Posts Tagged
‘equity’
by ilene - September 29th, 2010 11:04 pm
Courtesy of Joe Weisenthal at Clusterstock 
Brazil is hot (especially it’s currency), but unlike with China you almost never hear any chatter about it being on an unsustainable path.
That alone is probably reason to pay close attention. As Nassim Taleb would tell you, crises don’t come from places where everyone and their mother is anticipating a crisis.
Not that Brazil is in any imminent trouble, but it’s interesting that the government seems to be engaging in accounting tricks to hit its budget goals.
Market News International (via Kid Dynamite) explains how the government is hitting its target of a surplus of 3.3% of GDP:
President Lula has called the Petrobras capitalization plan, worth $69 billion, "the biggest equity offer in the history of capitalism."
But of that $69 billion, $43.5 billion came from Petrobras itself, to pay the government for 5 billion barrels of undeveloped ultradeepwater petroleum reserves, and that in turn was paid for using a government loan.
Felipe Salto, a specialist in public accounts at the Sao Paulo consultancy Tendencias, told MNI the government loan to Petrobras was "an ingenious piece of financial engineering."
In sum, for $43.5 billion of the $69 billion capitalization, no money changed hands, as the company essentially gave the government shares in return for the petroleum reserves.
However, R$24.7 billion ($14.4 billion) of the government’s loan to Petrobras came via the state BNDES development bank. The government is lending $14.4 billion to the BNDES, which it is lending it to Petrobras, to pay the government. But government accountants are booking this $14.4 billion as revenue.
Look, Brazil is still running a surplus, so its government probably won’t have a funding crisis. But the fact that the goal was only hit via a one-off accounting move is an early warning.
Tags: accounting trick, brazil, equity, funding, Petrobras, President Lula
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by ilene - July 20th, 2010 6:07 am
Courtesy of The Pragmatic Capitalist
RBS recently published a dramatic and very bearish research note that described equity investors as “the world’s worst cult”. While I thought the note was a bit over the top it did raise some interesting and thought provoking topics. More specifically, they said:
“The big turnover in the US economy will lead to dramatic turns down in valuations we suspect – and may finally destroy the world’s worst cult: the cult of the equity, which has no basis in fact, or history, but yet seems universally accepted.”
The credit crisis is a reflection of our excesses and this is best reflected in the markets. We have become a society that values those who get rich quick over those who create sustainable and productive businesses. This is nowhere more apparent than it is in the financial sector which has become the epicenter of the crisis. Our bloated financial sector steals our best minds and puts them to work doing little of real value while rewarding them excessively. The excess growth of this industry has coincided with Main Street’s obsession with Wall Street. While the buy side reaps the rewards of 2 & 20 or 2% funds fees for what is effectively an index fund (sorry mutual fund managers) the sell side reels the small investor in with the myth of becoming the next Warren Buffett. The result? What RBS would call the worst cult in history – an economy that has become transfixed with making money by effectively doing nothing.
We have spent more than we have and lived well beyond our means. We buy every new Apple product, houses because we believe it is a right and not a privilege, and think of debt as a way to keep up with the way of life that God bestowed upon us. It is not sustainable and this is becoming clear to us all as the economy appears to be in a perpetual stall. The worst part in all of this is that we have tried with all our might to prop up a sector that has failed us all. While Main Street struggles Wall Street is back to their old tricks.
As a nation I sometimes wonder if a depression wouldn’t set us straight. I have often cited the “greatest generation” in this regard.…
Tags: Economy, equity, excesses, Financial bubbles, financial sector, investors, productive business, society, the cult of the equity, valuations
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by ilene - July 4th, 2010 2:47 pm
Courtesy of Mish
Once again and with greater force, Europe has snubbed its nose (and rightfully so) the Keynesian clowns in US academia and the Obama administration.
Bloomberg reports Trichet Calls on EU Governments to Reduce Budget Deficits to Boost Growth.
