North Carolina Doctor Sues to Break Up State-Enforced Medical Cartels

Should a licensed doctor have to ask the government and industry competitors for permission before purchasing potentially life-saving medical equipment? That’s the question at issue in a new lawsuit challenging North Carolina’s “certificate of need” laws.

In 2017, Dr. Gajendra Singh opened a medical imaging center in the town of Winston-Salem with the goal of providing MRIs, ultrasounds, and other screenings to patients at prices that were both lower and more transparent than what they were paying at the existing local hospital.

Singh was able to either purchase or lease the X-ray scanner, CT scanner, and ultrasound machines he needed without incident. But when it came to getting an MRI machine, he hit a wall.

The state of North Carolina requires medical service providers like Singh to go through an arduous application process to prove that they need an MRI machine before they are allowed to buy or lease one. Need, mind you, is determined not by how many patients are asking for services, but rather by how many MRI’s the state’s Department of Health thinks an area requires.

In Singh’s case, the Health Department had determined that two local hospitals operating MRI machines is more than enough for the Winston-Salem area. Thus, Singh has been denied the “certificate of need” that would allow him to get a machine of his own. Instead, he has been forced to rent a portable MRI machine two days a week, limiting the number of scans he can perform, and effectively preventing him from competing with the incumbent hospitals.

The good doctor is now suing the state Department of Health as well as the governor and members of the state legislature in order to overturn the law that’s hamstringing his practice and depriving his patients of medical services he would otherwise be able to provide them.

“As a medical doctor, Dr. Singh took an oath to help people in need, yet the state is standing in his way to protect established medical providers from competition,” says Renée Flaherty, an attorney with the Institute for Justice, a public interest law firm representing Singh. “That’s plainly unconstitutional.”

North Carolina’s constitution prohibits the granting of either monopolies or exclusive “emoluments” i.e privileges to the private entities.

In a compliant filed today, the Institute for Justice argues the state—by requiring that medical service providers obtain a certificate of need to own an MRI machine, and then give out a limited number of such certificates to select health care providers—is in effect handing out monopolies and exclusive privileges to those providers lucky enough to get the certificates.

Not only is this practice potentially unconstitutional, it raises prices for consumers. Singh’s lawsuit claims the average MRI costs just under $2,000 in the state of North Carolina, a service the doctor’s imaging center usually provides (when it has a machine available) for somewhere in the $500-$700 range. Because his practice posts all their prices on line, patients are not left with unexpected bills.

Absent North Carolina’s certificate of need laws, Singh would be able to service far more patients than he currently does, helping them get access to the care they need. Subject to the competitive pressures of a freer market, the hospitals in his area would likely have to lower their prices to stay in business.

Singh’s practice is not the only one stifled by certificate of need laws. As Reason‘s Eric Boehm reported last January, two providers in Brunswick County have had to fight tooth and nail for permission to open the one new surgery center the state is allowing in that county, while a local hospital has done everything it can to sabotage this effort.

Should Singh’s lawsuit prevail, the state would be prohibited from enforcing its certificate-of-need laws, allowing most any qualified medical service provider to offer whatever services people are willing to pay for.

That would be a blessing for patients’ financial and physical health alike.

from Hit & Run

Apple Jumps After Beating On Revenue And Earnings, Despite iPhone Sales Miss

When we wrote our preview of AAPL earnings, we said they could be a trade-off between iPhone sales on one hand, and the company service revenues as well as broader revenue picture, and sure enough that’s precisely what happened.

In the third fiscal quarter, Apple sold 41.3MM iPhones, up from 41.0MM a year ago, but missing analyst estimates of 41.6MM, with disappointing unit sales for iPads and Macs as well, but because it beat on the bottom and top line, reporting Q3 EPS of $2.34, vs Exp. $2.18 on revenue of $53.3BN, also topping expectations of $52.4BN, while providing Q4 revenue guidance that was well above analyst estimates, the stock jumped over 2.7% after hours.

As some had expected, Apple product sales missed on every metric:

  • Q3 iPhone sales 41.3MM, vs Exp. 41.6MM
  • Q3 iPad sales 11.6MM, vs Exp. 11.7MM
  • Q3 Mac sales 3.7MM, vs Exp. 4.3MM, the lowest since Q3 2010

A clearer breakdown of iPhone sales in Q3, shows that after peaking in 2015, Apple may have hit a bit of a peak (via Jon Erlichman):

  • Q3 2018: 41.3 million
  • Q3 2017: 41.0 million
  • Q3 2016: 40.4 million
  • Q3 2015: 47.5 million
  • Q3 2014: 35.2 million
  • Q3 2013: 31.2 million
  • Q3 2012: 26.0 million
  • Q3 2011: 20.3 million
  • Q3 2010: 8.4 million
  • Q3 2009: 5.2 million
  • Q3 2008: 717 thousand

