Author Archive for Zero Hedge

The SmileDirectClub IPO Did Something Not Seen Since The Financial Crisis

Courtesy of ZeroHedge View original post here.

One look at the just IPOed stock of SmileDirectClub would suggest that the answer is yes: after going public at a price of $23/share, pricing above range, the stock has tumbled 12% on its first day of trading, after it sold 58.5 million Class A shares on Wednesday for $23 each, above the $19 to $22 offering range, valuing the company at $8.9 billion.

The Invisalign alternative (the company delivers teeth strengthening kits to your doorstep) raised $1.35 billion in this year’s fifth-largest IPO, which priced Wednesday night above its indicated range. The stock joins Uber – which priced within its indicated range – as the only 2019 debut above $1 billion to open lower.

And not just that: as Bloomberg points out that it has become the first U.S. firm since the financial crisis to raise more than $1 billion and price its IPO above range, yet sink in its opening trades.

More notably, with other mega-IPOs like Peloton – i.e. an exercise bike with an iPad superglued to it – and WeWork on deck, SmileDirectClub provides the first test in months on whether IPO investors will endorse a large, unprofitable firm surrounded by buzz despite a broader rotation into value trades.

The answer appears to be unsatisfactory.

Some more details from Bloomberg on the initial offering: SmileDirectClub is the first to US listing to raise at least $1 billion since Chewy on June 13 (it has since tumbled after hitting an all time high on the day of its IPO), but at least three more are expected in the coming weeks. CloudFlare Inc. is scheduled to debut Friday, Peloton on Sept. 26 and WeWork possibly by the end of this month.

 





Goldman Warns ‘Quant Quake’ Marks The End Of Momentum Rally, Not A Buying Opportunity

This is an interesting commentary from Goldman Sachs on the rotation from high momentum growth stocks to value stocks that we've seeing in the past few weeks.

Courtesy of ZeroHedge

In the wake of the sharpest Momentum reversal in a decade, Goldman Sachs addresses some common investor questions on the equity market rotation and discuss what we expect going forward.

Q1: What just happened?

In the last two weeks, high momentum stocks have sharply underperformed what had been the equity market’s biggest laggards.

Our Momentum factor tracks the equal-weighted performance of the top 20% vs. bottom 20% of S&P 500 stocks ranked on trailing 12-month returns. The factor has declined by 14% since August 27, which marks the worst two-week return for Momentum since 2009 and ranks in the 1st percentile of historical returns since 1980.

Although the Momentum plunge has been sharp, it effectively only served to unwind the exceptionally strong Momentum rally in August. Momentum soared by 12% in the first half of August and 17% through August 27, a surge that in the last 40 years has only been matched in the late 1990s and late 2000s.

The reversal in Momentum captured sharp rotations in other equity factors and sectors that had become increasingly correlated with each other and Momentum through August. As Momentum declined, min vol and growth stocks also fell, while small-caps and value stocks outperformed. At the industry level, the Momentum reversal has reflected a rotation away from bond proxies like Utilities and secular growth stocks like Software & Services in favor of cyclicals like Consumer Durables that had lagged during most of the past 12 months. Unlike our other factors, our Momentum factor is not sector-neutral.

Q2: What caused the Momentum reversal?

A rise in investor crowding set the stage for the violent market rotations of the last two weeks.

As we highlighted in our most recent Hedge Fund Trend Monitor, trends of rising portfolio concentration, falling position turnover, and increased crowding have accelerated in recent quarters and increased the risk of a positioning-driven unwind. The rise in


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Shale Boom Cools As Employment In Oil And Gas Jobs Tumbles

Courtesy of ZeroHedge View original post here.

Shale Boom Cools As Employment In Oil And Gas Jobs Tumbles

The US economy is rapidly deteriorating and currently experiencing a growth rate cycle downturn in employment, industrials, and inflation. One reason for the slowdown could be due to the oil and gas industry. 

Reuters reports oil and gas employment has declined as producers and service firms quickly cut back on operations due to a sharp decline in spot prices since 4Q18. 

