Tag: news

Authored by Lance Roberts via RealInvestmentAdvice.com,

Over the last quarter, the “Death of Fundamentals” has become apparent as investors ignore earnings to chase market momentum. However, throughout history, such large divergences between fundamentals and price have resulted in low future returns.

This time is unlikely to be different.

Biggest Decline In Earnings…Ever

As discussed previously: 

“During the second quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index,) declined by 37.0% (to $23.25 from $36.93) during this period. How significant is a 37.0% decrease in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?

During the past five years (20 quarters), the average decline in the bottom-up EPS estimate has been 3.2%. Over the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate has been 3.4%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate has been 4.6%. Thus, the decline in the bottom-up EPS estimate recorded during the second quarter was much larger than the 5-year average, the 10-year average, and the 15-year average. 

In fact, this marked the largest decline in the quarterly EPS estimate during a quarter since FactSet began tracking this data in Q1 2002. The previous record was -34.3%, which occurred in Q4 2008.” – FactSet

Wishing For A Hockey Stick

The chart above is telling. Investors continue to bet on a “hockey stick” recovery in earnings to justify overpaying for stocks with the highest price momentum. As discussed in “The Bullish Test Comes:” 

“Such makes the mantra of using 24-month estimates to justify paying exceedingly high valuations today, even riskier.”

Importantly, earnings estimates did not decline due to just the onset of the “pandemic.” Earnings began to decline in earnest in late 2018 as economic growth had started to weaken. 

As we warned in mid-2019, the inversion of the yield curve had also set the stage for an economic contraction:

“Despite commentary to the contrary, the yield curve is a ‘leading indicator’ of what is happening in the economy currently, as opposed to economic data, which is ‘lagging’ and subject to massive revisions.”

All that was needed was an unexpected, exogenous catalyst to trigger the actual event. 

The important point is that investors have been overpaying for earnings by more than 2.5x since the peak in earnings in 2018. Slower economic and wage growth and a widening of the “wealth gap,” has stalled revenue growth. Such has forced companies to engage in a wide variety of accounting “gimmickry” to manufacture earnings to support higher asset prices.

Overpaying For Value

Since 2009, investors have bid up stock prices by more than 368%. Yet, cumulative operating earnings and revenue have only grown by 93% and 50%, respectively.

Even if the expected “hockey stick recovery” in earnings occurs, earnings will only return to the same level as they were in 2018.

If we assume analysts are correct, and historically they overly estimate by 33%, investors have vastly overpaid for earnings. Such has historically guaranteed investors disappointing investment outcomes.

However, as we enter “earnings season,” we are again seeing analysts and companies adjusting their numbers to win the “beat the estimate” game. Such is why I call it “Millennial Soccer.” Earnings season is now a “game” where no one keeps score, the media cheers, and everyone gets a “participation trophy” just to show up.

Wall Street Analysis Isn’t For You

When it comes to earnings season, the media will be complicit in pushing Wall Street’s recommendations. However, those “buy, sell and hold” recommendations aren’t for you. Those recommendations are the “bait” to camouflage the “hook.”

I will let you in on a “dirty little secret.” 

Wall Street doesn’t care about you or your money. Such is because their profits don’t come from servicing “Mom and Pop” retail clients trying to save their way into retirement. Wall Street is not “invested” along with you, but “uses you” to generate income for their “real” clients.

Such is why “buy and hold” investment strategies are so widely promoted. As long as your dollars are invested, the mutual funds, stocks, ETF’s, etc, the Wall Street firms collect their fees. These strategies are certainly in their best interest – just not necessarily yours.

However, those retail management fees are a “rounding error” compared to the really big money.

Wall Street’s real clients are multi-million and billion-dollar investment banking transactions. These deals include public offerings, mergers, acquisitions, and debt offerings, which generate hundreds of millions to billions of dollars in fees for Wall Street each year.

You know, companies like Uber, Lyft, Snapchat, Tesla, and Shopify.

