Short Ideas

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>>> Super Micro stock plunges 19% after company delays annual report following short-seller report


Yahoo Finance

Ines Ferré

Aug 28, 2024


https://finance.yahoo.com/news/super-micro-stock-plunges-19-after-company-delays-annual-report-following-short-seller-report-200333718.html


Super Micro Computer (SMCI) stock plunged 19% on Wednesday after the company said it would delay the filing of its annual report for its fiscal year that ended June 30.

The announcement comes a day after short seller Hindenburg Research claimed, among other things, "accounting manipulation" at the artificial intelligence high flyer.

"SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense," the company said in a statement. "Additional time is needed for SMCI’s management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024."

Super Micro shares soared from $290 in early January to about $1,200 by March, when the stock was added to the S&P 500 (^GSPC). The ticker also joined the Nasdaq 100 index (^NDX) in July.

Super Micro stock is now off more than 60% from its March peak but is still up 50% year to date. The company recently announced a 10-for-1 stock split effective Oct. 1.

The stock fell about 2% on Tuesday after Hindenburg said its three-month investigation "found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." The firm also disclosed it had taken a short position in Super Micro.

The maker of data center servers and management software captured the attention of investors this year as it rode the AI wave. The company buys components from AI chipmaker Nvidia (NVDA).

Short sellers have been rewarded heavily from the stock's plunge.

Wednesday's drop in Super Micro’s stock price made short sellers more than $840 million in mark-to-market profits, according to S3 Partners data.

"SMCI shorts have been building their positions since SMCI was in the $900’s in April but have really put the pedal to the metal since mid-July," S3 Partners head of predictive analytics Ihor Dusaniwsky told Yahoo Finance on Wednesday.

"We expect continued short selling in SMCI as it’s stock price keep dipping – but beware of a slew of buy-to-covers when its stock price stabilizes and short sellers look to realize their recent outsized gains," added Dusaniwsky.

On Wednesday CFRA analysts downgraded the stock's rating to a Hold from Buy following Hindenburg Research's allegations.

"While we believe the evidence presented does not conclusively demonstrate significant accounting malpractice or verifiable sanction evasions, SMCI's delayed 10-K filing and potential reputational damage raises concerns," wrote CFRA Research senior equity analyst Shreya Gheewala.

In its report, Hindenburg claimed that despite a $17.5 million settlement in August 2020 with the SEC following an inquiry for "widespread accounting violations," Super Micro's business practices did not improve, and senior executives who had left amid the scandal were later rehired.

The report quoted a former salesperson: "Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance."

"Even after the SEC settlement, pressure to meet quotas pushed salespeople to stuff the channel with distributors using 'partial shipments' or by shipping defective products around quarter-end, per our interviews with former employees and customers," Hindenburg said in its report.

"All told, we believe Super Micro is a serial recidivist."

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>>> Rules and Strategies for Profitable Short Selling


Investopedia

by Alan Farley

January 02, 2024


https://www.investopedia.com/articles/active-trading/031815/rules-and-strategies-profitable-short-selling.asp


Close
Short selling takes skill to capitalize on a market transitioning from higher to lower prices. The steep learning curve intimidates investors, leading them to avoid the tactic entirely, even in bear markets. But this classic strategy can be profitable during uptrends and downtrends as long as strict risk management strategies are followed and your timing is carefully managed.

Key Takeaways
Short selling involves borrowing shares of a stock and selling them to buy them back later at a lower price.
The method is based on expecting the stock's price to decline. You profit from the difference between the selling price and the lower buying price.

Employing risk management strategies, like stop-loss orders or put options, is crucial to limit losses.

Successful short selling relies on thorough market analysis. This involves understanding market trends, financial statements, and other indicators that suggest a stock might decrease in price.

Entering and exiting positions at the right moment can make the difference between profit and loss. Patience is a prominent virtue here, as markets might take time to reflect the anticipated price decline.

Of course, it’s easier to profit from short sales in downtrends because, as Martin Zweig says in his 1986 classic Winning on Wall Street, “the trend is your friend.”
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Despite the advantage, short sellers get targeted relentlessly in bear markets, trapped in violent squeezes that blow out the most carefully placed stop losses. This reality means that long-term profitability requires more than throwing money at a falling security.

Mastering short sales means keeping to some simple entry strategies, perfecting your timing, and defensively managing your risk. You should also adopt tactics to prevent getting caught in a short squeeze.
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The tactics offered below aren’t fool-proof because it’s typical for sellers to incur shock losses on occasion. The point is to lower the risk of the worst while being aggressive so you can ride prices to lower levels.

3 Short Sale Strategies
You can sell short at any time in a liquid market that hasn’t imposed certain restrictions. U.S. regulators long had an uptick rule that was eventually replaced with an alternative regulation in 2010. The Securities and Exchange Commission (SEC) limits short selling when a stock has dropped at least 10% in one day, but this is rarely a factor in deciding whether to sell short. The broker must have the security in inventory when you take a short position. When there isn’t the corresponding inventory and you short anyway, that’s called a “naked" short sale. At times, the practice can appear ubiquitous, but naked shorts are illegal almost everywhere that shorting is allowed.
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Profitable short sellers tend to follow variations on three techniques:

Selling a pullback in a downtrend: This is selling after a security has had a temporary rebound or pullback within an overall downward trend. You expect the downtrend to continue, leading to profits when it returns to falling.

Entering within a trading range and waiting for a breakdown: This means initiating a short position while the stock fluctuates between two prices without a clear trend. You wait for a “breakdown,” a move below the range’s support level, which is the price that it tends not to fall below. This indicates the stock price might continue to fall, thus potentially making a short sale promising.

Selling into an active decline: This involves short selling a stock during a well-established declining trend line in price. You’re looking to capitalize on the momentum of the downward trend, anticipating further decreases in price to profit from the short sale. This gets risky fast since the word is out about the stock, and others are moving in to short it, too, which could backfire if you’re caught with a rebound of the price given the demand.

There is, of course, a fourth possibility; some traders do sell short at new highs, thinking a security has risen too far. When shorts come up in popular TV series, for example, it’s this kind of trade that is depicted. Regardless, it’s a recipe for disaster because uptrends can persist longer than technical or fundamental analysis predicts. Your rational analysis can mean nothing. As the quote apocryphally attributed to the economist John Maynard Keynes goes, "The market can remain irrational longer than you can remain solvent."
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In fact, the large supply of weak-handed short sellers in strong uptrends provides rocket fuel for even higher prices. All it takes is a few upticks, which these traders start to cover, to trigger a cascade effect that can add many points in a relatively short time, imposing devastating losses.
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Example of a Short Sale
Coca-Cola (KO) had a rectangular pattern on its daily chart between November 2022 and September 2023. The pattern's resistance was around $64.99, while the support level was $58.11. The formation of this trading range became evident with the second daily high in April 2023.

A trader with a bearish outlook on KO would wait for a short-selling opportunity, especially when the stock approaches the upper boundary and creates the rectangular setup. The trader could use the moving average convergence divergence (MACD) indicator to confirm if the chance has come to strike. A short position would be initiated after a negative MACD crossover, signaling bearish momentum.

Risk management is crucial in this strategy. The trader would likely put in a stop-loss order slightly above the rectangle's resistance level to limit potential losses. The trader would also
calculate an appropriate risk-reward ratio to determine the exit point for the trade. The trader closes the position to secure profits when the stock hits this predetermined limit. Conversely, if KO's price rallied and triggered the stop loss, the trade would exit at a loss.

Example of a Short - KO
Example of a Short - KO.
Tradingview

Short Selling Rules
In the U.S., short selling is regulated by several rules to ensure market integrity and protect investors. Here are some of the key rules:

Regulation SHO
This is the primary regulation governing short selling in the U.S. It requires brokers to have reasonable grounds to think the security could be borrowed before allowing a short sale. This is known as the “locate” requirement. Regulation SHO also bans naked short selling, which occurs when an investor sells shares that have not been borrowed and haven't been otherwise secured.
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The alternative uptick rule
The uptick rule, or Rule 201, restricts short selling to a price above the highest bid in the market when a stock has dropped at least 10% in one day.
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Margin requirements
Investors must have a margin account to engage in short selling. The Federal Reserve's Regulation T requires that the margin account have at least 150% of the value of the short sale at the time it's initiated.
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Reporting requirements
Large short positions must be disclosed to the SEC, and some information is publicly disclosed.
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Short-selling rules outside the U.S.
Below are some of the key rules and regulations governing short selling in jurisdictions outside the U.S.:

European Union: Traders must report significant net short positions to the relevant national authority. Also, national regulators can impose temporary bans on short selling when there's extreme market volatility.
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United Kingdom: The Financial Conduct Authority requires public disclosure of net short positions that exceed 0.2% of a company's shares. Additionally, short selling is restricted on certain financial stocks and during public offers.
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Australia: The Australian Securities and Investments Commission mandates reporting of significant short positions.
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Traders must also have a legally binding agreement to borrow the shares before beginning a short sale.
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Hong Kong: Like the U.S. before 2007, there is an uptick rule in Hong Kong: Short selling is only allowed at a price higher than the last traded security price.
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Japan: Short selling is generally not permitted at prices lower than the latest market price. In addition, large short positions must be reported to the Financial Services Agency.
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Canada: Its uptick rule permits short selling only when the last sale price was higher than the previous price. Additionally, daily reports on short positions are required for certain securities.
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Short Sales Dos and Don’ts
Your short sale performance can be improved by following certain principles that lower risk while focusing attention on the most promising prospects. Note that chasing lower lows in a momentum strategy should be scrupulously avoided until the short seller has developed a skill set proven by bottom-line profit and loss.
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This is important because these positions usually get filled at the worst possible prices because of algorithmic front running.

1. Short rallies, not sell-offs
As a short seller, your primary objective is to steer clear of the mainstream crowd while strategically piggybacking on their emotional momentum to secure the best entry price. Opportune moments for short selling often present themselves during countertrend bounces since these enable you to learn the price levels at which other sellers are likely to re-enter their positions. However, there's an inherent risk; if the cohort of sellers outweighs the buyers who are speculating on any emerging uptrend, the security's volatility can swing against you.

2. Short the weakest sectors, not the strongest
Let other traders get vertigo rubbernecking at explosive uptrends, thinking the security is too high and must fall to earth, and losing money when it doesn't—at least in the short term. A better plan identifies weak market groups already engaged in downtrends and uses countertrend bounces to get on board. Surprisingly, these cases frequently have lower short interest than a typical hot stock, making them less vulnerable to squeezes.

3. Watch the calendar and avoid bullish seasonality
Short selling around holidays or during options expiration week can incur painful losses because those markets don’t follow natural supply or demand. For example, there’s lower liquidity, and psychological factors are in play. Also, avoid short sales in low volume conditions, following the old cliché to "never short a dull market."

4. Short confused and conflicted markets
Take short positions when major indexes pull against each other. These conflicts generate bearish divergences that set off sell signals when instruments sync up and point downward in unison. In addition, sellers can use relatively tight stops that keep losses under control if the alignment points upward.
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5. Avoid big story stocks
Traders love to sell securities with colorful, if dubious, stories that dominate the financial press, thinking they’ve uncovered an instant moneymaker. However, such stories often attract a massive crowd.
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In turn, the security incurs high short interest, significantly raising the odds for vertical squeezes even in downtrends.
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6. Protect against failed breakdowns
New downtrends face frequent tests and seeming reversals. It’s essential to clearly define your cover price—the price at which you plan to exit your short position—especially if the price goes back to the breakdown level. Putting in a stop-loss order is the most prudent strategy in this scenario. Make it automatic, not just a promise to yourself at a certain market price. That's because of willpower and the psychology of trading, but also because you don’t want to discover that when you need to take action, your smartphone battery has died.

A stop loss lowers your risk because it specifies a price at which the short position will be covered, limiting your potential losses. You can set the stop loss at a level that protects profits without exceeding the break-even point. This approach ensures that gains from favorable moves are not lost if the market direction changes unexpectedly. Plus, there’s little advantage in taking a loss after the position has moved into a profit, so the stop should be no higher than your break-even price.
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What Are the Requirements to Short Sell?
To short sell, you need a margin account and a broker who will lend you the shares. The initial margin required needs to be kept during the length of the short selling period. Also, you must ensure that the shares you'll sell exist and can be delivered at settlement.

Was Is a Synthetic Short Sale?
Synthetically enacting a short sale involves using financial derivatives like options or futures to mimic the risk-and-return profile of shorting a stock directly.

Is Short Selling Legal?
Short selling is legal in most jurisdictions, including the U.S., but it is subject to regulations to prevent market manipulation and protect investors.
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What Is Naked Short Selling?
Naked short selling is a notorious trading practice where an investor sells shares of a stock without first borrowing them or ensuring that they can be borrowed. Unlike conventional short selling, where the seller borrows the shares before selling them, in naked short selling, the seller shorts shares they do not possess and have not confirmed they can get. This is like writing a paper check without the funds in your account, hoping your future paycheck will cover it. It might—but it's illegal in the meantime.
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What Are the Risks of Short Selling?
While offering potentially significant rewards, short selling is fraught with financial, regulatory, operational, and liquidity challenges. One of the most daunting challenges is exposure to potentially unlimited losses. A stock's price can theoretically rise indefinitely. By contrast, in a regular stock purchase, the maximum loss is capped at what you invested. Additionally, regulatory bodies may impose bans on short selling during periods of market turmoil, adding unpredictability. Short sellers also have costs for borrowing stocks and are subject to margin calls if the market moves against them. The difficulty of borrowing certain stocks can further complicate matters. Given these factors, it's a cliché in the industry that short selling is the paradigm for stressful trading.

The Bottom Line
Short sales can be beneficial in bull and bear markets. These benefits require adhering to your own strict rules of engagement for entering trades, staying vigilant, and managing risk to overcome the potential for short squeezes, among other threats.

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LWLG breaks key support

Had formed descending triangle over past year.



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Short attack / bear raid - >>> Globe Life Inc. Issues Statement Refuting Short Seller Allegations


PRNewswire

April 11, 2024


https://finance.yahoo.com/news/globe-life-inc-issues-statement-210200680.html


MCKINNEY, Texas, April 11, 2024 /PRNewswire/ -- Globe Life Inc. (NYSE: GL) today issued the following statement refuting the allegations raised in a report issued today by Fuzzy Panda Research:

For over 70 years, our business model has stood the test of the time and we continue to generate sustainable earnings growth that provides long-term value for our shareholders. With over 17 million policies in force, our millions of customers value the protection of the Company's products, and we strive to be there when our customers need us most.

We are disappointed today to see self-motivated short sellers push inflammatory allegations in order to drive down Globe Life's stock price. We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements. The motivations behind this short seller's report are driven solely by short-term profit earned on the backs of the thousands of shareholders, hardworking employees, independent contractor sales agents and customers who know and trust our brand and strong track record. We have successfully defended ourselves against these types of claims. The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false, misleading and defamatory. Globe Life intends to explore all means of legal recourse against the parties responsible.

Globe Life strives to act in accordance with the highest level of ethics and integrity at all levels of the organization and to comply with all government regulations. American Income Life (AIL) has processes in place to review, investigate and address all allegations brought to the Company's attention concerning unethical business practices, sexual harassment and inappropriate conduct and we do not tolerate such behavior.

We intend to more fully rebut these allegations in the near future. Rest assured we are steadfast in our commitment to delivering sustainable earnings growth that provides substantial value for our shareholders. Our dedication to providing the highest quality to our customers remains unwavering.

Globe Life Inc. is a holding company specializing in life and supplemental health insurance for the middle-income market distributed through multiple channels, including direct to consumer and exclusive and independent agencies.

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>>> Trump’s Truth Social is now a public company. Experts warn its multibillion-dollar valuation defies logic


by Matt Egan

CNN

March 26, 2024


https://finance.yahoo.com/news/trump-truth-social-going-public-090031597.html


For the first time in almost 30 years, part of Donald Trump’s business empire has gone public. Trading started with a bang, but the frenzy eased considerably by the closing bell, with shares ending well off their highs of the day.

Trump Media & Technology Group, the owner of struggling social media platform Truth Social, began its long-delayed journey as a public company at Tuesday’s opening bell under the ticker symbol “DJT.”

The stock surged about 56% at the open, to $78, and trading was briefly halted for volatility. Trump Media shares stabilized around $70 before fizzling. By the closing bell, Trump Media ended at $57.99, up by a more modest 16% on the day.

Despite the late-day slide, Wall Street is still assigning Trump Media an eye-popping valuation of nearly $11 billion — a price tag that experts warn is untethered to reality.

Shares of Digital World Acquisition Corp., the shell company that became Trump Media Tuesday morning, have spiked more than 200% so far this year. That includes a 35% surge Monday after the deal closed. Shares popped again at the start of trading Tuesday — investors’ first opportunity to trade the stock after the merger, under the new DJT ticker.

The skyrocketing share price comes despite the fact that Trump Media is burning through cash; piling up losses; and its main product, Truth Social, is losing users.

“This is a very unusual situation. The stock is pretty much divorced from fundamentals,” said Jay Ritter, a finance professor at the University of Florida’s Warrington College of Business, who has been studying initial public offerings (IPOs) for over 40 years.

Ritter said the closest parallel would be GameStop, AMC and other so-called meme stocks that skyrocketed during Covid-19 as an army of retail traders piled in. He said Trump Media is likely worth somewhere around $2 a share — nowhere near its closing stock price of $58.

“The underlying business doesn’t seem to be worth much. There is no evidence this is going to become a large, highly profitable company,” he said. “I’m reasonably confident the stock price will eventually drop to $2 a share and could even go below that if the company blows through the money it got from the merger.”

The eye-popping valuation is a massive windfall for Trump, who owns a dominant stake of 79 million shares.

At Tuesday’s opening price of nearly $78, that stake is worth nearly $6 billion, although lock-up restrictions likely prevent Trump from selling or even borrowing against those shares anytime soon. The value of Trump’s stake ended at $4.6 billion at the closing bell.

Trump Media generated just $3.4 million of revenue through the first nine months of last year, according to filings. The company lost $49 million over that span.

And yet the market is valuing Trump Media at approximately $11 billion.

For context, Reddit was only valued at $6.4 billion at its IPO last week — even though it generated 160 times more revenue than Trump Media. (Reddit hauled in $804 million in revenue in 2023, compared with Trump Media’s annualized revenue of about $5 million.)

“At these levels, it appears untethered to its underlying business results,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital. “Eventually, valuations tend to fall back on fundamentals. That means this stock is definitely at risk of plummeting back down to earth.”

Michael Ohlrogge, an associate professor of law at the NYU School of Law, told CNN there is “no way to square the current stock price with anything that would be called a rational valuation for this company.”

Truth Social is tiny

Truth Social faces real challenges and is still dwarfed by its rivals.

Truth Social had just 494,000 monthly active US users on iOS and Android combined in February, according to Similarweb stats provided to CNN. That’s a small fraction of the 75 million on X (formerly known as Twitter) and 142 million on Facebook.

Even Threads had more than 10 times the number of monthly active users that Truth Social had in February, according to Similarweb.

Not only that, but Truth Social is shrinking. Its monthly active users plunged 51% year over year in February, Similarweb stats show. The number of unique visitors to Truth Social’s website was 648,000, down 20% year over year.

Kennedy described Trump Media as a “meme-SPAC,” alluding to both its astronomical valuation and the fact it was formed through a merger with a special purpose acquisition company, or SPAC.

“Stocks that trade on momentum are subject to falling rapidly,” he said.

Jonathan Macey, a law professor at Yale, told CNN last week that the Digital World stock price is “clearly a bubble.”

Of course, history shows that bubbles can always inflate further, and it’s very difficult to pinpoint when they will pop.

That means Trump Media’s share price could keep skyrocketing for now — even if those gains are not backed up by fundamentals. In theory, a rival company or wealthy group could swoop in and acquire Trump Media even at these price levels, although Ritter said that’s very unlikely.

“We’ve already seen with other meme stocks that even if they eventually fall back to reflecting a fundamental value, the process can take quite a long time,” said Ohlrogge, the NYU professor. “There’s every reason to believe that this stock could remain at highly inflated prices much longer, due to the enthusiasm that Trump’s supporters have for it.”

‘Stay away from it’

Matthew Tuttle, CEO of Tuttle Capital Management, told CNN that Trump Media is probably not worth anything close to what the market is valuing it at.

“But it doesn’t really matter,” he said.

Tuttle noted that there is a history of SPACs spiking on their first day of trading, and he placed options bets that stand to make money if the stock shoots up.

“Because of what this is, and because it’s Trump — you’ve got people expecting this thing will take off [on Tuesday,]” he said.

But Tuttle advised everyday investors to use extreme caution trading Trump Media, noting the implied volatility is “insane.”

“Stay away from it,” said Tuttle, who has sold his shares of Digital World but still owns options that would pay out if the stock rises sharply. “Normally, I wouldn’t touch this with a 10-foot pole. But I’m not playing with much money and I already made a lot on this. If I wake up tomorrow and it’s trading at $1, oh well.”

Beyond the valuation concerns, there are other risks involved in Trump Media.

For example, this company’s future is inextricably linked to that of one person: Trump.

“There is a unique key man risk because Donald Trump is the chairman, top shareholder and the most popular user. He is one man, and he’s 77 years old,” said Kennedy.

Not only that, but Trump is facing felony prosecution in multiple simultaneous cases.

Trump Media noted that risk in SEC filings, saying: “Donald J. Trump is the subject of numerous legal proceedings, the scope and scale of which are unprecedented for a former President of the United States and current candidate for that office. An adverse outcome in one or more of the ongoing legal proceedings in which President Trump is involved could negatively impact TMTG and its Truth Social platform.”

A history of Trump bankruptcies

Not only does Trump himself face reputational issues, but his companies have a history of going bankrupt.

The last Trump company to go public, Trump Hotels and Casino Resorts in 1995, used the same DJT ticker symbol. It went bankrupt in 2004 and was delisted from the New York Stock Exchange.

Trump Media even highlighted Trump’s history of bankruptcies as a risk in its SEC filing.

“A number of companies that were associated with President Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt,” the company said.

Another question is what happens when the lock-up restrictions on Trump and other key insiders lapse in the coming months.

Trump’s legal troubles could give him a reason to sell his commanding stake, an outcome that would threaten Trump Media’s share price.

Betting on a Trump victory in November

Other insiders, including the sponsor of the SPAC, would also be able to sell.

Like any social media business, Truth Social faces pressure to grow its user base, expand its advertising business and build a subscription service.

Those tasks are complicated by the polarizing political backdrop where at least some portion of the country views the Trump movement skeptically.

Kennedy said that in many ways, Trump Media going public amounts to a “multibillion-dollar bet” on a second Trump term, a return to the White House that could be lucrative for his social media network.

“If he wins in November, Truth Social will probably be the primary means of presidential communication,” said Kennedy. “That’s the bet here.”

Ohlrogge, the NYU professor, agrees that the election could prove to be a real turning point for this company.

“If Trump were to lose the 2024 election, I’d imagine the stock price would crater quite quickly,” he said. “If he were to win, it could conceivably stay higher for longer, maybe much longer.”

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>>> Lightwave Logic, Inc. (LWLG), a development stage company, focuses on the development of photonic devices and non-linear optical polymer materials systems for fiber-optic data communications and optical computing markets in the United States. The company is involved in the designing and synthesizing of organic chromophores for use in its electro-optic polymer systems and photonic device designs. It also offers electro-optic modulators, which converts data from electric signals to optical signals for transmission over fiber-optic cables; and polymer photonic integrated circuits, a photonic device, which integrates various photonic functions on a single chip. In addition, the company provides the ridge waveguide modulator, a modulator that fabricates the waveguide within a layer of its electro-optic polymer system. It focuses on selling its products to electro-optic device manufacturers, contract manufacturers, original equipment manufacturers, semiconductor companies, optical network companies, Web 2.0/3.0 media companies, computing companies, telecommunications companies, aerospace companies, automotive companies, and government agencies. The company was formerly known as Third-order Nanotechnologies, Inc. and changed its name to Lightwave Logic, Inc. in March 2008. Lightwave Logic, Inc. was founded in 1991 and is headquartered in Englewood, Colorado.