Mining support activity jobs, a category that includes oil and gas drilling, as well as site preparation and well completion services, have been trending lower since Oct. 2018.

Latest figures from the Bureau of Labor Statistics (BLS) show Aug. employment fell 2% YoY, and down 4% from the peak. 

About 11,000 oil and gas jobs have been slashed from the prior year. These jobs were mostly in the "oil and gas support activities."

As shown in a series of charts provided by John Kemp, senior market analyst of commodities at Reuters, the shale boom is cooling, and weakness will persist through 2020. 

The first chart shows US employment in mining activities, peaked on Oct. 2018 and has been trending lower ever since. 

The percentage change of US employment in mining activities on a monthly and 3-month average shows negative growth in employment is imminent. 

Diving deeper into the employment story, US employment in oil and gas support activities, which includes site work, casing, tubing, cementing, fracking, and acidizing appear to have stalled as well.

Growth rates from the prior year on a monthly and three-month average show support activity jobs have rapidly declined since the summer of 2018. 

And maybe the decline in oil and gas jobs is due to the plunge in the number of drilling rigs, which also started falling in late 2018.

Meanwhile, US crude production has hit record levels with more than 1.2 million barrels per


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Draghi Lied Again: In “Unprecedented Revolt”, Europe’s Top Central Bankers Dissented Over QE

Courtesy of ZeroHedge View original post here.

Draghi Lied Again: In "Unprecedented Revolt", Europe's Top Central Bankers Dissented Over QE

To push through QE and to preserve his legacy, Mario Draghi just started the countdown on central banking.

Apparently ripping a page out of Jean-Claude Juncker's play book – "When it's serious, you have to lie" – outgoing ECB President appears to have been caught in a big fat fib.

In his grand finale press conference today, Draghi unleashed QEternity (albeit with the limits we have noted), proudly proclaiming that "there was no need to vote" because there was "full agreement on the need to act" and a "significant majority" were for QE.

When pressed by a reporter, he further refused to detail who dissented – apparently signaling that it was as good as consensus as it could be.

There was more diversity of views on APP. But then, in the end, a consensus was so broad there was no need to take a vote. So the decision in the end showed a very broad consensus.

As I said, there was no need to take a vote. There was such a clear majority.”

It turns out – he lied (just as he lied to Zero Hedge when he said there was no Plan B over Greece… when there was).

Bloomberg is reporting that in an "unprecedented revolt", ECB governors representing the top European economies defied Mario Draghi’s ultimately successful bid to restart quantitative easing, according to officials with knowledge of the matter.

The unprecedented revolt took place during a fractious meeting where Bank of France Governor Francois Villeroy de Galhau joined more traditional hawks including his Dutch colleague Klaas Knot and Bundesbank President Jens Weidmann in pressing against an immediate resumption of bond purchases, the people said. They spoke on condition of anonymity, because such discussions are confidential.

Those three governors alone represent roughly half of the euro region as measured by economic output and population. Other dissenters included, but weren’t limited, to their colleagues from Austria and Estonia, as well as members on the ECB’s Executive Board including Sabine Lautenschlaeger and the markets chief, Benoit Coeure, the officials


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Here Is The Most Remarkable Thing About The Historic Quant Crash

Courtesy of ZeroHedge View original post here.

By now everyone knows that over the past week, quants suffered an "incredible painful move" as Morgan Stanley put it, one which saw the worst ever 2-day return in the sector-neutral momentum factor

… as momentum stocks sold off while an unprecedented wave of short covering lifted value/low-vol stocks.

What traders may not know, however, and what is emerging as one of the most remarkable aspects of the historic, multi-sigma quant crash is that as Morgan Stanley's Rob Cronin points out today, spot outperformance/rotation of this size implies volumes should have been ~70% higher!

This also means that the market is increasingly prone to violent, destabilizing moves on increasingly lower volumes – clearly a function of declining market liquidity – until such a time as a handful of trades can launch a market melt up… or melt down.

More to the point, the relatively low volume traded on the offer side (0.3σ for cyclicals over last 2w) indicates the low conviction/low urgency of the move which nonetheless was tremendous. While this explicitly confirms just how little liquidity is present in the market, as a very low volume move has resulted in such an outsized outcome, these gapping rallies have less follow through typically, according to Morgan Stanley.