And yet, despite stagnant iPhone growth, the following breakdown of Q1 revenue shows that the company has been more than able to offset the topline growth:

  • Q3 2018: $53.3 billion
  • Q3 2017: $45.4 billion
  • Q3 2016: $42.4 billion
  • Q3 2015: $49.6 billion
  • Q3 2014: $37.4 billion
  • Q3 2013: $35.3 billion
  • Q3 2012: $35 billion
  • Q3 2011: $28.6 billion
  • Q3 2010: $15.7 billion
  • Q3 2009: $9.7 billion
  • Q3 2008: $7.6 billion

Indeed, despite softer iPhone sales, the company’s sold revenue beat suggests that the company is leveraging average selling prices and other revenue streams. And to be sure, Apple once again announced blockbuster service revenues of $9.5BN which includes the App Store and Apple Music, beating Wall Street expectations of $9.2BN. That is 31% growth from $7.3 billion in the year-ago quarter and 4% quarter over quarter growth. As RBC noted earlier, Apple is increasingly becoming a service company.

Further boosting the stock after hours, ASPs also came in above expectations, at $724 vs the $699 expected. Meanwhile, gross profit margin came in exactly as expected, at 53.3%

But even more important was Apple’s forecast for the next quarter, in which Apple sees revenue between $60 and $62Bn, above consensus estimates of $594BN, on margins of 38.0-38.5%, vs est of 38.2%.

The full forecast in a nutshell:

  • revenue between $60 billion and $62 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.95 billion and $8.05 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 15 percent before discrete items

Notable is that the company also returned almost $25 billion to investors through its capital return program during the quarter, including $20 billion in share repurchases, just shy of the Q2 record of $22.8 billion.

Commenting on the result, CEO Tim Cook said “we’re thrilled to report Apple’s best June quarter ever, and our fourth consecutive quarter of double-digit revenue growth. Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline.”

CFO Luca Maestri also chimed in, saying that “our strong business performance drove revenue growth in each of our geographic segments, net income of $11.5 billion, and operating cash flow of $14.5 billion. We returned almost $25 billion to investors through our capital return program during the quarter, including $20 billion in share repurchases.”


via RSS Tyler Durden

Facebook Removes More Fake Pages Trying to Make You Mad About Politics

Facebook announced today that it has removed 32 accounts that it believes were fraudulently attempting to use divisive politics to influence the midterm elections.

Only a handful of pages had any significant number of followers, but in total, 290,000 accounts followed at least one of the pages, all of which were made since 2017. Based on the information Facebook released, this particular group of fake pages was targeting people on the left. One of the fake pages—for a group called “Resisters”—created a Facebook event called “No Unite the Right 2” in Washington, D.C., to take place on August 10; it apparently coordinated with five real organizations to co-host it. Facebook canceled the event and warned the other groups what was going on. The event had attracted 2,600 interested users, and 600 people said they would attend.

Fake Facebook Rally

This campaign sounds similar to the fraudulent pages and rallies that preceded the 2016 election, which were ultimately blamed on the Russia-based Internet Research Agency (IRA). At this point, Facebook does not have enough information to say with any certainty that Russian interests are responsible for this latest round of content and advertising ($11,000 worth). The people responsible for these pages are doing a better job at covering their tracks, but Facebook says some of the activity is “consistent” with the behavior they saw the IRA doing during the run-up to the 2016 election.

Facebook doesn’t offer any evidence that these campaigns are targeting any particular candidate.

Sen. Mark Warner (D-Va.), on the Senate’s Intelligence Committee, is already responding to demand changes in laws to censor these campaigns: “Today’s disclosure is further evidence that the Kremlin continues to exploit platforms like Facebook to sow division and spread disinformation, and I am glad that Facebook is taking some steps to pinpoint and address this activity. I also expect Facebook, along with other platform companies, will continue to identify Russian troll activity and to work with Congress on updating our laws to better protect our democracy in the future.”

But what Facebook has released so far is really just an attempt to magnify already existent cultural divisions. These pages are peddling anger and outrage. People can choose whether to care or be outraged. This apparent threat to democracy is a handful of outside actors telling a certain group of people exactly what they want to hear. If that’s a threat to our democracy, it’s way too late.

When details of the Russian social media trolling attempt to influence the 2016 election came out, Reason‘s Jacob Sullum looked it over and questioned how much impact it actually had. It’s probably worth asking the same questions this time. Watch below:

from Hit & Run

WTI Extends Losses After Huge Surprise Inventory Build

Having posted its biggest monthly loss since 2016, amid over-supply fears, all eyes are back on API tonight with bulls hoping that last week’s across the board inventory draws continue… but it reported a shocking 5.59mm inventory build and WTI dropped.