Buy, Sell or Hold

For Wall Street firms to “win” that very lucrative business, they must cater to their prospective clients. Not surprisingly, it is difficult for a firm to gain investment banking business from a company with a “sell” rating. 

Such is why “buy” ratings are so prevalent versus “hold” or “sell,” as it keeps the client happy. I have compiled a chart of 4644 rated stocks ranked by the number of “Buy”, “Hold” or “Sell” recommendations.

There are just 2.97% of all stocks with a “sell” rating.

Do you believe that out of 4644 rated companies, only 138 should be “sold?”

You shouldn’t.

But for Wall Street, a “sell” rating is not good for business.

The conflict doesn’t end just at Wall Street’s pocketbook. Companies depend on their stock prices rising as it is a huge part of executive compensation packages.

Corporations apply pressure on Wall Street firms, and analysts, to ensure positive research reports with the threat they will take their business to a “friendlier” firm. The goal of boosting share prices for compensation is also why roughly 40% of corporate earnings reports are “fudged” to produce better outcomes.

As the Associated Press exposed in “Experts Worry That Phony Numbers Are Misleading Investors:”

“Those record profits that companies are reporting may not be all they’re cracked up to be.

As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they’re doing better than they really are.

What’s worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they’re largely passing along the rosy numbers in reports recommending stocks to investors.“

You Have To Do Your Own Homework

So, what can you do? 

You have two choices. 

You can do your homework using a research tool like “RIAPro.Net” (Try Risk-Free for 30-days) where you can screen for fundamental value.

Or, you can hire an independent, fee-only advisor who knows how to do the work for you.

Let me show you the difference between Wall Street’s “buy, sell, hold” analysis versus how we break the universe of stocks we screen at RIA Advisors.

As an independent money manager, I use valuation analysis to determine what equities should be bought, sold or held in client’s portfolios. While there are many valuation measures, two of my favorites are Price-to-Sales and the Piotroski f-score. For this example, I sorted the entire Zacks Research equity universe of 5028 issues. I ranked them by just these two measures.

See the difference. Not surprisingly, there are far fewer “buy” rated, and far more “sell” rated, companies than what is suggested by Wall Street analysts.

Price-To-Sales Sends A Warning

Here is something even more alarming.

Just after the “dot.com” bust, I wrote a valuation article quoting Scott McNeely. He was the CEO of Sun Microsystems at the time. At its peak, the stock was trading at 10x its sales. (Price-to-Sales ratio) In a Bloomberg interview, Scott made the following point.

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. It also assumes I have zero cost of goods sold, which is very hard for a computer company.

That assumes zero expenses, which is really hard with 39,000 employees.That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10-years, I can maintain the current revenue run rate.

Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes.

What were you thinking?

What’s In Your Portfolio

How many of the following “Buy” rated companies do you own carrying price-to-sales valuations above 9 or 10 times?

So, what are you thinking?

As an increasing number of “baby boomers” head into retirement, the need for independent, organic research and analysis, which is in the client’s best interest, is more critical now, than ever. 

Independent advice can help remove those emotional biases from the investing process that lead to poor investment outcomes. There are many great advisors with the right team, tools, and data, who can manage portfolios, monitor trends, adjust allocations, and protect capital through risk management.

The next time someone tells you that you can’t “risk-manage” your portfolio and just have to “ride things out,” just remember, you don’t.

With the Nasdaq trading at record highs on its sixth straight day in the green, largely thanks to Amazon surpassing $3,000 a share, Wal-Mart is gearing up to launch what it hopes will be its “Amazon Prime Killer” – a new e-commerce subscription service called “Walmart+”.

According to Recode, Wal-Mart is planning to launch the new service later this month. The service will cost $98 a year, and include perks like same-day delivery of groceries and general merchandise, discounts on fuel at Walmart gas stations, and early access to product deals, according to the “multiple” insider sources who spoke with Recode (to be sure, this report bears all the hallmarks of a officially sanctioned leak, so we expect these details are coming straight from the source).