Another notable feature of the recent quant crash is that the overall hedge fund L/S ratio spread between Cyc/Def has barely moved in last 2w (from 45th %-ile to 47th %-ile). The L/S ratios are now roughly equivalent @ 1.7x apiece (Cyclicals high, given growth risks). In other words, macro and L/S hedge funds have not chased cyclicals during the recent upside, yet both were sellers of Cyclicals for the last 2w.

At the same time, cyclical shorts added in August were paradoxically not covered, despite the historic short squeeze observed in the past few days, as spot rallied in Sep. Why? According to Morgan Stanley, the MSSTHBC short base remained flat @ 2.8% of FF


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Thiel-Linked Silicon Valley VC Fund Probed By Feds

Courtesy of ZeroHedge View original post here.

Federal investigators, including the FBI, have been probing the 'conduct and practices' of Mithril Capital – the Austin, Texas-based venture capital firm co-founded by billionaire Peter Thiel in 2012, according to Recode - whose dramatic conclusion is that the investigation "threatens to destabilize the world of Thiel." 

Peter Thiel

 

Whether that's true remains to be seen, as Thiel "who has personally given a total of $300 million to the firm" is "tied to Mithril by reputation," and "is not involved in Mithril's day-to-day operations," according to the report. In other words, Thiel's name and money are attached to the firm and its $1.3 billion in AUM – but that's about it. 

Ajay Royan

 

At the heart of the investigation is whether Mithril's leader, Ajay Royan, committed financial misconduct by under-investing while raking in a likely $20 million in management fees, "an unusually large haul for a venture capital firm that each month has a smaller and smaller staff and therefore smaller and smaller expenses," (and a figure disputed by Mithril). 

At least 75 percent of the firm’s management company is owned by a Cayman Islands limited company that is, in turn, owned in excess of 75 percent by Royan, according to legal documents. So some of that money is going to Royan directly as salary. -Recode

Make no mistake, the Recode report is a speculative hit-piece – and isn't the first time they've written about the Thiel-linked venture capital firm, but there is a federal investigation underway as confirmed by Mithril. How it will affect Thiel – who has virtually nothing to do with the company, is anyone's guess.

A federal investigation could subject Thiel, who has not publicly distanced himself from Royan, to new scrutiny as investigators put the firm he co-founded under a microscope. It could also stain the reputation Thiel has established for having a Midas touch in investing. -Recode

According to


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CEOs Abandon Ship: Record 159 Chief Exec Exits In August As Overall Layoffs Surge

Courtesy of ZeroHedge View original post here.

Authored by Mike Shedlock via MishTalk,

Reports by Challenger, a global outplacement and business firm, shows record CEO churn and growing corporate layoffs.

Overall Layoffs a Growing Concern

The August Challenger report says 53,480 Announced Cuts Led by Tech, Trade Issues a Growing Concern

U.S.-based employers ramped up the pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. This is up 37.7% from July’s total of 38,845, according to the latest report on job cuts released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.

August’s total is the fourth highest for job cuts this year, and marks the eighth consecutive time job cuts were higher than the corresponding month one year earlier. Last month’s total was the highest August total since 2009, when 76,456 cuts were recorded.

The August total is 39% higher than the 38,472 cuts announced in August 2018. So far this year, employers have announced plans to cut 423,312 jobs from their payrolls, up 36.2% from the 310,773 cuts in the first eight months of 2018. It is the highest eight-month total since 2015, when 434,554 cuts were announced.

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China. In fact, trade difficulties were cited as the reason for over 10,000 job cuts in August," said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

"We are continuing to see investor concerns shaking confidence in the market, and employers appear to be cutting workers in response to a slowdown in demand for their products and services," he added.

Retail continues to lead all sectors in 2019 with 57,226 cuts, 2,059 of which occurred last month. That is 28% fewer cuts than the 79,478 announced in the same period last year. The Automotive sector has announced 36,148 cuts so far this year, the highest eight-month total since 2009, when 128,906 jobs were cut.

