Short Ideas

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

It's a lesson short-sellers know well.


Motley Fool

Dan Caplinger

Feb 6, 2018


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


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

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

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

The unlikely winner of the 2010s

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

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

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

A sudden end

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

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

What's next?

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

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

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

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

Respect volatility

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

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Shorting the VIX with ZIV -

Analysis -

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

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

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

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

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

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

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

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

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>>> The Right Junk Bond ETF to Consider Now


ETF Database

March 2, 2020


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


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

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

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

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

Eschewing Junk

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

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

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

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


Zacks

Sanghamitra Saha

January 6, 2020


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


Inverse ETFs to Bet on Market Sell-off

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

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

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

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

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

How to Profit

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

S&P 500

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

Dow Jones

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

Nasdaq

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

Small-Cap

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

EAFE

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

Emerging Markets

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

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


Investor's Business Daily

MATT KRANTZ

02/06/2020


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


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

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

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

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

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

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

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

Curious Timing Going After Inverse ETFs

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

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

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

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

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

Limiting Access To ETFs

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

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

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

Largest Leveraged And Inverse ETFs By Assets

ETF Symbol Net Assets ($ billions)

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

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>>> America’s Coal Country Isn’t Dead — It’s Preparing for a Comeback


The nation’s largest coal producers are now hoarding cash to weather what they see as an impermanent storm.


Bloomberg

By Will Wade

February 20, 2020


https://www.bloomberg.com/news/articles/2020-02-20/america-s-coal-country-isn-t-dead-it-s-preparing-for-a-comeback?srnd=premium


At least five of America’s coal producers went bankrupt in 2019. Prices for the fossil fuel have plunged 40% since a 2018 peak. And some of the nation’s largest miners are retrenching and slashing their dividends.

But don’t be mistaken: The fight against climate change hasn’t killed off Coal Country yet.

Instead of pouring money into dividends and buybacks, the nation’s largest coal producers say they’re hoarding cash to weather what they see as an impermanent storm. Overall, the industry returned more than $1 billion to investors last year before retrenching. The goal this year: Be ready to start mining again and paying dividends at the first sign of a market revival. They’re betting that prices will bottom out in the first half of 2020 before rising in the second half as production declines and global consumption gains.

That’s spurred a new “mantra” at Peabody Energy Corp., according to Chief Executive Officer Glenn Kellow. It is “to live within our means,” he said during his Feb. 5 earnings call.

A year ago, Peabody announced its biggest dividend ever, and said it would return to shareholders all of its free cash flow. On Feb. 5, the message was very different: The nation’s leading coal producer said it was suspending its dividend, halting buybacks and cutting capital expenditures.

Hope has been in short supply for coal miners. The industry has been battered as much of the world forsakes the fuel to fight climate change, and as low natural gas prices squeezes its economics. Coal once accounted for more than half of all U.S. power generation. Today it’s less than 25%.

The decline underscores the limitations of U.S. President Donald Trump’s pro-fossil fuel policies. While the White House has rolled back environmental regulations and tried to rescue coal plants from early retirement, utilities are still shifting to cheaper and cleaner natural gas, wind and solar power. Meanwhile, all of the Democratic presidential candidates have taken a stance against coal.

And yet there’s still “a hope that prices have bottomed out and will begin to tick up a bit,” said Michael Dudas, an analyst with Vertical Research Partners, in a telephone interview. “Companies are trying to preserve cash and keep conservative.”

Optimism within the industry is probably stronger among companies producing coal used by steelmakers, Dudas said. Still, thermal coal might also see a gain with a hot summer or a colder winter, he said.

Because of the lower prices, higher-cost mines are being shut down and there’s been a wave of bankruptcies. The result, according to Dudas: “Supply comes off the market, inventory levels start to get worked off and, eventually, we will have more demand and that will move the price cycle higher.”



Prices have slumped since reaching peaks in 2018

Peabody’s not alone. Consol Energy Inc. also announced it’s cutting capital expenditures. And while Arch Coal Inc. boosted its dividend, the company said there will be less cash available to return to shareholders through share buybacks. Instead, the money will go toward toward a new mine in West Virginia, expected to open in mid-2021.

”We’re confident that Arch is well equipped to weather the current market downturn,” said Arch CEO John Eaves in a Feb. 6 conference call. “And just as well equipped to capitalize on the next market up cycle whenever it occurs.”