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>>> 9 Short Squeeze Stocks That Could Take Off in November

Whether driven by Reddit users or tactical traders, volatile short squeeze stocks can generate huge returns.

By Wayne Duggan

Nov. 2, 2023


https://money.usnews.com/investing/articles/short-squeeze-stocks-that-could-take-off


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>>> Hedge funds rush to unwind bearish stock positions


Reuters

July 14, 2023

By Carolina Mandl and Nell Mackenzie


https://finance.yahoo.com/news/hedge-funds-rush-unwind-bearish-194851877.html


NEW YORK/LONDON (Reuters) - Global hedge funds rushed to unwind bets that U.S.-listed stocks will fall, as a persistent rally threatens their performance, JPMorgan Chase and Goldman Sachs told clients in reports.

"For hedge funds, shorts have been a challenge since early June especially," JPMorgan said, adding the unwinding of short positions got "extreme" in recent days.

Goldman Sachs said in a note on Friday short covering in the so-called U.S. macro products, which include equity index and exchanged-traded funds, reached the largest amount seen since November 2020.

A U.S. bull market has caught portfolio managers off guard, as they positioned earlier in the year for an economic downturn amid interest rates hikes, sticky inflation and geopolitical tension. Such short covering could, in turn, give fuel to the equity rally, further complicating the picture for remaining short-sellers.

The performance of the main U.S. indexes, however, has challenged their gloomy positions. The Nasdaq skyrocketed over 42% this year and the S&P 500 surged over 17%, while a basket of the most-shorted U.S. stocks is up 40% since early May, JPMorgan said.

The outcome for hedge funds has not been good. Overall, hedge funds went up 3.45% in the first half of the year, lagging the main stock indexes.

Amid the rally's persistence, investor sentiment has turned more positive, JPMorgan added in its note dated July 13.

Net buying, which excludes stocks sold, reached its largest level since October last year, according to Goldman Sachs. The move, however, was mainly driven by investors buying shares to cover their short positions.

Still, hedge funds also shorted more single stocks, mainly in sectors like staples, communication services and info tech, according to Goldman Sachs.

Goldman Sachs and JPMorgan run two of the world's biggest prime brokerages, a banking sector provides lending and trading services to investors and is able to see how large hedge funds and asset managers are moving.

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>>> 5 Rules for Selling Short in the Stock Market


Cabot Wealth

May 22, 2023

by Mike Cintolo


https://www.cabotwealth.com/daily/stock-market/short-selling-stocks


5 Commandments for Selling Short


1. Thou shalt sell short only in bear markets.

“The trend is your friend” is one of the most valuable of the scores of market truisms that I’ve internalized over the years.

For more than 10 years, the market’s trend was up, and anyone who bet against it (hedge funds, for example) suffered.

But a bear market suddenly, historically arrived along with the coronavirus pandemic in March 2020, and while stocks bounced back remarkably well in the ensuing 20 months, they struggled in 2022, with the S&P 500 and growth stocks entering full-on bear market territory again.

So, 2022 was a good time to sell, particularly if you owned a lot of growth stocks. The biggest reason for shorting only in confirmed bear markets—and most people forget this—is that the real long-term trend of the market has been up for centuries, and will continue to be up as long as investors perceive that the U.S. economy is growing. Usually, this long upward trend helps investors, which is why holding index funds for decades is one decent investing strategy.

2. Thou shalt sell short only stocks that are trending down.

This rule, like the first, ensures that the odds are on your side when you short. Trends, once in place, tend to continue, so you want to be sure that the stock you’re shorting is already in a downtrend. Sure, it’s nice to dream about shorting a ridiculously overvalued stock at the top and riding it down, but picking tops (and bottoms) is a fool’s game. Put the odds in your favor and only sell stocks short that are in confirmed downtrends.

3. Thou shalt sell short only when public opinion of the company behind the stock has a long way to fall.

Stocks decline because investors as a whole lower their expectations about the stocks’ future—and when they do, some stop buying and others start selling. For little-known stocks, expectations can’t fall much because there aren’t many expectations. If anything, expectations are likely to rise as people discover the company and the stock.

It’s far better to short stocks that are over-owned, and stocks that are or were well-loved, and which are thus ripe for lowered expectations. Chipotle (CMG) was a classic example of that. When everyone loved the stock back in 2015, it was “priced to perfection.” And once the bad news about contaminated food got out, the stock had nowhere to go but down—and once the downtrend got rolling (with selling intensified by repeat incidents), it was hard to stop! In fact, at the stock’s low, it was off 67% from its 2015 high, even though revenues were down only 9% from the peak. (Trouble is, earnings were down 71% from the peak.) Chipotle stock has since completely recovered.

Blockbuster Entertainment is another great example. At its peak in 2004, it dominated the video rental business. But then Netflix (NFLX) came up with the revolutionary idea of mailing DVDs, and that marked the start of Blockbuster’s big decline.

Kodak is another classic example; once king of the photography industry, it was killed by the digital revolution.

4. Thou shalt, at all times, beware of the mathematical realities of short selling.

When you buy a stock, hoping it will go up, the most you can lose is what you invested—while there’s no limit to what you can win. That’s a pretty good trade-off.

However, when you sell a stock short, the very best result—if the stock falls to zero—is that you double your money. But if the stock goes up instead, there’s no limit to the amount you can lose! That’s not a great trade-off.

5. Thou shalt not get greedy.

When you put it all together, it becomes clear that selling short is a high-risk proposition that can only work during certain periods, and even then, it’s unlikely to work for long. So when you find yourself with a profit from selling short, take some off the table. Let some ride, if you like, but remember that eventually, the market’s long-term upward trend will return, and it will be hard to swim against that tide.

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>>> Ukraine holds disaster drills amid fears Russia could sabotage nuclear power plant

Ukrainian officials have warned Russia may blow up the Zaporizhzhia plant.


ABC News

By Patrick Reevell

July 1, 2023


https://abcnews.go.com/International/ukraine-holds-disaster-drills-amid-fears-russia-sabotage/story?id=100571038


Amid fears Russia might blow up the Zaporizhzhia nuclear power plant, Ukraine has been holding drills to prepare emergency services with how to deal with a potential radioactive disaster.

ABC News was invited to the drills in the city of Zaporizhzhia this week, about 30 miles from the plant, where firefighters in hazmat gear simulated decontaminating people from radiation during an evacuation.

Emergency workers demonstrated scanning civilians with Geiger counters as they disembarked buses, stripping some civilians and hosing them with water as they lay on stretchers. Firefighters in yellow suits sprayed down vehicles and moved them through a large washer system rigged up between fire trucks.

Ukrainian officials have been sounding increasingly dire warnings around the nuclear plant that Russia has occupied since early in the war. This week, Ukraine's chief of military intelligence, Kyrylo Budanov, claimed Russia had now completed preparation to potentially sabotage the plant if it chooses.

Budanov told The New Statesman magazine that Russian troops had rigged the station's cooling ponds with explosives, that if destroyed could lead to the reactors melting down. He also said Russia had moved explosives-laden vehicles into four of the plant's six power units.

"The situation has never been as severe as now," Budanov said.

Ukrainian President Volodymyr Zelenskyy reiterated the warning again on Saturday at a press conference, saying "there is a serious threat" and that Russia is "technically ready to provoke a local explosion at the station" that could cause a radiation leak. Zelenskyy has called on the international community to take the threat seriously and deter Russia from damaging the plant.

The nuclear plant, the largest in Europe, has been largely shut down for months and is currently not producing any electricity.

Ukraine has said Russia could choose to cause different scales of damage to the station, ranging from a smaller radiation leak to trying to cause the reactors to meltdown.

Russia has denied the accusations and accused Ukraine of preparing to stage an attack at the plant.

Ukrainian officials have warned they fear the Kremlin might blow up the plant in the event Ukraine achieves a major breakthrough with its counteroffensive in the south, trying to halt the advance of Ukrainian troops by contaminating the area. They also worry Russia might trigger an incident at the plant in the hope of freezing the war, by pushing a panicked international community to force Kyiv into premature peace negotiations that would favor the Kremlin.

Ukraine's first deputy energy minister, Yuriy Vlasenko, told reporters at the drills that in the worst-case scenario 138,000 people might need to be evacuated from Zaporizhzhia alone. Roughly another 300,000 might need to be evacuated from four other regions, he said.

Similar exercises were conducted last year, Vlasenko said. In the event of a real threat of large-scale disaster, three decontamination points would be set up and 23 mustering points where people evacuated from the contaminated zone could gather.

The United States has so far not joined Ukraine in the warnings over the plant, with the White House last week saying it was closely monitoring the situation but so far had seen no indication the threat was "imminent".

"I would tell you that we're watching this very closely. We have, as you know, the ability near the plant to monitor radio activity, and we just haven't seen any indication that that threat is imminent, but we're watching it very, very closely," White House National Security Council spokesman, John Kirby told reporters on Monday.

The International Atomic Energy Agency (IAEA), which has sent monitoring teams to the station has said it is aware of the reports Russia has mined the cooling pools, but said it had not observed that during a visit by its director general Rafael Grossi in mid-June.

Ukrainian firefighters who took part in the drill told ABC they believed the risk Russia could sabotage the plant was real, but hoped it still would not do so.

They said their worries had grown since the Kakhovka dam was blown up last month. If Russia was prepared to cause a disaster on that scale, it suggests it might be willing to do the same with the plant, they said.

"They are unpredictable people," one firefighter told ABC News. "We didn't think the dam would be blown up. But it was blown up."

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Risks of shorting - >>> Carl Icahn lost $9 billion on an ill-timed short trade. Here's what he says are 3 big lessons from the soured bet.


Business Insider

by Filip De Mott

May 18, 2023


https://finance.yahoo.com/news/carl-icahn-lost-9-billion-035348749.html


Carl Icahn admitted a huge bet against the economy was wrong and cost $9 billion over six years.

"Maybe I made the mistake of not adhering to my own advice in recent years," he told the Financial Times.

He also attributed the losses to trillions of dollars the Fed injected into the economy amid the pandemic.

Billionaire Carl Icahn conceded that he was wrong to bet on a broad market downturn, a forecast that cost his firm close to $9 billion over six years.

The famed activist investor grew increasingly bearish that the economy would tank in the wake of the global financial crisis and shorted everything from broad market indices to commercial mortgages.

But a Financial Times analysis found that the strategy lost $1.8 billion in 2017 alone and another $7 billion between 2018 and the first quarter of this year.

To be sure, Icahn's portfolio also made about $6 billion from his activist investments even while his short bets were losing $9 billion, according to the FT, resulting in a net loss of nearly $3 billion.

In an interview with the FT, Icahn reflected on his ill-timed short trade. Here are three key lessons:

1. "I've always told people there is nobody who can really pick the market on a short-term or an intermediate-term basis," Icahn said. "Maybe I made the mistake of not adhering to my own advice in recent years."

2. At one point, the value of the securities Icahn had wagered against surpassed $15 billion, an amount that proved especially costly when markets did not go his way. "You never get the perfect hedge, but if I kept the parameters I always believed in … I would have been fine," he said. "But I didn't."

3. At the height of the pandemic, the Federal Reserve's stimulus efforts not only staved off a greater economic downturn, but undermined Icahn's short bets hopes as well. Between 2020 and 2021, Icahn Enterprises reported $4.3 billion in short losses.

"I obviously believed the market was in for great trouble," said Icahn. "[But] the Fed injected trillions of dollars into the market to fight Covid and the old saying is true: 'don't fight the Fed.'"

Amid the losses, Icahn added $4 billion of his own funds into the company. The separate sale of companies held by the firm also resulted in gains of $3.5 billion that were held outside the investment portfolio, the FT said.

Meanwhile, Icahn is fighting claims from activist investor Hindenburg Research, which announced it's shorting Icahn Enterprises and said the firm is run like a Ponzi scheme.

He responded to the Hindenburg claims in a statement last week, saying Hindenburg launches "disinformation campaigns."

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>>> Welltower: Exposing The Shell Game


Hindenburg Research

Published on December 7, 2022


https://hindenburgresearch.com/welltower/


Welltower Inc. (NYSE:WELL) is a healthcare REIT with a $32.1 billion market cap that is the largest owner of senior housing facilities in the U.S., with investments in 1,568 properties.

Until last month, Welltower’s largest tenant was a non-profit health system in the Midwest called ProMedica, which accounted for 12% of the company’s annual Net Operating Income (NOI). ProMedica faced severe distress and began breaching bond covenants in early 2022, threatening Welltower’s investment.

Given its size as Welltower’s largest operator, Welltower has stressed the importance of ProMedica’s financial health as a key risk factor.

On November 7th, 2022, Welltower announced a solution: it would transfer the operation of 147 skilled nursing facilities out of ProMedica and into a new joint venture with a health care manager called Integra Health. The deal helped fuel a 9% spike in Welltower’s stock.
Welltower’s CEO said that Integra provided a “well-capitalized strategic partner” resulting in Welltower being paid 4% more in cash rent under the new JV, coming out ahead despite the distressed situation.

Despite the high praise from Welltower’s management and claims of being well-experienced in skilled nursing, Integra seems to barely exist. The entity was registered 6 months ago, according to Delaware corporate records. Its website was registered on the same day.
Integra’s CEO, 29-year-old David Gefner, appears to have no background in the skilled nursing space at all. Integra has no employees on LinkedIn except for Gefner, who claims to have worked at the 6-month-old entity for 11 months.

A senior ProMedica employee told us Integra had no operating experience and came in after the company couldn’t find genuine operators. A former Welltower executive told us he had never heard of Gefner, saying that Integra would need “a lot of people” to manage the deal with Welltower.

Red flags indicate that another of Welltower’s distressed deals, a 2021 restructuring with its troubled 4th largest operator, Genesis Healthcare, mirrored the latest ‘miracle’ deal.
In late 2021, evidence suggests that Welltower quietly disposed of 21 of its distressed Genesis assets to a Gefner-affiliated firm, once again handing skilled nursing facilities over to an inexperienced manager and clearing its books of the mess.

We found signs of overt conflicts of interest with the deal. Gefner previously worked at the investment firm that owned Genesis, according to contact database records. Gefner’s own private equity firm at one point shared an office suite with an affiliate of the firm that ran Genesis. None of these relationships have been disclosed by Welltower or Gefner.
In addition to his CEO role at Integra, Gefner is CEO of private equity firm “Perigrove”, which at one point claimed to have raised $3 billion. We found no regulatory Form ADVs or Form Ds for Gefner or Perigrove. We also found no association with a broker/dealer, indicating that Perigrove may have either lied about the size of its capital raises or raised the capital illegally.
Perigrove claimed on its website to have run 12 prior real estate projects. We found no evidence to support this. Real estate records show all were led by other developers.
Perigrove had a documented role in only 1 of the claimed projects on its website that we could find; an attempted launch of a $30 million crypto token to raise funds for a property once dubbed by Crain’s Business as the “city’s worst illegal hotel”. The token offering looks to have failed.

Perigrove’s website claims it operates out of a prestigious office building in Manhattan. We visited and found the company has no presence at its claimed address.
Instead, we found Perigrove’s office on the outskirts of New York City, in a strip mall sharing an address with an auto parts store. On the front door of the building, Perigrove’s name was spelled wrong, as “Perigove”, with stickers.

Welltower trades at a premium to competitors, with its price/estimated NTM AFFO at 22.7x, 22% higher than the average multiple of comparably-rated peers. It has the lowest dividend yield of its peers, indicating that the market views it as a safe asset.

Welltower’s valuation comes despite an industry in turmoil: a 2022 BDO report reported that 50% of long term / post-acute home health facilities had defaulted in the last 12 months. The report surveyed 100 Healthcare CFOs and found that one in four who had not defaulted in 2021 were concerned they would default on bond or loan covenants in 2022.

Welltower also faces significantly larger maturities moving past 2023, with 2024 and 2025 debt totaling over $3.7 billion in a rising interest rate environment.

Meanwhile, the company has been diluting its equity via at-the-market (ATM) offerings, having raised ~$4.5 billion in total net proceeds in the past 2 years. It has raised over $400 million in 5 months through its latest ATM, with $2.57 billion in remaining capacity as of September 30, 2022.

Overall, we think Welltower is an overpriced-to-perfection REIT obfuscating its distressed assets, raising questions about both its portfolio and the credibility of management as it attempts to raise capital from investors.

Initial Disclosure: After extensive research, we have taken a short position in shares of Welltower, Inc. (NYSE:WELL). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.

Introduction

Welltower Inc. (WELL) is a healthcare REIT with a $32.1 billion market cap that is the largest owner of senior housing facilities in the U.S., with investments in 1,568 properties. [Pg. 2] Its portfolio also includes an additional 272 properties in Canada and the UK. [Pg. 2] The company reports 3 segments: senior housing operations (54% of assets), triple net leases (28% of assets) and outpatient medical (18% of assets). [Pgs. 2, 78, and 102]

Bull Case: Welltower Is A Late-Stage Pandemic Reopening Play That’ll Be The Long-Term Beneficiary Of The Aging Baby Boomer Generation

Welltower’s portfolio was significantly negatively impacted by COVID, experiencing a decrease in senior housing operating occupancy, from 86.9% prior to the pandemic (Q1 2020) to 79.2% currently (Q3 2022). [Pg. 1 and Pg. 1] The trend has reversed off lows of 72.7% in Q1 2021, providing bulls hope the company’s operating occupancy can recover to pre-pandemic levels. [Pg. 1, Pg. 3]

On a long-term basis, bulls also hope that Welltower will be the beneficiary of an aging baby boomer generation’s need for nursing home care, propelling them back toward “peak occupancy” of 91.2% that the company reached in Q4 2015. [Pg. 16]

Despite stress across the industry, the company is considered by its investors to be an effective allocator of capital, having raised $4.5 billion in total net proceeds via at-the-market (ATM) stock issuances in 2021 and 2022. [Pg. 21, Pg. 97] Welltower has said it is using the proceeds of the ongoing offerings to mainly invest in new projects. [Pg. 36, Pg. 8 and Pg. 8]

Before diving into major risks the market seems unaware of, we first want to cover several general risks to the primary bull thesis.

General Risk #1: A Premium Valuation Compared To Peers With Similar Risk Profiles. Welltower’s Price/2023E Adjusted Funds From Operation (AFFO) Is 22% Higher Than Its Peer Average

Welltower has convinced the market that its senior living operations are set to rebound. The company trades at a 3.4% forward dividend yield, pricing in far less risk than peers like Ventas (3.89%), Sabra Healthcare (9.1%) Omega Healthcare (8.9%) and Healthpeak Properties (4.6%).

(Source: Factset)

The company also trades at a sizeable premium to peers in key metrics with similar Baa1 credit ratings. Its price/estimated NTM AFFO is 22.69x, 22% higher than the average multiple of comparably-rated Ventas and Healthpeak. Its NTM EV/EBITDA is 21% higher than the Ventas and Healthpeak average of 17.65x.

Both metrics indicate that the market sees the company’s senior housing portfolio as a low-risk, high growth investment that should be afforded a premium to competitors.

With an average building age of 19 years, we expect Welltower’s recurring and renovation capex, which was $282.6 million for FY 2021, will continue to rise. [Pg. 51, Pg.1]

Despite this, the sell side projects an aggressive 28% increase in FFO by 2024, pricing Welltower at a 19.2x forward 2024 multiple.

General Risk #2: An Industry Facing A Massive Wave Of Defaults And Skyrocketing Operating Costs

The fundamentals of Welltower’s industry have deteriorated post-COVID. While senior housing occupancy has increased 1% over the last quarter, many operators are still in significant distress.

A 2022 BDO report stated that 50% of long term / post-acute home health facilities had defaulted in the last 12 months. [Pg. 10] The report surveyed 100 Healthcare CFOs and found that one in four who had not defaulted in 2021 were concerned they would default on bond or loan covenants in 2022.

(Source: BDO Presentation)

Adding to this burden, the largest operating cost for senior living is staffing, a cost that is rapidly increasing due to labor shortages and inflation. McKinsey estimates that clinical wage growth will outpace inflation over the next two years.

We spoke with a senior executive of a large industry operator and Welltower partner who told us that government reimbursements have not caught up with rising labor costs, putting additional stress on the industry even despite some occupancy increases:

“Nursing homes are really struggling… there’s wage inflation, even outside of agency you’re seeing 6 to 8% wage inflation, and there’s a lag before government reimbursement catches up with that and the increases that CMS through Medicaid and Medicare that have been supporting are not covering those kinds of wage increases yet.”

Residual effects of the COVID pandemic also continue to ripple through nursing homes, according to CMS data. This has resulted in continued reluctance by the industry’s once-addressable market to move into an assisted living or nursing facility.

The industry has also faced other recent issues, such as an over-build of nursing supply and regulations meant to curb profits. [1,2]

The struggles of senior care providers directly affect Welltower, which derives 44.9% of its Net Operating Income (NOI) from its senior housing operations segment. [Pg. 1] In bankruptcy, leases can be canceled or renegotiated, which affects Welltower’s direct investment in properties that it leases to operators.

“Skilled nursing is just a very challenging business,” one industry executive told us.

General Risk #3: A Large, Expensive Debt Load And Continued Dilutive Capital Raises
A general risk affecting REITS is debt burden. Welltower has a $15 billion debt load, with the company reporting net debt to adjusted EBITDA of 6.93x. [Slide 23] The company faces higher interest expense pressures going forward due to several factors:

Rising interest rates;

The company’s debt rating, currently at BBB+ (3 notches above junk); and
Roughly $2.3 billion needed from refinancings in 2023-2024.

The company also faces significantly larger maturities moving past 2023, with 2024 and 2025 debt totaling over $3.7 billion. [Pg. 25]

(Welltower November 2022 Presentation [Pg. 25])

(Source: Welltower Investor Presentation)

Meanwhile, the company has been diluting its equity via a $3 billion at-the-market (ATM) offering since April 2022. [Pg. 21] In just 5 months it has raised over $400 million through the offering, with $2.57 billion in remaining capacity as of September 30, 2022.

The company has indicated that the capital raises are mainly focused on taking advantage of investment opportunities and growing Welltower’s portfolio. [Pg. 4]

Beyond general risks, we have identified several key risks that we think raise serious questions about Welltower’s portfolio, along with management’s credibility.

Key Risk #1: Welltower’s Largest Set of Properties Is Being Propped Up By A Shell Game While the Company Dumps Shares On Equity Holders

Last month, on November 7th 2022, Welltower announced that it had found a new partner for a portfolio of 147 skilled nursing facilities whose operator, ProMedica, was distressed. The company described its new partner as a well-capitalized JV partner that was willing to pay 4% more in cash rent.

Critically, we believe the new JV partner is little more than a sham designed to obfuscate weakness in the portfolio.

2021-Present: Welltower’s Largest Tenant, ProMedica, Represented 12% of 2021 NOI
ProMedica Faced Severe Distress And Began Breaching Bond Covenants In 2022, Threatening Welltower’s Investment

Until recently, Welltower’s largest tenant was a non-profit health system in the Midwest called ProMedica, according to company SEC filings. [Pg. 92] Welltower acquired the properties in 2018 after the prior tenant declared bankruptcy and ProMedica took over operations. As of year-end 2021, Welltower was invested in 205 properties run by Promedica, which accounted for 12% of its net operating income for the year. [Pg. 92]


(Welltower 2021 Annual Report [Pg. 92])

Given its size as Welltower’s largest operator, Welltower stressed the importance of ProMedica’s financial health in the risk factors of its most recent annual report:

“We depend on ProMedica Health System (“ProMedica”) for a significant portion of our revenues and any failure, inability or unwillingness by them to satisfy obligations under their agreements with us could adversely affect us” [Pg. 32]

Following the prior tenant’s bankruptcy, ProMedica has continued to experience significant distress. It began taking on substantial losses in 2021. By August 2022, S&P downgraded ProMedica’s credit to junk, representing a breach of its loan covenants, according to news reports. [Pg. 13]


(Source: The Bond Buyer)

Moody’s also later downgraded the company’s debt to junk in September 2022, citing material cashflow losses exceeding expectations and narrowing headroom on bank covenants. In November, Moody’s revised ProMedica’s Ba2 rating outlook to negative.