While job cuts are up in every region, companies located in the Southern United States have seen the largest jump in job cut


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New California “Gig Economy” Law Could Crush Uber’s Already Wildly Unprofitable Business Model

Courtesy of ZeroHedge View original post here.

Uber, which posted an astounding $5 billion loss in its earnings report in August, looks like it may not be heading closer to profitability anytime soon (big surprise) – especially if California has anything to say about it.

California could be the first state set to disrupt Uber's business model "gravy train" of essentially being able to use drivers as employees, but classifying them as independent contractors, according to Bloomberg. It's a move that could significantly disrupt the ride-sharing company's business model and, because of that, is prompting a legal response from Uber. 

What does that rock solid legal response look like? Uber is arguing that driving isn't its core business. 

In California, lawmakers are seeking to reclassify workers that are treated as independent contractors. The move could wind up "dramatically" boosting costs for Uber and other companies built around the "gig economy". The bill, Assembly Bill 5, would require that many workers be provided a minimum wage, mileage reimbursement and workers compensation. The California senate approved the bill on Tuesday. It now goes back to the Assembly before being sent to the governor for his signature.  

The bill has the support of Governor Gavin Newsom who, along with supporters, says that it will finally provide contract workers what they are owed. Uber, and those similarly situated, say that if the bill becomes law, it may not meaningfully change their business model because there would still be questions about which workers qualify. 

Tony West, Uber’s general counsel said: 

“AB 5 doesn’t all of a sudden — magic wand — change everybody’s status to employee. Instead, new criteria would be used to determine whether workers are employees or contractors. Now, whether or not we win under that test in California remains to be seen.”

No it doesn't, Tony. The company would almost certainly not "win" from this type of regulation. 

Echoing our sentiments are skeptics of the company, who believe Uber may be too optimistic. The company has been able to get out of classifying independent contractors as employees by using litigation and settlements thus far. But AB 5 could pose a significant risk to the company and, even more


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“Absolutely Not”: Stocks Tumble After White House Denies It Is Considering Interim Trade Deal

Courtesy of ZeroHedge View original post here.

Update: When we earlier noted the Bloomberg report that Trump advisors are considering an "interim trade deal" with China, we pointed out the weakest link, namely that "The discussions are preliminary and Trump has yet to sign off on it."

Well, as it turns out it was even worse, because just minutes after the Bloomberg report, CNBC's Eamon Javers reported that according to a senior White House official, it was "absolutely not" considering an interim trade deal, in the process slamming the credibility of Bloomberg, which appears to have been merely used as a trial balloon by the "five unnamed individuals."

And while we expect Bloomberg to vehemently plead that its story is true, the market has now moved on, with stocks wiping out most gains achieved after the original report was published.

… and the yuan sliding back to pre-report levels.

* * *

With the ECB bazooka turning out to be a water pistol, the onus on getting stocks in the green was back on the Trump administration, and some new source of "optimism" on a trade deal with China. And miraculously, with the market sliding red, that's precisely what Bloomberg delivered with a report that Trump admin officials "have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases."

While the report, sourced to five unnamed "people familiar with the matter" did not say if China would agree to commitments on intellectual property – because it won't, or at best it will promise to comply but then resume stealing US tech – it noted that Trump’s top trade advisers in recent days have discussed the plan in preparation for two rounds of face-to-face negotiations with Chinese officials in Washington, due to take place in coming weeks.

Oh, and just in case the market


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“You’re Forecasting A Revolution” – Household Leverage Ratios By Wealth Distribution

Courtesy of ZeroHedge View original post here.

Authored by Global Macro Monitor,

We are just starting to play with the wealth distribution data and will have much more coming your way.  What we have seen so far is shocking.

The distribution of wealth has deteriorated significantly over the past 20 years and is now so skewed toward the top that average U.S. household wealth is close to $1 million, though the median household wealth is only around $70k.

In fact, the aggregate level of wealth of the bottom 50 percent peaked in Q1 2000, the height of the dot.com bubble, and is down almost 10 percent in nominal terms.  Whereas, the aggregate wealth level of the top 1 percent is up almost 120 percent over the same period.

