after Monday’s holiday. The 10Y yield dipped from 1.61% to 1.59% after hitting 1.65% based on futures pricing on Monday, but the big mover was on the front end, where 2-year yields climbed as much as 4bps to 0.35% the highest level since March 2020 reflecting increased expectations for Fed rate hikes, as Treasury cash trading resumed globally. Two coupon auctions during U.S. session -- of 3-and 10-year notes -- may weigh on Treasuries however.  Treasury and gilt curves bull-flatten with gilts outperforming at the back end. Bunds have a bull-steepening bias but ranges are narrow. Peripheral spreads tighten a touch with long-end Italy outperforming peers. In commodities, Crude futures drift higher in muted trade. WTI is up 0.25% near $80.70, Brent trades just shy of a $84-handle. Spot gold remains range-bound near $1,760/oz. Base metals are mixed with LME lead and nickel holding small gains, copper and aluminum in the red. Looking at the day ahead, central bank speakers include the Fed’s Vice Chair Clarida,Bostic and Barkin, as well as theECB’s President Lagarde, Makhlouf, Knot, Villeroy, Lane and Elderson. Data highlights from the US include the JOLTS job openings for August, and the NFIB’s small business optimism index for September which came in at 99.1, below last month's 100.1. The IMF will be releasing their latest World Economic Outlook. Market Snapshot S&P 500 futures little changed at 4,351.50 STOXX Europe 600 down 0.6% to 454.90 MXAP down 0.9% to 194.41 MXAPJ down 1.0% to 635.42 Nikkei down 0.9% to 28,230.61 Topix down 0.7% to 1,982.68 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite down 1.2% to 3,546.94 Sensex little changed at 60,149.85 Australia S&P/ASX 200 down 0.3% to 7,280.73 Kospi down 1.4% to 2,916.38 German 10Y yield fell 6 bps to -0.113% Euro up 0.1% to $1.1565 Brent Futures up 0.4% to $84.01/bbl Gold spot up 0.2% to $1,757.84 U.S. Dollar Index little changed at 94.29 Top Overnight Headlines from Bloomberg The EU drew record demand for its debut green bond, in the sector’s biggest-ever offering. The bloc registered more than 135 billion euros ($156 billion) in orders Tuesday for a sale of 12 billion euros of securities maturing in 2037 Investors are dumping negative-yielding debt at the fastest pace since February as concerns about inflation and reduced central bank stimulus propel global interest rates higher French President Emmanuel Macron unveiled a 30-billion-euro ($35 billion) plan to create the high-tech champions of the future and reverse years of industrial decline in the euro area’s second-largest economy British companies pushed the number of workers on payrolls above pre-coronavirus levels last month, an indication of strength in the labor market that may embolden the Bank of England to raise interest rates. As the Biden administration and governments around the world celebrate another advance toward an historic global tax accord, an obscure legal question in the U.S. threatens to tear it apart Chinese property developers are suffering credit rating downgrades at the fastest pace in five years, as a recent slump in new-home sales adds to concerns about the sector’s debt woes German investor confidence declined for a fifth month in October, adding to evidence that global supply bottlenecks and a surge in inflation are weighing on the recovery in Europe’s largest economy Social Democrat Olaf Scholz’s bid to succeed Angela Merkel as German chancellor is running into its first test as tensions emerge in talks to bridge policy differences with the Greens and pro-business Free Democrats A more detailed breakdown of global markets from Newsquawk Asian equity markets traded mostly lower following the indecisive mood stateside where the major indices gave back initial gains to finish negative amid lingering inflation and global slowdown concerns, with sentiment overnight also hampered by tighter Beijing scrutiny and with US equity futures extending on losses in which the Emini S&P retreated beneath its 100DMA. ASX 200 (-0.3%) was subdued as weakness in energy, tech and financials led the declines in Australia and with participants also digesting mixed NAB business survey data. Nikkei 225 (-0.9%) was on the backfoot after the Japan Center for Economic Research noted that GDP contracted 0.9% M/M in August and with retailers pressured after soft September sales updates from Lawson and Seven & I Holdings, while the KOSPI (-1.4%) was the laggard on return from holiday with chipmakers Samsung Electronics and SK Hynix subdued as they face new international taxation rules following the recent global minimum tax deal. Hang Seng (-1.4%) and Shanghai Comp. (-1.3%) adhered to the downbeat picture following a continued liquidity drain by the PBoC and with Beijing scrutinising Chinese financial institutions’ ties with private firms, while default concerns lingered after Evergrande missed yesterday’s payments and with Modern Land China seeking a debt extension on a USD 250mln bond to avoid any potential default. Finally, 10yr JGBs eked minimal gains amid the weakness in stocks but with demand for bonds limited after the recent subdued trade in T-note futures owing to yesterday’s cash bond market closure and following softer results across all metrics in the 30yr JGB auction. Top Asian News Alibaba Stock Revival Halted on Concerns of Rising Bond Yields Iron Ore Rally Pauses as China Steel Curbs Cloud Demand Outlook China’s Star Board Sees Rough Start to Fourth Quarter: ECM Watch Citi Lists Top Global Stock Picks for ‘Disruptive Innovations’ European bourses kicked the day off choppy but have since drifted higher (Euro Stoxx 50 -0.4%; Stoxx 600 Unch) as the region remains on standby for the next catalyst, and as US earnings season officially kicks off tomorrow – not to mention the US and Chinese inflation metrics and FOMC minutes. US equity futures have also nursed earlier losses and reside in relatively flat territory at the time of writing, with broad-based performance seen in the ES (Unch), NQ (+0.2%), RTY (-0.2%), YM (Unch). From a technical standpoint, some of the Dec contracts are now hovering around their respective 100 DMAs at 4,346 for the ES, 14,744 for the NQ, whilst the RTY sees its 200 DMA at 2,215, and the YM topped its 21 DMA at 34,321. Back to Europe, cash markets see broad-based downside with the SMI (-0.1%) slightly more cushioned amid gains in heavyweight Nestle (+0.6%). Sectors kicked off the day with a defensive bias but have since seen a slight reconfiguration, with Real Estate now the top performer alongside Food & Beverages, Tech and Healthcare. On the flip side, Basic Resources holds its position as the laggard following yesterday's marked outperformance and despite base metals (ex-iron) holding onto yesterday's gains. Autos also reside at the bottom of the bunch despite constructive commentary from China's Auto Industry Body CAAM, who suggested the chip supply shortage eased in China in September and expected Q4 to improve, whilst sources suggested Toyota aims to make up some lost production as supplies rebound. In terms of individual movers, GSK (+2.3%) shares spiked higher amid reports that its USD 54bln consumer unit has reportedly attracted buyout interest, according to sources, in turn lifting the FTSE 100 Dec future by 14 points in the immediacy. Elsewhere, easyJet (-1.9%) gave up its earlier gains after refraining on guidance, and despite an overall constructive trading update whereby the Co. sees positive momentum carried into FY22, with H1 bookings double those in the same period last year. Co. expects to fly up to 70% of FY19 planned capacity in FY22. In terms of commentary, the session saw the Germany ZEW release, which saw sentiment among experts deteriorate, citing the persisting supply bottlenecks for raw materials and intermediate products. The release also noted that 49.1% of expects still expect inflation to rise further in the next six months. Heading into earnings season, experts also expect profits to go down, particularly in export-tilted sectors such a car making, chemicals and pharmaceuticals. State-side, sources suggested that EU antitrust regulators are reportedly likely to open an investigation into Nvidia's (+0.6% Pre-Mkt) USD 54bln bid from Arm as concessions were not deemed sufficient. Top European News Soybeans Near 10-Month Low as Supply Outlook Expected to Improve EasyJet Boosts Capacity as Travel Rebound Gathers Pace Currency Traders Are Betting the BOE Is About to Make a Mistake Citi Lists Top Global Stock Picks for ‘Disruptive Innovations’ In FX, the Buck has reclaimed a bit more lost ground in consolidatory trade rather than any real sign of a change in fundamentals following Monday’s semi US market holiday for Columbus Day and ahead of another fairly light data slate comprising NFIB business optimism and JOLTS. However, supply awaits the return of cash Treasuries in the form of Usd 58 bn 3 year and Usd 38 bn 10 year notes and Fed commentary picks up pace on the eve of FOMC minutes with no less than five officials scheduled to speak. Meanwhile, broad risk sentiment has taken a knock in wake of a late swoon on Wall Street to give the Greenback and underlying bid and nudge the index up to fresh post-NFP highs within a 94.226-433 band. NZD/AUD - A slight change in fortunes down under as the Kiwi derives some comfort from the fact that the Aud/Nzd has not breached 1.0600 to the upside and Nzd/Usd maintaining 0.6950+ status irrespective of mixed NZ electric card sales data, while the Aussie takes on board contrasting NAB business conditions and confidence readings in advance of consumer sentiment, with Aud/Usd rotating either side of 0.7350. EUR/CAD/GBP/CHF/JPY - All rangy and marginally mixed against their US counterpart, as the Euro straddles 1.1560, the Loonie meanders between 1.2499-62 with less fuel from flat-lining crude and the Pound tries to keep sight of 1.3600 amidst corrective moves in Eur/Gbp following a rebound through 0.8500 after somewhat inconclusive UK labour and earnings data, but hardly a wince from the single currency even though Germany’s ZEW survey missed consensus and the institute delivered a downbeat assessment of the outlook for the coming 6 months. Elsewhere, the Franc continues to hold within rough 0.9250-90 extremes and the Yen is striving to nurse outsize losses between 113.00-50 parameters, with some attention to 1 bn option expiries from 113.20-25 for the NY cut. Note also, decent expiry interest in Eur/Usd and Usd/Cad today, but not as close to current spot levels (at the 1.1615 strike in 1.4 bn and between 1.2490-1.2505 in 1.1 bn respectively). SCANDI/EM - The Nok and Sek have bounced from lows vs the Eur, and the latter perhaps taking heed of a decline in Sweden’s registered jobless rate, but the Cnh and Cny remain off recent highs against the backdrop of more Chinese regulatory rigour, this time targeting state banks and financial institutions with connections to big private sector entities and the Try has thrown in the towel in terms of its fight to fend off approaches towards 9.0000 vs the Usd. The final straw for the Lira appeared to be geopolitical, as Turkish President Erdogan said they will take the necessary steps in Syria and are determined to eliminate threats, adding that Turkey has lost its patience on the attacks coming from Syrian Kurdish YPG controlled areas. Furthermore, he stated there is a Tal Rifaat pocket controlled by YPG below Afrin and that an operation could target that area which is under Russian protection. However, Usd/Try is off a new ATH circa 9.0370 as oil comes off the boil and ip came in above forecast. In commodities, WTI and Brent front-month futures are choppy and trade on either side of the flat mark in what is seemingly some consolidation and amid a distinct lack of catalysts to firmly dictate price action. The complex saw downticks heading into the European cash open in tandem with the overall market sentiment at the time, albeit the crude complex has since recovered off worst levels. News flow for the complex has also remained minimal as eyes now turn to any potential intervention by major economies in a bid to stem the pass-through of energy prices to consumers heading into winter. On that note, UK nat gas futures have been stable on the day but still north of GBP 2/Thm. Looking ahead, the weekly Private Inventory data has been pushed back to tomorrow on account of yesterday's Columbus Day holiday. Tomorrow will also see the release of the OPEC MOMR and EIA STEO. Focus on the former will be on any updates to its demand forecast, whilst commentary surrounding US shale could be interesting as it'll give an insight into OPEC's thinking on the threat of Shale under President Biden's "build back better" plan. Brent Dec trades on either side of USD 84/bbl (vs prev. 83.13-84.14 range) whilst WTI trades just under USD 81/bbl after earlier testing USD 80/bbl to the downside (USD 80-80.91/bbl range). Over to metals, spot gold and silver hold onto modest gains with not much to in the way of interesting price action, with the former within its overnight range above USD 1,750/oz and the latter still north of USD 22.50/oz after failing to breach the level to the downside in European hours thus far. In terms of base metals, LME copper is holding onto most of yesterday's gains, but the USD 9,500/t mark seems to be formidable resistance. Finally, Dalian and Singapore iron ore futures retreated after a four-day rally, with traders citing China's steel production regaining focus. US Event Calendar 6am: Sept. SMALL BUSINESS OPTIMISM 99.1,  est. 99.5, prior 100.1 10am: Aug. JOLTs Job Openings, est. 11m, prior 10.9m 11:15am: Fed’s Clarida Speaks at IIF Annual Meeting 12:30pm: Fed’s Bostic Speaks on Inflation at Peterson Institute 6pm: Fed’s Barkin Interviewed for an NPR Podcast DB's Jim Reid concludes the overnight wrap It’s my wife’s birthday today and the big treat is James Bond tomorrow night. However, I was really struggling to work out what to buy her. After 11.5 years together, I ran out of original ideas at about year three and have then scrambled round every year in an attempt to be innovative. Previous innovations have seen mixed success with the best example being the nearly-to-scale oil portrait I got commissioned of both of us from our wedding day. She had no idea and hated it at the closed eyes big reveal. It now hangs proudly in our entrance hall though. Today I’ve bought her a lower key gamble. Some of you might know that there is a US website called Cameo that you can pay famous people to record a video message for someone for a hefty fee. Well, all her childhood heroes on it were seemingly too expensive or not there. Then I saw that the most famous gymnast of all time, Nadia Comăneci, was available for a reasonable price. My wife idolised her as a kid (I think). So after this goes to press, I’m going to wake my wife up with a personalised video message from Nadia wishing her a happy birthday, saying she’s my perfect ten, and praising her for encouraging our three children to do gymnastics and telling her to keep strong while I try to get them to play golf instead. I’m not sure if this is a totally naff gift or inspired. When I purchased it I thought the latter but now I’m worried it’s the former! My guess is she says it’s naff, appreciates the gesture, but calls me out for the lack of chocolates. Maybe in this day and age a barrel of oil or a tank of petrol would have been the most valuable birthday present. With investor anticipation continuing to build ahead of tomorrow’s CPI release from the US, yesterday saw yet another round of commodity price rises that’s making it increasingly difficult for central banks to argue that inflation is in fact proving transitory. You don’t have to be too old to remember that back in the summer, those making the transitory argument cited goods like lumber as an example of how prices would begin to fall back again as the economy reopened. But not only have commodity aggregates continued to hit fresh highs since then, but lumber (+5.49%) itself followed up last week’s gains to hit its highest level in 3 months. Looking at those moves yesterday, it was a pretty broad-based advance across the commodity sphere, with big rises among energy and metals prices in particular. Oil saw fresh advances, with WTI (+1.47%) closing above $80/bbl for the first time since 2014, whilst Brent Crude (+1.53%) closed above $83/bbl for the first time since 2018. Meanwhile, Chinese coal futures (+8.00%) hit a record after the flooding in Shanxi province that we mentioned in yesterday’s edition, which has closed 60 of the 682 mines there, and this morning they’re already up another +6.41%. So far this year, the region has produced 30% of China’s coal supply, which gives you an idea as to its importance. And when it came to metals, aluminium prices (+3.30%) on the London Metal Exchange rose to their highest level since the global financial crisis, whilst Iron Ore futures in Singapore jumped +7.01% on Monday, and copper was also up +2.13%. The one respite on the inflation front was a further decline in natural gas prices, however, with the benchmark European future down -2.73%; thus bringing its declines to over -47% since the intraday high that was hit only last Wednesday. With commodity prices seeing another spike and inflation concerns resurfacing, this proved bad news for sovereign bonds as investors moved to price in a more hawkish central bank reaction. Yields in Europe rose across the continent, with those on 10yr bunds up +3.0bps to 0.12%, their highest level since May. The rise was driven by both higher inflation breakevens and real rates, and leaves bund yields just shy of their recent post-pandemic closing peak of -0.10% from mid-May. If they manage to surpass that point, that’ll leave them closer to positive territory than at any point since Q2 2019 when they last turned negative again. It was a similar story elsewhere, with 10yr yields on OATs (+2.6bps), BTPs (+3.9bps) and gilts (+3.1bps) likewise reaching their highest level in months. The sell-off occurred as money markets moved to price in further rate hikes from central banks, with investors now expecting a full 25 basis point hike from the Fed by the end of Q3 2022. It seems like another era, but at the start of this year before the Georgia Senate race, investors weren’t even pricing in a full hike by the end of 2023, whereas they’re now pricing in almost 4. So we’ve come a long way over 2021, though pre-Georgia the consensus CPI forecast on Bloomberg was just 2.0%, whereas it now stands at 4.3%, so it does fit with the story of much stronger-than-expected inflation inducing a hawkish response. Yesterday’s repricing came alongside a pretty minimal -0.15% move in the Euro versus the dollar, but that was because Europe was also seeing a similar rates repricing. Meanwhile, the UK saw its own ramping up of rate hike expectations, with investors pricing in at least an initial 15bps hike to 0.25% happening by the December meeting in just two months’ time. Overnight in Asia, stocks are trading in the red with the KOSPI (-1.46%), Shanghai Composite (-1.21%), Hang Seng (-1.20%), the Nikkei (-0.93%) and CSI (-0.82%) all trading lower on inflation concerns due to high energy costs and aggravated by a Wall Street Journal story that Chinese President Xi Jinping is increasing scrutiny of state-run banks and big financial institutions with inspections. Furthermore, there were signs of a worsening in the Evergrande debt situation, with the firm missing coupon payments on a 9.5% note due in 2022 and a 10% bond due in 2023. And there were fresh indications of a worsening situation more broadly, with Sinic Holdings Group Co. saying it doesn’t expect to pay the principal or interest on a $250m bond due on October 18. Separately in Japan, Prime Minister Fumio Kishida said on Monday that he will raise pay for public workers and boost tax breaks to firms that boost wages to try and improve the country’s wealth distribution. Back to yesterday, and the commodity rally similarly weighed on thin-volume equity markets, though it took some time as the S&P 500 had initially climbed around +0.5% before paring back those gains to close down -0.69%. Before the late US sell-off, European indices were subdued, but the STOXX 600 still rose +0.05%, thanks to an outperformance from the energy sector (+1.49%), and the STOXX Banks Index (+0.13%) hit a fresh two-year high as the sector was supported by a further rise in yields. On the central bank theme, we heard from the ECB’s chief economist, Philip Lane, at a conference yesterday, where he said that “a one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level does not imply a trend shift in the path of underlying inflation.” So clearly making a distinction between a more persistent pattern of wage inflation, which comes as the ECB’s recent forward guidance commits them to not hiking rates “until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon”, as well as having confidence that “realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term”. Turning to the political scene, Brexit is likely to be in the headlines again today as the UK’s Brexit negotiator David Frost gives a speech in Lisbon where he’s expected to warn that the EU’s proposals on the Northern Ireland Protocol are insufficient. That comes ahead of a new set of proposals that are set to come from the EU tomorrow, with the two sides disagreeing on the extent of border controls required on trade from Northern Ireland with the rest of the UK. Those controls were put in place as part of the Brexit deal to prevent a hard border being put up between Northern Ireland and the Republic of Ireland, whilst also preserving the integrity of the EU’s single market. But the UK’s demands for adjustments have been met with opposition by the EU, and speculation has risen that the UK could trigger Article 16, which allows either side to take unilateral safeguard measures, if the protocol’s application “leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”. On the data front, there wasn’t much data to speak of with the US holiday, but Italy’s industrial production contracted by -0.2% in August, in line with expectations. To the day ahead now, andcentral bank speakers include the Fed’s Vice Chair Clarida,Bostic and Barkin, as well as theECB’s President Lagarde, Makhlouf, Knot, Villeroy, Lane and Elderson. Data highlights from the US include the JOLTS job openings for August, and the NFIB’s small business optimism index for September. In Europe, there’s also UK unemployment for August and the German ZEW Survey for October. Lastly, the IMF will be releasing their latest World Economic Outlook.     Tyler Durden Tue, 10/12/2021 - 07:56.....»»