November 7-8th 2022: Welltower Announced A Solution to Its Looming ProMedica Problem—Moving 147 Distressed Skilled Nursing Facilities Into A New Joint Venture Formed With A Company Called Integra Health

The News Helped Fuel A 9% Surge In Welltower’s Shares

On November 7th, 2022, after market close, Welltower announced it would transfer the operation of 147 skilled nursing facilities out of ProMedica and into a new joint venture with a health care manager called Integra Health.

The deal seemed like a major win, bailing Welltower out of a distressed situation while securing 4% more cash rent in the process.

(Source: Welltower)

Shares rose 9% the next trading day, then added another 4% over the next week, fueled by both the ProMedica solution and the company’s earnings release.

Welltower’s CEO, Shankh Mitra, offered more color on the third quarter investor call, stating that Integra provided the dual benefit of a ”well-capitalized strategic partner to focus on the skilled nursing properties” and also leaving ProMedica in “substantially better financial state”.

Mitra continued, saying Welltower had transacted with Integra and its unnamed parent entity on 21 assets previously, adding:

“I fundamentally believe in the expertise, and we have worked with Integra and its parent company on many of these transactions before. There’s no question that they are significantly better in the skilled nursing business than we are and will ever be.”

“Integra or its parent entity which we have done multiple transactions with previously, has successfully executed many turnarounds, including those involving HCR assets that we sold it (sic) to them in the last couple of years and is well positioned to return these assets to its previous glory”.

An analyst from Credit Suisse applauded the deal, noting its irregular favorable economics, saying:

“Again, congrats on the quarter and the transition. I have been covering this from 15 years. I don’t think I’ve ever seen a rent restructuring where the rents went up. So that’s pretty cool to see.”

Welltower’s third quarter report said that ProMedica will surrender its 15% interest and “provide significant working capital support for the new operators to ensure a smooth transition.” In exchange, ProMedica will be released from its skilled nursing lease obligation. [Pg. 29]

Integra Is Set To Take Over A Master Lease For 147 Skilled Nursing Facilities, A Major Responsibility

Integra’s Entity And Website Were Set Up 6 Months Ago And It Has 0 Employees On LinkedIn. Industry Veterans, Including One Former Welltower Exec, Told Us They Had Never Heard Of It
Integra now has responsibility for 147 skilled nursing facilities.

Despite the high praise from Welltower’s management and claims of being well-experienced in skilled nursing, Integra seems to barely exist.

Far from having a long operating history, Integra’s entity was registered 6 months ago, according to Delaware corporate records.[1]

(Source: Delaware entity search)
Integra’s corporate website was registered on the same day.

(Source: Icann)

The Integra website provides a generic business description and offers no names of people associated with the firm. Instead, the website claims it has an extensive staff, including an “in-house team of attorneys, underwriters, and market analysts”.

Despite these claims, Integra has no employees on LinkedIn except for its CEO David Gefner, who claims to have worked at the 6-month-old entity for 11 months.

(Source: LinkedIn)

(Source: Integra CEO David Gefner’s LinkedIn profile as of November 29th 2022, showing that he has served as CEO of the 6-month-old entity for 11 months)
Gefner is 29 years old, according to UK entity filings. Far from being an experienced operator, we found no evidence that he has managed skilled nursing facilities or healthcare facilities.

One former Welltower executive we spoke with, who left the company in mid-2021, had a problem recalling any past deals the company had done with Integra, despite management’s claims to have done numerous deals with it and its unnamed parent. “There was maybe a minor portfolio with Integra before,” they told us, unable to furnish further details.

The same executive didn’t seem to know Integra’s 29-year-old CEO, either:

“David Gefner. Don’t know David…when you Google him you get this company called ‘Perigrove’. Yeah, no, I never…this kid’s a young guy too. He’s a young frickin’ guy…I never met this dude…”

“As Far As We Know, There Is None”: Senior ProMedica Employee Told Us Integra Had No Operating Experience And Came In After The Company Couldn’t Find Genuine Operators
In light of our findings into irregularities with Welltower’s claims, we spoke with a high-ranking ProMedica employee to learn more about the deal with such an unknown, questionable counterparty.

They told us Integra came in after ProMedica/Welltower couldn’t find new operators, despite searching extensively:

“It’s a very complicated mess, I know this [ProMedica/Integra deal] follows discussions going back to the beginning of the year, on divesting and exiting out of certain markets, and certain buildings, I think that ProMedica was actively attempting to negotiate, along with Welltower, with new providers but they just couldn’t get the deals done, and so I think the board’s position was, we’re not going to allow this to continue on to the new year, because we could be sitting here six months from now no better off than we are right now.”

Further contradicting Welltower’s claims, the employee speculated that Integra wouldn’t be able to get state licenses because of its lack of operating history.

“Integra is going to have to operate these buildings under ProMedica’s licenses because Integra is never going to get approved as an operator because of their lack of a portfolio and track record and a team to operate these buildings, which are questions that all the regulatory entities will ask, when they’re seeking approval is how do plan operate, what’s your team, what’s your management structure?”

We asked about Integra’s management team and structure:

“As far as we know there is none.”

They also told us that Welltower’s rent payments could be in jeopardy.

“I think that’s one of the things that is holding…any potential transaction is holding up… Welltower is seeking…knows that these problems can continue with the operators sustaining losses and that rent payments could be jeopardy, and I think that Welltower is seeking security.”

Despite Welltower advertising a 4% increase in rent from a well-capitalized partner, the employee then speculated that Welltower was going to cover any losses for Integra’s portfolio.

“My guess is, I don’t know exactly how that was arranged. It has been speculated that this is sort of an arrangement that was made between Integra and Welltower where Welltower is going to indemnify Integra from their losses”

When asked about the value attributed to the portfolio, they said there was some, but it was questionable in today’s operating environment:

“There’s definitely value in the portfolio, you know. How much is questionable.”

Integra’s CEO Claims To Also Be CEO And Founder Of Perigrove, A “Prolific” Private Equity Firm That Claimed To Have Raised $3 Billion

Reality: We Found No Regulatory Filings Such As ADVs or Form Ds Relating To David Gefner or Perigrove’s Capital Raises, Indicating That They Likely Either Lied About The Amount of Capital Raised Or Raised Capital Illegally

The CEO of Integra is David Gefner, per Welltower’s press release announcing the deal. He describes himself as the Founder and Principal of Perigrove, a “prolific” private equity firm formed in 2012, when he was around 19 years old.

(Source: LinkedIn)

While unclear, Perigrove may be the parent that Welltower’s CEO referred to in on its earnings call because it is the only entity with obvious public ties to Gefner.

Perigrove’s website describes itself as a multi-billion-dollar private equity investment firm focused on healthcare:

“Perigrove is a prolific private equity firm strategically diversified across every segment of the global healthcare sector. Headquartered in New York City Perigrove has conducted billions in transactions over the past decade. On behalf of our stakeholders and the tens of thousands of lives we impact, we continue to create outsize opportunities in all we engage.”

Perigrove’s claimed focus on healthcare appears to be relatively new. Earlier archived versions of its homepage from 2019 made no reference to healthcare, instead professing a focus on real estate.

The same archived website captures show that Perigrove stated that it raised more than $3 billion in total equity.

(Source: Wayback Machine Perigrove – 2019)

Despite its claims to be a large asset manager, Perigrove is not registered with the SEC as an advisor. All U.S.-based investment advisors with $100 million or more in assets under management are required to register with the SEC as investment advisors.

When raising private capital, investment firms are also required to file “Form Ds” reporting details of the capital raises. We found No Form D’s referencing Perigrove or Gefner, despite claimed numerous large capital raises. Similarly, a search on FINRA BrokerCheck to see if Perigrove or Gefner were affiliated with any broker/dealer turned up no results.

(Source: IAPD)

The lack of required regulatory filings suggest that Perigrove either exaggerated its capital raising activities or raised the capital illegally.

We reached Gefner by cell phone to ask him about Integra and Perigrove. He declined to provide any information but said he would take our name and number and call back, saying he was in the middle of something. He did not call back and did not answer when we phoned 3 subsequent times. He eventually responded to our WhatsApp message saying “I’m on a plane traveling overseas.” He had not mentioned any impending trip when we briefly spoke with him earlier. We have heard nothing further as of this writing.

An Earlier Version Of Perigrove’s Website Claimed Involvement In 12 New York Properties

We Found That None Were Run By Perigrove

Our review of Perigrove indicates the company hasn’t raised anything close to $3 billion. Perigrove’s current website lists no specific projects the firm has completed. An archived 2019 version of Perigrove’s website features 12 New York City area building development projects that the company completed.

We reviewed each project and found that none were actually run by Perigrove.

(Source: Wayback Machine)

As a starting point, a search of New York City’s property ownership database, ACRIS, returns no results for David Gefner or Perigrove, suggesting Gefner and Perigrove don’t hold controlling interests in any of the claimed real estate developments.

A check of each address showed that 10 of the projects listed by Perigrove were actually developments led by a different group, Hello Living, a New York real estate company founded in 2005.[2]

We spoke with Eli Karp, head of Hello Living who told us Gefner helped raise some funds for him on projects around 2012, aiding in 2 projects. He estimated the total capital Gefner raised for him was about $10 million.

The two other projects listed on Perigrove’s website were:

200-206 Kent Avenue which is being developed in Williamsburg by Cornell Realty.
19 West 55th Street, Manhattan. According to ACRIS records, 19 West 55th is controlled by Abraham Leifer of Aview. This was the only project we saw a documented role for Perigrove, as detailed below.

Perigrove Had a Documented Role In Only 1 Of The Claimed Projects On Its Website; A Manhattan Hotel Once Dubbed The “City’s Worst Illegal Hotel” By Crain’s Business
Perigrove’s Role In the Deal Seems to Be That It Attempted To Launch A $30 Million Crypto Token To Raise Funds For The Property. The (Likely Illegal) ICO Offering Looks to Have Failed
When examining the 19 West 55th Street property from Perigrove’s earlier website, we found that Perigrove did have a role, though not as its primary developer.

In 2019, Perigrove launched a $30 million crypto token offering to sell an interest in the property. Unlike traditional investments, the token claimed it would “democratize” investor access to real estate by removing the broker fee and reducing the minimum investment to $10,000. [Pg. 5]

(Source: iTokenize Pitch Deck)

We found multiple red flags in the token offering documents, including an unrealistic 31.5% projected IRR for token investors over the next 30 years. [Pg. 12]

(Source: iTokenize Pitch Deck)

The proceeds were intended to “democratize” access to the redevelopment of 19 West 55th Street, which was previously dubbed “the city’s worst illegal* hotel” by Crain’s Business.

A promotional video told investors that blockchain technology helped “guarantee security for the investments”:

“To build on our successes we have decided to use the blockchain technology to increase the profitability of our real estate projects and guarantee security for the investments.” [00:25]

The token offering seems to have failed. The iTokenize website did not appear to be updated after the offering. We decided to visit the address to confirm if any renovations had taken place.

Renderings for Perigrove’s offering projected completing renovations of the building in 2021. The redevelopment involved overhauling the aging brick exterior to white and adding large pillars to the roof.

(Source: ICO Pitch deck Pg. 7)

When we visited, we found the building looking exactly like it had in 2019, indicating that the money had not been raised for the project, or it had been allocated elsewhere.

(Source: Hindenburg Investigator)

Perigrove’s Website Lists Its Corporate Address At A Prestigious Office Address In Manhattan. We Visited The Address And Found Perigrove Was No Longer There
On its website, Perigrove reports its current address as being on the 46th floor of 7 World Trade, a large, well-known, high-end office building.

(Source: Perigrove website)

We visited the location to learn more about Perigrove’s claimed bustling operation. At the address, we found a coworking firm called Inspire.

We spoke with the receptionist, who had never heard of Perigrove, telling us the company didn’t have a physical suite in the workspace. They checked their electronic records and found that Perigrove had been in the system, indicating that perhaps they were part of the virtual office offering at some point.

An earlier version of the company’s website listed a specific suite on the same floor, 4632. The suite number has been removed from the most recent website, with only the floor and address remaining.

We checked suite 4632 anyway and found it occupied by a completely unrelated company called Global Gateway Advisors, with no relationship we could find to Perigrove.

(Global Gateway Advisors, a completely different firm, was at the suite address for Perigrove.
Source: Hindenburg Investigator)

We phoned Global Gateway to ask whether it shared an office with Perigrove. The representative we spoke with had never heard of Perigrove and confirmed Global Gateway was the only firm at the suite, saying it had been there for about 2 years.

Next, We Visited Perigrove’s Registered Address From Its Corporate Entity Filings
We Found Its Office In A Dilapidated Building Shared With An Auto Parts Store On The Outskirts Of New York City

The Claimed $3 Billion Private Equity Firm Misspelled Its Name On Its Front Door As “Perigove”

We continued our search for Perigrove on the outskirts of New York City at an address that multiple Perigrove entities are registered to, 351 Spook Rock Rd. Suffern, New York.

(Source: NY Entity Registry)

We found Perigrove next to an auto parts store in a worn-down building in a strip mall.

(Source: Hindenburg Investigator)

The 351 Spook Rock Road address shared signage for Perigrove and an auto parts company called AutoPlus. Perigrove’s name on the sign was put up with stickers and was misspelled as “Perigove”.

(Source: Hindenburg Investigator)

The building’s lobby had visible wear and tear and was piled high with auto part boxes. In between a high pile of cardboard boxes and a tire, a large mailbox had Perigrove LLC marked on it.

(Source: Hindenburg Investigator)

We spoke with a representative at the auto parts store who told us that Perigrove worked upstairs. We asked which days David Gefner or Jay Leitner came to work at the office. He told us:

“I have no idea. That´s their own business. I don´t know when they´re there. I just hear them up there. I know somebody is up there.”

Former Welltower Senior Employee On Integra Running ProMedica: “They’re Going To Need A Lot Of People To Manage This Deal With The Different Operators…It’s Not Something You Run Out Of Your House”

We spoke with a former high level Welltower employee to get additional color on Gefner and the portfolio. He told us he thought that Integra would try to get out of the deal quickly, adding:

“I would hope that patient care doesn’t get impacted.”

The former employee went on to tell us that David was young and hasn’t belonged to the industry, instead he was doing a “hedge fund opportunistic play”:

“They’ve never been…David’s a young guy that’s never been someone who’s belonged to the industry, so he’s truly just doing a hedge fund opportunistic-type play.”

He also told us that the managing the portfolio is something that a partner would need an experienced team for:

“They’re going to need a lot of people to manage this deal with the different operators and that type of stuff. It’s not something you run out of your house and I would assume Welltower would have vetted a company and would not want someone that would be fly-by-night…”

Key Risk #2: We Suspect This Isn’t The First Time—Red Flags Indicate That Part of Welltower’s 2021 Distressed Genesis Healthcare Restructuring Deal Mirrored The Latest ‘Miracle’ Deal With Integra

Evidence Suggests 21 Of The Worst Distressed Assets Were Quietly Disposed To Gefner’s Affiliated Private Equity Firm

Prior to Covid, another significant operator of Welltower assets was Genesis Healthcare. At the end of 2019, Genesis was Welltower’s 4th largest operator, managing 76 properties, accounting for 4% of NOI. [Pg. 2]

In 2021, Genesis, like much of the industry, experienced severe distress due to Covid and other operational challenges. [Pg. 3]

(Source: Skilled Nursing News)

On March 2021, Welltower announced what would be another ‘miracle’ deal. Through a complicated multi-way agreement, it had achieved a “substantial exit” of its Genesis Healthcare operating relationship, consisting of 51 assets.

Welltower was exiting its distressed Genesis relationship largely unscathed, with some assets sold off to ProMedica (which would itself later become distressed), among other parties.[3]

The deal valued Welltower’s real estate at an astronomical $144,000 per bed according to the press release, more than double the industry average. During the first quarter of 2021, CBRE put the average nursing home bed at around $70,000. [Pg. 12]

Welltower Appears to Have Quietly Disposed of 21 Of The Most Deeply Distressed Genesis Assets To A Gefner-Affiliated Firm, Once Again Handing Skilled Nursing Assets Over to An Inexperienced Manager and Clearing Its Books of The Mess

Later, in November 2021, Welltower mentioned in an earnings release that it had sold another 21 assets of Genesis, presumably the deeply distressed assets it was unsuccessful at disposing in the earlier deal.

The “21” number of assets is the same number of assets Welltower management later claimed to have transacted with affiliates of Integra on its most recent conference call.

A former senior Welltower employee confirmed that Gefner’s affiliated firm had previously bought assets related to Genesis:

“This construct [dealings with Gefner/Integra] had already been done on some other skilled nursing assets…They bought some Genesis facilities, which is another skilled nursing operator that Welltower had and they had closed on some of those assets.”

We asked about the timing of the Gefner-associated purchases to see if it was part of the main Genesis deal, or later in the year:

“Yeah they did sell the last of the remaining Genesis assets and I believe it was to Integra…they were other Genesis assets not tied to a larger transaction.”

Once again, we find it unusual that Gefner, with little to no experience operating or managing skilled nursing assets, came in and bought the last assets in a distressed deal, helping Welltower clean the mess off its books.

Furthering our concerns, we identified several signs of an undisclosed affiliation between Gefner and Genesis, raising questions of overt conflicts of interest.

Integra CEO Gefner Previously Worked At The Investment Firm That Owned Genesis, According to Contact Database Records

Gefner’s Private Equity Firm Perigrove Also At One Point Shared An Office Suite With The Firm Run By The Owner Of Genesis

The Undisclosed Relationship Raises Questions of Conflicts Of Interest In The Gefner/Welltower/Genesis Dealings

As part of the Genesis deal involving Welltower, Genesis received a $50 million injection from an affiliate of private equity group Pinta Partners.

David Gefner worked for Pinta Partners, and had an email address at the firm, according to contact database ZoomInfo records. Gefner has not otherwise made this relationship clear in his LinkedIn profile or in other biographies.

Further, as we wrote earlier, Perigrove at one point claimed to operate at 7 World Trade, Suite 4632 before removing the suite address from its website. That claimed suite matches the older office address of Allure Group, another firm controlled by the owner of Pinta Partners.

(Source: Perigrove Website Wayback Machine 2019)

(Source: New York Corporate Registry)

In short, Gefner appears to have a close, undisclosed connection to the firm at the center of the Genesis Healthcare restructuring deal with Welltower.

The lengths taken to obfuscate these relationships and deal details suggest to us that Welltower is simply using Gefner-affiliated entities to park its bad assets.

Beyond Its Sketchy Deals With Integra and Gefner, Welltower Management Has Obfuscated The Rest Of Its Portfolio

Welltower Stopped Detailing Its Individual Property Operators Around Q2 2020, Right When Covid Began To Devastate The Industry

Beyond the obfuscation of issues with Welltower’s key tenants, we are concerned by management’s obfuscation of the rest of the Welltower portfolio.

For years, Welltower provided the regular list of its specific properties and associated operators on its website. By Q2, 2020 COVID shrunk the nursing home population by 10%. Around this time, Welltower stopped updating its list of properties and hasn’t provided the full list since. [1,2] [4] An address list, without associated operators, is now the only portfolio information disclosed. [Pg. 119]

Given the new opacity, and issues with key tenants, we suspect Welltower’s management has obfuscated other lurking issues with its portfolio.

Conclusion: The Gefner/Integra Deals Appears To Be A Shell Game Designed To Hide Financial Weakness As The Company Dumps Shares On Unsuspecting Investors
Integra offers a significant glimpse into Welltower’s highly opaque and complex portfolio of investments that we believe is under substantial stress.

Instead of being transparent about its situation, Welltower’s management has obfuscated the issues through a shell game, while claiming that the deals will magically result in more cash rent or asset recovery than before.

As to Integra, we suspect Integra’s CEO has misled the public on his fundraising activities or has raised capital illegally. This is significant to Welltower, whose CEO has endorsed Integra and its CEO, along with claiming to have already done multiple deals with an entity associated with Integra.

Now, Welltower plans to expand the relationship to make Integra one of Welltower’s largest partners. We think this bodes poorly for whichever assets Welltower hopes to offload onto Integra next.

We think the company should answer several questions:

Why did Welltower place control of 147 nursing homes into a JV with a 29-year-old with no apparent track record in the skilled nursing industry?

Did Welltower also sell 21 assets originally operated by Genesis to Gefner or an affiliate of Gefner? If so, why haven’t the details of this transaction been disclosed to investors?
Why has Welltower not disclosed the material agreements associated with its deal(s) with Integra and/or Gefner?

Has Welltower indemnified Integra or its affiliates for losses or provided other inducements that help it meet the claimed 4% increase in cash rent?
Who is Integra’s parent entity and why has this information been withheld from investors to date?

Is Welltower aware of any relationship between Gefner and Pinta Partners, The Allure Group, or Joel Landau?

Was Welltower aware that Perigrove, the private equity firm affiliated with Integra and Gefner, claimed to have raised $3 billion, yet has not filed any requisite form Ds or a form ADV or have any clear association with a broker/dealer? Does Welltower have any comment on the legality of these claimed offerings?

What was Welltower’s due diligence process on Integra before agreeing to the deal(s)?

How does Welltower expect Gefner to manage 147 nursing homes when he can’t even manage to spell the name of his own firm on the door of the office correctly?

Does Welltower recognize the risks to thousands of patient lives by placing the care of these facilities into the hands of someone with no experience managing them?

Disclosure: We Are Short Shares of Welltower Inc. (NYSE: WELL)

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>>> AdvisorShares Ranger Equity Bear ETF (HDGE) -


Holdings -

BlackRock Liquidity FedFund Instl TFDXX 232.75%

AdvisorShares Sage Core Reserves ETF HOLD 37.60%

Fidelity® Inv MM Fds Government III FCGXX 6.17%

PG&E Corp PCG 5.03%

Take-Two Interactive Software Inc TTWO 4.30%

AppFolio Inc A APPF 3.37%

Best Buy Co Inc BBY 3.21%

NOV Inc NOV 2.63%

Dana Inc DAN 2.53%

Construction Partners Inc Class A ROAD 2.40%


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>>> Greatest Short-Selling FAIL In History -

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>>> The Ugly Truth About Trump Media Acquirer Digital World’s Shares


Many issues face investors in the company, above and beyond the sharp falloff of interest in Truth Social


The Street

by BRIAN O'CONNELL

MAR 20, 2022


https://www.thestreet.com/investing/the-ugly-truth-about-trump-media-acquirer-digital-worlds-shares?puc=yahoo&cm_ven=YAHOO


The SPAC that’s acquiring former President Donald Trump’s media company is facing a daunting list of negatives as it moves towards closing the transaction.

Real Money Columnist Brad Ginesin outlined the most notable ones recently.

“The problem is that DWAC is trading at an absurd valuation and its stock is highly likely to tank in the coming months,” Ginesin wrote on Real Money. “This is not the right market in which to speculate on an impossible-to-value stock with no earnings, scant revenue, uncertain prospects and buyers solely focused on the company's celebrity appeal,” Ginesin added.

“Yet people foolishly are buying the stock, with a toxic valuation, at precisely the wrong time,” he wrote.

"Last month, Trump Media unveiled its Twitter clone, Truth Social, which was followed by a moment of excitement as the app raced to number one in downloads," Ginesin wrote. "The initial enthusiasm quickly ran its course; now the app's ranking has plummeted, with the media outlet seeing barely any usage. This bodes poorly for the success of Truth Social and anyone invested in Digital World Acquisition.”

Given that Trump's previous media effort 'From the Desk of Donald Trump,' received minimal readership and shut down after 29 days "the status of his appeal is clearly in question,” Ginesin noted.

There’s more.

Since the deal to acquire Trump Media was announced last October, Digital World Acquisition has been highly volatile.