Jimmy Brock, the Consol CEO, also sees a glimmer on the horizon. “Low prices are starting to drive a supply response,” he said during his earnings call last week. “There are some indications that provide hope for an improvement in the second half of 2020.”

Alliance Resource Partners LP too cut its distribution by 26% this month, with CEO Joe Kraft saying it made more sense to keep the cash to ride out a bumpy year.

Prices for thermal coal delivered to Amsterdam, Rotterdam and Antwerp, an Atlantic benchmark, are about $52 a metric ton. That’s down almost 50% from an October 2018 peak, and last month it slipped to the lowest in 44 months. Booming natural gas supplies and a mild winter are dragging down demand at power plants, while utilities in the U.S. and Europe continue to shift away from the dirtiest fossil fuel in an effort to curb climate change.

Metallurgical coal is also down, sliding more than 40% from an early 2018 high. Prices for the steelmaking ingredient plunged steeply in the second half of last year as global economic trends slowed and trade tensions heated up with China, the world’s biggest producer of the metal.

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>>> HSBC Reboot Fizzles, Sending Stockholders Looking for Exits


Bloomberg

By Harry Wilson and Stefania Spezzati

February 18, 2020


https://www.bloomberg.com/news/articles/2020-02-18/hsbc-reboot-fizzles-sending-stockholders-looking-for-the-exits


Lender’s shares post largest decline in more than a decade

Analysts say board is demanding an ‘enormous’ amount of trust


HSBC Holdings Plc Chairman Mark Tucker promised a strategy reboot. Investors got what some called more of the same -- pledges to cut costs and do more with less.

The shares plunged by the most since 2009 after buybacks were shelved for two years and the executives themselves said more bad news was still to come -- once they assess the economic damage wrought by the novel coronavirus.

In the overhaul announced on Tuesday, HSBC will slash about 35,000 staff -- 15% of the total -- and take $7.3 billion of charges, while it doubles down on Asia, source of most of the bank’s profit, and cuts operations in the U.S. and Europe. Left hanging was interim Chief Executive Officer Noel Quinn as Tucker and the board consider a permanent appointment.

“I wish we hadn’t had HSBC shares this morning,” said Alan Beaney, CEO at RC Brown Investment Management. “I am not quite sure why Quinn has not been named CEO now given they have allowed him to cut 35,000 jobs and make a number of strategic decisions. It does not make sense to me.”

The Cull Continues

Banks have disclosed plans to cut almost half a million jobs since 2014

HSBC Chief Financial Officer Ewen Stevenson said the bank would be “ruthless” in executing its plan -- the giant’s third strategic overhaul in a decade -- but he has an uphill struggle persuading shareholders. “The board are asking the market to take an enormous amount on trust,” said analysts at Keefe, Bruyette & Woods, the specialist financial-services broker.

London-traded shares in HSBC, Europe’s biggest bank by market value, tumbled 6.6% to 551.90 pence, the biggest decline since March 2009. The stock is now down 6.8% so far in 2020, following drops in 2019 and 2018.

While Tucker is returning the bank -- founded in 1865 as the Hongkong and Shanghai Banking Corp. -- to its roots with the sharpened focus on Asia, analysts noted the shortage of detail on how it plans to grow there.

For bank strategists, there might be a case of déjà vu: a 2018 plan by Quinn’s predecessor, John Flint, fell flat on arrival. Flint was fired 13 months later. Tucker, who was hired in 2017 to revive growth at the sprawling lender, is still struggling to answer investors’ question of why a bank with such a strong hold in some of the world’s fastest-growing economies has been unable to produce a better return.

Cutbacks

The latest plan envisages cuts to underperforming businesses and regions, in particular HSBC’s global banking and markets unit, which houses its investment bank. The bank has said it will reallocate $100 billion of risk-weighted assets to areas where it can make more money. The job cuts will put total staff at about 200,000.

“Parts of our business are not delivering acceptable returns,” Quinn said.

By 2022, HSBC will increase risk-weighted assets devoted to Asia to 50% from about 42%.

The fresh strategy makes sense, but is “on the conservative side,” Alan Higgins, chief investment officer of Coutts & Co., said on Bloomberg television.

The main points of today’s earnings report include:

HSBC’s adjusted pretax profit of $22.2 billion beat estimates, despite the multi-billion dollar charge for the restructuring. HSBC had been forecast to report adjusted pretax profit of $21.8 billion, according to analysts.