Category: personnelSource: nytOct 12th, 2021

In the Future All Investors Will Practice Market Timing

I believe that in the future all investors will practice market timing. Most would be afraid to do that today. First of all, the Buy-and-Holders are so critical of market timing that they have turned the word “time” into a four-letter word. On top of that, most investors would not have the first idea of […] I believe that in the future all investors will practice market timing. Most would be afraid to do that today. First of all, the Buy-and-Holders are so critical of market timing that they have turned the word “time” into a four-letter word. On top of that, most investors would not have the first idea of how to go about market timing even if they were persuaded that it works or that it is necessary. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more But I believe that all of that will change in not too long a time. Market Timing Doesn’t Always Work The amazing reality is that there has never been any reason to believe that market timing doesn’t always work and isn’t always required. The idea that there is something suspect about market timing is rooted in a mistake, the biggest mistake ever made in the history of personal finance. There’s one form of market timing that really doesn’t work -- short-term timing. If you think that you can guess which way stock prices are headed over the next six months or over the next year, I wish you luck. There really is evidence that that sort of timing doesn’t work. In the short term, stock prices are a random walk. They might go up or they might go down. No one knows. But to say that, because short-term timing doesn’t work, it’s okay to avoid timing altogether is like saying that, because driving drunk is a bad idea, you need to avoid driving altogether. Drunk driving is a special kind of driving that transforms what should be an entirely positive experience into something treacherous. The same thing is true of short-term timing. The reason why short-term timing doesn’t work is that there is no way to know with precision when stock prices will turn. But so long as you don’t try to do that, market timing is easy. Over the long term, stock prices are always headed in the direction of the long-term average CAPE value of 17. When they go far above that, you can count on them dropping hard over the course of the next 10 years or so. There are no cases in the historical record in which this general rule did not apply. That’s because it MUST apply. Markets set prices properly. That’s what they do. When prices get out of whack, the market corrects them. It can take a long time for it to complete the job. But the market couldn’t continue to function if it did not eventually do so. But, even if we could persuade investors that market timing works, would they be willing to engage in it? Most investors are afraid that they will make mistakes with their retirement money. They have been persuaded by many years of negative talk about market timing that this is a dubious business. Most investors would be far too anxious that they would mess up to even give market timing a try. That’s true today. But will it be true tomorrow? I don’t believe so. The Pricing Of Stocks Stocks are today priced at more than two times their real value. When we see more than half of the value of the market disappear into thin air (irrational exuberance has no lasting value), millions of lives will be ruined. The loss of trillions of dollars of consumer buying power will bring on an economic contraction of the like we saw in the early 1930s and for a brief time in 2008. If we all engaged in market timing, prices could never get that high again and we would no longer have to worry about experiencing such a severe economic contraction. I believe that policymakers will reach a consensus following the next economic crisis that we need as a nation to become more supportive of market timing (which is really just price discipline applied to the stock market). That will change everything. When experts in the investment advice field feel free to sing the praises of market timing, the general public will become more open to the concept. Investors will learn that there is really nothing complicated at all about the practice of it. When prices are high, you go with a lower stock allocation. When prices are low, you go with a higher stock allocation. Don’t we follow a practice of buying more when prices are appealing with every other good and service that we purchase? No one has ever offered any reason why the stock market should be different in this respect than every other market that has ever existed. Many people assume that, given the harsh opposition to market timing among Buy-and-Holders, there must be some reason to question its efficacy. But there isn’t. The amazing reality is that the idea that market timing might suddenly stop working is a myth. It has always worked and there is every reason to believe that it always will work. It is an academic construct referred to as “the Efficient Market Hypothesis” that caused people in the days when the Buy-and-Hold strategy was being developed to believe that market timing might not always be required; the thought was that investors were always 100 percent rational and thus were not capable of setting prices improperly. Shiller discredited the Efficient Market Hypothesis with his Nobel-prize-winning research and we are now ready as a nation to move on to better things. After that next economic crisis makes clear the compelling need to do so, that is! Rob’s bio is here. (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 12th, 2021

America"s Funding Challenges Ahead

America's Funding Challenges Ahead Authored by Alasdair Macleod via GoldMoney.com, This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October. There are three categories of buyer for US Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit, and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt. That leaves the Fed. But the Fed recently committed to taper quantitative easing, and it cannot be seen to directly monetise government debt. That is one aspect of the problem. Another is the impending rise in interest rates, related to non-transient, runaway price inflation. Funding any term debt in a rising interest rate environment is going to be considerably more difficult than when the underlying trend is for falling yields. There is the additional risk that foreigners overloaded with dollars and dollar-denominated financial assets are more likely to become sellers.Not only are foreigners overloaded with dollars and financial assets, but with bond yields rising and stock prices falling, foreigners for whom over-exposure to dollars is a speculative position going wrong will undoubtedly liquidate dollar assets and dollars. If not buying their own national currencies, they will stockpile commodities and energy for production, and precious metals as currency hedges instead. The Fed will be faced with a bad choice: protect financial asset values and not the dollar or protect the dollar irrespective of the consequences for financial asset values. And the Federal Government’s deficit must be funded. The likely compromise of these conflicting objectives leads to the risk of failing to achieve any of them. Other major central banks face a similar quandary. Funding ballooning government deficits is about to get considerably more difficult everywhere. Introduction Our headline chart in Figure 1 shows the excess liquidity in the US economy that is being absorbed by the Fed through reverse repos (RRPs). With a reverse repo, the Fed lends collateral (in this case US Treasuries overnight from its balance sheet) to eligible counterparties in exchange for overnight funds, which are withdrawn from public circulation. As of last night (6 October), total RRPs stood at $1,451bn, being the excess liquidity in the financial system with interest rates set by the RRP rate of 0.05%. Simply put, if the Fed did not offer to take this liquidity out of public circulation, overnight dollar money market rates would probably become negative. The chart runs from 31 December 2019 to cover the period including the Fed’s reduction of its funds rate to the zero bound and the commencement of quantitative easing to the tune of $120bn every month —they were announced on 19th and 23rd March 2020 respectively. Other than the brief spike in RRPs at that time which was a wobble to be expected as the market adjusted to the zero bound, RRPs remained broadly at zero for a full year, only beginning a sustained increase last March. Much of the excess liquidity absorbed by RRPs arises from government spending not immediately offset by bond sales. Figure 2 shows how this is reflected in the government’s general account at the Fed. The US Treasury’s balance at the Fed represents money not in public circulation. It is therefore latent monetary inflation, which is released into the economy as it is spent. Since March 2021, the balance on this account fell by about $800bn, while reverse repos have risen by about $1,400bn, still leaving a significant balance of liquidity to be absorbed arising from other factors, the most significant of which is likely to be seepage into the wider economy from quantitative easing (over two trillion so far and still counting). The US Treasury has draw down on its general account because had it accumulated balances from bond funding in excess of its spending ahead of the initial covid lockdown. And its debt ceiling was getting closer, which is currently being renegotiated. But this is only part of the story, with the Federal deficit running at about $3 trillion in the fiscal year just ended. That is a huge amount of government “fiscal stimulus”, and clearly, the private sector is having difficulty absorbing it all. The scale of this deficit, debt ceilings aside, is set to increase under the Biden administration. If the US economy is already drowning in dollars, it is likely to worsen. Assuming the debt ceiling negotiations raise the Treasury borrowing limit, the baseline deficit for the new fiscal year must be another $3 trillion. Optimists in the government’s camp have looked for economic recovery to increase tax revenues to reduce this deficit enough together with selective tax increases to allow the government to invest additional capital funds in the crumbling national infrastructure. A more realistic assessment is that unexpected supply disruption of nearly all goods and rising production costs are eating into the recovery, which is now faltering. And it is raising costs for the government in its mandated spending even above the most recent assumptions. It is increasingly difficult to see how the budget deficit will not increase above that $3 trillion baseline. This article looks at the funding issues in the new fiscal year following the expected resolution of the debt ceiling issue. The principal problems are its scale, how it will be funded, and the impact of price inflation and its effect on interest rates. Assessing the scale of the funding problem There are three distinct sources for this funding: the Fed, foreign investors, and the private sector, which includes financial and non-financial businesses. Figure 3 shows how the ownership of Treasury stock in these categories has progressed over the last ten years and the sum of these funding sources up to the mid-point of the last US fiscal year (31 March 2021). Over that time total Treasury debt more than doubled to nearly $30 trillion. The funding of further debt expansion from these levels is likely to be a significant challenge. Initially, the Fed can release funds by reducing the level of overnight RRPs, some of which will become absorbed directly, or indirectly, in Treasury funding. But after that financing will become more problematic. Since 2011, the Fed’s holdings of US Treasury debt have increased from 11% to 19% of the growing total, reflecting QE particularly since March 2020. At the same time the proportion of total Treasury debt owned by foreign investors has fallen from 32% to 24% today, and now that they are highly exposed to dollars, they could be reluctant to increase their share again, despite continuing trade deficits. Private sector investors, whose share of the total at 57% is virtually unchanged from ten years ago, can only expand their ownership by increasing their savings and through the expansion of bank credit. But with bank balance sheets lacking room for further credit expansion and consumers inclined to spend rather than save, it is difficult to envisage this ratio increasing sufficiently as well. Clearly, the Fed has been instrumental in filling the funding gap. But the Fed has now said it intends to taper its bond purchases. Unless foreign investors step in, the Fed will be unable to taper. Excess liquidity currently reflected in outstanding RRPs can be expected to be mostly absorbed by expanding T-bill and short-maturity T-bond funding, which might buy three- or four-months’ funding time and not permit much longer-term bond issuance. But after that, the Fed may be unable to taper QE. Foreign funding problems While we cannot be privy to the bimonthly meetings of central bankers at the Bank for International Settlements and at other forums, we can be certain that there is a higher level of monetary policy cooperation between the major central banks than is generally admitted publicly. On matters such as interest rate policy it is important that there is a degree of cooperation, otherwise there could be instability on the foreign exchanges. And to support the dollar’s debasement, policy agreements between important foreign central banks may need to be considered. This is because the dollar’s role as the reserve currency gives the US Government and its banks not just an advantage of seigniorage over the American people, but over foreign holders of dollars as well. Dollar M1 money supply is currently $19.7 trillion, approximately 50% of global M1 money stock.[i] Therefore, its seigniorage and the world-wide Cantillon effect from increasing public circulation is of great advantage to the US Government, not only over its own people but in transferring wealth from foreign nations as well. This is particularly to the disadvantage of any other national government which, following sounder monetary policies, does not expand its own currency stock at a similar rate while being forced to use dollars for international transactions. Ensuring currency debasement globally is therefore a compelling reason behind monetary cooperation between governments. By agreeing on permanent currency swap lines with five major central banks (the ECB, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank) they are drawn into supporting a global inflationary arrangement which ensures the stock of dollars can be expanded without consequences on the foreign exchanges. Ahead of its massive monetary expansion on 19 March 2020, to keep other central banks onside temporary swap arrangements were extended to nine other central banks, ensuring their compliance as well.[ii] But notable by their absence were the central banks whose governments are members and associates of the Shanghai Cooperation Organisation, which will have found that their dollar holdings and financial assets (mainly US Treasuries) have been devalued without consultation or recompense. It is therefore not surprising that foreign governments other than those with permanent swap lines are increasingly reluctant to add to their holdings of dollars and US Treasuries. By selectively excluding major nations such as China from swap line arrangements, by default the Fed is pursuing a political agenda with respect to its currency. International acceptability of the dollar is being undermined thereby when the US Treasury is becoming increasingly desperate for inward capital flows to fund its budget deficits. Even including allied governments, all foreigners are now reducing their exposure to US dollar bank deposits, by 12.9% between 1 January 2020 and end-July 2021, and to US T-Bills and certificates by 20.7% over the same period. The only reason for holding onto longer-term assets is in expectation of speculative gains. The situation for longer-term Treasury bonds is not encouraging. The US Treasury’s “major foreign holders” list of holders of longer-maturity Treasury securities, shows the list to be dominated by Japan and China, between them owning 31.5% of all foreign owned Treasuries. Japan’s cooperative relationship with the Fed was confirmed by Japan increasing her holdings of US Treasuries, but only by 1.3% in the year to July 2021, while China and Hong Kong, which between them hold a similar amount to Japan, reduced theirs by 3%.[iii] The ability of the US Treasury to find foreign buyers other than for relatively smaller amounts from offshore financial centres and oil producing nations therefore appears to be potentially limited. We should also note that total financial assets and dollar cash held by foreigners already amounts to $32.78 trillion, roughly one and a half times US GDP — dangerously high by any measure. This total and its breakdown is shown in Table 1. If foreign residents are to increase their holdings in US Treasuries, it is most easily achieved by foreign central banks on the permanent swap line list drawing them down and further subscribing to invest in T-Bills and similar short-term securities. As well as being obviously inflationary, that recourse has practical limitations without reciprocal action by the Fed. But a far greater danger to Federal government funding comes from dollar liquidation of existing debt and equity holdings, especially if interest rates begin to rise, bearing in mind that for any foreign holder of dollars without a strategic reason for holding a foreign currency, all such exposure, even holding dollars and dollar-denominated assets, is speculative in nature. The question then arises as to what foreigners will buy when they sell their dollars. Governments without a strategic imperative may prefer at the margin to adjust their foreign reserves in favour of the other major currencies and gold. But out of the total liabilities shown in Table 1 official institutions only hold $4.284 trillion long- and short-term Treasuries, which includes China and Hong Kong’s holdings, out of the $7.2 trillion total shown in Figure 2 earlier in this article. The $3 trillion balance is owned by private sector foreign investors. Excluding China and Hong Kong’s $1.3 trillion, US Treasury debt held by foreign governments is under 10% of all foreign holdings of dollar securities and cash. What is held by foreign private sector actors therefore matters considerably more, bearing in mind that it can all be classified as speculative, being a foreign currency imparting accounting risk to balance sheets and investment portfolios. If interest rates rise because of price inflation not proving to be transient, it will lead to significant investment losses and therefore selling of the dollar, triggering a widespread repatriation of global funds. A global increase in bond yields and falling equity values will also force sales of foreign securities by US investors. But with US investors being less exposed to foreign currencies in correspondent banks and with a significantly lower level of foreign investment exposure, the net capital flows would be to the disadvantage of the dollar. Some of the proceeds from dollar liquidation by foreigners are likely to lead to commodity stockpiling and at the margin some of it will hedge into precious metals, driving their prices higher. The long-term suppression of precious metal prices would to come to an end. Domestic problems for the Fed Clearly, the resumption of government deficit funding will no longer be supported by foreign purchases of US Treasuries at a time when trade deficits remain stubbornly high. This throws the funding emphasis onto the Fed and domestic purchasers of government debt. But as stated above, the private sector will need to reduce its consumption to increase its savings. Alternatively, banks which have limited capacity to do so will have to expand credit to purchase Treasury bonds, which is not only inflationary, but diverts credit expansion from the private sector. Consumers are charging in the opposite direction from increasing savings, drawing them down in favour of increased consumption. This is partly due to them returning to their pre-covid relationship between consumption and savings, and partly due to a shift against cash liquidity in favour of goods increasingly driven by expectations of higher prices. With their fingers firmly crossed, the latter is believed by central bankers and politicians to be a temporary phenomenon, the consequence of imbalances in the economy due to logistics failures. But the longer it persists, the more this view will turn out to be wishful thinking. Increasing prices for energy and essential goods, which are notoriously under-recorded in the broader CPI statistics, are emerging as the major concern. So far, few observers appear to accept that they are the inevitable consequence of earlier currency debasement. There is a growing risk that when consumers realise that rising prices are not just a short-term and temporary phenomenon, they will increasingly buy the goods they may need in the future instead of buying them when they are needed. This alters the relation between cash liquidity-to-hand and goods, increasing the prices of goods measured in the declining currency. And so long as consumers expect prices to continue to rise, it is a process that is bound to accelerate until it is widely understood by the currency’s users that in exchange for goods, they must dispose of it entirely. If that point is reached, the currency will have failed completely. It is this process that undermines the credibility of a fiat currency. Before it develops into a total rout, it can only be countered by an increase in interest rates sufficient to stop it, as well as by strictly limiting growth in the stock of currency. And even then, some form of convertibility into gold may be required to restore public trust. This, the only cure for fiat currency instability, is too radical for the establishment to contemplate, and is a crisis that increases until it is properly addressed. The rise in interest rates exposes all the malinvestments that have grown and persisted while interest rates were suppressed from the 1980s onwards, finally ending at the zero bound. The shock of widespread business failures due to rising interest rates will impact early in the currency’s decline when it becomes obvious that initial increases in interest rates will be followed by yet more. Importantly, the supply of essential goods is then further compromised by business failures instead of being alleviated by improving logistics. And consumer demand shifts even more in favour of the essentials in life and away from luxury and inessential spending. The poor are especially disadvantaged thereby and the middle classes begin to struggle. The private sector’s growing economic woes further undermine government finances. Unemployment increases and tax revenues collapse, adding to the budget deficit and therefore to the government’s funding requirements. Mandatory costs increase more than budgeted. Interest charges, currently about $400bn, add yet more to the deficit. Today, in all the major currencies control over interest rates by central banks is being challenged. Like the Fed, other major central banks are also insisting that rising prices are temporary, while markets are beginning to suspect the reality is otherwise. All empirical evidence and theories of money and credit scream at us that statist control over interest rates is being eroded and lost to market-driven outcomes. The consequences for markets and government funding costs There is growing evidence that accelerating monetary expansion in recent years is feeding into a purchasing power crisis for major currencies. Covid and logistics disruptions, coupled with lack of inventories due to the widespread practice of just-in-time manufacturing processes have undoubtedly made the situation considerably worse. But in the history of accelerating inflations, there have always been unexpected economic developments. Shifting consumer priorities expose hitherto unforeseen weaknesses, so it would be a mistake to disassociate these problems from currency debasements. It is leading to a situation which confuses statist economists, who tend to think one-dimensionally about the relationships between prices and economic prospects. For them, rising prices are only a symptom of increasing demand. And so long as expansion of demand remains under control and is consistent with full employment, it is their policy objective. They do not appear to understand rising prices in a failing economy. But classical economics and on the ground conditions militate otherwise. Inflation is monetary in origin, and it is the destruction of the currency’s purchasing power that is evidenced in rising prices. And when the public sees prices of needed goods rising at an increased pace, they begin to rid themselves of the currency. And far from stimulating production and consumption, high rates of monetary inflation act as an economic burden. Monetary policy now faces the dual challenge of rising prices and rising interest rates as the economy slumps. When central banks would expect to reduce interest rates, they will now be forced to increase them. When deficit spending is deployed to stimulate the economy, it must now be curtailed. Just when they matter most, bond yields will rise along their yield curves from the short end, and equity market values will be undermined by changing yield relationships. Falling financial asset values become a consequence of earlier monetary inflation undermining a currency’s purchasing power. The Fed, the Bank of England, the Bank of Japan, and the ECB have all acted together to accommodate government budget deficits, to be funded as cheaply as possible by suppressing interest rates. That they have acted together has so far concealed the consequences from bond markets, whose participants only compare one government bond market with another instead of valuing bond risks on their own merits. And through regulation, banks have been made to view investment in government bonds as being risk-free for counterparty purposes. All this is about to change with the turn in the interest rate trend. Monetary policy will have two basic options to weigh; between supporting the currency’s purchasing power by increasing interest rates, or to support financial markets by suppressing them. If the latter is deemed more important than the currency, it will most likely require more quantitative easing by the Fed, not less. Expressed another way, either central banks will pursue the current policy of maintaining domestic confidence and the wealth effect of elevated financial asset values and let the currency go hang. Alternatively, they can aim to support their currencies, and be prepared to preside over a collapse in financial asset values and accept the knock-on consequences. It is a dirty choice, with either policy option likely to fail in its objective. The end of the neo-Keynesian statist road, which started out lauding the merits of deficit spending is in sight. Mathematical economics and the state theory of money are about to be shown for what they are — intellectualised wishful thinking. As the most distributed currency, the dollar is likely to lead the way for all the others, slavishly followed by the Bank of England, the Bank of Japan, and the ECB. And all their high-spending governments, addicted to debt, will face unexpected funding difficulties. Tyler Durden Mon, 10/11/2021 - 17:40.....»»