“Part of the enthusiasm stems from the limited number of shares outstanding before the deal closes, which has helped the stock trade at a frothy premium valuation,” Ginesin said. However, “once the deal is consummated, more than five times the current shares will be free to trade, taking the market cap from $3.4 billion to more than $17 billion. Compare that steep valuation to Twitter TWTR, with a $26 billion market cap and more than $5 billion in revenues.”

Hang on, though, there's even more to worry about. "Investors in a PIPE (private investment in public equity) have agreed to buy $1 billion in DWAC shares, free to sell immediately when the deal closes," Ginesin wrote. “The PIPE deal hands these preferred investors a minimum of a 40% discount to the market price with no lock-up agreement. This ought to give pause to any buyer of free-trading stock.”

Oh, and then there's the SEC probe of "possible violations in connection with consummating the deal as well as the trading of the stock." Until the deal does close, "a risk remains that the SEC may uncover an issue that delays or alters the closing process," Ginesin noted.

So, when and if the deal closes "a significant amount of shares will be free to sell with a cost basis far below the current price. Yet investors are buying into nothing more than hope and celebrity appeal – a bad combo as overvaluation and froth are mercilessly rooted out in this market,’ Ginesin said.

In the end, “the stock will likely face significant losses in the coming months.”

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>>> Why SmileDirectClub Lost Another 23% in December


The maker of cheap plastic retainers has investors grinding their teeth over its continued loss of value.


Motley Fool

by Rich Duprey

Jan 6, 2022


https://www.fool.com/investing/2022/01/06/why-smiledirectclub-lost-another-23-in-december/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Key Points

Last year wasn't a good year for SmileDirectClub and it didn't end the year on a high note, either.

The bottom might not be in sight as it costs smileDirectClub a lot to acquire new customers.

What happened

Last year brought few smiles to SmileDirectClub (NASDAQ:SDC) investors as all of 2021 was largely a long, steady slog downhill. The orthodontic services provider ended the year with a drop of 23.5% in December, according to data provided by S&P Global Market Intelligence.

The stock of the direct-to-consumer invisible dental aligner specialist now trades for just over $2 a share and there's no indication it has found the bottom. Disappointing quarterly earnings results all year long have set investors' teeth on edge.

So what

Considering SmileDirectClub had what can only be described as a phenomenal 2020 where its stock gained more than 36%, the dramatic reversal of fortune last year was a bit shocking.

Obviously a pandemic economy that closes down businesses and locks people in their homes is going to provide a tailwind for a business that offers mail-order braces that are cheaper than the competition's, but it doesn't fully explain why that value proposition should suddenly evaporate when the economy reopens.

As my Motley Fool colleague David Moadel explains, SmileDirectClub has a spending problem that makes it seem as though it's very difficult to attract and acquire customers. Marketing and selling expenses eat up virtually all of the gross profits the direct-to-consumer company generates.

Being a mostly online company (it does operate a network of brick-and-mortar SmileShops, though it is rationalizing many of them in the aftermath of COVID-19), SmileDirectClub should have lower overhead expenses, but it still managed to spend $96.1 million of the $98.2 million it earned in gross profit on marketing and selling in the third quarter. It also promises to spend even more in the future to attract more customers to its website.

Now what

SmileDirectClub ought to have a winning formula. Selling a product that is significantly cheaper yet is just as good as the high-priced competition should be driving customers to its site and stores.

Sales were down in the third quarter (revenue is 10% higher year to date), but those marketing expenses are rising at a much faster rate (up 18% so far in 2021) and its losses are widening. Even on an adjusted basis SmileDirectClub is still in the red.

It does offer a cheaper valuation at this level than Align Technologies, which makes the original Invisalign retainer, but there seems like good reason for that. SmileDirectClub may not have found the bottom yet.

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>>> New Strong Sell Stocks for December 29th


Zacks Equity Research

December 29, 2021


https://finance.yahoo.com/news/strong-sell-stocks-december-29th-112211791.html


Here are five stocks added to the Zacks Rank #5 (Strong Sell) List today:

Barnes Group Inc. B provides engineered products, industrial technologies, and solutions. The Zacks Consensus Estimate for its current year earnings has been revised 2.7% downward over the last 30 days.

Farmland Partners Inc. FPI is an internally managed real estate company. The Zacks Consensus Estimate for its current year earnings has been revised more than 100% downward over the last 30 days.

Cognex Corporation CGNX provides machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks. The Zacks Consensus Estimate for its current year earnings has been revised 2.7% downward over the last 30 days.

Amedisys, Inc. AMED provides healthcare services. The Zacks Consensus Estimate for its current year earnings has been revised 0.3% downward over the last 30 days.

Fortescue Metals Group Limited FSUGY engages in the exploration, development, production, processing, and sale of iron ore. The Zacks Consensus Estimate for its current year earnings has been revised 12.5% downward over the last 30 days.

View the entire Zacks Rank #5 List.

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>>> 7 Reasons the Stock Market Could Crash in January


Motley Fool

by Sean Williams

12-24-21



https://www.msn.com/en-us/money/markets/7-reasons-the-stock-market-could-crash-in-january/ar-AAS8p8u


In less than a week, we'll officially be ringing in a new year. However, Wall Street might be sad to see 2021 come to a close. The benchmark S&P 500 (SNPINDEX: ^GSPC) has more than doubled up (+24%) its average annual total return of 11% (including dividends) over the past four decades, and it hasn't undergone a steeper correction than 5%. It's been a true running of the bulls.

But as we turn the page on 2021, it's quite possible Wall Street could lose its luster. Below are seven reasons the stock market could crash in January.


1. Omicron supply chain issues (domestic and abroad)

The most obvious obstacle for the S&P 500 is the ongoing spread of coronavirus variants, of which omicron is now the most predominant in the United States. The issue is that there's no unified global approach as to how best to curtail omicron. Whereas some countries are now mandating vaccines, others are imposing few restrictions, if any.

With a wide variance of mitigation measures being deployed, the single greatest risk to Wall Street is continued or brand-new supply chain issues. From tech and consumer goods to industrial companies, most sectors are at risk of operating shortfalls if global logistics continue to be tied into knots by the pandemic.


2. QE winding down

Another fairly obvious high-risk factor for Wall Street is the Federal Reserve going on the offensive against inflation. As a reminder, the Consumer Price Index for all Urban Consumers (CPI-U) rose 6.8% in November, which marked a 39-year high for inflation.

Earlier this month, Federal Reserve Chairman Jerome Powell announced that the nation's central bank would expedite the winding down of its quantitative easing (QE) program. QE is the umbrella program responsible for buying long-term Treasury bonds (buying T-bonds pushes up their price and weighs down long-term yields) and mortgage-backed securities.

Reduced bond buying should equate to higher borrowing rates, which in turn can slow the growth potential of previously fast-paced stocks.


3. Margin calls

Wall Street should also be deeply concerned about rapidly rising levels of margin debt, which is the amount of money that's been borrowed by institutions or investors with interest to purchase or short-sell securities.

Over time, it's perfectly normal for the nominal amount of outstanding margin debt to climb. But since the March 2020 low, the amount of outstanding margin debt has come close to doubling, and now sits at nearly $919 billion, according to November data from the independent Financial Industry Regulatory Authority.

There have only been three instances in the last 26 years where margin debt outstanding rose by at least 60% in a single year. It happened just months before the dot-com bubble burst, almost immediately ahead of the financial crisis, and in 2021. If stocks drift lower to begin the year, a margin-call wave could really accelerate things to the downside.


4. Sector rotation

Sometimes, the stock market dives for purely benign reasons. One such possibility is if we witness sector rotation in January. Sector rotation refers to investors moving money from one sector of the market to another.

On the surface, you'd think a broad-based index like the S&P 500 wouldn't be fazed by sector rotation. But it's no secret that growth stocks in the technology and healthcare sectors have been primarily leading this rally from the March 2020 bear market bottom. Now that we're well past the one-year mark since this bottom, it wouldn't be all that surprising to see investors locking in some profits on companies with valuation premiums and migrating some of their cash to safer/value investments or dividend plays.

If investors do begin to choose value and dividends over growth stocks, there's little question the market-cap-weighted S&P 500 will find itself under pressure.


5. Meme stock reversion

A fifth reason the stock market could crash in January is the potential for a dive in meme stocks, such as AMC Entertainment Holdings and GameStop.

Even though these are grossly overvalued companies that have become detached from their respectively poor operating performances, the Fed noted in its semiannual Financial Stability Report that near- and long-term risks exist with the way young and novice investors have been putting their money to work.

In particular, the report highlights that households invested in these social-media-driven stocks tend to have more-leveraged balance sheets. If common sense prevails and these bubble-like stocks begin to deflate, these leveraged investors may have no choice but to retreat, leading to increased market volatility.


6. Valuation

Even though valuation is rarely ever enough, by itself, to send the S&P 500 screaming lower, historic precedents do suggest Wall Street may be in trouble come January.

As of the closing bell on Dec. 21, the S&P 500's Shiller price-to-earnings (P/E) ratio was 39. The Shiller P/E takes into account inflation-adjusted earnings over the past 10 years. Though the Shiller P/E multiple for the S&P 500 has risen a bit since the advent of the internet in the mid-1990s, the current Shiller P/E is more than double its 151-year average of 16.9.

What's far more worrisome is that the S&P 500 has declined at least 20% in each of the previous four instances when the Shiller P/E surpassed 30. Wall Street simply doesn't have a good track record of supporting extreme valuations for long periods of time.


7. History makes its presence felt

Lastly, investors can look to history as another reason to be concerned about the broader market.

Since 1960, there have been nine bear market declines (20% or more) for the S&P 500. Following each of the previous eight bear market bottoms (i.e., not including the coronavirus crash), the S&P 500 underwent either one or two double-digit percentage declines in the subsequent 36 months. We're now 21 months removed from the March 2020 bear market low and haven't come close to a double-digit correction in the broad-market index.

Keep in mind that if a stock market crash or correction does occur in January, it would represent a fantastic buying opportunity for long-term investors. Just be aware that crashes and corrections are the price of admission to one of the world's greatest wealth creators.

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>>> AT&T Stock Hits 10-Year Low As Dividend Cut, Media Exit Test Bulls Ahead of Q3 Earnings

AT&T shares hit a fresh 10-year low Wednesday as investors re-set their expectations for the group's shift away from media assets in 2022.


The Street

Oct 13, 2021

by MARTIN BACCARDAX


https://www.thestreet.com/markets/at-t-stock-at-10-year-low-as-dividend-cut-media-exit-test-bulls?puc=yahoo&cm_ven=YAHOO


AT&T shares slumped to the lowest level in more than a decade Wednesday as investors continue to re-price the group's shift in focus from media assets to telecoms while adjusting to lower payout ratios ahead of its third quarter earnings.

AT&T has shed key assets, including DirecTV, from its balance sheet and planned the $43 billion merger of its media division with Discovery (DISCA) in a move towards its goal of becoming a so-called 'pure play' telecoms group that leverages off of 5G network growth.

While reducing debt and boosting free-cash flow prospects, the moves have come at a cost to shareholders, with AT&T noting this spring that its dividend payout ratio, which was around 63% in the first quarter, will be "re-sized" to account for the distribution of WarnerMedia assets into a new company.

The remaining AT&T assets will aim to give shareholders a dividend payout ratio of between 40% and 43%, the company said, based on anticipated free cash flow of around $20 billion, the company said.

"Bulls see the telco pure-play, lower debt leverage and a healthier dividend payout cushion using the management team’s $20 billion free-cash-flow (FCF) guidance," said Credit Suisse analyst Douglas Mitchelson in a recent client note. "Bears see profitless growth (stronger revenue/subscriber growth offset by capital investments), risks to the 2023+ FCF guidance, significant infrastructure and spectrum investment needs, and further shareholder rotation when the lower dividend kicks in, requiring a substantial yield premium."

AT&T shares closed 0.5% lower Wednesday at $25.30. The stock hit a trough of $25.01 earlier in the session, the lowest since 2010.

The stock has fallen 7.6% since trading 'ex-dividend' on October 7 ahead of cash payout of 52 cents per share expected on November 1.

AT&T will publish its third quarter earnings on October 21, with analysts currently looking for adjusted EPS of 78 cents on revenues of $39.45 billion.

"Other than cost-cutting, the company is primarily relying on Mobility revenue growth, but doing so at the expense of margins with aggressive handset subsidies (ex. iPhone 13)," Oppenheimer analyst Timothy Horan said last month. "Competition with cable/wireless is reaching a tipping point, as both are bundling the other sector's service at a discount, setting up an industry market share war probably starting earnestly in a year."

AT&T said in July that it sees consolidated revenues rising by between 2% and 3% from 2020 levels for the full year, up from its earlier forecast of 1%, with adjusted earnings rising in the "low to mid-single digits".

For the three months ending in June, AT&T posted adjusted earnings of 89 cents per share, up 7.2% from the same period last year, and stronger-than-expected group revenues of $44 billion.

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>>> Why AT&T Shares Are Tumbling Today


Benzinga

by Adam Eckert

October 11, 2021


https://finance.yahoo.com/news/why-t-shares-tumbling-today-191823509.html


AT&T Inc (NYSE: T) is trading lower Monday after Barclays analyst Kannan Venkateshwar maintained the stock with an Equal-Weight rating and lowered the price target from $34 to $30.

The Barclays analyst cited challenging technicals as a result of the equity performance at Discovery Inc (NASDAQ: DISCA), which AT&T will be merging its media business with.

AT&T was among the top three trending stocks on Stocktwits at publication time.

AT&T is set to announce its third-quarter financial results before the market opens on Oct. 21.

T Price Action: AT&T has traded as high as $33.88 over a 52-week period. It is making new 52-week lows during Monday's trading session.

The stock was down 2.62% at $26.06 at time of publication.

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>>> What Are Whales Doing With AT&T


Benzinga Insights

October 11, 2022


https://finance.yahoo.com/news/whales-doing-t-170036967.html


In this article

Someone with a lot of money to spend (and possibly insider knowledge) has taken a bearish stance on AT&T(NYSE:T).

And retail traders should know.

We noticed this today when the big position showed up on publicly available options history that we track here at Benzinga.

Whether this is an institution or just a wealthy individual, we don't know. But when something this big happens with T, it often means somebody knows something is about to happen.

So how do we know what this whale just did?

Today, Benzinga's options scanner spotted 11 uncommon options trades for AT&T.

This isn't normal.

The overall sentiment of these big-money traders is split between 27.27% bullish and 72.73%, bearish.

Out of all of the special options we uncovered, 7 are puts, for a total amount of $342,234, and 4 are calls, for a total amount of $216,845.

What's The Price Target?

Taking into account the Volume and Open Interest on these contracts, it appears that whales have been targeting a price range from $24.0 to $28.0 for AT&T over the last 3 months.

Volume & Open Interest Development

Looking at the volume and open interest is a powerful move while trading options. This data can help you track the liquidity and interest for AT&T's options for a given strike price. Below, we can observe the evolution of the volume and open interest of calls and puts, respectively, for all of AT&T's whale trades within a strike price range from $24.0 to $28.0 in the last 30 days.

AT&T Option Volume And Open Interest Over Last 30 Days

Where Is AT&T Standing Right Now?

With a volume of 18,475,824, the price of T is down -1.42% at $26.39.

RSI indicators hint that the underlying stock may be approaching oversold.

Next earnings are expected to be released in 10 days.

What The Experts Say On AT&T:

Barclays has decided to maintain their Equal-Weight rating on AT&T, which currently sits at a price target of $30.0.

Loop Capital downgraded its action to Hold with a price target of $30.0

MoffettNathanson upgraded its action to Neutral with a price target of $28.0

Options are a riskier asset compared to just trading the stock, but they have higher profit potential. Serious options traders manage this risk by educating themselves daily, scaling in and out of trades, following more than one indicator, and following the markets closely. If you are already an options trader or would like to get started, head on over to Benzinga Pro. Benzinga Pro gives you up-to-date news and analytics to empower your investing and trading strategy.

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Downside targets to watch for the S+P 500 -


5% correction = 4310. Today it dropped to 4306 intraday, so a 5% correction before bouncing in the last half hour.


10% correction = 4083, which is very close to the 200 MA (4106 and rising). So 4100 is a key target area to watch in the months ahead.


20% correction = 3630, which would also correspond to a 38.2% Fibonacci retracement (3644)


(numbers are approximate)

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>>> Time to Short Copper: 5 ETFs to Play (or Avoid) the Trend


May 25, 2011

Insider Monkey


https://seekingalpha.com/article/271752-time-to-short-copper-5-etfs-to-play-or-avoid-the-trend


The precious metals have been on a run since early 2009. Gold and silver had approached their historic highs as investors had few alternatives against Fed's inflationary policies. Following these two, copper has also been a profitable commodity for the investors.

By the last quarter of 2008, with the effects of the economical crisis, we had seen the lowest copper price of the last three years at around US$2,900/MT. That proved to be temporary. Copper prices reached its peak level of US$10,148/MT on February 14, 2011.

When we look at the annual cash seller and settlement averages of the copper prices, there has been an increase of 230% between the years 2004-2011. The major price change was between 2004-2007, when the average annual copper price jumped from US$2,864.9/MT to US$7,118.5/MT. Between 2008 and 2011 the rally lost pace as the copper price moved from US$7,000/MT level to US$9,500/MT corresponding to an increase of 36%.

Since mid February copper prices went down by 10%. Increasing copper stocks in the LME warehouses (20% higher compared to last year) and the upcoming summer season in the northern hemisphere, when the industrial consumption decreases, may support the decline in copper price.

We believe copper prices will decline further over the next three months. Investors can speculate on a decline by shorting the following ETFs:

Global X's Copper Miners ETF (NYSEARCA:COPX): COPX invests in copper miners like Inmet Mining Corp. (IEMMF), First Quantum Minerals (OTCPK:FQVLF) and Jiangxi Copper Company Ltd. (OTCPK:JIAXF). It went below $12 last summer and currently trades around $19.

iShares MSCI Chile Index (BATS:ECH): Chile is the world's largest copper producer in the world accounting for nearly 33% of total global copper production. A decline in copper prices will affect ECH negatively.

iPath Dow Jones Copper Index ETN (NYSEARCA:JJC): A pure copper player which seeks to track the performance of copper futures contracts. JJC was below $40 last summer and currently trades around $55.

There is another side to this story. As being a non-ferrous metal, aluminum has similar characteristics as copper. But copper is often preferred over aluminum in the industry due to its better performance. (Especially in cable and wire production). However, when we take a look at the market in an economical perspective, the price difference between aluminum and copper has increased dramatically. This remarkable difference between the two base metals (copper costs almost three times of aluminum) leads many manufacturers to change their production from copper based products to aluminum-based ones. We expect this trend to strengthen and support aluminum prices. An increase in aluminum demand and a decline in copper demand will put some pressure on copper prices.

Investors should consider buying the following stocks to hedge their copper shorts:

Global X Aluminum (ALUM): This fund gives direct equity exposure to a global list of aluminum producers.

iPath DJ-UBS Aluminum ETN (NYSEARCA:JJU-OLD) This is an exchange traded note (ETN) which gives exposure to a basket of aluminum futures. It lost 10% of its value in May, so this may be a good time to buy.

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[KCCO7913]

I believe NASDAQ uplisting will occur within the next month or so. The company’s IR group confirmed to shareholders via email that they qualified for uplisting in June.

LWLG management has always stated they wanted to get to NASDAQ ‘organically’.

From an outsiders perspective, sure, I could see why various traders are short on the stock. I do believe if they spent time understanding the technology, LWLGs progress, and markets it is addressing, they would be long term investors.

It will be a choppy ride for sure, but the stock price will reach new highs once they announce a partnership and the news is digested amongst the industry.

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Just curious how imminent is that Nasdaq up-listing? Has the company confirmed they are planning to do it, and have they reached the various criteria for uplisting? Thanks for any info.

Btw, I don't actually short stocks myself, but merely keep track of stocks that appear vulnerable, either because of the chart setup or the nature of their business, etc. So just a hobby, and still learning, but the LWLG chart definitely looks vulnerable at the moment.

The last 2 press releases didn't seem to provide any lift for the stock, and the chart has likely caught the attention of professional shorts out there who may pounce if it breaks 7 decisively. For a microcap to rise 10 fold and not return to earth would be unusual.

[KCCO7913]

Bad idea. NASDAQ uplisting is occurring soon and they are announcing a partnership to commercialize their revolutionary technology by the end of year.

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LWLG is a possible short candidate if key support at 7 fails. Next chart support looks like 4-4.5 area, and then the 200 MA (3.03).

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>>> Why Virgin Galactic Stock Tumbled the Day After Its Historic Launch


Barron's

By Al Root and Callum Keown

July 12, 2021


https://www.barrons.com/articles/virgin-galactic-spce-stock-price-51626087657?siteid=yhoof2


Virgin Galactic stock tumbled Monday morning, the day after Richard Branson’s company completed the world’s first space tourism flight. That isn’t as odd as it seems.

Shares in Virgin Galactic (ticker: SPCE) rose 217% in the two months ahead of Sunday’s flight and climbed about 9% in Monday’s premarket trading. But shares fell 17.3% to $40.69 on Monday. The S&P 500 and Dow Jones Industrial Average closed at records, each up more than 0.3%.

The stock’s move feels odd given the success the company had on Sunday. The landmark flight to the edge of space opened up a new frontier for commercial space travel in a race between billionaires that has captivated investors. Founder Branson signed the company’s astronaut log as astronaut 001.

Part of the reason for the fall may have to do with Virgin Galactic’s plans to sell more stock. According to a Securities and Exchange Commission filing on Monday, Virgin Galactic will sell up to $500 million in common stock. Investors don’t like to see their positions diluted.

But the stock’s move may simply be another example of an old Wall Street adage: “Buy the rumor, sell the news.” It’s important to remember that the market always looks ahead and will discount tomorrow’s news today. That’s why stocks make big, discontinuous jumps when things don’t go as expected.

That happened earlier this year. Unexpected test delays cratered Virgin Galactic stock in early May, leaving investors with no guidance on when testing would get back on schedule. Testing resumed, without warning, and shares jumped. Then, Branson’s test flight was announced.

Shares rose about 7% between the flight announcement on July 1 and this past Friday. Monday’s decline means shares are down about 4% since the flight was announced. Still, Galactic stock is up about 25% over the past month.

Selling the news doesn’t mean there is a cadre of traders selling shares. On Monday, there are simply no more buyers willing to pay higher prices for Virgin Galactic stock now that its big catalyst has passed.

The drop has nothing to do with the long-term direction of Virgin Galactic. That will be based on the success Galactic has in growing space tourism. “A top priority for the company [in coming years] will be to create a thriving space tourism industry,” Canaccord analyst Ken Herbert told Barron’s on Sunday.

What’s Ahead for Space Tourism

Herbert rates Virgin Galactic shares Buy with a price target of $35. He set that price target in May when Galactic stock was at about $27 a share. Year to date, Galactic stock is still up more than 80% and a lot of the company’s success is already reflected in the share price.

The successful trip is a landmark moment in the space tourism race, but there are many more expected. Amazon.com founder Jeff Bezos plans to make his own flight to the edge of space on July 20 in his Blue Origin New Shepard capsule.

There is more competition to come, as Tesla Chief Executive Elon Musk is planning a number of SpaceX missions, taking passengers on longer trips, with the first scheduled for September.

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>>> Branson Blasts Off: Mach 3 to Zero G in a Natty Blue Spacesuit


Bloomberg

By Damian Shepherd and Christopher Jasper

July 10, 2021


https://www.bloomberg.com/news/articles/2021-07-10/branson-blasts-off-mach-3-to-zero-g-in-a-natty-blue-spacesuit?srnd=premium


Virgin Galactic’s billionaire founder scheduled to fly Sunday

VSS Unity will rocket to 55 miles high from luxury spaceport


Richard Branson plans to fly to the edge of space in his Virgin Galactic rocket plane on Sunday, finally fulfilling a goal he set for himself when the company was founded more than 15 years ago.

