Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
>>> SmileDirectClub, Inc. (SDC) operates a teledentistry platform that provides member's with a customized clear aligner therapy treatment in the United States and internationally. The company manages the end-to-end process, which include marketing, aligner manufacturing, fulfillment, treatment by a doctor, and monitoring through completion of their treatment proprietary with a network of approximately 240 state licensed orthodontists and general dentists through its teledentistry platform, SmileCheck. It offers aligners, impression kits, whitening gels, and retainers. The company was founded in 2014 and is headquartered in Nashville, Tennessee. <<<
>>> SmileDirectClub (SDC): $413.04
Share price on Sept. 11, 2019: $23
Share price on Oct. 22, 2019: $9.50
https://www.msn.com/en-us/money/topstocks/what-dollar1000-invested-in-snap-lyft-and-other-unicorn-ipos-is-worth-today/ss-AAJTj6j#image=19
SmileDirectClub is the upstart competitor to industry leader Align Technology in the field of clear aligners, otherwise known as invisible braces. The main difference between the two companies is that Align sells its product through dentists and orthodontists, while SmileDirectClub, as the name implies, sells its product directly to patients. This direct-to-consumer approach has been strongly criticized by various medical organizations — including the California Dental Board, American Dental Association and American Association of Orthodontists — which has hurt the company’s share price.
<<<
>>> Richard Branson: Virgin Galactic could send 'hundreds of thousands' of people into space
by Yvette Killian
Yahoo Finance
October 28, 2019
https://finance.yahoo.com/news/sir-richard-branson-virgin-galactic-will-do-wondrous-things-202251464.html
Virgin Galactic debuted on the New York Stock Exchange Monday morning as Sir Richard Branson's company became the first publicly traded space tourism company.
“Only 500 people have ever been to space, and that's including the Chinese, the Americans, the Russians. And we have the capability of putting hundreds of thousands of people in space in the years to come. And that's ridiculously exciting,” said Branson, who founded the company in 2004. “So here we are, on the floor of the New York Stock Exchange, launching the first spaceship company.“
In an interview with Yahoo Finance’s On the Move, Branson said taking the company public would give them the resources to do “wondrous things.” Virgin Galactic plans to take people to space as early as next year.
“We like to do things with a little bit of splash. We've got something quite exciting happening, which we will be announcing soon as to who's coming with me,” Branson said, referring to the inaugural flight, which will carry six passengers. “And so watch this space.”
Virgin Galactic completed its merger with Social Capital Hedosophia last week to create Virgin Galactic Holdings, Inc. which is now trading on the NYSE under the ticker symbol “SPCE.” The company, 15 years in the making, cost more than $1 billion to build.
Currently, traveling to space on a Virgin Galactic flight will cost a hefty $250,000 per seat. The company expects that cost to come down over the next five to 10 years as the business becomes more cost effective. According to Chamath Palihapitiya, Social Capital Hedosophia Holdings founder, the company has about 70% operating margins, “which means it’s as good of a business as a Google or Apple or a Facebook.”
Virgin Galactic expects to have five spaceships operating by 2023, shuttling approximately 1,500 customers annually. From there, the sky is the limit for those who can pay. And for those who can’t, the company plans to bring costs down by building spaceships faster, cheaper, and more efficiently. It has already started instituting manufacturing efficiencies in the spaceship and rocket production process, said George Whitesides, Virgin Galactic CEO.
So, how much will a ticket eventually cost once the Virgin Galactic reaches scale?
“I think, you know, if we have 20 or 30 spaceships or something, we will, you know, in 20 years time, the price will come down dramatically,” said Branson, declining to specify.
<<<
>>> Branson’s Virgin Galactic Sinks 20% Since NYSE Debut This Week
Bloomberg
By Justin Bachman
October 31, 2019
https://www.bloomberg.com/news/articles/2019-10-31/branson-s-virgin-galactic-sinks-22-since-nyse-debut-this-week?srnd=premium
Richard Branson’s Virgin Galactic Holdings Inc. is getting off to a rocky start as the first publicly traded space-tourism company.
The shares have yet to post a daily gain since adopting the SPCE ticker on Oct. 28, following a merger with a shell investment company that was already trading. Virgin Galactic tumbled 11% to $9.41 at the close in New York, bringing this week’s decline to 20%.
Buying shares amounts to a bet on the company’s ambitious plans to fly its first passengers into space next year, including billionaire Branson. That’s a business with both potential and risk, and Virgin Galactic has no sales or income at the moment.
“Even compared to an Uber or Lyft or a Slack, this is a really early-stage business. Think of it as a startup that just happens to be listed,” said Alex King, founder of Cestrian Capital Research in Newport Beach, California. King personally owns Virgin Galactic shares. “I think this is going to happen a lot with this stock. It’s going to have some very red days and some very green days.”
Virgin Galactic faces questions about the ultimate size of the suborbital tourism market and the competitive challenges, said Steven Jorgenson, general partner at Starbridge Venture Capital. Two well-funded rivals, Jeff Bezos‘s Blue Origin and Elon Musk’s Space Exploration Technologies Corp., plan to offer orbital flights.
“You have a lot of uncertainties to juggle,” Jorgenson said in an email. “Virgin Galactic does seem to be a very competent company from a professional and engineering standpoint, but they still have a lot to prove as they have yet to actually fly their first customers.”
Virgin Galactic has a backlog of 600 customers who have placed deposits of as much as $250,000 each to ride into space. Executives have said they expect to raise the fare once the company begins service and resumes taking reservations.
“Just like with most space companies, there’s a lot of hype around Virgin Galactic,” said Meagan Crawford, managing partner with SpaceFund, a venture capital fund in Texas. “I think what you’re seeing today is a market correction based on that hype wearing off a bit. It’s obviously hard to value a company that isn’t yet operational and has no firm date when that’s going to change.”
<<<
>>> Beyond Meat Is Most Expensive U.S. Short Bet After 680% Surge
By Jennifer Bissell-Linsk and Aoyon Ashraf
July 31, 2019
https://www.bloomberg.com/news/articles/2019-07-31/beyond-meat-is-most-expensive-u-s-short-bet-after-680-surge?srnd=premium
Looking to short Beyond Meat Inc. in the wake of the veggie-burger maker’s post-IPO rally? The cost of doing so is now the highest among all U.S. stocks.
Short sellers paid the highest bid and offer borrow rate of 110%/138% on Beyond Meat, with the last transaction going off at 197%, indicating that supply for shares to borrow are declining quickly, according to July 30 data from financial analytics firm S3 Partners. That’s more than more than double the cost of the second-most expensive short bet, Overstock.com Inc.
Beyond Meat has surged 680% since its May 1 debut. Short bets total $1.2 billion of market value. About 5.2 million shares are borrowed for short selling, almost 45% of the company’s free float.
Meanwhile, Overstock.com, which has long been the target of short sellers, has seen its stock fall roughly 75% since 2018 when it decided to pivot to cryptocurrencies. It has 17.9 million shares or 63% of its float shorted.
Rounding out the list from S3 are some names that have attracted a cult like following as well. Turtle Beach, which captivated investors during the Fornite craze last year, at one point rose nearly 750% over a quarter. Pareteum also made the list.
Ticker Short interest SI % Float Bid Offer Last
BYND $1,156,910,794 44.45% 110.45% 137.87% 197.10%
OSTK $395,430,521 63.21% 54.84% 68.62% 80.26%
INS $55,198,278 37.83% 54.47% 68.12% 65.23%
TEUM $77,668,034 21.99% 46.24% 57.62% 61.69%
HEAR $57,305,444 43.70% 32.28% 40.12% 43.69%
PLUG $104,740,724 19.20% 30.02% 37.62% 35.15%
NBEV $79,908,434 38.87% 26.89% 33.62% 33.10%
AXDX $299,290,301 56.30% 26.89% 33.37% 43.84%
DDS $631,319,030 82.61% 26.01% 32.62% 82.31%
HIIQ $159,283,664 68.53% 22.47% 28.12% 27.30%
<<<
>>> Align Technology's Plunge on Thursday May Mark the Start of a Big Slide
A break of the stock's 2018 lows would mean that the $100 area from late 2016 is the next downside price target.
Real Money
By BRUCE KAMICH
Jul 26, 2019
https://realmoney.thestreet.com/investing/stocks/align-technology-s-plunge-on-thursday-may-mark-the-start-of-a-big-slide-15034140?puc=yahoo&cm_ven=YAHOO&yptr=yahoo
In his second Executive Decision segment of "Mad Money" Thursday, Jim Cramer checked in with Joseph Hogan, president and CEO of Align Technology Inc. (ALGN) , which saw its shares plummet 27% Thursday after the company delivered strong earnings but forecast significantly slower growth in the second half of 2019.
Hogan said there's still a broad-based growth story at ALGN, one the company needs to do a better job sharing with investors. He said Align continues to see growth around the globe except in China, which is the company's second-biggest market. While Align had forecast 70% growth in China, the company is now expecting only 20% to 30%. Hogan said it's not a competitive or operational problem in China, but more of a consumer backlash, one he expects will rectify itself.
When asked specifically about Chinese competitors, Hogan said Align hasn't seen any significant changes in market share. Align operates in the higher end of the market, Hogan said, and its market share is usually stable.
Let's check out the charts and indicators for some guidance.
In this daily bar chart of ALGN, below, we can see that prices were headed lower even ahead of Thursday's carnage. The slopes of both the 50-day moving average line and the 200-day line were negative. Prices gapped lower on very heavy turnover (volume) and the weak close put ALGN close to its January nadir.
The daily On-Balance-Volume (OBV) line made a new low for the move down, which started back in April. A declining OBV line says that sellers are more aggressive. The Moving Average Convergence Divergence (MACD) oscillator moved below the zero line in early June for an outright sell signal.
In this weekly bar chart of ALGN, below, the gap disappears. Prices are below the declining 40-week moving average line. Support in the $200-$180 area does not look that impressive. The weekly OBV line has been weak the past three months and the MACD oscillator is just slightly above the zero line.
In this Point and Figure chart of ALGN we used weekly data. No lower targets are projected but the sharp decline suggests that the late 2018 lows are vulnerable.
Bottom line strategy: Standing back and looking at the weekly bar chart we see a large top pattern. A break of the 2018 lows would mean that the $100 area from late 2016 is the next downside price target.
<<<
Short ETFs - >>> Profit From Trump's Anti-Trade Policies With Inverse ETFs
Zacks
Sweta Killa
May 31, 2019
https://finance.yahoo.com/news/profit-trumps-anti-trade-policies-151003794.html
The decade-old U.S. bull market has been threatened by renewed trade fight lately. Investors could ride out the downbeat sentiments through inverse or leveraged inverse ETFs as these products offer big gains in a short span.
The decade-old U.S. bull market has been threatened by renewed trade fight lately. Escalation in tit-for-tat tariffs between the United States and China has shaken the Wall Street once again, resulting in global growth concerns.
President Donald Trump raised tariffs on Chinese goods worth $200 billion and China retaliated with as much as 25% tariff on $60 billion worth of U.S. imports effective Jun 1. Trump also threatened to blacklist Chinese firm Huawei Technologies, forbidding it from doing business with American companies. China might hit back by restricting rare-earth exports to the United States (read: Trade War Drags On: Time to Buy Bond ETFs?).
Additionally, the Trump administration threatened to slap tariffs on all goods coming from Mexico in a bid to curb illegal immigration. Washington will impose a 5% tariff from Jun 10 that will increase to 10% on Jul 1 if illegal immigration across the southern border was not stopped. Levies will then rise by 5% each month up to 25% by Oct 1. The tariff will permanently remain at the 25% level unless and until the crisis stops. The move will hit a number of companies especially in the auto sector. This is because American carmakers have built vehicles in Mexico for years, taking advantage of its cheap labor, trade deals and proximity to the United States.
The rounds of increase in tariffs will hurt U.S. consumers, driving up the prices of goods and thus curtailing spending. It will further impact worldwide economy and corporate profits, particularly at big U.S. exporters. All these will continue to weigh on the stock market. Investors could ride out the downbeat sentiments through inverse or leveraged inverse ETFs as these products offer big gains in a short span.
These products either create an inverse position or leveraged (200% or 300%) inverse position in the underlying index through the use of swaps, options, future contracts and other financial instruments. There are a number of inverse or leveraged inverse products in the market that offer inverse (opposite) exposure to the three major bourses. Investors should trade them cautiously, keeping their risk appetite in mind. Below we have highlighted them and the key differences between each (read: 5 Leveraged/Inverse ETFs That Are Up 20% Plus So Far in Q2):
S&P 500 Index
For investors seeking to bet against the S&P 500 Index, ProShares Short S&P500 ETF SH and Direxion Daily S&P 500 Bear 1X Shares SPDN are good choices. These provide unleveraged inverse exposure to the daily performance of the S&P 500 Index. SH is a popular and liquid option with AUM of $2 billion and average daily volume of more than 6.4 million shares.
ProShares UltraShort S&P500 ETF SDS seeks two times (2x) inverse exposure to the index while ProShares UltraPro Short S&P500 SPXU and Direxion Daily S&P 500 Bear 3x Shares SPXS provide three times (3x) inverse exposure. Out of the three, SDS is relatively popular and liquid, having amassed nearly $1 billion in AUM and 6.4 million shares in average daily volume.
Dow Jones
To bet against Dow Jones, ProShares Short Dow30 DOG, ProShares UltraShort Dow30 DXD and ProShares UltraPro Short Dow30 SDOW are the three options in the market. DOG offers unleveraged exposure to the index with AUM of $242.6 million and average daily volume of 785,000 shares. DXD provides two times inverse exposure with AUM of $139.7 million while SDOW having AUM of $248.3 million seeks three times exposure. Both these ETFs trades in average daily volume of more than million shares (read: Dow on Longest Losing Streak in 8 Yrs: 5 Stocks Still Up in ETF).
Nasdaq-100 Index
Similarly, ProShares Short QQQ PSQ provides unleveraged inverse exposure to the daily performance of the Nasdaq-100 Index. ProShares UltraShort QQQ QID seeks two times exposure while ProShares UltraPro Short QQQ SQQQ provides three times inverse exposure to the index. PSQ, QID and SQQQ have AUM of $619.2 million, $363.1 million and $1 billion, respectively. SQQQ has average daily volume of 8.8 million shares while QID and PSQ have average daily volume of 3.1 million shares and 2.4 million shares, respectively (read: 5 Tech ETFs Braving Trade Tensions in May).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared with the shorter period (such as, weeks or months) due to their compounding effect (see: all the Inverse Equity ETFs here).
Still, for ETF investors who are bearish on equities for the near term, either of the above products could make an interesting choice. Clearly, these could be intriguing for those with high-risk tolerance and a belief that the “trend is the friend” in this specific corner of the investing world.
<<<
Performance comparison of 1x Short ETFs -
Based on this limited data, HDGE has fallen more than SH during up markets, and risen more than SH in down markets (albeit modestly).
Per Yahoo, the expense ratio for HDGE is 2.72%, and for SH is 0.89%. Assets in HDGE are $120 mil, and SH has $1.76 Bil.
__________________________
2012-2019 bull market -
****************************
HDGE - loss (74.9%)
SH - loss (65.9%)
Q-1 2019 stock rebound -
*****************************
HDGE - loss (28.9%)
SH - loss (20.6%)
___________________________
Q-4 2018 stock swoon -
***************************
HDGE - gain + 25.0%
SH - gain + 24.5%
Recent stock swoon -
*************************
HDGE - gain +8.6%
SH - gain +7.3%
___________________________
Palladium looks like it might be a good short. It tripled over the last 3 years and had gone parabolic, but looks like the crash phase has begun.
Here's an area to watch as a potential short, the private prison sector (CXW, GEO). If this move by JP Morgan spreads to other banks, then these prison stocks could be short candidates. The bigger opportunity to short will come when there is another Dem President elected.
It's still early, but I remember CXW and GEO got clobbered big time when it appeared Hillary would be elected. Obama had already announced they would be phasing out these private prisons, but when Trump was elected he reversed the policy, which saved the sector. I have to agree with the Dems on this one, a private for profit prison system is a bad idea -
>>> JPMorgan backs away from private prison finance
Reuters
by David Henry, Imani Moise
3-5-19
https://www.reuters.com/article/us-jp-morgan-prisons/jpmorgan-backs-away-from-private-prison-finance-idUSKCN1QM1LE
NEW YORK (Reuters) - JPMorgan Chase & Co has decided to stop financing private operators of prisons and detention centers, which have become targets of protests over Trump administration immigration policies.