The bank plans gross asset reduction of more than $100 billion by the end of 2022, and a lowered cost base of $31 billion or less by 2022
Consumer banking and private banking will be merged into a single wealth platform

Global banking and commercial banking middle and back offices to be combined

Geographic reporting lines will fall from seven to four

“We are intending to exit a lot of domestically focused customers in Europe and the U.S. on the global banking side,” Stevenson said in a Bloomberg Television interview.

Execution aside, the unknown remains the impact of the coronavirus. Stevenson estimated possible losses in the first-quarter of 2020 at between $200 million and $500 million. Executives said on a conference call that the loan book has shown “great resilience” so far in the face of the outbreak.

“While reduced capital allocation to low-return businesses is a positive, we expect weaker profitability in what have traditionally been strong markets, primarily Hong Kong,” Morgan Stanley analysts wrote, maintaining their underweight rating on HSBC.

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HSBC - >>> Hong Kong Turmoil Threatens Banking Giant


BY JAMES RICKARDS

NOVEMBER 27, 2019


https://dailyreckoning.com/hong-kong-turmoil-threatens-banking-giant/


Hong Kong Turmoil Threatens Banking Giant


Most investors recall how the global financial crisis of 2008 ended. Yet how many recall the way it began?

The crisis reached a crescendo in September and October 2008 when Lehman Bros. went bankrupt, AIG was bailed out and Congress first rejected and then approved the TARP plan to bail out the banking system.

The bank bailout was greatly magnified when the Fed’s Ben Bernanke and other bank regulators guaranteed every bank deposit and money market fund in the U.S., cut rates to zero, began printing trillions of dollars and engineered more trillions of dollars of currency swaps with the European Central Bank to bail out European banks.

This extreme phase of the crisis was preceded by a slow-motion crisis in the months before. Bear Stearns went out of business in March 2008. Fannie Mae and Freddie Mac both failed and were taken over by the government and bailed out in June and July 2008.

Even before those 2008 events, the crisis can trace its roots to late 2007. Jim Cramer had his legendary, “They know nothing!” rant on CNBC in August. Treasury Secretary Hank Paulson tried to bail out bank special purpose vehicles in September (he failed). Foreign sovereign wealth funds came to the rescue of U.S. banks with major new investments in December.

Still earlier, in June 2007, two Bear Stearns-sponsored hedge funds became insolvent and closed their doors with major losses for investors.

Yet even those late-2007 events don’t trace the crisis to its roots.

For that you have to go back to Feb. 7, 2007. On that day, banking giant HSBC warned Wall Street about its Q4 2006 earnings. Mortgage foreclosures had increased 35% in December 2006 compared with the year before. HSBC would take a charge to earnings of $10.6 billion compared with earlier estimates of $8.8 billion.

In short, the 2008 financial crisis began in earnest with a February 2007 announcement by HSBC that unforeseen mortgage losses were drowning the bank’s earnings. At that time, few saw what was coming. The warning was considered to be a special problem at a single bank. In fact, a tsunami of losses and financial contagion was on the way.

Is history about to repeat? Is HSBC about to lead the world into another mortgage meltdown?

Of course, events never play out exactly the same way twice. Any mortgage problem today does not exist in the U.S because mortgage lending standards have tightened materially including larger down payments, better credit scores, complete documentation and honest appraisals.

HSBC’s mortgage problem does not arise in the U.S. — it comes from Hong Kong.

Almost overnight, Hong Kong has gone from being one of the world’s most expensive property markets to complete chaos. The social unrest and political riots there have generated a flight of capital and talent. Those who can are getting out fast and taking their money with them.

As a result, large portions of the property market have gone “no bid.” Sellers are lining up but the buyers are not showing up. At the high end, owners paid cash for the most part and do not have mortgages. But HSBC has enormous exposure in the midrange and more modest sections of the housing market.

High-end distress also has a trickle-down effect that puts downward pressure on midmarket prices.

IMG 1

Your correspondent during my most recent visit to Hong Kong. Behind me are the hills of Hong Kong leading up to “the Peak,” the highest point in Hong Kong. Homes on the hills below the Peak are among the most expensive in the world. Due to recent riots, they are in danger of becoming “stranded assets” with no buyers due to capital flight and fear of worsening political conditions.

It’s important for investors to bear in mind that mortgage losses appear in financial statements with a considerable lag once the borrower misses a payment. Grace periods and efforts at remediation and refinancing can last for six months or more. Eventually, the loan becomes nonperforming and reserves are increased as needed, a hit to earnings.