While representing a personal milestone for the British billionaire, the suborbital test mission will also set a template for launches carrying the hundreds of space tourists that Virgin Galactic wants to take aloft starting next year.

Here’s what Branson -- and his future customers -- can expect from the 90-minute trip.

Fit to Fly

Would-be astronauts don’t just have to shell out the big bucks for tickets, which at one point were priced at $250,000 each. They also must show that they’re up to the physical demands of the voyage.

Branson, who turns 71 this month, has gone through rigorous tests to prepare for the experience, enduring a centrifuge simulating extreme acceleration and a parabolic flight to induce weightlessness.

Looking the Part

Developed by Under Armour Inc., the Virgin Galactic spacesuit comes in royal blue with gold trim. The outfits are lightweight and personally tailored, with a name badge and country flag. There’s also a patch unique to each mission that can be attached to a limited-edition flight jacket for everyday wear once back on the ground. The spacesuit also sports a pocket for a picture of loved ones (another holds a sick bag).

A tight-fitting base layer will enhance blood flow during the high- and zero-gravity portions of the mission. The get-up is completed by lightweight, foam-cushioned and flame-retardant space boots like those of racecar drivers. Pilots get additional black trim and a wings emblem.

Pre-Flight Pampering

Space voyagers will begin their journey by relaxing in the Virgin Galactic Gaia lounge, the centerpiece of the Spaceport America complex in the desert scrublands of southern New Mexico.

The spaceport dates back about 15 years to when Branson and former New Mexico Governor Bill Richardson struck a deal for the state to build the facility in exchange for becoming home to Virgin Galactic missions.

Champagne, caviar and seared tuna are featured on the menu at the $200 million edifice designed by U.K. architects Foster + Partners. With Sunday’s spaceshot expected around 7 a.m. local time, a strong espresso from the lounge’s marble-clad “barista island” may be more in order.

Runway Takeoff

Virgin Galactic uses a two-stage system to escape Earth’s gravity.

While Branson and his fellow crew members will board the VSS Unity -- designed to carry six passengers and two crew -- its rocket engine initially plays no part. Instead, the vehicle is slung beneath a larger carrier aircraft, the four-engine VMS Eve. The carrier plane was developed by Scaled Composites, a developer of experimental aircraft now owned by Northrop Grumman Corp.

Eve will take off from a runway like a conventional aircraft and climb high into the sky for what’s probably the most critical part of the mission.

Rocket Science

Once Unity reaches an altitude approaching 50,000 feet (15,200 meters), it will detach from Eve and ignite its single rocket motor. It will go supersonic within eight seconds and power up to 2,600 miles per hour (4,200 kilometers per hour), or beyond Mach 3.

After 70 seconds the engine will cut out, with the spacecraft coasting to its peak altitude, which for Sunday’s mission will be a height of 55 miles or almost 300,000 feet, according to Virgin Galactic.

That’s beyond NASA’s traditional 50-mile definition of where the atmosphere ends and space starts, though short of the 62 miles where the Federation Aeronautique Internationale, which regulates aeronautical sports and record attempts, places the boundary.

In a Friday tweet, Blue Origin, the rocket maker backed by Amazon.com Inc. founder Jeff Bezos, dismissed Virgin Galactic’s spacecraft as nothing more than a “high altitude airplane” since it won’t break the so-called Karman Line at 62 miles. Bezos plans to fly to space in a Blue Origin launch on July 20.

Blue Origin’s New Shepard rocket performs a traditional liftoff with no carrier aircraft.

I’m Floating!

Virgin Galactic’s astronauts won’t much care about definitions when they can unbuckle and experience four minutes of near weightlessness, with the Earth staring back at them through the Unity’s 17 windows. HD cameras throughout the cabin will capture every moment.

Curved Planet

In addition to microgravity, Branson and his buddies will experience two other sensations unique to space travel.

The colors outside will change from blue to indigo to midnight black as Unity climbs above the atmosphere, with the stars becoming visible and the sun shining as brightly as on the ground but against the dark sky.

In addition, the curvature of the Earth will be clearly visible, with the planet fringed by the thin strip of its atmosphere, making it readily apparent that humanity really is riding along on a sphere.

The view won’t quite match the one from the International Space Station, which orbits about 250 miles above the Earth, but will still be “incredible and life changing,” Virgin Galactic CEO Michael Colglazier told Bloomberg TV on July 2.

Back to Reality

To prepare for re-entry, the Unity’s wings will be raised to an angle of 60 degrees in a process known as feathering, causing the vehicle to act much like a shuttlecock to create high drag and safely descend back into the atmosphere.

The wings will then rotate down to their original position, with the craft gliding back to the ground to land on the same runway it took off from.

A premature deployment of the feathering system when VSS Enterprise, Unity’s predecessor, was still climbing led to the 2014 tragedy in which one pilot was killed and another injured as the spacecraft broke up over California’s Mojave Desert.

Weather Willing

Virgin Galactic’s location in New Mexico offers low humidity and abundant sunny days. Wind speeds are a significant wild card, however. The Unity’s transformation into an unpowered glider means it can’t touch down in high winds, said Will Whitehorn, a former Virgin Galactic leader. So the weather could delay the launch.

Over to Bezos

Virgin Galactic aims to debut commercial services next year. But after Sunday’s mission, attention will turn to Bezos.

He is due to be accompanied by former astronaut trainee Wally Funk, 82, who is set to become the oldest person to reach space, and a mystery passenger who bid $28 million to join the mission.

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>>> New NSCC Rule Change Poised to End the Short Squeeze Saga


Despite having ties to regulatory bodies, it seems that some market makers have become too much of a headache.


The Tokenist

By Tim Fries

June 22, 2021


https://tokenist.com/new-nscc-rule-change-poised-to-end-the-short-squeeze-saga/


On Wednesday, market makers, which are also DTCC clearing members, will have to tighten up their short-selling belts. Because their available capital will be contrasted more frequently with member deposits, their ability to maintain massive short positions is slated to be crippled.

Current State of the AMC/GME Saga

In case you haven’t yet grasped the basics of short selling, here is a brief recap of basic indicators (we’ll get to the breaking news afterward). The foremost among them is the short interest percentage, referring to the number of shorted shares divided by outstanding shares.

According to Ortex data, as of today, both AMC and GME stocks have relatively high estimated short interests, AMC at 13.64% and GME at 14.54% (17% on May 28) of free float.

Above 10% is considered high, while above 20% is extremely high, which translates to more investors thinking the stock price will fall. Of course, bullish short squeezers tend to use this metric as an opportunity to buy the dip, counting on the stock to rebound.

Regarding the free float, also called public float, it refers to the number of shares available for public trading by using the following formula:

Free float = outstanding shares – restricted shares – closely-held shares

With these two metrics in mind, we arrive at the short-interest ratio, as the number of shorted shares divided by average daily trading volume. This is one of the key factors that enter the consideration when to take short positions. The higher it is, the longer it would take to repurchase the borrowed shares, which is why it is commonly known as the days-to-cover ratio.

A ratio above 10 would indicate a negative outlook on the stock. As of May 28 report, AMC’s short ratio was 0.7 with 20.3 million shares sold short, while GME’s short ratio was at 1, with 11.97 million shares sold short. Meaning, they were both bullish indicators.

NSCC Clamps Down on Market Makers’ Power to Short Sell

The last time the Tokenist covered the AMC saga, short sellers lost nearly $1 billion in a week. In the meantime, regulatory bodies have been preparing for the AMC/GME short squeeze fallout, bringing in new rules that would soften the blow to Options Clearing Corporation (OCC) clearing members. This time, a new important rule put forward by NSCC, one of DTCC’s five clearing corporations, may be the one to mark the wind-down of the short squeeze saga.

The proposal, identified as SR-NSCC-2021-002, was submitted by the National Securities Clearing Corp (NSCC) on March 5, but it will take immediate effect tomorrow, on Wednesday, June 23, 2021. The rule tweaks Supplemental Liquidity Deposit (SLD) requirements. As you may recall from previous coverage, the mission of clearing members, numbering at 4,000, is to provide liquidity into the stock market so that trades can be settled in due time and without market disruptions.

SLD changes are devised to tighten loose ends significantly:

Drastic time-frame reduction for calculating and collecting deposits – from one month to daily or even hourly requirement verification. Each member will be scrutinized based on daily activity, instead of historic settlement activity.

Granular, intraday scrutiny of SLD calculation and collection.
These calculations are conducted automatically by powerful computers and algorithms. After all, the Paperwork Crisis in the 1960s clearly demonstrated what happens when trading volume outpaces human capacity. Therefore, the new SLD rule shores up the ability for DTCC/NSCC to complete settlements on time and prevent liquidity crisis surprises.

In other words, heavily exposed market makers like Citadel Securities would have to cover their short-selling bets within a day, less they risk defaulting and have their assets frozen as outlined in the NSCC framework.

“If, after closing out and liquidating a defaulting Member’s positions, NSCC were to suffer a loss, that loss would first be satisfied by the amounts on deposit to the Clearing Fund and Eligible Clearing Fund Securities pledged from the defaulting Member”

Of course, the NSCC also has the authority to close any open positions of a defaulting member. Rule #2 stands out in particular as it invokes Citadel’s impressive list of FINRA violations. The Tokenist covered Citadel Securities extensively, both in terms of its history of market manipulation and its acutely conflicted ties to Robinhood brokerage, providing it with 43% of revenue for Q1 2021 via controversial payment for order flow (PFOF) business model.

With the new rule about to go live, the ability of market makers like Citadel to exert such market force will be greatly reduced due to their liquidity reduction – daily down payment collection will tie up their available capital. In turn, this translates to the reduction of open positions they can take, given all their other exposed short positions.

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>>> Here are the biggest short squeezes in the stock market, including Virgin Galactic and AMC Networks


Market Watch

June 15, 2021

By Philip van Doorn


https://www.marketwatch.com/story/here-are-the-biggest-short-squeezes-in-the-stock-market-including-virgin-galactic-and-amc-11623687769?siteid=bigcharts&dist=bigcharts


Hedge fund short-sellers seem to have learned their lesson from early 2021.

Professional short-sellers have changed their ways this year. They have limited their exposure to risk after taking heavy losses earlier in 2021 as traders using Reddit’s WallStreetBets channel and other social media bid up prices of stocks the pros had bet against.

But there are still stocks with heavy short interest that have been bid up recently. Below is a new list using the same criteria we used to pull this list of heavily shorted stocks during the Reddit/Robinhood mania in late January.

Short-selling

Short-selling is when an investor borrows shares and immediately sells them, hoping to buy them back later at a lower price, return them to the lender and pocket the difference.

Covering is when a person with a short position buys the shares to return them to the lender, to profit if the shares have gone down in price since they were shorted, or to limit losses if they went up after being shorted.

A short squeeze is when a mass of investors looking to cover short positions start buying at the same time. The buying pushes the share price higher, making short investors accelerate their attempts to cover, which sends the shares spiraling higher in a frenzy. This is what happened earlier this year when traders as a group decided to take on professional sellers by buying a lot of shares of heavily shorted stocks, including, most famously, GameStop Corp. GME, +0.21% and AMC Entertainment Holdings Inc. AMC, -6.54%.

Biggest short squeezes

Late in January, we listed heavily shorted stocks that had shot up the most that month. We began with the components of the Russell 3000 Index RUA, -0.49%, then identified the 65 stocks with at least 25% short interest. Among those, GameStop had the biggest year-to-date gain through Jan. 27 — an astounding 1,745%.

So now we have used the same method. According to FactSet’s most current data, there were only 20 stocks among the Russell 3000 whose shares available for trading were at least 25% sold short as of June 11. Here they are, sorted by how much the shares had appreciated for four weeks (from May 14) through June 11:

COMPANY TICKER % SHORT PRICE CHANGE - FOUR WEEKS MARKET CAP. ($MIL) DOLLARS SHORT ($MIL)
Virgin Galactic Holdings Inc. SPCE 27.82% 117% $8,449 $2,351
Workhorse Group Inc. WKHS 40.32% 92% $1,914 $772
Lemonade Inc. LMND 29.41% 53% $6,520 $1,918
AMC Networks Inc. Class A AMCX 25.58% 32% $1,997 $511
Bed Bath & Beyond Inc. BBBY 32.25% 27% $3,403 $1,097
CarParts.com Inc. PRTS 25.11% 22% $895 $225
GEO Group Inc. GEO 35.80% 19% $900 $322
Esperion Therapeutics Inc. ESPR 32.40% 15% $743 $241
PetMed Express Inc. PETS 32.70% 15% $665 $217
Lannett Co. Inc. LCI 28.14% 15% $217 $61
B&G Foods Inc. BGS 25.33% 10% $2,136 $541
Tootsie Roll Industries Inc. TR 25.53% 8% $1,388 $354
Albertsons Companies Inc. Class A ACI 28.60% 6% $9,517 $2,722
Fulgent Genetics Inc. FLGT 30.27% 5% $2,145 $649
Invacare Corp. IVC 26.59% 1% $289 $77
CEL-SCI Corp. CVM 25.71% -1% $945 $243
Clovis Oncology Inc. CLVS 30.24% -2% $604 $183
Gogo Inc. GOGO 31.37% -3% $1,270 $398
Petco Health and Wellness Co. Inc. Class A WOOF 25.75% -3% $5,390 $1,388
Ontrak Inc. OTRK 33.32% -4% $547 $182
(FactSet)

The biggest short squeeze in the Russell 3000 appears to be Virgin Galactic Holdings Inc. SPCE, +1.43%, which more than doubled in four weeks and was 27.82% sold short on June 11. The company’s shares have soared since the successful test of its manned shuttle on May 23, which one Wall Street analyst called a “major milestone.” The company expects to begin testing for commercial passenger flights next year.

Workhorse Group Inc. WKHS, +5.30% is the most heavily shorted stock on the list, with 40.32% short interest, and its shares have nearly doubled in four weeks. The electric-vehicle maker produced 38 of its C-Series trucks during the first quarter and delivered six to customers. Cowen analyst Jeffrey Osborne downgraded Workhorse to a hold from a buy on June 4.

AMC Networks Inc. AMCX, +1.70% ranks fourth on the list, with a 32% gain in four weeks and 25.58% short interest. As readers have pointed out, this is a different company from the “AMC” we that has been one of the most heavily covered meme stocks: AMC Entertainment Holdings Inc. AMC, -6.54%, which along with GameStop and Bed Bath & Beyond Inc. BBBY, -1.22% was among eight meme stocks profiled last week.

A changed market

Getting back to that 40.38% short interest for Workhorse, Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF HDGE, +0.55% — which is meant to be used as a hedging tool — said in January that a percentage of short-sales to total shares available for trading of “over 30% to 40% is outrageously high.”

There are now only nine stocks among the Russell 3000 shorted more than 30%. During a follow-up interview on June 14, Lamensdorf said hedge fund managers were reducing their use use of leverage to take short positions.

“They don’t need as many shorts. They think in this environment shorting isn’t helping them hedge risk — it is actually creating more risk,” he said.

Lamensdorf went on to say that anecdotally, hedge fund managers have been using “complete buy stops,” to automatically cover short positions more quickly than they used to.

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>>> Archegos Fiasco Is Latest Reminder How Superrich Love Leverage


Bloomberg

By Venus Feng

March 30, 2021


https://www.bloomberg.com/news/articles/2021-03-30/archegos-fiasco-is-latest-reminder-how-superrich-love-leverage?srnd=premium


More than 10% of the world’s wealthiest have pledged shares

Banks risk losses when clients default on their margin loans


Bill Hwang used leverage from across global banks to build his family office into a whale with positions that may have topped $50 billion.

Then came the collapse, with more than $20 billion in holdings linked to his Archegos Capital Management liquidated in just days. That’s prompted warnings of losses at banks including Nomura Holdings Inc. and Credit Suisse Group AG, as well as speculation over whether other investors with high leverage could cause more market chaos.

It’s not the first time in recent months that banks have been stung from lending to their richest clients: Last year, Luckin Coffee Inc. Chairman Lu Zhengyao defaulted on $518 million of margin loans, while the pandemic selloff led to some brokers forcing their clients to put up more collateral against their existing debt.

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More than 10% of the world’s 500 richest people have committed stock for a combined $163 billion, according to an analysis by the Bloomberg Billionaires Index based on the latest disclosures available. That represents almost a fifth of their public holdings, up from about $38 billion four years ago and double the pledges after last year’s market bottom in March, when 40 of the wealthiest had pledged shares, the data show.

“Since the Covid outbreak, central banks in different countries have been providing liquidity, so banks and brokers are more likely to lend more money to their wealthy clients to keep the business,” said Kenny Ng, a securities strategist at Everbright Sun Hung Kai Co. in Hong Kong.

Common Practice

For the ultra-rich, committing shares is common practice. And with tens of millions of dollars in fees at stake, it’s hard for banks to say no to a practice that typically has plenty of safeguards in place and represents only a fraction of the value of the pledged shares. Oracle Corp.’s Larry Ellison, Tesla Inc.’s Elon Musk and Masayoshi Son of SoftBank Group Corp. are among those who’ve been relying on it.

Larry Chen, who lost more than $3 billion on Friday when his GSX Techedu Inc. dropped amid the equity sales, also had pledged shares, though a company representative said he paid off his loan in last year’s third quarter and hasn’t committed any stock since. His 5.1 million of pledged American depositary receipts for a $50 million loan would have been worth $162 million as of Monday’s close, down from $728 million at the stock’s peak.

Pledging shares is relatively safe in a bull market, when rising prices ensure the value of the collateral remains above that of the loan facility. But if equities fall, the borrowers may face margin calls and have to come up with funds to avoid defaulting or having to liquidate assets at depressed prices. That’s what happened with Hwang, whose family office is now at the center of the stock sales. In this case, he used obscure derivatives to build large stakes in companies.

“Archegos runs a highly leveraged, highly concentrated book,” said Thomas Hayes, chairman of Great Hill Capital.

Gain Liquidity

Committing stock is especially common in Asia, where state-owned banks dominate financial markets and high-growth companies need to find different sources of funding. In mainland China, where top shareholders in initial public offerings typically have their stakes locked for 36 months, the practice can help them get liquidity while maintaining their voting rights.

Along with China, Japan and India require pledgers to disclose their activity in a timely manner to keep track of the possible risks in the market, though that’s not true for most of countries.

Public companies in the U.S. are required to annually disclose any hedging of the firm’s shares by directors or senior executives. Most large companies ban the practice.

“In a bull market, share pledging can make the bets more lucrative,” Everbright Sun Hung Kai’s Ng said. “When the value of a stake goes up, the investor might be able to ask for additional loans to buy more stocks. But the risks are also doubling when the market turns volatile.”

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>>> Bill Gross Surprises With Short Bets on Treasuries, GameStop


Bloomberg

By Erik Schatzker and Daniela Sirtori-Cortina

March 16, 2021


https://www.bloomberg.com/news/articles/2021-03-16/bill-gross-says-he-s-short-treasuries-expecting-3-4-inflation?srnd=premium


Legendary bond investor sees 3-4% inflation in coming months

After making $10 million on GameStop, he’s selling calls again


Onetime bond king Bill Gross has been busy in retirement, shorting Treasury bonds, playing chicken with day traders on Reddit and even making a bundle on energy prices.

The Pacific Investment Management Co. co-founder, who runs money for his charitable foundation, shared some of his trades in an interview Tuesday on Bloomberg Television. Gross said he bet against the 10-year Treasury through the futures market and remains short, anticipating a combination of rising commodity prices, a weaker dollar and stimulus-driven demand will spark inflation.

“Inflation, currently below 2%, is not going to be below 2% in the next few months,” Gross said. “I see a 3% to 4% number ahead of us.”

Treasuries are familiar territory for Gross, 76, who once managed the world’s biggest bond fund. The other wagers are more esoteric, though consistent with the kind of investing he did after leaving Pimco in 2014 following a feud with his partners.

Running the Janus Unconstrained Fund until retirement in 2019, Gross often sold volatility, seeking to make money on mispriced options. That’s what drew him to the January frenzy in GameStop Corp.

Bill Gross Says Another 'Operation Twist' May Be Ahead

Bill Gross, Pimco’s co-founder, says there’s a real possibility of a “taper tantrum” and adds that he’s short the 10-year Treasury future. He speaks with Bloomberg’s Erik Schatzker on “BloombergMarkets: The Close.”

He described selling call options on GameStop, initially at strike prices of $150 and $200, and losing $10 million as retail buying on Robinhood Markets helped drive the stock to almost $400. Gross refused to fold and said he managed to book a profit of about $10 million after exiting the trade when the shares finally tumbled.

Now he’s back in, selling call options at $250 and $300, meaning he could face losses if the stock, now trading close to $210, surpasses those levels.

“The volatility is super high,” he said. “I think this is a perfect opportunity for options sellers, not buyers.“

Gross said he entered his wager against the 10-year Treasury when the yield, now about 1.6%, was about 35 basis points lower. Like others who have grown increasingly bearish on bonds, he predicts pressure on prices to rise as the recently passed $1.9 trillion Covid-19 relief bill finds its way into an economy already primed to accelerate.

“There’s significant demand that is stored up, power that is stored up that can be unleashed if consumers want to go in that direction, and I think to a certain extent they will,” Gross said.

One market proxy for inflation, the 10-year breakeven inflation rate, climbed on Tuesday to the highest since January 2014. Gross noted that commodity prices have surged by almost 40% since bottoming last April.

The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of its two-day policy meeting on Wednesday. Federal Reserve Chairman Jay Powell, meanwhile, has promised to ignore spikes in inflation until the central bank determines that its revised targets for price stability and employment are met.

Gross isn’t sure he’ll have the necessary patience though. Not since the 1960s has the Fed let inflation run deliberately “hot.”

“Three to six to 12 months at 3% to 4% plus inflation will give him pause in terms of his current policy,” Gross said.

Throughout the pandemic, investors desperate for yield have been prospecting in unconventional places. For Gross, one such adventure was natural-gas pipelines. He said he bought some master limited partnership units last year, attracted by tax advantages and yields of 13% to 14%. Gross was also encouraged that Warren Buffett was making a similar bet.

Gas prices have since taken off, buoyed by the oil market and accelerated by the shortages last month during the winter storm that paralyzed Texas. One index of natural-gas MLPs has risen almost 28% this year.

“I caught the ride on energy,” Gross said. “That’s my main focus now.”

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>>> The Folly of Shorting Stock in This Bull Market


Cabot Wealth

July 17, 2017|

by Chris Preston


https://cabotwealth.com/daily/how-to-invest/folly-shorting-stock-bull-market/


As the U.S. stock market climbs further into record territory, investor concerns over a sudden comeuppance swell. To some, shorting stock in anticipation of the Great Fall to Come is the answer. Doing so, however, would amount to little more than guess work.

In the same way that investing in IPOs the minute they come public is based on little more than a hunch, shorting stock is a bet that a certain company, or the market as a whole, is about to go in the tank. And if you’ve been paying attention for the past eight months—or, really for the last five or six years, the market has been incredibly resilient, valuation be damned.

These days, U.S. stocks don’t seem to care who’s in the White House, what’s happening in Europe or China, or that so many experts think they’re overvalued. The bull market keeps plowing ahead, with little more than a few toe stubs to show for it. And as my boss, Cabot Wealth President and Chief Investment Strategist Tim Lutts, is fond of saying, “Trends last longer than people expect.” Right now, the trend in the stock market is up. Calling a top would go against everything we’ve seen since November.

Wells Fargo (WFC) equity strategist John Manley told Business Insider that shorting stock is “like playing with fire.”

He continued: “We expect the worst. It’s an old saying, if you expect the worst, you’ll never be disappointed. And no one’s been disappointed yet. Now they will be at some point in time. But I think that there’s still that wall of worry. Why hasn’t it gone down? When is it finally going to get it? This has been going on for five or six years. Maybe it’s tomorrow, but I’d rather see it tomorrow and sell it a week after tomorrow than try and anticipate it because anticipation has been the wrong thing to do.”

