The Wall Street Examiner » Must Read http://wallstreetexaminer.com Get the facts. Tue, 29 Jul 2014 01:53:30 +0000 en-US hourly 1 World Stock Markets Trading Discussion – Blinking bagatelle http://wallstreetexaminer.com/2014/07/world-stock-markets-trading-discussion-blinking-bagatelle/ http://wallstreetexaminer.com/2014/07/world-stock-markets-trading-discussion-blinking-bagatelle/#comments Tue, 29 Jul 2014 01:53:30 +0000 http://www.capitalstool.com/forums/index.php?showtopic=12256 This is a syndicated repost courtesy of The Daily Stool. To view original, click here.

Early openers trundling upwards: Kiwis -0.2%, Aussies +0.1%, Nikkers +0.5% and Sth Korea +0.6%.

Nothing too exciting happening in Aussie sectors: Consumer Staples +0.8% down to Financials/REITS -0.1%.
 

 

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Herbalife Ltd. (NYSE: HLF) Shares Tumble After Hours on Weak Earnings Report http://wallstreetexaminer.com/2014/07/herbalife-ltd-nyse-hlf-shares-tumble-after-hours-on-weak-earnings-report/ http://wallstreetexaminer.com/2014/07/herbalife-ltd-nyse-hlf-shares-tumble-after-hours-on-weak-earnings-report/#comments Mon, 28 Jul 2014 22:04:26 +0000 http://moneymorning.com/?p=145556 This is a syndicated repost courtesy of Money Morning. To view original, click here.

Herbalife Ltd. (NYSE: HLF) shares were down almost 8% in after-hours trading with a second-quarter earnings release that missed analysts’ expectations. This all while the nutrition company continues to be a high-priced target for short sellers who are skeptical of HLF’s marketing practices.

HLF sales growth was well below analyst expectations of 11.5%, as the health company grew by only 7.1%. Earnings were down 16.5% from the quarter before, with earnings per share (EPS) of $1.39, also well below the $1.57 EPS that analysts forecasted. HLF made $1.3 billion in sales compared to last year’s $1.2 billion, but income was only $119.5 million compared to 2013′s second-quarter reported earnings of $143.1 million.

Growth is also down significantly from the second quarter of 2013. Last year, earnings grew 8.5% and sales grew 18.1%.

The nutritional marketer also ended a streak of 21 straight quarters beating out analyst expectations, The Wall Street Journal reported, a streak that began in 2008.


Click to Enlarge

Among its major challenges, HLF has had to defend itself against the attacks of billionaire hedge fund manager Bill Ackman, who has maintained that the company’s practice of recruiting salespeople who act as distributors of their products constitutes a pyramid scheme, and that most of the sales go to these recruiters as opposed to actual consumers using their products. This all began December 2012.

He announced his intention to short the company’s stock, deeming the shares worthless and placing a $1 billion bet on the company’s downside. The company fired back in a number of statements, calling to question Ackman’s negative campaign and alleging that it was all a ploy to send the shares tumbling for a profit.

Not long after Ackman’s initial announcement, billionaire money manager Carl Icahn derided Ackman’s public battle with HLF.

Icahn, along with a team of noted investors that included William Stiritz and George Soros, took the other side of the trade in the face of Ackman’s accusations, pushing shares up and forcing Ackman to swallow up to $500 million in losses on the short come November.

This fight over Herbalife has continued to be of great concern to the company, which has seen a lot of volatility in share prices since Ackman’s initial blow.

“While a number of traders have publicly announced that they have taken long positions contrary to the hedge fund shorting our shares, the existence of such a significant short interest position and the related publicity may lead to continued volatility,” according a 2013 HLF SEC filing. “The volatility of our stock may cause the value of a shareholder’s investment to decline rapidly.”

Ackman’s “Deathblow” Falls on Deaf Ears; HLF Shares Soar

HLF, though always a controversial company since the 1980s when it faced civil litigation and had to swallow steep out-of-court settlement payments, has been facing intense scrutiny amid a public battle between Wall Street heavyweights over the company’s multi-level marketing. David Einhorn, chief executive officer and founder of Greenlight Capital, fired the opening salvo in a conference call last year when he raised questions about HLF’s complex sales structure.

Then Ackman, of Pershing Square Capital Management LLC, continued the attack in December with a 343-slide presentation calling HLF’s complex sales structure a pyramid scheme, and alleging that the majority of sales are to independent distributors of HLF’s products, and not to consumers actually using the products.

HLF has more than 500,000 members in the U.S. and 3.9 million worldwide who buy and sell their products, acting as distributors. This network of distributors is essentially comprised of discounted customers who can sell HLF products if they “seek part-time or full-time income.” A part of this campaign against HLF alleges that of these members 88% make no money, and 96% make less than the minimum wage.

