by ilene - November 27th, 2015 8:16 am
Having announced in two brief tweets on Thanksgiving – just as we warned was very possible – that he would pull his shares from being available-to-lend, Martin Shrekli has sent the meteoric Volkswagen-like trajectory of KaleBios vertical once again. With short-interest having surged to 49% (from 5.6%), the yanking of his loanable shares has sent KBIO up 65% in the pre-market, back above $45 (from just 45c 10 days ago).
As we noted previously, and now the squeeze really begins, as all those 49% who are short KBIO, according to Markit, rush for the nearest exit, while those who are currently long the stock refuse to sell at any price knowing they have all the leverage.
Whether this will translate into a Volkswagen circa 2008-type scenario, which incidentally looked as follows…
… and where a company which is for all intents and purposes bankrupt suddenly trades with a market cap in the hundreds of millions or even billions as desperate shorts pay any price just to get out…. tune in tomorrow to find out during tomorrow's abbreviated session, because the KaloBios comedy is nowhere near concluded.
As for Shkreli… well he is already the "most hated man in America" – might as well double down.
Unbelievable Lie of the Day: Turkey Says It Had Not Recognized the Aircraft as Russian When it Shot it Down
by ilene - November 27th, 2015 3:07 am
Courtesy of Mish.
In the wake of conflicting flight path information with Russian and Turkey differing on the flight path of the Russian aircraft that Turkey downed over Syria, comes the incredulous claim that Turkey did not recognize the aircraft as Russian when it shot the aircraft down.
This unbelievable statement comes as Hollande and Putin Seek Common Ground but Remain at Odds Over Syrian Targets.
The leaders of France and Russia held more than three hours of talks at the Kremlin focusing on the fate of the Syrian president and on which parts of the armed opposition should be protected from air strikes.
The summit was part of Mr Hollande’s push for a broader coalition against Islamist radicals Isis after the attacks in Paris a week ago.
After the talks, Mr Hollande said he and Mr Putin had agreed on three basic points. “First, we will intensify the exchange of intelligence and any other information between our militaries. Second, the strikes on Isis will intensify and become part of a co-ordinated campaign in order to make them more efficient. Third — and Mr Putin also stressed this — we must focus our air strikes on Isis and other terrorist groups.”
The gulf between the leaders on the future of Mr Assad remained as wide as ever. Mr Hollande reiterated his position that Mr Assad “cannot play a role in the future of this country” but Mr Putin rebuffed him, repeating his standard phrase that only the Syrian people could determine the future of their country.
The issue of widely diverging goals of the external actors in the Syrian war gained renewed urgency after Turkey shot down a Russian fighter jet on Tuesday which it said had violated its airspace. Ankara’s move is believed to have been partly motivated by the fact that Russia’s air force has been bombarding Turkmen villages in northern Syria, an ethnic group that Turkey views as an ally.
Turkey’s President Recep Tayyip Erdogan said on Thursday that Ankara had not recognised the aircraft as Russian when it shot it down. Following a slew of announcements of economic retaliation against Turkey, Mr Putin angrily dismissed this claim as “impossible” and said Russia had provided the US with information on the time and location of its
by ilene - November 26th, 2015 8:02 pm
The brutal tragedy of at least one KaloBios short seller was first documented a week ago when we noted the margin call massacre that befell "novice" trader Joe Campbell, who went to bed with a $35K short on Wednesday and woke up with a $106 margin call the next morning after it was revealed that a "consortium" led by Martin Shkreli had taken an unknown stake in heretofore insolvent KBIO.
However, the story did not end there because the very next day we got new information that Shkreli had not bought just any amount of KBIO shares but a whopping 70%, which got us thinking: Is the "most hated man in America" contemplating to unleash a Volkswagen scenario, in which he has acquired enough shares to leave more shorts outstanding than there is actual float, and then one day to simply pull all the borrow by no longer lending out shares to potential shorters.
This is what we said last Friday:
In other words, Shkreli's consortium had acquired 70% of the company, and should they decide to pull the borrow, on the odd chance that the short interest had soared to above 30%, KBIO – which until a few days ago – suddenly has the potential to become the next Volkswagen: a company which has more shares short than there is float available to cover them.