We’ve written extensively about shorting stock, including Tim Lutts’ “Seven Short Selling Tips.” His tips for shorting stock include targeting companies that have declining sales and earnings, or stocks with declining 50-day moving averages. But the two bits of advice from Tim’s article that pertain directly to this bull market are these:

Only sell short when the market’s intermediate-term trend is down.
Never (never!) try to pick the top; only sell short stocks that are in confirmed downtrends.

With the market in an intermediate-term uptrend, now is not the time to be shorting stock—even if you think the market is horribly overvalued. Instead, you should be capitalizing on this bull market, investing in the many great growth stocks, value stocks, emerging market stocks and small-cap stocks that remain. If you need help identifying the right ones (for all investment types), click here.

Regardless of what types of investments you prefer, now is the time to be long the market, not short.

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>>> Why Private Prison Stocks Were Down Sharply Today

Shares of GEO Group and CoreCivic dove as investors feared a Biden win in the presidential election.


Motley Fool

by Jeremy Bowman

Nov 4, 2020


https://www.fool.com/investing/2020/11/04/why-private-prisons-were-down-sharply-today/


What happened

It was a bizarre day on the market as stocks broadly ripped higher even as the result that many had feared, an uncertain outcome in the presidential election, was the reality. Still, investors seemed to breathe a sigh of relief that there have been no major hitches in the process thus far.

However, there was one sign that the market is pricing in a Joe Biden victory. Shares of GEO Group (NYSE:GEO) and CoreCivic (NYSE:CXW), two real estate investment trust (REIT) operators of private detention centers, were down sharply. As of 11:55 a.m. EST, GEO Group shares had given up 12.6% and CoreCivic was down 16.8%.

So what

GEO Group and CoreCivic are among two of the most politically sensitive stocks, so it's not surprising to see the stocks fall if investors are perceiving a Biden victory.

In 2016, then-President Obama said the federal government would phase out the use of contracts with private prison operators like GEO Group and CoreCivic; however, that order was rescinded shortly after President Trump office. Though both GEO Group and CoreCivic initially popped after Trump was elected in 2016, the stocks have fallen in recent years, and investors are even more pessimistic about a Biden administration.

GEO Group operates a number of Immigration and Customs Enforcement (ICE) detention centers, and the Biden campaign has promised to "end prolonged detention and reinvest in a case management program," seeking a social services solution rather than a criminal justice one for certain immigration violations. Biden also seeks to reduce the number of Americans that are incarcerated, which is problematic for GEO and CoreCivic, both of which operate a number of conventional correctional facilities.

Now what

Criminal justice reform has been increasingly embraced by both parties as President Trump signed the First Step Act, which shortens mandatory sentences for nonviolent drug offenses, among other things. That may explain why both stocks underperformed under Trump, but criminal justice reform is likely to accelerate under a Biden administration.

It's important to remember that the outcome of the election is undetermined and control of the Senate will also influence the power of a potential Biden administration, so investors in these two stocks should keep an eye on the results as more votes are tallied.

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>>> CytoDyn Inc. (CYDY), a late-stage biotechnology company, focuses on the clinical development and commercialization of humanized monoclonal antibodies to treat human immunodeficiency virus (HIV) infection. Its lead product is PRO 140, a therapeutic anti-viral agent, which is in Phase IIb extension study for HIV as monotherapy, rollover study for HIV as a combination therapy, Phase IIb/III investigative trial for HIV, Phase Ib/II trial for triple-negative breast cancer, and Phase II trial for graft-versus-host disease. CytoDyn Inc. has strategic agreement with Samsung BioLogics Co. Ltd. for the clinical and commercial manufacturing of leronlimab. The company was formerly known as RexRay Corporation. CytoDyn Inc. was incorporated in 2002 and is based in Vancouver, Washington. <<<

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>>> Truck-Building Tesla Competitor Nikola Draws the Attention of a Short Seller


Barron's

By Al Root

June 10, 2020


https://www.barrons.com/articles/nikola-stock-tesla-semi-truck-short-seller-ipo-51591794032?siteid=yhoof2&yptr=yahoo


Nikola makes trucks that do things like transport goods on highways across America.

Nikola stock’s sharp rise has caught the interest of a noted short seller. Citron Research’s Andrew Left predicted that shares in the highflying trucking startup will fall 50% over the next month. He questions management, and said more competition from electric-vehicle behemoth Tesla could ding Nikola stock in the short run.

Short sellers such as Left make bearish bets on stocks by borrowing shares and selling them, hoping to buy them back later at a lower price and pocketing the difference.

Nikola’s Founder on the Future of Long-Haul Trucking
It is a bold call. After all, Nikola’s stock (ticker: NKLA) has risen roughly 130% over the past week, giving the company a market value exceeding trucking peer Paccar (PCAR) and even Ford Motor (F).

It has been quite a run since shares made their public debut on June 3. Nikola essentially went public at about $34 a share. Essentially and about are important modifiers here, because Nikola didn’t have a traditional IPO. It was purchased by a special-purpose-acquisition company called VectorIQ. Vector then changed its name to Nikola and its stock symbol to NKLA. The merger was announced in March.

Nikola makes trucks. The heavy-duty variety that do things like haul cement and transport goods on highways across America. Its smaller heavy-duty trucks are battery-powered. Those are due to be sold beginning around 2021. The larger semi-trucks are powered by hydrogen fuel cells and are due to be sold around 2023.

Left, for his part, is unimpressed by the early stock success, saying the company has been overly promotional. That is a charge short sellers levy from time to time when they think management is talking up its company’s stock.

The charge is difficult to support or quantify. Management teams, especially around public offerings, often talk about the best points of their corporate strategies. That is par for the course. Nikola, for its part, was scheduled to present on Wednesday at the Deutsche Bank investor conference, its first large public presentation since completing the Vector merger.

Nikola shares were taking a small hit in premarket trading, down about 0.9%. S&P 500 futures, for comparison, were up 0.3% and Dow Jones Industrial Average futures were up 0.1%.

In addition to Left’s tweet, Nikola stock might be reacting to reports that Tesla’s (TSLA) all-electric heavy-duty truck is being brought into production. The semi-tractor-trailer truck, introduced around 2017, is likely to be used for shorter hauls of less than 300 miles. Intermodal shipping giant J.B. Hunt Transport Services (JBHT) signed up as an early customer for the truck.

Intermodal refers to freight transported by highway and rail. J.B. Hunt moves a lot of freight between trucks and trains.

Tesla wasn’t immediately available to comment on the reports.

New stocks like Nikola are often volatile and driven by news flow. That seemed to be the case Wednesday. Investors should prepare for more such days. Over the long run, of course, Nikola’s business execution will determine the value of its shares.

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>>> Bearish Bets: 2 Stocks You Should Think About Shorting This Week

These names are showing both technical and quantitative deterioration.


Real Money

By BOB LANG

Jun 28, 2020


Using recent actions and grades from TheStreet's Quant Ratings and layering on technical analysis of the charts of those stocks, Trifecta Stocks identifies five names each week that look bearish.

While we will not be weighing in with fundamental analysis we hope this piece will give investors interested in stocks on the way down a good starting point to do further homework on the names.

Enphase Energy

Enphase Energy Inc. (ENPH) recently was downgraded to Hold with a C+ rating by TheStreet's Quant Ratings.





This provider of energy management systems was hot stuff after the crash's bottom in late March, but since then has fizzled out. While there are some decent support zones, this stock has started a slide on higher volume -- not a good sign.

Money flow is negative and the moving average convergence divergence (MACD) is on a sell signal. The channel is defined and might break to the downside, thus a move to the mid-$30s is possible. There was big volume recently on that sell day, so if short put in a stop at $50 but target the low $30s.

L Brands

L Brands Inc. (LB) recently was downgraded to Sell with a D rating by TheStreet's Quant Ratings.





Here's another retailer that has fallen on hard times. The company behind Victoria's Secret and Bath & Body Works is headed back down and may get to the March lows.

There is good support at $10, but that is a good 30% lower than current prices. MACD is on a sell signal and money flow just turned bearish; the Relative Strength Index (RSI) slope is down and steep.

If short, put in a stop at $18 but ride it down.

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>>> How phantom shares on Wall Street threaten U.S. companies and investors


Revelations of “Naked, Short & Greedy” by Susanne Trimbath


The Komisar Scoop

By Lucy Komisar

March 26, 2020


https://www.thekomisarscoop.com/2020/03/how-phantom-shares-on-wall-street-threaten-u-s-companies-and-investors/


As stocks are in free fall, a scam run by the big banks/broker-dealers for the benefit of themselves and their hedge fund clients threatens to worsen the situation of large and small American companies and investors.

It’s when the bank/broker-dealers buy stocks, pocket the money and fail to deliver to clients the shares they are supposed to settle through the national stock clearing house. In another industry that might be called embezzling.

Dr. Susanne Trimbath, an economist who worked in operations at depository trust and clearing corporations in San Francisco and New York, is a national expert on this. She served as senior advisor on a U.S. Agency for International Development project to develop capital market infrastructure in Russia after the fall of communism. She was a consultant on similar projects in several other countries, including Romania and Poland.

The most blatant form of the fraud is naked short selling. Short selling, permitted by the stock market system, allows traders to sell shares they don’t own. They are supposed to borrow or buy them and transfer them to the buyer within three days. They are hoping the value of the shares they sold drops and that they can buy them to deliver or pay back the loan more cheaply, and make a profit.

But in a system wracked with fraud, traders engage in naked short selling, when they sell stock they don’t own and never buy to deliver. So now there are two shares, the real one that was never delivered and a phantom “entitlement” given the unsuspecting buyer which is recorded as such by his broker. And which the buyer can now sell! Because the brokers pretend there are real shares there.

Making two shares out of one is among the swindles that crashed the market in 1929. It was called “watering the stock.”

The world’s biggest stock fraudster, Bernie Madoff, wrote from prison February 3, 2012, “It was perfectly proper to short [my clients’] securities or purchase those positions back from those clients or others with any profit or loss recorded on my books. … The point is that this was my practice prior to the time that I fell into my crime of staying Naked Short. The fact that the prosecutor and Trustee seemed clueless of this is why my frustration is so great.” He added that “most of my professional clients were well aware of how I traded.”

Trimbath, author of the new book, “Naked, Short and Greedy, detailed the current dangers in direct quotes and paraphrases below.

Musical shares

Trimbath said, “I frequently compared fails to deliver to a game of musical chairs, or as I called it “musical shares.” As long as the music keeps playing, everyone keeps walking around the chairs. When the music stops, someone ends up without a seat. In “musical shares,” as long as the money keeps flowing in, everyone continues trading stocks. Once the money stops – and this is where fails transactions are like a Ponzi scheme – someone has to end up without their shares. When the global financial markets collapsed, lots of people found out that they did not have a seat.”

She said data from the New York Stock Exchange (NYSE) showed that before the 2008 crash, institutional owners (banks, brokers, and pension funds) had 113% of the issued and outstanding shares Freddie Mae and Fannie Mac, the mortgage lenders. Individual investors and non-institutional holders also held some of those shares, evidence that more shares were sold than ever existed.

How the brokers & favorite clients make money by cheating

After the 2008 crash, the big stock traders, to tap into the lush Wall Street bailout, became banks. So, the behemoths, J.P. Morgan, Citi, Bank of America, are now both banks and broker-dealers, stock traders. Their clients are the big institutional investors, hedge funds and big money investors as well as the smaller brokers most individual investors deal with. When Willy Sutton was asked why he robbed banks, he replied, “Because that’s where the money is.” Except, now the banks are doing the stealing

Let’s go back to Madoff’s naked short selling.

Why naked short? When one broker can sell shares to your broker and simply fail to deliver at settlement, the broker does not have to bear the expense of stock borrowing. And the system lets them. Or they could avoid the expense of borrowing by short selling shares and marking them long. Sometimes, when the sellers really own the shares, their brokers may not transfer them to buyers. That and naked shorting both yield fails to deliver.

If the shares ever arrive, the broker sends the money to the seller’s broker. But once the trader knows that the broker agrees to fail to deliver his sell orders, he or she knows that all fails will persist and is free to naked short millions of shares for years to wait for the desired price drop.

People who buy the undelivered shares get an “entitlement,” and the money they paid stays with their broker, who can use it, interest free. The dollar value of shares purchased but not received is a free loan from the investor to the broker. The investors don’t know. The broker is not required to tell the client that he took the payment and did not receive any shares.

Stock lending

By signing a retail broker account agreement, investors allow the broker to lend their shares to other investors, including short sellers who are betting that the stock price will fall, and will promote that through naked shorting, which adds to the number of shares in circulation, reducing their value. Such a stock tumble is the opposite of what ordinary investors are hoping for.

She also warned that stock lending to cover shorts can create phantom shares even without naked short selling/fails to deliver because there is no due date for the return of the shares. When the shares an investor leaves at the broker have been lent, he/she owns a phantom share until the loan is repaid. The central depository system encourages this by letting brokers lend even such phantom shares.

Trimbath worked in Russia after the fall of communism. She said, “We refused to give them shorts or stock lending in 1994 because of the known risk factors.”

How bad is it and why should we care?

Securities and Exchange Commission: In the first two weeks of July 2019, 914,261,864 shares valued at over $17 billion failed to deliver in settlement from the clearing house, an average of about $1.9 billion every settlement day.

Fails to deliver harm entrepreneurs in search of capital for building their companies. Instead of investors buying shares the companies issue, they buy phantom shares through their brokers. Fake shares push down the value of all shares by increasing the supply. This impairs the company’s ability to access capital.

It also distorts other aspects of financial markets. The investor with a phantom share can sell it, lend it, or pledge it as collateral for a bank loan. So can the owner of the real share.

Some more “ordinary” criminals also use the system. A fraudster can set up a hundred offshore companies, establish a brokerage account for each one, and then buy and sell shares among them to multiply shares through shorts and fails. Unwitting investors buy what does not exist, and brokers routinely turn that money over to themselves and the criminal sitting offshore.

Individual investors don’t know that the system is set up for this. And that the “regulators” enable it.

How this affects shareholders – the example of CMKM “UnShareholders”

CMKM was a Canadian company with an interest in diamonds. The shareholders didn’t know that mineral rights they were told about were owned by the founders, not the company. Criminal and civil complaints ensued. A reform management changed the company name to New Horizons Holdings, Inc with a plan to raise capital for the purchase of oil or gas assets. If successful, they would be able to return the shares to trading status with the hope of restoring value to shareholders.

NHH directed all shareholders to obtain their stock certificates and exchange them for new shares. That’s when the masses of phantom shares and corruption of some big brokers came into stark view. Many investors discovered that their brokers had taken their money and never bought or received CMKM shares.

Trimbath, who worked investigating the scam, calls theses victims “UnShareholders,” investors who reported that their share positions were deleted by their brokers and/or where brokers refused to provide them with share certificates registered in the investors’ names so they could meet the exchange requirements of a “bona fide shareholder.” She said, “Documents I saw suggested three brokerage firms probably took payments from investors for shares that were never received from the selling broker… Charles Schwab, Chase Bank and RBC Dain.”

The investors had “phantom shares.” They were allocated a fail to receive on the broker’s own books, but payment money was taken from their cash accounts, and they continued to receive statements showing share positions for CMKM.

She said, “Investors submitted documentation showing that each of these brokers deleted their CMKM share positions at a time when we can demonstrate that the firms had no shares either in the depository or on the books of the issuer.” They deleted the evidence of the phantom shares.

How might this work for other shareholders

When settlement failures happen, the shares you buy may not be in your brokerage account regardless of what your broker statement says.

Let’s say that your broker gets one of these fails to receive. First of all, they don’t tell you that they got a fail to receive. If you were an institutional buyer or a high-value client, they will tell you that they failed to receive and they will give you some monetary compensation for the delay and inconvenience. They don’t tell individual retail investors. If they did, they would have to share the revenue they earn on investors’ money already paid them for the shares, since brokers don’t have to transfer money for shares they fail to receive.

The question then becomes, “Well, how did I get dividends?” You didn’t really get dividends, you got “dividends in lieu.” That means the broker sent money (maybe part of your money) as dividends. You will know this if your 1099 from the broker says “unqualified dividends.” They are generally considered ordinary income and not eligible for dividend tax rates.

If an investor gets this from the IRS, it means the payment is treated as regular income, not as the lower-taxed dividend.
Sometimes, a large broker with many clients seeking the same stock will receive only part of a particular share order. Some clients get real shares, others phantom entitlements. Trimbath said an investor might ask, “How did I get picked out for that?” She said, “The problem is, we don’t know. And they won’t tell us. If you were assigned the fail to receive, then the broker has many options, none of which they have to tell you.”

How this affects who has power over corporations.

Before the 2008 crash, at an annual proxy meeting, Bank of America counted 130% of its shares voted, that is, they received 30% more votes than they had shares outstanding. That’s just the number of people who actually voted their shares! Imagine how many shares were sold beyond what they actually authorized and issued. This violates the voting rights of shareholders and reduces effective corporate governance.

Trimbath pointed out, Let’s say it’s the merger of Compaq and Hewlett Packard. Let’s say that there are a lot of these extra shares around and they have more votes than shares coming in. And let’s say that your broker/dealer is JP Morgan, who was actually one of the advisors on that merger deal. They stood to gain more in fees if the merger went through than if it was voted down. Do you think that they would be so careful about your vote that if you voted against something they were in favor of that they would not be tempted to only turn in the votes that they thought should be counted, those that were most favorable to their position, as opposed to trying to make sure that everything was done according to the rules. But, there are no rules! They just make them up as they go along.

She said, They can, in fact, throw out your vote and just not count it. They can randomly assign your vote to some real proxy that wasn’t voted. They can vote what shares they actually do have proportionally based on how many phantom votes come in. It’s all done in secrecy. They don’t have to tell you, they don’t have to tell the NYSE, they don’t have to tell anyone. They don’t have to tell the company whose shares they voted.

And the SEC isn’t interested. To deal with over-voting, the SEC didn’t say, “Stop telling clients they have voting shares when they don’t.” It said, “Don’t submit more votes than shares you are holding.” And brokers could choose which votes they wanted to submit!

Attempts to reform 2004 – Reg SHO

One of the original requirements in the final SEC Reg SHO (for short sales) approved in 2004 was to require that all trades be marked “long” or “short,” where prior practice was only to mark “short” trades. A broker could mark a trade “long” only if the seller had full control of the shares when the sale was entered (or was “reasonably expected” to have them). Trimbath said, “The problem is that when a broker fails to deliver, they can retrospectively declare a sale short by reporting that they failed to mark the trade short or vice versa as it suits their needs. Or that it was a long trade where they “reasonably believed” the customer had the shares. Normal investors are not allowed to trade that way, but the brokers are.”

She said the NYSE members are required to report fails to deliver and fails to receive in their quarterly and annual balance sheets. But they report total numbers not the specific stocks. So one really can’t tell much from the numbers, and how could anyone check they are correct?

She said, “The main problem is that Reg SHO has no real teeth for enforcement. The brokers are never called to be responsible for their behavior.” The lack of any punishment creates the conditions for moral hazard, where the brokers see there are no consequences for this trading corruption.

The fails to deliver were about $6 billion a day in 2003. Then, two years after Reg SHO was implemented, fails to deliver were still affecting 20% of NYSE and NASDAQ listed firms and about half of the firms trading over-the-counter. They spiked going into the 2008 financial crisis.

The stocks of these well-known companies had fails to deliver reported in their shares every trading day during December 2007: Virgin Mobile, PNC Financial, Netflix, JP Morgan Chase, Krispy Kreme, HSBC Finance, Icahn Enterprises (with Carl Icahn as Chairman of the Board), Wells Fargo, E-Trade, Morgan Stanley, Deutsch Bank, CIT Group (Citibank), Bank of Nova Scotia, and Bear Stearns. Not even IBM (13 of 20 trading days with fails) and Microsoft (13 days) escaped the creation of phantom shares.

SEC failure

Even a university economist who spent 2004 at the SEC studying fails acknowledged in so many words that the broker-dealers do it on purpose. Leslie Boni (now with a hedge fund in Southern California) attributed the extraordinary increase in settlement failures to investment decisions known as “strategic failures.”

Trimbath noted that in 2007, “The Federal Reserve Bank of New York’s Treasury Markets Practices Group (TMPG) describes several intentionally abusive practices such as “slamming the wire” (holding back deliveries until immediately before the close with the intention of causing settlement fails) and requests from traders for settlement operations to “hold the box” (a demand to delay settlement of an executed trade). The fact that these practices are colloquially named and described in such detail indicates that they are common causes of settlement failures.”

The SEC continued to declare that fails to deliver were not an indication of naked short selling. That changed when Goldman Sachs and other financial firms needed to be protected. Trimbath pointed out that not till the banks/broker-dealers began to see massive numbers of fails to deliver in their own shares did the SEC put a short-selling ban in place – but only for the shares of banks, insurance companies and securities firms, including the very culprits responsible for the dirty system.

SEC’s July 15, 2008 Emergency Order temporarily required all persons to pre-borrow or arrange to borrow the securities of 19 select financial firms prior to effecting a short sale order. Trimbath commented, “This order was cronyism, plain and simple.”

The General Accounting Office published two reports:

(1) Securities and Exchange Commission: Oversight of U.S. Equities Market Clearing Agencies (February 26, 2009);125 and (2) Regulation SHO: Recent Actions Appear to Have Initially Reduced Failures to Deliver, but More Industry Guidance Is Needed (May 12, 2009.)

GAO concludes that the SEC neglected to investigate even one of the thousands of complaints received about naked short selling and fails to deliver in the years leading up to the 2008 financial crisis. Five years later, in 2013, the SEC fined the Chicago Board Options Exchange $6 million for failure to enforce or even fully comprehend rules to prevent abusive short selling. It was a slap on the wrist.

2008, Lehman and Bear Stearns

Despite the ban on short selling, the fails to deliver continued to accumulate. Trimbath said that phantom shares resulting from naked short selling are implicated in the 2008 demise of Lehman Brothers, Fannie Mae, Freddie Mac and Bear Stearns. She examined the fails to deliver of Lehman Brothers and Bear Stearns reported to the SEC, the short selling reports from the stock exchanges, and the closing prices for both firms. She calculated that the fails to deliver explained between 30% and 70% of the variation in closing prices. Brokers had many more shares recorded in the investor accounts than they ever really owned.

When it filed for bankruptcy, Lehman listed $163 billion in debt. As of December 31, 2016, according to the notes to its annual financial statements, DTCC had paid out $5.3 billion in cash and securities to the Trustee in charge of winding down Lehman’s accounts, “including the close-out of pending transactions,” meaning fails to deliver.

The senior managers at both Lehman and Bear Stearns publicly blamed naked short selling for much of their problems.

Who runs the system – DTCC (Depository Trust and Clearing Corporation), a privately-run central clearing agency in New York’s financial district.

Trimbath blames the massive fails on the DTCC and its subsidiaries, DTC (Depository Trust Company), the vault that holds the shares, and NSCC (National Securities Clearing Corp), which clears and settles trades, that is, handles the exchange of money and shares which are registered in the accounts of its members, the big banks/broker-dealers.

The Securities and Exchange Act of 1933 specifically gave the clearing house the right to require that shares and securities be delivered for settlement. It allows them to punish those who don’t deliver by refusing to have them in the system.

Trimbath said, “The DTCC has for years ignored that.”

She said, “The 2007 Reg SHO amendment says you cannot short again without borrowing: but only DTCC and SEC know who failed to deliver, so how is that functional?”

Till 2013, in fact, the NSCC had a program to automatically borrow shares from DTC members to cover fails before settlement. DTC members can still lend shares from their accounts.

She said the DTCC creates a mirage that there aren’t any fails, or are many fewer than appears. Wall Street benefits from a service that automatically resubmits settlement failures, what the DTCC calls “fail transactions.” Many trades that fail to settle are required to be re-submitted, where they receive new settlement dates, in essence, erasing the fail to deliver by creating a new record. When this happens, the records show that the fail transactions are no longer outstanding; the next day begins with zero fails.

Trimbath said, “I want to know who is failing to deliver, I want to know the names of the brokers who victimized public companies, so I can avoid doing business with them.”