“We will no longer bank the private prison industry,” a company spokesman told Reuters. The decision is a result of bank’s ongoing evaluations of the costs and benefits of serving different industries, he said.
JPMorgan is one of several banks that have underwritten bonds or syndicated loans for CoreCivic Inc and Geo Group Inc, the two major private prison operators in the United States. In 2018, banks, including Bank of America Corp and Wells Fargo & Co raised roughly $1.8 billion in debt over three deals for CoreCivic and GEO Group, according to Refinitiv data.
Wells Fargo said in January that it is reducing its relationship with the prison industry as part of its “environmental and social risk management” process.
“Our credit exposure to private prison companies has significantly decreased and is expected to continue to decline, and we are not actively marketing to that sector,” Wells Fargo said in its “Business Standards Report” for 2018.
Prison finance is small business for JPMorgan, the biggest bank in the U.S. by assets. JPMorgan was a leader in 1,153 loan deals worth $354 billion across all industries, according to Refinitiv data.
Prison companies account for about 10 percent of federal and state prison beds, according to Moody’s Investors Service. But about two-thirds of people held by U.S. Immigration and Customs Enforcement are in private detention centers, S&P Global Ratings estimated last year.
Moody's and S&P Global have speculative grade, or junk, credit ratings on CoreCivic and GEO Group partly because their revenues are at risk to changes in government policy and public scrutiny of companies profiting from detention.
After the Obama administration in August 2016 directed the Bureau of Prisons to phase out federal use of private prisons, shares of both companies plunged more than 40 percent. One month after Donald Trump became president, the order was rescinded and the stocks rebounded.
Activism against the financing of private prisons heated up after revelations that undocumented minors were being separated from their adult parents or guardians and being held in detention centers.
TRUMP REVERSES POLICY
The Trump administration reversed its separation policy after a public outcry and many children were released from detention centers and reunited with their parents. Others were sent to foster homes or to live with relatives in the United States.
CoreCivic issued a statement in June saying none of its facilities housed children without the supervision of a parent.
Pablo Paez, Geo Group’s executive vice-president of corporate relations, wrote in a June 2018 email to Reuters that neither have they housed unaccompanied children .
CoreCivic changed its name from Corrections Corporation of America in October 2016. It said the rebranding was to highlight its strategy to transform its business “from largely corrections and detentions centers to a wider range of government services.”
In 2018 prisons and detention centers still accounted for 87 percent of CoreCivic’s net operating income, according to a recent presentation from the company to investors. It had 72,833 beds in prisons and detention centers.
JPMorgan’s move away from the industry comes after activists have challenged Chief Executive Officer Jamie Dimon at bank’s last two annual meetings over its financing of prison companies.
Protest groups have also appeared regularly outside of Dimon’s Manhattan apartment. On Valentine’s Day, a group appeared with a mariachi band and signs that begged the executive to “break up with prisons.”
At the May 2017 annual meeting, Dimon promised to look into prison finance. In June, Dimon and the Business Roundtable, a group of CEOs that he chairs, issued public statements calling for immigration reform and an end to the Trump administration policy of separating minors from their parents.
JPMorgan’s move could prove mostly symbolic if other lenders or investors in prison companies do not take similar steps. Activists learned that lesson last year after they pressured financiers of gunmakers in the wake of a shooting at a Florida high school.
Bank of America Corp, Citigroup Inc and BlackRock Inc, the world’s largest asset manager, last year said they were limiting business with gunmakers in various ways. But others, including Wells Fargo, declined to follow suit and filings show firearms companies retain access to a wide range of financing options.
<<<
>>> JPMorgan backs away from private prison finance
Reuters
by David Henry, Imani Moise
3-5-19
https://www.reuters.com/article/us-jp-morgan-prisons/jpmorgan-backs-away-from-private-prison-finance-idUSKCN1QM1LE
NEW YORK (Reuters) - JPMorgan Chase & Co has decided to stop financing private operators of prisons and detention centers, which have become targets of protests over Trump administration immigration policies.
“We will no longer bank the private prison industry,” a company spokesman told Reuters. The decision is a result of bank’s ongoing evaluations of the costs and benefits of serving different industries, he said.
JPMorgan is one of several banks that have underwritten bonds or syndicated loans for CoreCivic Inc and Geo Group Inc, the two major private prison operators in the United States. In 2018, banks, including Bank of America Corp and Wells Fargo & Co raised roughly $1.8 billion in debt over three deals for CoreCivic and GEO Group, according to Refinitiv data.
Wells Fargo said in January that it is reducing its relationship with the prison industry as part of its “environmental and social risk management” process.
“Our credit exposure to private prison companies has significantly decreased and is expected to continue to decline, and we are not actively marketing to that sector,” Wells Fargo said in its “Business Standards Report” for 2018.
Prison finance is small business for JPMorgan, the biggest bank in the U.S. by assets. JPMorgan was a leader in 1,153 loan deals worth $354 billion across all industries, according to Refinitiv data.
Prison companies account for about 10 percent of federal and state prison beds, according to Moody’s Investors Service. But about two-thirds of people held by U.S. Immigration and Customs Enforcement are in private detention centers, S&P Global Ratings estimated last year.
Moody's and S&P Global have speculative grade, or junk, credit ratings on CoreCivic and GEO Group partly because their revenues are at risk to changes in government policy and public scrutiny of companies profiting from detention.
After the Obama administration in August 2016 directed the Bureau of Prisons to phase out federal use of private prisons, shares of both companies plunged more than 40 percent. One month after Donald Trump became president, the order was rescinded and the stocks rebounded.
Activism against the financing of private prisons heated up after revelations that undocumented minors were being separated from their adult parents or guardians and being held in detention centers.
TRUMP REVERSES POLICY
The Trump administration reversed its separation policy after a public outcry and many children were released from detention centers and reunited with their parents. Others were sent to foster homes or to live with relatives in the United States.
CoreCivic issued a statement in June saying none of its facilities housed children without the supervision of a parent.
Pablo Paez, Geo Group’s executive vice-president of corporate relations, wrote in a June 2018 email to Reuters that neither have they housed unaccompanied children .
CoreCivic changed its name from Corrections Corporation of America in October 2016. It said the rebranding was to highlight its strategy to transform its business “from largely corrections and detentions centers to a wider range of government services.”
In 2018 prisons and detention centers still accounted for 87 percent of CoreCivic’s net operating income, according to a recent presentation from the company to investors. It had 72,833 beds in prisons and detention centers.
JPMorgan’s move away from the industry comes after activists have challenged Chief Executive Officer Jamie Dimon at bank’s last two annual meetings over its financing of prison companies.
Protest groups have also appeared regularly outside of Dimon’s Manhattan apartment. On Valentine’s Day, a group appeared with a mariachi band and signs that begged the executive to “break up with prisons.”
At the May 2017 annual meeting, Dimon promised to look into prison finance. In June, Dimon and the Business Roundtable, a group of CEOs that he chairs, issued public statements calling for immigration reform and an end to the Trump administration policy of separating minors from their parents.
JPMorgan’s move could prove mostly symbolic if other lenders or investors in prison companies do not take similar steps. Activists learned that lesson last year after they pressured financiers of gunmakers in the wake of a shooting at a Florida high school.
Bank of America Corp, Citigroup Inc and BlackRock Inc, the world’s largest asset manager, last year said they were limiting business with gunmakers in various ways. But others, including Wells Fargo, declined to follow suit and filings show firearms companies retain access to a wide range of financing options.
<<<
>>> 5 Rules for Selling Short in the Stock Market
December 4, 2018
by Timothy Lutts
https://cabotwealth.com/daily/stock-market/short-selling-stocks/
The market is a two-way street. Sometimes traffic flows up, and investors who own stocks (who are “long”) make money. And sometimes traffic flows down, and those investors lose money. But there are some investors who make money when stocks fall (as they did in October and November)—investors who are “short” the market—and if you’re nimble enough, you can successfully join them. But selling short is not an enterprise to be undertaken lightly; it’s an easy way for amateurs to lose money!
So before you enter into this arena, consider my rules for selling short in the stock market.
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.
Over the past 10 years, the market’s trend has been up, and anyone who bet against it (hedge funds, for example) suffered.
But recent activity suggests that a new bear market may be getting under way, and when it does, you can garner some good profits by selling short, by investing in sync with that downtrend.
That said, you don’t want to jump the gun! 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.
If you want to invest contrary to this upward trend, you better be darn sure there’s a real bear market in force to help you.
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.)
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.
So what stocks might be good shorts in the future—once this bull market rolls over? Off the top of my head, I’d keep an eye on these current favorites:
Canon (CAJ) is an old-school photography company facing competition from digital upstarts; in fact it’s easy to draw a parallel with Kodak. Revenues peaked at $45 billion in 2011; last year they were $36 billion. The stock peaked above 40 in January and has been trending down since.
Cummins (CMI) is the king of diesel engines, but the recent activities of executives at Volkswagen and other German automakers in skirting pollution laws have made perceptions of the business increasingly “dirty” and investors have been selling the stock since early February.
R.R. Donnelley and Sons (RRD) has a long and distinguished history as a commercial printer, but the trend toward digitization has forced the company to diversify into other business services and earnings have suffered. The stock peaked in July 2016 and has been trending down since.
Triumph Group (TGI) is not as well known as the other companies here—it’s a supplier of aerospace services, structures and systems to aircraft manufacturers (like Boeing and Airbus). But revenues peaked in 2015 at $3.9 billion—and the stock has been trending down since 2013, as investors saw the top coming.
Xerox (XRX) is well known as the inventor of the pioneer copy machine, but its glory days are long over. Furthermore, a recent fight with activist investor Carl Icahn resulted in the resignation of the Chairman, the CEO and six members of the board of directors. The stock peaked at 37 in January and has been mostly trending down since.
But don’t forget Commandments #1 and #2.
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.
<<<
The charts are starting to look more promising for a rebound of the main indices after the big surge on Friday. 'Buy the dip' mentality could re-emerge, though it's still early.
Could be time to cover short trading positions to lock in some profits. Still early, but the odds are staring to improve for the bullish side, though we need to see some follow through.
The first target to watch for the S+P is the 2550-2600 resistance area, then the falling 50 MA at 1645, which will also be around 2600 soon.
>>> Misguided share buybacks are hollowing out companies’ balance sheets and will lead to even bigger stock-market trouble
MarketWatch
By Martin Hutchinson
Nov 21, 2018
https://www.marketwatch.com/story/misguided-share-buybacks-are-hollowing-out-companies-balance-sheets-and-will-lead-to-even-bigger-trouble-2018-11-20?siteid=bigcharts&dist=bigcharts
GE’s troubles are a reliable signal of trouble ahead for U.S. companies
A year ago, I wrote about the worrying increase in leverage among America’s blue chips caused by share repurchases (“Hollowed-out blue chips are the next subprime”). Today I want to return to the subject, because the travails of General Electric are a reliable signal of the trouble ahead for the large corporate sector of the U.S. economy.
GE GE, +2.91% was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone. Since the highest net income recorded by the company during those years was $8.8 billion in 2016, with 2015 and 2017 recording a loss, it has managed to lose more on its share repurchases during those three years than it made in operations, by a substantial margin.
Even more important, GE has now left itself with minus $48 billion in tangible net worth at Sept. 30, with actual genuine tangible debt of close to $100 billion. As the new CEO Larry Culp told CNBC last Monday: “We have no higher priority right now than bringing those leverage levels down.” The following day, GE announced the sale of 15% of its oil services arm Baker Hughes, for a round $4 billion.
Of course, since that sale values Baker Hughes at $26 billion, and GE paid $32 billion for 62% of Baker Hughes as recently as last year, which looks to me like a valuation for the whole company of $52 billion, GE shareholders appears to have lost half the value of their investment in Baker Hughes in about 18 months.
As I have said several times, GE has been abominably managed since the odious “Neutron Jack” Welch took over in 1981; let us hope that Culp, who had a fine track record at Danaher, can turn it around.
The GE situation reminds me of another overvalued conglomerate, based in the railroad sector, that had been one of the bluest of blue chips and that slithered into bankruptcy over a period of about two years, via a series of divestitures at fire-sale prices, each of which appeared to have enabled the company to “turn the corner.” Its bankruptcy was unthinkable — until it happened, shaking market confidence for the next year, especially in the commercial paper market, and tipping off a considerable recession.
For those of you lucky enough not to have been around that far back (and even I only learned about in business school, a couple of years later), I am referring to the Penn Central Corporation, which bit the dust in 1970. That too, or rather its predecessor New York Central (the two behemoths merged in 1968), had benefited from a managerial wizard, Robert R. Young, whose reputation in the 1950s was almost as overblown as Welch’s. The one way in which GE differs from Penn Central is that it has announced its intention to exit the commercial paper market, so at least that market won’t be spooked if it goes after redeeming most of its outstandings.
Just as Penn Central’s bankruptcy revealed weaknesses in several other major U.S. companies, such as Lockheed, and shook business confidence for several years (President Nixon resorted to bullying the Fed into money printing to try to escape from the resulting recession) so it’s likely that GE, or some other titan of U.S. industry, will go unexpectedly bankrupt in the next year or so and spark off a similar stock market meltdown and period of general gloom.
AT&T T, +1.77% with $181 billion of debt and minus $128 billion of tangible net worth, most of it through overpriced acquisitions, is another potential Penn Central lookalike; again its bankruptcy is unthinkable but not by any means impossible.
Share-repurchase shenanigans are not however confined to the dinosaurs of yesteryear. A recent Financial Times article outlined how the five tech companies with the most cash (Apple AAPL, +0.96% Alphabet GOOG, +1.91% GOOGL, +1.93% Cisco CSCO, +0.42% Microsoft MSFT, +1.79% and Oracle ORCL, +1.18% ) have repurchased an astounding $115 billion of stock in the first three quarters of 2018. By contrast, the total capital spending of the five companies was only $42.6 billion during the same period. The story then congratulated investors for having done so well out of President Trump’s tax reform, which lowered the corporate tax rate, thus encouraging investment in the United States. With share repurchases in these companies being almost three times their actual investment, one must wonder how much actual U.S. economic growth they are expecting.
These share repurchases are misguided in so many ways. First, Apple, Alphabet and Microsoft are valued by the stock market at close to $1 trillion, levels no company has ever reached before (Cisco and Oracle, to be fair, have more reasonable valuations, under $200 billion.) If you ignore the current stock price, a company repurchasing its shares is simply giving away its cash and reducing its share count; it creates no value. If you don’t ignore the share price, share repurchases are highly pro-cyclical, pushing up share prices in a bull market and raising the possibility that the company will be short of cash in the next recession. For $1 trillion companies, share repurchases are almost certainly being done very close to the top.
Read: This is what happened the last time Warren Buffett’s Berkshire Hathaway bought back stock
Either way, the company is not “giving” anything to shareholders (especially not to small shareholders, who generally do not have the possibility of dealing directly with the company Treasurer repurchasing the shares.)
Most likely, the share price rise caused by the heavy repurchases will merely bring a new set of even more ignorant investors into the shares, attracted by their apparent “momentum.” That is what has happened to the shares of the FAANGs in 2018 (until the last month) — share repurchases have pushed up their prices and brought in more suckers who are unlikely to be long-term happy shareholders.
Read: 5 companies that spent lavishly on stock buybacks while pension funding lagged
Cash dividends are quite different; they represent a return to the shareholders of the profits legitimately earned by the company. Provided the company does not pay out more than it earns, dividends do not significantly increase the company’s leverage or its risk. However, tech companies are generally loath to pay out substantial cash dividends; they prefer to indulge in vast share repurchases for one very good reason: the share repurchases benefit the value of the employees’ stock options, whereas dividends don’t.
The crash to come will focus on the major names of corporate America.
It has always been clear that a decade of negative real interest rates would cause excess investment in some area or other, which would eventually bring the overinflated stock market crashing down. Simple souls have been watching the U.S. housing market intensely, but that was never likely to be the principal cause of collapse again, as it was in 2007-08, because the last housing disaster is so recent. To some extent, the tech sector is headed for disaster; both the private-equity-funded sector, with its “dekacorns,” and the publicly quoted sector with its arrogant leftist FAANGs, are clearly overblown in value, have lost most of the purpose for their existence and are due for a massive cull.