What happens if Shkreli's plan is indeed to rerun the "Volkswagen" scenario and unleash an epic short squeeze that sends the price of the company into the stratosphere, unlinked from any fundamentals, but merely soaring ever higher as desperate shorts pay any price just to get out.
We hope to find out as suddenly this until recently bankrupt company whose price has exploded in the past two days, has become not only a poster child for everything broken and manipulated with the market (think 2014's CYNK one year forward) but has the market following with morbid fascination to find out how the tragicomedy of "Shkreli vs the Shorters" concludes.
And then two days ago, when it was still unclear just what Shkreli's intentions are, but when the stock had already soared well into the $40-range, we…
by ilene - November 26th, 2015 1:30 pm
As you’re probably aware, the Fed has a hard time spotting asset bubbles. Just as there was no housing bubble in 2006 according to the honorable and exceptionally “courageous” Ben Bernanke, there’s no bubble in equities today and certainly no ZIRP-induced fixed income bubble either.
The other thing the Eccles cabal has trouble spotting – and this is of course inextricably linked to an inability to spot speculative excess – is inflation.
Nevermind the fact that housing costs have gone parabolic in places like California and New York and pay no attention to corporate “slack fill” and “weight out” tactics that mask 72% inflation on everything from deodorant, to ground pepper, to Soda Stream refill units, and certainly do not read too much into hyperinflation in the high end art world where $170 million Picassos and Modiglianis clearly indicate that QE-driven rallies in capital markets are driving bored billionaires to push the price of trophy assets into the stratosphere, just stay calm and take solace in the fact that according to the headline numbers, inflation is non-existent.
Of course you may have a hard time swallowing that (no pun intended) today as you sit down for a hearty holiday feast because your turkey cost nearly 7% more than it did last year. In fact, the whole meal crossed $50 for the first time in history in 2015 and as you can see from the following chart, the total cost is up triple digits since the late eighties.
So give thanks to the Fed for your meal and remember, it's misleading, negligible core CPI prints that allow the Fed to persist in ZIRP on the way to restoring your 401k which they helped destroy in 2008.
Oh, and while dinner may be $50 today, it's worth noting that in 1909 – so, before the Fed – it was 50 cents:
by ilene - November 26th, 2015 11:35 am
Some people suggest that the narrow breadth in the market — with the FANG stocks being responsible for all the strength in the indexes this year — portends future weakness. This is not necessarily so. It's a theory. Here's another theory at the other extreme.
Courtesy of Dana Lyons
It would not be unprecedented for trendy issues like the F.A.N.G. stocks to continue on to much larger gains.
OK, full disclosure right off the bat: this post is not intended as a prediction, advice or even investment analysis whatsoever. It is simply a fun “what-if” illustration. As Bob #1 (or was it #2?) from the movie Office Space said “…believe me this is a hy-po-the-ti-cal “ (although, if the pattern shown below plays out over the next 18 months, we reserve the right to claim it was a prediction!).
Many of our posts over the past few months have harped on the narrowing breadth, weakening internals, etc. among stocks and the ultimate negative impact that trend is likely to have on the market. The other, positive, side of that coin, which we don’t touch on as much concerns those stocks that are still performing well. What the dwindling leadership does is make those still-positive stocks that much easier to identify. Most obvious among those in that shrinking category are the 4 affectionately referred to as F.A.N.G., i.e., Facebook, Amazon, Netflix and Google (Alphabet).
The median U.S. stock (as measured by the Value Line Geometric Composite) hit its high for the year in May and is actually down nearly 7% as of this posting. Meanwhile, the S&P 500, representing the leading style area of the market this year – large caps – is up about 1.5% on the year. Drilling down further, the segment carrying the load for the large cap gains is the Nasdaq 100, up over 10% in 2015. However, the entirety of the gains (more, in fact) in the 500-stock S&P index and the 100-stock Nasdaq index can be attributed to just the 4 F.A.N.G. stocks. Consider their respective gains for the year thus far:
- Facebook: +31%
- Amazon: +117%
- Netflix: +154%
- Google: +41%
by ilene - November 26th, 2015 11:21 am
Courtesy of Mish.
Attitudes towards the EU have hardened in the wake of the ISIS attack on Paris. A new poll reveals Majority of UK Public Now Wants 'Brexit'.