Last week, Ackman renewed his attacks and reinforced the notion that HLF’s business practices hit low-income distributors the hardest, who are lured into “nutrition clubs” with the false promise of getting rich, in a presentation at the AXA Equitable Center in New York.

“It’s a tragedy. They don’t realize they’re being defrauded,” Ackman said. “They are selling the American dream to these people.”

While Ackman said this presentation would be the “deathblow” to this company, traders remained bullish on the stock and Ackman’s plea fell on deaf ears. Shares rose 25.5% on the day after losing 11% the day before when Ackman announced that the New York presentation would be “the most important presentation” of his career.

In its 34 years, HLF has been grappling with regulators, skeptics, and poor management. The unusual history of HLF provides an interesting look at the company underlying this debate.

The post Herbalife Ltd. (NYSE: HLF) Shares Tumble After Hours on Weak Earnings Report appeared first on Money Morning – Only the News You Can Profit From.

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Social Security Versus CBO – Who Do You Trust? http://wallstreetexaminer.com/2014/07/social-security-versus-cbo-who-do-you-trust/ http://wallstreetexaminer.com/2014/07/social-security-versus-cbo-who-do-you-trust/#comments Mon, 28 Jul 2014 18:41:45 +0000 http://brucekrasting.com/?p=7587   The 2014 Social Security report to Congress is finally out (Link). The report was released four-months later than permitted by law; this is the sixth year in a row that the Report has been late. The word ‘sloppy’ comes to mind; Treasury Secretary Lew gets a ‘D’ for timeliness. I’m blown out by this […]

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This is a syndicated repost courtesy of Bruce Krasting. To view original, click here.

The 2014 Social Security report to Congress is finally out (Link). The report was released four-months later than permitted by law; this is the sixth year in a row that the Report has been late. The word ‘sloppy’ comes to mind; Treasury Secretary Lew gets a ‘D’ for timeliness.

I’m blown out by this year’s report! It was just 13 days ago that the Congressional Budget Office released its numbers for SS (Link). There are very significant variances on key metrics for SS. The inescapable conclusion comparing the two reports is that either; (1) CBO is misrepresenting numbers with some kind of political agenda in mind, or (2) SS is sand bagging its numbers for reasons that have to be political as well.

There are few key metrics to consider. The first is the Immediate and Permanent (I&P) payroll tax increase necessary to ‘fix’ SS for the next 75 years. CBO says that the I&P is 4%, while SS claims it is only 2.88%.  One might look at the two numbers and say, “What’s the big dif?, the two #s are only 1.12% different!” Actually, the 1.12% comes to very big bucks. Over the 75 year period it comes to trillions of dollars. For 2015 the difference in the I&P calculation comes to $75B. That’s a lot of Billions.

Another data point is the estimate for the year in which the SS Trust Funds become depleted. CBO has this date as 2030 while SS thinks it will be delayed until 2033One could drive a truck through the different estimates.

A critical milestone for SS will be the year in which the SSTFs top-out and begin the rundown to zero. CBO has this happening in 2017, while SS says it will not happen until three years later in 2020. A three year difference in something that is only 2 1/2 year away? How could the models differ so widely?

It’s my opinion that SS has warped its numbers. What SS has provided is:

Ho Hum, nothing has changed from last year. No needed to think about SS today, and certainly do not to make this an election issue. We wouldn’t want Conservative folks to have something to talk about this fall.

CBO, on the other hand, is saying:

Red Alert! America’s biggest single expense is a running amok. In less than 15 years there will be a crisis, and it will be very expensive to ‘fix’ it. For heaven’s sake, please, let’s have a dialog about this before it’s too late!

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Synchrony IPO – Largest So Far in 2014 – Hits Market This Week with 22 Companies Going Public By Kyle Anderson http://wallstreetexaminer.com/2014/07/synchrony-ipo-largest-so-far-in-2014-hits-market-this-week-with-22-companies-going-public-by-kyle-anderson/ http://wallstreetexaminer.com/2014/07/synchrony-ipo-largest-so-far-in-2014-hits-market-this-week-with-22-companies-going-public-by-kyle-anderson/#comments Mon, 28 Jul 2014 18:19:40 +0000 http://moneymorning.com/?p=145462 Ally Financial Inc. (NYSE: ALLY) from April. ]]> This is a syndicated repost courtesy of Money Morning. To view original, click here.

IPOs in 2014

The Synchrony IPO will take place on Thursday, and it’s expected to raise approximately $3.1 billion. That would easily make it the largest IPO of 2014 so far, outpacing the $2.6 billion raised by Ally Financial Inc. (NYSE: ALLY)from April.

And while Synchrony Financial (NYSE: SYF) will be the biggest IPO to watch this week, it’s just one of 22 companies going public as July wraps up.