Property price declines and mortgage distress that started last summer as the Hong Kong riots worsened will not hit the HSBC financials in a big way until early 2020. The HSBC stock price may be floating on air between now and then. But the reckoning with a burst bubble in Hong Kong will be that much more severe when it hits.

Another threat to the HSBC stock price comes from Fed flip-flopping on monetary policy. Throughout 2017 and 2018, the Fed was on autopilot in terms of raising short-term interest rates and reducing the base money supply, both forms of monetary tightening.

Suddenly, in early 2019, the Fed reversed course, lowered interest rates three times (July, September and October) and ended its money supply contraction.

The result was that a yield-curve inversion (short-term rates higher than longer-term rates) that emerged in early 2019 suddenly normalized. Short-term rates fell below longer-term rates. That is extremely positive for bank earnings and bullish for bank stock prices.

Now the Fed may be ready to flip-flop again. In their October 2019 meeting, the Fed’s FOMC indicated that rate cuts are on hold. This means that short-term rates may stop falling, but longer-term rates will continue to fall for other reasons including a slowing economy. The yield curve may invert again. This is a negative for bank earnings and a bearish signal for bank stocks including HSBC.

Will history repeat itself with a mortgage meltdown at HSBC leading the way to global financial contagion?

Right now, my models are telling us that the stock price of HSBC is poised to fall sharply.

This is due to the anticipated mortgage losses (described above), but also to an inefficient management structure, repeated failures to reform that structure and management turmoil as a new interim CEO, Noel Quinn, attempts to repair past blunders without the job security or support that comes with being a permanent CEO.

When Noel Quinn accepted the job of interim chief executive of HSBC in August, he had one condition. He told Chairman Mark Tucker he did not want to be a caretaker manager who would keep the bank chugging along until a permanent successor was appointed, according to people briefed on the negotiations.

Instead, Mr. Quinn, a 32-year veteran of HSBC, has embarked on a major restructuring of Europe’s largest bank.: He wants to rid the lender of its infamous bureaucracy while reducing the amount of capital tied up in the U.S. and Europe, where it makes subpar returns. To do so, he will have to slash thousands of jobs.

Investors are understandably skeptical. This is the third time the bank has attempted a big overhaul in a decade, following similar efforts in 2011 and 2015. But returns still lag behind global peers such as JPMorgan despite HSBC’s unparalleled exposure to high-growth markets in Asia, which accounts for about four-fifths of profits.

The stock has declined 11% in a year when stock markets were rallying robustly. Most of the drawdown occurred in August and was a direct response to the worsening political situation in Hong Kong.

While this drawdown is notable, it mostly reflects political anxiety and is not reflective of the mortgage losses that are just beginning to enter the picture. Once the reserves for mortgage losses are expanded to meet the rising level of nonperformance, look out below.

So I repeat the question: Is HSBC about to lead the world into another mortgage meltdown?

We might have an answer sometime next year.

Regards,

Jim Rickards

for The Daily Reckoning

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>>> Ford Board Leaves Embattled CEO With Little Room Left for Error


Bloomberg

By Keith Naughton

February 8, 2020


https://www.bloomberg.com/news/articles/2020-02-08/ford-board-leaves-embattled-ceo-with-little-room-left-for-error?srnd=premium


‘We cannot wait year and years,’ soon-to-be COO Farley says
Hackett ‘can’t miss a beat’ anymore after botched Explorer


A little executive bloodletting can sometimes ease the pressure on an embattled chief executive officer. But Jim Hackett is unlikely to see any letup from Ford Motor Co.’s board following the surprise early retirement of one his two top lieutenants.

Joe Hinrichs, Ford’s 53-year-old automotive president, will leave on March 1 after almost two decades with the company. As a rising star under celebrated former CEO Alan Mulally, he was put on the fast track to be a potential heir to the top job.

With Hinrichs out of the picture, Ford is elevating Jim Farley, the company’s only other president, to become the first chief operating officer since the automaker planned for Mulally’s succession seven years ago. The announcement that the board will revive the role of COO came days after Hackett reported dismal earnings results, dogged by the disastrous rollout of the redesigned Explorer SUV, and forecast more disappointing numbers for the upcoming year.

“This signals to everyone that Farley is Hackett’s successor, unless they plan to go outside the company,” said David Whiston, an analyst with Morningstar in Chicago. “Perhaps it could be nine months from now, or it could be 18 months from now, but they will make an announcement that Hackett is retiring and Farley takes over as CEO.”