She asks why NSCC does not throw out the members who fail to deliver shares for settlement. Congress gave them the authority.

Who controls the DTCC

The answer is that the banks and brokers who use DTCC’s services, who process trades there, who fail to deliver there, are insiders who sit on the DTCC Board of Directors. And the feeble SEC, dominated by the industry it is supposed to regulate, fails to require the DTCC to impose sanctions on errant members.

The big banks/broker-dealers that violated short selling and other rules. Source: U.S. Securities and Exchange Commission.
In 2007, seven companies with 18 employees sitting on the Board of Directors at DTCC and its subsidiaries, and on the NYSE and other self-regulatory organizations, had 728 securities rules violations in one year, including 84 violations for rules governing short sales.

The alleged perpetrators were in charge of the organizations that write and enforce the rules.

What does the U.S. Congress do?

Trimbath writes that according to a 2012 documentary, “The Wall Street Conspiracy,” former California State Senator John Harmer, a Republican, brought the issue to the U.S. Senate Banking Committee in 2005. U.S. Senator Robert Bennett (R-Utah) got involved with the problem, because naked short selling had attacked Utah-based Overstock.com.

Bennett began drafting legislation. Senator Shelby (R-Ala) and a few other Banking Committee members were interested in holding open hearings with investors and entrepreneurs. The hearings did not happen.

Harmer said in the film that the DTCC sabotaged their efforts. And that SEC chair William Donaldson also opposed them. Harmer said, “To him, the whole business of trading securities belongs to the major brokers, they are the ones who are running this, and you folks down in Washington should not meddle in this or you’re going to upset the apple cart.”

According to Harmer, “They also got to Chairman Shelby. And so, Shelby said to Bennett — I think we oughta wait and give the SEC a chance to come in and explain their position. And so, we were simply the victims of a very effectively executed strategy to make sure that there were no hearings on this, and even to make sure that Senator Bennett did not introduce the bill.”

A story in The Washington Post in 2012 helped explain the lack of enthusiasm in Congress for reforming the processes that lead to phantom shares. “In 2008, for instance, 17 lawmakers reported investing hundreds of thousands of dollars in short-selling funds,” including bets against U.S. Treasury bonds, the Dow Jones Industrial Average and the S&P 500.

The SEC’s “reforms” had little effect. Compared to $6 billion in daily fails in 2003, the number was $7.4 billion for February 2020.

Trimbath considers solutions

Trimbath said that investors who want to avoid being “UnShareholders” should have shares registered in their names. They can do that, even without holding a certificate, through direct purchase and registration programs offered by many issuers.

Her alternatives for actions by the key actors, the DTCC and SEC, are these:

Reveal the names of the failing brokers so that investors have complete information when they make the decision to select a dealer, a local dealer or a big bank/broker-dealer. She said, “NSCC and the brokers must have records of who sold what and which of those did not deliver. If they do not, then this is a much bigger problem than any of us ever imagined.”

Throw the failing brokers out. Congressional law tells the central clearing organization that they can refuse membership (in the DTCC) to brokers that fail to deliver for settlement.

Do buy-ins. Allow the NSCC or DTC to buy-in member positions or impose stiff fines for fails to deliver. Buy-ins means allowing the party that did not receive shares to purchase them on the open market and charge the cost back to the party that failed to deliver. She said they have not worked. For stocks where there are already a high number of fails, the buy-in trade usually fails to settle, too. Brokers have sold shares that never existed. Where will they get them now?

Reverse the trades. Require that sold shares be delivered or reverse the trade. She called that the more efficient solution. Reverse the trade and return the original payment with a use-of-funds compensation set at a real risk level. For the investor who bought shares they did not receive, it is as if they loaned free money to the broker.

Do not expect the DTCC or SEC to adopt any of these reforms. Trimbath has appeared at conferences and meetings to discuss the issues she raises. She said DTCC frequently attempted to silence her. She learned that in one case, a conference organizer laughed off an attempt by a DTCC official to get her thrown out as keynote speaker.

“Naked, Short and Greedy” by Susanne Trimbath, Spiramus Press, (London). January 2020.

Susanne Trimbath is founder of STP Advisory Services and a business instructor at Cochise College in Sierra Vista, AZ. Dr. Trimbath started her training in finance and economics at the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC. She has a doctorate in economics from New York University’s Graduate School of Arts and Sciences. She taught economics and finance at New York University and the University of Southern California Marshall School of Business. @susannetrimbath

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>>> Branson’s Virgin Orbit Fails in Attempted Rocket Launch From 747


Bloomberg

By Nate Lanxon and Andrea Navarro

May 25, 2020


https://www.bloomberg.com/news/articles/2020-05-25/branson-s-virgin-orbit-fails-in-attempted-rocket-launch-from-747?srnd=premium


Cosmic Girl released the rocket, ended mission shortly after

Plane and flight crew are safe and returning to base



Billionaire Richard Branson’s Virgin Orbit said a crucial test of its two-stage, orbital rocket system, designed to rival that of Elon Musk’s SpaceX for satellite launches, ended the mission shortly after releasing the rocket from the plane.

A Boeing Co. 747, named Cosmic Girl, took off from the Mojave Air and Space Port in California on Monday at 11:56 a.m. Pacific Time, carrying beneath it Virgin Orbit’s LauncherOne rocket over the Pacific Ocean. About an hour later, the plane released the rocket in what Virgin Orbit called a “clean” release. Three minutes later, the company said the mission had ended shortly into the flight.

There have been more than 20 previous tests, including one earlier this year carrying the rocket, but this was meant to be the first time LauncherOne had been ignited. Earlier this week, Virgin Orbit described Monday’s test as “the apex of a five-year-long development program.”

“We’ve confirmed a clean release from the aircraft. However, the mission terminated shortly into the flight,” the company tweeted Monday. “Cosmic Girl and our flight crew are safe and returning to base.”

Prior to Monday’s attempt, Virgin Orbit said maiden flights by government and commercial providers typically fail about half the time. The company’s ultimate goal is to use its rockets to launch small satellites into space, competing with ground-based launches, such as those from Space Exploration Technologies Corp.

SpaceX has a significant head start. Over the past decade it’s launched about 100 rockets, landed many of them safely back on Earth, and come to dominate the industry, while being valued at close to $40 billion. In a few days, SpaceX is set to carry two NASA astronauts to the International Space Station -- the first time NASA personnel have blasted off from the U.S. since the 2011 retirement of the Space Shuttle.

Meanwhile, the Virgin Orbit test this weekend comes at a critical time for Branson, as the coronavirus pandemic weighs heavily on his leisure and travel assets.

The Virgin Australia airline fell into administration last month, and Virgin Atlantic pitched to about a dozen potential investors last week as the U.K. government drags its heels over an emergency bailout.

Branson’s Vieco 10 investment company also recently offloaded about 2% of its stake in a separate space company, Virgin Galactic Holdings Inc., as the billionaire looks to support his broader business empire. Virgin Galactic is trying to pioneer space tourism.

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>>> The Simple Math Behind the Inverse Volatility ETF Collapse

It's a lesson short-sellers know well.


Motley Fool

Dan Caplinger

Feb 6, 2018


https://www.fool.com/investing/2018/02/06/the-simple-math-behind-the-inverse-volatility-etf.aspx


For the past several years, the stock market has gone through a period of nearly unprecedented calm. Not only did the market move upward sharply, but it did so in a way that had almost no major downward movements along the way. That means those who bet on a continued lack of volatility by using inverse volatility ETFs earned some of the best returns in the market, including a near-tripling in 2017.

That all came to a thundering halt on Feb. 5, and both VelocityShares Daily Inverse VIX Short-Term ETN (NYSEMKT: XIV) and ProShares Short VIX Short-Term Futures (NYSEMKT:SVXY) plunged more than 80% in after-hours trading that day. Credit Suisse, which oversees the VelocityShares exchange-traded note, said on Wednesday that Feb. 20 would be the last day of trading for the volatility-tracking product. ProShares took the opposite course, saying that its fund will be open for trading despite extremely heavy losses.

The reasons for the moves in the two funds are complicated, but at their core, the failures came from simple math. Most conventional investments have theoretically unlimited upside potential, so that leaves inverse ETFs vulnerable to complete loss of value if the investment they track posts a daily gain approaching 100%.

The unlikely winner of the 2010s

The most interesting thing about these two inverse volatility ETFs is that they were largely an afterthought when volatility-tracking investments first became popular. In the aftermath of the financial crisis, most investors who were interested in volatility wanted to know how to get direct exposure to measures like the S&P Volatility Index (VOLATILITYINDICES:^VIX), with the idea that they'd be able to cash in on volatility spikes on days like the ones the market saw in early February. That was the basis for the inception of VelocityShares Daily VIX Short-Term ETN (NYSEMKT: VXX), and it wasn't until a year later that the corresponding inverse investment became available.

Yet the 2010s have turned out to be one of the calmest periods of stock market gains in history. Long-time investors in regular volatility ETFs discovered the hard way that the structure of the volatility futures markets that they track steadily eroded their value. That made it critical for investors to be tactical in their approach toward regular volatility ETFs.

By contrast, inverse volatility ETFs benefited from the same futures market characteristics that hurt regular volatility trackers. In the early 2010s, occasional spikes in volatility had enough of an abrupt downward impact on inverse volatility to keep share-price gains from getting too out of hand, but the value of the VelocityShares still jumped fourfold from late 2010 to mid-2015. A pullback in late 2015 cut their value in half, but the VelocityShares then climbed from below $20 in early 2016 to more than $140 by early January.

A sudden end

Yet in the end, all it took was a single day to bring inverse volatility ETFs to their knees. With the VIX having been at extremely low levels, it didn't require too big of a rise to represent a 100% daily boost in volatility. That's what happened on Feb. 5, when February VIX futures rose from their opening level of 16 into the low 30s by the afternoon.

The net result was a plunge in the net indicative values of the inverse volatility ETFs. For the VelocityShares, the closing value of $4.22 per share represented a 96% plunge from its Feb. 2 value of $108.37 per share. Similarly, the net asset value for the ProShares fund went from $103.72 to $3.96 per share.

What's next?

For VelocityShares investors, the clock is running out. Credit Suisse declared what the prospectus refers to as an acceleration event, allowing the company to liquidate and pay investors the net indicative value. That will likely happen on Feb. 21, after a final valuation is determined according to the prospectus.

ProShares, meanwhile, is structured differently, and the loss wasn't quite severe enough to be total. The fund company said:

The performance on Monday of the ProShares Short VIX Short-Term Futures ETF (SVXY) was consistent with its objective and reflected the changes in the level of its underlying index. We expect the fund to be open for trading today, and we intend to continue to manage the fund as usual.

Going forward, there's little chance either fund will ever recover all of their lost ground. It took years of calm markets to produce the gains that a single day wiped out. Even if the market returns to a calmer attitude, the 25-fold gains it would take to recover from a 96% drop would take decades to recover.

Respect volatility

The lesson that inverse volatility investors learned was that betting against an unlikely event can be profitable for a long time but still be dangerous. After years of success, all it took was one misstep to all but wipe out investors in inverse volatility ETFs, and investors need to be aware of similar risks whenever they look at investments with a track record of success.

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Shorting the VIX with ZIV -

Analysis -

During the two year period of 2016 and 2017 when stocks were going up steadily, the VIX gradually zig-zagged down from its 2015 peak and then spent much of 2017 under 10, which is very low for the VIX. Meanwhile ZIV had a beautiful steady climb during that full 2016 and 2017 period, almost tripling. So that part is good - ZIV reliably did what it was supposed to, and it would have been safe to own ZIV through that entire 2 year period.

In a previous post I compared the current VIX level to its level in late 2008, and noted that VIX had only gotten this high (75) twice (now and in late 2008), and that the previous highs were 55. At first glance, seeing that parallel would seem to support the idea that VIX is way overextended and not likely to go up much higher.

However, one thing to be concerned about is the fact that in 2008, the stock market worked its way lower thru Q1 and Q2, and didn't actually go into free fall until Q3 and Q4, which is when VIX really took off. The VIX reached 90, and the move started around 20 in September when the Lehman failure occurred. So 20 to 90 in approx 3 months. But earlier there was a big lead up time of 21 months (early 2007 to Sept 2008) where the VIX rose from 10 to 20.

But this time is very different, with the stock market free fall occurring after only 3 months of 'lead' time, instead of 21 months. The VIX went from 12 to 17, and then pow, very quickly up to the current 80 area.

The upshot of this analysis is that it's very possible the VIX might continue zooming up to 150 or even 200 before this is all over. We're in uncharted waters, and I'd be careful about committing too much to the ZIV trade too soon.

ZIV's moves in 2016 and 2017 indicate that it can be a reliable longer term holding, so that's good, and the exact timing of an entry point may not be totally vital to success (unlike using a leveraged 2X or 3X vehicle). But if VIX is ultimately going to 150 or more, you have to be very careful with the entry point on ZIV. The current stock crash may only be 1/2 over, in which case VIX likely has a lot more to climb, and ZIV a lot more to fall, before the reversal comes.

Anyway, it's an intriguing trade idea which will become a low risk no-brainer should the VIX get up into the 150 or 200 range. Then you could confidently load up on ZIV big time. But until then I'd be wary of building too large a position too early since you could be way underwater fast.

Of course the other way to play it would be the shorter term swings coming from temporary relief rallies, but timing those could be very difficult. The surer thing is a longer term bet on an inevitable return to relative 'normalcy', and for that bet you need a good high entry point. Personally I'd wait and see if VIX gets above 100, or better yet 150, which would put the odds firmly in your favor. At VIX 150 I might even take a chance on ZIV myself :o)

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>>> The Right Junk Bond ETF to Consider Now


ETF Database

March 2, 2020


https://finance.yahoo.com/news/junk-bond-etf-consider-now-130000411.html


With stocks under significant pressure, high-yield corporate bonds are following suit, a trend that should call attention to the ProShares Short High Yield (SJB B-), particularly as outflows from the two largest junk bond ETFs build.

Investors have recently been departing the iShares iBoxx $ High Yield Corporate Bond ETF (HYG A) in significant fashion. HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. SJB attempts to deliver the daily inverse performance of that benchmark.

“Investors have pulled over $4 billion from high-yield debt ETFs in the past week, after pouring about $13.4 billion into the funds in the last year,” reports Bloomberg.

While falling earnings and rising debt loads contribute to credit quality, access to new capital is equally important to speculative-rated companies, which usually lack the cash to pay off debt and would typically rely on refinancing.

Eschewing Junk

“U.S. junk-bond funds are on track to see their biggest outflows in more than six months as investors pull back from risky assets amid deepening concerns about the spread of the coronavirus and its economic fallout,” reports Bloomberg. “The primary market was frozen for a third straight day on Wednesday as issuers assess volatility. Combined with rising risk premiums on U.S. junk bonds, ETF investors are tapping out.”

Declining oil prices are another catalyst for SJB because many traditional high-yield bond indexes are chock full of energy issues. On Thursday, SJB gained 1.54% on about seven times the average daily volume, boosting its gain over the past week to 3.34%.

SJB “seeks a return that is -1x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period,” according to ProShares. “These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.”

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>>> Inverse ETFs to Bet on Market Sell-off


Zacks

Sanghamitra Saha

January 6, 2020


https://finance.yahoo.com/news/inverse-etfs-bet-market-sell-130001272.html


Inverse ETFs to Bet on Market Sell-off

Geopolitical tensions took center stage at the start of the New Year. A U.S. drone strike near Baghdad international airport killed Iran’s top commander General Qassim Soleimani, fueling tensions between Iran and the United States. The U.S. move followed a New Year Eve attack by Iran-backed militias on the U.S. Embassy in Baghdad

Investors should note that the United States’ sanctions against Iran were put into place in August 2018. The sanctions were on cars, metals and minerals as well as U.S. and European aircraft. The second part of the sanctions that bans import of Iranian energy was enacted in November 2018.

The result of the U.S. air strike and the killing of Iranian commander was Iraq’s demand for an expulsion of all foreign troops and Iran’s pulling back from the 2015 nuclear deal. Strategists expect the U.S.-Iran tensions to flare up in the medium term.

Germany called for “crisis meeting of EU foreign ministers” over Middle-East tension. Volatility in the stock market rose with iPath Series B S&P 500 VIX Short-Term Futures ETN VXX gaining about 5.3% on Jan 3.

Global equities fell with the S&P 500-based ETF SPDR S&P 500 ETF Trust SPY and SPDR Dow Jones Industrial Average ETF Trust DIA losing about 0.8% and Invesco QQQ Trust QQQ shedding around 0.9%, respectively. All-world ETF iShares MSCI ACWI ETF ACWI was off 0.9% on Jan 3. Safe-haven trade intensified as the yield on the 10-year benchmark U.S. Treasury fell to 1.80% on Jan 3 from 1.88% recorded the earlier day.

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities, at least for the near term. Below we highlight a few of them (read: Guide to the 10 Most-Popular Leveraged Inverse ETFs).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH (up 0.8% on Jan 3) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 0.7% on Jan 3).

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG (up 0.8% on Jan 3), ProShares UltraShort Dow30 DXD (up 1.7% on Jan 3) and ProShares UltraPro Short Dow30 SDOW (up 2.4% on Jan 3).

Nasdaq

ProShares Short QQQ PSQ (up 0.8% on Jan 3), ProShares UltraShort QQQ QID (up 1.8% on Jan 3) and ProShares UltraPro Short QQQ SQQQ (up 2.7% on Jan 3) are good to play against the Nasdaq.

Small-Cap

One can short small-cap U.S. equities with ProShares Short Russell2000 RWM (up 0.4% on Jan 3).

EAFE

ProShares Short MSCI EAFE EFZ (up 0.3% on Jan 3) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the geopolitical tension (read: Country ETFs to Top/Flop on US Air Raid at Baghdad).

Emerging Markets

Short MSCI Emerging Markets ProShares EUM added more than 1.7% on Jan 3. The fund tracks the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index. The index covers equites from 21 emerging market country indexes.

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>>> The Feds Want To Take Some Of Your ETFs Away


Investor's Business Daily

MATT KRANTZ

02/06/2020


https://www.investors.com/etfs-and-funds/etfs/inverse-etfs-feds-want-take-some-etfs-away/?src=A00220&yptr=yahoo


Can you handle leveraged and inverse ETFs? You might think so, but regulators want to be sure.

The Securities and Exchange Commission is proposing new limits on leveraged and inverse ETFs — potentially cutting off investors' access to these tools used to control returns. Rules announced in late 2019, if finalized, would require brokers and advisors to ask a variety of questions before selling these ETFs to investors.

Answers to the questions determine if the investor understands the risk. Leveraged ETFs use options and derivatives to amplify returns either on the upside or downside. Inverse ETFs use derivatives so their value moves opposite of the primary index.

If used properly, these funds can boost returns or temper volatility. If used incorrectly, they can amp up volatility. There are more than 250 leveraged ETFs in the U.S., says Morningstar Direct.

Some think more regulation, if adopted, will put these ETFs out of reach for many.

"We are concerned that some investors could be prevented from buying these products by an overly burdensome qualification process," Michael Sapir, chairman of leading leveraged ETF seller ProShares, told Investor's Business Daily. "Some brokerage firms could even stop offering these funds altogether given the complexity of implementing the regulations."

ProShares emailed all its clients this month urging them to voice their opinions on the rule. The SEC could not be reached for comment.

Curious Timing Going After Inverse ETFs

The SEC's move to control leverage and inverse ETFs now is a head-scratcher, says Ben Johnson, head of ETF research at Morningstar. Leveraged and inverse ETFs have existed for more than 15 years.

Sapir agrees. "It is hard to see why the SEC is making this proposal now, especially since the proposal doesn't actually show a real problem that needs to be solved," he said.

For instance, the nearly $2 billion in assets ProShares Short S&P 500 ETF (SH) launched more than a decade ago, in June 2006.

"I liken the SEC's proposal to going to shut the barn door after the horse has bolted only to find that someone else has already shut the door," Johnson said. "After widespread misuse of these funds years ago, most brokerages and platforms have either disallowed these funds outright or made them otherwise more difficult to access."

Now, most investors who know how to use these funds are using them, he says. "These products seem to have found their natural audience and reached saturation," Johnson said. ProShares is still a market leader but isn't seeing growth in these ETFs, Johnson says. The "ProShares range of leveraged and inverse products ... first hit $21 billion in assets at the end of 2009 and were around that same level at the end of 2019."

Limiting Access To ETFs

The question is whether the new rules would block some investors, who know how to properly use leveraged ETFs, from using them. "The measures the SEC is proposing would put them even further out of reach," Johnson says.

But Todd Rosenbluth, head of ETF and mutual fund research at CFRA, thinks the fans of these ETFs will jump over the required hurdles. He also thinks the SEC is looking to drive home how different these ETFs are from more traditional stock ETFs.

"It's going to make it a step or two harder for people to buy" these ETFs, Rosenbluth says. "But the type of investor that these products appeal to, which are highly tactical and short term in nature, should be comfortable saying yes to a questionnaire."

Largest Leveraged And Inverse ETFs By Assets

ETF Symbol Net Assets ($ billions)

ProShares UltraPro QQQ (TQQQ) $5.12
ProShares Ultra S&P 500 (SSO) $2.91
ProShares Ultra QQQ (QLD) $2.61
ProShares Short S&P 500 (SH) $1.90
Direxion Daily Financial Bull 3X (FAS) $1.59

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>>> America’s Coal Country Isn’t Dead — It’s Preparing for a Comeback


The nation’s largest coal producers are now hoarding cash to weather what they see as an impermanent storm.


Bloomberg

By Will Wade

February 20, 2020


https://www.bloomberg.com/news/articles/2020-02-20/america-s-coal-country-isn-t-dead-it-s-preparing-for-a-comeback?srnd=premium


At least five of America’s coal producers went bankrupt in 2019. Prices for the fossil fuel have plunged 40% since a 2018 peak. And some of the nation’s largest miners are retrenching and slashing their dividends.

But don’t be mistaken: The fight against climate change hasn’t killed off Coal Country yet.

Instead of pouring money into dividends and buybacks, the nation’s largest coal producers say they’re hoarding cash to weather what they see as an impermanent storm. Overall, the industry returned more than $1 billion to investors last year before retrenching. The goal this year: Be ready to start mining again and paying dividends at the first sign of a market revival. They’re betting that prices will bottom out in the first half of 2020 before rising in the second half as production declines and global consumption gains.

That’s spurred a new “mantra” at Peabody Energy Corp., according to Chief Executive Officer Glenn Kellow. It is “to live within our means,” he said during his Feb. 5 earnings call.

A year ago, Peabody announced its biggest dividend ever, and said it would return to shareholders all of its free cash flow. On Feb. 5, the message was very different: The nation’s leading coal producer said it was suspending its dividend, halting buybacks and cutting capital expenditures.

Hope has been in short supply for coal miners. The industry has been battered as much of the world forsakes the fuel to fight climate change, and as low natural gas prices squeezes its economics. Coal once accounted for more than half of all U.S. power generation. Today it’s less than 25%.

The decline underscores the limitations of U.S. President Donald Trump’s pro-fossil fuel policies. While the White House has rolled back environmental regulations and tried to rescue coal plants from early retirement, utilities are still shifting to cheaper and cleaner natural gas, wind and solar power. Meanwhile, all of the Democratic presidential candidates have taken a stance against coal.

And yet there’s still “a hope that prices have bottomed out and will begin to tick up a bit,” said Michael Dudas, an analyst with Vertical Research Partners, in a telephone interview. “Companies are trying to preserve cash and keep conservative.”

Optimism within the industry is probably stronger among companies producing coal used by steelmakers, Dudas said. Still, thermal coal might also see a gain with a hot summer or a colder winter, he said.

Because of the lower prices, higher-cost mines are being shut down and there’s been a wave of bankruptcies. The result, according to Dudas: “Supply comes off the market, inventory levels start to get worked off and, eventually, we will have more demand and that will move the price cycle higher.”