According to the Financial Times, this week’s 22 IPOs make this the busiest week for IPOs since August 2000. That total may change however, as it’s not uncommon for companies to delay IPOs the week they’re supposed to begin trading. It’s possible some of these deals will be pushed back.

Here’s what investors need to know about each of this week’s upcoming IPOs.

IPO Calendar July 28 – August 1

Synchrony IPOSynchrony Financial (NYSE: SYF) is planning the largest IPO of the week and is looking to raise $3.1 billion by selling 125 million shares at a $23 to $26 range. Synchrony is a spin-off company of General Electric Co. (NYSE: GE)and is the financing arm of the company. SYF has been valued at approximately $20.4 billion. In its IPO filing, the company reported revenue of $10.5 billion in the last year. SYF will begin trading on the New York Stock Exchange on Thursday, July 31.

Catalent Inc. (NYSE: CTLT) provides oral, injectable, and respiratory drug delivery technologies to clients around the world. CTLT plans to raise $871 million through its IPO by selling 42.5 million shares between $19 and $22. In the last year, CTLT had revenue of $1.8 billion, and the company is expected to have a valuation of $2.4 billion following the IPO. CTLT will make its public debut on Thursday, July 31.

Mobileye N.V. (NYSE: MBLY) designs software and camera-based technologies for advanced driver assistance systems, and is based in Israel. These systems are designed to prevent automobile accidents. Through its IPO, MBLY is looking to raise $500 million by offering 27.8 million shares at a range of $17 to $19 per share. MBLY had revenue of $105 million in the last year and is expected to have a market value of $4.2 billion following the public offering. MBLY will hit the market on Friday, Aug. 1.

Money Morning members, see the remaining 19 companies that will be holding IPOs this week…

Transocean Partners LLC (NYSE: RIGP) is an oil company that operates three deep-water rigs in the Gulf of Mexico. RIGP is looking to raise $350 million in its IPO, and will be selling 17.5 million shares at a $19 to $21 range. Following the IPO, RIGP is expected to have a valuation of $1.4 billion. Last year, RIGP had had revenue of $558 million. RIGP will make its public debut on Thursday, July 31.

VTTI Energy Partners LP (NYSE: VTTI) owns, operates, develops, and acquires refined petroleum products and crude oil terminals. In the IPO, VTTI plans to raise $350 million by selling 17.5 million shares at a range of $19 to $21. VTTI had revenue of $302 million in the last year and the company is expected to have a market value of $821 million following the deal. VTTI will make its public debut on Friday, Aug. 1.

Westlake Chemical Partners LP (NYSE: WLKP) plans to raise $225 million by selling 11.3 million shares at a $19 to $21 range. WLKP will make its public debut on Wednesday, July 30.

FCB Financial Holdings Inc. (NYSE: FCB) plans to raise $221 million by selling 8.7 million shares at a range of $24 to $27. FCB will make its public debut on Friday, Aug. 1.

SIRVA Inc. (Nasdaq: SRVA) plans to raise $185 million by offering 11.6 million shares at a $15 to $17 range. SRVA will hit the market on Friday, Aug. 1.

Lantheus Holdings Inc. (Nasdaq: LNTH) is looking to raise $125 million by selling 9.3 million shares at a $12 to $15 range. LNTH will begin trading on Wednesday, July 30.

HealthEquity Inc. (Nasdaq: HQY) plans to raise $100 million by offering 9.1 million shares at a range of $10 to $12. HQY will hit the market on Thursday, July 31.

Auris Medical Holding AG (Nasdaq: EARS) is looking to raise $76 million by offering 6.9 million shares at a $10 to $12 range. EARS will hit the Nasdaq on Friday, Aug. 1.

Avalanche Biotechnologies Inc. (Nasdaq: AAVL) plans to raise $76 million by selling 5.4 million shares at a range of $13 to $15. AAVL will make its public debut on Thursday, July 31.

Vascular Biogenics Ltd. (Nasdaq: VBLX) is planning to raise $76 million by offering 5.4 million shares at a range of $13 to $15. VBLX will hit the market on Thursday, July 31.

Atara Biotherapeutics (Nasdaq: ATRA) plans to raise $75 million by selling 5 million shares at a $14 to $16 range. ATRA has not set a specific date for its IPO, but the deal is expected sometime this week.

Macrocure (Nasdaq: MCUR) is looking to raise $75 million by offering 5.4 million shares at a $13 to $15 range. MCUR will begin trading on the Nasdaq on Thursday, July 31.

Zosano Pharma (Nasdaq: ZSAN) is looking to raise $70 million by offering 6.4 million shares at a $10 to $12 range. ZSAN has not set a specific date for its IPO, but the deal is expected sometime this week.

Spark Energy (Nasdaq: SPKE) plans to raise $60 million by offering 3 million shares at a $19 to $21 range. SPKE has not set a specific date for its IPO, but the deal is expected sometime this week.