With COVID-19 making Amazon more central than ever in the lives of Americans, more retailers are scrambling to find ways to compete in the new world, where shopping at brick-and-mortar stores now carries an additional risk, along with many new aggravations (like mask-wearing and mandatory distancing).

Wal-Mart had initially planned to launch the new service in March or April, but it delayed the rollout due to COVID-19.

As Amazon struggles to roll out grocery delivery across the US (so far, it has concentrated mostly on the big cities), Wal-Mart is leaning on this natural advantage as a central component of this new service.

Right now, it’s not clear yet whether the service will be rolled out regionally, or nationally. But given Wal-Mart’s status as the country’s biggest brick and mortar retailer, we suspect this news could derail (or at least delay) Jeff Bezos’ inexorable march toward becoming the world’s first trillionaire by Amazon Prime day.

Wal-Mart shares are surging on the news.

 

For the first time in her privileged life, ex-socialite Ghislaine Maxwell is living in conditions described by one judge in 2016 as similar to a ‘prison on Turkey or a Third World Country.’

The 58-year-old Maxwell was arrested after hiding out in a lavish four-bedroom, four-bathroom mansion in New Hampshire, which Bloomberg notes sports views of the Mount Sunapee foothills from every room.

After being initially booked in New Hampshire on multiple charges related to trafficking underage girls for the sexual gratification of dead pedophile Jeffrey Epstein, Maxwell was transferred on Monday to New York’s Metropolitan Detention Center (MDC) – home to over 1,600 male and female detainees which was built at the turn of the 20th century and used during both world wars, according to Bloomberg.

No one wants to go to jail, but the conditions described at the MDC have been the subject of numerous complaints and scrutiny that rival the rat-infested federal lockup in Lower Manhattan where Epstein was held.

In early 2019, hundreds of inmates at the MDC were locked shivering in their cells for at least a week after an electrical fire knocked out power in the building. The inmates spent some of the coldest days of that winter in darkness, largely without heat and hot water. –Bloomberg

One inmate, Derrilyn Needham, has been incarcerated at MDC since last November along with 30 other women who slept in bunk beds. Needham said social distancing was difficult, and that for three days starting April 23, the women were on “lockdown on our bunk beds, not able to leave our bunks except to use the bathroom or shower.

She added that they hadn’t been given gloves, hand sanitizer or disinfectant wipes – and that despite symptoms of COVID-19, the assistant warden said she couldn’t receive a test for the virus.

According to The Intercept, “The number of reported coronavirus symptoms far exceeds the number of tests MDC has performed.” In May, the facility came under fire for allegedly destroying medical records “as part of a deliberate effort to obscure the number of incarcerated people infected with the coronavirus.”

The report, filed Thursday as part of a putative class-action lawsuit by people held in custody at the Metropolitan Detention Center in Brooklyn, casts doubt on assertions by the Bureau of Prisons, which runs the jail, and the U.S. Attorney’s Office for the Eastern District, which serves as counsel for the bureau. The Bureau of Prisons and federal prosecutors have insisted in court that the situation at the jail is under control. But the medical examiner’s report — which contradicted prison assertions that Centers for Disease Control and Prevention guidelines were being followed — suggests that the six people in custody who have tested positive for the disease likely represent the tip of the iceberg. –The Intercept

After the pandemic began, the detention center was deemed “ill-equipped” to deal with the spread of COVID-19 by former chief medical officer for the city’s jails, Homer Venters, who says he’s “concerned about the ongoing health and safety of the population,” and slammed administrators for failing to adequately deal with the pandemic.

That said, MDC has been on the receiving end of criticism over its conditions long before coronavirus was an issue.

Cheryl Pollak, the federal magistrate in Brooklyn, has repeatedly voiced concerns about the MDC after reviewing a report by the National Association of Women Judges, who visited the facility and found that 161 female inmates were housed 24 hours a day, seven days a week, in two large rooms that lacked windows, fresh air or sunlight and weren’t allowed out to exercise. –Bloomberg

“Some of these conditions wouldn’t surprise me if we were dealing with a prison in Turkey or a Third World Country,” Pollak said during a 2016 hearing. “It’s hard for me to believe it’s going on in a federal prison.”