Prices have slumped since reaching peaks in 2018

Peabody’s not alone. Consol Energy Inc. also announced it’s cutting capital expenditures. And while Arch Coal Inc. boosted its dividend, the company said there will be less cash available to return to shareholders through share buybacks. Instead, the money will go toward toward a new mine in West Virginia, expected to open in mid-2021.

”We’re confident that Arch is well equipped to weather the current market downturn,” said Arch CEO John Eaves in a Feb. 6 conference call. “And just as well equipped to capitalize on the next market up cycle whenever it occurs.”

Jimmy Brock, the Consol CEO, also sees a glimmer on the horizon. “Low prices are starting to drive a supply response,” he said during his earnings call last week. “There are some indications that provide hope for an improvement in the second half of 2020.”

Alliance Resource Partners LP too cut its distribution by 26% this month, with CEO Joe Kraft saying it made more sense to keep the cash to ride out a bumpy year.

Prices for thermal coal delivered to Amsterdam, Rotterdam and Antwerp, an Atlantic benchmark, are about $52 a metric ton. That’s down almost 50% from an October 2018 peak, and last month it slipped to the lowest in 44 months. Booming natural gas supplies and a mild winter are dragging down demand at power plants, while utilities in the U.S. and Europe continue to shift away from the dirtiest fossil fuel in an effort to curb climate change.

Metallurgical coal is also down, sliding more than 40% from an early 2018 high. Prices for the steelmaking ingredient plunged steeply in the second half of last year as global economic trends slowed and trade tensions heated up with China, the world’s biggest producer of the metal.

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>>> HSBC Reboot Fizzles, Sending Stockholders Looking for Exits


Bloomberg

By Harry Wilson and Stefania Spezzati

February 18, 2020


https://www.bloomberg.com/news/articles/2020-02-18/hsbc-reboot-fizzles-sending-stockholders-looking-for-the-exits


Lender’s shares post largest decline in more than a decade

Analysts say board is demanding an ‘enormous’ amount of trust


HSBC Holdings Plc Chairman Mark Tucker promised a strategy reboot. Investors got what some called more of the same -- pledges to cut costs and do more with less.

The shares plunged by the most since 2009 after buybacks were shelved for two years and the executives themselves said more bad news was still to come -- once they assess the economic damage wrought by the novel coronavirus.

In the overhaul announced on Tuesday, HSBC will slash about 35,000 staff -- 15% of the total -- and take $7.3 billion of charges, while it doubles down on Asia, source of most of the bank’s profit, and cuts operations in the U.S. and Europe. Left hanging was interim Chief Executive Officer Noel Quinn as Tucker and the board consider a permanent appointment.

“I wish we hadn’t had HSBC shares this morning,” said Alan Beaney, CEO at RC Brown Investment Management. “I am not quite sure why Quinn has not been named CEO now given they have allowed him to cut 35,000 jobs and make a number of strategic decisions. It does not make sense to me.”

The Cull Continues

Banks have disclosed plans to cut almost half a million jobs since 2014

HSBC Chief Financial Officer Ewen Stevenson said the bank would be “ruthless” in executing its plan -- the giant’s third strategic overhaul in a decade -- but he has an uphill struggle persuading shareholders. “The board are asking the market to take an enormous amount on trust,” said analysts at Keefe, Bruyette & Woods, the specialist financial-services broker.

London-traded shares in HSBC, Europe’s biggest bank by market value, tumbled 6.6% to 551.90 pence, the biggest decline since March 2009. The stock is now down 6.8% so far in 2020, following drops in 2019 and 2018.

While Tucker is returning the bank -- founded in 1865 as the Hongkong and Shanghai Banking Corp. -- to its roots with the sharpened focus on Asia, analysts noted the shortage of detail on how it plans to grow there.

For bank strategists, there might be a case of déjà vu: a 2018 plan by Quinn’s predecessor, John Flint, fell flat on arrival. Flint was fired 13 months later. Tucker, who was hired in 2017 to revive growth at the sprawling lender, is still struggling to answer investors’ question of why a bank with such a strong hold in some of the world’s fastest-growing economies has been unable to produce a better return.

Cutbacks

The latest plan envisages cuts to underperforming businesses and regions, in particular HSBC’s global banking and markets unit, which houses its investment bank. The bank has said it will reallocate $100 billion of risk-weighted assets to areas where it can make more money. The job cuts will put total staff at about 200,000.

“Parts of our business are not delivering acceptable returns,” Quinn said.

By 2022, HSBC will increase risk-weighted assets devoted to Asia to 50% from about 42%.

The fresh strategy makes sense, but is “on the conservative side,” Alan Higgins, chief investment officer of Coutts & Co., said on Bloomberg television.

The main points of today’s earnings report include:

HSBC’s adjusted pretax profit of $22.2 billion beat estimates, despite the multi-billion dollar charge for the restructuring. HSBC had been forecast to report adjusted pretax profit of $21.8 billion, according to analysts.

The bank plans gross asset reduction of more than $100 billion by the end of 2022, and a lowered cost base of $31 billion or less by 2022
Consumer banking and private banking will be merged into a single wealth platform

Global banking and commercial banking middle and back offices to be combined

Geographic reporting lines will fall from seven to four

“We are intending to exit a lot of domestically focused customers in Europe and the U.S. on the global banking side,” Stevenson said in a Bloomberg Television interview.

Execution aside, the unknown remains the impact of the coronavirus. Stevenson estimated possible losses in the first-quarter of 2020 at between $200 million and $500 million. Executives said on a conference call that the loan book has shown “great resilience” so far in the face of the outbreak.

“While reduced capital allocation to low-return businesses is a positive, we expect weaker profitability in what have traditionally been strong markets, primarily Hong Kong,” Morgan Stanley analysts wrote, maintaining their underweight rating on HSBC.

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HSBC - >>> Hong Kong Turmoil Threatens Banking Giant


BY JAMES RICKARDS

NOVEMBER 27, 2019


https://dailyreckoning.com/hong-kong-turmoil-threatens-banking-giant/


Hong Kong Turmoil Threatens Banking Giant


Most investors recall how the global financial crisis of 2008 ended. Yet how many recall the way it began?

The crisis reached a crescendo in September and October 2008 when Lehman Bros. went bankrupt, AIG was bailed out and Congress first rejected and then approved the TARP plan to bail out the banking system.

The bank bailout was greatly magnified when the Fed’s Ben Bernanke and other bank regulators guaranteed every bank deposit and money market fund in the U.S., cut rates to zero, began printing trillions of dollars and engineered more trillions of dollars of currency swaps with the European Central Bank to bail out European banks.

This extreme phase of the crisis was preceded by a slow-motion crisis in the months before. Bear Stearns went out of business in March 2008. Fannie Mae and Freddie Mac both failed and were taken over by the government and bailed out in June and July 2008.

Even before those 2008 events, the crisis can trace its roots to late 2007. Jim Cramer had his legendary, “They know nothing!” rant on CNBC in August. Treasury Secretary Hank Paulson tried to bail out bank special purpose vehicles in September (he failed). Foreign sovereign wealth funds came to the rescue of U.S. banks with major new investments in December.

Still earlier, in June 2007, two Bear Stearns-sponsored hedge funds became insolvent and closed their doors with major losses for investors.

Yet even those late-2007 events don’t trace the crisis to its roots.

For that you have to go back to Feb. 7, 2007. On that day, banking giant HSBC warned Wall Street about its Q4 2006 earnings. Mortgage foreclosures had increased 35% in December 2006 compared with the year before. HSBC would take a charge to earnings of $10.6 billion compared with earlier estimates of $8.8 billion.

In short, the 2008 financial crisis began in earnest with a February 2007 announcement by HSBC that unforeseen mortgage losses were drowning the bank’s earnings. At that time, few saw what was coming. The warning was considered to be a special problem at a single bank. In fact, a tsunami of losses and financial contagion was on the way.

Is history about to repeat? Is HSBC about to lead the world into another mortgage meltdown?

Of course, events never play out exactly the same way twice. Any mortgage problem today does not exist in the U.S because mortgage lending standards have tightened materially including larger down payments, better credit scores, complete documentation and honest appraisals.

HSBC’s mortgage problem does not arise in the U.S. — it comes from Hong Kong.

Almost overnight, Hong Kong has gone from being one of the world’s most expensive property markets to complete chaos. The social unrest and political riots there have generated a flight of capital and talent. Those who can are getting out fast and taking their money with them.

As a result, large portions of the property market have gone “no bid.” Sellers are lining up but the buyers are not showing up. At the high end, owners paid cash for the most part and do not have mortgages. But HSBC has enormous exposure in the midrange and more modest sections of the housing market.

High-end distress also has a trickle-down effect that puts downward pressure on midmarket prices.

IMG 1

Your correspondent during my most recent visit to Hong Kong. Behind me are the hills of Hong Kong leading up to “the Peak,” the highest point in Hong Kong. Homes on the hills below the Peak are among the most expensive in the world. Due to recent riots, they are in danger of becoming “stranded assets” with no buyers due to capital flight and fear of worsening political conditions.

It’s important for investors to bear in mind that mortgage losses appear in financial statements with a considerable lag once the borrower misses a payment. Grace periods and efforts at remediation and refinancing can last for six months or more. Eventually, the loan becomes nonperforming and reserves are increased as needed, a hit to earnings.

Property price declines and mortgage distress that started last summer as the Hong Kong riots worsened will not hit the HSBC financials in a big way until early 2020. The HSBC stock price may be floating on air between now and then. But the reckoning with a burst bubble in Hong Kong will be that much more severe when it hits.

Another threat to the HSBC stock price comes from Fed flip-flopping on monetary policy. Throughout 2017 and 2018, the Fed was on autopilot in terms of raising short-term interest rates and reducing the base money supply, both forms of monetary tightening.

Suddenly, in early 2019, the Fed reversed course, lowered interest rates three times (July, September and October) and ended its money supply contraction.

The result was that a yield-curve inversion (short-term rates higher than longer-term rates) that emerged in early 2019 suddenly normalized. Short-term rates fell below longer-term rates. That is extremely positive for bank earnings and bullish for bank stock prices.

Now the Fed may be ready to flip-flop again. In their October 2019 meeting, the Fed’s FOMC indicated that rate cuts are on hold. This means that short-term rates may stop falling, but longer-term rates will continue to fall for other reasons including a slowing economy. The yield curve may invert again. This is a negative for bank earnings and a bearish signal for bank stocks including HSBC.

Will history repeat itself with a mortgage meltdown at HSBC leading the way to global financial contagion?

Right now, my models are telling us that the stock price of HSBC is poised to fall sharply.

This is due to the anticipated mortgage losses (described above), but also to an inefficient management structure, repeated failures to reform that structure and management turmoil as a new interim CEO, Noel Quinn, attempts to repair past blunders without the job security or support that comes with being a permanent CEO.

When Noel Quinn accepted the job of interim chief executive of HSBC in August, he had one condition. He told Chairman Mark Tucker he did not want to be a caretaker manager who would keep the bank chugging along until a permanent successor was appointed, according to people briefed on the negotiations.

Instead, Mr. Quinn, a 32-year veteran of HSBC, has embarked on a major restructuring of Europe’s largest bank.: He wants to rid the lender of its infamous bureaucracy while reducing the amount of capital tied up in the U.S. and Europe, where it makes subpar returns. To do so, he will have to slash thousands of jobs.

Investors are understandably skeptical. This is the third time the bank has attempted a big overhaul in a decade, following similar efforts in 2011 and 2015. But returns still lag behind global peers such as JPMorgan despite HSBC’s unparalleled exposure to high-growth markets in Asia, which accounts for about four-fifths of profits.

The stock has declined 11% in a year when stock markets were rallying robustly. Most of the drawdown occurred in August and was a direct response to the worsening political situation in Hong Kong.

While this drawdown is notable, it mostly reflects political anxiety and is not reflective of the mortgage losses that are just beginning to enter the picture. Once the reserves for mortgage losses are expanded to meet the rising level of nonperformance, look out below.

So I repeat the question: Is HSBC about to lead the world into another mortgage meltdown?

We might have an answer sometime next year.

Regards,

Jim Rickards

for The Daily Reckoning

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>>> Ford Board Leaves Embattled CEO With Little Room Left for Error


Bloomberg

By Keith Naughton

February 8, 2020


https://www.bloomberg.com/news/articles/2020-02-08/ford-board-leaves-embattled-ceo-with-little-room-left-for-error?srnd=premium


‘We cannot wait year and years,’ soon-to-be COO Farley says
Hackett ‘can’t miss a beat’ anymore after botched Explorer


A little executive bloodletting can sometimes ease the pressure on an embattled chief executive officer. But Jim Hackett is unlikely to see any letup from Ford Motor Co.’s board following the surprise early retirement of one his two top lieutenants.

Joe Hinrichs, Ford’s 53-year-old automotive president, will leave on March 1 after almost two decades with the company. As a rising star under celebrated former CEO Alan Mulally, he was put on the fast track to be a potential heir to the top job.

With Hinrichs out of the picture, Ford is elevating Jim Farley, the company’s only other president, to become the first chief operating officer since the automaker planned for Mulally’s succession seven years ago. The announcement that the board will revive the role of COO came days after Hackett reported dismal earnings results, dogged by the disastrous rollout of the redesigned Explorer SUV, and forecast more disappointing numbers for the upcoming year.

“This signals to everyone that Farley is Hackett’s successor, unless they plan to go outside the company,” said David Whiston, an analyst with Morningstar in Chicago. “Perhaps it could be nine months from now, or it could be 18 months from now, but they will make an announcement that Hackett is retiring and Farley takes over as CEO.”

Staying Put

Hackett, who was asked by an analyst 18 months ago whether he expected to last in the job, told reporters Friday he’s not going anywhere.

“As far as my tenure, this is the kind of thing I love to do and I’m having a really fulfilling assignment here,” said the former CEO of office-furniture maker Steelcase Inc. “I need to be here.”

Since being pressed into duty almost three years ago by Executive Chairman Bill Ford to stabilize his family’s foundering automaker, Hackett, 64, has promised to accelerate the 116-year-old company’s “clock speed.” But Wall Street analysts have long groused that Hackett’s global restructuring has moved at a plodding pace.

Shares slide in post-Mulally era

Ford shares followed up Wednesday’s post-earnings plunge of 9.5% -- the biggest decline in nine years -- with a 1.7% drop on Friday. The stock has fallen 25% under Hackett and by more than half since the departure of Mulally, the only CEO of a Detroit automaker who kept his company out of bankruptcy in 2009.

Hackett himself acknowledged Ford has run out of margin for error when he told analysts during Tuesday’s earnings call: “It does boil down to we can’t miss a beat now in the product launches.”

On Friday, he addressed the costly mistakes made with the Explorer sport utility vehicle again, telling reporters there’s “no room for that type of miss” anymore.

Hackett's Headache

U.S. sales of key models have shrunk since Mullaly left in 2014

In an interview Friday, Farley, 57, didn’t want to talk executive succession. But he said he’s eager to pick up the pace as Ford rolls out a redesigned F-150 pickup -- its most profitable model -- and pours billions into the electric and self-driving cars upending the industry.

“We cannot wait years and years,” Farley said by phone. “In the context of our industry and how it’s changing, we have to accelerate.”

Tough Talk

Farley joined Ford from Toyota Motor Corp. in 2007, just before the bottom fell out of the U.S. auto market. He helped navigate the company through the Great Recession without resorting to the government bailouts and bankruptcies that befell General Motors and Chrysler.

A marketing specialist and cousin of the late actor and comedian Chris Farley, Jim Farley broadened his skills over the years with stints running Ford’s European operations and launching a comeback at Lincoln. Most recently, he’s been head of strategy and technology, cutting deals with Volkswagen AG and Rivian Automotive Inc. on electric and autonomous vehicles.

Volkswagen And Ford Extend Collaboration To Electric, Self-Driving Cars

Along the way, Farley earned a reputation as a tough taskmaster, never afraid to speak his mind and throw a few elbows.

“F--- GM, I hate them and their company,” he was quoted as saying in the 2011 book “Once Upon a Car” by then-New York Times Detroit Bureau Chief Bill Vlasic. “I’m going to beat Chevrolet on the head with a bat.”

Blunt Contrast

Farley’s tone may have softened since then, but his drive remains and Ford insiders are bracing for an extremely demanding new boss.

“Farley is very blunt, and I think Wall Street is actually going to like that because it’s such a contrast from Jim Hackett being very indirect,” said Whiston, who has the equivalent of a buy rating on Ford. “Farley has worked on his temperament a bit and tends to give more diplomatic answers now. The f-bombs are probably a thing of the past.”

As for when Hackett might become a thing of the past, Farley isn’t speculating.

“That’s for the board to decide,” Farley said. “My job is to get the most out of this team, just like we did many years ago, and bend that curve of financial performance and make the right bets strategically.”

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>>> Groupon and Blue Apron’s real problem: Neither business model works, experts say


By Ciara Linnane

Feb 20, 2020


https://www.marketwatch.com/story/groupon-and-blue-aprons-real-problem-neither-business-model-works-experts-say-2020-02-19?siteid=yhoof2&yptr=yahoo


Groupon stock tumbles 42% and Blue Apron is down 22% as experts say they are unlikely to succeed

Groupon and Blue Apron stocks tumbled after some grim quarterly numbers
Groupon Inc. shares slid 43% Wednesday and Blue Apron Inc. was down 22%, after far weaker-than-expected earnings from both companies revived concerns about the sustainability of their business models.

Groupon’s GRPN, +0.00% decline marked the biggest one-day selloff since its 2011 IPO and came in heavy volume of 119 million shares that made it the most actively traded stock on U.S. exchanges. The company said late Tuesday it plans to exit from the Goods category to focus on the $1 trillion “local experiences” market.

The news came as it reported a 23% decline in quarterly revenue, named Melissa Thomas as new chief financial officer, and said it plans to pursue a reverse-stock split to boost the price of its stock.

Wedbush analyst Ygal Arounian said the decision to exit Goods was the right one and would remove a significant drag on value.

“We see the 4Q results (and the exit of Goods) as increasing the likelihood of a takeout/merger (which we’ve written about previously), with our view that Groupon and Yelp YELP, +1.76% would make a value-creating combination and that IAC IAC, -1.12% can be a trusted steward to manage,” the analyst wrote in a note to clients, reiterating his neutral rating on the stock.

Read now: Why Mila Kunis uses Groupon and calls herself ‘a really great promo-coder

Clipping coupons

Groupon’s business model has been the subject of critical academic research, ever since the company first started its daily deal coupon business back in 2008, offering everything from spa and beauty treatments to restaurant deals.

That business involves signing up merchants that are willing to offer sometimes deep discounts on goods and services aimed at local consumers in the hope they can upsell them other services to make up the price shortfall. Groupon makes money by taking a commission from the discounted price.

Read: CEO sees coupon-free Groupon+ offers morphing into modern-day loyalty program

For consumers, the draw was the perceived benefit of group buying. As long as enough people wanted the same thing, Groupon could help them get a good price. For merchants, the downside became apparent when the service mostly attracted bargain hunters, who were unwilling to spend more than the face value of the coupons. Some of the small-business owners that used the platform found themselves overwhelmed operationally when a deluge of customers took up the coupon offer.

“Some businesses were just ill-prepared to handle the service and support of this wave of low-quality, low-margin customers coming in the door,” said Jonathan Treiber, chief executive of RevTrax, a platform that manages special offers and discounts. “Groupon does drive traffic, but merchants have a love/hate relationship with it.”

David Reibstein, professor of marketing at The Wharton School, said there was never a compelling reason for Groupon to exist.

“There are two things that possibly happen with Groupon,” he said. “One is you have a customer that was paying full rate, but is now paying less and is just cutting margin away from the merchant. The second is that the people who are signing up are now occupying spaces that full-paying customers were going to use.”

Customers become unhappy when a Groupon service is so popular that suddenly they can’t get an appointment, he said. Merchants are unhappy when dealing with the negative impact of a low-quality customer base, he said. The platform is also vulnerable to changes in the economic cycle, he said.

“To the degree that Groupon is basically dependent on merchants that have excess capacity and want to sell it off, when they are doing better, that capacity goes away,” he said.

Reibstein said he is surprised the company has lasted as long as it has or that so many competing services have sprung up. “Competitors have the same issues and one thing is that they are training customers to wait for the deal, which is not good either.”

Blue Apron’s blues

Blue Apron’s APRN, -13.89% problems lie in its cost structure, with manufacturing and marketing costs elevated by the basic requirements of a business that delivers fresh food ingredients to customers in expensive packaging. The company has never made a profit, hurt by failed partnerships, that include a deal to sell its meal kits at Costco Wholesale Corp. COST, +0.33%, among other issues.

“From the beginning, Blue Apron failed to put in the necessary manufacturing, supply chain, procurement and logistics that would allow them to manufacture meals with low unit costs and be able to consistently meet customer demand cost efficiently,” said Brittain Ladd, founder and CEO of Six-Page Consulting, which specializes in retail and supply chain management.

The company is operating in a highly competitive business but has high customer acquisition costs and low retention rates. The company’s customer count fell to 351,000 in the December quarter from 557,000 in the year-earlier quarter, according to its latest earnings report.

The company’s cost of goods sold (COGS), excluding depreciation and amortization, as a percentage of net revenue, rose 20 basis points (0.2 percentage points). Marketing expense was $12.1 million, or 12.8% of revenue, in the fourth quarter, compared with 14.4% or revenue a year ago, while product, technology, general and administrative (PTG&A) costs fell 22% to $35.3 million, mostly due to staff cuts.

See now: Opinion: Blue Apron’s new CEO has a thankless task

The company had a net loss of $21.9 million, just a bit lower than the $23.7 million loss posted a year ago, and revenue fell 33% to $94.3 million.

“While we’re confident that Blue Apron will drive leverage in COGS, marketing, and PTG&A expenses in FY:19, we believe visibility into the timing of a potential reacceleration in customer growth remains limited as many of the company’s new initiatives are just beginning to ramp up,” said Stifel analysts led by Scott Devitt, reiterating their hold rating on the stock.

The company’s subscription model is another problem, according to Six-Page Consulting’s Ladd. “They didn’t do enough to offer flexibility, they need more quality food, more recipe options and a better subscription model,” he said. “Customers simply stopped using them as they were underwhelmed.”

The meal-kit business can work, as evidenced by Blue Apron competitors such as Hello Fresh, Home Chef and others who have succeeded, he said. But the trend is slowly being replaced by healthy ready-to-eat meals as consumers clamor for greater convenience.

Read also: Blue Apron to end partnership with Walmart’s Jet.com but continue with Weight Watchers

Blue Apron said it is evaluating its strategic alternatives, including a partnership, a capital raise either through the public of private markets, or a sale of the company. Ladd said its best hope is to be acquired, and named several potential acquirers, including food companies like Kraft Heinz Co. KHC, +0.40% and Campbell Soup Co. CPB, -0.10%, delivery service Instacart and even Starbucks Corp. SBUX, -1.71%.

See: Blue Apron stock soars as news of Beyond Meat menus sparks a round of short covering

Starbucks would acquire a team that has expertise in creating tasty meals and could help bolster the coffee shop chain’s food offering, he said. And Blue Apron is cheap too, after it conducted a reverse stock split that saved it from being delisted but reduced the number of shares available. “It has no capital value so they could buy it for pennies on the dollar,” Ladd said.

Treiber from RevTrax said Blue Apron would be a strong takeover candidate for Walmart Inc. WMT, +0.01%, as it expands in grocery delivery and online grocery, or Target Corp. TGT, +0.74%, which is lagging in food.

“Target doesn’t have a strong online grocery business,” he said. “It could catapult them into being a real player, where over time, they could augment meal delivery with other services.”

Groupon shares have fallen 48% in the past 12 months and are now a full 93% below their IPO issue price of $20. Blue Apron shares are down 85% the past year and about 98% below their IPO price of $10, including the effect of the reverse stock split.

The S&P 500 SPX, -0.38% has gained 21% in the last 12 months and the Dow Jones Industrial Average DJIA, -0.44% has gained 14%.

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