Category: personnelSource: nytOct 11th, 2021

The Mechanics Of The Global Gold Market

The Mechanics Of The Global Gold Market Submitted by Jan Nieuwenhuijs of The Gold Observer How the physical gold price is set, and how physical and derivates markets around the world are connected and interact. Introduction The price of physical gold is set by supply and demand for physical gold. The global physical market can be divided into exchange trading and bilateral trading. In addition to the physical market there are multiple gold derivate markets that influence the physical market. To understand the entire machine, we will examine the workings of gold exchanges, bilateral trading (networks), and derivate markets separately, and finally how all derivatives are tied to the physical market. Derivatives are traded on exchanges and on a bilateral basis as well, but for the sake of clarity we will discuss them independently. Important to mention is that there is not one physical gold price. As gold is a commodity and the forces of supply and demand for commodities are not equal at any and all locations—and energy and time are needed to transport commodities—the price of physical gold differs geographically. Moreover, physical gold comes in many shapes, weights and purities. Manufacturing costs for bars are more or less fixed, but relatively cheaper for larger bars due to their higher value. What most people refer to as the spot gold price is the price per fine troy ounce of gold, derived from trade in large wholesale bars located in London (“loco London”). Large wholesale bars weigh roughly 400-ounces. The smaller a bar compared to “large bars,” the higher the premium it will attract. Gold coins and jewelry enjoy even higher premiums per fine weight, due to even higher manufacturing costs. The “real price of physical gold” thus depends on where you are and what type of product you are trading. A gold product’s fine weight is calculated as: Fine weight = gross weight * purity Collection of large wholesale gold bars. In the wholesale market gold is always priced per fine weight. Large bars have a fineness of no less than “995.0 parts per thousand.” Gold Exchanges An exchange is a centralized market. On any exchange multiple gold contracts can be listed. On the Shanghai Gold Exchange, for example, spot gold contracts varying in size from 100 grams to 12.5 Kg are traded. Supply and demand on an exchange meets through the exchange’s order book. Simplified, some market participants submit limit order bids (buy) and asks (sell) in the order book, while others submit market orders (buy or sell). A matching engine connects and clears all orders and this is how the price is set. The order book of the Shanghai Gold Exchange’s Au99.99 contract in the night trading session of March 18, 2021. Bid and ask quotes are shown in red (top righthand corner); the corresponding quantities in yellow show the depth of the market (liquidity). The highest bid in this order book is ¥365.15 yuan per gram; the lowest ask is ¥366 yuan. The market was illiquid during this trading session, as the quantities in the order book were very low. Because the order book is visible to all traders and there is a central authority that sets the trading rules, exchange trading is more transparent than bilateral trading networks called over-the-counter (OTC) markets. Some traders prefer exchange trading, some prefer OTC trading that offers more flexibility and discretion. Spot gold exchanges are sparse. Examples are the Shanghai Gold Exchange in China, the Borsa Istanbul in Turkey, and the Dubai Gold and Commodities Exchange in the U.A.E. Arbitrage causes prices between different parts of the global gold market to synchronize. When gold is cheaper in Dubai than in Shanghai an arbitrager can make a risk-free profit. The classic example is that the arbitrager will lock in his profit by buying the gold where its cheap and physically transports the metal to where it’s more expensive to sell. If the trade is profitable depends not only on the price spread, but also on the costs of financing (interest), shipping, insurance, and possibly the recasting of bars. Alternatively, the arbitrager can take a long position on one exchange and a short position on the other until the spread has closed, and exit his positions. Generally, gold trades at a discount in net exporting countries, such as South Africa, versus a premium in countries that are net importers. Gold trading hubs like the U.K. can flip from a net importer to a net exporter, which will cause the local price to trade at a premium or discount versus parts of the world that are on the other side of the trade (usually Asia). Gold bar standards around the world. Some exchanges listed are derivate exchanges. Courtesy Gold Bars Worldwide.Gold bar weighing 187.5 grams (five tael) traded on the Chinese Gold and Silver Exchange in Hong Kong. Bilateral Trading In the previous chapter we discussed that globally there are only a few physical gold exchanges. Implying, the majority of physical gold trading is done bilaterally: negotiated on a principal-to-principal basis, whether that be through an electronic trading system, by phone, or face to face. Because gold doesn’t perish and has been highly valued for millennia, all gold that has ever been mined is still with us. This makes gold trade more like a currency than a commodity in terms of supply and demand dynamics. Physical supply and demand are anything but restricted to annual mine output and newly fabricated products. Every day, gold is traded on a bilateral basis between thousands of companies—refineries, banks, dealers, mints, miners, jewelers, industrial fabricators, investment funds, etc.—and perhaps millions of individuals around the world. Gold can be exchanged in any form, and of course it can be altered in shape, weight and purity throughout the supply chain. At the smallest level a bilateral trade can be a Turkish woman selling a golden bracelet to her male neighbor. By agreeing to her offer price, the neighbor affects the global price of gold, albeit extremely little. For, if the neighbor would reject the woman’s offer, she would sell the bracelet to a jewelry store that is connected to the global gold market where supply would increase. Accepting her offer causes supply not to increase. Through this example it’s clear that with every (bilateral) trade buyer and seller influence the gold price. Gold jewelry shop in the U.A.E. Business-to-business trading in a bilateral trading network is referred to as an OTC market. Globally, the London Bullion Market, overseen by the London Bullion Market Association (LBMA), is the most dominant gold OTC market. Another vibrant OTC market is in Switzerland, which is the gold refining capital of the world. Each year, hundreds to thousands of tonnes of gold supply are transported to Switzerland, where 400-ounce bars destined for London, 1 Kg bars destined for Asia, 100-ounce bars destined for New York, or other bars and products are manufactured depending on demand. Switzerland also accommodates many large vaults for gold investors. The London Bullion Market has a unique framework because it’s based on bilateral trading, yet it has a centralized character. We will discuss this market in the next chapter on derivatives, because most trades in London are executed through “paper contracts.” Derivative Markets A derivative is a “a type of financial contract whose value is dependent on an underlying asset.” In this article we discuss derivatives with physical gold as the underlying asset. The single most important difference between physical gold and a derivative of gold, is that owning physical gold doesn’t incur any counterparty risk, whereas owning a gold derivative does. For other commodities, like corn, it can be said: “you can eat corn, but you cannot eat a corn derivative.” It boils down to the same economic conclusion: physical supply can’t be increased by the creation of derivatives. Yet derivatives have a considerable impact on the physical gold price, as they trade in large volumes and many use leverage. In my view, the most relevant derivates markets are the paper market in London, Exchange Traded Funds, and the futures market in New York. The LBMA’s Chain of Integrity and the London Bullion Market The London Bullion Market is an OTC market so there isn’t a rulebook like with an exchange. However, this unique market is to an extent organized. Let’s start with the basics.  Globally, there are 71 LBMA accredited refineries, which are the gate-keepers of the LBMA’s chain of integrity. These refineries strictly accept gold from reputable sources, and when supply is cast into bars weighing in between 350 and 430 troy ounces, having a fineness of no less than 995 parts per 1000, they adhere to the LBMA’s Good Delivery standards. The chain of integrity is a closed system of refineries, secure logistics companies, and custodians that ensure all metal within the chain is of the quality it’s supposed to be. Bars withdrawn from the LBMA’s chain of integrity can only re-enter through the accredited refineries. Number of LBMA accredited refineries per continent in 2021. Courtesy The Alchemist. LBMA member secure logistics companies may transport large bars to vaults located within the M25 London ringway. When stored in the London vaults the bars are now London Good Delivery, and underpin trade in the London Bullion Market. Although the gold is located in London, traders from all over the world participate in the London Bullion Market, as we will see in a minute. Keep in mind that the system of vaults in London must not be confused with the LBMA’s chain of integrity. The chain of integrity spans the globe and also includes bars with divergent weights from LBMA Good Delivery. Gold bars produced by LBMA accredited refineries are the global standard. The Shanghai Gold Exchange (SGE), as an example, accepts gold bars from SGE certified refineries in its vaults, next to LBMA certified metal. AURUM and Global OTC Trading At the heart of the London Bullion Market is an electronic clearing system called AURUM, which connects the LBMA member clearing banks. The London Bullion Market can be seen as a gold banking system with physical gold located in London as reserves, and AURUM as the clearing house. Trading gold in London is mainly done on a spot unallocated basis. An unallocated account at a bullion bank is a claim on a pool of physical gold owned by the bank. Holding an unallocated balance (in short, “unallocated”) can be compared to a fiat deposit at a regular bank. Unallocated is the credit in the London Bullion Market. In contrast, through an allocated account at a bullion bank a customer owns uniquely identifiable bars that are set aside, and are not on the balance sheet of the bank. Customers pay storage fees for holding allocated metal, versus much lower costs, if any, for holding unallocated. Any customer is allowed to switch from unallocated to allocated, and vice versa, which connects the paper market with the physical market in London. Bullion banks have agreed that any fee for “allocating” metal can only be changed on a 30-day notice.   The main reasons why the majority of trading in the London Bullion Market is done on an unallocated basis are convenience and efficiency. What makes gold special is that it’s both a commodity and a currency. Trading on an unallocated basis makes it possible, for example, to buy gold for exactly $1,000,000 U.S. dollars, or borrow exactly 25,000 ounces. The size of an allocated trade is always tied to varying bar weights, which leads to inconvenient numbers. This is why “loco London unallocated” is used as the primary currency in the global OTC gold market. Clearing through AURUM is overseen and managed by London Precious Metals Clearing Limited (LPMCL). The clearing banks that take part in AURUM (the LPMCL members) are HSBC, ICBC Standard Bank, JP Morgan, and UBS. Other banks and participants in the London Bullion Market are in one way or another connected to the clearing banks. Clearing banks either have their own vault in London, have an account with custodians such as Brinks or Loomis, or use the Bank of England’s vault. Illustration of the London Bullion Market’s trading structure. The clearing banks are connected through AURUM, and client banks and sub-clients are connected to the clearing banks. All clearing banks, but not all client banks and sub-clients, are included in this graph. All connections between the corporations are hypothetical. So, how does the actual trading work? Suppose, a gold mining company borrows 180,000 ounces of unallocated, at an interest rate of 2% from a bullion bank in London it has an account with. The bank is UBS, which happens to be a clearing bank. After receiving the loan, the miner sells the metal spot to use the proceeds for a mining project in Australia. A year later the miner has mined 183,600 ounces and wants to repay UBS the principal plus interest (assuming the interest was agreed to be paid in gold). The miner transports the unrefined gold to a refinery in Australia and indicates it wants to be paid in loco London unallocated. The refinery accepts the gold and instructs its bullion bank in London, Merrill Lynch, to transfer 183,600 ounces from its own account to the miner’s account at UBS (see the above graph for clarification). Merrill Lynch will inform its clearing bank JP Morgan regarding the transfer of 183,600 ounces to the miner’s account at UBS. When UBS has received the unallocated through AURUM, the miner’s account will be debited by 183,600 ounces and the loan is repaid. What is settled in Australia are the cash costs for refining the gold, and a correction for the local gold price discount/premium versus the price in London.      Unrefined gold mine output, called “doré,” which usually has a purity of 80%. Doré bars trade at a discount versus refined bars, due to refining costs. Courtesy Barrick. If any physical gold is transferred between JP Morgan and UBS through AURUM depends on all trades of these banks and their clients. In the London Bullion Market thousands of unallocated trades are executed on a daily basis, causing the clearing banks to have many claims on each other at the end of each day. The clearing procedure starts each day at 4:00 PM GMT with the LPMCL members “netting out” all claims. After this process is exhausted the residual claims are settled in physical gold. Another example of how gold is being exchanged in the London OTC market is companies, central banks, and investors trading gold like they trade any other currency in foreign exchange markets. On a spot basis, but also through forwards, swaps, options, and leasing. The LBMA Gold Price Benchmark Trading in the London Bullion Market is done between all LBMA members. But with so many participants you may wonder what is the spot gold price in this market? Technically, in this web of trading there is not one price of gold. At the core of this market there are 12 LBMA market making members that are required to quote a two-way (bid and ask) market throughout the day. These quotes are only accessible for entities that have an account with these banks. The spot gold price you see on, i.e., Bloomberg, Reuters or Netdania is often an amalgamation of several feeds from LMBA market makers. As a consequence, prices can slightly differ across said media. Which brings us to another feature of the London Bullion Market: the LBMA Gold Price benchmark. Previously named the London Fix, the LBMA Gold Price is an auction held twice a day: at 10:30 AM and 03:00 PM. It’s used for a variety of purposes in the global market, such as industrial contracts. There are 16 registered direct participants in the LBMA Gold Price, all of which can provide access to the auction for clients. An auction begins with the announcement of a starting price. Based on the starting price, the direct participants and clients present if they are buyers or sellers and in what quantity (loco London unallocated). Typically, after the first round the buying and selling volumes of all participants are not in equilibrium, and the price is adjusted up or down, followed by a new round of bidding. The process is repeated until the net volumes of all participants fall within the pre-determined tolerance. Finally, the metal is settled and the auction price is published. LBMA PM Gold Price data from March 1, 2021. The price finished at $1,734.15 USD per troy ounce. Courtesy ICE. The above is a simplification of the London Bullion Market. For more information, please refer to the LBMA OTC Guide and visit the LBMA website. For researching the workings of the London Bullion Market I have consulted with industry insiders Bron Suchecki, Ross Norman, and Jeffrey Christian. Any inaccuracies in this article remain my responsibility. Exchange Traded Funds Exchange Traded Funds (ETFs) are funds backed by commodities, stocks, derivatives, or other financial assets. Shares of ETFs are traded on a stock exchange. Commonly, gold ETFs are backed by physical gold. The largest gold ETF is GLD with a current inventory of roughly 1,000 tonnes in London Good Delivery bars. Buying a share of GLD does not provide ownership of physical gold, but a slice of ownership in the Fund. GLD caters exposure to the price of gold without leverage. Investors choose to invest in ETFs, because they are regulated financial products and easily accessible through brokers.   One GLD share represents roughly 0.1 ounce of gold. This amount decreases over time because the storage fees are subtracted from the assets (gold) held by the Fund.   The price of GLD is connected to the physical market, because a select group of arbitragers, called the Authorized Participants (APs), can create and redeem GLD shares at the Fund’s Trustee BNY Mellon Asset Servicing. If, due to supply and demand of GLD shares, the GLD price falls below the spot price in London, the APs can buy GLD shares and redeem them at the Trustee for physical metal which they can sell at a profit in the spot market. Consequently, GLD inventory will decrease. Should the price of GLD rise above London spot, the APs do the opposite: buy spot metal and create GLD shares to sell in the stock market. When shares are created the APs must deposit gold in the allocated account of the Trustee (“All of the Trust’s gold is fully allocated at the end of each business day”). As a result, GLD inventory increases.    Through arbitrage GLD and the physical market interact and influence each other. The Futures Market A futures contract is an agreement between two parties to exchange a commodity (or stock index, bond, etc.) for cash at a specific price at a fixed date in the future. Although, the majority of commodity futures contracts never reach physical delivery—most are “rolled over” or terminated before expiration. Futures contracts involve leverage and are used by hedgers and speculators. Futures are traded many months into the future, but for this article we will focus on the “near month” contract, which captures the bulk of trading volume. Hereafter, I will refer to the price of the near month contract simply as the futures price. The most traded gold futures contract is GC, listed on the COMEX futures exchange in New York. Similar to GLD, gold futures interact with the spot market through arbitrage. Because London is the most liquid spot market, this is where most arbitragers will trade versus New York. Say, the futures price transcends London spot, to an extent that arbitragers can profit by buying spot and sell short futures. Surely, the arbitragers can allocate metal in London, recast large bars into 100-ounce bars, fly it to New York, and physically deliver the futures contract when it expires. However, in reality this will rarely happen. Unless there is, in example, a pandemic that derails global flights, arbitragers will take a long position in London and sell short futures in New York, wait until both markets converge and close their positions. Needless to say, when the spot price is higher than the futures price, arbitragers will do the opposite: short London and buy long futures. The futures market, too, is connected to the physical market through arbitrage. Worth mentioning is that when a futures long (short) position is rolled to the next near month, and the initial buying (selling) caused an arbitrager to buy (sell) spot in London, on a systemic level the arbitrager will roll its position as well. In this sense, London serves as a warehouse for the COMEX. Conclusion Below you can see a graph that shows how GLD and the futures market are connected to the physical market in London, and how London is connected to the rest of the world. Effectively, all gold markets are connected. Arrows are added between several physical markets to illustrate that Switzerland is the largest refining hub. In the U.K. there are no LBMA accredited refineries. The price of physical gold is set by “regular traders” in the physical market, and arbitragers that trade physical gold versus derivatives. Hence, I wrote in the introduction: “the price of physical gold is set by supply and demand for physical gold.” Gold derivatives can be seen as an extension of the physical market. Measuring the impact of derivatives on the physical market falls outside the scope of this article, but I have planned a discussion on this subject. I took the opportunity to make this “article on request” part of my series Gold Market Essentials. Previous articles in this series are: The Essence of Gold Supply and Demand Dynamics The West-East Ebb and Flood of Gold GLD—a Crash Course Coin Demand of Little Relevance to the Gold Price Upcoming articles in this series will be more detailed discussions on the workings of the futures market, bullion banking, and the London Bullion Market. If you enjoyed reading this article please consider to support The Gold Observer and subscribe to the newsletter. Tyler Durden Mon, 10/11/2021 - 12:45.....»»

Category: dealsSource: nytOct 11th, 2021

Albert Edwards: "It"s Starting To Feel A Bit Like July 2008"

Albert Edwards: "It's Starting To Feel A Bit Like July 2008" One of the theories seeking to explain the Lehman collapse and the ensuing financial crisis points to the record surge in oil prices which rose as high as $150 in the summer of 2008, and which combined with tight monetary conditions, precipitated a giant dollar margin call which in turn pricked the housing bubble with catastrophic consequences. In his latest note, SocGen's resident permabear draws on that analogy and writes that "as energy prices surge with a backdrop of central bank tightening it’s starting to feel a bit like July 2008" referring to that moment of "unparalleled central bank madness as the ECB raised rates just as oil prices hit $150 and the recession arrived." Is today any different? Pointing to the recent surge in global energy prices (described in detail in Gasflation), Edwards writes that "the current high energy prices will hugely impact the debate about whether the post-pandemic surge in inflation is transitory or permanent." And while we wait for the Fed (and to a much lesser extent the ECB) to commence tapering as neither will be willing to admit they were wrong about "transitory" being permanent, financial conditions are already sharply tighter with breakeven inflation rates (a proxy for market inflation expectations) surging, especially in Europe, and especially in the UK where the Retail Price Index points to 7% inflation as soon as April. While market are perhaps hoping that central banks will reverse their path similar to what, the Fed did in Dec 2018, a toxic price/wage spiral has already taken hold as "ultra-tight labor markets conspire with households being bludgeoned by higher energy prices and the cost of living generally." Meanwhile, even though central bankers repeat like a broken record that they view inflation as transitory, Edwards notes that "the increasing threat of transitory inflation becoming more permanent is prompting central banks around the world to begin their tightening cycles, either with actual hikes in rates (Norway and New Zealand) or threats of hikes next year (UK), or tapering QE (US and eurozone)." So a double whammy of soaring prices and tighter financial conditions? July 2008 indeed. Looking ahead, Edwards sees even tighter financial conditions as bond yields continue to drift higher due to the more inflationary backdrop together with the threat of Fed tightening (like Morgan Stanley's Michael Wilson, Edwards notes that "I do think that tapering is tightening"). As the evidence shifts, Edwards expects 10y yields to attempt to reach 2-2¼% - the upper bound of the long-term secular Ice Age downtrend. And while this move would not violate the bond bull market, "it would certainly feel like a violation to equity investors" especially if it is rapid, and nobody would be hit harder than tech investors who have built nose-bleed valuations on ultra-low bond yields (Edwards discusses this in depth below). So while it is possible that we could yet see a Dec-2018-like Powell Pivot just weeks into a Fed Taper - as a reminder in late 2018 the "Ghost of 1937" emerged, forcing the Fed to ease long before it reached its target rate, Edwards asks "what about the R-word?" He is, of course, referring to a coming recession (borne out the current global economic stagflation), yet which virtually nobody anticipates. One reason why he sees the US as especially vulnerable to a recession is because the OECD is estimating a huge 5% fiscal tightening next year, the result of trillions in fiscal stimuli fading and turning into outright headwinds. Real-time economic indicators already suggest that the slowdown has arrived: Edwards points to the latest Atlanta Fed GDPNow forecast which has fallen to just 1.3% for Q3, while Goldman recently forecast zero sequential growth in China this quarter. While this can be dismissed as all Covid (Delta) related, it could be something more, especially as the ongoing tightening Chinese credit impulse discussed here and elsewhere continues to punish the economy. But while the economy is set to suffer from rising inflation and a concurrent increase in rates, it is markets that are even more exposed. To demonstrate just how much, Albert pulls a chart from BCA Research which showed how conjoined global tech stocks have been with the US 30y bond yield since the start of this year. The SocGen strategist then notes that "if the US 30y yield rises to 2.4% from the current 2.1%, it would knock some 15% off tech stock prices. Imagine if the US 10y rose from 1.5% currently to 2¼%! We could see quite a bear market in tech!" It's not just tech stocks that are jeopardy should rates rise: defensives - which are mostly a proxy for long-term yields - are too. Edwards's SocGen colleague, Andrew Lapthorne, shows that the bond sensitivity valuation gap among stocks has never been wider! Incidentally one can blame the Fed for this staggering move: as the next chart shows, the polarization in forward PE valuations for the US tech sector against both ‘Value’ and the market kicked off after Powell’s infamous Dec-2018 pivot. Putting it all together, Edwards is concerned that a bigger risk to Nasdaq than higher bond yields would be a follow-on recession (like 1982). Noting that the US tech sector continues to enjoy extraordinarily robust profits growth, particularly during the 2020 Covid recession, it is this earnings growth "that allowed the tech cyclicals to continue in the pretense that they were also ‘Growth’ stocks by turning in a robust profit performance." The problem is that even a garden variety recession "would put these ‘growth’ imposters to the sword, just as they were in 2001." That's why, in a world where the dreaded "stagflation" word - which few dared to breathe in "polite society" - has seen a record surge in recent article usage... ... Edward's advice to equity investors is to "think hard about the likelihood that higher energy prices and bond yields will trigger a ‘wholly unexpected’ recession. For that is where the biggest risk might lie for investors." Incidentally, Edwards isn't exactly correct: in a study published overnight by former BOE central banker David Blanchflower (who set interest rates at the BOE during the 2008 financial crisis) and Alex Bryson of University College London, the two say that consumer expectations indexes from the Conference Board and University of Michigan tend to predict American downturns 18 months in advance. Their conclusion: the U.S. economy is already in recession even though employment and wage growth indicate otherwise, to wit: "downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now." Tyler Durden Fri, 10/08/2021 - 13:45.....»»

Category: blogSource: zerohedgeOct 8th, 2021

Why We Aren"t Repeating The Roaring "20s Analog

Why We Aren't Repeating The Roaring '20s Analog Authored by Lance Roberts via RealInvestmentAdvice.com, No. We are not repeating the “Roaring 20’s” analog. Ben Carlson had a recent post asking if the “Roaring 20’s” are already here? As his chart shows below, there are certainly some similarities between 1920 and 2020 given the recent “pandemic shutdown” driven recession. However, what Ben missed were the differences both economically and fundamentally between the two periods.  Let me preface this article by stating that I don’t like market analogies, particularly when they are with early market eras like the ’20s. The population of the country was vastly smaller, the financial markets were rudimentary at best, there were few big players in the markets, and the flow of information was slow. 1920 Was The Bottom Ben makes an important observation to start his post. “Yet coming out of that awful period, America experienced an unprecedented boom time the likes of which this country had never seen before.   The 1920s ushered in the automobile, the airplane, the radio, the assembly line, the refrigerator, electric razor, washing machine, jukebox, television and more. There was a massive stock market boom and explosion of spending by consumers the likes of which were unrivaled at the time. After the immense pressure of the Great War, many people simply wanted to have fun and spend money.” Ben is correct, the ’20s marked the start of a period of marvel and rapid change. However, his chart above misses some important events starting in 1900 leading to 20-years of negative returns. Panic of 1907 Recession in 1910-1911 Recession in 1913-1914 Bank Crash of 1914 World War I ran from 1914-1918 Spanish Flu Pandemic 1918-1919 Economic Depression in 1920-1921 The market “melt-up” was undoubtedly driven by an economic recovery, a surge in innovation, etc. but was supported by historically low valuations. (Current valuations align with 1929 more than 1920.) The innovations in the early 1900s put increasing numbers of people to work. The increases in jobs led to higher wages and more robust economic growth. Today, companies are spending money on innovation and technology to increase productivity, reduce employment, and suppress wage pressures. The history of the economy and related events shows the difference between then and now. As Ben notes: “But that’s why people in the 1920s were so joyous — they went to hell and back before the boom times.” Yes, the U.S. certainly went through a tough year in 2020. But such is far different than what was experienced in the early 1900s. There are also fundamental challenges that exist today. Valuations Do Matter “Frederick Lewis Allen once wrote, ‘Prosperity is more than an economic condition: it is a state of mind.’ Yet the current boom isn’t just a happiness survey. The numbers back me up here. The S&P 500 has now hit 58 new all-times since the pandemic bear market ended in March 2020. Housing prices are at all-time highs. People have more equity in their homes than ever before. Wages are rising at the fastest pace in years. Economic growth is going to be at the highest level in decades in 2021. Add it all up and the net worth of all American households is at all-time highs. But this time it’s not just the top 1% who is benefitting.” – Ben Carlson Again, Ben is correct, however comparing the recent liquidity-driven stock market mania to that of the 1920s is not exactly apples to apples.  In the short term, a period of one year or less, political, fundamental, and economic data has very little influence over the market. In other words, in the very short term, “price is the only thing that matters.”  Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.” But in the long-term, fundamentals are the only thing that matters. Both charts below compare 10- and 20-year forward total real returns to the margin-adjusted CAPE ratio. Both charts suggest that forward returns over the next one to two decades will be somewhere between 0-3%. There are two crucial things you should take away from the chart above with respect to the 1920’s analogy: Market returns are best when coming from periods of low valuations; and, Markets have a strong tendency to revert to their average performance over time. Wash, Rinse, & Repeat As noted, the flood of liquidity, and accommodative actions, from global Central Banks, has lulled investors into a state of complacency rarely seen historically. However, while market analysts continue to come up with a variety of rationalizations to justify high valuations, none of them hold up under real scrutiny. The problem is the Central Bank interventions boost asset prices in the short-term; in the long-term, there is aninherently negative impact on economic growth. As such, it leads to the repetitive cycle of monetary policy. Using monetary policy to drag forward future consumption leaves a larger void in the future that must be continuously refilled. Monetary policy does not create self-sustaining economic growth and therefore requires ever-larger amounts of monetary policy to maintain the same level of activity. The filling of the “gap” between fundamentals and reality leads to consumer contraction and, ultimately, a recession as economic activity recedes. Job losses rise, wealth effect diminishes, and real wealth is destroyed.  The middle class shrinks further. Central banks act to provide more liquidity to offset recessionary drag and restart economic growth by dragging forward future consumption.  Wash, Rinse, Repeat. If you don’t believe me, here is the evidence. The stock market has returned more than 198% since the 2007 peak, which is more than 3.9x the growth in corporate sales and 8x more than GDP. Unfortunately, the “wealth effect” impact has only benefited a relatively small percentage of the overall economy. While Ben notes that even the bottom 50% have benefitted, such is a bit of an exaggerated claim. The bottom 50% of the population has the same net worth as prior to the “Financial Crisis.” Such hardly suggests an economy benefitting all.  A Quick Note On Technology Ben is correct when he discusses the advances in technology in the ’20s. However, there is a fundamental difference between the impacts of technology in the 1920s and today. The rise of automation and the automobile’s development had vast implications for an economy shifting from agriculture to manufacturing. Henry Ford’s innovations changed the economy’s landscape, allowing people to produce more, expand their markets, and increase access to customers. In the ’20s, technological advances led to increased demand, creating more jobs needed to produce goods and services to reach those consumers. Today, technology reduces the demand for physical labor by increasing workers’ efficiencies. Since the turn of the century, technology has continued to suppress productivity, wages, and, subsequently, the rate of economic growth. Such was a point we made in “The Rescues Are Ruining Capitalism.” “However, these policies have all but failed to this point. From ‘cash for clunkers’  to  ‘Quantitative Easing,’ economic prosperity worsened. Pulling forward future consumption, or inflating asset markets, exacerbated an artificial wealth effect. Such led to decreased savings rather than productive investments.” The critical distinction between the technology of the ’20s and today is stark. When technology increases productivity and output while simultaneously increasing demand by increasing “reach,” it is beneficial. However, when technology improves efficiencies to offset weaker demand and reduce labor and costs, it is not. Given the maturity of the U.S. economy and the ongoing drive for profitability by corporations, technology will continue to provide a headwind to economic prosperity. Conclusion Ben and I do agree that this is very much like the 20s. However, where we differ is that while he believes we may starting that period, we suggest we are likely closer to the end. In 1920, banks were lending money to individuals to invest in the securities they were bringing to market (IPO’s). Interest rates were falling, economic growth was rising, and valuations grew faster than underlying earnings and profits. There was no perceived danger in the markets and little concern of financial risk as “stocks had reached a permanently high plateau.”  It all ended rather abruptly. Today, while stock prices can be lofted higher by further monetary tinkering, the underlying fundamentals are inverted. The larger problem remains the economic variables’ inability to “replay the tape” of the ’20s, the ’50s, or the ’80s. At some point, the markets and the economy will have to process a “reset” to rebalance the financial equation. In all likelihood, it is precisely that reversion that will create the “set up” necessary to begin the “next great secular bull market.” Unfortunately, as was seen at the bottom of the market in 1974, there will be few individual investors left to enjoy the beginning of that ride. Tyler Durden Fri, 10/08/2021 - 12:10.....»»