Tobira Therapeutics Inc. (Nasdaq: TBRA) is looking to raise $60 million by selling 4.6 million shares at a range of $12 to $14. TBRA will begin trading on Thursday, July 31.

Loxo Oncology Inc. (Nasdaq: LOXO) plans to raise $57 million by selling 4.4 million shares at a range of $12 to $14. LOXO will make its public debut on Friday, Aug. 1.

Marinus Pharmaceuticals Inc. (Nasdaq: MRNS) is looking to raise $52 million by selling 4 million shares at a range of $12 to $14. MRNS will make its public debut on Thursday, July 31.

Bio Blast Pharma (Nasdaq: ORPN) plans to raise $40 million by offering 3.3 million shares at an $11 to $13 range. ORPN has not set a specific date for its IPO, but the deal is expected sometime this week.

Mapi-Pharma (Nasdaq: MAPI) will attempt to raise $18 million 2.3 million shares for $8 each. MAPI has not set a specific date for its IPO, but the deal is expected sometime this week.

Get the most important IPO news as soon as it happens by following us on Twitter @moneymorning and @KyleAndersonMM.

Now: New SEC regulations are about to create a colossal market cash shift. Here’s what investors need to know now…

The post Synchrony IPO – Largest So Far in 2014 – Hits Market This Week with 22 Companies Going Public appeared first on Money Morning – Only the News You Can Profit From.

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Trulia Stock (NYSE: TRLA) Rises 12% on Zillow (Nasdaq: Z) Deal – but Trouble Ahead By Jim Bach http://wallstreetexaminer.com/2014/07/trulia-stock-nyse-trla-rises-12-on-zillow-nasdaq-z-deal-but-trouble-ahead-by-jim-bach/ http://wallstreetexaminer.com/2014/07/trulia-stock-nyse-trla-rises-12-on-zillow-nasdaq-z-deal-but-trouble-ahead-by-jim-bach/#comments Mon, 28 Jul 2014 16:18:51 +0000 http://moneymorning.com/?p=145448 After speculation last week that online real estate search engines Zillow Inc. (Nasdaq: Z) and Trulia Inc. (NYSE: TRLA) would combine their assets for a merger, the companies made this move official before markets opened this morning (Monday).

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This is a syndicated repost courtesy of Money Morning. To view original, click here.

After speculation last week that online real estate search engines Zillow Inc. (Nasdaq: Z) and Trulia Inc. (NYSE: TRLA) would combine their assets for a merger, the companies made this move official before markets opened this morning (Monday).

Trulia stock opened up 12% on the announcement, and Z opened down 4.2%.

Z will acquire TRLA in a $3.5 billion stock-for-stock deal expected to close in 2015. TRLA shareholders will receive 0.444 shares of Z for each share of TRLA, and will own about 33% of the combined company after the deal closes.

“Consumers love using Zillow and Trulia to find vital information about homes and connect with the best local real estate professionals,” Zillow Chief Operating Officer Spencer Rascoff said in a press release. “This is a tremendous opportunity to combine our resources and achieve even more impressive innovation that will benefit consumers and the real estate industry.”

This isn’t the first time Z has made moves to acquire another brand, though it is by far its largest and most expensive.

In 2011, Z spent $6.5 million to buy up Diverse Solutions Inc., a real estate branding company, and Postlets LLC, which provides a platform for renters and sellers to post listings.

In 2012, Z had an even busier year of acquisitions, spending another $67.6 million to acquire RentJuice, an online tool to manage relationships for landlords and property managers; Buyfolio, another broker-client portal; Mortech, a software company providing mortgage quotes; and Hotpads, a home rental search engine.

Then in 2013, Z made its biggest single transaction with a big ticket purchase of StreetEasy, a New York City property-listings website, for $42.7 million.

Trulia stock

To this point, none of Z’s acquisitions have helped the company sustain profits each year, as the real estate website had accumulated $84.1 million in deficits at the end of 2013.

And it’s hard to imagine how this $3.5 billion deal will help pull Z out of its profit slump…

TRLA Won’t End Zillow’s String of Losses

In 2011, when Z made its first round of acquisitions, it was able to generate $1.1 million in profits, the first time in the black in its earnings history since 2007. In 2012, when Zillow continued to expand and purchased four more companies, its profit increased to $5.9 million.

But that wasn’t the case in 2013, when Zillow purchased StreetEasy, and Z plunged back into the red, reporting $12.5 million losses on the year.

If Z was looking to reverse this trend of repeated losses – 2011 and 2012 were the only two years where Z reported actual profits, and Z has already netted $6.3 million in losses in the first quarter – then TRLA may not be the company to look toward.

Unlike Z, TRLA hasn’t posted a single profitable year since reporting in 2008, and has already reported losses of $15.2 million in the first quarter. This is compared to 2013, its worst performing year where TRLA netted $17.8 million in losses on the whole year. TRLA had $64.9 million in deficits at the end of 2013.