If  I brought a number or a forecast like that to my manager when I was a very young economist working on the World Bank’s capital flows model back in the day, he would say,

“You are forecasting revolution.”

Note the relative leverage ratio of the bottom 50 percent.  For several quarters after the GFC the bottom 50 percent, not all households but in aggregate, were technically insolvent, where debt levels were greater than the value of assets ( > 100 percent on the chart).

These data put the current political climate and debate around debt forgiveness in context. They also reflect the two-speed U.S. economy.

Stay tuned for some more shocking data.

Long pitchforks.

 

 

 





 
 
 

Zero Hedge

Yuan Extends Losses After China Macro Data Disappoints

Courtesy of ZeroHedge View original post here.

China's yuan extended its early losses, testing down to the fix after headline economic data disappointed across the board.

  • Industrial Production rose just 5.6% YTD YoY (below the +5.7% exp and down from +5.8% prior)

  • Retail Sales rose just 7.5% YoY (below the +7.9% exp and down from +7.6% prior)

  • Fixed Asset Investments rose just 5.5% YTD YoY (below the +5.7% exp and down from +5.7% prior)

  • Property Investment rose just 10.5% YTD YoY (down from +1...



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Phil's Favorites

Black Hole Investing

 

Black Hole Investing

Courtesy of John Mauldin, Thoughts from the Frontline 

Scientists say the rules change in a cosmic “black hole” at what astrophysicists call the event horizon. How do they know that? Not by observation, since what happens in there is, by definition, un-seeable. They infer it from the surroundings, which say that the mathematics of the universe as we understand them change at the event horizon.

Or maybe not. One theory says we are all inside a black hole right now. That could possibly explain a few things about central bank policy. ...



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The Technical Traders

Crude Oil Setting Up For A Downside Price Rotation

Courtesy of Technical Traders

Crude Oil has been trading in a fairly narrow range since mid-August – between $52 and $57 ppb.  Our Adaptive Dynamic Learning (ADL) predictive modeling system suggested the downside price move in late July/early August was expected and the current support aligns very well with our ADL predictions of higher price rotation throughout most of September/October.  Please take a minute to review the original research post below :

July 10, 2019: ...



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Insider Scoop

The Street Reacts To Kroger's Q2 With Mixed Takeaways

Courtesy of Benzinga

Kroger Co (NYSE: KR) reported second-quarter results that came in better than expected. The earnings beat may have been overshadowed by management's decision to remove its prior guidance of $400 million in incremental EBIT by fiscal 2021.

Q2 A Mix Of Positives And Negativ...

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Chart School

Dow to 38,000 by 2022

Courtesy of Read the Ticker

President Trump said the Dow would be 10,000 points higher if it was not for the FED. In truth if the Dow breaks to new all time highs the next stop is 38,000 and he may be proven correct. Is there an election on? 

Of course who knows? But lets continue. 

The fundamentals behind this may be:

  • A good deal with China.
  • The FED turning on easy money with further rate cuts (very strange with a market near all time highs). FOMC Sept 17th well tell us more.
  • The above turbo charging stock buy backs.
  • Off shore money running out of foreign equity markets in to US markets (see note1).

Note1: Of course this has happened before, one particular time was just before O...



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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Lee's Free Thinking

Nonfarm Payrolls Not Seasonally Adjusted Tell the Real Story - Unspinning Wall Street™

Courtesy of Lee Adler

Not seasonally adjusted nonfarm payrolls, that is, the actual numbers, give us a truer picture of the jobs market than the seasonally adjusted garbage that Wall Street spews.

Friday’s seasonally adjusted nonfarm payrolls jobs headline numbers disappointed investors with slower than expected growth. But was it really that bad?

Here’s How The Street Spun It – Wall Street Journal Modest August Job Growth Shows Economy Expanding, but Slowly

Employers added 130,000 nonfarm jobs, jobless rate held steady at 3.7%

U.S. employment grew only modestly in August, suggesting that a global economic slowdown isn’t driving the U.S. into recession but has dente...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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