Category: worldSource: nytOct 8th, 2021

Inflation Finally Meets Wall Street’s Ears! Is Gold Next?

At last, something is happening! Rising oil and gas prices sparked inflation worries among investors. However, gold hasn’t benefited so far… Q2 2021 hedge fund letters, conferences and more Living In The World Of Elevated Inflation It took Wall Street a while to find out about inflation above 5%, but it seems that investors have […] At last, something is happening! Rising oil and gas prices sparked inflation worries among investors. However, gold hasn’t benefited so far… if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2021 hedge fund letters, conferences and more Living In The World Of Elevated Inflation It took Wall Street a while to find out about inflation above 5%, but it seems that investors have finally noticed that we live now in a world of elevated inflation. I have always known that only the smartest minds work on Wall Street! So, right after they finally learned how to operate a computer and found the BLS website, they got scared and started selling equities. As a consequence, the U.S. stock index futures declined yesterday morning. All right, I was a bit mean to the Wall Street traders. They panicked not because of the CPI rates but because of soaring oil prices. As the chart below shows, the WTI crude oil has recently approached $80 per barrel, while the price of natural gas has more than doubled in recent weeks (left axis). A propos, if you want to know more about oil, gas and the energy sector, as well as keep track of all price moves happening there (and possibly profit from them!), I can recommend a great place to do so - Oil Trading Alerts. The rising oil prices triggered inflation worries, as higher energy prices could translate into higher consumer inflation, and higher consumer inflation could trigger a more hawkish Fed’s action than previously anticipated. In particular, the US central bank could taper its quantitative easing faster than expected, especially if September nonfarm payrolls turn out to be decent. After all, good news is right now bad news for stocks, not to mention gold. I’ve been warning for a long time now that inflation could be more lasting than the pundits claim. And here we are, the high inflation readings couldn’t be downplayed any longer, so the IMF admitted yesterday in its flagship report World Economic Outlook that elevated inflation could last by mid-2022: Headline inflation is projected to peak in the final months of 2021, with inflation expected back to pre-pandemic levels by mid-2022 for both advanced economies and emerging markets country groups, and with risks tilted to the upside. However, the baseline scenario assumes that inflation expectations remain anchored. And although the IMF is right that market-based measures of long-term inflation expectations have stayed relatively anchored so far, the measures based on surveys of consumers have clearly de-anchored recently, as the chart below shows. I don’t know on which planet IMF economists live, but in my world such a graph shows anything but well-anchored inflation expectations. So, I would say that upside risks to the IMF’s baseline scenario are more probable than the authors are willing to admit. In fact, even they acknowledge that risks remain tilted slightly to the upside over the medium term: Sharply rising housing prices and prolonged input supply shortages in both advanced economies and emerging market and developing economies, and continued food price pressures and currency depreciations in the latter group could keep inflation elevated for longer. Implications for Gold What does it all imply for the gold market? Well, as usual, I’m obliged to say that, theoretically, higher inflation should be positive for gold, which is considered to be an inflation hedge. However, theoretical links, which we can analyze in isolation, in reality work together with other forces, as economy is a complex system. In our case, gold is not getting much benefit from strengthening inflation worries as bond yields are rising in tandem, supporting the real interest rates. Gold’s disappointing performance in the inflationary environment (see the chart below) is also caused by the prospects of the Fed’s tightening cycle. So, it seems that gold could remain in the downward trend in the near future, especially if the Employment Situation Report, which is scheduled to be released on Friday, doesn’t disappoint. However, the Fed will have to reverse its course at some point –they will not hesitate whether they should fight with the overheating or stimulate the economy during a crisis. And this will allow gold to shine again. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care Updated on Oct 7, 2021, 11:40 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 7th, 2021

Should Value Investors Pick Timken Company (TKR) Stock Now?

Is Timken Company (TKR) a great pick from the value investor's perspective right now? Read on to know more. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Timken Company TKR stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, Timken Company has a trailing twelve months PE ratio of 14.2, as you can see in the chart below:Image Source: Zacks Investment ResearchThis level actually compares quite favorably with the market at large, as the PE for the S&P 500 stands at about 24.6. Also, if we focus on the long-term PE trend, Timken Company’s current PE level puts it below its midpoint over the past five years.Image Source: Zacks Investment ResearchThe stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 24.4. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.Image Source: Zacks Investment ResearchWe should also point out that Timken Company has a forward PE ratio (price relative to this year’s earnings) of just 13.2, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.Right now, Timken Company has a P/S ratio of 1.3. This is lower than the S&P 500 average, which comes in at 4.9 right now. However, as we can see in the chart below, this is slightly above the highs for this stock in particular over the past few years.Image Source: Zacks Investment ResearchIf anything, this suggests some level of undervalued trading—at least compared to historical norms.Broad Value OutlookIn aggregate, Timken Company currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Timken Company a solid choice for value investors.What About the Stock Overall?Though Timken Company might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of F. This gives TKR a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>).Meanwhile, the company’s recent earnings estimates have been discouraging at best. While the current-quarter has seen no upward and five downward movements over the past two months, the current-year estimate has seen one upward and four downward movements.As a result, the consensus estimate for the current quarter and the current year has decreased by 8.8% and 4.8%, respectively, in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:Timken Company The Price and Consensus Timken Company The price-consensus-chart | Timken Company The QuoteThis bearish trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.Bottom LineTimken Company is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 36%) and a Zacks Rank #3, it is hard to get too excited about this company overall. Also, over the past year, the broader industry has clearly underperformed the market at large, as you can see below:Image Source: Zacks Investment ResearchSo, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick. Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Timken Company The (TKR): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 7th, 2021

Should Value Investors Consider Andersons (ANDE) Stock?

Let's see if Andersons (ANDE) stock is a good choice for value-oriented investors right now from multiple angles. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put The Andersons, Inc. ANDE stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, Andersons has a trailing twelve months PE ratio of 13.77, as you can see in the chart below:Image Source: Zacks Investment ResearchThis level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 24.64. If we focus on the long-term PE trend, Andersons’ current PE level puts it below its midpoint over the past five years.Image Source: Zacks Investment ResearchHowever, the stock’s PE compares unfavorably with the Zacks Basic Materials sector’s trailing twelve months PE ratio, which stands at 11.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. Image Source: Zacks Investment ResearchWe should also point out that Andersons has a forward PE ratio (price relative to this year’s earnings) of just 14.07, which is tad higher than the current level. So it is fair to expect an increase in the company’s share price in the near term.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings. Right now, Andersons has a P/S ratio of about 0.1. This is lower than the S&P 500 average, which comes in at 4.92 right now.  Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.Image Source: Zacks Investment ResearchIf anything, ANDE is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.Broad Value Outlook In aggregate,Andersons currently has a Zacks Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Andersons a solid choice for value investors.  What About the Stock Overall? Though Andersons might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of F and a Momentum Score of C. This gives ANDE a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen five estimates go higher in the past sixty days compared to three lower, while the full year 2021 estimate has seen three upward revision compared to one downward in the same time period.This has had a positive impact on the consensus estimate though as the current year consensus estimate has risen by 19.7% in the past two months, while the full year 2021 estimate has improved by 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:The Andersons, Inc. Price and Consensus The Andersons, Inc. price-consensus-chart | The Andersons, Inc. QuoteDespite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.Bottom Line  Andersons is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front. A strong industry rank (among top 19% of more than 250 industries) further instils our confidence.However, a Zacks Rank #3 makes it hard to get too excited about this company overall. In fact, over the past two years, the Zacks Agriculture - Products idustry has clearly underperformed the market at large, as you can see below:Image Source: Zacks Investment ResearchSo, value investors might want to wait for industry trends to turn around in this name first, but once that happens, this stock could be a compelling pick. Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Andersons, Inc. (ANDE): Get Free Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 7th, 2021

Is Worthington Industries (WOR) a Potential Stock for Value Investors?

Is Worthington Industries (WOR) a great pick from the value investor's perspective right now? Read on to know more. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Worthington Industries, Inc. WOR stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, Worthington Industries has a trailing twelve months PE ratio of 7.59, as you can see in the chart below:Image Source: Zacks Investment ResearchThis level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 24.64. If we focus on the long-term PE trend, Worthington Industries’ current PE level puts it below its midpoint (which is 15.10) over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.Image Source: Zacks Investment ResearchFurther, the stock’s PE also compares favorably with the Zacks Industrial Products sector’s trailing twelve months PE ratio, which stands at 24.41. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.Image Source: Zacks Investment ResearchWe should also point out that Worthington Industries has a forward PE ratio (price relative to this year’s earnings) of just 10.42, which is higher than the current level. So, it is fair to expect an increase in the company’s share price in the near term.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.Right now, Worthington Industries has a P/S ratio of about 0.78. This is a bit lower than the S&P 500 average, which comes in at 4.92x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.Image Source: Zacks Investment ResearchIf anything, this suggests some level of undervalued trading—at least compared to historical norms.Broad Value OutlookIn aggregate, Worthington Industries currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Worthington Industries a solid choice for value investors, and some of its other key metrics make this pretty clear too.For example, the P/CF ratio (another great indicator of value) comes in at 7.72, which is far better than the industry average of 10.23. Clearly, WOR is a solid choice on the value front from multiple angles.What About the Stock Overall?Though Worthington Industries might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and a Momentum Score of B. This gives WOR a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)Meanwhile, the company’s recent earnings estimates have been robust at best. The current year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen one up and none down in the same time period.This has had a noticeable impact on the consensus estimate though as the current year consensus estimate has risen by 26.5% in the past two months, while the next year estimate has inched higher by 0.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:Worthington Industries, Inc. Price and Consensus Worthington Industries, Inc. price-consensus-chart | Worthington Industries, Inc. QuoteThis bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.Bottom LineWorthington Industries is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among Bottom 36% of more than 250 industries), it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Metal Products - Procurement and Fabrication industry has clearly underperformed the broader market, as you can see below:Image Source: Zacks Investment ResearchSo, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick. Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Worthington Industries, Inc. (WOR): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 7th, 2021

Is Maximus (MMS) a Suitable Stock for Value Investors Now?

Let's see if Maximus (MMS) stock is a good choice for value-oriented investors right now from multiple angles. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Maximus, Inc. MMS stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, Maximus has a trailing twelve months PE ratio of 17, as you can see in the chart below:Image Source: Zacks Investment ResearchThis level actually compares quite favorably with the market at large, as the PE for the S&P 500 stands at about 24.7. Also, if we focus on the long-term PE trend, Maximus’ current PE level puts it below its midpoint over the past five years.Image Source: Zacks Investment ResearchThe stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 31.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.Image Source: Zacks Investment ResearchWe should also point out that Maximus has a forward PE ratio (price relative to this year’s earnings) of just 19.1, which is higher than the current level. So, it is fair to expect an increase in the company’s share price in the near term.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.Right now, Maximus has a P/S ratio of 1.3. This is lower than the S&P 500 average, which 3omes in at 4.9 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.Image Source: Zacks Investment ResearchIf anything, this suggests some level of undervalued trading—at least compared to historical norms.Broad Value OutlookIn aggregate, Maximus currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Maximus a solid choice for value investors.What About the Stock Overall?Though Maximus might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and a Momentum Score of D. This gives MMS a Zacks VGM score — or its overarching fundamental grade — of D. (You can read more about the Zacks Style Scores here >>).Meanwhile, the company’s recent earnings estimates have been mixed at best. While the current-quarter estimate has seen one upward and none downward movement, and the current fiscal year estimate has seen one upward and none downward movements over the past two months.This has had a mixed effect on the consensus estimate. While the current-quarter consensus has dropped 2.1% over the past two months, the current fiscal year estimate has improved 4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:Maximus, Inc. Price and Consensus Maximus, Inc. price-consensus-chart | Maximus, Inc. QuoteSuch mixed analyst sentiments is the reason why the stock has a Zacks Rank #3 (Hold) and it is the reason why we are looking for in line performance from the company in the near term.Bottom LineMaximus is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (top 16%) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Also, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below: Image Source: Zacks Investment ResearchSo, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick. Zacks' Top Picks to Cash in on Artificial Intelligence In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Maximus, Inc. (MMS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 6th, 2021