 

Authored by Paul Joseph Watson via Summit News,

Actor Terry Crews clashed with CNN’s Don Lemon last night during an exchange in which Lemon ludicrously asserted that black on black violence should have nothing to do with the Black Lives Matter movement.

Crews was targeted by the woke mob after he tweeted on July 4 the supposedly controversial opinion that not all white people were bad and not all black people were good.

Are all white people bad?

No.

Are all black people good?

No.

Knowing this reality- I stand on my decision to unite with good people, no matter the race, creed or ideology.

Given the number of threats against this decision-

I also decide to die on this hill.

— terry crews (@terrycrews) July 4, 2020

Before his interview on CNN last night, Crews also tweeted, “#ALLBLACKLIVESMATTER 9 black CHILDREN killed by violence in Chicago since June 20, 2020.”

#ALLBLACKLIVESMATTER

9 black CHILDREN killed by violence in Chicago since June 20, 2020

— terry crews (@terrycrews) July 6, 2020

Crews began by saying that there were “some very militant type forces in Black Lives Matter” and issuing a warning to not allow the movement to get hijacked by extremists.

Given that the ideological inspiration behind Black Lives Matter is literally a cop-killing terrorist fugitive who is on the FBI’s Top Ten Most Wanted Terrorist list, one could argue that the movement has its origins in extremism.

“When you have the leaders of the black lives movement who are now talking about…if we don’t get our demands we’re gonna burn it down, other black people who are talking about working with other whites and other races, they’re being viewed as sellouts or called Uncle Toms, you start to understand that you are now being controlled,” said Crews, adding that BLM embodied a “dangerous self-righteousness that viewed themselves as better, it was almost a supremist move, their black lives mattered a lot more than mine.”

When Crews clarified that he was talking about the leadership of BLM, Lemon asserted that Martin Luther King was once seen as extremist, leading Crews to argue that there had to be a non-racial component to BLM for it to work.

Crews then pointed to the industrial levels of black on black violence in Chicago, which in recent weeks has claimed the lives of nine black children, noting that “the Black Lives Matter movement has said nothing” about the violence.

“What does that have to do with equality though?,” responded Lemon, seriously making the argument that black people dying in massive numbers at the hands of other blacks had nothing to do with black lives mattering and was “apples and oranges,” while trying to shift the blame to “gun culture” across the entire country.

Presumably, Lemon thinks that there is no “equality” in America, yet he was unable to point out any rights that white people have that black people don’t (because they both have the exact same rights under the law).

“Black people need to hold other black people accountable, this is black America’s version of the #MeToo movement,” said Crews.

“If anything’s gonna change, we ourselves, we need to look at our own communities and look at each other and say this thing cannot go down. There are a lot of great people there who are held hostage by people who literally are running these neighborhoods with violence and then claiming that black lives matter.”

Lemon then absurdly tried to argue that talking about black on black violence would be like a “cancer matters” movement being asked why they don’t talk about HIV and that BLM is solely about police brutality, another misnomer given that the full scope of BLM is about defunding the police, overthrowing capitalism and imposing communist ideals (goals that BLM front groups routinely advocate).

“When you look at the organization, police brutality is not the only thing they’re talking about,” responded Crews, prompting Lemon to agree but then contradict himself by repeating the false claim that BLM was solely about police brutality and criminal justice.

The interview ended with Crews insisting that there was more to the BLM agenda than police brutality and that it needed to be scrutinized.

Black on black violence isn’t part of the Black Lives Matter narrative because Black Lives Matter isn’t a civil rights movement, it’s a political movement and black on black violence can’t be exploited for political grist.

It’s that simple. And Don Lemon knows it.

*  *  *

My voice is being silenced by free speech-hating Silicon Valley behemoths who want me disappeared forever. It is CRUCIAL that you support me. Please sign up for the free newsletter here. Donate to me on SubscribeStar here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown.