European Central Bank President Jean- Claude Trichet pressed governments to trim their budget deficits, saying such action would boost economic growth by improving confidence of consumers and investors.
“We are in a period where we have to manage budgets very tightly,” Trichet told journalists in Aix-en-Provence, France. “I have no problem with austerity, rigor. I call this good budgetary management.”
Trichet said today that deficit reduction won’t choke growth and a failure to stem budget gaps would be equally risky for the recovery.
“Confidence is key for growth, and if you cannot have confidence in the sustainability of the fiscal policies then you have no growth because you have no confidence,” he said. “The two things are complimentary.”
Germany to Reduce Deficit by 80 billion euros ($100 billion) over five years
Reuters reports Germany plans to cut new borrowing in savings drive
Germany plans to cut net new borrowing by some 80 billion euros ($100 billion) over five years, reducing supply of Europe’s benchmark debt and adding pressure on other euro zone members to tighten their own public finances.
The draft budget for 2011, which the cabinet plans to approve on Wednesday for ratification in parliament in November, will anchor a 34 billion euro reduction in new issuance over the next two years compared to earlier plans.
The federal government also aims to cut spending to 307.4 billion euros next year, a 3.8-percent decrease from plans made before a "debt brake" law was passed in 2009, details of the draft made available to Reuters on Sunday showed.
The budget is the latest chapter in Germany’s drive to consolidate public finances, a move that has drawn criticism from some other large countries that say it is too early to withdraw support enacted during the financial crisis.
Unions have promised stiff resistance and industrial action looks likely — a threat that could rise as cuts in social services deepen and health care costs rise as planned.
In addition, some politicians from within Merkel’s ruling coalition say the measures are
…
Tags: austerity message, bonds, double dip recession, Economy, equity, Germany, Recovery, Trichet
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by ilene - May 18th, 2010 3:11 pm
Collective effort, Ugly 2010 by Rom at Bondsquawk, with introduction by Pragcap:
We’ve often noted the fact that China’s equity market has served as a very reliable leading indicator over the last few years. They led the way with a dramatic market crash that started in 2007 and they bottomed several months in advance of the 2009 bottom in the S&P. We recently highlighted the bearish action in Chinese stocks while U.S. investors continued to pile into the S&P (one of three primary reasons we built short positions for the first time in 2 years prior to the recent stock collapse). Ultimately the market faltered and China’s equity market is once again looking prescient. China is displaying classic post-bubble market action. Our friends at Bondsquawk ask the important question that should be on everyone’s mind:
"Could the Chinese markets lead the rest of the world back down?"
[BEWARE THE BIG RED LEADING INDICATOR, The Pragmatic Capitalist]
Courtesy of Rom at Bondsquawk
China’s Shanghai Composite Index has led the rally in the global markets after sinking in late October 2008, almost 5 month ahead of the lows seen in the US markets. However, the rally has stalled as China’s equity markets have declined by 20.9 percent in 2010. Could the Chinese markets lead the rest of the world back down?
China’s Shanghai Composite Index 2-Year Historical Chart
The New York Times reported the following:
After a spectacular rise last year, China’s stock market has plummeted on growing concerns about Europe’s debt crisis and expectations that Beijing is about to take strong action to slow the nation’s booming economy and prevent it from overheating, analysts say.
Investors are worried that Chinese exports to Europe will slow in the coming months and that government efforts to tame this country’s economy by tightening credit will hamper a wide array of industries, including the nation’s fast-growing real estate market.
Read the Full Article>>
Tags: Beijing, CHINA, Chinese, equity, Shanghai, Stock Market
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by ilene - April 17th, 2010 5:28 pm
Courtesy of John Mauldin
First, Let’s Kill the Angels
Equal Choice, Equal Access, Equal Opportunity
Some Quick Thoughts on Goldman
La Jolla and Dallas
When you draft a 1,300-page "financial reform" bill, various special interests get language tucked into the bill to help their agendas. However, the unintended consequences can be devastating. And the financial reform bill has more than a few such items. Today, we look briefly at a few innocent paragraphs that could simply kill the job-creation engine of the US. I know that a few Congressmen and even more staffers read my letter, so I hope that someone can fix this.The Wall Street Journal today noted that the bill, while flawed, keeps getting better with each revision. Let’s hope that’s the case here.