Staying Put

Hackett, who was asked by an analyst 18 months ago whether he expected to last in the job, told reporters Friday he’s not going anywhere.

“As far as my tenure, this is the kind of thing I love to do and I’m having a really fulfilling assignment here,” said the former CEO of office-furniture maker Steelcase Inc. “I need to be here.”

Since being pressed into duty almost three years ago by Executive Chairman Bill Ford to stabilize his family’s foundering automaker, Hackett, 64, has promised to accelerate the 116-year-old company’s “clock speed.” But Wall Street analysts have long groused that Hackett’s global restructuring has moved at a plodding pace.

Shares slide in post-Mulally era

Ford shares followed up Wednesday’s post-earnings plunge of 9.5% -- the biggest decline in nine years -- with a 1.7% drop on Friday. The stock has fallen 25% under Hackett and by more than half since the departure of Mulally, the only CEO of a Detroit automaker who kept his company out of bankruptcy in 2009.

Hackett himself acknowledged Ford has run out of margin for error when he told analysts during Tuesday’s earnings call: “It does boil down to we can’t miss a beat now in the product launches.”

On Friday, he addressed the costly mistakes made with the Explorer sport utility vehicle again, telling reporters there’s “no room for that type of miss” anymore.

Hackett's Headache

U.S. sales of key models have shrunk since Mullaly left in 2014

In an interview Friday, Farley, 57, didn’t want to talk executive succession. But he said he’s eager to pick up the pace as Ford rolls out a redesigned F-150 pickup -- its most profitable model -- and pours billions into the electric and self-driving cars upending the industry.

“We cannot wait years and years,” Farley said by phone. “In the context of our industry and how it’s changing, we have to accelerate.”

Tough Talk

Farley joined Ford from Toyota Motor Corp. in 2007, just before the bottom fell out of the U.S. auto market. He helped navigate the company through the Great Recession without resorting to the government bailouts and bankruptcies that befell General Motors and Chrysler.

A marketing specialist and cousin of the late actor and comedian Chris Farley, Jim Farley broadened his skills over the years with stints running Ford’s European operations and launching a comeback at Lincoln. Most recently, he’s been head of strategy and technology, cutting deals with Volkswagen AG and Rivian Automotive Inc. on electric and autonomous vehicles.

Volkswagen And Ford Extend Collaboration To Electric, Self-Driving Cars

Along the way, Farley earned a reputation as a tough taskmaster, never afraid to speak his mind and throw a few elbows.

“F--- GM, I hate them and their company,” he was quoted as saying in the 2011 book “Once Upon a Car” by then-New York Times Detroit Bureau Chief Bill Vlasic. “I’m going to beat Chevrolet on the head with a bat.”

Blunt Contrast

Farley’s tone may have softened since then, but his drive remains and Ford insiders are bracing for an extremely demanding new boss.

“Farley is very blunt, and I think Wall Street is actually going to like that because it’s such a contrast from Jim Hackett being very indirect,” said Whiston, who has the equivalent of a buy rating on Ford. “Farley has worked on his temperament a bit and tends to give more diplomatic answers now. The f-bombs are probably a thing of the past.”

As for when Hackett might become a thing of the past, Farley isn’t speculating.

“That’s for the board to decide,” Farley said. “My job is to get the most out of this team, just like we did many years ago, and bend that curve of financial performance and make the right bets strategically.”

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>>> Groupon and Blue Apron’s real problem: Neither business model works, experts say


By Ciara Linnane

Feb 20, 2020


https://www.marketwatch.com/story/groupon-and-blue-aprons-real-problem-neither-business-model-works-experts-say-2020-02-19?siteid=yhoof2&yptr=yahoo


Groupon stock tumbles 42% and Blue Apron is down 22% as experts say they are unlikely to succeed

Groupon and Blue Apron stocks tumbled after some grim quarterly numbers
Groupon Inc. shares slid 43% Wednesday and Blue Apron Inc. was down 22%, after far weaker-than-expected earnings from both companies revived concerns about the sustainability of their business models.

Groupon’s GRPN, +0.00% decline marked the biggest one-day selloff since its 2011 IPO and came in heavy volume of 119 million shares that made it the most actively traded stock on U.S. exchanges. The company said late Tuesday it plans to exit from the Goods category to focus on the $1 trillion “local experiences” market.