This deal will essentially be merging two money-losing companies that are both very similar in the business they do.

Short selling data reflects a lack of confidence from investors on these company’s upsides. Both are heavily shorted – meaning investors are looking to profit if share prices tumble. About 27.8% of Z shares floated are shorts. That figure is even higher at 37.2% for TRLA stock, according to FinViz.com.

That may help to explain part of why TRLA stock shot up 41.1% last week, and Z surged ahead 25.4%. As share prices soared, short sellers looking to limit their losses clamored to close their short positions and buy long.

“It’s just natural that the stock would rise because anybody being put in play would just cause the shorts to get the heck out,” Said Shah Gilani, Money Morning’s Capital Wave Strategist and editor of Short-Side Fortunes investment service. “There’s fundamentally no reason to be in that trade anymore.”

In a recent newsletter from Bespoke Investment Group, the financial research firm urged caution when looking at the current valuations for Z and TRLA.

“Forgetting any concerns over whether the deal may be accretive or not in terms of either margins or net income, an all-stock deal of this kind between two tech companies with extremely high sales multiples (as of yesterday Z 21.1x price-to-sales; TRLA 8.3x price-to-sales) is the type of behavior we haven’t seen since the last dotcom boom,” Bespoke wrote. “It also should serve as signal or warning that valuations (if you can even call it that) in certain isolated areas of the market are reaching excessive levels.”

While Gilani doesn’t recommend considering these companies for short trading at least until the deal is fully realized and all the information is available, he has been shorting other companies and investments tied to the housing market.

Z and TRLA are currently operating in a real estate market that is quickly beginning to lose its upside. Gilani said the optimistic numbers indicating a recovery in the housing market are being prompted by the cash infusions of big money investors and foreigners looking for high-yielding investments in a low-rate environment.

Middle-income Americans, those that could help push housing even higher, just don’t have the money to compete with Wall Street and are not flooding to the market in droves.

“I don’t see that class of people flush with money or readily able to get a lot of credit necessary to move the housing market higher,” Gilani said. “I just don’t see where the strength is in the big picture.”

More from Shah Gilani: The so-called resurgence of the housing market is not coming on the backs of individuals buying homes, but rather institutional buyers “trading up,” dampening prospects that Middle America will continue to feed this housing recovery…

The post Trulia Stock (NYSE: TRLA) Rises 12% on Zillow (Nasdaq: Z) Deal – but Trouble Ahead appeared first on Money Morning – Only the News You Can Profit From.

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Here’s What Wall Street Bulls Were Saying In December 2007: Read And Take Cover! http://wallstreetexaminer.com/2014/07/heres-what-wall-street-bulls-were-saying-in-december-2007-read-and-take-cover/ http://wallstreetexaminer.com/2014/07/heres-what-wall-street-bulls-were-saying-in-december-2007-read-and-take-cover/#comments Mon, 28 Jul 2014 15:59:04 +0000 http://davidstockmanscontracorner.com/?p=16097 This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here.

The attached Barron’s article appeared in December 2007 as an outlook for the year ahead, and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of disarray in the housing and mortgage markets, soaring global oil prices and a domestic economic expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still hitting the “buy” key. In fact, the Great Recession had already started but they didn’t have a clue:

Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears.

Indeed, with the S&P 500 at 1460 and just off its all-time high in October, the dozen top Wall Street prognosticators surveyed by Barron’s anticipated still more index gains during 2008:

….. the dozen seers we’ve surveyed all have penciled in higher stock prices in 2008, although their estimated gains vary widely, from 3% to 18%. On average, the group sees the Standard & Poor’s 500 at 1,640 by the end of next year….

That 12% gain didn’t happen! The market ended 2008 in an altogether different place—–that is, about 45% lower at around 900. And, as is shown below, it still wasn’t done—- until the capitulation low was reached in early March 2009 at 675.

In truth, this Barron’s article needs no time stamp. Every one of the arguments being made today were trotted out in almost identical form then. Front and center was the usual canard that the market is cheap on a forward PE basis. For what was surely the 17th time in as many years, Goldman’s Abby Joseph Cohen claimed the market was trading at well below its long term multiple:

….the S&P 500 trades today at just 15.6 times average 2008 estimated earnings — well below the average P/E of 18.6 times earnings during periods when inflation was at similarly muted levels in the past 57 years, notes Goldman’s Cohen.

There were three big clouds in Cohen’s perennially bullish crystal ball. First, inflation didn’t stay so benign. During the next year oil soared to $150 per barrel, bringing the CPI up by 2.9%.