21 Investing Myths That Just Aren’t True

With all of humanity’s collective knowledge available at our fingertips, you’d think investing myths would have disappeared by now. Q3 2021 hedge fund letters, conferences and more Yet they persist, largely because too many people consider money a “taboo” subject and avoid talking about it. Many of us also never question these assumptions, so we […] With all of humanity’s collective knowledge available at our fingertips, you’d think investing myths would have disappeared by now. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Walter Schloss Series in PDF Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Yet they persist, largely because too many people consider money a “taboo” subject and avoid talking about it. Many of us also never question these assumptions, so we don’t bother running a quick web search in the first place. These persistent investing myths cost you money though, in a very real sense. Once you move past these myths, a wider world of investing opportunities open up for you. Myth: You Can Time the Market to Earn Higher Returns When it comes to new investors learning how to invest their money one of the biggest myths is that you can time the market and earn better returns. To profitably time the market, you need to get it right twice. You need to buy at or near the bottom of the market, just as it turns upward. Then you need to sell at or near the top of the market, just as it prepares to plunge. The most experienced, best-informed professionals can’t do this predictably. If they can’t do it, you certainly can’t. Imagine you’re standing on the sidelines, telling yourself that you’ll invest “once the market drops.” But the market continues to rise for the next year or two before its next dip. When the dip does come, its low point might still cost more than today’s price. And that’s assuming you were able to buy at the low point, which you almost certainly won’t time properly. In the meantime, you’ve missed out on years of passive income from dividends or rents, or interest. Rather than trying to time the market, practice dollar-cost averaging. While it sounds complicated, it simply involves investing a set amount every month into the same diversified investments, based on what your budget allows for each month. You ignore timing and just mimic the broader upward trend, to earn better returns in the long run. Myth: You Need a Lot of Money to Start Investing A common myth that many people assume is investing a little bit of money doesn’t make sense. They think that investing $5 a month is pointless so they never even bother to start. That couldn’t be further from the truth. And it leads to wasted opportunities to save and invest over time. The truth is, investing a small amount of money can grow into large sums of money. Jon Dulin, owner of MoneySmartGuides, offers this example: “Let’s say you are 25 years old and invest $20 a month for 25 years. During this time you earn an average 8% return — nothing spectacular, just average returns. “At the end of 25 years, your $20 monthly investment has grown to nearly $19,000. If that doesn’t sound impressive, consider that your measly $20 each month could help your child or grandchild pay for college. Or it could pay for a family reunion vacation that you have on a tropical island. “If you instead keep the money invested for another 25 years, when you reach age 75, you’ll have close to $149,000. This can cover several years’ worth of living expenses during retirement.” Don’t make the mistake of assuming a small amount of money is a waste of time. Thanks to compounding, your money will grow into far larger sums over time. Literally anyone can get started even with little capital. Take the first step now and start investing any excess money you have, regardless of the amount. Read more: Invest in Art like the Ultra Wealthy Without Spending Millions Myth: I’m Too Young (or Too Old) to Start Investing The sooner you start and the longer you keep the money invested, the more it will grow. At an 8% return, you’d have to invest $5,467 each month to reach $1 million in 10 years. But it only takes $287 invested each month to reach $1 million in 40 years. That means that even people working for minimum wage can become millionaires if they invest consistently over time. On the other end of the spectrum, some older adults look at those numbers and despair, wondering why they should bother investing at all. But that’s the price of delaying: you need to save and invest more each month to reach the same goal. As the proverb goes, the best time to plant a tree was 20 years ago. The second best time is now. Start investing today with what you have, and let compounding work its magic for you. Read more: Don’t Miss These 12 Stocks Pay Monthly Dividends Myth: It Takes Decades to Save Enough to Retire In personal finance, the concept of “financial independence” means being able to cover your living expenses with passive income from investments. To make your day job optional, in other words, allowing you to retire if you like. It takes hard work and an enormous savings rate, of course. If you plod along with a 10-15% savings rate, then yes, it will take you decades to save enough to retire. My wife and I got serious about financial independence at 37, three years ago. We’re on track to reach financial independence within the next two or three years, in our early  40s. How? With a savings rate of 60-65% of our annual income and aggressive investing. Neither of us earns a huge salary either, but we still enjoy a comfortable lifestyle with plenty of international travel. We can save so much of our income because we house hack for free housing, avoid owning a car by living in a walkable area, and get full health insurance through my wife’s job. Nor are we alone. Read up on the FIRE movement (financial independence, retire early) to see how thousands of other people are achieving fast early retirement. Myth: Popular Companies Make Better Stock Picks The idea that popular companies make for good stocks sounds appealing on its surface. After all, if a company is popular, it’s probably growing its business. But the popularity and even the quality of a business only tell half the story. The other side is the price you pay for it. “Imagine someone approached you with two offers,” illustrates Ben Reynolds of Sure Dividend. “The first offer is to buy a $100 bill for $150. The second offer is to buy a $1 bill for $0.50. We all know the $100 bill is worth much more than the $1 bill… But any rational person would rather buy $1 for $0.50 than $100 for $150.” Two Warren Buffett quotes sum this up nicely: “For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.” “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” The reason it is difficult to do well investing in popular stocks is because they tend to be overvalued. Everyone already “knows” the business is going to be wildly successful, and that’s baked into the price. If there’s any hiccup in results, the price is likely to decline significantly. Also, as evidenced by the GameStop fiasco, amateur traders can make a significant impact on popular investments. Just because something is popular doesn’t make it a good investment. Read more:  Discover these 19 Blue Chip Dividend Stocks Myth: You Need to Spend Time Researching Stocks or Frequently Trading Many people believe that it takes a lot of time to research stock and make frequent trades to make money, resulting in people leaving their investments with a professional or relying on expensive mutual funds. But individual investors don’t need expensive investment advisors or managed mutual funds (more on them shortly). “For most retail investors, utilizing low-cost passive index ETFs is the easiest and cheapest approach,” explains Bob Lai of Tawcan.com. “These index ETFs track a special index, like the S&P 500 or the NASDAQ Composite Index. Because of index-tracking nature, you get to own all the stocks listed in that index.” There’s no need to spend time determining the earning trend of companies like Apple, Facebook, Amazon, or Pfizer because you own them all. By owning all these stocks in the index ETFs, you are also not making frequent trades. Counterintuitively, frequent trades generally lead to lower returns. Think of your investment portfolio like a bar of soap: the more you touch it, the smaller it gets. Read more: Related read: Diversify Your Portfolio With These Top 10 International ETFs Myth: Expensive Managed Mutual Funds Outperform Passive Index Funds Experienced, professional investors with the best data available to them still can’t pick stocks or time the market better than passive index funds. Need proof? Over the last 15 years, nearly 90% of managed mutual funds underperformed compared to their respective benchmark index. “The best investment strategy would be to invest in index funds of stocks or bonds that track an entire segment of the market — so you don’t have to worry about which specific security will give you the best return over short investing periods,” offers Kelan Kline, cofounder of The Savvy Couple. “My personal favorite low cost broad market index fund is Vanguard’s VTSAX.” Myth: Only the Wealthy Can Hire Investment Advisors A survey from JPMorgan Chase found that 42% of people who aren’t investing are staying out because they don’t think they have enough to invest. On some level, this isn’t surprising. After all, historically people had to work with private wealth managers who require $100,000 or more. Even many popular index funds required a minimum of $10,000 to get started, just 20 years ago. “That is changing with algorithm-driven investment tools such as robo-advisors,” says Jeremy Biberdorf of ModestMoney.com. “In many cases, robo-advisors have no minimum investment and allow you to invest for a small fee. Even investing a small amount every year can make a big difference.” Robo-advisors also won’t run off with your money or engage in insider trading. Many investors let their guard down and trust human investment advisors without doing any due diligence on them, especially when referred to them by friends of family members. “This makes investors vulnerable to conflicting advice in even the best-case scenarios. In the worst-case scenarios, they are easy prey for scammers. That’s why I call this blind faith in financial professionals the worst investment advice I hear everywhere,” explains Chris Mamula of Can I Retire Yet?. Read more: Can I Retire at 62 With 400k In My 401(k)? Myth: Bonds Are Inherently Safer than Other Asset Classes Bonds offer one type of safety — but leave you exposed to other types of risk. When an investor buys a bond from the US Government or most municipalities, there’s little risk of the borrower defaulting. So investors can sleep at night knowing that as long as they hold that bond, they’ll probably receive their modest interest payments. But bond values gyrate on the secondary market just like stock prices. Investors who plan to sell their bonds rather than hold them can find themselves with paper that’s gone down in value, not up. Which says nothing of the corroding effect of inflation on bond interest payments. When inflation runs at 3% in a year, a bond paying 3% interest-only generates a 0% real return. That in turn means that bonds may not actually protect retirees against running out of money before they die. Sure, the stock market is volatile, but in the long term, it generates an average return of 10% per year. At a 4% withdrawal rate, investors will see their stock portfolio go up in value rather than down, in most years. Even conservative income stock investing, such as in dividend kings, can yield 3-4% in dividends alone, on top of share price growth. But bonds paying paltry 3-4% interest will cause a slow decay in your nest egg. None of that means that you should never invest in bonds. But every investor should understand all the risks — not just the risk of default. Myth: Options Trading is Risky For many, selling options is a risky business.  And strategies such as Iron Condors add to the complexity.   “However, when managed correctly, options trading can be a handy addition to an overall portfolio”, explains Gavin McMaster of IQ Financial Services, LLC. An iron condor is a delta-neutral option strategy that consists of both call options, and put options.  The strategy works if the underlying stock stays within a specific range during the course of the trade. The key with iron condors is trading an appropriate position size (never risk your whole account on an iron condor) and knowing how to manage them. Here are a few quick tips to reduce the risks with iron condors: Never risk more than 2-3% of your account size on any one trade Close the trade before the stock breaks through one of the short strikes Avoid earnings announcements Have one or two adjustment strategies ready in case the trade moves against you Focus on stocks and ETF’s with a high IV Rank “While iron condors can be risky if you don’t know what you are doing, using appropriate position sizing and risk management rules can reduce the risks”, adds McMaster.  Generating income from iron condors can be a superb way to increase the returns on your portfolio. Myth: Pay Off Your Student Loans Before Buying a Home Paying off student loans before buying a home is a common misconception. While there is no “one size fits all approach,” many people believe their student loan debt will prohibit them from purchasing a home, however, this isn’t always the case. “For example, doctors and dentists often carry large amounts of student debt, and typically have relatively high debt to income ratios. Therefore, exploring a Physician Mortgage, which allows individuals to carry more debt, may be a better fit than a traditional mortgage”, explains Kaitlin Walsh-Epstein with Laurel Road. For those nonhealthcare professionals looking to purchase a home while managing high outstanding student loan balances, refinancing their student loans can be a good option. By refinancing to a longer-term mortgage, the borrower may lower their monthly payments. However, this may also increase the total interest paid over the life of the loan. “Refinancing to a shorter-term mortgage may increase the borrower’s monthly payments, but may lower the total interest paid over the life of the loan.”, adds Walsh-Epstein. Questions to consider: What is your current student loan interest rate? (Calculate the true cost over the life of your loan) What are mortgage interest rates and are they projected to go up or down?  (Currently mortgage rates are low) Do you pay rent each month and if so, how will your rent payment compare to a mortgage payment?  (As well as carrying costs of owning a home) Is the home (or real estate) projected to appreciate in value? The first step is to review and understand your credit score, student loan terms, and financial goals. Working towards making payments to lower your overall debt will help to raise your credit score, yet again increasing your chances of getting into your dream home faster! Myth: The “Rule of 100” In the 20th Century, investment advisors droned out the same advice to most clients: “Subtract your age from 100, and that’s the percent of your portfolio that should be invested in stocks.” They pushed clients to move their money into bonds instead, as they grew older. A sound strategy — back when Treasury bonds paid 15% interest. This century has seen perpetual low-interest rates, and bonds have offered poor returns compared to stocks. This says nothing of the fact that people are living and working longer, so they both have more risk tolerance and need their nest eggs to last longer. Today, investment advisors tend to instead advise subtracting your age from 110 or 120 instead, if they bother issuing such generic advice at all. Everyone has their own unique risk tolerance and needs; as a real estate investor, I can earn safer, higher returns from real estate than bonds, so I avoid bonds altogether. A high earner nearing retirement might appreciate the tax benefits and security of municipal bonds and tailor their portfolio accordingly. Be careful of anyone peddling such a broad rule of thumb as the “Rule of 100.” Read more: Find Expert Tax Preparers Now! Myth: You Must Pay Off All Debt Before Investing There are plenty of great reasons to pay off consumer debt early. You earn an effective return equal to the interest rate, and it’s a guaranteed return on your money when you use it to pay off debt early. Mark Patrick of Financial Pilgrimage explains it like this: “Our family even went so far to pay down our mortgage debt despite record low-interest rates. With that said, throughout the entire process we invested in our retirement accounts, such as our 401(k) account. The benefits are just too good to pass up. “The company that I work for provides a 401k match of up to 6% plus an additional 1% that every employee receives regardless. Therefore, if I contributed 6% of my salary to my 401(k) I would receive an additional 7% in contributions from my employer. I was more than doubling my money right away! “If you decide to wait to pay down all of your consumer debt instead of starting to invest for your retirement you’ll miss out on years of compound interest. Compound interest is one of the most powerful forces in personal finance. The earlier you can get started, the better. For example, if someone invests $5,000 per year from age 25 to 35 and then never invests another dollar, they would likely have more money at age 65 than someone that invests the same amount every month from age 35 to 65. “While I am a huge proponent of paying down debt, it shouldn’t come at the expense of forgoing investing. Especially when you want that money to grow until retirement. Try to find the balance between paying down debt and investing. We certainly could have paid down our debt faster if we decided not to invest throughout the process, but after 15 years in the workforce I’m sure glad we didn’t. Those dollars invested early on have compounded into much larger amounts over the years. Read more: Should you Pay off Debt or Save for Retirement Myth: You Should Pay Off Your Student Loans Before Buying a Home It might make more sense to pay off student loans before buying a house. Or it might not. Ultimately it depends on your goals, your housing market, your loan interest rates, and your other finances. For example, you might live in a housing market where it’s cheaper to rent than own a home. In that case, it makes sense to pay off your student loans rather than rush into buying. Alternatively, if you plan on buying a duplex and house hacking, and thereby eliminating your housing payment, it probably makes more sense to buy. Just think about how much faster you could pay off your student loans, with no housing payment! Think holistically about how owning versus renting for another year or two would affect your finances. Don’t rush into buying a home — but don’t avoid it without deep analysis, either. Myth: Buying Is Always Better than Renting Despite having owned dozens of properties as a real estate investor, I live in a rental apartment. In some markets, renting makes more sense than buying. Look no further than San Francisco, where the median home price is $1,504,311, but the median rent for a three-bedroom home is $4,567. After adding in property taxes and homeowners insurance, it would cost roughly double the monthly payment to buy a median home as rent, despite all the perennial complaints by San Francisco tenants. And that says nothing of maintenance and repair costs, which average thousands of dollars each year for the typical homeowner. Renters don’t have to pay those costs or do that labor. They delegate them to the landlord. Nor do renters need the fiscal discipline to budget money each month for those irregular, but inevitable expenses. Not everyone has that discipline, and they’re better off with the steady, predictable housing cost of monthly rent. Finally, renting allows flexibility. Tenants can sign a month-to-month lease agreement and move out with a few weeks’ notice. Homeowners don’t have the flexibility; it takes months to sell a home, and typically tens of thousands in closing costs. Myth: Your Home Is an Investment Buyers love to delude themselves that they’re buying an “investment” rather than spending money on shelter. It helps them justify overspending on the biggest, fanciest house they can possibly afford. But make no mistake: housing falls under the “Expenses” category in your budget, not the “Investments” category. It costs you money every month, rather than generating it. House hacking marks a notable exception however, since your home helps you avoid a housing payment. Sure, real estate often goes up in value. So do baseball cards, but that doesn’t justify hobbyists spending as much as they possibly can on them, while patting themselves on the back for their wise “investments.” By all means, invest in real estate. But do it by buying true investment properties, or REITs, or real estate crowdfunding investments. The more you spend on housing, the less you can put toward true investments. Read more: House Hacking – 18 Ways to Never Pay Rent Again Myth: You Should Put the Bare Minimum Down When You Buy a Home Making the bare minimum down payment often enables buyers to overspend on housing. They end up overleveraging themselves, mortgaged to the hilt with an enormous monthly payment and little money left to actually furnish the place, or to enjoy any social life. It also leaves homeowners vulnerable to becoming upside-down on their home, owing more than the home is worth. At that point, they become prisoners in their own homes, unable to sell without the lender’s permission. They end up stuck there until the housing market either improves or they pay their loan balance down enough to be able to afford seller closing costs without coming out of pocket. While it sounds nice to put down next to nothing on a home, look at the bigger picture. If you spend far less on a home than you can afford, then a low down payment can serve you well. But if you’re straining against the limits of your budget, beware of putting every last penny into a tiny down payment with a huge monthly bill. Myth: You Should Put Down as Much as Possible on a Home The common wisdom was once to put down as much as possible when you buy a home, and 20% at the very least. However, this locks up a good portion of the money that could be growing at a faster rate with other investments. “Putting down less than 20% does increase the monthly mortgage payment due to the higher interest rate and PMI (private mortgage insurance),” explains Andy Kolodgie of The House Guys. “However, you should compare your expected returns on that extra down payment if you were to invest it elsewhere, to the annual savings on your mortgage. For example, investing in stocks and bonds could allow you to earn more money while providing the added benefit of easy liquidity. “A lesson learned from the 2008 mortgage crisis was you can’t eat equity in your home. During the recession, it was nearly impossible to refinance the equity out of any home, as home prices dropped below most people’s mortgage balance. Putting less than 20% down to stay more liquid and investing in alternative assets diversifies your portfolio, keeping buyers more risk-averse.” Again, look holistically at your personal finances. As you near retirement, it makes more sense to play conservatively with a larger down payment to avoid PMI and reduce your monthly mortgage bill. For younger borrowers looking to buy a first home, it often makes more sense to put down 3-10%, and invest their other cash more aggressively in the stock market or other assets with high return potential. Myth: You Need 6-12 Months’ Living Expenses in an Emergency Fund To hear the pundits crying from their soapboxes, we all need at least a year’s worth of living expenses parked in a savings account in cash to protect us from a financial apocalypse. And some people do. But not everyone. Those with either irregular incomes, irregular expenses, or both do need a deep cash cushion. For example, as an entrepreneur, there have been months where I didn’t earn enough to take a personal distribution for myself from the company, so I earned $0 in personal income those months. Someone like me does need 6-12 months’ worth of living expenses saved in an emergency fund. Salaried employees with safe jobs at stable employers don’t need as much cash in an emergency fund. That goes doubly if they live a predictable middle-class lifestyle with the same expenses month in and month out. They may only need 2-3 months’ expenses set aside in cash. I go a step further with my emergency fund and think of it as tiered levels of defenses, like a medieval castle. The first level comprises cash savings — you can tap it if you need it. I also keep several unused credit cards with low-interest rates, that I can also draw on in a pinch. Then I keep several low-volatility, short-term investments that I can also turn to if needed. All of which means I don’t actually need 6-12 months’ living expenses in cash after all. Myth: More Education Inherently Means a Higher Income From a statistical standpoint, education level correlates strongly with income. People with college degrees earn more than those with high school diplomas on average, and those with advanced degrees earn a higher average income still. On a personal level, it often doesn’t work out that way. I have plenty of friends and family members with advanced degrees, and most of them earn modest, middle-income salaries. Salaries with ceilings, and little room for advancement beyond their specialized niche. I can’t tell you how many teachers I know with several master’s degrees, who earn little or nothing more than their colleagues with bachelor’s degrees. In fact, my friends and family with the highest incomes all stopped at bachelor’s degrees and while some got high-paying jobs, others went into business in some capacity. This doesn’t mean you shouldn’t pursue an advanced degree if it’s required for your dream job. By all means, pursue your passion. But don’t assume that an advanced degree inherently means an advanced salary. Read more: How to Make $100k/yr As A Brand Ambassador Myth: Gold Offers the Best Hedge Against Inflation Many investors flock to gold when they fear inflation. But historically, gold often performs badly during times of high inflation. From 1980-1984, for instance, gold lost around 10% in value, even as inflation raged at a 6.5% annual rate. Historically repeated itself in the late 1980s as well. Gold actually works best as a hedge against a weakening currency — compared to other world currencies. When investors think the US dollar is about to crumble in value compared to the euro, pound, or yen, that marks a good moment to grab some gold. But investors more generally worried about inflation should consider better hedges against it. Real estate offers an excellent hedge against inflation, for example. It has inherent value: people will pay the going rate, regardless of the value of the currency. The same goes for commodities like food staples; no one stops eating just because inflation surges. Most professional investment advisors recommend holding no more than 5% of your portfolio in precious metals, if that. I personally own none, preferring to invest in stocks, real estate, and the occasional speculative gamble such as cryptocurrency. Article By G. Brian Davis, The Financially Independent Millennial Updated on Oct 5, 2021, 5:10 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 5th, 2021