Another sector that looks likely to crash, and has been warned about frequently, is the leveraged loan market. Too much capital has gone into speculative private-equity deals, generally poorly managed, and achieving value only by “financial engineering” in the high-yield debt markets. There is no doubt that this sector is also due for massive cathartic shakeout, causing bankruptcies and dismay but ultimately healthy for the U.S. and global economies as a whole.
However, no bubble is as overblown and as unjustified as share buybacks, which have totaled $350 billion in the first 10 months of 2018 alone. These have run at far more than double the level of any previous economic upsurge, at a time when stock prices are more overvalued than they have ever been before — 1929 was a model of sound valuation and caution by comparison — with the favorite tech stock, Radio Corporation of America, trading at only 28 times trailing earnings. They have de-capitalized blue-chip companies, leaving many of them with negative equity (in last year’s piece I detailed the precise position of several; it need hardly be said that another year of frantic buyback activity has left the balance sheets of most of those companies in even worse shape.)
Read: If you’re expecting buybacks to rescue the stock market, think again, says strategist
The crash to come will focus therefore on the major names of corporate America, which have hollowed out their balance sheets to goose the prices of their management’s stock options. Because corporate America provides far more jobs than the housing sector, or even the tech sector, its collapse will be uniquely painful. But that is only a just recompense for a decade of monetary policy that has been uniquely, criminally foolish.
<<<
Markets are definitely starting to look vulnerable, though from a TA perspective the big test will come when key support is tested (support levels from the previous 2018 lows). Here are the levels to watch, with the lower number the most important -
DJIA - 23,500-24,000
S+P - 2550-2600
Nasdaq - 6600-6800
Russell - 1450-1475
These support levels are what Wall St is watching right now, and have their algorithms set for. Support levels for the Russell and Nasdaq could fail, but the big trigger to short will be if/when the S+P fails.
According to the TA rules, the time to go short is when the lower part of the support level/range fails. But it may bounce back up to re-test that level (which is now resistance, since 'broken support becomes resistance'), and when that re-test clearly fails, that is the time conservative TA traders will short. Alternately you can short after the fail but before the re-test, but that's riskier, although if support fails dramatically, more traders will short right away.
The Russell will be the first to break key support since it's almost there now (trading at 1482, with key support at 1450). The Nasdaq would be next.
Other bearish developments include -
The Russell recently had a 'death cross' (50 MA crossing under the 200 MA), the first one since mid-2015, and the Nasdaq will have a death cross in the next several weeks. The S+P will likely have one within the next month or so. Like the 'golden cross', the death cross is a lagging indicator. While every death cross doesn't indicate the start of a bear market, every bear market will start with a death cross..
Even if an investor isn't planning to short, it looks like the consensus on Wall St is that the rationale for 'buy the dip' has probably ended, at least for now. If the markets turn around and regain the 200 and 50 MAs and go to new highs, then 'buy the dip' could re-emerge since the bull market uptrend would be re-established. That is looking less likely at the moment, though you never know what 2019 holds, if the trade war with China is resolved, the Fed backs off, etc.
>>> Invisalign maker Align Technology's stock plunges after downbeat outlook, but analysts stay bullish
By Tomi Kilgore
Oct 25, 2018
https://www.marketwatch.com/story/invisalign-maker-align-technologys-stock-plunges-after-downbeat-outlook-but-analysts-stay-bullish-2018-10-25?siteid=bigcharts&dist=bigcharts
Shares of Align Technology Inc. ALGN, -0.38% plunged 18% toward a six-month low in premarket trade Thursday, after the maker of the Invisalign dental product reported better-than-expected third-quarter earnings, but also said average selling prices (ASPs) declined and provided a downbeat outlook. Analyst Richard Newitter at Leerink cut his price target to $320 from $420, but kept his rating at outperform saying the stock selloff is an opportunity to buy. Align said late Wednesday that worldwide ASP was $1,230, down from $1,315 in the second quarter and and from $1,310 in the same period a year ago. Stifel Nicolaus's Jonathan Block cut his price target to $346 from $425, but affirmed his buy rating saying he does not expect a downward spiral in ASPs. The company said it expects fourth-quarter earnings per share of $1.10 to $1.15 and revenue of $505 million to $515 million. As of the end of September, the FactSet consensus for EPS was $1.32 and for revenue was $545.1 million. The stock has tumbled 24% over the past three months through Wednesday, while the S&P 500 SPX, +1.59% has lost 6.7%.
<<<
>>> 5 Marijuana Stocks to Stay Far Away From
Tom Taulli
InvestorPlace
October 4, 2018
https://finance.yahoo.com/news/5-marijuana-stocks-stay-far-161340936.html
The market for cannabis has accelerated in a big way this year. And now investors can’t seem to get enough of marijuana stocks. It’s almost as if we are seeing a replay of the dot-com era.
So might there be a bubble brewing? Perhaps.
Bubbles can last awhile. In the case of the dot-com boom, it went from about 1995 to 2000. The move in marijuana stocks this year is based on some important events, though.
Just look at Constellation Brands (NYSE:STZ), which invested $3.8 billion in Canopy Growth (NYSE:CGC). There is also buzz that Coca-Cola (NYSE:KO) is looking at the space.
But despite all this, there should be some caution.
Pots stocks have already shown to be extremely volatile. Given this, here are some marijuana stocks to avoid:
Tilray (TLRY)
Among all the marijuana stocks, Tilray (NASDAQ:TLRY) is one of the higher quality operators.
The company has an experienced management team and there should be quite a bit of uptake with the legalization of cannabis for recreational purposes in Canada. Tilray also has been investing in new technologies with patent applications. In fact, the company is the first licensed producer of medical cannabis to have its facility receive the Good Manufacturing Practices (GMP) certification.
So then why stay away from TLRY?
Well, the primary reason is valuation. Since coming public in July, the shares have zoomed from $17 to a high of $300. True, the TLRY stock price has since come down to $151. Yet the market cap is still at a nosebleed $14 billion. This does seem like a fairly big stretch for a company that is forecasted to generate $40 million in revenues this year.
Besides, in light of the high valuation, it would be a good bet that there will be more capital raises, not to mention insider selling.
Cronos Group (CRON)
In the cannabis business, scale is important. It can mean snagging partnerships with large pharma and beverage companies. And of course, scale also can lead to more efficiencies and revenue potential.
This is why Cronos Group (NASDAQ:CRON) is at a disadvantage compared to other pot stocks. In terms of peak potential in the Canadian market, the company is around fifth or sixth place (or about 6,650 kilograms of cannabis per year).
Now the company is working hard to expand its capacity. Note that it is building an 850,000-square foot facility. But this will take time, and it won’t be cheap.
Finally, short seller Andrew Left — who operates Citron Research — has targeted CRON stock. Essentially, he thinks the company will have a very tough time competing in the market, especially since there are over 100 licensed producers in Canada.
Corbus Pharmaceuticals (CRBP)
Corbus Pharmaceuticals (NASDAQ:CRBP) is an early stage biotech company that is focused on synthetic cannabinoids. In other words, this does not require any planting and as a result, there can be more precision on the targeting.
For the most part, synthetic cannabinoids have shown signs of dealing with inflammation and other problems. Corbus has various clinical treatments, such as for cystic fibrosis and dermatomyositis.
While all this is great, there are still some issues with this pot stock. Besides the risks of getting approval with the FDA, which is never easy, the timeline could be a problem for investors. Keep in mind that the trials for cystic fibrosis will likely not end until the first half of 2020, which is a long time to wait. It could also mean there will be a need to raise more capital, as there remains a substantial cash burn.
General Cannabis (CANN)
General Cannabis (OTCMKTS:CANN) is a consulting firm that focuses primarily on the cannabis industry. Some of the services cover areas like on-site security, marketing and operations.
While such things are useful, it is not clear how big the market really is. What’s more, many of the services many be provided by other providers or be done in-house.
Consider that the latest quarter saw revenues of only $1.1 million, up 34% on a year-over-year basis. There was also a hefty net loss of $3.7 million.
All in all, this is really more of a startup … and yes, the $126 million market cap does seem fairly rich.
Cannabis Sativa (DBDS)
Cannabis Sativa (OTCMKTS:CBDS) develops and licenses cannabis formulas, edibles, topicals and other products. As for the brands, one is called “hi” (which has a pending trademark application on file). There is also a license for a lozenge delivery system as well as a patent for a strain of cannabis. CBDS even has a telemedicine service (which is a 51% owned unit called PrestoCorp).
But the company is still quite small. During the first six months of this year, revenues came to $301,064. As for the net loss, it was $2.2 million, compared to nearly $4 million in the prior year.
Unfortunately, the balance sheet is not in good shape either. Basically, for the company to continue as a going concern, it will need to raise more money.
But for now, investors do not seemed too concerned. After all, the market cap is still about $107 million.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
<<<
>>> As Tilray soars, short sellers keep betting against pot stocks
By Max A. Cherney
Sept 19, 2018
https://www.marketwatch.com/story/pot-stock-short-sellers-increasing-bets-even-as-losses-and-costs-mount-2018-09-18?siteid=bigcharts&dist=bigcharts
Short interest up 44% to $1.5 billion since the second quarter, even as borrowing costs reach levels that are ‘totally out of the ordinary’
Adult recreational use of cannabis will become legal in Canada on Oct. 17.
Investors shorting stocks related to the cannabis industry have lost $490 million on paper this year, but bets that pot stocks will fall have only increased despite high costs as the sector has rallied.
Massive gains in the industry among names such as the recently public Tilray Inc. TLRY, -11.47% Canopy Growth Corp. CGC, +3.35% — which received a $4 billion investment from Constellation Brands Inc., which seemed to be a major factor in the sector’s rise — and Cronos Group Inc. CRON, -3.28% have likely encouraged short sellers to take positions in cannabis stocks.
Short interest has increased 44% since the end of the second quarter, climbing to $1.5 billion across 33 stocks, according to data from financial technology and analytics firm S3 Partners. Most of the increase in short activity was focused in Canopy and Tilray, S3 said in a note released late Monday.
Don’t miss: Weed beer is near, and it’s gonna get weird
The number of investors interested in shorting the stock and the amount of interest has made short positions very expensive. According to S3 data, the average borrow fee for the basket of pot stocks is 21.8%.
“On the whole, 20% is ridiculous,” said S3 managing director of predictive analytics Ihor Dusaniwsky. “It’s totally out of the ordinary, the normal fee for a general collateral stock — IBM IBM, -0.96% , General Electric GE, -3.90% for example — is 30 basis points.”
Tilray especially has outsize fees for short sellers — those wishing to borrow the stock to short it were paying 450% to 600% Monday, Dusaniwsky said. Tilray is a special case, he says, because the float is relatively small and there is no institutional holding able to loan the stock to short sellers. As a result, Tilray’s gains — such as the 29% it posted in Tuesday trading after announcing a clinical trial in the U.S. — are almost entirely the result of the buy side bidding up or bidding down the market, Dusaniwsky said.
“I’m wondering whether [Tilray] is a Tesla or a normal stock,” Dusaniwsky said, referring to the fact that investors shorting Tesla Inc. TSLA, -0.91% stock have been willing to absorb massive losses while waiting for the stock to plummet. Roughly 34% of Tilray shares are currently being shorted. The stock shot up another 18% in early trade Wednesday.
See also: For Canadian marijuana investors, coming to U.S. is a ‘crapshoot’ that can end in lifetime ban
Fees for other cannabis stocks trading on U.S. exchanges are also high, but nowhere near Tilray’s levels. Shorting Cronos stock carries a 40% borrow fee, and Canopy was 6%, according to S3 data.
“Short sellers are paying $2.5 million every day at the moment in stock-borrow fees,” Dusaniwsky said. “If you’re going to short these stocks, your thesis has to be correct and it has to be right, fast.”
Cronos stock is 10% on Wednesday, and Canopy is up 4%. The S&P 500 index SPX, -0.47% is up 0.1%. Cannabis officially becomes legal in Canada on Oct. 17. It is illegal under U.S. federal law, though nine states have legalized the drug for adult recreational consumption and several more allow for medical use.
<<<
>>> China Doesn’t Have a “Nuclear Option”
By James Rickards
April 17, 2018
https://dailyreckoning.com/103887-2/
China Doesn’t Have a “Nuclear Option”
A global trade war is now in full swing. Many nations are involved, but the chief antagonists are the U.S. and China.
China set up the conditions for a trade war by unfair dumping of steel on world markets and the theft of over $1 trillion of U.S. intellectual property. President Trump fired the first shots with tariffs on steel, aluminum, solar panels and dishwashers. China retaliated with its own tariffs.
Trump answered back with further tariffs on $50 billion of Chinese imports. China then imposed more tariffs on U.S. goods to match Trump’s $50 billion. Trump raised the ante another $100 billion like a poker player with a good hand and lots of chips.
At this stage, China can’t keep going with tariffs.
They only import about $150 billion of U.S. exports. At the rate they’re going, they’ll run out of goods to impose tariffs on. Trump can keep going because the U.S. imports so much more from China than they buy from us.
But the Chinese are obsessed with not losing face. Chinese President Xi has just been named in effect dictator for life. He doesn’t want to start out his new dictatorial regime by backing down from a stare-fest with Donald Trump. So he needs another option.
For China to keep fighting, they need an asymmetric response; they need to fight the trade war with something other than tariffs.
China holds over $1.2 trillion of U.S. Treasury securities. Some analysts say China can dump those Treasuries on world markets and drive up U.S. interest rates. This will also drive up mortgage rates, damage the U.S. housing market, and possibly drive the U.S. economy into a recession. Analysts call this China’s “nuclear option” when it comes to fighting a financial war with Trump.
There’s only one problem.
The nuclear option is a dud. If China did sell some of their Treasuries, they would hurt themselves because any increase in interest rates would reduce the market value of what they have left.
Also, there are plenty of buyers around if China became a seller. Those Treasuries would be bought up by U.S. banks, or even the Fed itself. If China pursued an extreme version of this Treasury dumping, the U.S. President could stop it with a single phone call to the Treasury.
That’s because the U.S. controls the digital ledger that records ownership of all Treasury securities. We could simply freeze the Chinese bond accounts in place and that would be the end of that. So, don’t worry when you hear about China dumping U.S. Treasuries. China is stuck with them. It has no nuclear option in the Treasury market.
But if you can’t win a trade war, you can try winning a currency war instead…
I just argued that China’s “nuclear option” in the trade wars is a dud. But, that does not mean China is out of bullets in a financial war. China cannot impose as many tariffs as Trump because they don’t buy as much from us as we buy from them.
China cannot dump Treasuries because there are plenty of buyers and the president could stop the dumping by freezing China’s accounts if things got out of hand in the Treasury market. But China could use a real nuclear option to counteract the trade war by fighting a currency war.
If Trump imposes 25% tariffs on Chinese goods, China could simply devalue their currency by 25%. That would make Chinese goods cheaper for U.S. buyers by the same amount as the tariff. The net effect on price would be unchanged and Americans could keep buying Chinese goods at the same price in dollars.
The impact of such a massive devaluation would not be limited to the trade war. A cheaper yuan exports deflation from China to the U.S. and makes it harder for the Fed to meet its inflation target.
Also, the last two times China tried to devalue its currency, August 2015 and December 2015, U.S. stock markets crashed by over 11% in a matter of a few weeks. So, if the trade war escalates as I expect, don’t worry about China dumping Treasuries or imposing tariffs. Watch the currency. That’s where China will strike back. When they do, U.S. stock markets will be the first victims.
Maybe you think that’s unlikely because it would be such an extreme reaction by China. But you have to put yourself in the shoes of China’s leadership.
These aren’t academic issues to China’s leaders. They go to the heart of the government’s very legitimacy.
China’s economy is not just about providing jobs, goods and services. It is about regime survival for a Chinese Communist Party that faces an existential crisis if it fails to deliver. The overriding imperative of the Chinese leadership is to avoid societal unrest.
If China encounters a financial crisis, Xi could quickly lose what the Chinese call, “The Mandate of Heaven.” That’s a term that describes the intangible goodwill and popular support needed by emperors to rule China for the past 3,000 years.
If The Mandate of Heaven is lost, a ruler can fall quickly.
Up to half of China’s investment is a complete waste. It does produce jobs and utilize inputs like cement, steel, copper and glass. But the finished product, whether a city, train station or sports arena, is often a white elephant that will remain unused.