The news came as it reported a 23% decline in quarterly revenue, named Melissa Thomas as new chief financial officer, and said it plans to pursue a reverse-stock split to boost the price of its stock.

Wedbush analyst Ygal Arounian said the decision to exit Goods was the right one and would remove a significant drag on value.

“We see the 4Q results (and the exit of Goods) as increasing the likelihood of a takeout/merger (which we’ve written about previously), with our view that Groupon and Yelp YELP, +1.76% would make a value-creating combination and that IAC IAC, -1.12% can be a trusted steward to manage,” the analyst wrote in a note to clients, reiterating his neutral rating on the stock.

Read now: Why Mila Kunis uses Groupon and calls herself ‘a really great promo-coder

Clipping coupons

Groupon’s business model has been the subject of critical academic research, ever since the company first started its daily deal coupon business back in 2008, offering everything from spa and beauty treatments to restaurant deals.

That business involves signing up merchants that are willing to offer sometimes deep discounts on goods and services aimed at local consumers in the hope they can upsell them other services to make up the price shortfall. Groupon makes money by taking a commission from the discounted price.

Read: CEO sees coupon-free Groupon+ offers morphing into modern-day loyalty program

For consumers, the draw was the perceived benefit of group buying. As long as enough people wanted the same thing, Groupon could help them get a good price. For merchants, the downside became apparent when the service mostly attracted bargain hunters, who were unwilling to spend more than the face value of the coupons. Some of the small-business owners that used the platform found themselves overwhelmed operationally when a deluge of customers took up the coupon offer.

“Some businesses were just ill-prepared to handle the service and support of this wave of low-quality, low-margin customers coming in the door,” said Jonathan Treiber, chief executive of RevTrax, a platform that manages special offers and discounts. “Groupon does drive traffic, but merchants have a love/hate relationship with it.”

David Reibstein, professor of marketing at The Wharton School, said there was never a compelling reason for Groupon to exist.

“There are two things that possibly happen with Groupon,” he said. “One is you have a customer that was paying full rate, but is now paying less and is just cutting margin away from the merchant. The second is that the people who are signing up are now occupying spaces that full-paying customers were going to use.”

Customers become unhappy when a Groupon service is so popular that suddenly they can’t get an appointment, he said. Merchants are unhappy when dealing with the negative impact of a low-quality customer base, he said. The platform is also vulnerable to changes in the economic cycle, he said.

“To the degree that Groupon is basically dependent on merchants that have excess capacity and want to sell it off, when they are doing better, that capacity goes away,” he said.

Reibstein said he is surprised the company has lasted as long as it has or that so many competing services have sprung up. “Competitors have the same issues and one thing is that they are training customers to wait for the deal, which is not good either.”

Blue Apron’s blues

Blue Apron’s APRN, -13.89% problems lie in its cost structure, with manufacturing and marketing costs elevated by the basic requirements of a business that delivers fresh food ingredients to customers in expensive packaging. The company has never made a profit, hurt by failed partnerships, that include a deal to sell its meal kits at Costco Wholesale Corp. COST, +0.33%, among other issues.

“From the beginning, Blue Apron failed to put in the necessary manufacturing, supply chain, procurement and logistics that would allow them to manufacture meals with low unit costs and be able to consistently meet customer demand cost efficiently,” said Brittain Ladd, founder and CEO of Six-Page Consulting, which specializes in retail and supply chain management.

The company is operating in a highly competitive business but has high customer acquisition costs and low retention rates. The company’s customer count fell to 351,000 in the December quarter from 557,000 in the year-earlier quarter, according to its latest earnings report.

The company’s cost of goods sold (COGS), excluding depreciation and amortization, as a percentage of net revenue, rose 20 basis points (0.2 percentage points). Marketing expense was $12.1 million, or 12.8% of revenue, in the fourth quarter, compared with 14.4% or revenue a year ago, while product, technology, general and administrative (PTG&A) costs fell 22% to $35.3 million, mostly due to staff cuts.

See now: Opinion: Blue Apron’s new CEO has a thankless task

The company had a net loss of $21.9 million, just a bit lower than the $23.7 million loss posted a year ago, and revenue fell 33% to $94.3 million.

“While we’re confident that Blue Apron will drive leverage in COGS, marketing, and PTG&A expenses in FY:19, we believe visibility into the timing of a potential reacceleration in customer growth remains limited as many of the company’s new initiatives are just beginning to ramp up,” said Stifel analysts led by Scott Devitt, reiterating their hold rating on the stock.