  • Crude +5.59mm  (-3mm exp)

  • Cushing -930k (-500k exp)

  • Gasoline -791k

  • Distillates +2.89mm

Just like we saw two weeks ago, a shockingly large crude inventory build reported by API…

WTI was hovering around $68.75 into the API print and kneejerked lower…


“It’s some of these concerns about oversupply with OPEC. There are also starting to be concerns about the slowdown or the plateauing in demand,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York.

Still, the low volume is indicative of “the summer doldrums. The prices are down, but the activity actually hasn’t been that high.”

via RSS Tyler Durden

Mark Cuban On AI: “If You Don’t Think A Terminator Will Appear, You’re Crazy!”

Authored by Mark Cuban via,

Billionaire Mark Cuban didn’t hold back when he recently discussed the dangers of artificial intelligence.  Refusing to mince words, Cuban said, “Let me scare the s— out of you, all right? If you don’t think by the time most of you are in your mid-40s that a Terminator will appear, you’re crazy.”

Cuban is a billionaire entrepreneur, a star of the ABC reality show “Shark Tank” and the owner of the Dallas Mavericks basketball team. He is also certain that a version of the Terminator is coming thanks to the advancements in artificial intelligence and robotics weaponry. Speaking to an audience of high school students at the High School Leadership Summit Turning Point USA event in Washington D.C., Cuban laid down several serious warnings about the future of artificial intelligence and among them was a reference to the 1984 movie, “The Terminator,” starring Arnold Schwarzenegger as a cyborg assassin.

“For weaponry, we already have the ability to have weapons think…They’re only going to go further and further as technology progresses,” declared Cuban, according to Observer. 

“If we don’t win this battle, the world is going to be upside down and that scares the shit out of me.”

Back in November, the billionaire warned that the United States should not allow countries like China and Russia to pull ahead in terms of developing artificial intelligence.

China’s government has said publicly it plans to be the global leader in artificial intelligence by 2030 and Russian President Vladimir Putin has said, “the one who becomes the leader in this sphere will be the ruler of the world.”

“And our defense organizations are starting to, but as a country, the administration is barely even acknowledging that it is an issue,” Cuban said to Charlie Kirk of artificial intelligence research in the United States.  Kirk is the 24-year-old founder of Turning Point USA, a right-wing non-profit organization which is aimed at promoting conservative political ideas among high school students.

During his speech, while promoting the belief that politicians should “leverage” technology in their campaigns to best discover what drives voters and constituents, Cuban gave President Trump credit for “always challenging the status quo.”

“I do give President Trump credit for always challenging the status quo,” conceded the billionaire, before encouraging high schoolers in the room to “go break shit” in reference to entrenched power structures and processes.

via RSS Tyler Durden

Toss-Up Senate Races Abandoned by Koch Network Feature Unusually Strong Libertarian Party Contenders

Because everyone enjoys a good catfight, and journalists in particular like it when two of their biggest bogeymen go at each other’s throats, today’s big political news is obviously the Trump-Koch feud.

There’s a significantly underreported aspect to the Koch donor network’s growing objection to the Trumpian GOP’s anti-libertarian actions on trade, spending, and immigration. Two of the three Senate races in which the network is reportedly declining to back Republicans—Nevada and Indiana—are not just widely considered by prognosticators to be “toss-ups“; each features Libertarian Party candidates who have previously cracked the 5 percent mark in elections.

Tim Hagan ||| Tim HaganNevada’s Tim Hagan, an engineer and longtime Libertarian activist, has on three occasions trounced the point spread in a swing-district state Senate election, earning 5.1 percent of the vote in 2016 (the Democrat won 47.9 percent to 47.0), 4.8 percent in 2008 (46.5–45.8), and 7.6 percent in 2006 (47.6–44.8). Hagan has never dipped below 3 percent in any of the nine elections he has run in, hitting a high of 23.7 percent in a 2014 race for Clark County assessor (in which no Republican ran).

And yet in this crucial swing-state race between vulnerable Republican incumbent Dean Heller and Democratic challenger Jacky Rosen, who the Real Clear Politics polling average separates by less than a percentage point, Hagan is nowhere to be found in six of the seven publicly available polls that have been conducted since he secured the L.P. nomination in early March. Only a Suffolk University survey of 500 likely voters last week included Hagan’s name, showing him with 2.4 percent. (Heller edged Rosen in the poll, 41–40, while 8.6 percent were undecided and 5.4 percent went for none of the above.)