Chinese growth has been reported in recent years as 6.5–10% but is actually closer to 5% or lower once an adjustment is made for the waste. The Chinese landscape is littered with “ghost cities” that have resulted from China’s wasted investment and flawed development model.
What’s worse is that these white elephants are being financed with debt that can never be repaid. And no allowance has been made for the maintenance that will be needed to keep these white elephants in usable form if demand does rise in the future, which is doubtful.
Essentially, China is on the horns of a dilemma with no good way out. On the one hand, China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes.
The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities.
The two ways to get rid of debt are deflation (which results in write-offs, bankruptcies and unemployment) or inflation (which results in theft of purchasing power, similar to a tax increase).
Both alternatives are unacceptable to the Communists because they lack the political legitimacy to endure either unemployment or inflation. Either policy would cause social unrest and unleash revolutionary potential.
China’s internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart.
A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems.
A maxi-devaluation of their currency is probably the best way to avoid the social unrest that terrifies China.
When that happens, possibly later this year in response to Trump’s trade war, the effects will not be confined to China. A shock yuan maxi-devaluation will be the shot heard round the world as it was in August and December 2015 (both times, U.S. stocks fell over 10% in a matter of weeks).
China doesn’t have a trade war nuclear option. But it does have one very powerful weapon.
Do you have your gold yet?
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Trump Prepares to Drop the Hammer on Amazon
By James Rickards
April 2, 2018
https://dailyreckoning.com/trump-prepares-drop-hammer-amazon/
Trump Prepares to Drop the Hammer on Amazon
President Trump has ratcheted up his war of words against Amazon.
Late last week, Trump tweeted that Amazon is having a negative impact on competing retailers, as well as the federal and local governments:
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.) and are putting many thousands of retailers out of business!… This Post Office scam must stop. Amazon must pay real costs (and taxes) now!
Then there was this morning’s tweet:
Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country… not a level playing field!
Trump’s campaign against Amazon is nothing new.
He sent out a string of tweets last summer raging against Amazon’s monopolistic business practices. Here’s one from last August, for example, that sounds a lot like last week’s tweets:
Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt — many jobs being lost!
But Trump’s attacks against Amazon are not just economic — they’re also personal.
Amazon CEO Jeff Bezos also owns The Washington Post, which is strongly anti-Trump. Trump sees The Washington Post as the unofficial leader of the resistance to his administration. The president has even referred to the newspaper as the “Amazon Washington Post.” And he knows it’s been out to get him.
What does all this mean?
It means there’s an excellent chance that Trump could pursue antitrust legislation against Amazon.
Trump’s logic is simple. Most of Bezos’ net worth is tied up in Amazon stock. In the world of billionaires and powerful politicians, the way to hit someone hard is in the pocketbook.
Trump will attack Amazon and clip Bezos’ wings by $10–20 billion as payback for what he considers Bezos’ attacks on him via the Post.
Antitrust law enforcement in the United States is a bit like the weather — unpredictable in the long run and highly changeable.
The Justice Department can go years or even decades without bringing a major antitrust case and then suddenly decide the time has come to send a message to big business, with emphasis on the word “big.”
When that happens, there is always one company that stands out from the crowd as a kind of sitting duck for ambitious prosecutors. Today, the sitting duck is Amazon.
When the case against Amazon begins, the stock will tumble. Amazon’s stock price is vulnerable under the best of circumstances because it ran up so far so fast. The bad news of an antitrust case will be the catalyst that causes investors to dump the stock in a desperate race to get out ahead of the crowd. Selling will feed on itself.
The selling contagion will spread to the rest of the FAANG stocks (Facebook, Apple, Netflix and Google) and to the Nasdaq as a whole.
Amazon stock was down as much as 6% today, based on Trump’s latest attacks. And the Dow is down almost 500 points at writing. The S&P and Nasdaq are also getting hammered.
But this could just be the beginning.
These companies are already vulnerable because China has threatened sanctions against U.S. technology companies. Technology stocks, led by Apple, dragged the broader market lower last week when the news broke. These threats of course come in retaliation against Trump’s latest promise to crack down on Chinese theft of U.S. intellectual property.
Any antitrust action Trump pursues against Amazon will trigger another correction or worse in U.S. stocks.
But investors who can read the antitrust tea leaves correctly stand to make huge profits when the Justice Department strikes.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Trump’s Revenge on Amazon
By James Rickards
April 2, 2018
https://dailyreckoning.com/trumps-revenge-amazon/
Trump’s Revenge on Amazon
Regardless of the merits or demerits of the Amazon business model, prosecutors could bring a case against “bigness” per se as an example to the rest of Corporate America and to demonstrate that the antitrust laws are an effective government tool.
And it all begins with a letter.
Antitrust suits do not start with full-blown litigation on day one. They begin with a letter of inquiry. This notifies the target company that the Justice Department is looking into possible antitrust violations and asks for the company’s cooperation in providing needed books and records.
Most companies find it in their best interests to cooperate with such requests. They hope to convince the government that “there’s no there there.”
Companies that don’t cooperate will soon receive subpoenas potentially backed up by court orders that will force cooperation. That’s one more reason to cooperate — the government will get what it wants one way or another, so it’s better to cooperate in order to earn some goodwill.
An actual case can take years to investigate and years more to litigate and appeal. But the stock market won’t wait for the process to play out. The letter of inquiry alone will be enough to trigger a sell-off.
Amazon is a public company and, under applicable securities laws, will have to disclose the letter of inquiry as soon as they receive it. Markets are on a hair trigger. They have a “shoot first, ask questions later” mentality.
More likely, the Justice Department will leak the contents of the letter before Amazon even has time to open the mail.
Once that happens, the sell-off will begin. It could even happen in the middle of the night if there is a late-in-the-day leak from the Justice Department, followed by overnight selling in Tokyo, Singapore, Hong Kong and London.
By the time you wake up in the morning, Amazon could already be down $100 per share or more.
Given the likelihood of the event and the uncertainty of the timing, you need to position yourself now to capitalize on this once-in-a-century antitrust case.
John D. Rockefeller
It would be nice to believe that the law is applied in an impartial and politically neutral way. Unfortunately, that is not the case. Even when statutes are written objectively, they are often applied based on prevailing political views. As my law professors always reminded me, “Judges read the newspapers!”
Most Americans are familiar with the current age of progressive politics, which includes figures such as Bernie Sanders and Elizabeth Warren. But this is the second progressive age in U.S. political history.
The first progressive era was from about 1890–1920 and arose partly in reaction to monopoly corporate power in oil, steel, railroads and other key industries. It was in this period that the most important antitrust laws were enacted.
The principal antitrust laws in the U.S. are the Sherman Act (1890), which outlaws any “contract… or conspiracy in restraint of trade,” and the Clayton Act (1914), which prohibits acquisitions that “tend to create a monopoly.”
Other antitrust statutes include the Federal Trade Commission Act (1914), the Robinson-Patman Act (1936) and the Hart-Scott-Rodino Act (1976). For those who are interested, the Federal Trade Commission publishes a complete guide to the U.S. antitrust laws, including applicable statutes, legal theories and enforcement agencies.
This legal arsenal has been used by the Justice Department to break up what it perceived as the largest monopolies of their time.
This led to a series of landmark cases over the past 100 years, including Standard Oil Co. of New Jersey v. United States, which broke up the Rockefeller-controlled oil trusts in 1911; United States v. AT&T, which broke up the Bell Telephone communications monopoly in 1984; and United States v. IBM, which was an effort to break up the computer monopoly in 1969.
The Standard Oil and Bell Telephone cases both resulted in actual corporate breakups. The IBM case did not result in a breakup order, but the pressure on IBM resulted in the company essentially giving away its personal computer disc operating system (DOS) to a young entrepreneur named Bill Gates, who used it to start a company called Microsoft. The rest is history.
Now that a new age of progressive and populist politics has arisen, a new wave of antitrust enforcement is coming. Big business is being attacked both from the left (Bernie Sanders and Elizabeth Warren) and from the right (Donald Trump).
There is no bigger target for this new wave of progressive and populist antitrust enforcement than Amazon.
A quick reading of the antitrust laws and familiarity with the leading cases makes it clear that the government’s legal authority is extremely broad and can be applied to almost any large company at will — especially Amazon.
Amazon’s actions in destroying competition in books and electronics give the government more than enough to go on. Amazon’s 2017 acquisition of Whole Foods and a co-marketing arrangement with Sears give other competitors even more cause for concern.
I have personal experience in this field. As a lawyer in the 1980s and 1990s, I defended one of the largest bank dealers in U.S. government securities in an antitrust case.
The Justice Department alleged that the primary dealers, including my client, were colluding to rig the prices of U.S. Treasury notes in auctions conducted by the Federal Reserve Bank of New York as fiscal agent for the U.S. Treasury.
In the course of defending that case, I retained Robert H. Bork, a legal scholar, former federal judge and Supreme Court nominee who wrote a landmark treatise on antitrust law called The Antitrust Paradox.
Bork and I eventually got the Justice Department to drop the case. Needless to say, Bork was the best possible tutor on antitrust law available.
How can we estimate the probability of an antitrust case against Amazon and the extensive stock market damage that will result?
What are the prospects for a government antitrust case against Amazon?
Bigness alone is not a violation of antitrust laws. That bigness has to be combined with some action, possibly including contractual relations and merger and acquisition activity, to provide jurisdiction for a case.
Notwithstanding legal theories, the single most important development in this case has less to do with legal analysis and more to do with politics.
The president sees The Washington Post as the unofficial leader of the resistance to his administration. The Washington Post was the newspaper that took down Richard Nixon in 1974 through reporters Carl Bernstein and Bob Woodward. (You can see this portrayed in the film All the President’s Men.)
The paper has been trying to take down Donald Trump, and Trump knows it.
So what’s the connection between Amazon and TheWashington Post? The answer is Jeff Bezos.
Just to be clear, Jeff Bezos owns less than 20% of Amazon (although that alone is enough to give him a net worth of over $80 billion).
And Amazon does not own The Washington Post at all. The newspaper is owned personally by Bezos through a separate holding company, not by Amazon.
None of that matters to Trump.
Trump’s logic is simple. In Trump’s opinion, Bezos owns The Washington Post and has influenced its political bias and attacks on Trump. Most of Bezos’ net worth is tied up in Amazon stock. In the world of billionaires and powerful politicians, the way to hit someone hard is in the pocketbook.
Trump will attack Amazon and clip Bezos’ wings by $10–20 billion as payback for what he considers Bezos’ attacks on him via the Post.
Call it “the art of the deal.”
But as I mentioned earlier, investors who prepare now for the coming attack on Amazon can reap huge gains not only on Amazon, but also on the FAANG stocks and the broader Nasdaq market.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. It operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. The company offers TV shows and movies, including original series, documentaries, and feature films. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. As of January 22, 2018, it had approximately 117 million members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. <<<
>>> The Stock Market Is Not Out of the Woods
By James Rickards
February 15, 2018
https://dailyreckoning.com/stock-market-not-woods/
The Stock Market Is Not Out of the Woods
As the Dow Jones industrial average fell over 2,600 points between Feb. 2 and Feb. 8, 2018, a decline of over 10% from the all-time high of 26,616 on Jan. 25, and officially a market “correction” as defined by Wall Street, one question kept repeating in investors’ minds: Where is the “Powell Put?”
A bit of explanation may be in order.
The name “Powell” is a reference to Jay Powell, the newly installed chairman of the Federal Reserve Board. The term “put” comes from options trading. The holder of a put has protection from market declines. When markets are collapsing, put owners can close out stock positions at levels set by the put contract and avoid losses below those levels.
The Powell Put is simply a reference to the fact that Jay Powell and the Fed will bail out stock investors at some level to avoid extreme losses.
Jay Powell was selected by President Donald Trump to be the new chairman of the Board of Governors of the Federal Reserve. Now that Powell has been confirmed and sworn in, stock markets are looking to Powell for relief from the current turmoil.
PLACEHOLDER
The Powell Put is the latest in a long line of bailouts offered to the stock market by the Fed.
The “Greenspan Put,” named after Fed Chairman Alan Greenspan, was exhibited in September and October of 1998 when Greenspan cut interest rates twice in three weeks, including an emergency rate cut not at a scheduled FOMC meeting, to control the damage from the collapse of hedge fund Long-Term Capital Management.
The “Bernanke Put,” named after Fed Chairman Ben Bernanke, was exhibited on numerous occasions, including the launch of QE2 in November 2010 after QE1 had failed to stimulate the economy and the delay of the taper in September 2013 after the emerging markets meltdown resulting from Bernanke’s “taper talk” in May 2013.
The “Yellen Put,” named after Fed Chair Janet Yellen, was also on display many times. Yellen delayed the “liftoff” in rate hikes from September to December 2015 or order to calm markets after the Chinese shock devaluation and U.S. market meltdown in August 2015.
The Yellen Put was used again starting in March 2016 when the Fed delayed expected rate hikes until December 2016 to deal with another China devaluation shock and U.S. market meltdown in January–February 2016.
In short, there is a long history of the Fed cutting rates, printing money, delaying rate hikes or using forward guidance to calm nervous markets and pump up asset prices. Over the past 20 years, the Fed has practiced the mantra of ECB head Mario Draghi, “Whatever it takes,” as its response to disorderly market declines.
Now that U.S. stock markets have experienced a drawdown as severe as those of August 2015 and January 2016, the need for the Fed to possibly exercise the Powell Put is back on the table.
There can be no doubt that the Powell Put exists. The Fed will not stand idle as markets collapse and the 401(k)s of Americans are wiped out.
The Fed’s actions in fall 2008 in response to Lehman Bros. and AIG were an extreme example of the “whatever it takes” philosophy of modern central bankers. The idea of free markets finding a level at which markets clear and rotten banks and bad loans are allowed to fail is passé.
These continual Fed bailouts will prove to be cancerous in the fullness of time. By creating asymmetric markets that only go up and are never allowed to fall too far, the Fed is disguising the true risks and encouraging investors to overallocate to highly risky assets.
The time will come, sooner than later, when the asset bubbles are so large and the resulting collapse so catastrophic that it will exceed the capacity of central bankers to stop the panic.
For now, the Fed put is still relied upon by investors to prop up asset prices.
But at what level? When does the Powell Put come into effect? Answering these questions is critical before investors can decide if it’s safe to go back in the water.
Based on my personal conversations with Ben Bernanke, recent remarks by New York Fed President Bill Dudley and the actual interventions of the Fed over the past 20 years, we actually have good transparency as to how and when the Powell Put will come into play.
The put operates based on a two-factor formula. The first factor is the size of the market decline measured in percentage terms, and the second factor is the speed with which the market declines.
The combination of the two factors — speed and percentage decline — determine when the put is activated.
The key percentage decline is 15%. Bernanke told me in a private conversation that a decline of 15% will trigger a Fed intervention but anything less than that is not particularly troubling to the Fed.
However, there are two important corollaries to the 15% rule. The first is that a decline of 10% or more in a few weeks that appears headed toward 15% because of disorderly conditions can trigger a precautionary response by the Fed.
This is like slamming the brakes on a car that’s traveling on ice. The car will not stop; it keeps going for a considerable time. When the Fed sees a 10% decline that shows no sign of stopping, it will treat it as a 15% decline in the making and take some action.
That was the situation Yellen faced in September 2015 when she delayed the liftoff. Markets had fallen 11% in three weeks but showed no signs of stabilizing. Yellen treated that situation as tantamount to a 15% decline and took action.
The second corollary is that if a period of calm or even a recovery commences after a decline of 7–10%, the Fed will reset the clock. This means that the original decline has been contained, markets have stabilized on their own and a new 15% decline from a new level (rather than the previous high) will be the benchmark for Fed intervention.
Right now markets are on the cusp.
Despite the recent bounceback, markets are still down from their all-time high. And you can expect a good amount of volatility going forward.
If markets had continued to fall in a disorderly way after Feb. 8, Powell would have offered “forward guidance” about delaying the March 2018 rate hike around the level of Dow 22,000.
But if markets stabilize around current levels and hold above Dow 24,000 for the next few weeks, the Fed will declare a reset at that level and raise rates in March as currently planned.
From there, the Dow would have to fall to 20,000 in a matter of a few weeks in late March or early April, a new 15% decline, in order for the Powell Put to apply.
The next few days will tell the tale. If the Dow drops to 22,000 precipitously, the Fed will postpone the March rate hike to rescue markets. If the Dow stabilizes at 24,000 or higher, the Fed will raise rates in March. A new Powell Put would be set at Dow 20,000 using 24,000 as a baseline.