Secondly, 2008 earnings did not come in at $100 per share per the Wall Street hockey-stick, but plunged to $55 on a so-called “ex-items” basis (excluding one time or non-recurring expenses which continuously seem to recur anyway). And actual 2008 earnings for the S&P 500 came in at just $15 on a honest GAAP basis as reported to the SEC under penalty of  criminal charges for deliberate misstatement.

But most importantly, Cohen’s 57 years of historical benchmarks were irrelevant. That’s because these historical cycles reflected a reasonably vibrant mechanism of “price discovery” based on traders assessing, weighing and perpetually re-calibrating the in-coming facts from the macro-economy and individual company performance. But by December 2007, price discovery had long ago been destroyed by the Greenspan era policy of financial repression, wealth effects and the Fed’s “put” under the market averages.

Like now, the short-interest had been driven out of the market and, as is evident from the chart above, the fast money crowd had been handsomely rewarded for buying the dips—-confident that the Fed had their backs. Indeed, the bullish case was overwhelmingly pinned to the expectation that the Fed and other central banks would not let the economy falter, and that a new round of interest rate cuts and other stimulus initiatives would keep the party going:

Read the rest of this post at David Stockman’s Contra Corner. View original post.

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Excuse Me For Living http://wallstreetexaminer.com/2014/07/excuse-me-for-living/ http://wallstreetexaminer.com/2014/07/excuse-me-for-living/#comments Mon, 28 Jul 2014 13:40:28 +0000 http://kunstler.com/?p=5073 Israel has all the proof it needs that world opinion will never consider its right to exist important. The Obama White House, and a lot of the US News Media, portray the Hamas-Israel conflict as something like an amateur soccer …

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This is a syndicated repost courtesy of KUNSTLER. To view original, click here.

Israel has all the proof it needs that world opinion will never consider its right to exist important. The Obama White House, and a lot of the US News Media, portray the Hamas-Israel conflict as something like an amateur soccer match, with the uneven score (40-odd Israeli soldiers killed versus 1000-plus Palestinians, mostly civilians) showing that the contest is unfair, that Israel has “gone too far,” that they have entered the same moral zone as Hitler, Stalin, and Pol Pot, carrying out a “genocide.”

Of course, this is a real hot war, not a diversity training exercise, or a self-esteem course, or any sort of the kindergarten psychotherapy that has come to form the basis of American thought and policy. And a vicious world opinion uses America’s own moral fecklessness the way Hamas uses women and babies to shield its rocket installations.

Apparently world opinion also doesn’t take seriously Israel’s founding maxim, “never again,” meaning that Israelis will not passively wait for world opinion to save them from an enemy that plainly and clearly seeks to annihilate them, as happened 1933-45. The Hamas organization is explicitly dedicated to the destruction of Israel. That is not a rhetorical gimmick; it is its declared unwavering primary goal.

The claim that Israel seeks to annihilate the Palestinians is simply a lie. Israel seeks to stop rocket attacks and tunnel invasions, and as long as Hamas is dedicated to those actions, they can expect a forceful Israeli reaction. The sealed border of Gaza has been part of that reaction, to counteract the traffic in war materials and the ready supply of suicide bombers who, Hamas declares, “love death more than the Israelis love life.”

The Hamas war leaders are killing their own people to score public relations points. The particulars of the Hamas arsenal embedded among the civilian Gaza population are so firmly established that the facts are hardly worth rehearsing. Anyway, the world doesn’t care about those facts. Israel’s will to exist is an annoyance to it.

Of course, Gaza is just one flash point in an Islamic region much more broadly inflamed in conflict between different Islamic brands and their political subsidiaries. The main reason (unacknowledged) is overpopulation of the region due to short-term wealth from oil. With oil production peaking across North Africa and the Middle East, the world can expect at least a generation of violent conflict over the table-scraps of Modernity. Even the Islamic nations with scant oil reserves have been hugely affected by a half-century of this regional oil wealth. The crack-up in the shadow of this brief historical episode has been easy to anticipate. World opinion is not going to stop it.

By the way, where was world opinion a month ago when ISIS was crucifying and beheading its way out of Syria into central Iraq? World opinion took those horrors in stride because that’s exactly the kind of behavior that world opinion now expects from radical Islamic maniacs.

Israel is a sideshow to all that, really, but one that attracts a lot of attention, with the memory of the Nazi “final solution” lingering on in the atrophying moral organs of what has been loosely called “the West,” where the last great world conflagration played out. It is ridiculous, of course, to compare the lot of the Gaza Palestinians to the Jews of the Warsaw Ghetto. The Jews locked in the Warsaw ghetto were not firing rockets out of it, nor did they ever declare that Germany had no right to exist.

The Palestinians will find justice when they find a leadership that is willing to grant Israel a right to exist and when they stop firing rockets and sending tunnel commandoes into Israel to wreak havoc. If they started with that, they could expect a conversation to begin with Israel over new terms of coexistence. But they have to demonstrate an interest in coexistence. There’s no evidence of that so far. Why this simple equation is not understood by world opinion is an abiding mystery.