To reiterate a point I made a month ago about the New York gubernatorial race, not listing Hagan as an option constitutes journalistic malpractice. The last time Heller ran for re-election, winning by 1.1 percentage points, an Independent American Party candidate named David Lory VanDerBeek pulled down 4.9 percent of the vote. Gary Johnson won 3.3 percent in the Silver State two years ago, more than Hillary Clinton’s 2.4-point margin over Donald Trump.

Nevada is a swing state, Heller-Rosen is neck-and-neck, and Republican control over the Senate rests on a 51–49 knife’s edge in a possible Democratic wave year. If you want to know what’s going to happen in (and to) this country, you need to put the damn Libertarian in your poll.

Lucy Brenton ||| Lucy BrentonIndiana is arguably even more interesting as a disaffected-Republican thought experiment, since A) the Libertarian candidate in question is pro-life (though she doesn’t think the federal government has any role in abortion policy), and B) she’s going to be in the televised debates.

Lucy Brenton, who like Hagan has been active in Libertarian politics since the early 1990s, is a real estate entrepreneur and mother of 10 who in 2016 got 5.5 percent of the vote in the U.S. Senate race won by Republican Todd Young. Brenton this time is facing Democratic incumbent Joe Donnelly and Republican Mike Braun for a seat that in 2012 drew 5.7 percent of the vote for Libertarian Andy Horning (who was accused, innumerately, of spoiling the election for losing Republican Richard Mourdock).

Indiana has one of the country’s strongest Libertarian Party chapters. Four times in the past 12 years, L.P. senatorial candidates there have drawn more than 5 percent of the vote, twice as many as the next best state. So how many polls has Brenton appeared in since securing her party’s nomination in May?

Zero. In fairness, there has been only one public survey since then. (The lack of good state-level data on Senate races is shocking, given the stakes involved.) Whenever you hear conjecture about the Indiana race, know that it’s only that—until we start getting more and better polls that include the letter L.

Matt Waters ||| Matt WatersThe broader fact remains that there are alternatives on the ballot plausible to Republican voters who are weary of President Trump’s illibertarian words and deeds. Matt Waters, the L.P. Senate candidate in Virginia, is very consciously providing a conservative-friendly option to the super-Trumpy GOP nominee Corey Stewart (drawing calls from the likes of Larry Sabato to have Waters included in polls).

I wouldn’t bet on the Koch network flowing any money in a Libertarian direction—when you’re into two-party politics, you’re into two-party politics, which helps explain why CEO Emily Seidel of the political Koch group Americans for Prosperity is saying stuff like, “If you are a Democrat and stand up to Elizabeth Warren to corral enough votes for financial reform that breaks barriers for community banks and families, you’re darn right we will work with you.”

But as Nick Gillespie observed this morning, both major parties are shrinking by the day, rallying hardest around populist-nationalism on the right and populist-socialism on the left. Even David Brooks is yearning for a “third-party option” that stresses constitutionalism and decentralization, even if he can’t quite bring himself to name the only national political party that does just that.

The 2018 midterms might end up being not just a referendum on Donald Trump, but an early indicator of whether the country’s only other 50-state party is ready to meaningfully grow from its current position in a distant third place.

David Koch has long been a member of the Reason Foundation’s Board of Trustees.

from Hit & Run

Stocks Soar In July Despite FANGover, Crude Carnage, Yield Curve Collapse

This seemed to sum up the month rather well…

July high- (and low-) lights

  • China CHINEXT down for 4th straight month to lowest since Jan 2015

  • Shanghai Composite best month since Jan 2018

  • DAX best month since Sept 2017

  • Trannies best month since Nov 2016 (US election)

  • Dow, S&P’s best month since January 2018

  • Small Caps up for 5th month in a row

  • Nasdaq up for 4th month in a row

  • FANG Stocks worst month since Nov 2016 (US election)

    • TWTR worst month…ever

    • FB worst month since Aug 2012

    • NFLX worst month since Jan 2016

    • TSLA worst month since March

  • UST Yield Curve flattened for 5th straight month to Aug 2007 flats

  • The Dollar Index fell on the month – first drop in 4 months

  • Offshore Yuan dumped for 4th straight month to 13-month lows

  • Emerging Market FX had first monthly gain since Jan 2018

  • Bitcoin’s best month since April

  • Gold fell for the 4th month in a row (lowest monthly close since Jan 2017)

  • Copper’s worst month since Dec 2016

  • WTI Crude’s worst month since July 2016

*  *  *

China stocks were mixed for the month with CHINEXT (China ‘Nasdaq’) worst…


All major European indices green for July…


All major US equity indices ended July in the green…


On the day we saw stocks soar early on after headlines noted the potential for improved trade talks with China but late on those hopes were dashed as officials saw no progress and stocks dipped for a millisecond…


FAANG stocks were mixed on the month with FB and NFLX crashing…


Semiconductor stocks continue to be a bright spot in an earnings season that has taken its toll on technology investors.