If the Dow rallies back to the 26,000 level, the put would be reset again at Dow 22,000.
All of these put levels are predicated on precipitous, disorderly declines. If markets exhibit a slow, steady decline over months and years, the Fed put will not apply. In that world, the Fed’s response function would depend solely on inflation and job creation, the so-called “dual mandate.” Stock investors will be on their own.
Of course, the existence of the Fed put creates a self-fulfilling prophecy. If investors believe the Fed will bail them out every time the market declines, they will continue to “buy the dips” in anticipation of market rebounds once the Fed does its work. Based on the buying, the market will rally and the put will never have to be used.
This investor view is delusional. It ignores two possibilities in which the Fed put either does not apply at all or does not apply in time to save them.
The first possibility is where the market drops 20% in one or two days as happened in 1987, 1929, 1914, 1907 and 1869, among other occasions. That scenario would happen too quickly for the Fed to respond. A later response might prevent further damage, but not before 20% or more of your portfolio was gone.
The second possibility is the slow, steady decline based on macro fundamentals where the Fed simply does not care. This happened in the 1970s.
The right response to the market’s next move and possible Fed impotence or indifference is to increase allocations to cash and gold as a hedge against stock declines.
What is clear is that volatility has returned with a vengeance, investors have begun to focus on the unsustainable debt bomb in federal finance and, as a result, the stock market decline is far from over.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
HDGE - Advisor Shares Ranger Equity Bear ETF -
>>> The investment seeks capital appreciation through short sales of domestically traded equity securities. The Sub-Advisor seeks to achieve the fund's investment objective by short selling a portfolio of liquid mid- and large-cap U.S. exchange-traded equity securities, ETFs, ETNs and other exchange-traded products. The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in short positions in equity securities. The Sub-Advisor implements a bottom-up, fundamental, research driven security selection process. <<<
https://finance.yahoo.com/quote/HDGE/holdings?p=HDGE
>>> Holdings -
AdvisorShares Sage Core Reserves ETF HOLD. 34.53%
Kellogg Co K. 4.84%
Energizer Holdings Inc ENR. 4.66%
Nike Inc B NKE. 4.22%
iShares iBoxx $ High Yield Corp Bd ETF HYG. 3.72%
Prestige Brands Holdings Inc PBH. 3.47%
Simon Property Group Inc SPG. 3.41%
Sensient Technologies Corp SXT. 3.33%
Cooper Tire & Rubber Co CTB. 3.30%
Snap-on Inc
<<<
>>> Cracks in Dollar Are Getting Larger
By James Rickards
September 27, 2017
https://dailyreckoning.com/cracks-dollar-getting-larger/
Cracks in Dollar Are Getting Larger
Many Daily Reckoning readers are familiar with the original petrodollar deal the U.S made with Saudi Arabia.
It was set up by Henry Kissinger and Saudi princes in 1974 to prop up the U.S. dollar. At the time, confidence in the dollar was on shaky ground because President Nixon had ended gold convertibility of dollars in 1971.
Saudi Arabia was receiving dollars for their oil shipments, but they could no longer convert the dollars to gold at a guaranteed price directly with the U.S. Treasury. The Saudis were secretly dumping dollars and buying gold on the London market. This was putting pressure on the bullion banks receiving the dollar.
Confidence in the dollar began to crack. Henry Kissinger and Treasury Secretary William Simon worked out a plan. If the Saudis would price oil in dollars, U.S. banks would hold the dollar deposits for the Saudis.
These dollars would be “recycled” to developing economy borrowers, who in turn would buy manufactured goods from the U.S. and Europe. This would help the global economy and help the U.S. maintain price stability. The Saudis would get more customers and a stable dollar, and the U.S. would force the world to accept dollars because everyone would need the dollars to buy oil.
Behind this “deal” was a not so subtle threat to invade Saudi Arabia and take the oil by force. I personally discussed these invasion plans in the White House with Kissinger’s deputy, Helmut Sonnenfeldt, at the time. The petrodollar plan worked brilliantly and the invasion never happened.
Now, 43 years later, the wheels are coming off. The world is losing confidence in the dollar again. China just announced that any oil-exporter that accepts yuan for oil can convert the oil to gold on the Shanghai Gold Exchange and hedge the hard currency value of the gold on the Shanghai Futures Exchange.
The deal has several parts, which together spell dollar doom. The first part is that China will buy oil from Russia and Iran in exchange for yuan.
The yuan is not a major reserve currency, so it’s not an especially attractive asset for Russia or Iran to hold. China solves that problem by offering to convert yuan into gold on a spot basis on the Shanghai Gold Exchange.
This straight-through processing of oil-to-yuan-to-gold eliminates the role of the dollar.
Russia was the first country to agree to accept yuan. The rest of the BRICS nations (Brazil, India and South Africa) endorsed China’s plan at the BRICS summit in China earlier this month.
Now Venezuela has also now signed on to the plan. Russia is #2 and Venezuela is #7 on the list of the ten largest oil exporters in the world. Others will follow quickly. What can we take away from this?
This marks the beginning of the end of the petrodollar system that Henry Kissinger worked out with Saudi Arabia in 1974, after Nixon abandoned gold.
Of course, leading reserve currencies do die — but not necessarily overnight. The process can persist over many years.
For example, the U.S. dollar replaced the UK pound sterling as the leading reserve currency in the 20th century. That process was completed at the Bretton Woods conference in 1944, but it began thirty years earlier in 1914 at the outbreak of World War I.
That’s when gold began to flow from the UK to New York to pay for badly needed war materials and agricultural exports.
The UK also took massive loans from New York bankers organized by Jack Morgan, head of the Morgan bank at the time. The 1920s and 1930s witnessed a long, slow decline in sterling as it devalued against gold in 1931, and devalued again against the dollar in 1936.
The dollar is losing its leading reserve currency status now, but there’s no single announcement or crucial event, just a long, slow process of marginalization. I mentioned that Russia and Venezuela are now pricing oil in yuan instead of dollars. But Russia has taken its “de-dollarization” plans one step further.
Russia has now banned dollar payments at its seaports. Although these seaport facilities are mostly state-owned, many payments, like those for fuel and tariffs, were still conducted in dollars. Not anymore.
This is just one of many stories from around the world showing how the dollar is being pushed out of international trade and payments to be replaced by yuan, rubles, euros or gold in this case.
I believe gold is ultimately heading to $10,000 an ounce, or higher.
Now, people often ask me, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve?”
It’s not made up. I don’t throw it out there to get headlines, et cetera.
It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. There’s always enough gold, you just have to get the price right.
I’m not saying that we will have a gold standard. I’m saying if you have anything like a gold standard, it will be critical to get the price right.
The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price? What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply?
The answer is, $10,000 an ounce.
I use a 40% backing of the M1 money supply. Some people argue for 100% backing. Historically, it’s been as low as 20%, so 40% is my number. If you take the global M1 of the major economies, times 40%, and divide that by the amount of official gold in the world, the answer is approximately $10,000 an ounce.
There’s no mystery here. It’s not a made-up number. The math is eighth grade math, it’s not calculus.
That’s where I get the $10,000 figure. It is also worth noting that you don’t have to have a gold standard, but if you do, this will be the price.
The now impending question is, are we going to have a gold standard?
That’s a function of collapse of confidence in central bank money, which is already being seen. It’s happened three times before, in 1914, 1939 and 1971. Let us not forget that in 1977, the United States issued treasury bonds denominated in Swiss francs, because no other country wanted dollars.
The United States treasury then borrowed in Swiss francs, because people didn’t want dollars, at least at an interest rate that the treasury was willing to pay.
That’s how bad things were, and this type of crisis happens every 30 or 40 years. Again, we can look to history and see what happened in 1998. Wall Street bailed out a hedge fund to save the world. What happened in 2008? The central banks bailed out Wall Street to save the world.
What’s going to happen in 2018?
We don’t know for sure.
But eventually a tipping point will be reached where the dollar collapse suddenly accelerates as happened to sterling in 1931. Investors should acquire gold and other hard assets before that happens.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Prepare for a Chinese Maxi-devaluation
By James Rickards
October 12, 2017
https://dailyreckoning.com/prepare-chinese-maxi-devaluation/
Prepare for a Chinese Maxi-devaluation
China is a relatively open economy; therefore it is subject to the impossible trinity. China has also been attempting to do the impossible in recent years with predictable results.
Beginning in 2008 China pegged its exchange rate to the U.S. dollar. China also had an open capital account to allow the free exchange of yuan for dollars, and China preferred an independent monetary policy.
The problem is that the Impossible Trinity says you can’t have all three. This model has been validated several times since 2008 as China has stumbled through a series of currency and monetary reversals.
For example, China’s attempted the impossible beginning in 2008 with a peg to the dollar around 6.80. This ended abruptly in June 2010 when China broke the currency peg and allowed it to rise from 6.82 to 6.05 by January 2014 — a 10% appreciation.
This exchange rate revaluation was partly in response to bitter complaints by U.S. Treasury Secretary Geithner about China’s “currency manipulation” through an artificially low peg to the dollar in the 2008 – 2010 period.
After 2013, China reversed course and pursued a steady devaluation of the yuan from 6.05 in January 2014 to 6.95 by December 2016. At the end of 2016, the Chinese yuan was back where it was when the U.S. was screaming “currency manipulation.”
Only now there was a new figure to point the finger at China. The new American critic was no longer the quiet Tim Geithner, but the bombastic Donald Trump.
Trump had threatened to label China a currency manipulator throughout his campaign from June 2015 to Election Day on November 8, 2016. Once Trump was elected, China engaged in a policy of currency war appeasement.
China actually propped up its currency with a soft peg. The trading range was especially tight in the first half of 2017, right around 6.85.
In contrast to the 2008 – 2010 peg, China avoided the impossible trinity this time by partially closing the capital account and by raising rates alongside the Fed, thereby abandoning its independent monetary policy.
This was also in contrast to China’s behavior when it first faced the failure of its efforts to beat impossible trinity. In 2015, China dodged the impossible trinity not by closing the capital account, but by breaking the currency peg.
In August 2015, China engineered a sudden shock devaluation of the yuan. The dollar gained 3% against the yuan in two days as China devalued.
The results were disastrous.
U.S. stocks fell 11% in a few weeks. There was a real threat of global financial contagion and a full-blown liquidity crisis. A crisis was averted by Fed jawboning, and a decision to put off the “liftoff” in U.S. interest rates from September 2015 to the following December.
China conducted another devaluation from November to December 2015. This time China did not execute a sneak attack, but did the devaluation in baby steps. This was stealth devaluation.
The results were just as disastrous as the prior August. U.S. stocks fell 11% from January 1, 2016 to February 10. 2016. Again, a greater crisis was averted only by a Fed decision to delay planned U.S. interest rate hikes in March and June 2016.
The impact these two prior devaluations had on the exchange rate is shown in the chart below.
USD/CNY
Major moves in the dollar/yuan cross exchange rate (USD/CNY) have had powerful impacts on global markets. The August 2015 surprise yuan devaluation sent U.S. stocks reeling. Another slower devaluation did the same in early 2016. A stronger yuan in 2017 coincided with the Trump stock rally. A new devaluation is now underway and U.S. stocks may suffer again.
By mid-2017, the Trump administration was once again complaining about Chinese currency manipulation. This was partly in response to China’s failure to assist the United States in dealing with North Korea’s nuclear weapons development and missile testing programs.
For its part, China did not want a trade or currency war with the U.S. in advance of the National Congress of the Communist Party of China, which begins on October 18. President Xi Jinping was playing a delicate internal political game and did not want to rock the boat in international relations. China appeased the U.S. again by allowing the exchange rate to climb from 6.90 to 6.45 in the summer of 2017.
China escaped the impossible trinity in 2015 by devaluing their currency. China escaped the impossible trinity again in 2017 using a hat trick of partially closing the capital account, raising interest rates, and allowing the yuan to appreciate against the dollar thereby breaking the exchange rate peg.
The problem for China is that these solutions are all non-sustainable. China cannot keep the capital account closed without damaging badly needed capital inflows. Who will invest in China if you can’t get your money out?
China also cannot maintain high interest rates because the interest costs will bankrupt insolvent state owned enterprises and lead to an increase in unemployment, which is socially destabilizing.
China cannot maintain a strong yuan because that damages exports, hurts export-related jobs, and causes deflation to be imported through lower import prices. An artificially inflated currency also drains the foreign exchange reserves needed to maintain the peg.
Since the impossible trinity really is impossible in the long-run, and since China’s current solutions are non-sustainable, what can China do to solve its policy trilemma?
The most obvious course, and the one likely to be implemented, is a maxi-devaluation of the yuan to around the 7.95 level or lower.
This would stop capital outflows because those outflows are driven by devaluation fears. Once the devaluation happens, there is no longer any urgency about getting money out of China. In fact, new money should start to flow in to take advantage of much lower local currency prices.
There are early signs that this policy of devaluation is already being put into place. The yuan has dropped sharply in the past month from 6.45 to 6.62. This resembles the stealth devaluation of late 2015, but is somewhat more aggressive.
The geopolitical situation is also ripe for a Chinese devaluation policy. Once the National Party Congress is over in late October, President Xi will have secured his political ambitions and will no longer find it necessary to avoid rocking the boat.
Xi Jinping
China’s President Xi Jinping awaits appointment to a second term at the 19th National Congress of the Communist Party of China, starting October 18. His reappointment is a foregone conclusion.
China has clearly failed to have much impact on North Korea’s nuclear weapons ambitions. As war between North Korea and the U.S. draws closer, neither China nor the U.S. will have as much incentive to cooperate with each other on bilateral trade and currency issues.
Both Trump and Xi are readying a “gloves off” approach to a trade war and renewed currency war. A maxi-devaluation of the yuan is Xi’s most potent weapon.
Finally, China’s internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart.
A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems.
Less dramatic devaluations of the yuan led to U.S. stock market crashes. What does a new maxi-devaluation portend for U.S. stocks?
We might have an answer soon enough.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Neiman Marcus Hires Restructuring Adviser for Debt Relief
Reuters
Mar 03, 2017
http://fortune.com/2017/03/03/neiman-marcus-debt-adviser/
U.S. high-end department store chain Neiman Marcus has hired investment bank Lazard Ltd to explore ways to bolster its balance sheet as it seeks relief from $4.9 billion in debt, people familiar with the matter said on Friday.
Neiman Marcus Group LLC is in no immediate risk of bankruptcy, the sources said. However, the move makes it the highest-profile U.S. retailer to turn to a debt restructuring adviser so far this year, as consumers increasingly embrace the internet for shopping.
The sources asked not to be identified because the matter is confidential. Neiman Marcus did not immediately respond to a request for comment, while Lazard declined to comment. One of Neiman Marcus' current owners, Canada Pension Plan Investment Board (CPPIB), declined to comment.
Neiman Marcus operates 42 Neiman Marcus Stores across the United States and two Bergdorf Goodman stores in Manhattan. The company also operates 27 Last Call clearance centers, according to its website.
In addition to grappling with headwinds affecting other U.S. retailers, a plunge in energy prices has further hit Neiman Marcus, because many of its affluent shoppers in Texas have curbed their spending.
The stronger U.S. dollar has also been negative for Neiman Marcus, curbing spending at its Bergdorf Goodman department stores that are popular with New York tourists.
Much of Neiman Marcus' debt load stems from its $6 billion leveraged buyout in 2013, when its current owners, Ares Management LP and CPPIB, acquired it from other private equity firms.
Following the news of Lazard's hiring by Neiman Marcus, some Neiman Marcus unsecured bonds due in 2021 traded at 54 cents on the dollar, down about 7 percent from Thursday, according to Thomson Reuters data.
The company's approximately $3 billion term loan dipped as low as about 77 cents on the dollar, down from 81 cents earlier on Friday before the news broke, according to Thomson Reuters' LPC. The loan settled at approximately 80 cents on the dollar, LPC reported.
Earlier this year, the department store withdrew its initial public offering (IPO), two years after it had announced its plans to U.S. regulators. At the time, the department store did not explain why it withdrew its IPO registration.
Despite its challenges, Neiman Marcus has been renovating existing stores and still plans on opening new stores, including a flagship location at New York City's Hudson Yards development.