The company’s subscription model is another problem, according to Six-Page Consulting’s Ladd. “They didn’t do enough to offer flexibility, they need more quality food, more recipe options and a better subscription model,” he said. “Customers simply stopped using them as they were underwhelmed.”

The meal-kit business can work, as evidenced by Blue Apron competitors such as Hello Fresh, Home Chef and others who have succeeded, he said. But the trend is slowly being replaced by healthy ready-to-eat meals as consumers clamor for greater convenience.

Read also: Blue Apron to end partnership with Walmart’s Jet.com but continue with Weight Watchers

Blue Apron said it is evaluating its strategic alternatives, including a partnership, a capital raise either through the public of private markets, or a sale of the company. Ladd said its best hope is to be acquired, and named several potential acquirers, including food companies like Kraft Heinz Co. KHC, +0.40% and Campbell Soup Co. CPB, -0.10%, delivery service Instacart and even Starbucks Corp. SBUX, -1.71%.

See: Blue Apron stock soars as news of Beyond Meat menus sparks a round of short covering

Starbucks would acquire a team that has expertise in creating tasty meals and could help bolster the coffee shop chain’s food offering, he said. And Blue Apron is cheap too, after it conducted a reverse stock split that saved it from being delisted but reduced the number of shares available. “It has no capital value so they could buy it for pennies on the dollar,” Ladd said.

Treiber from RevTrax said Blue Apron would be a strong takeover candidate for Walmart Inc. WMT, +0.01%, as it expands in grocery delivery and online grocery, or Target Corp. TGT, +0.74%, which is lagging in food.

“Target doesn’t have a strong online grocery business,” he said. “It could catapult them into being a real player, where over time, they could augment meal delivery with other services.”

Groupon shares have fallen 48% in the past 12 months and are now a full 93% below their IPO issue price of $20. Blue Apron shares are down 85% the past year and about 98% below their IPO price of $10, including the effect of the reverse stock split.

The S&P 500 SPX, -0.38% has gained 21% in the last 12 months and the Dow Jones Industrial Average DJIA, -0.44% has gained 14%.

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>>> Boeing stock sinks as 737 MAX might not return till midyear


MSN

1-21-20

David Shepardson


https://www.msn.com/en-us/money/topstocks/boeing-stock-sinks-as-737-max-might-not-return-till-midyear/ar-BBZbS2G?li=BBnb7Kz&ocid=mailsignout


Boeing said Tuesday it does not expect to win approval for the return of the 737 MAX to service until midyear because of regulatory scrutiny on its flight control system.

Boeing has informed airlines and suppliers of the new estimate, it said, which was reported earlier on Tuesday by CNBC.

Boeing shares fell 5.5% to $306.23 before being halted briefly ahead of the announcement.

Reuters reported last week that regulators had been pushing back the time needed to approve the plane. Boeing's best-selling plane has been grounded since March after two fatal crashes killed 346 people in five months.

The Federal Aviation Administration did not immediately comment.

Reuters reported on Monday that Boeing is in talks with banks about borrowing $10 billion or more amid rising costs for the U.S. plane maker after the two crashes involving the 737 MAX.

Boeing confirmed on Monday that it temporary halted production of the 737 MAX in Washington state in recent days. The company had said in December it would halt production at some point this month.

Boeing has estimated the costs of the 737 MAX grounding at more than $9 billion to date, and is expected to disclose significant additional costs during its fourth-quarter earnings release on Jan. 29. Boeing faces rising costs from halting production of the plane this month, compensating airlines for lost flights and assisting its supply chain.

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>>> Virgin Galactic (SPCE) Has New COO, a New Ship and a Surging Stock


Bloomberg

By Justin Bachman

January 16, 2020


https://www.bloomberg.com/news/articles/2020-01-16/virgin-galactic-has-a-new-coo-a-new-ship-and-a-surging-stock?srnd=premium


Shares soar 30% on investor optimism before commercial flights

Virgin Galactic Holdings Inc. has surged 29% since Jan. 1 as the company prepares to fly its first space tourists in 2020.

Investors are also betting that Virgin Galactic, founded by entrepreneur Richard Branson, will be one of the first companies to offer point-to-point hypersonic travel, one day potentially reducing intercontinental flights to less than three hours. In a December report, Morgan Stanley analysts valued that market at $800 billion by 2040, dwarfing the space tourism business.