KLA-Tencor Corp. led the group higher Tuesday, climbing as much as 15 percent for the biggest gain in almost three years, after its fourth-quarter results topped the highest expectations. The report echoed a theme of strong demand just days after heavyweights like Advanced Micro Devices Inc. and Xilinx Inc. crushed expectations.

The strength in chip stocks has been magnified as tech investors slammed the sell button for tech darlings in the FANG bloc. The megacap group has stumbled through a rocky earnings season that pushed the FANG Index down 9.3 percent over a three-day slump following Facebook Inc.’s record meltdown. The Philadelphia Semiconductor Index jumped 1.9 percent Thursday, defying the Facebook-led rout, and added another 1.3 percent on Tuesday.

Value stocks outperformed growth for the first month since March


Global bond prices fell on the month thanks to BoJ rumors (but barely bounced back on BoJ non-news)…


Yields were higher across the entire curve in July (spooked by BoJ but not retracing as much overnight on disappointment)…


The Yield curve flattened for the 5th month in a row (and 14th of last 16) to its lowest monthly close since Aug 07…

All eyes were on The BoJ last night  – who disappointed – sending the yield curve tumbling back to pre-rumor levels (and for now, bank stocks haven’t caught all the way down)…


The Dollar had its first monthly drop in 4 months..


The Loonie rallied on the day after headlines about being rejected from NAFTA talks spooked the currency overnight…


On the month, the Mexican Peso was the strongest against the dollar, Turkish Lira the weakest…

And the Offshore Yuan plunged for the 4th straight month – its longest losing streak on record…

Notably though, Yuan spiked today after headlines implied some potential progress on the US-China trade waR…

And the Dollar also spiked at the same time…


Emerging Markets FX managed its first monthly gain since January

Despite Dollar weakness, commodities lower across the board in July with Crude down most since July 2016…


Crypto extended their losses today leaving only Bitcoin and Bitcoin Cash green for the month…notice the major divergence between bitcoin and the rest of crypto after the 18th

The divergence has sent the price of Ethereum relative to Bitcoin back to unchanged on the year…


via RSS Tyler Durden

Meet Bari Weiss, the Conservative New York Times Columnist Who Is Pro-Choice: Podcast

By the time she arrived last year at The New York Times to help write and edit its Opinion section, 34-year-old Bari Weiss had already done stints at the online magazine Tablet and The Wall Street Journal. She had also made a number of enemies who accused her of being a narrow-minded, right-wing, pro-Israel, anti-Arab bigot. Far from bringing some fresh ideas to The Gray Lady’s leftish commentary section, her hire, wrote The Intercept‘s Glenn Greenwald, emodied the paper’s “worst failings—and its lack of viewpoint diversity.”

In Greenwald’s reading, Weiss “has churned out a series of trite, shallow, cheap attacks on already-marginalized left-wing targets that have made her a heroine in the insular neocon and right-wing intelligentsia precincts.” Her widely read pieces about the identity-politics excesses of a lesbian march in Chicago and of the #MeToo Movement, and her chronicling of the “intellectual Dark Web” didn’t represent anything new, just more of the same. Greenwald wrote an attack on Weiss’s student days at Columbia, claiming that she defamed anti-Israel professors as racists and tried to silence them academically. That charge prompted National Review‘s David French, who in a previous life was the president of The Foundation for Individual Rights in Education (FIRE), to write that Greenwald and others were “sliming” Weiss.

I sat down to talk with Weiss at FreedomFest, the annual gathering of libertarians held every July in Vegas. She was in town to attend the Reason Media Awards because she was a finalist for the Bastiat Prize which “honors writing that best demonstrates the importance of freedom with originality, wit, and eloquence. Indeed, she took home the top prize, besting finalists Jake van der Kamp of South China Morning Post, Conor Friedersdorf of The Atlantic, Gustavo Arellano of The Los Angeles Times; and Bonnie Kristian of The Week. We talked about Israel and Jewish identity in America and her work, why she considers herself a liberal (among other things, she’s pro-marriage equality and abortion), how to avoid becoming the cartoon version of your most-outspoken critics, and more. She’s no libertarian, but she’s also nobody’s conventional liberal or conservative either.

Subscribe, rate, and review our podcast at iTunes. Listen at SoundCloud below:

Audio production by Ian Keyser.