More than half of the public now want to leave the European Union, according to an opinion poll for The Independent – the first time our monthly survey has shown a majority for “Brexit.”
The survey of 2,000 people by ORB, conducted last Wednesday and Thursday in the wake of the Paris terrorist attacks, will be seen as a reflection of public anxiety about the EU’s migration crisis.
Some 52 per cent of people say Britain should leave the EU, while 48 per cent want to remain.
When ORB asked the same question in June, July and September, a majority (55 per cent) wanted to stay and 45 per cent to quit on each occasion. Last month, amid widespread media coverage of the refugee crisis, the margin narrowed slightly to 53 per cent in favour of staying in, with 47 per cent wanting out.
The latest survey highlights a stark divide between the generations ahead of the in/out referendum to be held by the end of 2017. Some 69 per cent of 18-24 year-olds want to remain in the EU, while only 31 per cent want to leave. Support for EU membership declines steadily with age among older groups, with only 38 per cent of those aged 65 and over wanting to remain and 62 per cent in favour of leaving.
Some 54 per cent of people who voted Conservative at the May election want to leave the EU, as do 93 per cent of Ukip voters. But a majority of Labour, Liberal Democrat, SNP and Green supporters want to remain.
The overall findings will worry pro-EU campaigners, who admit privately that the refugee crisis is shifting opinion against membership. There are also fears that the Out campaign, funded heavily by hedge funds opposed to EU regulation, enjoys a much bigger budget than the In brigade. “We will have less but are much more likely to spend it better,” said one In camp insider, promising a professional effort than its rivals.
UK prime minister David Cameron really has his work cut out for
by ilene - November 25th, 2015 5:30 pm
By Tony Sagami
In my article from November 17, I touched on the growing number of retailers that report shrinking traffic and disappointing sales:
Our consumer-driven economy is not getting any help from suddenly sober shopaholics. In the most recent report, the Commerce Department reported that retail sales rose by a measly 0.1% in September. And it didn’t matter whether you wear Gucci loafers or Red Wing work boots.
Since then, the retail landscape has gotten even muddier.
The Commerce Department reported that retail sales increased by a miserly +0.1% in October, below the +0.3% Wall Street was expecting. Additionally, sales for the month of September were revised downward from +0.1% to 0.0%.
So this is what the last three months look like:
You should pay careful attention to retail sales because there is a strong correlation between plunging retail sales and plunging stock prices!
Walmart, Macy’s, and Nordstrom are the three high-profile retailers to disappoint Wall Street, but they have lots of company.
- Shoe retailer DSW, Inc. lowered its full-year earnings forecast from $1.80 – $1.90 per share to $1.40 – $1.50 per share. The problem? Slow customer traffic.
- The Gap reported that its October same-store sales dropped by 15% at Banana Republic and by 4% at Gap stores. Additionally, the company warned that it would miss Q3 expectations.
- Urban Outfitters reported Q3 sales of $825.3 million, well below the Wall Street pipe dream of $868.9 million. Urban Outfitters’ shares closed down 7.4% to a four-year low after spitting up that revenue hairball.
The biggest confirmation of the retailing woes came from the Port of Long Beach, the second-busiest US port.
The Port of Long Beach handled 307,995 containers in October, down from 310,482 and 0.8% less from the same month last year. More troublesome is the 14% plunge in imported containers since August.
by ilene - November 25th, 2015 5:13 pm
Courtesy of John Rubino.
A too-strong currency is, in theory, supposed to make it harder to sell things to cheap-currency countries, thus crimping corporate profits and by implication pretty much everything else.
The US dollar has been rising against the rest of the world for over a year, so let’s see how we’re doing. From today’s Wall Street Journal:
Profits at U.S. companies during the third quarter posted their largest annual decline since the recession, underscoring the competitive pressure from a strong dollar and weak global demand that could limit businesses’ ability to support stronger economic growth in the coming months.
A comprehensive measure of companies’ profits across the U.S.—earnings adjusted for inventory and depreciation—dropped to $2.1 trillion in the third quarter, down 1.1% from the second quarter, the Commerce Department said Tuesday. Compared with a year earlier, profits fell 4.7%, the biggest annual decline since the second quarter of 2009. That marked only the second time profits have fallen on a year-over-year basis since the recession ended in mid-2009.