<<<
>>> Express Scripts' Anthem Loss Goes Deeper Than Numbers
By Max Nisen
April 25, 2017
https://www.bloomberg.com/gadfly/articles/2017-04-25/express-scripts-anthem-loss-cuts-deep?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo
In losing Anthem Inc. as a client, Express Scripts Holding Co. is surrendering more than just its biggest customer and 18 percent of its revenue. Its very identity is now at risk.
The PBM on Monday night said it expected to lose Anthem's business at the end of 2019 after a long, bitter pricing dispute. Through Monday's trading, Express Scripts shares had fallen more than 20 percent since the Anthem squabble began in December 2015 -- so this news was somewhat priced into the stock.
But shares fell another 10 percent Tuesday morning, partly because Anthem's departure casts doubt on Express Scripts' ability to rule its sector as the last big pure-play PBM.
Fears about losing Anthem's business, and their fulfillment Monday, have weighed on Express Scripts shares
Anthem is a significant contributor to Express Scripts' earnings, accounting for about 31 percent of adjusted Ebitda in 2016, according to data the company broke out for the first time on Monday. That's substantially higher than analysts had believed. Anthem's relative contribution to earnings has grown over the past two years, and Express Scripts expects it will keep growing.
Anthem will be difficult to replace. The only insurer larger than it, UnitedHealth Group Inc., runs its own PBM. So does Humana Inc. Cigna Corp. signed a 10-year contract with Catamaran -- since acquired by UnitedHealth -- in 2013 and handles a lot of its PBM services in-house.
One possible target, Aetna Inc., is under contract with CVS Health Corp., a deal that conveniently expires in 2019. But Aetna recently tried to get back into the PBM business with its failed acquisition of Humana, and it may still be looking for other avenues.
Haircut
Anthem represents a large and increasing portion of Express Scripts' earnings, and it's on its way out
Express Scripts expects compounded annual Ebitda growth of two to four percent through 2020, excluding Anthem and other transitioning clients. That's a risky projection to make, considering others might follow Anthem out the door, assuming it knows something they don't about Express Scripts and the pricing environment.
The risk of further client flight may be ameliorated somewhat by the fact that Anthem had an odd contract with unusual pricing terms, created back in 2009 when Express Scripts acquired its PBM.
Express Scripts said on its Tuesday morning earnings call it made substantial concessions trying to keep Anthem, to no avail. It's possible Anthem's demands were so unreasonable, as Express Scripts claimed, or that relations had gotten so bad, that a split was inevitable.
But it's also possible Express Scripts isn't set up to give Anthem what it wants, in terms of pricing, transparency, or services. Anthem's departure suggests someone is offering more savings than the $3 billion in additional discounts Express Scripts said it offered.
If Anthem were to turn to CVS Health in 2019, then that would validate CVS's broader business model -- with a much larger pharmacy and dispensing presence -- and ability to offer competitive pricing. An Anthem contract would also make CVS the largest PBM, supplanting Express Scripts.
If Anthem goes to a lower-cost, smaller firm, such as Prime Therapeutics, then it will be seen as a signal that Express Scripts is too costly and that its margins may be unsustainable, already a worry in the current drug-pricing environment. A newer class of "transparent" PBMs charge a flat fee for processing prescriptions, rather than the more-complicated pricing Express Scripts employs.
And if Anthem decides to go with an in-house PBM, then it will create a new competitor and continue a trend among insurers and employers toward managing larger portions of their own drug benefit rather than outsourcing it.
Today's selloff isn't just about Anthem's departure, it's about the rising possibility Express Scripts will shrink from being the dominant player in a promising industry to just another competitor in an increasingly difficult environment.
<<<
The ESRX chart is looking like a classic case of a trend reversal and potential shorting opportunity. After being in an uptrend for many years, it formed a bearish Head + Shoulders reversal pattern over the past 3 years.
It finally came to test the neckline (at 65) of the right shoulder, and fell thru that key support and dropped to 63, and is now coming back up to re-test that 65 level (which is now resistance). So it's the moment of truth - will it get back above 65, or on the other hand will the re-test of 65 fail? The next several days/week will be the crucial period to watch.
ESRX has been a high quality company for many years, not the kind of stock you'd ideally want to short. But they are reportedly in danger of losing their biggest customer, and are facing fundamental changes in the healthcare pricing system for drugs,
and might conceivably even be accused of running afoul of regulatory pricing rules (?), in which case the class action lawsuits firms would pile on mercilessly as they always do when companies hit problems.
Anyway, if the stock fails in its re-test of 65 and starts to fall off again, that would be the signal to short. It's possible though that it could have multiple attempts to re-gain 65 over a period of weeks, so caution is warranted. When investors have decided that the direction is down there should be a burst of volume as longs bail and shorts pile in. I figure it would then test 60 and then likely trade in the 50s. So not a huge opportunity for profit on the short side, but a good classic case of trend reversal to watch for its educational (and entertainment) value.
So far the volume on today's re-test of 65 has been weak.
Some chart reversal patterns to look for when considering going short (see below). These patterns are seen during the transition period when an uptrend is reversing to become a downtrend.
With all of these you only short when the setup is complete and key support is broken. You can short then if you're aggressive, but after support is broken it will often come back up to re-test that support level (which is now resistance), and if you're conservative you short after that re-test fails.
If you only short during these chart patterns, your odds of a successful short are high. But the even higher percentage way to short, rather than during a trend reversal, is to short during an already existing ongoing downtrend. That's because a stock/index in an established trend (whether up or down), will tend to stay in that trend. So if you see an established downtrend, especially in a crappier stock, you can short it pretty safely, or short the rallies. However, if that stock begins to form a bottom reversal pattern (which looks like the patterns shown below but upside down), then you don't short.
These are the basic rules, but there are some other factors, like watching the trading volume at key points (for example high volume when support is broken). It's not that complicated or dangerous if you just 'follow the rules'.
I know the basic rules but have not actually put them into practice. Once you add the emotional components of greed/fear into the equation, it makes it harder, but if the basic rules are followed then you should have a lot more winning trades than losing. But if the chart goes against you, you have to get out and take the small loss. Letting losses run, or doubling down on a bad trade, won't work percentage-wise and will likely result disastrous losses. You have fess up and get out of the bad trade and wait for another favorable chart setup -
Head + Shoulders Top -
Double Top -
Bump and Run Top -
Triple Top -
Established Uptrend - never short this unless/until it forms a reversal pattern -
Established Downtrend - this is a relatively safe way to short, especially if its a low quality stock. You can just stay short (or short the rallies) until a reversal pattern develops (which in this case is an inverse head + shoulders bottom), at which time you close out the short position and might start to consider going long (~Oct 2002) -
Anyway, just some of the basic concepts from the 'ChartSchool' at Stockcharts.com. I love this chart stuff because it brings a quasi-scientific element into the equation and removes some of the emotional aspect. What charts actually do is provide a way to quantify the collective behavior of millions of investors. So many people and institutional investors follow these chart rules that they become self-fulfilling, which makes 'the rules' even more predictive and effective -
http://stockcharts.com/freecharts/index.html
>>> 5 Charts That Scream "This Is It"
Zero Hedge
Mar 22, 2017
http://www.zerohedge.com/news/2017-03-22/5-charts-scream-it
(Note - Looking closer at 3 of those 5 charts (see below), what strikes me is that in all 3 charts the current situation has not gone fully parabolic yet (not even close), as it had done during the previous market peaks (2007, 2000, 1929).
That suggests that despite the current overvaluations and relatively high readings, there is considerably more room to go before they reach the previously seen peaks, ie they need to replicate the hyperbolic steepness seen previously.
I remember Alan Greenspan's 'irrational exuberance' comment, which he made in late 1996, a full 3 years before the market made its actual peak. At 8 years, the current bull market is historically long, but since the Fed is so keen/desperate to normalize interest rates, and since they'll need a stable market to accomplish that, they will therefore be highly motivated to maintain a buoyant market. That's the theory anyway..)
Cyclically adjusted, price-to-earnings ratio (CAPE) -
Total market cap relative to GDP (Warren Buffet’s favorite valuation metric)
NYSE Margin Debt -
Express Scripts (ESRX) drops thru key support and looks like a potential short. Key support was 65 and it's currently trading at 64.06 (low of the day). 65 is the neckline of the right shoulder of the bearish Head + Shoulders pattern that ESRX has formed over the last 3 years.
Will see where it closes today, and then watch to see if it comes back up to re-test 65. If - 1) it doesn't return to re-test 65, or - 2) it does return but the re-test fails, then that's the signal to go short (#1 if you're aggressive, #2 if you're conservative).
Fwiw, this is how most of the TA crowd evaluate a potential short, based on their time tested 'rules', as opposed to using emotions, vague hunches, etc. Once it's clear that key support has been broken and will not be regained, longs will throw in the towel and dump, and the shorts will initiate positions. No guarantees, but these rules are so commonly used that the outcome tends to be self fulfilling.
With ESRX, among other problems there is reportedly a growing concern that they will lose their biggest customer.
>>> China Has A Problem With Outflows: It's Costing Billions To Keep The Yuan's Price
Javier Hasse
Benzinga
January 10, 2017
http://finance.yahoo.com/news/china-problem-outflows-costing-billions-204446674.html
Autonomous Research partner Charlene Chu is one of the most respected experts focusing on China and its debt. So, when her predictions for 2017 came out, the world listened carefully.
One of the most notable warnings was related to outflows — meaning money going out of the Chinese economy and thus driving a depreciation of the yuan.
"China's authorities have chosen to pursue harsher measures against capital outflows over a large change in the exchange rate to address the country's outflow problem, at least for now,” she explained. “This could work for a few quarters, but we think closing the gates is not feasible over the long run for the largest trading nation in the world with a USD$33 trillion banking sector.”
Consequently, Chu anticipated a deceleration in growth in the second quarter of the year, “as a weaker credit impulse passes through.” Nonetheless, the expert added, “this is of secondary importance to outflows and the currency.”
Taking into account that, as per Chu’s estimates, the People's Bank of China spent about $800 billion in foreign-exchange reserves to keep the yuan’s price in 2016, the $3 trillion reserve could dry up in a few years, and this is certainly concerning, she continued.
The analyst also noted that the People's Bank of China will likely hike interest rates during the year to keep some of the money in the country and incentivize outside investors — seeking to counter the M&A wave seen among Chinese companies.
Yuan ETFs like the WisdomTree Dreyfus Chinese Yuan Fd (ETF) (NYSE: CYB), the Market Vectors Chinese Renminbi/USD ETN (NYSE: CNY) and the Guggenheim CurrencyShares Chinese Renminbi Trust (NYSE: FXCH) have lost 3.1 percent, 2.6 percent, and 4.75 percent, respectively, over the past three months. Meanwhile, the currency itself has slipped 3.75 percent.
<<<
Express Scripts looks like a near term short candidate (ESRX). It started to break thru the 65 key support today (currently is trading around 64.86). The stock has completed a bearish head + shoulders formation with a perfectly horizontal neckline which is the key support level to watch. Chart-wise it's a classic setup for a potential short, and the neckline has been strongly established at 65 from the 2 lows in 2014, 4 lows in 2016, and 2 lows in 2017. Today 65 was broken, at least tentatively.
It needs to close below 65 and then could either move down from there, or alternately re-test 65 (which is now resistance). If the re-test of 65 fails, that is the signal to short (for conservative shorters).
I always considered ESRX to be a high quality core holding, but it sounds like they have some potentially serious issues (see article below). If it has in fact broken key support (65), then next support should be 60, and then it could trade in the 50s. 50 looks like it would represent a fairly solid floor.
It might conceivably have another mini bounce or two prior to definitively breaking the key 65 support, so will be interesting to watch. The contract they are in danger of losing (Anthem) is ESRX's largest customer -
>>> Express Scripts Downgraded On Fear It Could Lose Anthem Contract
Brett Hershman
Benzinga
March 15, 2017
http://finance.yahoo.com/news/express-scripts-downgraded-fear-could-203535832.html
Express Scripts Holding Company (NASDAQ: ESRX) shares fell following news that Sen. Ron Wyden proposed legislation requiring drug middlemen from disclosing secret discounts they receive from manufacturers. The company did express to Benzinga it's working with Sen. Wyden, acknowledging the risks the new legislation may present.
Following the news, alongside the threat that the company will lose its contract with healthcare provider Anthem Inc (NYSE: ANTM), analysts at Wells Fargo downgraded the stock to Underperform from Market Perform.
“We are downgrading shares of ESRX, reflecting our view that the shares do not fully reflect the 20-40% earnings risk related to repricing of or losing the ANTM contract, Express’ largest customer,” Wells Fargo said.
The new proposed legislation and loss of the Anthem contract isn't the only risk Express Scripts is exposed to, as competition is heating up with CVS Health Corp(NYSE: CVS).
“We see risk of market share losses stemming from Express’ PBM model given our view that its stand-alone model does not position ESRX well to compete effectively against CVS Caremark’s broader dispending venue model and UNH OptumRx’s integrated medical model,” Wells Fargo said.
Wells Fargo has lowered its valuation range on the company to $52-56, down from $79-85, although left its EPS estimates unchanged. Given the considerable risks to Express Scripts’ business model amid a constantly changing healthcare industry, the company could see more downgrades in the near term.
<<<
>>> Express Scripts Downgraded On Fear It Could Lose Anthem Contract
Brett Hershman
Benzinga
March 15, 2017
http://finance.yahoo.com/news/express-scripts-downgraded-fear-could-203535832.html
Express Scripts Holding Company (NASDAQ: ESRX) shares fell following news that Sen. Ron Wyden proposed legislation requiring drug middlemen from disclosing secret discounts they receive from manufacturers. The company did express to Benzinga it's working with Sen. Wyden, acknowledging the risks the new legislation may present.
Following the news, alongside the threat that the company will lose its contract with healthcare provider Anthem Inc (NYSE: ANTM), analysts at Wells Fargo downgraded the stock to Underperform from Market Perform.
“We are downgrading shares of ESRX, reflecting our view that the shares do not fully reflect the 20-40% earnings risk related to repricing of or losing the ANTM contract, Express’ largest customer,” Wells Fargo said.
The new proposed legislation and loss of the Anthem contract isn't the only risk Express Scripts is exposed to, as competition is heating up with CVS Health Corp(NYSE: CVS).
“We see risk of market share losses stemming from Express’ PBM model given our view that its stand-alone model does not position ESRX well to compete effectively against CVS Caremark’s broader dispending venue model and UNH OptumRx’s integrated medical model,” Wells Fargo said.
Wells Fargo has lowered its valuation range on the company to $52-56, down from $79-85, although left its EPS estimates unchanged. Given the considerable risks to Express Scripts’ business model amid a constantly changing healthcare industry, the company could see more downgrades in the near term.
<<<
Express Scripts (ESRX) has been a solid performer for years, but has lost around 50% since 2015. I have it on my radar as a contrarian value play, but even after the 50% haircut, the chart has now formed a bearish head and shoulders formation and also a bearish descending triangle.
I was originally looking at ESRX as a rebound value play, but based solely on the chart it's actually also a potential short if the key support level doesn't hold. The support level to watch is 65, which is both the neckline of the head + shoulders and also the bottom of the descending triangle. To go short it would have to break through 65 and then fail a re-test of 65 (which once broken would be resistance).
Anyway, I always considered ESRX a high quality company in a good sector, so would be reluctant to suggest a short even if the chart indicates it should be shorted. Better off shorting crappy companies, but just thought I'd mention it.
Another possible short idea is the British pound. It's already been clobbered since the Brexit vote, but could there be even more downside to come?
The key level to watch is 120, which also corresponds to the 2000/2001 lows. It's already tested this level twice, in October and January, but looks like it may test again.
If it fails to hold key support at 120, that would be the signal to short.
Looking at potential short candidates, the gold chart may be vulnerable right now after the big bounce it's had since late December. It rose to key resistance at 1250 and may be starting to pullback. The key will be the direction of the dollar, which appears to be resuming its rise, having gotten back over 100 and now 102.
But we have to watch the dollar closely and what the Fed does and says at their March meeting. Rickards thinks the Fed will likely raise in March and if not then in June for sure, but the bigger question is the Fed's verbiage and guidance for future raises. As Rickards said, the composition of Fed Governors will be changing soon, so will have to watch closely for any signs of a more dovish attitude developing, in which case gold should continue to rise. But if the Fed sticks to its hawkish rate hike schedule, the dollar should strengthen and gold retreat.