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from Hit & Run

David Einhorn: “Our Results Have Been Far Worse Than We Could Have Imagined” – Full Q2 Letter

One month ago, in our ongoing chronicle of the pain suffered by David Einhorn’s Greenlight Capital, we reported that based on interim monthly numbers, the fund had lost a massive 8% in the month of June, bringing his – and his LPs’ – total loss for the year to 19%. The reason: Einhorn got clobbered on both side of his portfolio, with his 20 biggest long positions falling sharply, while his 20 largest shorts – most of which are the prominent growth and tech names that have been beaten down recently – surged.

Today, in his just released Q2 letter to investors, Einhorn not only confirms the poor performance, but also notes that “over the past three years, our results have been far worse than we could have imagined” and while hoping he will be vindicated in the end, he admits that “Right now the market is telling us we are wrong, wrong, wrong about nearly everything. And yet, looking forward from today we think this portfolio makes a lot of sense.

Will readers, and more importantly, his LPs agree, or will they decide to pull their capital from the hedge fund? That remains to be seen.

* * *

Below are key excerpts from the letter:

Dear Partner:

We had another difficult quarter and lost an additional (5.4)%,1 bringing the Greenlight Capital funds’ (the “Partnerships”) year-to-date loss to (18.3)%. During the quarter, the S&P 500 index returned 3.4%, bringing its year-to-date return to 2.6%.

Over the past three years, our results have been far worse than we could have imagined, and it’s been a bull market to boot. Yes, we have made some obvious mistakes – the worst of which was not assessing that SunEdison was a fraud in 2015 – but there have been others. A number of years ago one of our investors said Amazon would surpass Apple and become the most valuable company in the world. We didn’t get it then and, truthfully, we don’t really get it now. But, there is a reasonable possibility that he will be proven right.

Some have looked for reasons other than isolated mistakes. Theories include getting older, changing lifestyles, and an unwillingness to adapt to new market environments. We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline. We will continue to be disciplined. Although it might be nice to have something to blame for the poor results, the truth is that we have been making every effort and leading with our best thinking.

Even if it isn’t the whole explanation, the environment for value investing has been tough. AllianceBernstein recently reported that value investing strategies are performing in the bottom one percentile since 1990. In just the past 18 months, the Russell 1000 Pure Growth index has outperformed the Russell 1000 Pure Value index by 54%. The reality is that the market is cyclical and given the extreme anomaly, reversion to the mean should happen sooner rather than later. We just can’t say when.

Our friend Vitaliy Katsenelson once wrote an essay about value investing that articulates what the past three years have felt like better than we can. He wrote:

Investing is a nonlinear endeavor that is full of ups and downs. Every investor will have periods when his or her strategy is completely out of sync with the market. When the market is roaring on its way up and your portfolio is down, you may be sure that pain will rear its ugly face.

Value investing is almost by definition a contrarian endeavor. Growth investors ride the train of love, harmony, peace, and consensus – they buy companies that Mr. Market is infatuated with and thus prices them for love. (But just so you know, love ain’t cheap and rarely lasts forever, at least when it comes to growth stocks.)

Value investors, on the other hand, live in the domain of hate – they buy what others don’t want. Ironically, value investors may end up owning the same companies that growth investors used to own. When the love is gone, hate goes  on a rampage; and trust me, you won’t find anyone who’ll pay extra for hate. It is cheap.

Investment styles go through cycles. Sometimes your stocks are really out of favor. Nothing you do works. You keep telling yourself that in the short run there is little or no link between decisions and outcomes. That’s a truism of investing, and even you believe it on an intellectual level. But every day you come to work and the market tells you you are wrong, you are wrong, you are wrong.

Right now the market is telling us we are wrong, wrong, wrong about nearly everything. And yet, looking forward from today we think this portfolio makes a lot of sense.

One of our general goals is never to be your biggest problem. Unfortunately, we have been lately, and a good number of our partners have had enough and redeemed. We appreciate you for sticking with us through this challenging period. We certainly understand those who have run out of patience as this period has lasted longer than we could have envisioned. Maximizing the size of our capital base has never been our goal; maximizing returns is and always has been. In our history, we have raised ~$6 billion, and paid out ~$8 billion to investors.

Bad results aren’t fun, but we are determined to show up to work every day to engage in solving the puzzles in the market, as we always have. It remains exciting when we think we have figured something out – which doesn’t happen every day or even every week, but historically has been lucrative when we do.

Amid some other disclosures, we found the following commentary on Tesla amusing:

Speaking of TSLA, by all available evidence, the company has had a difficult year. TSLA has had trouble demonstrating efficient production, and it has delayed capital spending which pushes out future growth opportunities in the Model Y and the Semi. TSLA is accommodating Model 3 customers who are willing to pay for premium features – making the car more of a luxury item with a smaller addressable market than the mass market car TSLA had promised. This high-grading of the backlog combined with the reduction in the government subsidy by early next year, new product delays and the emergence of viable competition for the Models S and X means that 2019 should be a very challenging year for TSLA. We doubt the entry-level Model 3 will be produced profitably anytime soon, if ever.