Then I’ll comment on the Goldman Sachs indictment. As we all know, there is never just one cockroach. This could be a much bigger story, and understanding some of the details may help you. As an aside, I was writing in late 2006 about the very Collateralized Debt Obligations that are now front and center. There is both more and less to the story than has come out so far. And I’ll speculate about how all this could have happened. Let’s jump right in.
First, Let’s Kill the Angels
I wrote about the Dodd bill and its problems last week. But a new problem has surfaced that has major implications for the US economy and our ability to grow it. For all intents and purposes, the bill will utterly devastate angel investing in the US. And as we will see, that is not hyperbole. For a Congress and administration that purports to be all about jobs, this section of the bill makes less than no sense. It is a job and innovation killer of the first order.
First, let’s look at a very important part of the US economic machine, the angel investing network. An angel investor, or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.
Angels typically invest their own funds, unlike venture capitalists, who manage the…
Tags: angel capital, angel investing, business startups, CDOs, Congress, Dodd bill, Economy, equity, financing, Goldman Sachs, venture capitalist, Wall Street
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by ilene - March 3rd, 2010 3:05 pm
Courtesy of The Pragmatic Capitalist
As the Q4 2009 earnings season comes to a close it’s important to take a look at the overall earnings picture. With over 98% of the S&P 500 reporting it looks like Q4 earnings will come in a little shy of $16.80. As we fully expected the analyst’s estimates once again proved to be well below the mark as 72% of all companies outperformed expectations. This has resulted in substantial estimate increases and has been one of the primary reasons why we have maintained that investors could not short this market for the entirety of the last year. The earnings upgrade cycle has served as wind at the market’s back, but the optimism is now becoming an impediment.
In the last year analysts have substantially contributed to the equity rally as they upgraded stocks and increased their estimates. The “Monday upgrade” rally has become a hallmark of the move higher in stocks as analysts spend their weekends adjusting estimates and preparing for Monday morning upgrades and downgrades (though mostly upgrades). In just the last 8 weeks analyst’s Q1 2010 estimates have jumped 4%. In addition, they are growing increasingly optimistic about the latter portion of the year (where I believe things get potentially messy). The H2 estimates have continued to creep higher as Q4 earnings were released. Analysts are now calling for $78 in operating earnings for FY 2010. The 2011 estimates have also surged. Analysts now expect $94 in operating earnings for 2011. That would represent back to back years of 20% earnings growth - something that has never happened before in the history of the United States equity market.
The real problems lie in the latter portion of 2010. Analysts are currently calling for 38% year over year growth for Q2, 30% year over year growth in Q3, and 27% growth in Q4 2010. Granted, these are coming off of easy comps, however, we have yet to see any real revenue growth. Including the very easy comps with financials, sales grew just 5% year over year in Q4. If we exclude the financials revenue growth was nearly non-existent at just 1.1% year over year. This is best visualized in the image below which shows the S&P 500 by revenue per share. The trough is clear, but…
Tags: earnings, Economy, equity, Stock Market
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by ilene - March 1st, 2010 10:07 am
Update on insider activity from Pragcap — selling still far exceeds buying, confirming my thoughts on Feb. 20 that trends haven’t changed. – Ilene
Courtesy of The Pragmatic Capitalist
The recent uptick in stocks has not been met with much enthusiasm by corporate insiders. In fact, pessimism rules the day in the land of insider buying and selling trends. For the week ending February 26th insiders sold a total of $1.88B in stock and purchased just $13.22MM. Selling was up substantially from last week and buying was down substantially from last week. The selling was the highest level experienced this year. Interestingly, as the rally has continued insiders have actually increased their selling.