An active shooter has reportedly attacked a marine training facility, according to the Marine Corp twitter account.

#BREAKING: We are aware of reports of an active shooter at Marine Corps Air Ground Combat Center – Twentynine Palms. More to follow.

— U.S. Marines (@USMC) July 7, 2020

The attack is reportedly unfolding at 29 Palms Marine Corps Base in San Bernadino County, Cali.

This appears to be the first shooting at a US military installation since a Saudi Air Force soldier attacked a Naval installation in Pensacola during a training program.

The suspect is reportedly in custody.

#Breaking: Initial reports of a shooting at Twentynine Palms Marine Base in San Bernardino #California. A suspect is in custody and it is currently unknown if there are any victims. https://t.co/HBYwSaT47r

— The Up2Dater (@UptoDateNewz) July 7, 2020

It’s also the first mass shooting in San Bernardino since the infamous massacre carried out by a radicalized couple at an office space in the county.

The New York State Department of Financial Services (NYDFS) released a statement Tuesday morning, seen by CNBC, indicating Deutsche Bank has been fined $150 million for banking transactions with accused child sex trafficker Jeffrey Epstein, who is now dead. 

DEUTSCHE BANK’S EPSTEIN LAPSES SPUR $150 MILLION PENALTY IN NY

Is there any crime DB is not part of?

— zerohedge (@zerohedge) July 7, 2020

NYDFS said Deutsche Bank agreed to the multi-million dollar penalty for “failing to properly monitor account activity conducted on behalf of the registered sex offender despite ample information that was publicly available concerning the circumstances surrounding Mr. Epstein’s earlier criminal misconduct.”

Banking regulators have been investigating Epstein’s dealings with the bank for months, including past lending and transactions, along with dozens of accounts linked to him shortly before he died last August. 

The investigation of Deutsche Bank focused on why the bank continued to do business with Epstein despite internal concerns that were raised, a separate report via The New York Times recently said. 

“Despite knowing Mr. Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions,” Linda A. Lacewell, NYDFS’ superintendent, said in a statement.

NYDFS said payments from Epstein’s Deutsche Bank account(s) were made to his co-conspirators who sexually abused women. Other payments were made “to Russian models, payments for women’s school tuition, hotel and rent expenses, and (consistent with public allegations of prior wrongdoing) payments directly to numerous women with Eastern European surnames,” the department added. 

NYDFS also noted Epstein’s “periodic suspicious cash withdrawals — in total, more than $800,000 over approximately four years.” 

Deutsche Bank was Epstein’s lender from 2013-2019, even as other financial institutions labeled him a red flag. 

A Deutsche Bank spokesperson acknowledged to Financial Times of the mishap with Epstein, saying: “Our error of onboarding Epstein in 2013 and the weaknesses in our processes.” 

Submitted by Rabobank’s Michael Every

At time of writing the Shanghai stock exchange was up merely 1.8% on the day, quite disappointing after the 5.8% leap yesterday, but still meaning it has gained nearly 14% in just a few of sessions. That’s the best performance since late 2014, just before the same market went on its dizzying 2015 run. The same dizzying run that was overtly and blatantly a state-led bubble: and one that ended in a disastrous crash with all manner of nasty recriminations, including ‘don’t sell!’ off-the-record instructions, and apparent threats of arrest for those short-selling, or even writing negative research reports.

One wonders what the decision-makers at MSCI, who in the total absence of any comprehensive reforms in Chinese stock regulation post-2015 nonetheless decided to increase the country’s global portfolio weighting, are thinking right now. More so with hawkish US politicians already talking about the dangers of US capital being pumped into Chinese markets – and that US rhetoric is not going to get any less hawkish as Hong Kong CEO Carrie Lam introduces sweeping new police powers including warrant-less searches, property seizures, online surveillance, and not allowing people to leave the territory. That as Trump tweeted: “China has caused great damage to the United States and the rest of the world!” yesterday, and as a White House aide stated an executive order on China is apparently imminent.