I personally wouldn't short gold, but it might be a successful near term trade if the Fed remains hawkish with their rate hike plans. We also know that the central banks conspire to periodically suppress gold, just as they engineer a higher stock market, so that factor would also favor shorting gold over shorting the stock market -
>>> Odds of a Fed rate hike in March surge
by Patrick Gillespie
CNNMoney
March 1, 2017
NY Fed president: 'Animal spirits have been unleashed'
Investors have grown dramatically more confident that the Federal Reserve will raise rates next month.
New York Fed President William Dudley told CNNMoney on Tuesday that the case for raising interest rates is growing.
"I think the case for monetary policy tightening has become a lot more compelling," Dudley told Richard Quest.
Dudley cited recent "sturdy" job gains, an increase in inflation and rising optimism among business owners and consumers as key reasons behind his case for raising rates "in the relatively near future."
After Dudley's interview, the chance of a rate hike in March doubled to 66% on Wednesday from 35% Tuesday morning, according to CME Group.
"The real news this week was the dramatic shift in rate hike expectations," says Peter Boockvar, chief market strategist at the Lindsey Group, an investing firm. Boockvar cited Dudley as well as comments made by other Fed members for the change.
The U.S. dollar also gained value Wednesday morning. Fed rate hikes -- or the anticipation of them -- tend to boost the currency.
"The gains in the U.S. dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy...President Dudley's remark that an increase in rates has become 'more compelling' was the catalyst," says Win Thin, head of emerging market currency strategy at Brown Brothers Harriman.
It wasn't just Dudley's remarks that boosted the odds of a rate hike. San Francisco and Philadelphia Fed Presidents John Williams and Patrick Harker have recently indicated interest in a potential March rate hike.
But Dudley's voice matters much more to markets. He is the third ranking member at the Fed behind Chair Janet Yellen and Vice Chair Stanley Fischer.
Dudley also has a permanent vote on the Fed committee that decides whether to raise, lower or maintain interest rates. Harker and Williams don't always have a vote.
Yellen speaks Friday and will give investors the best indication of where the Fed is headed going into its two-day meeting on March 14-15. <<<
Some short ideas include the Chinese yuan and the US bond market.
1) Chinese Yuan - Rickards has explained the rationale for a big yuan devaluation, and says there are numerous hedge fund gurus like Kyle Bass already positioned on the short side.
2) US Bonds
- With US interest rates likely to rise, the US bond market should continue to sell off over time. It's been a 35 year bull market for the bond market, and that historic run may have ended. But as Rickards points out, as the new Fed governors are put in place (5 of the 7 Fed governors over the next 16 months), there may be a more dovish tone at the Fed, which would mean a weaker dollar and a rebound in the bond market.
So the better short is probably the Chinese yuan. Rickards says it's virtually inevitable that the Chinese will have to devalue. At the current rate of $50-100 bil per month to continue propping up the yuan, China will have exhausted the remaining 0.9 trillion available to prop up the yuan by the end of 2017. He says there's no way the Chinese will do that in a vain attempt, and their only viable solution is a large yuan devaluation. Rickards says it will likely come in response to Trump's trade/tariff measures against China.
Stericycle - >>> One company's trash is another's treasure
http://www.fool.com/investing/2016/12/20/3-stocks-the-smartest-investors-are-buying-right-n.aspx?source=yahoo-2&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2
Daniel Miller (Stericycle): Stericycle is a stock smart investors would be wise to take a second look at. It began as a start-up business to help hospitals manage medical waste and keep abreast of stringent and ever-changing regulations, and it's thrived over the past 25 years.
Despite its success, 2016 was unforgiving for the stock price, and it now offers investors one of the best entry points in years.
Stericycle generates about 66% of its revenue from domestic regulated waste and compliance services, which beyond hazardous and medical waste includes document and hard drive destruction. It also offers domestic communication-related service that generate about 8% of revenue, including product recall and automated communication services. Lastly, its international operations generate about 26% of its total revenue.
The company's international presence offers a great deal of growth in the years ahead, but the intriguing part of Stericycle's growth story comes from cross-selling. In fact, at Stericycle's investor day in November, management noted that only 18% of its customers have more than one of its services, which offers a long runway for cross-selling and incremental revenue from existing customer relationships.
Beyond cross-selling and international growth, an aging population and increased regulation will help drive continued demand for Stericycle's services. As costs continue to rise in the healthcare industry, large waste generators -- think hospitals, clinics, and dentists, to name a few -- will rely on Stericycle's expertise and scale to help minimize costs. Ultimately, Stericycle appears well positioned to take advantage of an aging population and rising healthcare costs, and smart investors would be wise to take a deeper dive into the company.
<<<
CLDX - bullish ascending triangle -
>>> Celldex Therapeutics, Inc., a biopharmaceutical company, develops, manufactures, and commercializes novel therapeutics for human health care in the United States. The company?s lead drug candidates comprise Rintega (CDX-110), a therapeutic vaccine in Phase III clinical studies for the treatment of glioblastoma patients that express an epidermal growth factor receptor variant III, as well as in Phase II study for the treatment of recurrent glioblastoma; Glembatumumab vedotin (CDX-011), a targeted antibody-drug conjugate (ADC) in a randomized Phase IIb study for the treatment of triple negative breast cancer, as well as in Phase II study for the treatment of metastatic melanoma; and Varlilumab (CDX-1127), an immune modulating antibody is in Phase I study for the treatment of multiple solid tumors. It also has various earlier stage drug candidates in clinical development, including CDX-1401, a targeted immunotherapeutic aimed at antigen presenting cells for cancer indications; CDX-301, an immune cell mobilizing agent and dendritic cell growth factor; and CDX-014, a fully-human monoclonal ADC that targets T cell immunoglobulin and mucin domain 1, a molecule, which is upregulated in various cancers comprising renal cell and ovarian carcinomas. It has research collaboration and license agreements with Medarex, Inc.; Rockefeller University; Duke University Brain Tumor Cancer Center; Ludwig Institute for Cancer Research; Alteris Therapeutics, Inc.; University of Southampton; Amgen Inc.; Amgen Fremont; and Seattle Genetics, Inc., as well as clinical trial collaboration with Roche Holding. The company is headquartered in Hampton, New Jersey
<<<
Valeant -- >>> This Mega-Fund Just Gobbled Up Valeant's Shares -- Should You, Too?
Legg Mason's Bill Miller has taken a stake in the embattled drugmaker.
Todd Campbell
Apr 26, 2016
http://www.fool.com/investing/general/2016/04/26/this-mega-fund-just-gobbled-up-valeants-shares-sho.aspx?source=yahoo-2&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2
Bill Miller runs the $2 billion Legg Mason Opportunity Trust. The storied portfolio manager reported that after Valeant Pharmaceuticals (NYSE:VRX) shares tanked in March, he invested 3.5% of his fund in the company's shares. The revelation of Miller's big bet comes on the heels of Valeant's securing a new CEO. Can this new leader orchestrate a turnaround that makes Miller's buy savvy? Read on to learn more about the challenges Valeant faces and whether it makes sense to follow Miller's footsteps into this stock.
Lifting a millstone
For Miller's purchase to pan out, Valeant's management is going to have to overcome the weight of several missteps.
Valeant came under the microscope last year for acquiring two heart medications them and pricing them higher, and the scrutiny that followed that decision led to revelations of a too-close-for-comfort relationship with its specialty drug distributor, Philidor, and an accounting mishap relating to the recording of revenue.
In recognition that Philidor's efforts to fill prescriptions with pricier Valeant medications rather than generic drugs didn't pass muster, Valeant cut ties with Philidor last fall. And earlier this month, the company reported that an ad hoc committee had put the wraps on an investigation into its accounting that will lead to a $58 million reduction to its 2014 revenue.
Ultimately, if those developments get the company back on solid ground, they're a good thing. However, in the short term, those moves have created some obstacles that need to be overcome.
Specifically, the breakup with Philidor significantly dented Valeant's sales, and in March, that led to a massive reduction in the company's sales and profit forecast for this year. Meanwhile, the committee's investigation has forced management to delay the filing of its annual 10-K report with the SEC, and that's put the company at risk of violating debt covenants.
Management has taken action to win support from bondholders in a bid to buy it time, but some lenders aren't cooperating, and as a result, Valeant needs to get its filing to regulators soon to avoid a potential cash crunch that could occur if lenders cry default.
Assuming Valeant files on time, then the debate over its future shifts to whether its newly appointed CEO, Joseph Papa, can overcome operational challenges and whittle away at the company's borrowings.
That will be no easy feat. Valeant's massive appetite for acquisitions has left it saddled with $30.9 billion in debt and little cash on hand. To shore up its balance sheet, Valeant signed on investment bankers to consider selling assets. Little has been said what products could be up for sale, but Valeant has some intriguing brands, including Bausch & Lomb, that could fetch it billions of dollars.
Selling Bausch & Lomb could give the company more financial wiggle room, and it could also put a big dent in Valeant's future growth. Papa, who is coming to Valeant from the top spot at Perrigo (NYSE:PRGO), a generic-drug company that he's been running since the middle of last decade, will need to make some tough decisions about what business segments and products are core assets that need to be kept.
Looking ahead
Admittedly, Papa's track record suggests he has the depth of experience and street cred to restore confidence at Valeant. After all, Perrigo's shares have soared under his tenure. However, Perrigo has lost half its value since last fall, when Papa and his board rejected a proposed acquisition by Mylan N.V..
Similarly, Bill Miller once possessed an amazing 15-year track record of beating the S&P 500, but after doubling the S&P 500's return in 2012 and 2013. Miller has since trailed the broader market.
Overall, neither Papa nor Miller's presence is going to right Valeant's ship. Instead, it's going to take time to restore confidence and rebuild a track record of under-promising and over-delivering. Yes, investors will get more clarity into Valeant's financial picture when it decides what assets to sell. But first, the company needs to get its filings in order. Until then, investors might want to take a watchful waiting approach to the company's shares.
<<<
Valeant -- >>> Bill Miller Nabs Valeant Shares, Spying Opportunity Where Others See Chaos
'Nobody wants to own Valeant except for people like me,' says the famed value investor
By Jason Zweig
Wall St Journal
http://blogs.wsj.com/moneybeat/2016/04/26/bill-miller-nabs-valeant-shares-spying-opportunity-where-others-see-chaos/?mod=yahoo_hs
Apr 26, 2016
Not every value investor bought high. Bill Miller, manager of the $2 billion Legg Mason Opportunity Trust, says he sank about 3.5% of the fund into Valeant in late March and early April, mostly at prices between $28 and $32 per share. Mr. Miller rose to fame between 1991 and 2005, when the fund he ...
<<<
Valeant -- >>> Senate hearing into Valeant includes top hedge fund investor
Associated Press
By MATTHEW PERRONE
http://finance.yahoo.com/news/senate-probe-valeant-includes-top-141058510.html
WASHINGTON (AP) — Senate lawmakers investigating price hikes by the embattled drugmaker Valeant Pharmaceuticals will also question one of the company's leading investors, hedge fund manager William Ackman.
The Senate Aging Committee holds its third meeting on drug prices on Wednesday, responding to escalating costs that have squeezed patients and strained health care budgets across the country.
The committee previously announced that it would question outgoing Valeant CEO Michael Pearson, who pioneered the company's business model of buying cheap drugs and hiking prices.
The committee said Tuesday it will also question Ackman, a billionaire activist investor who has been one of Valeant's leading champions on Wall Street. Ackman's Pershing Square Capital fund holds a 9 percent stake in Valeant and two chairs on the company's board of directors. In recent months Ackman has criticized the company's handling of multiple issues that have pummeled its shares amid mounting controversy.
Also scheduled to appear is Valeant's former chief financial officer and current board member, Robert Schiller. Committee staff said they issued subpoenas to compel Schiller and Pearson to appear.
Valeant's stock soared for several years under Pearson's growth-through-acquisition strategy, which focused on buying older, niche drugs and repeatedly hiking prices. Pearson's approach — which shunned the costly R&D investments of traditional drugmakers — made Valeant a favorite of Wall Street investors, including Ackman.
But the company's tactics eventually attracted scrutiny. In recent months Valeant has been swamped by a host of problems including three ongoing federal probes of its accounting and pricing practices, massive debt and shareholder lawsuits in the U.S. and Canada.
The company, based in Laval, Quebec, has repeatedly delayed filing its fourth-quarter and full-year 2015 results due to misstated sales from a now-defunct specialty pharmacy. Those delays put Valeant in danger of defaulting on agreements with its creditors and bondholders.
On Monday the Canadian company further distanced itself from Pearson by announcing that Perrigo Co. CEO Joseph Papa would become its new CEO. He is expected to officially replace Pearson early next month.
The intense scrutiny of Valeant has triggered repeated sell-offs of company shares, which have lost nearly 90 percent of their value since reaching peak levels last August.
<<<
Valeant -- >>> Embattled drugmaker Valeant taps Papa as new CEO
Kevin McCoy
USA TODAY
April 25, 2016
http://www.usatoday.com/story/money/2016/04/25/embattled-drugmaker-valeant-taps-papa-new-ceo/83489866/
Shares of Valeant Pharmaceuticals (VRX) fell Monday as the embattled drugmaker tapped a health care industry veteran at healthcare supplier Perrigo (PRGO) as its new chief executive and chairman.
Joseph Papa, who had been Perrigo's CEO since 2006, will lead Valeant's efforts to reverse a months-long stock plunge as the Canada-based drugmaker copes with investigations and criticism of its business model, the company said. He is expected to join Valeant by early May.
Shares of Valeant closed down 2.3% at $35.16, retreating from gains earlier in Mondays trading session. Perrigo shares, meanwhile, plunged 18.1% to a $99.40 close as the Dublin-based company cut its guidance for the year.
Valeant Chairman Robert Ingram characterized Papa as "the ideal leader" for the company in its current circumstances.
"He has a strong shareholder orientation, a background in science and an unmatched track record of accomplishments, highlighted by his ability to lead companies through times of transition and drive excellence across commercial, manufacturing and research and development platforms," said Ingram.
Papa will succeed J. Michael Pearson, who led Valeant during a period of rapid growth in recent years as the company completed a series of pharmaceutical industry acquisitions.
The strategy sent Valeant shares soaring to a high of $262.52 as recently as early August. But the stock has lost more than 86% of its value since then as federal prosecutors in Massachusetts and New York, the Securities and Exchange Commission and two congressional panels conduct investigations of the firm.
The probes focus on Valeant's drug distribution and pricing policies, including price spikes on several medications the company acquired via its pharma industry takeovers. Pearson is scheduled to testify about Valeant's business model at a Wednesday hearing of the Senate Special Committee on Aging.
Separately, Valeant has said it is on track to file its delayed 2015 annual report by Friday. The company postponed the filing following criticism of Valeant's since-cancelled business ties with Philidor Rx Services, a mail-order pharmacy that helped distributed the company's medications.
A report by prominent short-seller Andrew Left's Citron Research accused Valeant of creating a "network of phantom captive pharmacies" to steer pharmacy benefit managers to the drugmaker's more expensive medications. Valeant denied the allegation but named a special board committee to investigate while the company delayed its annual report.
The company subsequently said it would restate $58 million in financial earnings from late 2014 into 2015 based on review's findings.
While citing "continued significant challenges" for Valeant," Jeffrey Loo, a S&P Global Market Intelligence equity analyst, said Papa's "significant drug and distribution experience" made him a good fit for the company.
Following Papa's resignation, Perrigo elevated John Hendrickson, the company's president since October 2015, to the CEO post. Laurie Brlas, who chairs Perrigo's board, said Hendrickson, who led the company's global operations, "is an exceptional leader who is passionate about our mission."
Perrigo simultaneously cut its 2016 financial guidance, saying it expects full-year earnings per diluted share of $8.20 to $8.60. The company had previously forecast per share earnings of $9.50 to $9.80. Perrigo blamed the cut on reduction in pricing expectations in its prescription segment due to industry and competitive pressures.
<<<
Valeant -- >>> New Valeant CEO Papa may step in midway through accounting madness
http://www.marketwatch.com/story/new-valeant-ceo-papa-may-step-in-midway-through-accounting-madness-2016-04-25?siteid=yhoof2
By Emma Court
Apr 25, 2016
Deadlines for refiling financial forms are approaching
Bloomberg
Michael "Mike" Pearson, outgoing chief executive officer of Valeant Pharmaceuticals International Inc., will be replaced by Joseph Papa “by early May.”