Virgin Galactic has surged ahead of small caps and airlines this year
Virgin announced last week that its second commercial ship had reached a “weight on wheels” assembly milestone considerably faster than it took to get to the same stage with its first spaceship. Work on a third ship has begun, the company said.

Virgin Galactic aims to have five spacecraft in service by the end of 2023 operating from its base at Spaceport America in southern New Mexico. That’s where customers will gather later this year to board the company’s first commercial flight.

On Wednesday, the company named Enrico Palermo as its chief operating officer. Palermo was president of its manufacturing unit, Spaceship Co.

The company debuted on the public markets on Oct. 28 and rose to more than $12 before dipping to a low of $7.22 in late November. The stock began rising again in mid-December, finishing the year at $11.55. Morgan Stanley assigned a $22 target price for the shares on Dec. 19.

The surge last month came after the management team made the rounds of analysts to tell its story, Alex King, founder of Cestrian Capital Research, wrote in a Jan. 13 note. King owns Virgin Galactic shares personally.

Customer Demand

The company has been doing a good job highlighting its future opportunities, said Steven Jorgenson, general partner at Starbridge Venture Capital.

“Talking about strong customer demand and of opening up ticket reservations again has been a good strategy while they’re still in a bit of an operational grace period ahead of regular customer launches later this year,” he wrote in an email.

The company has a backlog of 600 people who have placed deposits for a trip on a spaceship, and collected information from another 3,500 potential customers who have expressed interest in the flights, Palermo said in an interview.

“We continue to see that number tick up every month,” he said. “We’re very comfortable with demand for that market.”

Virgin Galactic hasn’t decided whether it will resume taking reservations before or after the commercial flights commence, Palermo said.

In November, Virgin reported losing about $128 million for the period through Sept. 30. King labeled the stock “speculative” given the company’s early stage. Virgin Galactic has raised more than $1 billion since it was founded in 2004, initially from Branson, with an Abu Dhabi investment company taking a stake in 2010.

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>>> Tesla Is Once Again the Most Shorted American Stock

Bloomberg

By Elena Popina

January 15, 2020


https://www.bloomberg.com/news/articles/2020-01-15/tesla-is-once-again-the-most-shorted-american-stock?srnd=premium


Tesla Inc. bears won’t let anyone steal the title for the most-shorted stock. Not even Apple Inc.

A parabolic spike in shares of the electric carmaker hasn’t stopped short sellers from betting the stock will go down. They drove the total dollar amount of shares borrowed to sell the stock short to $14.5 billion on Wednesday, data by financial analytics firm S3 Partners showed. That’s above the $14.3 billion invested in a bet Apple will go down.

The iPhone maker overtook Tesla as the most-shorted U.S. stock on Sept. 20 and had held that position until Wednesday. The dollar amount of short interest in Apple, however, is of little surprise given the size of the tech giant’s $1.4 trillion market capitalization.

Tesla, whose market cap is 14 times smaller than Apple’s, has long been a site of a tug-of-war between its bulls and bears, which often came at a price. This year through Tuesday, Tesla short-sellers have racked up $2.8 billion in net-of-financing mark-to-market losses, S3 Partners’ data show. This compares with losses of $2.89 billion for all of 2019.

Tesla has more than doubled since reporting third-quarter earnings late October

Tesla has been on a roll since late October amid a host of positive news around its deliveries and China plant. Apple has gained 19% since early December and at least 10 analysts have upped their price targets on the stock this year amid optimism over the company’s growth.

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>>> 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.

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>>> 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.

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>>> 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.”

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>>> 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%

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>>> 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.

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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.

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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%

___________________________

[Golden Cross]

$HUBS REVENUE GROWTH SLOWING " analysts are expecting 28.81% YoY revenue growth for Q2, down from 32.51% in Q1 "

Looking short here. June 190 PUTS... GLTA

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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.

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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.

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>>> 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.

<<<

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>>> 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.

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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.

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>>> 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.

<<<

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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.

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>>> 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%.

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>>> 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.

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>>> 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.

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>>> 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

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>>> 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

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>>> 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

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>>> 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. <<<

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>>> 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

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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

<<<

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>>> 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

<<<

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>>> 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

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>>> 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.

<<<

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>>> 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.

<<<

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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.

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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

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>>> 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 -

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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.

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>>> 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.

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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.

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>>> 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.

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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.

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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.