Camber Energy: What If They Made a Whole Company Out of Red Flags? – Kerrisdale

Kerrisdale Capital is short shares of Camber Energy Inc (NYSEAMERICAN:CEI). Camber is a defunct oil producer that has failed to file financial statements with the SEC since September 2020, is in danger of having its stock delisted next month, and just fired its accounting firm in September. Its only real asset is a 73% stake […] Kerrisdale Capital is short shares of Camber Energy Inc (NYSEAMERICAN:CEI). Camber is a defunct oil producer that has failed to file financial statements with the SEC since September 2020, is in danger of having its stock delisted next month, and just fired its accounting firm in September. Its only real asset is a 73% stake in Viking Energy Group Inc (OTCMKTS:VKIN), an OTC-traded company with negative book value and a going-concern warning that recently violated the maximum-leverage covenant on one of its loans. (For a time, it also had a fake CFO – long story.) Nonetheless, Camber’s stock price has increased by 6x over the past month; last week, astonishingly, an average of $1.9 billion worth of Camber shares changed hands every day. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2021 hedge fund letters, conferences and more Is there any logic to this bizarre frenzy? Camber pumpers have seized upon the notion that the company is now a play on carbon capture and clean energy, citing a license agreement recently entered into by Viking. But the “ESG Clean Energy” technology license is a joke. Not only is it tiny relative to Camber’s market cap (costing only $5 million and granting exclusivity only in Canada), but it has embroiled Camber in the long-running escapades of a western Massachusetts family that once claimed to have created a revolutionary new combustion engine, only to wind up being penalized by the SEC for raising $80 million in unregistered securities offerings, often to unaccredited investors, and spending much of it on themselves. But the most fascinating part of the CEI boondoggle actually has to do with something far more basic: how many shares are there, and why has dilution been spiraling out of control? We believe the market is badly mistaken about Camber’s share count and ignorant of its terrifying capital structure. In fact, we estimate its fully diluted share count is roughly triple the widely reported number, bringing its true, fully diluted market cap, absurdly, to nearly $900 million. Since Camber is delinquent on its financials, investors have failed to fully appreciate the impact of its ongoing issuance of an unusual, highly dilutive class of convertible preferred stock. As a result of this “death spiral” preferred, Camber has already seen its share count increase 50- million-fold from early 2016 to July 2021 – and we believe it isn’t over yet, as preferred holders can and will continue to convert their securities and sell the resulting common shares. Even at the much lower valuation that investors incorrectly think Camber trades for, it’s still overvalued. The core Viking assets are low-quality and dangerously levered, while any near- term benefits from higher commodity prices will be muted by hedges established in 2020. The recent clean-energy license is nearly worthless. It’s ridiculous to have to say this, but Camber isn’t worth $900 million. If it looks like a penny stock, and it acts like a penny stock, it is a penny stock. Camber has been a penny stock before – no more than a month ago, in fact – and we expect that it will be once again. Company Background Founded in 2004, Camber was originally called Lucas Energy Resources. It went public via a reverse merger in 2006 with the plan of “capitaliz[ing] on the increasing availability of opportunistic acquisitions in the energy sector.”1 But after years of bad investments and a nearly 100% decline in its stock price, the company, which renamed itself Camber in 2017, found itself with little economic value left; faced with the prospect of losing its NYSE American listing, it cast about for new acquisitions beginning in early 2019. That’s when Viking entered the picture. Jim Miller, a member of Camber’s board, had served on the board of a micro-cap company called Guardian 8 that was working on “a proprietary new class of enhanced non-lethal weapons”; Guardian 8’s CEO, Steve Cochennet, happened to also be part owner of a Kansas-based company that operated some of Viking’s oil and gas assets and knew that Viking, whose shares traded over the counter, was interested in moving up to a national exchange.2 (In case you’re wondering, under Miller and Cochennet’s watch, Guardian 8’s stock saw its price drop to ~$0; it was delisted in 2019.3) Viking itself also had a checkered past. Previously a shell company, it was repurposed by a corporate lawyer and investment banker named Tom Simeo to create SinoCubate, “an incubator of and investor in privately held companies mainly in P.R. China.” But this business model went nowhere. In 2012, SinoCubate changed its name to Viking Investments but continued to achieve little. In 2014, Simeo brought in James A. Doris, a Canadian lawyer, as a member of the board of directors and then as president and CEO, tasked with executing on Viking’s new strategy of “acquir[ing] income-producing assets throughout North America in various sectors, including energy and real estate.” In a series of transactions, Doris gradually built up a portfolio of oil wells and other energy assets in the United States, relying on large amounts of high-cost debt to get deals done. But Viking has never achieved consistent GAAP profitability; indeed, under Doris’s leadership, from 2015 to the first half of 2021, Viking’s cumulative net income has totaled negative $105 million, and its financial statements warn of “substantial doubt regarding the Company’s ability to continue as a going concern.”4 At first, despite the Guardian 8 crew’s match-making, Camber showed little interest in Viking and pursued another acquisition instead. But, when that deal fell apart, Camber re-engaged with Viking and, in February 2020, announced an all-stock acquisition – effectively a reverse merger in which Viking would end up as the surviving company but transfer some value to incumbent Camber shareholders in exchange for the national listing. For reasons that remain somewhat unclear, this original deal structure was beset with delays, and in December 2020 (after months of insisting that deal closing was just around the corner) Camber announced that it would instead directly purchase a 51% stake in Viking; at the same time, Doris, Viking’s CEO, officially took over Camber as well. Subsequent transactions through July 2021 have brough Camber’s Viking stake up to 69.9 million shares (73% of Viking’s total common shares), in exchange for consideration in the form of a mixture of cash, debt forgiveness,5 and debt assumption, valued in the aggregate by Viking at only $50.7 million: Camber and Viking announced a new merger agreement in February 2021, aiming to take out the remaining Viking shares not owned by Camber and thus fully combine the two companies, but that plan is on hold because Camber has failed to file its last 10-K (as well as two subsequent 10-Qs) and is thus in danger of being delisted unless it catches up by November. Today, then, Camber’s absurd equity valuation rests entirely on its majority stake in a small, unprofitable oil-and-gas roll-up cobbled together by a Canadian lawyer. An Opaque Capital Structure Has Concealed the True Insanity of Camber’s Valuation What actually is Camber’s equity valuation? It sounds like a simple question, and sources like Bloomberg and Yahoo Finance supply what looks like a simple answer: 104.2 million shares outstanding times a $3.09 closing price (as of October 4, 2021) equals a market cap of $322 million – absurd enough, given what Camber owns. But these figures only tell part of the story. We estimate that the correct fully diluted market cap is actually a staggering $882 million, including the impact of both Camber’s unusual, highly dilutive Series C convertible preferred stock and its convertible debt. Because Camber is delinquent on its SEC filings, it’s difficult to assemble an up-to-date picture of its balance sheet and capital structure. The widely used 104.2-million-share figure comes from an 8-K filed in July that states, in part: As of July 9, 2021, the Company had 104,195,295 shares of common stock issued and outstanding. The increase in our outstanding shares of common stock from the date of the Company’s February 23, 2021 increase in authorized shares of common stock (from 25 million shares to 250 million shares), is primarily due to conversions of shares of Series C Preferred Stock of the Company into common stock, and conversion premiums due thereon, which are payable in shares of common stock. This bland language belies the stunning magnitude of the dilution that has already taken place. Indeed, we estimate that, of the 104.2 million common shares outstanding on July 9th, 99.7% were created via the conversion of Series C preferred in the past few years – and there’s more where that came from. The terms of Camber’s preferreds are complex but boil down to the following: they accrue non- cash dividends at the sky-high rate of 24.95% per year for a notional seven years but can be converted into common shares at any time. The face value of the preferred shares converts into common shares at a fixed conversion price of $162.50 per share, far higher than the current trading price – so far, so good (from a Camber-shareholder perspective). The problem is the additional “conversion premium,” which is equal to the full seven years’ worth of dividends, or 7 x 24.95% ≈ 175% of face value, all at once, and is converted at a far lower conversion price that “will never be above approximately $0.3985 per share…regardless of the actual trading price of Camber’s common stock” (but could in principle go lower if the price crashes to new lows).6 The upshot of all this is that one share of Series C preferred is now convertible into ~43,885 shares of common stock.7 Historically, all of Camber’s Series C preferred was held by one investor: Discover Growth Fund. The terms of the preferred agreement cap Discover’s ownership of Camber’s common shares at 9.99% of the total, but nothing stops Discover from converting preferred into common up to that cap, selling off the resulting shares, converting additional preferred shares into common up to the cap, selling those common shares, etc., as Camber has stated explicitly (and as Discover has in fact done over the years) (emphasis added): Although Discover may not receive shares of common stock exceeding 9.99% of its outstanding shares of common stock immediately after affecting such conversion, this restriction does not prevent Discover from receiving shares up to the 9.99% limit, selling those shares, and then receiving the rest of the shares it is due, in one or more tranches, while still staying below the 9.99% limit. If Discover chooses to do this, it will cause substantial dilution to the then holders of its common stock. Additionally, the continued sale of shares issuable upon successive conversions will likely create significant downward pressure on the price of its common stock as Discover sells material amounts of Camber’s common stock over time and/or in a short period of time. This could place further downward pressure on the price of its common stock and in turn result in Discover receiving an ever increasing number of additional shares of common stock upon conversion of its securities, and adjustments thereof, which in turn will likely lead to further dilution, reductions in the exercise/conversion price of Discover’s securities and even more downward pressure on its common stock, which could lead to its common stock becoming devalued or worthless.8 In 2017, soon after Discover began to convert some of its first preferred shares, Camber’s then- management claimed to be shocked by the results and sued Discover for fraud, arguing that “[t]he catastrophic effect of the Discover Documents [i.e. the terms of the preferred] is so devastating that the Discover Documents are prima facie unconscionable” because “they will permit Discover to strip Camber of its value and business well beyond the simple repayment of its debt.” Camber called the documents “extremely difficult to understand” and insisted that they “were drafted in such a way as to obscure the true terms of such documents and the total number of shares of common stock that could be issuable by Camber thereunder. … Only after signing the documents did Camber and [its then CEO]…learn that Discover’s reading of the Discover Documents was that the terms that applied were the strictest and most Camber unfriendly interpretation possible.”9 But the judge wasn’t impressed, suggesting that it was Camber’s own fault for failing to read the fine print, and the case was dismissed. With no better options, Camber then repeatedly came crawling back to Discover for additional tranches of funding via preferred sales. While the recent spike in common share count to 104.2 million as of early July includes some of the impact of ongoing preferred conversion, we believe it fails to include all of it. In addition to Discover’s 2,093 shares of Series C preferred held as of February 2021, Camber issued additional shares to EMC Capital Partners, a creditor of Viking’s, as part of a January agreement to reduce Viking’s debt.10 Then, in July, Camber issued another block of preferred shares – also to Discover, we believe – to help fund Viking’s recent deals.11 We speculate that many of these preferred shares have already been converted into common shares that have subsequently been sold into a frenzied retail bid. Beyond the Series C preferred, there is one additional source of potential dilution: debt issued to Discover in three transactions from December 2020 to April 2021, totaling $20.5 million in face value, and amended in July to be convertible at a fixed price of $1.25 per share.12 We summarize our estimates of all of these sources of potential common share issuance below: Might we be wrong about this math? Absolutely – the mechanics of the Series C preferreds are so convoluted that prior Camber management sued Discover complaining that the legal documents governing them “were drafted in such a way as to obscure the true terms of such documents and the total number of shares of common stock that could be issuable by Camber thereunder.” Camber management could easily set the record straight by revealing the most up- to-date share count via an SEC filing, along with any additional clarifications about the expected future share count upon conversion of all outstanding convertible securities. But we're confident that the current share count reported in financial databases like Bloomberg and Yahoo Finance significantly understates the true, fully diluted figure. An additional indication that Camber expects massive future dilution relates to the total authorized shares of common stock under its official articles of incorporation. It was only a few months ago, in February, that Camber had to hold a special shareholder meeting to increase its maximum authorized share count from 25 million to 250 million in order to accommodate all the shares to be issued because of preferred conversions. But under Camber’s July agreement to sell additional preferred shares to Discover, the company (emphasis added) agreed to include proposals relating to the approval of the July 2021 Purchase Agreement and the issuance of the shares of common stock upon conversion of the Series C Preferred Stock sold pursuant to the July 2021 Purchase Agreement, as well as an increase in authorized common stock to fulfill our obligations to issue such shares, at the Company’s next Annual Meeting, the meeting held to approve the Merger or a separate meeting in the event the Merger is terminated prior to shareholder approval, and to use commercially reasonable best efforts to obtain such approvals as soon as possible and in any event prior to January 1, 2022.13 In other words, Camber can already see that 250 million shares will soon not be enough, consistent with our estimate of ~285 million fully diluted shares above. In sum, Camber’s true overvaluation is dramatically worse than it initially appears because of the massive number of common shares that its preferred and other securities can convert into, leading to a fully diluted share count that is nearly triple the figure found in standard information sources used by investors. This enormous latent dilution, impossible to discern without combing through numerous scattered filings made by a company with no up-to-date financial statements in the public domain, means that the market is – perhaps out of ignorance – attributing close to one billion dollars of value to a very weak business. Camber’s Stake in Viking Has Little Real Value In light of Camber’s gargantuan valuation, it’s worth dwelling on some basic facts about its sole meaningful asset, a 73% stake in Viking Energy. As of 6/30/21: Viking had negative $15 million in shareholder equity/book Its financial statements noted “substantial doubt regarding the Company’s ability to continue as a going ” Of its $101.3 million in outstanding debt (at face value), nearly half (48%) was scheduled to mature and come due over the following 12 months. Viking noted that it “does not currently maintain controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms.” Viking’s CEO “has concluded that these [disclosure] controls and procedures are not effective in providing reasonable assurance of compliance.” Viking disclosed that a key subsidiary, Elysium Energy, was “in default of the maximum leverage ratio covenant under the term loan agreement at June 30, 2021”; this covenant caps the entity’s total secured debt to EBITDA at 75 to 1.14 This is hardly a healthy operation. Indeed, even according to Viking’s own black-box estimates, the present value of its total proved reserves of oil and gas, using a 10% discount rate (likely generous given the company’s high debt costs), was $120 million as of 12/31/20,15 while its outstanding debt, as stated above, is $101 million – perhaps implying a sliver of residual economic value to equity holders, but not much. And while some market observers have recently gotten excited about how increases in commodity prices could benefit Camber/Viking, any near-term impact will be blunted by hedges put on by Viking in early 2020, which cover, with respect to its Elysium properties, “60% of the estimated production for 2021 and 50% of the estimated production for the period between January, 2022 to July, 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas” – cutting into the benefit of any price spikes above those ceiling levels.16 Sharing our dreary view of Viking’s prospects is one of Viking’s own financial advisors, a firm called Scalar, LLC, that Viking hired to prepare a fairness opinion under the original all-stock merger agreement with Camber. Combining Viking’s own internal projections with data on comparable-company valuation multiples, Scalar concluded in October 2020 that Viking’s equity was worth somewhere between $0 and $20 million, depending on the methodology used, with the “purest” methodology – a true, full-blown DCF – yielding the lowest estimate of $0-1 million: Camber’s advisor, Mercer Capital, came to a similar conclusion: its “analysis indicated an implied equity value of Viking of $0 to $34.3 million.”17 It’s inconceivable that a majority stake in this company, deemed potentially worthless by multiple experts and clearly experiencing financial strains, could somehow justify a near-billion-dollar valuation. Instead of dwelling on the unpleasant realities of Viking’s oil and gas business, Camber has drawn investor attention to two recent transactions conducted by Viking with Camber funding: a license agreement with “ESG Clean Energy,” discussed in further detail below, and the acquisition of a 60.3% stake in Simson-Maxwell, described as “a leading manufacturer and supplier of industrial engines, power generation products, services and custom energy solutions.” But Viking paid just $8 million for its Simson-Maxwell shares,18 and the company has just 125 employees; it defies belief to think that this purchase was such a bargain as to make a material dent in Camber’s overvaluation. And what does Simson-Maxwell actually do? One of its key officers, Daryl Kruper (identified as its chairman in Camber’s press release), describes the company a bit less grandly and more concretely on his LinkedIn page: Simson Maxwell is a power systems specialist. The company assembles and sells generator sets, industrial engines, power control systems and switchgear. Simson Maxwell has service and parts facilities in Edmonton, Calgary, Prince George, Vancouver, Nanaimo and Terrace. The company has provided its western Canadian customers with exceptional service for over 70 years. In other words, Simson-Maxwell acts as a sort of distributor/consultant, packaging industrial- strength generators and engines manufactured by companies like GE and Mitsubishi into systems that can provide electrical power, often in remote areas in western Canada; Simson- Maxwell employees then drive around in vans maintaining and repairing these systems. There’s nothing obviously wrong with this business, but it’s small, regional (not just Canada – western Canada specifically), likely driven by an unpredictable flow of new large projects, and unlikely to garner a high standalone valuation. Indeed, buried in one of Viking’s agreements with Simson- Maxwell’s selling shareholders (see p. 23) are clauses giving Viking the right to purchase the rest of the company between July 2024 and July 2026 at a price of at least 8x trailing EBITDA and giving the selling shareholders the right to sell the rest of their shares during the same time frame at a price of at least 7x trailing EBITDA – the kind of multiples associated with sleepy industrial distributors, not fast-growing retail darlings. Since Simon-Maxwell has nothing to do with Viking’s pre-existing assets or (alleged) expertise in oil and gas, and Viking and Camber are hardly flush with cash, why did they make the purchase? We speculate that management is concerned about the combined company’s ability to maintain its listing on the NYSE American. For example, when describing its restruck merger agreement with Viking, Camber noted: Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing”/“reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time. What does it take to qualify for initial listing on the NYSE American? There are several ways, but three require at least $4 million of positive stockholders’ equity, which Viking, the intended surviving company, doesn’t have today; another requires a market cap of greater than $75 million, which management might (quite reasonably) be concerned about achieving sustainably. That leaves a standard that requires a listed company to have $75 million in assets and revenue. With Viking running at only ~$40 million of annualized revenue, we believe management is attempting to buy up more via acquisition. In fact, if the goal is simply to “buy” GAAP revenue, the most efficient way to do it is by acquiring a stake in a low-margin, slow- growing business – little earnings power, hence a low purchase price, but plenty of revenue. And by buying a majority stake instead of the whole thing, the acquirer can further reduce the capital outlay while still being able to consolidate all of the operation’s revenue under GAAP accounting. Buying 60.3% of Simson-Maxwell seems to fit the bill, but it’s a placeholder, not a real value-creator. Camber’s Partners in the Laughable “ESG Clean Energy” Deal Have a Long History of Broken Promises and Alleged Securities Fraud The “catalyst” most commonly cited by Camber Energy bulls for the recent massive increase in the company’s stock price is an August 24th press release, “Camber Energy Secures Exclusive IP License for Patented Carbon-Capture System,” announcing that the company, via Viking, “entered into an Exclusive Intellectual Property License Agreement with ESG Clean Energy, LLC (‘ESG’) regarding ESG’s patent rights and know-how related to stationary electric power generation, including methods to utilize heat and capture carbon dioxide.” Our research suggests that the “intellectual property” in question amounts to very little: in essence, the concept of collecting the exhaust gases emitted by a natural-gas–fueled electric generator, cooling it down to distill out the water vapor, and isolating the remaining carbon dioxide. But what happens to the carbon dioxide then? The clearest answer ESG Clean Energy has given is that it “can be sold to…cannabis producers”19 to help their plants grow faster, though the vast majority of the carbon dioxide would still end up escaping into the atmosphere over time, and additional greenhouse gases would be generated in compressing and shipping this carbon dioxide to the cannabis producers, likely leading to a net worsening of carbon emissions.20 And what is Viking – which primarily extracts oil and gas from the ground, as opposed to running generators and selling electrical power – supposed to do with this technology anyway? The idea seems to be that the newly acquired Simson-Maxwell business will attempt to sell the “technology” as a value-add to customers who are buying generators in western Canada. Indeed, while Camber’s press-release headline emphasized the “exclusive” nature of the license, the license is only exclusive in Canada plus “up to twenty-five locations in the United States” – making the much vaunted deal even more trivial than it might first appear. Viking paid an upfront royalty of $1.5 million in cash in August, with additional installments of $1.5 and $2 million due by January and April 2022, respectively, for a total of $5 million. In addition, Viking “shall pay to ESG continuing royalties of not more than 15% of the net revenues of Viking generated using the Intellectual Property, with the continuing royalty percentage to be jointly determined by the parties collaboratively based on the parties’ development of realistic cashflow models resulting from initial projects utilizing the Intellectual Property, and with the parties utilizing mediation if they cannot jointly agree to the continuing royalty percentage”21 – a strangely open-ended, perhaps rushed, way of setting a royalty rate. Overall, then, Viking is paying $5 million for roughly 85% of the economics of a technology that might conceivably help “capture” CO2 emitted by electric generators in Canada (and up to 25 locations in the United States!) but then probably just re-emit it again. This is the great advance that has driven Camber to a nearly billion-dollar market cap. It’s with good reason that on ESG Clean Energy’s web site (as of early October), the list of “press releases that show that ESG Clean Energy is making waves in the distributive power industry” is blank: If the ESG Clean Energy license deal were just another trivial bit of vaporware hyped up by a promotional company and its over-eager shareholders, it would be problematic but unremarkable; things like that happen all the time. But it’s the nature and history of Camber/Viking’s counterparty in the ESG deal that truly makes the situation sublime. ESG Clean Energy is in fact an offshoot of the Scuderi Group, a family business in western Massachusetts created to develop the now deceased Carmelo Scuderi’s idea for a revolutionary new type of engine. (In a 2005 AP article entitled “Engine design draws skepticism,” an MIT professor “said the creation is almost certain to fail.”) Two of Carmelo’s children, Nick and Sal, appeared in a recent ESG Clean Energy video with Camber’s CEO, who called Sal “more of the brains behind the operation” but didn’t state his official role – interesting since documents associated with ESG Clean Energy’s recent small-scale capital raises don’t mention Sal at all. Buried in Viking’s contract with ESG Clean Energy is the following section, indicating that the patents and technology underlying the deal actually belong in the first instance to the Scuderi Group, Inc.: 2.6 Demonstration of ESG’s Exclusive License with Scuderi Group and Right to Grant Licenses in this Agreement. ESG shall provide necessary documentation to Viking which demonstrates ESG’s right to grant the licenses in this Section 2 of this Agreement. For the avoidance of doubt, ESG shall provide necessary documentation that verifies the terms and conditions of ESG’s exclusive license with the Scuderi Group, Inc., a Delaware USA corporation, having an address of 1111 Elm Street, Suite 33, West Springfield, MA 01089 USA (“Scuderi Group”), and that nothing within ESG’s exclusive license with the Scuderi Group is inconsistent with the terms of this Agreement. In fact, the ESG Clean Energy entity itself was originally called Scuderi Clean Energy but changed its name in 2019; its subsidiary ESG-H1, LLC, which presides over a long-delayed power-generation project in the small city of Holyoke, Massachusetts (discussed further below), used to be called Scuderi Holyoke Power LLC but also changed its name in 2019.22 The SEC provided a good summary of the Scuderi Group’s history in a 2013 cease-and-desist order that imposed a $100,000 civil money penalty on Sal Scuderi (emphasis added): Founded in 2002, Scuderi Group has been in the business of developing a new internal combustion engine design. Scuderi Group’s business plan is to develop, patent, and license its engine technology to automobile companies and other large engine manufacturers. Scuderi Group, which considers itself a development stage company, has not generated any revenue… …These proceedings arise out of unregistered, non-exempt stock offerings and misleading disclosures regarding the use of offering proceeds by Scuderi Group and Mr. Scuderi, the company’s president. Between 2004 and 2011, Scuderi Group sold more than $80 million worth of securities through offerings that were not registered with the Commission and did not qualify for any of the exemptions from the Securities Act’s registration requirement. The company’s private placement memoranda informed investors that Scuderi Group intended to use the proceeds from its offerings for “general corporate purposes, including working capital.” In fact, the company was making significant payments to Scuderi family members for non-corporate purposes, including, large, ad hoc bonus payments to Scuderi family employees to cover personal expenses; payments to family members who provided no services to Scuderi; loans to Scuderi family members that were undocumented, with no written interest and repayment terms; large loans to fund $20 million personal insurance policies for six of the Scuderi siblings for which the company has not been, and will not be, repaid; and personal estate planning services for the Scuderi family. Between 2008 and 2011, a period when Scuderi Group sold more than $75 million in securities despite not obtaining any revenue, Mr. Scuderi authorized more than $3.2 million in Scuderi Group spending on such purposes. …In connection with these offerings [of stock], Scuderi Group disseminated more than 3,000 PPMs [private placement memoranda] to potential investors, directly and through third parties. Scuderi Group found these potential investors by, among other things, conducting hundreds of roadshows across the U.S.; hiring a registered broker-dealer to find investors; and paying numerous intermediaries to encourage people to attend meetings that Scuderi Group arranged for potential investors. …Scuderi Group’s own documents reflect that, in total, over 90 of the company’s investors were non-accredited investors… The Scuderi Group and Sal Scuderi neither admitted nor denied the SEC’s findings but agreed to stop violating securities law. Contemporary local news coverage of the regulatory action added color to the SEC’s description of the Scuderis’ fund-raising tactics (emphasis added): Here on Long Island, folks like HVAC specialist Bill Constantine were early investors, hoping to earn a windfall from Scuderi licensing the idea to every engine manufacturer in the world. Constantine said he was familiar with the Scuderis because he worked at an Islandia company that distributed an oil-less compressor for a refrigerant recovery system designed by the family patriarch. Constantine told [Long Island Business News] he began investing in the engine in 2007, getting many of his friends and family to put their money in, too. The company held an invitation-only sales pitch at the Marriott in Islandia in February 2011. Commercial real estate broker George Tsunis said he was asked to recruit investors for the Scuderi Group, but declined after hearing the pitch. “They were talking about doing business with Volkswagen and Mercedes, but everything was on the come,” Tsunis said. “They were having a party and nobody came.” Hot on the heels of the SEC action, an individual investor who had purchased $197,000 of Scuderi Group preferred units sued the Scuderi Group as well as Sal, Nick, Deborah, Stephen, and Ruth Scuderi individually, alleging, among other things, securities fraud (e.g. “untrue statements of material fact” in offering memoranda). This case was settled out of court in 2016 after the judge reportedly “said from the bench that he was likely to grant summary judgement for [the] plaintiff. … That ruling would have clear the way for other investors in Scuderi to claim at least part of a monetary settlement.” (Two other investors filed a similar lawsuit in 2017 but had it dismissed in 2018 because they ran afoul of the statute of limitations.23) The Scuderi Group put on a brave face, saying publicly, “The company is very pleased to put the SEC matter behind it and return focus to its technology.” In fact, in December 2013, just months after the SEC news broke, the company entered into a “Cooperative Consortium Agreement” with Hino Motors, a Japanese manufacturer, creating an “engineering research group” to further develop the Scuderi engine concept. “Hino paid Scuderi an initial fee of $150,000 to join the Consortium Group, which was to be refunded if Scuderi was unable to raise the funding necessary to start the Project by the Commencement Date,” in the words of Hino’s later lawsuit.24 Sure enough, the Scuderi Group ended up canceling the project in early October 2014 “due to funding and participant issues” – but it didn’t pay back the $150,000. Hino’s lawsuit documents Stephen Scuderi’s long series of emailed excuses: 10/31/14: “I must apologize, but we are going to be a little late in our refund of the Consortium Fee of $150,000. I am sure you have been able to deduce that we have a fair amount of challenging financial problems that we are working through. I am counting on financing for our current backlog of Power Purchase Agreement (PPA) projects to provide the capital to refund the Consortium Fee. Though we are very optimistic that the financial package for our PPA projects will be completed successfully, the process is taking a little longer than I originally expected to complete (approximately 3 months longer).” 11/25/14: “I am confident that we can pay Hino back its refund by the end of January. … The reason I have been slow to respond is because I was waiting for feedback from a few large cornerstone investors that we have been negotiating with. The negotiations have been progressing very well and we are close to a comprehensive financing deal, but (as often happens) the back and forth of the negotiating process takes ” 1/12/15: “We have given a proposal to the potential high-end investors that is most interested in investing a large sum of money into Scuderi Group. That investor has done his due-diligence on our company and has communicated to us that he likes our proposal but wants to give us a counter ” 1/31/15: “The individual I spoke of last month is one of several high net worth individuals that are currently evaluating investing a significant amount of equity capital into our That particular individual has not yet responded with a counter proposal, because he wishes to complete a study on the power generation market as part of his due diligence effort first. Though we learned of the study only recently, we believe that his enthusiasm for investing in Scuderi Group remains as strong as ever and steady progress is being made with the other high net worth individuals as well. … I ask only that you be patient for a short while longer as we make every effort possible to raise the monies need[ed] to refund Hino its consortium fee.” Fed up, Hino sued instead of waiting for the next excuse – but ended up discovering that the Scuderi bank account to which it had wired the $150,000 now contained only about $64,000. Hino and the Scuderi Group then entered into a settlement in which that account balance was supposed to be immediately handed over to Hino, with the remainder plus interest to be paid back later – but Scuderi didn’t even comply with its own settlement, forcing Hino to re-initiate its lawsuit and obtain an official court judgment against Scuderi. Pursuant to that judgment, Hino formally requested an array of documents like tax returns and bank statements, but Scuderi simply ignored these requests, using the following brazen logic:25 Though as of this date, the execution has not been satisfied, Scuderi continues to operate in the ordinary course of business and reasonably expects to have money available to satisfy the execution in full in the near future. … Responding to the post- judgment discovery requests, as a practical matter, will not enable Scuderi to pay Hino any faster than can be achieved by Scuderi using all of its resources and efforts to conduct its day-to-day business operations and will only serve to impose additional and unnecessary costs on both parties. Scuderi has offered and is willing to make payments every 30 days to Hino in amounts not less than $10,000 until the execution is satisfied in full. Shortly thereafter, in March 2016, Hino dropped its case, perhaps having chosen to take the $10,000 per month rather than continue to tangle in court with the Scuderis (though we don’t know for sure). With its name tarnished by disgruntled investors and the SEC, and at least one of its bank accounts wiped out by Hino Motors, the Scuderi Group didn’t appear to have a bright future. But then, like a phoenix rising from the ashes, a new business was born: Scuderi Clean Energy, “a wholly owned subsidiary of Scuderi Group, Inc. … formed in October 2015 to market Scuderi Engine Technology to the power generation industry.” (Over time, references to the troubled “Scuderi Engine Technology” have faded away; today ESG Clean Energy is purportedly planning to use standard, off-the-shelf Caterpillar engines. And while an early press release described Scuderi Clean Energy as “a wholly owned subsidiary of Scuderi Group,” the current Scuderi/ESG Clean Energy, LLC, appears to have been created later as its own (nominally) independent entity, led by Nick Scuderi.) As the emailed excuses in the Hino dispute suggested, this pivot to “clean energy” and electric power generation had been in the works for some time, enabling Scuderi Clean Energy to hit the ground running by signing a deal with Holyoke Gas and Electric, a small utility company owned by the city of Holyoke, Massachusetts (population 38,238) in December 2015. The basic idea was that Scuderi Clean Energy would install a large natural-gas generator and associated equipment on a vacant lot and use it to supply Holyoke Gas and Electric with supplemental electric power, especially during “peak demand periods in the summer.”26 But it appears that, from day one, Holyoke had its doubts. In its 2015 annual report (p. 80), the company wrote (emphasis added): In December 2015, the Department contracted with Scuderi Clean Energy, LLC under a twenty (20) year [power purchase agreement] for a 4.375 MW [megawatt] natural gas generator. Uncertain if this project will move forward; however Department mitigated market and development risk by ensuring interconnection costs are born by other party and that rates under PPA are discounted to full wholesale energy and resulting load reduction cost savings (where and if applicable). Holyoke was right to be uncertain. Though its 2017 annual report optimistically said, “Expected Commercial Operation date is April 1, 2018” (p. 90), the 2018 annual report changed to “Expected Commercial Operation is unknown at this time” – language that had to be repeated verbatim in the 2019 and 2020 annual reports. Six years after the contract was signed, the Scuderi Clean Energy, now ESG Clean Energy, project still hasn’t produced one iota of power, let alone one dollar of revenue. What it has produced, however, is funding from retail investors, though perhaps not as much as the Scuderis could have hoped. Beginning in 2017, Scuderi Clean Energy managed to sell roughly $1.3 million27 in 5-year “TIGRcub” bonds (Top-Line Income Generation Rights Certificates) on the small online Entrex platform by advertising a 12% “minimum yield” and 16.72% “projected IRR” (based on 18.84% “revenue participation”) over a 5-year term. While we don’t know the exact terms of these bonds, we believe that, at least early on, interest payments were covered by some sort of prepaid insurance policy, while later payments depend on (so far nonexistent) revenue from the Holyoke project. But Scuderi Clean Energy had been aiming to raise $6 million to complete the project, not $1 million; indeed, this was only supposed to be the first component of a whole empire of “Scuderi power plants”28 that would require over $100 million to build but were supposedly already under contract.29 So far, however, nothing has come of these other projects, and, seemingly suffering from insufficient funding, the Holyoke effort languished. (Of course, it might have been more investor-friendly if Scuderi Clean Energy had only accepted funding on the condition that there was enough to actually complete construction.) Under the new ESG Clean Energy name, the Scuderis tried in 2019 to raise capital again, this time in the form of $5 million of preferred units marketed as a “5 year tax free Investment with 18% cash-on-cash return,” but, based on an SEC filing, it appears that the offering didn’t go well, raising just $150,000. With funding still limited and the Holyoke project far from finished, the clock is ticking: the $1.3 million of bonds will begin to mature in early 2022. It was thus fortunate that Viking came along when it did to pay ESG Clean Energy a $1.5 million upfront royalty for its incredible technology. Interestingly, ESG Clean Energy began in late 2020 to provide extremely detailed updates on its Holyoke construction progress, including items as prosaic as “Throughout the week, ESG had met with and continued to exchange numerous e-mails with our mechanical engineering firm.” With frequent references to the “very fluid environment,” the tone is unmistakably defensive. Consider the September update (emphasis not added): Reading between the lines, we believe the intended message is this: “We didn’t just take your money and run – honest! We’re working hard!” Nonetheless, someone appears to be unhappy, as indicated by the FINRA BrokerCheck report for one Eric Willer, a former employee of Fusion Analytics, which was listed as a recipient of sales compensation in connection with the Scuderi Clean Energy bond offerings. Willer may now be in hot water: a disclosure notice dated 3/31/2021 reads: “Wells Notice received as a preliminary determination to recommend disciplinary action of fraud, negligent misrepresentation, and recommendation without due diligence in the sale of bonds issued by Scuderi Holyoke,” with a further investigation still pending. We wait eagerly for additional updates. Why does the saga of the Scuderis matter? Many Camber investors seem to have convinced themselves that the ESG Clean Energy “carbon capture” IP licensed by Viking has enormous value and can plausibly justify hundreds of millions of dollars of incremental market cap. As we explained above, we find this thoroughly implausible even without getting into Scuderi family history: in the end, the “technology” will at best add a smidgen of value to some generators in Canada. But track records matter too, and the Scuderi track record of failed R&D, delays, excuses, and alleged misuse of funds is worth considering. These people have spent six years trying and failing to sell power to a single municipally owned utility company in a single small city in western Massachusetts. Are they really about to end climate change? The Case of the Fictitious CFO Since Camber is effectively a bet on Viking, and Viking, in its current form, has been assembled by James Doris, it’s important to assess Doris’s probity and good judgment. In that connection, it’s noteworthy that, from December 2014 to July 2016, at the very start of Doris’s reign as Viking’s CEO and president, the company’s CFO, Guangfang “Cecile” Yang, was apparently fictitious. (Covering the case in 2019, Dealbreaker used the headline “Possibly Imaginary CFO Grounds For Very Real Fraud Lawsuit.”) This strange situation was brought to light by an SEC lawsuit against Viking’s founder, Tom Simeo; just last month, a US district court granted summary judgment in favor of the SEC against Simeo, but Simeo’s penalties have yet to be determined.30 The court’s opinion provided a good overview of the facts (references omitted, emphasis added): In 2013, Simeo hired Yang, who lives in Shanghai, China, to be Viking’s CFO. Yang served in that position until she purportedly resigned in July 2016. When Yang joined the company, Simeo fabricated a standing resignation letter, in which Yang purported to “irrevocably” resign her position with Viking “at any time desired by the Company” and “[u]pon notification that the Company accepted [her] resignation”…Simeo forged Yang’s signature on this document. This letter allowed Simeo to remove Yang from the position of CFO whenever he pleased. Simeo also fabricated a power of attorney purportedly signed by Yang that allowed Simeo to “affix Yang’s signature to any and all documents,” including documents that Viking had to file with the SEC. Viking represented to the public that Yang was the company’s CFO and a member of its Board of Directors. But “Yang never actually functioned as Viking’s CFO.” She “was not involved in the financial and strategic decisions” of Viking during the Relevant Period. Nor did she play any role in “preparing Viking’s financial statements or public filings.” Indeed, at least as of April 3, 2015, Yang did not do “any work” on Viking’s financial statements and did not speak with anyone who was preparing them. She also did not “review or evaluate Viking’s internal controls over financial reporting.” Further, during most or all of the Relevant Period, Viking did not compensate Yang despite the fact that she was the company’s highest ranking financial employee. Nevertheless, Simeo says that he personally paid her in cash. Yang’s “sole point of contact” at Viking was Simeo. Indeed Simeo was “the only person at Viking who communicated with Yang.” Thus many people at Viking never interacted with Yang. Despite the fact that Doris has served as Viking’s CEO since December 2014, he “has never met or spoken to Yang either in person or through any other means, and he has never communicated with Yang in writing.” … To think Yang served as CFO during this time, but the CEO and other individuals involved with Viking’s SEC filings never once spoke with her, strains all logical credulity. It remains unclear whether Yang is even a real person. When the SEC asked Simeo directly (“Is it the case that you made up the existence of Ms. Yang?”) he responded by “invoking the Fifth Amendment.”31 While the SEC’s efforts thus far have focused on Simeo, the case clearly raises the question of what Doris knew and when he knew it. Indeed, though many of the required Sarbanes-Oxley certifications of Viking’s financial statements during the Yang period were signed by Simeo in his role as chairman, Doris did personally sign off on an amended 2015 10-K that refers to Yang as CFO through July 2016 and includes her complete, apparently fictitious, biography. Viking has also disclosed the following, which we believe pertains to the Yang affair (emphasis added): In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified the Company that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and its CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder [laws that pertain to securities fraud] during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company has communicated with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.32 Perhaps the SEC has moved on from this matter and will let Doris and Viking off the hook, but the fact pattern is eyebrow-raising nonetheless. A similarly troubling incident came soon after the time of Yang’s “resignation,” when Viking’s auditing firm resigned, withdrew its recent audit report, and wrote a letter “advising the Company that it believed an illegal act may have occurred” – because of concerns that had nothing to do with Yang. First, Viking accounted for the timing of a grant of shares to a consultant in apparent contradiction of the terms of the written agreement with the consultant – a seemingly minor issue. But, under scrutiny from the auditor, Viking “produced a letter… (the version which was provided to us was unsigned), from the consultant stating that the Agreement was invalidated verbally.” Reading between the lines, the “uncomfortable” auditor suspected that this letter was a fake, created just to get him off Viking’s back. In another incident, the auditor “became aware that seven of the company’s loans…were due to be repaid” in August 2016 but hadn’t been, creating a default that would in turn “trigger[] a cross-default clause contained in 17 additional loans” – but Viking claimed it “had secured an oral extension to the loans from the broker-dealer representing the lenders by September 6, 2016” – after the loans’ maturity dates – “so the Company did not need to disclose ‘the defaults under these loans’ after such time since the loans were not in default.” It’s easy to see why an auditor would object to this attitude toward financial disclosure – no need to mention a default in August as long as you can secure a verbal agreement resolving it by September! Against this backdrop of disturbing behavior, the fact that Camber just dismissed its auditing firm three weeks ago on September 16th, even with delisting looming if the company can’t become current again with its SEC filings by November, seems even more unsettling. Have Camber and Viking management earned investors’ trust? Conclusion It’s not clear why, back in 2017, Lucas Energy changed its name to “Camber” specifically, but we’d like to think the inspiration was England’s Camber Castle. According to Atlas Obscura, the castle was supposed to help defend the English coast, but it took so long to build that its “advanced design was obsolete by the time of its completion,” and changes in the local environment meant that “the sea had receded so far that cannons fired from the fort would no longer be able to reach any invading ships.” Still, the useless castle was “manned and serviced” for nearly a century before being officially decommissioned. Today, Camber “lies derelict and almost unheard of.” But what’s in a name? Article by Kerrisdale Capital Management Updated on Oct 5, 2021, 12:06 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 5th, 2021