Of course, insiders sell for numerous reasons so it’s foolish to look at insider selling alone, however, the low level of buying tells the real story here. Insiders simply don’t trust the long-term viability of the equity rally based on the condition of their internal operations. Perhaps most alarming in this data is the fact that it is not solely a problem in the United States. As we noted last week, the problem is pervasive in China as well where insider buying and selling trends remain negative. Clearly, Main Street investors aren’t the only ones aware of the government induced rally in stocks. The stimulus based recovery in China is apparently causing some concern in the corner offices in Hong Kong as well.
There was no notable buying this week, however, there were some interesting trends in selling. Sales across the consumer discretionary space we particularly heavy. Selling was very heavy in Whole Foods (WFMI) where insiders clearly desire to take profits following the 25%+ rally in recent weeks. Other notable sales included sizable selling by the CFO’s of TJX and VF Corp. As we’ve previously mentioned, sales by CFO’s are always intriguing because no insider knows the company finances like the CFO. All notable buying and selling is attached:
Notable selling:
Source: FinViz
****
For updated Finviz data, go here for a list of recent buys and sells.
Tags: equity, insider buying, insider selling, Stock Market, stocks
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by ilene - September 18th, 2009 3:49 pm
Edward doesn’t leave you wondering about where he believes the greatest risks lie. – Ilene
Courtesy of Edward Harrison at Credit Writedowns
In late August, I wrote a post called “Getting bearish again” in which I said that the bear market rally I had anticipated back in March was long in the tooth. At the time, I mentioned 1026 on the S&P 500 as a sell signal. With the S&P 500 now well over 1060 and gains of well over 50% from those March lows, it’s definitely time to sell.
And when I say sell, I’m not talking about going overweight bonds or commodities by putting additional new money disproportionately in other asset classes – which is what you should have been doing in August. I am talking about lightening up on equities and selling existing positions.
Now, if you missed the rally, I’m sorry but, now is not the time to get in. And if you have been there from the start, remember, bulls make money, bears make money but pigs get slaughtered.
David Rosenberg sums up the logic.
The S&P 500 is now up more than 60% from the lows, which is truly amazing and kudos to those who called it. But the question is whether the fundamentals will ever catch up to this level of valuation — usually after a 60% rally, we are fully entrenched in the next business cycle. Never before have we seen the stock market rise so much off a low over such a short time period, and usually at this state, the economy has already created over one million new jobs — during this extremely flashy move, the U.S. has shed 2.5 million jobs (as many as were lost in the entire 2001 recession).
Do you really think there’s huge upside here? After a 60% run to the upside? Laszlo Birinyi does and sees 1200 before year end. I’d rather sit this one out. The downside is a lot greater at these levels than the upside. I would say lighten up on risk all around. High quality over low quality. Low beta over high. Consumer staples over discretionary.
But, if you are not going to run with the liquidity-seeking-return crowd and chase high beta and low quality stocks or high…
Tags: black swan strategy, bonds, BULL MARKET, equity, risk, Stock Market
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by ilene - May 12th, 2009 4:04 pm
Here’s an excellent summary of the reasons for the latest rally in equities, which are the same as the reasons why Andy believes it will ulimately fail. – Ilene
Courtesy of Andy Kessler
The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?
Only a fool predicts the stock market, so here I go.
I’m not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker’s rally. That’s because there aren’t sustainable, fundamental reasons for the market’s continued rise. Here are three explanations for the short-term upswing:
1) Armageddon is off the table. It has been clear for some time that the funds available from the federal government’s Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.
On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete — and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.
Still, the Treasury bought time by announcing on the same day as Mr. Geithner’s underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.
It doesn’t matter if financial institution losses are $2 trillion or the pessimists’ $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don’t call them toxic anymore), the bears have backed off and the market rallied — Citi is now $4.
2) Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed
…
Tags: Andy Kessler, bonds, equity, stocks, suckers' rally
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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...
Ilene is editor and affiliate program
coordinator for PSW.