Economists warn weak profits could weigh on business investment, put pressure on stock prices that some analysts think look expensive, and pose a challenge for Federal Reserve officials who are trying to raise interest rates after seven years of near-zero rates.
“Profits are slowing, there’s no way around that,” said Deutsche Bank chief U.S. economist Joseph LaVorgna. “These are things that suggest we’re past the midpoint of the business cycle, unfortunately, but it doesn’t mean we can’t run this [expansion] a bit longer.”
U.S. companies’ profits plunged during the recession then rebounded in the early stages of the recovery. But they’ve been trending lower for years, a reflection of slow growth abroad and moderate growth at home. Profits as a share of overall economic output have shrunk to 11.4% in the third quarter from a recent peak of 12.5% in 2012.
The latest reading highlights the divergence between domestically oriented operations and U.S. companies’ overseas operations, where the stronger dollar has effectively made U.S. products more expensive and global weakness has undercut demand.
Tuesday’s report showed domestic profits rose $7.3 billion in the third quarter, or 0.4%, but fell 2.8% from the third quarter of 2014. Meanwhile, foreign profits fell by $30 billion, a 7.4% decline from the second quarter and 12.2% drop from a year earlier.
by ilene - November 25th, 2015 3:30 pm
Courtesy of Dana Lyons
The bull market in U.S. equities has narrowed over the past 6 months as strength has become concentrated in large cap stocks. Recently, strength has narrowed even among those large caps.
One common theme in these pages (and others) over the past 6 months has been the narrowing of participation in the equity bull market. That is, the rally has persisted among the major averages, but fewer and fewer stocks are rallying alongside. This dynamic is possible, of course, due to the uneven weighting of most stock indexes. The largest stocks, either by market cap or by price, have the greatest impact on the performance of the indexes. And those big-cap stocks have shown little propensity thus far to slow down. However, just recently, we are seeing the narrowing of the rally even among these large cap stocks.
We touched on this trend earlier this month, pointing out that the “Equal-Weight” version of the Russell 1000 Large-Cap Index had been lagging behind the “market cap-weighted” version since this past May. That is evidence that even the average large-cap stock has failed to keep up with biggest of those stocks. Further, we illustrated in a chart that while the Russell 1000 cap-weighted Index was back near its May levels, the Equal-Weight Index, i.e., the average stock, had not only lagged, but was down some 6% over that time.
Today’s Chart Of The Day takes that contrast even further by looking at the relative ratio between the Russell 1000 Equal-Weight Index and the cap-weighted version. As of Friday, that ratio had dropped to its lowest level since the inception of the Russell 1000 Equal-Weight Index.
Granted, the Equal-Weight Index has only been around for 5 years. It would have been interesting to note its relative behavior around the top in 2007, and especially during the “great divergence” between 1998 and 2000. Nevertheless, we must read the recent developments in a negative light as the fewer number of stocks that are rallying, the less robust and resilient the rally is likely to be. Sure, it may have little to no impact on those areas that are still working right now. However, when those areas do begin to succumb to selling pressure, there will be precious little left to support…
by ilene - November 25th, 2015 3:25 pm
Courtesy of Mish.
Fourth Quarter GDPNow Forecast Sinks to 1.8%
Following today’s personal income report in which consumer spending rose only 0.1% month-over-month, the Atlanta Fed GDPNow Forecast for fourth quarter declined by 0.5 percent to 1.8 percent.
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.8 percent on November 25, down from 2.3 percent on November 18. The forecast for the fourth-quarter rate of real consumer spending declined from 3.1 percent to 2.2 percent after this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis.“
The latest Blue-Chip forecast for early November was 2.7%, a highly unlikely number at this stage unless season spending picks up big time.
Reports show stores are not discounting merchandise as much as consumers like, and consumers generally expect to spend less, so odds of a hefty jump in Christmas sales is questionable.
We may know more next week when reports on Black and Blue Friday become available.
4th Quarter GDP Trends
The initial 4th quarter GDPNow forecast started at 2.5% on October 30. It rose as high as 2.9% following the auto sales and jobs reports. It’s pretty much been downhill since then.