The odd thing is that while investors claim to be interested in the long-term growth of TSLA (as the valuation certainly can’t be supported by the current loss-making enterprise), the company is focusing investors on very short-term goals. Can the company produce a certain number of cars in a single week through short-term surge production techniques? Can the company fire enough staff and scrimp on capex to show a profitable or cash flow positive quarter or two?

On the other hand, we wonder whether surge production techniques to support self-congratulatory tweets are economically efficient ways of ramping production, or whether customers will be happy with the quality of a car rushed through production to prove a point to short sellers. We also wonder whether the company’s lack of capital and its  determination to show positive cash flow is delaying investments in additional manufacturing capacity and infrastructure necessary to fulfill the bulls’ long-term growth expectations. With TSLA’s first-to-market window beginning to close, delaying investment undermines the opportunity. Strangely, the bulls don’t seem to care.

On a personal note, David is happy that his Model S lease ended (there were growing problems with the touchscreen and the power windows) and is excited to get the Jaguar IPACE, which has gotten excellent reviews. The Model S residual values are falling. Meanwhile, the Model 3 initially received lukewarm reviews, and the raft of bad publicity is probably having a negative impact on the brand.

The most striking feature of the quarter is that Elon Musk appears erratic and desperate. During the quarter Mr. Musk:

  • Attacked an analyst for asking “boring bonehead questions” on the quarterly conference call;
  • Hung up on the head of the National Transportation Safety Board;
  • Assailed the media for the audacity to report that Tesla’s customers crash while using “autopilot”;
  • Accused an internal whistleblower of “sabotage”;
  • Appeared to paint the tape with trivial insider purchases; and
  • Went on a tweetstorm calling for “the short burn of the century.”

The market preferred this bravado much more than say, GM’s actual accomplishments. TSLA soared 29% during the quarter and was our second biggest loser.

Some other highlights:

  • Greenlight used the recent spike in AthenaHealth shares to re-short some shares that the firm covered previously. Believe that activist (Elliott offered to pay $160/share) has little interest in actually buying ATHN
  • Greenlight made a new investment in Altice Europe
  • Covered Dillard’s long after 3 years with a small loss; business deteriorated faster than expected
  • Covered 5-year old short in Elekta AB with small gain
  • Exited Resona Holdings long with medium profit

At quarter-end, Greenlight’s largest disclosed long positions in the Partnerships were Bayer, Brighthouse Financial, CNX Resources, General Motors, and gold. The Partnerships had an average exposure of 96% long and 75% short.

Full letter below:

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The Fate Of “Tech” Is In Apple’s Hands: Here’s What To Expect From Today’s Earnings

Q2 earnings season has not been kind to tech stocks: while all but one of the 36 tech firms that had reported results through this weekend exceeded analyst estimates, over the next five days their stocks were down an average 3.5%. That compares with a gain of 0.9 percent for all S&P 500 stocks, according to Bloomberg calculations.

As a result, there has been a furious rotation out of growth and into value names, which as we noted earlier today saw the biggest 3-day move in the past decade, which Nomura defined as a 4.3-sigma event.

And with the the bulk of “growth” names having reported, that just leaves Apple to give momentum and growth chasing traders some glimmer that the “most important trade of the past decade” is not yet over, or as Bloomberg puts it, “Apple Earnings Are Last Bet to Stop Bleeding in Tech Stocks“.

The flipside, of course, is that another blockbuster quarter, would bring AAPL that much closer to becoming the first trillion-dollar company, now that Amazon failed to capitalize on its strong earnings.

As Bloomberg notes, AAPL shares have gained 13% since its last earnings report on May 1, when a better-than-expected revenue forecast and a $100 billion stock buyback plan calmed concern about iPhone demand.

Naturally, spooked tech investors are hoping for a repeat performance as Apple closes out a rocky earnings season for the megacap FAANG bloc. Apple shares 0.8% to $191.53 at 3:30 p.m. EDT, putting the $1 trillion market cap bogey just $60 billion away.

* * *

So what to expect from Apple which reports later today at 4:30pm EDT?