Valeant Pharmaceuticals International Inc.’s naming of former Perrigo Company PLC chief executive officer Joseph Papa as its new chairman and chief executive officer was a rare spot of positive news for the troubled company, which saw shares rise up to 2.3% in morning trade after the announcement.
Valeant VRX, -2.28% said early Monday that Papa would become the company’s chief executive officer, and that “Mr. Papa is expected to join Valeant by early May.” The company said CEO and director Michael Pearson will stay until Papa comes on board.
But with Valeant remaining vague about Papa’s start date, the timing of the leadership change — midway through various deadlines for refiling financial forms with the Securities and Exchange Commission — is significant and even awkward. It leaves lingering questions about whether the company, which has already missed several such deadlines, will file on time, and who will sign off on those forms.
Valeant misaccounted for millions in sales to mail-order pharmacy Philidor in the second part of 2014, causing the company to overstate 2014 and early 2015 revenue. The company must correct the errors and then refile its financial forms for 2014 and 2015.
Read more: What Valeant and its auditor must do before finalizing 2015 numbers
The company has been long overdue on refiling its 2015 10-K, which was due in late February. It also missed the next deadline — 15 days later, an extension window granted by the SEC. The company has said it would refile the 10-K by April 29, before the extension it was given by bank creditors in late May.
But even though Valeant has blamed its former chief financial officer, Howard Schiller, for the misstatements in a regulatory filing accusing Schiller of “improper conduct” — Schiller disagreed — it’s ultimately the company’s CEO and CFO, Robert Rosiello, who will have to certify the financial forms.
There’s the rub: Papa could start by then, per Valeant’s announcement, but he could also come on board after the filing, meaning Pearson — who led Valeant through its accounting troubles with Philidor — would be the one to sign.
Related: How a ‘new’ Valeant could emerge under change of leadership
But if the 10-K isn’t yet filed, unless Papa’s start date is pushed back, he could be CEO for the next wave of looming deadlines.
If Valeant misses the April 29 self-imposed deadline, there’s another 10-K report deadline of June 11, this one from bondholders, who issued a notice of default to the company in early April. Then there’s a 10-K deadline on June 21 from bondholders who submitted a separate default notice on Friday.
Valeant asked for, and got, a filing extension on its bank debt.
Read: Valeant investigation finished without a written report
That doesn’t preclude the possibility of Pearson signing on all the forms and them being reissued and refiled by April 29. But all signs point to the leadership change translating into potential delays, either on the regulatory filing side or on the leadership transition side.
Meanwhile, the SEC is still investigating the company, and Pearson is set to testify in front of a Senate committee hearing Wednesday.
So even under new leadership, without refiled financial statements, the troubled company’s state remains unclear for investors.
Valeant shares have lost 64% of their value in the year so far, while the S&P 500 has fallen about 6%.
<<<
Valeant -- >>> Top 3 Companies Owned by Valeant (VRX)
By Julia Hawley
Investopedia
http://www.investopedia.com/articles/markets/042316/top-3-companies-owned-valeant-vrx.asp?partner=YahooSA
Part of the healthcare sector, Valeant Pharmaceuticals International Inc. (NYSE: VRX), is a specialty pharmaceutical company, operating in multiple countries. Valeant manufactures and markets a large bouquet of pharmaceutical products. Primary areas of focus include eye health, dermatology, neurology and generically branded medications, including over-the-counter (OTC) drugs. Valeant operates through two segments – developed markets and emerging markets. Operations of the former include the sale of OTC products and of pharmaceutical products sold in the United States. The emerging market segment’s primary operation is the sale of generic-branded pharmaceutical products, OTC products and medical devices. Most of Valeant’s sales focus is directed at North America, Europe, Latin America and the Middle East. Valeant maintains manufacturing sites in Canada, Poland, Mexico and Brazil.
Since its founding in 1994, Valeant has gained some undesirable attention as a pharmaceutical powerhouse that gains brands through acquiring smaller or failing companies, pushes these products through into its own supply stream, then considerably raises prices. However, this has led to Valeant’s success and dominance in the pharmaceutical manufacturing space. Below, three of Valeant’s top companies or subsidiaries are outlined.
Bausch & Lomb
Bausch & Lomb originated as an American company, founded by an optician, Dr. John Bausch, and a financial backer, Henry Lomb, in 1853. The company is among the world’s largest and best-recognized supplier of eye care and health products, including contact lenses and medications for eye diseases. One product line, the Ray-Ban brand of sunglasses, was integral in putting Bausch & Lomb at the forefront of recognition in its space. Bausch & Lomb remained a public company, trading on the New York Stock Exchange (NYSE) until it was acquired in 2007 by Warburg Pincus PLC, a private equity firm. Valeant bought Bausch & Lomb from the firm in 2013 in a deal worth over $8 billion, with at least half of the total cash paid earmarked to pay off Bausch & Lomb debt. The company remains a leader in its field, operating in more than 30 countries with its headquarters in New Jersey.
Salix Pharmaceuticals
Salix Pharmaceuticals is an American specialty pharmaceuticals company, the largest gastrointestinal specialty pharmaceutical company in the world as of 2015. Salix is responsible for developing and producing medical devices and prescription medications that work to prevent or treat gastrointestinal disorders or ailments. The company was founded in 1989 and was headquartered in California until 2001, when headquarters were relocated to North Carolina. Salix is listed on the Russell 2000 index.
The company’s founding products were in-licensed from European pharmaceutical companies and developed and commercialized in the United States. Colazal, before going generic in 2007, generated more than $110 million for the company. Xifaxan, approved by the Food and Drug Administration (FDA) in 2010, generated north of $600 million in sales for Salix in 2014.
Salix, since its founding, remained steadfast in continuing as an independent company. The firm survived a hostile takeover attempt by a Canadian pharmaceutical company. Salix also acquired a number of other firms, including InKine Pharmaceutical Company in 2004, Oceana Therapeutics in 2011 and Santarus in 2013. Total sales for all Salix products in 2014, boosted by acquiring products from overtaken companies, were over $1 billion. Salix was eventually overtaken by Valeant in 2015 for a total of $15.6 billion.
ECR Pharmaceuticals Company Inc.
ECR Pharmaceuticals Company Inc. is a manufacturer and wholesale seller of pharmaceutical products. The company was established in 2009 and promotes certain branded pharmaceuticals through the use of its sales force. This subsidiary company was originally acquired by Akorn Inc. (NASDAQ: AKRX) when it acquired Hi-Tech Pharmacal. Akorn sold ECR Pharmaceuticals to Valeant in mid-2014 in a $41 million cash deal. ECR Pharmaceuticals generates an approximated $1 million to $2.5 million in annual revenue.
<<<
Valeant -- >>> The Only Way to Fix Valeant Pharmaceuticals Will Probably Disappoint Investors
Are Valeant Pharmaceuticals' shareholders in a no-win situation?
http://www.fool.com/investing/general/2016/04/22/the-only-way-to-fix-valeant-pharmaceuticals-will-p.aspx?source=yahoo-2&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2
Sean Williams
Apr 22, 2016
Shareholders of Valeant Pharmaceuticals (NYSE:VRX) have had a very rough go of things since August, and it could get worse. The company, which is known for acquiring businesses and niche therapeutics (and often raising their prices) has seen its valuation dwindle from around $90 billion to the low-end of large-cap status, $11 billion. Worse yet, both catalysts that pushed Valeant lower have yet to be resolved.
Two downside catalysts, and neither is resolved
The first issue is Valeant's pricing practices. As noted by The Wall Street Journal last year, Valeant acquired two cardiovascular medicines, Nitropress and Isuprel, which it subsequently hiked the price of by more than 500% and 200%, respectively, soon after their acquisition. Price hikes aren't uncommon in the pharmaceutical industry, but given that Valeant didn't change the formulation or manufacturing process of either drug, consumers were fumed by the magnitude of these increases.
In fact, outgoing Valeant CEO J Michael Pearson recently agreed to be deposed by a Congressional committee to discuss his company's now well-known pricing practices. Without M&A and price hikes, Valeant's M&A-based business model may take on a seriously different look and appeal.
The other issue can be found in Valeant's financials. Aside from taking a hacksaw to its previous 2016 financial guidance in mid-March, Valeant announced that it wouldn't be filing its annual report, known as a 10-K, on time. The reason is that an internal audit discovered $58 million in improperly booked revenue from Philidor Rx Services, a drug distribution company that Valeant no longer has a relationship with. Until Valeant feels confident that it has no additional revenue irregularities, it won't file its 10-K.
The problem with delaying its 10-K is that it was sporting $30.9 billion in debt as of the end of the third quarter. These secured and unsecured lenders have covenants built into their loans that could trigger defaults and quicker repayment rates if Valeant fails to file its annual report in a timely manner. Comparatively, Valeant only had around $1.4 billion in cash and cash equivalents at the end of Q3. You certainly don't have to be a math genius to realize that Valeant's balance sheet could be in big trouble if it doesn't file its 10-K very soon.
The only fix for Valeant will probably disappoint investors
Valeant's options to correct its current problems are pretty slim. Lawmakers on Capitol Hill could wind up putting the kibosh on Valeant's ability to dramatically boost the price of acquired drugs, which would likely necessitate a significant change in its business model.
The only productive pathway open for Valeant at the moment could be asset sales. Selling off some of Valeant's top-growth drug prospects or businesses could wind up generating cash that Valeant could use to retire some of its debt -- and lower debt levels may make Valeant more attractive to investors once again.
Unfortunately, asset sales could put Valeant in a position where it's going to disappoint investors no matter what it chooses to do.
On one hand, it could turn one of its core businesses loose and make a serious dent in its debt load. Eye-care company Bausch & Lomb was acquired by Valeant for $8.7 billion in 2013, and some analysts have suggested it could sell for as much as $20 billion today. Selling Bausch & Lomb for this high-end value would allow Valeant to retire about two-thirds of its debt. However, Bausch & Lomb is also responsible for about a quarter of Valeant's EBITDA, meaning if it gets rid of one of its most prized assets, it could struggle to generate enough cash flow to service its remaining $11 billion in debt.
The same could be said of Salix Pharmaceuticals, which Valeant acquired for $11 billion last year. Salix's Xifaxan, a drug designed to treat irritable bowel syndrome, is expected to grow into a $1 billion-plus per year drug, and as such could command billions if sold individually. But again, selling one of Valeant's most promising drugs removes a lot of prospective growth from Valeant's future forecasts and throws its ability to service its remaining debt into doubt.
On the other hand, it's a secret to no one that Valeant is struggling with high levels of debt and may be looking to jettison assets in order to give itself some breathing room. This means that even if drugmakers out there are salivating over the prospects of acquiring Xifaxan or Bausch & Lomb, two assets that may not even be up for sale, they're going to be wise not to get into a bidding war. It's Valeant that's in the bind here, not the other drugmakers, and it could create a scenario where Valeant's assets are sold for below market value given its disadvantageous position.
No matter how you play with the puzzle pieces, either Valeant doesn't make enough of a dent in its debt to satisfy investors, or it makes a dent but gives up so much that it cancels out a big chunk of future growth prospects and could struggle to service its remaining debt after asset sales. There doesn't seem to be a winning scenario here for Valeant.
Now what?
What's next for Valeant? We know Valeant needs to file its 10-K by April 29 in order to satisfy an agreement it forged with its secured lenders (about $12 billion worth of debt) a few weeks prior; and Valeant has suggested it would indeed meet that deadline. Once its 10-K is filed, and assuming there are no additional accounting bombshells, Valeant can consider selling off non-core assets, and we can again turn our attention to whether or not Valeant's pricing practices can be justified by lawmakers on Capitol Hill.
But should you be invested in Valeant? Personally, I would suggest keeping at least a 10-foot buffer between your finger and the buy button on your brokerage account. Based on Valeant's reduced full-year estimates, Valeant may look fundamentally cheap -- but if you look a bit further down the road, it's not out of the question that Valeant's business model completely blows up. I'd much rather stay on the sidelines and miss a bounce in Valeant's stock than run the risk of having my investment plummet to $0 if Valeant's business model proves unsustainable.
Circle your calendars, because April 29 looks to be the next big catalyst for Valeant.
<<<
>>> Valeant’s Latest Acquisition Target: Perrigo’s CEO?
4-22-16
IBD
http://www.investors.com/news/technology/valeants-latest-acquisition-target-perrigos-ceo/?ven=YahooCP&src=AURLLED&ven=yahoo
Shares of Valeant Pharmaceuticals International (VRX) rose sharply and fellow specialty drugmaker Perrigo’s (PRGO) fell Friday on reports that the former is about to hire away the latter’s CEO.
Late Thursday, the Wall Street Journal quoted anonymous sources saying that Valeant is hiring Joseph Papa if it can get Perrigo’s board to void a noncompete clause in his contract. On Friday morning, Perrigo issued a brief statement saying that it would not comment on “speculation,” which is the only official word from either company so far.
Valeant has been hunting for a new CEO since March 21, when activist investor William Ackman moved to the board and tried to order the company’s growing chaos. The stock lost more than 80% of its value since a scandal related to a pharmacy partner broke last September, forcing Valeant to strike a new distribution deal with Walgreen Boots Alliance (WBA) that was accompanied by across-the-board price cuts. A disastrous Q4 report and guidance cut, along with an internal investigation that accused former CFO and current board member Howard Schiller of misconduct, eventually turned even bullish analysts against Valeant’s management.
Papa, meanwhile, has run Perrigo for 10 years and has a largely successful track record. Under his watch, the company’s revenue has more than tripled, the stock has climbed eightfold, an inversion deal moved headquarters to low-tax Dublin, and Mylan (MYL) attempted a hostile takeover that Perrigo successfully fought off.
Perrigo’s once-steady profit growth has gotten uneven in the last couple of years, however, and the stock has declined more than 40% since its Mylan-induced high last April. It currently holds a mediocre IBD Composite Rating of 40.
This change has led some analysts to worry about the implications of Papa’s departure for Perrigo.
“Papa has become the face of Perrigo during his long tenure as CEO,” wrote Jefferies analyst David Steinberg in a research note. “However, with the exception of CFO Judy Brown, the company’s other executives — including John Hendrickson, who was appointed President in Oct. 2015 — are largely unfamiliar to the investment community.
“Further, the timing couldn’t have been more inopportune. Mr. Papa is potentially departing prior to the announcement of Q1 results, and this follows a string of difficult quarterly financials — particularly in the company’s flagship consumer business.”
Guggenheim analyst Louise Chen agreed, noting that Perrigo is widely expected to miss Q1 estimates and lower its guidance. “There has been debate about senior management change at Perrigo, but we don’t think the Street was thinking that it would actually happen or be this soon,” Chen wrote.
Perrigo stock fell nearly 6% in afternoon trading on the stock market today, near 121.50 and hitting its lowest level intraday since August 2013. Valeant stock was up more than 6%, near 35.50.
<<<
>>> ProNAi Therapeutics (NASDAQ: DNAI) with a valuation of $205.6 million is a clinical-stage oncology company that develops and commercializes a class of therapeutics based on its DNA interference (DNAi) technology platform for patients with cancer and hematological diseases.
The company's lead product candidate PNT2258 which is designed to treat cancers that overexpress BCL2, a validated oncogene known to be dysregulated in many types of cancer was granted orphan drug designation by the FDA earlier last week for the treatment of diffuse large B-cell lymphoma (DLBCL). The positive news has played a huge role in reversing the stock's price downtrend during the past week subsequently posting a 10 percent gain by the end of the week.
In a research note issued on Friday, analysts at Wedbush reaffirmed their "outperform" rating on the stock with a price target of $36. This represents more than 400 percent potential upside to the current share price which, although might seem pretty optimistic, is without a doubt achievable. This is due to the fact that in the United States 60,000 patients are diagnosed with non-Hodgkin lymphoma annually, and DLBCL represents more than 30 percent of those cases.
DLBCL often occurs in people in their 70s and with the increasing life-span these cases will continue increasing leading to the need for new treatment approaches. Currently, the most widely used treatment is a mixture of rituximab and several chemotherapy drugs with 40 percent of the patients seeing the disease return within two years of treatment. Should ProNAi yield positive results in its subsequent clinical trials expected in the third quarter, it has the potential to displace rituximab as the lead treatment option. <<<
http://finance.yahoo.com/news/booming-orphan-drug-market-provides-110000476.html
Volume | |
Day Range: | |
Bid Price | |
Ask Price | |
Last Trade Time: |