Ozy Media’s Carlos Watson Addresses The Company’s Downfall

Following is the unofficial transcript of a CNBC interview with Ozy Media Co-Founder Carlos Watson on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, October 4th.  Following are links to video on CNBC.com: [soros] Q2 2021 hedge fund letters, conferences and more Ozy Media’s Watson On Path Forward: We’re Going To Have To Change Substantially […] Following is the unofficial transcript of a CNBC interview with Ozy Media Co-Founder Carlos Watson on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, October 4th.  Following are links to video on CNBC.com: [soros] Q2 2021 hedge fund letters, conferences and more Ozy Media’s Watson On Path Forward: We’re Going To Have To Change Substantially Ozy Media’s Watson Addresses Numerous Scandals Leading To Company’s Downfall ANDREW ROSS SORKIN: Welcome back to “Squawk Box.” Our next guest is here to give us a first-person account of the dramatic rise and fall of Ozy, a roughly 8-year old new media company that collapsed last week following reporting The New York Times about a series of allegedly misleading statements and actions. We’ve been talking about it all week, Ozy Media Co-Founder Carlos Watson is here with us on the set. Carlos, good morning to you. CARLOS WATSON: Morning. SORKIN: We have so many questions that have been unanswered and I’m hoping you can help us with. The first though— WATSON: Do you mind if I start at the top though? SORKIN: Well I think what you’re about to say because we just heard that, and we talked about it as a collapse. On Friday, the company said effectively they’re, it was going out of business. WATSON: Said we’re going to suspend operations and begin an orderly wind down but over the weekend, good conversations with investors, with advertisers. I was warmly surprised to hear from a number of folks readers, viewers, others, and as embarrassing sometimes as it may feel to do, I realized that we were premature. I realized we have something special here. I think that there’s a really good opportunity and part of what last week showed me is not only that we have lots of things that we have to do to improve. We do and I know we’re going to talk about some of those today. But I very genuinely feel like we have a meaningful important voice in what is maybe the most transformative decade and a half century, and I want Ozy to be around and be a part of it. I want people to read our newsletters. I want them to watch our TV shows. I want them to enjoy our podcast. I want them to come to our live events. I think all of that matters. SORKIN: Okay for them to do that, if that’s going to be the case, they’re gonna have to trust you and they’re gonna have to trust the Ozy brand. WATSON: Right. SORKIN: So, let’s talk about that trust because I think there’s, there were so many questions raised by the reporting that that was in the New York Times last week plus lots of other reporting in other places. And let’s just say this, lots of Ozy was real. I just wanna say that out loud, which is to say, the newsletters exist, the festival exists, the advertising exists. You’ve won an Emmy, that exists. But I think there’s other questions about whether the numbers were inflated. We heard about this phone call between your co-founder and Goldman Sachs apparently impersonating somebody from YouTube. We’ve talked about the advertising that suggested that said one thing, but the quotes necessarily, didn’t necessarily come from where they said they were coming from. I think we need to just try to the extent that you can clear the error, explain it— WATSON: Sure. SORKIN: Let’s do that. Let’s start with this phone call though because that’s what sort of set this whole thing off. Your co-founder had a phone call with Goldman Sachs as you were trying to raise money and effectively took them off of a Zoom, and then apparently started to impersonate within it with a fake email address as well, somebody from YouTube. What happened? WATSON: I don’t know. I wasn’t there. But I do know that I got a call from the YouTube folks after it saying something strange had happened, and we figured out what happened. I immediately called back to the folks at Goldman, right away, not four days later as I think someone wrote at one point and, and look, it’s heartbreaking, it’s wrong, it’s not good, it’s not okay. I love Goldman, I worked there, I’ve got a lot of friends there, you know, to this day several months afterwards. I’m grateful to them that, you know, we’ve formed a new advertising partnership and so, you know, hopefully there was some sense of trust regained, but there’s no doubt about it that that was not okay and that fractured a lot of trust not just there, but obviously, you saw what happened in a very tumultuous week last week, SORKIN: But part of what was happening in that instance from what I understand is, you had represented, and the company had represented at one point that your show was going to appear originally on A&E, by the way represented to me because I appeared on your show, and when I first got that email from the producer, it said this show was on going to be on A&E with 95 million households and I remember sitting down actually when I was about to do your show and I said to the producer in the, in the ear I said, “By the way, when does this air?” Thinking it’s going to air on A&E and she said something like, “We, you know, we’re really leaning in hard to online media, this is actually a YouTube Original.” But what it now appears like is it actually wasn’t a YouTube Original either. And in fact, that was somewhat of what the discussion or the issue was with Goldman Sachs, that you were uploading these videos to YouTube, but a YouTube Original is something where you say they’ve effectively commissioned the program. WATSON: So lots of miscommunication in that but I want to clarify that one because I think that that was definitely one where we lost a lot of trust. We originally conceived the show with A&E, you’ve seen the announcements that we have, have a partnership with them or a multi-year partnership. You know we’ve done shows on A&E, on their sister network History Channel, on Lifetime Channel, did good things. And originally during the summer, the conversation was with them. We created a sizzle reel together. We talked about which guests and things like that. And as the summer moved on, we realized that they were on a different timetable than we were and so, we shifted to YouTube. Now in the back of our mind we thought there still could be an opportunity for us to come back to them, but we clearly shifted to YouTube. I know that for you and for a number of other people, you got emails on that. That was wrong. I don’t know whether that was a mistake or whether that was intentional but whatever it is, that was wrong. SORKIN: But the executive producer that you hired believed that he was making a show for A&E and in fact, suggested on the record in the New York Times this week, or last week, that the show, every time he was told that he wanted to call someone at A&E, he was told effectively not to. WATSON: You know, I don’t know about that but I have to say this, I made a really bad decision last week and I didn’t respond to your text. I didn’t respond to texts lots of other people I know and I wish I had engaged with the media, had good conversations because I felt like after that piece, it was kind of like open season for people to throw whatever crazy half-truth and put it out there. Now, to be really clear, some of the things that came out last week were mistakes that we made, I know that we’ll talk about those too, but that’s a good example of one that I think that’s true. That same producer you’re talking about is the same producer who’s texted me multiple times since then with multiple exclamation points saying congratulations on the show bringing Matt Damon on, congratulations on the show now appearing on Amazon Prime. So, look, there’s no doubt about it that last summer, as the show started, we originally hoped that we were going to do with A&E and it ended up shifting to YouTube and, and, and I am sure that we did not communicate that well and I own that and that’s— SORKIN: But you use the word half-truths. I think there’s more than a half-truth or, or a half-lie in that which is the producer actually said to you specifically that you were lying to the staff about the fact that this show was supposed to be on A&E and then apparently lied again when you said it was gonna be a YouTube Original. WATSON: I disagree. I don’t think that’s true. So, both pieces of what you’re saying, which is the idea that he said to me that I was lying— SORKIN: Right. WATSON: And number two that I then said to the staff that it was YouTube Original, right. Clearly it wasn’t a YouTube Original and knowing what a YouTube Original was, it clearly wasn’t that. And let me— SORKIN: But why did they believe that it was a YouTube Original? Why were they telling me by the way that it was YouTube Original? WATSON: I hope that it was only a mix up of words, right. I hope that’s all it was. It may not have been but I hope there was only a mix up of words. But Andrew, what I don’t want to have obscured is that we didn’t do one or two episodes of the show, we’ve done 200 episodes and when Scarlett Johansson has come on, when Dr. Fauci has come on, when H.E.R. has come on, when Mark Cuban has come on, when Malcolm Gladwell has come on. SORKIN: But no one is— WATSON: Hold on one second. They come on knowing that they’re coming on a terrific YouTube show that has a chance to reach a really dynamic audience. SORKIN: Nobody’s disputing the quality of the program but by the way you just mentioned this being on Amazon Prime which became another issue is that you advertised it was the first show, first talk show on Amazon Prime. You were uploading that show to Amazon Prime. I remember seeing that ad for the first time thinking wow good for Carlos, Amazon Prime has commissioned him. That’s amazing. And then I found out when I read the story, that in fact you were just simply uploading it like anybody could. WATSON: It’s not. No, no, no, timeout guys and again, thank you for this time. I know we are going to spend a lot of time, Joe, do you mind if I hit this first and then come to you? JOE KERNEN: I’m just seeing like a pattern and I’m just wondering who is in charge that decided— WATSON: You know what? Let me, let me answer that and let me come back there because that also ties to the question of regaining trust and there’s a larger question, that’s totally legitimate question. So, to be really clear, getting on Amazon Prime, not everyone can upload it. That’s a very rare thing and this suggestion in one of the articles is just like any random yahoo can do that. You can’t do that, you should talk to the folks at Amazon and not believe some of the, you know, not very good reporting about that so it is a big deal. Number two, our understanding from them is that we were the only talk show and part of what was special about that is that they hadn’t done it otherwise and they weren’t in a place yet where they were willing to put their own money, but what they were willing to do in terms of a large upfront payment, but what they were willing to do and what they do for a few people is allow you to be part of Amazon Prime where you take risk and they take risk and the more views you have, the more you get paid. SORKIN: But to put a fine point on it. WATSON: Hold on. Hold on. SORKIN: They then asked you to stop advertising this point. WATSON: Well, but they asked to stop everything because what they said to us and what they said to me is because we are not convinced that we’re definitely gonna get in the talk show business and if you advertise it like that, you’re gonna have lots of other people, their agents and everyone calling, so they didn’t say take it down because it’s not true, they said take it down because we don’t want you stimulating more pitches for us in a space that we haven’t committed to yet. Let’s see how you do. If you do well with the interesting guests you have, whether it’s a Priyanka Chopra, whether it’s a Mark Cuban, a Lloyd Blankfein, whomever, then great and we’ll see where we go from there. So, please with all of these things let’s have the conversation, right, because we definitively made some mistakes and Joe I know we want to have a larger conversation about whether mistakes were ingrained in who we are or whether, like a lot of young companies, we made mistakes but that was the 20% not the 80% of who we are, but let’s go through all of these because I think that’s a super important point. We are on Amazon Prime, it’s a very difficult place to get. There are only two ways to get in there, you can either get a meaningful upfront payment and they drive it or for a few people, they say you’re special enough and if you want to take risk, and we’ll take risk, we’ll do that together and we bet on ourselves and we did it and our understanding and talking to them is that we were the only talk show and their hesitation about having it out there was not that it wasn’t true but that they didn’t want to stimulate more demand and so I want to clear that up and I think that’s important. SORKIN: Okay, Becky’s got a question for you. BECKY QUICK: Carlos, really quickly, back to the issue of— WATSON: Becky, I apologize, I’m not hearing you yet. QUICK: Oh sorry, maybe they can turn on the microphone. Can you hear me now? SORKIN: Can you hear her? WATSON: I don’t hear her yet. QUICK: Okay, maybe it’s not back. Joe’s got a question, why don’t you let him ask. KERNEN: Mine, I’m just wondering, the, the aggressive marketing that caused sort of to oversell and you could call it aggressive or someone was downright just this falsehoods about where, you know, you buy some advertising somewhere and then the entity suddenly the LA Times is saying — who was that, who because it happened again and again, again, do you have a head of marketing or— WATSON: But let me start with a macro place Joe and I’m saying this in order to address this and address it comprehensively because it’s important. KERNEN: Right. WATSON: Again, as you said before and as you know because I’ve been here with you before. We have a real business. We have real newsletters that millions of people get. We have real TV shows that people watch, we’ve won an Emmy. We have real podcasts that have been in the top 10 on Apple. We have real festivals that people come to. We have tried to market these very different franchises, about 25 in all, we’ve tried very hard to market them well. I would tell you that one of the mistakes we made is that sometimes we were too aggressive in marketing them unequivocally and I own that, not anyone else, I own that. That’s my mistake. I’m the CEO, I’m responsible that we tried our best. Now, do, if you’re asking me do I think that we got it wrong 50% of the time or 80% of time? No. If you ask me do I think we got it wrong 20% of the time? Yeah, we probably did and that’s on me and I own that and one of the things I hope will be true of that going forward is we’ll be much better about that, much crisper about that. KERNEN: So, 80% of the marketing was, was true, I don’t think that’s true. WATSON: Why do you not think it’s true? KERNEN: I just heard of some of the best— WATSON: Look, it was an incredibly salacious week and I do think at some point I hope you will invite me back to talk about the state of journalism, and I want to talk to Andrew and Becky about that too. I thought last week there was, there was not only real critique and there was, and make no mistake about it, I own the things that we need to do better on data, the things we need to do better on marketing, the things we need to do better on leadership and culture. I clearly own that and clearly have thoughts about where we can go from there. But in addition to that, I thought there was a wild piling on that was inappropriate, and that left you, and a lot of other people saying, is this everything about Ozy? Even Andrew, Andrew I look back, you sent me a text after you were on my show and you said, I’ve never had so many people tell me that they were watching the show, where did you get that magic from. You remember sending me that text? SORKIN: I remember looking at the, I think what I said to you, I think was— WATSON: No, no, no, I— SORKIN: You can get it because I remember being amazed by how many people were watching it on YouTube. WATSON: You told me in the text, you said and I’m happy to bring it. SORKIN: You can. WATSON: You said on the text to me and I’ll read it here to you if you like. You said to me— SORKIN: I was amazed how many people were watching it. WATSON: You said to me quote on August 29th at 7:54pm, “You have a big audience on YouTube, I keep hearing from various people who say they saw it.” I keep hearing from various people saying that they saw it. “I’d love to talk to you.” SORKIN: Right. WATSON: So that’s what you said, keep hearing from people. So, look, I just, I need you guys to be fair about this and thoughtful about this and not just go with this kind of one way digital mob. SORKIN: I know and Becky’s got a question but I want to ask you one other, which relates to the newsletter franchise, one of the things you’ve talked about is having 26 million people getting this newsletter. And I don’t disbelieve that you have 26 million addresses in your database. You can buy some of those, you can do some of that organically. But I also saw an investment deck that you had. WATSON: You can partner. SORKIN: Right, you can partner. WATSON: And I’ve partnered before on newsletter efforts with The New York Times. SORKIN: But I did see, I saw an investment deck that said you had a 25% open rate on those 26 million newsletters, subscribers. That is a very high open rate for what I don’t believe is a fully organic list. Can you, can you speak to that? Was it really, do you really have a 25% open rate on 26 million newsletters? WATSON: We do not. But, but I hope what it said and I don’t know which deck you’re referring to, I hope what it said is that for our best most regular people that it was 25%. So, of that 26 million, that 10 to 12 million who were the most regular, I hope what it said is that we have a 25% open rate, I hope that’s what it said. SORKIN: This was a deck for your, for your Series D, which brings me to another question. The investors who invested after this now infamous call between your executive and Goldman Sachs. Were they made aware of the call and the questions that have been raised that we’re now talking about today? WATSON: You know what, because you know that that is fraught and there are a lot of questions, I’m not going to go into that but I will say this and I think this is really important and when we talk about investments you know this with private companies, when you invest in a private company, you don’t just have one conversation or there’s not one data point. You and I both know that it can be a three to 12-month process. You and I both know that you often, if you’re the potential investor, you often have dozens of conversations both ones at the company sets up but also ones that you do yourself and that there are lots of data points and you go through that and you sync it all through and I’m confident that all of our investors and I’m confident that they talk to customers. I’m confident they talk to members of our team. I’m confident that they talk to other competitors. I’m confident that they consumed our newsletters and our TV shows and our podcasts, and many of them would come in the earlier days to our festivals as well so I want to say that because I know we keep having this conversation— QUICK: Hey Carlos. Just on that point though— WATSON: As though— QUICK: On that, on that point— WATSON: Becky, sorry, Becky can I just say one more thing— QUICK: But on that point, I just want to clarify what the point that you’re making right now. We know that the situation the conversation with Samir Rao, that that was a situation that you say where it was a mental break. Was there, were there any other occasions where investors were given misleading information in any of these conversations that you’re talking about right now or was that a one-off event? WATSON: Becky, I hope and I hope and I believe that that was a one-off event. I mean it’s a tragic event, it’s a horrific event, it’s a wrong event. And, and so I hope and trust that that was a that was a one-off. And so, but let me say something else because I think, again, this is important and it started at the beginning of the conversation Andrew. Like, I think it’s completely inappropriate and not thoughtful these kind of comparisons to Theranos. You and I both know that Theranos didn’t have a real product. And again, you’ve been on my TV shows. You’ve seen the Emmy that we won. You’ve received our newsletters at least heard of so— SORKIN: No, no, I— WATSON: So I want to make sure that we have like a grounded, thoughtful conversation and so investors who were thinking about us, considering us, getting to know us by the way, we’re also investing in other companies who were investing in Reese Witherspoon’s Hello Sunshine, they were investing in Business Insider, they were investing in, in the Atlantic and all sorts of other companies and so these are people who aren’t just sophisticated investors but often investors who know the media space, maybe even better than I do. SORKIN: The point that Ben Smith made in today’s column was though, that it was a group think. It was everybody trying to be part of a club and that they actually didn’t do their diligence at all. WATSON: Yeah, so let’s, what I’d say is that I think Ben Smith should never have had a chance to write this piece. I’ve shared with a number of people before that two years ago in August of 2019, Ben Smith sent an email to me and his then CEO Jonah Peretti said I think you guys should get together for the purposes of talking about them buying me. We spent three months in conversation. They had me meet all of their top leaders, folks in marketing, folks in finance, folks in analytics, they went through our numbers backwards and forwards, they put together a joint presentation, and they made us after the end of that, in November, right before Thanksgiving, spending all that time doing diligence, Joe they made us an offer of nearly a quarter of a billion dollars for a company that Ben Smith now sets up as though it’s a house of cards and it was just group think. How is that possible that Ben Smith who’s been in new media for that many years, kicked off a process, followed up with me and they ended up making an offer for nearly a quarter of a billion dollars, $225 million, for something that they now say was group think and it was made up. And when we said no to him once and said no to him twice, two weeks later he quit, went to the Times and his first column in March of 2020 was, I guess, new media can’t work, I guess I’ve got to join the Times. Just because it didn’t work for him, not okay for him now to take a potshot at us and did he tell his editor that he was conflicted when he was writing about us. Did he tell his editor that he still owns lots of stock in Buzzfeed and that he tried to buy us? He didn’t. I don’t think that’s okay. I don’t think that’s okay, I don’t think he should have been able to write that piece and write the other pieces and create this false narrative that because Ozy doesn’t look like something he wants it to be and because we said no to him multiple times— SORKIN: But clearly you’re acknowledging that there are things that you, you and the company have done that are misleading. That were fair game for, for a journalist to write about. WATSON: 100% that we should have done better. Three of the areas and there may be more than three, but we definitely should have been better with data because so many of the data tools, only look at digital only, and we’re not a digital media company. I call us a modern media company because we’ve got TV shows, newsletters, podcasts and festivals. So we should have figured out that multi-platform data, we should have been better on the marketing. Joe, we got it wrong, it’s not okay what we did, it’s not, but I don’t think it was 80% of the time, I think it was probably more like 20% of the time and I would tell you that there’s some things around leadership and culture that I need to be better at and we need to be at. QUICK: Carlos, can I just, can I just clarify on that point? The things that you say you own because you were the leader you own it because people under you were doing things you didn’t know about or people under you were doing things that you did know about? WATSON: Becky, that’s such a broad question and, you know, that’s such a broad question. QUICK: No, I’m trying to be specific. It’s right for a leader to say it happened on my watch, it’s my fault. But is it your fault because you didn’t know or your fault because you did— WATSON: Fair. Let me give you a couple. So one on the data, I should have figured out a third party group that could have done, not just digital like Comscore does because Comscore only looks at website traffic or mainly looks at website traffic, but even though it was hard I should have figured out a solution as I now have and we have a third party that has done a preliminary look and hopefully they’ll finish up in the next couple of weeks and we will share it broadly with people and going forward, every month, we will share our data. We’ve got nothing to hide, we’ve got good things there. And so yes, I own that I didn’t make sure that that happened. And I knew that that was critical to us and we did the best we could. We did it piecemeal, but I should have had someone external as an example do it, do it consistently and share it with people in an easy consumable way. QUICK: But I’m sorry when we’re talking about made up marketing numbers, did you know that was happening or not? WATSON: I don’t believe we had made up marketing numbers, Becky. I don’t believe we had made up marketing numbers, and so I’ve heard people say that repeatedly but what it is, in my mind, is it’s Ben Smith and people like him who only believe that what happens on Twitter and websites matter and discount newsletters and discount podcasts and discount TV shows and discount festivals, and so their belief is, if you’re not doing that, if you’re not active on Twitter and doing snarky things on Twitter, then you don’t have a real media company and I, I constitutionally reject that. In fact, a big part of the reason why we’re going to continue going forward is because I don’t think it’s a good world where the only kind of media companies you have or the kind of media companies that get Ben Smith excited, what about the rest of us. SORKIN: I just want to say because I asked you about the email opens before and I’m looking at the deck, I’ll show it to you right here. 25% email opens. Ozy email average 25% open rate, 2.5 times industry and 3% CTR. It doesn’t have a star next to it that says just the people who are actively engaged with you in some way, and— WATSON: You know, I need to look at that more closely but let’s make sure that we do something here, which is that I don’t want, if you and I looked at any small company— SORKIN: Right. WATSON: Or a large company, we would find a handful of things that aren’t great. Just to be really clear, we would, we would find and just because something is sloppy or stupid, doesn’t mean it’s illegal, right. I just want to be really clear about that— SORKIN: Look I’m not, I recognize mistakes can be made, I think the question is whether there’s a pattern and series of mistakes and I think that is the, the larger issue. I’ll raise another one with you, Sharon Osborne, you made a comment on this program, by the way, saying that she was a friend and investor in the company. WATSON: I didn’t say she was a friend. SORKIN: I think we can probably go back and get the tape. WATSON: You know what, play the tape then. Please, go ahead, play the tape. SORKIN: I don’t know if we have the tape— WATSON: You know what, cue up the tape. This is an Obama Romney moment. Cue up the tape. Show me the tape. SORKIN: As we wait for the tape if we can get it. WATSON: So here’s, here’s what I said and here’s what is true. We have a wonderful music and ideas festival that I’ve invited you to many times. Becky you were going to come, as you recall, and you were going to do something. We had a conversation about that you couldn’t do it, we went back and forth with folks to try and see if we could get you to be a moderator of one of the things— QUICK: Yeah, it was something I couldn’t do. WATSON: It’s called OZY Fest and Sharon Osborne and the folks said that that was too close to the name of something they did called Ozzfest. They ended up suing us. We went back and forth and the final resolution was that they would get stock in our company, they would ultimately get about 50,000 shares. And so, I think on this show and maybe a couple of others, in my mind people who own shares in our company, are investors— SORKIN: But you do recognize an investor— WATSON: Hang on, hang on. Hey can I finish? SORKIN: You tell somebody that they’re an investor, they typically do that proactively and you didn’t say by the way, they happened to get shares instead of cash. WATSON: Andrew. SORKIN: I mean there’s a difference. There’s a difference. WATSON: Andrew, no doubt that there’s a difference but also if you put the blink test on this, the Malcolm level blink test, do you think I’m really saying to serious investors invest because Sharon Osborne? Like do you really think that’s like a calling card, like seriously, is that a calling card like just the blink test here. You really think that’s what I was doing or do you think you and I were having a light moment and we were making a joke and I said that, like play the tape. I’m sure it’s a light moment and there’s no one I’m going to say, hey, you know why you should invest because Sharon Osborne is in Ozy. I’m not gonna say that we were probably having a light moment I hope you’ll play the tape. SORKIN: What do you say to people, and I want to go back if we could to this though, you’re going to try to continue this company and, and keep going. WATSON: And it will be tough and it will be tough, as you said we will to, Joe, we will have to regain trust. SORKIN: The investors apparently have left the company. I mean Ron Conway effectively said I’m giving back the shares. WATSON: And again, I need you, Andrew, as sophisticated as you are about this stuff, like, you know, that we’ve raised millions of dollars of capital and Ron Conway put in $50,000. And so for you to keep banding about Ron Conway— SORKIN: It’s the first time I’m mentioning his name. WATSON: Hey, hey, today, right. But you mentioned it before last week so for you to keep banding that about like that’s a substantive big decision, like that’s not accurate and that’s what I meant before Joe about these things that are misleading. So, I’m sorry to see them go. He’s a terrific investor. SORKIN: But why do they, why do they abandon the company if things are as, as good as you say they are. Marc Lasry, by the way, defended you initially said that he thought that this mental health issue was real, said that it was dealt with appropriately. You know, 72 hours later, he’s gone. Why? Tell us about that conversation then. WATSON: Can’t, can’t speak to that except to say it’s heartbreaking. I am a big fan of Marc’s. I’ve been lucky to get a chance to work with him. He was great as an investor, as a board member, as a chairman. He joined me here on this show, as you know, I think more than once. He helped me with a number of our key business development efforts and so he was great and I’m, I, you know I don’t want to put words in his mouth, but I’m sure he and I both wish last week hadn’t happened. I think we both felt like Ozy had had some incredible momentum this year, which is part of the reason why he became chairman. I think we both hoped that a lot more will happen but part of my opportunity going forward is to make sure that we build back stronger, that we create something that he and others can be proud of and, you know, Joe, you probably remember Tylenol situation, years ago, right. And that was a moment of leadership, that was a moment when it looked like an important company was going to go away. KERNEN: Timber. WATSON: You remember that? KERNEN: I remember it well. WATSON: And so, you know, look at our best and we, we may not get there, right, this is gonna be hard but at our best, this will be our Lazarus moment, right, at our best, and we may or may not see— SORKIN: So, tell us, what do you think you need to do at this point. By the way, you’re gonna have to get, I assume, maybe more, more investors though I know you have some cash still on hand, you’re gonna have to bring back the advertising community to ultimately support this and then readers and the public. WATSON: And so I think the first thing I have to do is think about my team. SORKIN: How are they gonna stay with you by the way? WATSON: You know what? That that’s a good question. That’s a good question. SORKIN: Have you talked to them? WATSON: I’ve talked to some of them. Obviously this has all happened very quickly. It’s a terrific team, they were as traumatized last week as I was as heartbroken as I was. I mean, whenever you want to say, you and I both know that when you ever you met people from Ozy, they loved Ozy. They weren’t kind of going through the motions, it wasn’t just like they loved Ozy, right, and so and so— SORKIN: But by the way, there were a number of reports last week from at least ex-employees who clearly didn’t love Ozy. WATSON: Fair enough. Of the, of the nearly thousand people we’ve hired over the last decade, part time and full time from freelance reporters to software engineers to people doing our festivals, crews on our TV shows and other folks, we did have people. And people ran with stories from for example one gentleman who we fired for lying multiple times but they set him up and allowed his quote Potemkin village or things like that to run wild as though he was a credible source, I don’t think that’s okay. Right. And so, I’m happy to have conversations about that and I’m happy to walk through that. But here’s the bottom line when you ask me what I need to do next, got to make sure that our team is in a good place and that’s not going to be easy and you and I both know that, have to make sure that we regain the trust of investors that’s not going to be easy either, have to make sure that we deliver really premium products. So at the end of the day, if we don’t have a newsletter that people want to read, if we don’t have TV shows that people want to watch, we don’t podcasts that people put on their headsets and go for a safe swim like we don’t have anything. If we don’t have an OZY Fest, that you can come to we don’t have anything so that’s going to be important. And the last thing I would say that’s going to ultimately be really important is we have to change. We have to change substantially on data, on leadership and culture, on marketing. SORKIN: Carlos Watson, we very much appreciate you being here. WATSON: You know what I wish I’d come last week— SORKIN: But one thing I can tell you is that I do wish you luck, I really do. WATSON: Thank you. Thank you. I hope I get a chance to come back. SORKIN: Thank you, Carlos. KERNEN: Thank you. WATSON: Thank you Joe. Thank you Becky. Updated on Oct 4, 2021, 1:30 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 4th, 2021