While this is not an equity-focused, nor specifically China-focused Daily, this scale of market move needs some examination. What is going on? Let’s run through the options quickly:

• Is it led by Chinese demand? The data say no. We aren’t even back to the pre-Covid trend, and that would not justify a 14% gain.

• Is it led by Chinese supply? Much more likely – but is there any global demand for that supply? Not at the moment, and increasingly less so going forwards if you listen to the talk about shifts in supply chains out of China. So it’s stock-piling or product-dumping ahead, perhaps.

• Is it led by lower interest rates? No. There hasn’t been any major easing in China to generate the same lower rates/higher stocks knee-jerk response seen elsewhere. It isn’t able to ease so overtly because it needs to stop capital outflows.

• Is it led by QE? No. Yet even though Bloomberg today says China isn’t doing QE, look at a country with a 10-12% consolidated fiscal deficit pre-Covid, and perhaps nearer 20% at the moment; ask how it’s being funded (by the PBOC), and how much of that deficit spending flows into infrastructure; and consider that what one sees is quasi-MMT. Which is why China cannot afford to run a current-account deficit without losing control of its quasi-currency peg, or at least needs a net inflow of USD.

• Has this been a net-inflow/foreign-capital driven rally? No. This is a domestic story…so far – and one that seems engineered in the hope that it will become a foreign-driven rally. In all fairness, it’s not as if other major markets are not seeing blatant ramping from authorities one way or another –Trump uses Twitter to the same effect– or fundamentals-defying trends.

Yet the key question is why China has decided to jump-start its stocks now? Why, when locals will act accordingly and listen to the authorities when they tell them where they are about to get their “guaranteed” minimum 20% annual return; and they follow that smooth, paved path through the financial jungle;…until it all ends in 2015 chaos again. Moreover, why given bond yields are spiking as a result, which a debt-laden economy cannot afford? Why, as punters walk away from Wealth Management Products, pulling the funding rug out from under the feet of many property projects as a result?

Perhaps to jump-start consumption? Yet property is more widely-held than stocks. Perhaps to stop the property bubble getting out of control? If so, stocks are hardly a less dangerous tiger to ride. Perhaps to swap debt for equity? Except bond yields are rising, which hurts most borrowers more than some can gain through stocks. Perhaps to encourage firms to tap unlimited CNY equity capital and not (soon to be limited?) offshore USD debt? Perhaps to help push CNY back to 7.01 to try to ease some of the looming US political pressure on China in that USD regard? Or, as suggested yesterday, if pressure can’t be eased, perhaps to allow for an immediate signal-sending 2.5% fall in CNY without taking it into a range that would suggest to the world that China is no longer master of its own destiny? (And on USD/CNY it isn’t: not while the US holds the sanctions trump card.) Perhaps simply to try to get those USD capital inflows by hook or by crook to keep the game going: “Look, you can’t miss out on this!”?

One might notice that none of the above analysis involves traditional market metrics. That is because we do not have traditional markets, or metrics, and there is nothing market-based about what is happening in this “market”. The far better form of analysis, as above, is to try to play market ‘Cluedo’ (‘Clue’ in the US). “So was it the stock bull-market in China with the quasi-MMT?” Who did it? Who benefits? And who ends up being done in by the lead pipe?

Meanwhile, the RBA today held rates and its yield curve targets, as fully expected, but underlined that FISCAL and monetary support will be needed for some time. What is another term for fiscal and monetary support? It starts with M and ends in T. And there is another M. The RBA also pledged to scale up its bond buying if needed. This implies the massive increase in the Aussie defence budget just pledged will be de facto covered by the RBA. Throw another submarine on the barbie, mate. The RBA will meanwhile “do whatever it takes” to keep the bond market functional: presumably this just means yields staying low, because the Japanese example clearly shows that if you issue lots of public debt, and the central bank buys it, then the central bank eventually becomes the market; so the RBA is saying it is going to keep itself functional.