First, here are the key sellside estimates for the top and bottom line::

  • 3Q EPS $2.18 (range $2.10 to $2.24)
  • 3Q revenue $52.42 billion (range $51.48 billion to $53.46 billion); Company’s forecast on May 1 of $51.5 billion to $53.5 billion; Services revenue estimate $9.22 billion (8 estimates compiled by Bloomberg News)
  • 4Q revenue estimate $59.37 billion

Unit sales, margin and ASP:

  • 3Q iPhone unit estimate 41.6 million (10 estimates); ASP $699 (8 estimates)
  • 3Q gross margin estimate 38.3%; forecast 38.0%-38.5%
  • 4Q gross margin estimate 38.2%
  • 4Q iPhone unit estimate 47.3 million (7 estimates); ASP $720 (7 estimates)

According to RBC, unlike prior quarters when the focus was almost exclusively on iPhone sales growth, in the second quarter it will be “all about services and buybacks.” RBC, which has a $210 price target on the stock, and sees 11% upside to the current stock price, notes that prevailing street expectations are driven by stable revenues, modest upside to GMs and buyback tailwinds.

The Canadian bank notes that it sees “strong services momentum led by subscription growth and strong gaming (Fortnite and others) trends, partly offset by modest slowdown in Google TAC spend. While FX could be a slight headwind, AAPL’s hedging program should offset it particularly when it comes to EPS & FCF.”

The bank is optimistic on unit sales as a result of higher iPhone promotional activity across carriers, “which should support revenues and unit sell through in the quarter.” Additionally, the higher ASP dynamic should continue in Sep-qtr, given iPhone X wasn’t a part of the mix last year until Dec-qtr and its pending launch impacted iPhone 8 sales last year.

RBC’s favorable outlook, and Outperform rating is driven by the following:

we see Sep-qtr revenues up mid/high-teens vs Sep-2017. On the GM side, in addition to ASP dynamic we should start seeing impact of lower NAND prices flowing through particularly with the launch of new iPhones

RBC lists the following key investor focus points for the current quarter:

  1. iPhone: Investors will likely focus on iPhone units, ASP, and sales mix during the quarter. Investors would also look for color on memory mix within iPhone.
  2. Capital Allocation: Investors would look for buyback cadence post AAPL’s cap allocation update last qtr.
  3. China: Investors would also look for iPhone and services performance in China.
  4. Gross Margins: Puts and takes from mix changes, services growth, NAND pricing & FX impact.
  5. Services mix: Contribution of services to total revenues and any data points on revenue/profitability of Apple Music, AppStore and ApplePay.

Some other banks’ takes, courtesy of Bloomberg:

  • Bank of America Merrill Lynch, Wamsi Mohan

“We expect focus to be around services growth (we model 25%), gross margin performance (we model 38.1%) and expect low single-digit iPhone growth,” Mohan wrote in a note to clients on Monday. The bank estimates 47 million iPhones for the September quarter but notes that a potential later introduction of the 6.1-inch LCD model could shift some unit sales to the December quarter.

  • Morgan Stanley, Katy Huberty

“We expect Apple to report an in-line June quarter and provide a slightly weaker than consensus September quarter outlook due to a possible October launch of the 6.1-inch LCD iPhone,” Huberty said in a note last week. Investors will focus increasingly on services revenue to drive growth. Morgan Stanley estimates services grew 32 percent in the June quarter. Huberty sees the announcement of three new iPhone models in September as the next big catalyst for Apple shares.

  • GBH Insights, Daniel Ives

“We expect a generally in-line June quarter with no major surprises to iPhone units (42 million units) or gross margins,” Ives said in a note to clients Monday. “The Street is all focused on the demand trajectory for the September quarter and most importantly into 2019 with the trifecta of next generation iPhones on the horizon.” “With June and September Street numbers now hittable/beatable, it appears Apple shares/valuation is set up well heading into a potentially robust product cycle over the coming quarters along with a massive capital return strategy as another tailwind.”

* * *

Apple has 27 buys, 18 holds and no sell ratings. The average analyst price target of $201 implies 5 percent upside over next 12 months.

* * *

What happened last quarter:

  • Mar-18: Mar-qtr revenue/EPS were above expectations driven by better than expected iPhone revenues (units slightly lower vs. Street, but ASP increase of +11% y/y), services performance (+30.5%) and others segment. Gross-margins of 38.3% were inline with guide. iPhone unit sales (52.2M) were somewhat below expectations of 53M. Overall revenues/ EPS came in at $61.1B/$2.73 vs. Street at $61.2B/$2.69. From a geographic basis, Greater China reported 21.4% y/y revenue growth, The Americas region increased 17.4% y/y, Europe grew 8.7% y/y, Asia Pacific was up 4.3% and Japan reported 21.9% y/y growth in revenue.
  • Guidance: AAPL guided Jun-qtr to $51.5-53.5B revenue, 38.0%-38.5% gross margins (down ~20bps y/y at mid-point), $7.7-7.8B in opex, $400M in interest income and tax rate of 14.5%, implying EPS of $2.17 (Street at $51.7B/$2.12).

Putting AAPL’s results in context:

Finally, this is how the stock responded to earnings in the prior 10 quarters:

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