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$900 Billion in Capital Is About to Move http://wallstreetexaminer.com/2014/07/900-billion-in-capital-is-about-to-move/ http://wallstreetexaminer.com/2014/07/900-billion-in-capital-is-about-to-move/#comments Mon, 28 Jul 2014 09:00:59 +0000 http://moneymorning.com/?p=145262 This is a syndicated repost courtesy of Money Morning. To view original, click here.

Six years after the financial crisis, the SEC finally concluded a four-year battle with financial industry lobbyists to toughen regulations governing money market funds.

Readers may remember that a run at the $62.5 billion Reserve Primary Fund during the 2008 financial crisis brought the multi-trillion money market industry to a standstill.

And it required federal intervention to prevent a market collapse…

The reason: the Reserve Primary Fund was forced to “break the buck” (that is, lower its price to below the $1.00-per-share industry standard for its type of money market funds) due to heavy exposure to plummeting Lehman Brothers debt securities.

Here’s why the new regulations are about to cause a colossal market cash shift…

The Regulations That Will Change This Giant Market Permanently

The rules, approved by a tight (but unusually bi-partisan) 3-2 vote on July 23, require the riskiest funds, the so-called prime money funds to use floating prices for their shares. These funds cater to institutional and high-net-worth investors, and buy securities such as commercial paper issued by banks.

That is, instead of trading at a stable price of $1.00-per-share (meaning that $1.00 invested in a fund can always be redeemed for $1.00) prime funds will have to mark their shares to market based on fluctuations in the value of their underlying securities.

This is a radical break with industry norms that have employed fixed-rate pricing that ignored fluctuations in the prices of the underlying prices of their holdings.

As I mentioned, the Reserve Primary Fund was battered in 2008 by big holdings of Lehman Brothers commercial paper that was not being marked-to-market. If that situation were to occur today under the new rules, a fund would have to mark down its shares to below $1.00. For the most conservative investment imaginable, one often equated to a bank deposit in terms of safety, this would be a confidence-shattering event, just as it was in 2008.

The new rules also include measures to ease the tax reporting burden on fund investors. The U.S. Treasury Department and Internal Revenue Service agreed to require investors to account for gains and losses only once a year, at year-end, instead of tracking prices at which they buy or sell. The IRS also waived its “wash-sale” rule, which could have penalized investors who trade frequently in these funds.

In a nutshell, a massive “safe” money sector just got a lot less predictable…

This Shift Will Ripple Through Investment Markets

One consequence of the rule change is that as much as $900 billion of the $2.6 trillion of assets invested in these funds may now move out of them and into bank accounts, according to the Financial Times.

The reason is that certain types of fiduciaries have zero tolerance for any type of principal loss in these types of holdings. The rule was the subject of intense lobbying by the usual suspects. The U.S. Chamber of Commerce warned that the new rule would destroy the appeal of prime funds, which many corporations use to manage cash.

Boeing Co., for example, has warned that it would move the $2 billion to $3 billion of cash it invests in prime funds because of the risk of principal loss. Instead, it may move that money into funds investing in short-term government securities as an alternative; those funds will continue to be allowed to use fixed-rate pricing of their shares.

The SEC also added a rule that would allow the boards of directors of money funds to temporarily suspend withdrawals or impose fees when a fund faces trouble meeting redemptions.

These restrictions on withdrawals are known as “gates” and are widespread in the world of hedge funds, which often invest in securities that become illiquid in a crisis.

During the financial crisis, many hedge funds were either forced to put up “gates” since they were unable to sell many of their investments or chose to put up gates since they did not want to sell their assets at crisis-level prices. “Gates” can work in favor of investors in the long-run in terms of maximizing the value of their investments, but in the short-run they deprive them of access to liquidity and tend to make them very unhappy.

The ability of a fund of any kind to impose “gates” can also have the unintended consequence of causing investors to redeem preemptively, creating a contagion effect that can ultimately harm them.

These rule changes will alter the landscape of the money market industry and, by extension, the investing of nearly $1 trillion.

Both the firms providing these funds and the investors who use them will adjust, but it’s likely that prime money funds will shrink and money will move into bank accounts and other investments that protect principal without “gates.”

The post $900 Billion in Capital Is About to Move appeared first on Money Morning – Only the News You Can Profit From.

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US: $1.067B CouponPurchase 2014-07-28 NYFed permanent open market operations http://wallstreetexaminer.com/2014/07/us-1-067b-couponpurchase-2014-07-28-nyfed-permanent-open-market-operations/ http://wallstreetexaminer.com/2014/07/us-1-067b-couponpurchase-2014-07-28-nyfed-permanent-open-market-operations/#comments Mon, 28 Jul 2014 04:00:00 +0000 http://wallstreetexaminer.com/?guid=a2fbfa70a97b8dfebf5c9c763f0e7a60 This is a syndicated repost courtesy of NY Fed | Permanent Open Market Operations. To view original, click here.

Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve’s System Open Market Account (SOMA) portfolio.

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The Case for a Bull or Bear Market in Two Charts http://wallstreetexaminer.com/2014/07/the-case-for-a-bull-or-bear-market-in-two-charts/ http://wallstreetexaminer.com/2014/07/the-case-for-a-bull-or-bear-market-in-two-charts/#comments Mon, 28 Jul 2014 02:33:00 +0000 http://wallstreetexaminer.com/?guid=b8f07ccf8ab1e80780d0536057bbeb95 This is a syndicated repost courtesy of oftwominds-Charles Hugh Smith. To view original, click here.

Which appears more likely–a straight-line extension of the past two years’ rise in stocks, or another “impossible” decline to complete the megaphone pattern?

There are dozens of charts and data points supporting the case for a continuation of the Bull market in stocks or a reversal into a Bear market. For the sake of brevity I’ve distilled the two arguments into two charts, one for the Bull case and one for the Bear case.

The Bull case is easy: the economy has reached self-sustaining expansion, a.k.a. escape velocity; hotel occupancy rates are high, home valuations are rising, stocks are fairly valued based on forward earnings, debt has been paid down/written off, and the Fed has tapered its quantitative easing (QE) bond and mortgage buying with no ill effect.

Looking ahead, there is no fundamental or technical reason for stocks to drop significantly; stocks always go up in years ending in 5, and there is nothing magical about 2016 in terms of a decline, either. The market could advance for years.

Bottom line: the advance since early 2012 is founded on solid fundamentals and there’s no reason the advance can’t continue along with strengthening fundamentals such as corporate profits, rising tax revenues, etc.

The Bear case is based on sentiment, but this reliance on extremes of bullish sentiment is misplaced; the fact that everyone is talking about a bubble in stocks and expecting a correction just goes to show there is no bubble and a correction will simply offer another opportunity to buy the dip, a strategy that has been richly rewarded.

The Fed (and other central banks) have our back: any decline in risk assets will be washed away with another tsunami of near-zero-interest money, liquidity and credit.



The Bear Case is also simple: the supposedly solid fundamentals of earnings, stock buybacks, etc. are all based on an unprecedented expansion of debt, central bank monetary easing, leverage and systemic risk.

Finance trumps economic data, and financial risk has reached a tipping point:shadow banking is unraveling in China, the Fed already owns most of the new home mortgages that have been issued and has to taper lest it own the entire mortgage/Treasury markets, junk bonds have been bid to the moon, etc.

Debt, leverage and risk have reached bubble heights, and simple cause and effect means the stock market has also reached bubble heights.

Faith in the central banks’ ability and willingness to push stock markets higher has reached extremes. Volatility and complacency have both reached levels that historically correspond to major highs.

Take away massive buybacks funded by cheap credit and the market’s dependence on financial one-offs will be revealed: the Bull market was never about earnings; it was always about cheap credit, central banks pushing investors into risk assets like stocks and corporate buybacks. Bulls claiming hotel bookings, auto sales and profits are “proof” of a self-sustaining economy are looking at the effects, not the causes.



To understand the cycle of credit addiction, please read Are We Addicted to Failure?

Bulls and Bears alike tend to marry their convictions. As we all know, the human mind is uncomfortable with uncertainty, and so once a person chooses the Bull case, recency bias and confirmation bias kick in and the Bull selects recent data that confirms his conviction.

The same tropism toward certainty takes hold of Bears, and those of us without the conviction of marriage watch from the sidelines.

I have long been skeptical of the Bull case based on the unprecedented scale of central bank/state intervention, support and manipulation. If everything’s so great, then why does the Fed need to buy trillions of dollars in assets and manipulate markets with reverse repos, etc. and direct purchases via proxies? If a market only rises as a result of such outlandish one-off intervention, how can anyone claim it has any fundamental foundation?

Which appears more likely–a straight-line extension of the past two years’ rise in stocks, or another “impossible” decline to complete the megaphone pattern? If stocks continue climbing once the Fed ends its bond-buying in and stock buybacks drop to less frenzied levels, that will be evidence the Bulls are right about the economy’s escape velocity.

If the market tanks as soon as the monetary heroin is withdrawn, that will support the Bear’s case that financial legerdemain trumps economic data.

Two things favor the Bear case in my view: if volume is the weapon of the Bull (i.e. rising volume drives Bull markets), then the fact that volume has been declining for years is not supportive of the Bulls.

Secondly, I don’t see how the economy can reach escape velocity with household income declining in real terms: Five Decades of Middle Class Wages (Doug Short). 

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