Is Lumen Technologies (LUMN) a Good Stock for Value Investors?

Let's see if Lumen Technologies, Inc. (LUMN) stock is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lumen Technologies, Inc. LUMN stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, Lumen Technologies has a trailing twelve months PE ratio of 7.04, as you can see in the chart below: Image Source: Zacks Investment ResearchThis level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 24.73. If we focus on the long-term PE trend, Lumen Technologies’ current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point. Image Source: Zacks Investment ResearchFurther, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 32.54. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. Image Source: Zacks Investment ResearchHowever, we should point out that Lumen Technologies has a forward PE ratio (price relative to this year’s earnings) of 7.62, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.Right now, Lumen Technologies has a P/S ratio of about 0.69. This is lower than the S&P 500 average, which comes in at 4.94 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years. Image Source: Zacks Investment ResearchAs we can see, the stock is trading at its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.Broad Value OutlookIn aggregate, Lumen Technologies currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Lumen Technologies a solid choice for value investors, and some of its other key metrics make this pretty clear too.For example, its P/CF ratio (another great indicator of value) comes in at 2.14, which is far better than the industry average of 21.49. Clearly, LUMN is a solid choice on the value front from multiple angles.What About the Stock Overall?Though Lumen Technologies might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of C and a Momentum score of F. This gives LUMN a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen zero estimates go higher in the past sixty days compared to seven lower, while the full year estimate has seen four upward and four downward revisions in the same time period.As a result, the current quarter consensus estimate has fallen by 7.3% in the past two months, while the full year estimate has been unchanged. You can see the consensus estimate trend and recent price action for the stock in the chart below:Lumen Technologies, Inc. Price and Consensus Lumen Technologies, Inc. price-consensus-chart | Lumen Technologies, Inc. QuoteThis somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.Bottom LineLumen Technologies is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 16%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below: Image Source: Zacks Investment ResearchSo, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick. 5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lumen Technologies, Inc. (LUMN): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 4th, 2021

Should Value Investors Pick ManpowerGroup (MAN) Stock Now?

Let's see if ManpowerGroup Inc. (MAN) stock is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks. Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put ManpowerGroup Inc. MAN stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:PE RatioA key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.On this front, ManpowerGroup has a trailing twelve months PE ratio of 19.16, as you can see in the chart below: Image Source: Zacks Investment ResearchThis level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 24.73. If we focus on the long-term PE trend, ManpowerGroup’s current PE level puts it above its midpoint over the past five years. Image Source: Zacks Investment ResearchFurther, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 32.54. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. Image Source: Zacks Investment ResearchWe should also point out that ManpowerGroup has a forward PE ratio (price relative to this year’s earnings) of just 15.69, so it is fair to say that a slightly more value-oriented path may be ahead for ManpowerGroup stock in the near term too.P/S RatioAnother key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.Right now, ManpowerGroup has a P/S ratio of about 0.31. This is lower than the S&P 500 average, which comes in at 4.94 right now. As we can see in the chart below, this is above the median for this stock in particular over the past few years. Image Source: Zacks Investment ResearchIf anything, ManpowerGroup is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.Broad Value OutlookIn aggregate, ManpowerGroup currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes ManpowerGroup a solid choice for value investors, and some of its other key metrics make this pretty clear too.For example, the PEG ratio for ManpowerGroup is 0.65, a level that is lower than the industry average of 1.21. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, MAN is a solid choice on the value front from multiple angles.What About the Stock Overall?Though ManpowerGroup might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of F. This gives MAN a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen zero estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen two upward and zero downward revisions in the same time period.As a result, the current quarter consensus estimate has fallen by 2.1% in the past two months, while the full year estimate has inched up by 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:ManpowerGroup Inc. Price and Consensus ManpowerGroup Inc. price-consensus-chart | ManpowerGroup Inc. QuoteDespite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting outperformance from the company in the near-term.Bottom LineManpowerGroup is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 10%) and strong Zacks Rank, ManpowerGroup looks like a strong value contender. In fact, over the past one year, the industry has clearly outperformed the broader market, as you can see below: Image Source: Zacks Investment ResearchHowever, given the mixed trend in earnings estimate revisions, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick. 5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ManpowerGroup Inc. (MAN): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 4th, 2021

Lessons To Learn From The Recent Decline

Lessons To Learn From The Recent Decline Authored by Lance Roberts via RealInvestmentAdvice.com, Stocks Snap The 6-Month Win Streak. What Happens Next? In mid-August, we discussed the rarity of markets churning out 6-positive months of returns in a row. To wit: “Using Dr. Robert Shiller’s long-term nominal stock market data, I calculated positive monthly returns and then highlighted periods of 6-positive market months or more.” Importantly, all periods of consecutive performance eventually end. (While such seems obvious, it is something investors tend to forget about during long bullish stretches.) The data shows that nearly 40% of the time, two months of positive performance gets followed by at least one month of negative performance. Since 1871, there have only been 12-occurrences of 6-month or greater stretches of positive returns before a negative month appeared. For September, the S&P turned in a negative 4.89% return. While the decline was average for a market correction period, the financial media made it sound like the market just “crashed.” These types of headlines tend to drive investors to make emotional decisions. However, while it appears the market won’t quit declining, the correction was much needed. Seasonally Strong Period Approaches With the market now pushing into 3-standard deviation territory below the 50-dma and oversold technically on other measures, the reflexive rally on Friday was not surprising. As noted in our daily commentary (subscribe for free email delivery): “We agree with Stocktrader’s Almanac: “Many of the same geopolitical, political, fundamental, and technical headwinds we highlighted in the September and October Outlooks remain present. Congress passed the funding bill to avert a government shutdown just before the market closed today ahead of the September 30 midnight deadline. The biggest risk to the market remains the Fed. An uptick in taper talk or chatter about the Fed raising rates ahead of schedule could trigger another selloff.” However, it is worth noted there are two primary support levels for the S&P. The previous July lows (red dashed line) and the 200-dma. Any meaningful decline occurring in October will most likely be an excellent buying opportunity particularly when the MACD buy signal gets triggered. The rally back above the 100-dma on Friday was strong and sets up a retest of the 50-dma. If the market can cross that barrier we will trigger the seasonal MACD buy signal suggesting the bull market remains intact for now. “Seasonality is alive and well. So we stick with system. “ – Stocktrader’s Almanac If you didn’t like the recent decline, you have too much risk in your portfolio. We suggest using any rally to the 50-dma next week to reduce risk and rebalance your portfolio accordingly. While the end of the year tends to be stronger, there is no guarantee such will be the case. Once the market “proves” it is back on a bullish trend, you can always increase exposures as needed. If it fails, you won’t get forced into selling. Lessons To Learn From The Recent Decline As noted, we expected the recent decline and previously discussed raising cash and reducing risk. Such allowed us to weather to correction without losing (too much) sleep at night. However, for most, the recent decline brought to light just how much risk exposure many have in portfolios. While the decline was minimal, many investors suffered damage far more significant than the overall market decline. Such came from two sources: For those “doing it themselves,” much of the damage came from more speculative stocks investors piled into to chase market returns. Individuals who had financial advisors, also suffered damage as they put their “financial advisors” into the position of chasing market returns or suffering career risk.  Such should not be surprising. I consistently meet with individuals who swear they are conservative when it comes to investing. They don’t want to take any risk but require S&P 500 index returns.  In other words, they want the impossible: “All of the upside reward, but none of the downside risk.”  The lesson we seem to need to learn continually is the understanding of risk. The demand for performance above what is required to reach our goals requires an exponential increase in risk. When clients demand greater returns, such forces advisors to “chase returns” rather than “do what is right” for the client.  For the advisor, such leads to “career risk.” Specifically, if the advisor doesn’t acquiesce to client demands, they lose the client to another advisor who promises the impossible. Such is why “buy and hold” index investing has gained such popularity with advisors. If the market goes up, clients get market returns. When the market crashes, the excuse is, “Well, no one could have seen that coming. But remember, it’s ‘time in the market’ that matters.” Media Driven Hype While the advisor takes no liability for giving clients average performance, the client loses the ability to reach their financial goals. “But if I had been conservative, I would have missed out on the bull market.”  Almost daily, there is some advisory firm, financial media type, etc., suggesting that you need to buy and hold an S&P 500 index fund if you want to get rich. During bull markets, such advice certainly seems sound. But, unfortunately, during bear markets and even near 5% corrections, the error of excessive risk becomes prevalent. The truth is that a more conservative approach to investing can not only get you to your financial goals intact but can do so without triggering the numerous emotional mistakes that lead to worse outcomes. Shown below is the total inflation-adjusted return of stocks versus bonds. Since 1998, the difference between a 100% stock versus a 100% bond portfolio is just $50. More importantly, during the two major bear markets, an all bond portfolio vastly outperformed with much lower volatility. A 60/40 blend performed substantially better than an all-stock portfolio and currently only lags by $18. An all-bond portfolio outperformed an all-stock portfolio until 2019. That underperformance will likely revert to outperformance over the next decade. It is hard to resist getting caught up in an accelerating market. However, remember that while the cost of entry into the casino is cheap, the exit can be expensive. Things You Can Do To Perform Better (And Sleep At Night) Here are the core principles we use with every one of our clients. Understanding that Investing is not a competition. There are no prizes for winning but there are severe penalties for losing. Checking emotions at the door. You are generally better off doing the opposite of what you “feel” you should be doing. Realizing the ONLY investments you can “buy and hold” are those that provide an income stream with a return of principal function. Knowing that market valuations (except at extremes) are very poor market timing devices. Understanding fundamentals and economics drive long term investment decisions – “Greed and Fear” drive short term trading.  Knowing what type of investor you are determines the basis of your strategy. Knowing the difference: “Market timing” is impossible – managing exposure to risk is both logical and possible. Investing is about discipline and patience. Lacking either one can be destructive to your investment goals. Realize there is no value in daily media commentary – turn off the television and save yourself the mental capital. Investing is no different than gambling – both are “guesses” about future outcomes based on probabilities.  The winner is the one who knows when to “fold” and when to go “all in”. Most importantly, realizing that NO investment strategy works all the time. The trick is knowing the difference between a bad investment strategy and one that is temporarily out of favor. Markets are not cheap by any measure. If earnings growth continues to wane, economic growth slows, not to mention the impact of demographic trends, the bull market thesis will fail when “expectations” collide with “reality.”  Such is not a dire prediction of doom and gloom, nor is it a “bearish” forecast. It is a function of how the “math works over the long term.” Not Out Of The Woods Just Yet Yes, September was a rough month for the market. However, as we noted previously, a 5-10% correction would “feel” much worse due to the high levels of complacency. Judging by the amount of “teeth-gnashing” on the financial media, you would have thought the roughly 4% correction for the month was a massive bear market. With the recent sell-off working off some short-term overbought conditions, the market is now better positioned for the “seasonally strong” period. As shown, while October can also tend to be a weaker month, it tends to be stronger than September. November and December are usually well into the green. However, such is not a guarantee. The end of 2018, as the Fed was tapering its balance sheet and hiking rates, was not a positive experience for investors. While the Fed is likely many months away from hiking interest rates, they are some very definite headwinds facing stocks into year-end. Valuations remain well elevated. Inflation is proving to be much sticker than expected. The Fed will likely move forward with “tapering” their balance sheet purchases in November. Economic growth continues to weaken Corporate profit margins will shrink due to higher inflationary pressures. Earnings estimates will get revised downward keeping valuations elevated. Liquidity is contracting on a global scale Consumer confidence continues to wane While none necessarily suggest a more significant correction is imminent, they will make justifying current valuations more difficult. Moreover, with market liquidity already very thin, a reversal in market confidence could lead to a more significant decline than currently expected. Such is why we have been adding bonds as of late. Bob Farrell’s Rule #5 Bob Farrell once quipped that investors tend to buy the most at the top and the least at the bottom. Such is simply the embodiment of investor behavior over time. Our colleague, Jim Colquitt of Armor ETFs, reminded us of that axiom with a recent post. The graph below compares the average investor allocation to equities to S&P 500 future 10-year returns. As we see, the data is very well correlated, lending credence to rule #5. Note the correlation statistics at the top left of the graph. More importantly, current allocations to equities are more than two standard deviations above the norm. Per Jim: “Since 1952, we’ve only had 4 quarterly observations above the two standard deviation line. Each of which resulted in negative returns (CAGR) for the subsequent 10 years. We now have a 5th.” Over the next decade, there is a genuine possibility that bonds will provide a higher return than equities on a “buy and hold” basis. Such is something worth considering. *  *  * Tyler Durden Sun, 10/03/2021 - 10:30.....»»

Category: dealsSource: nytOct 3rd, 2021