Month: July 2014

Excerpted from Elliott Management’s latest letter to investors,

PROGRESS?

Some technology represents unquestioned progress, despite causing real challenges to the employment prospects of citizens who are made redundant. For example, recent advances in science and medicine have merely scratched the surface in terms of enhancing our ability to find cures for diseases in an increasingly focused way at sharply diminished cost. Also, the technology of moving people and goods in vehicles and organizing their movement on roads contains tremendous opportunities for cost and energy efficiencies, as do the areas of resource extraction, the development of alternative energy and the efficiency of food production. These are just a few obvious and impactful areas in which technological progress has lots of headroom for human betterment.

On the other hand, some technological progress is not really progress at all. Innovations in the technology of communications, including social media, provide increasingly powerful and robust platforms to disseminate information. Unfortunately, these same increasingly powerful and robust platforms are also used to spread information that is untrue, and to package information in tiny bits of faux-knowledge that (because of their sheer volume) leave little room for neither more comprehensive reading nor discussion and contemplation. This fact reinforces our view that young people need to be taught the basics as early as possible – of history, political science, philosophy and civilization. In the absence of that grounding, all of these Twitter and Facebook bits alight on a population that lacks the tools to sort or analyze what they are reading while scrunched over their Androids. (Interesting word, Android; maybe in a thinly-veiled joke, it is meant to describe the hooked users and not the device…)

The technology of communications also democratizes news and opinion. Although this development may seem positive at first blush, it also has some powerful negative aspects. Whatever one thinks about the “mainstream” media’s biases, there is at least a set of standards and professional codes of conduct that are more or less followed by established media outlets. Writers are edited, and editors seek to protect franchises against irresponsible communications. Bloggers, by contrast, do not really have to adhere to any such constraints, and making them hew to any standards of professional responsibility is difficult at best. The “blogosphere” effectively makes the dissemination of news and opinion a kind of dense windy fog.

[We assume Singer does not consider Zero Hedge among the ‘dense windy fog’ of blogs given its readership rivals most mainstream media, but rather the meme-du-jour vox populi]

This overabundance of information and opinion is not a positive development in our view (although we are certainly not suggesting it be curtailed or controlled by governments). Ask yourself the following set of questions: Do people seem better informed today in the developed world? Smarter? Is the discourse more sophisticated? The answer is a resounding “no” to all those questions. Modern communication modalities play a role in this sad fact, and so does modern education, particularly higher education, which in too many cases has eschewed foundational course materials in favor of self-indulgent or ideological navel-gazing.

*  *  *
One wonders whether social media (and perhaps the legalization of pot) is Huxley’s Soma for the 21st Century… a nation of compliant robots numb to original thought.

via Zero Hedge http://ift.tt/1qLNvIx Tyler Durden

After an exuberant day in Argentine bond and stock markets, we are nearing a decision. With a handful of hours left until it’s all over, various ‘deal’s have been proposed today from Argentine bankers as a last-minute rescue package. S&P has already decided that it’s a done deal:

• *ARGENTINA CUT TO SD FROM CCC- BY S&P
• *ARGENTINA DEFAULTED ON $13B IN FOREIGN DEBT, S&P SAYS
• *ARGENTINA MISSED $539M BOND PAYMENT, S&P SAYS

And now, Argentine Economy Minister Axel Kicillof will speak in a press conference at country’s consulate in Manhattan (ironically a block from the holdouts’ office).

 

The hope:

“The idea is to get a stay (suspension of the court order) to reach January,” said Ribeiro Mendonça. “Clearly there’s a concern. There are no winners in a default scenario that brings lower levels of economic activity and a higher jobless rate. The banking sector is going to be the one that contributes the most because it is linked to the debt restructuring.”

The reality from S&P,

“We are… lowering our long-and short-term foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) from ‘CCC-/C’,” said the agency’s release, “indicating that Argentina defaulted on some of its foreign currency obligations. At the same time, we are removing the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.”

Things do not look good:

• ARGENTINA’S LEAD LAWYERS BLACKMAN AND BOCCUZZI LEAVE TALKS, SAY NO COMMENT ON STATUS OF DEBT TALKS – REUTERS WITNESS

 

Press conference due to start at 515ET 530ET: (click image for link to live feed)

 

And for posterity’s sake… here’s the MERVAL recently…

 

and long-term…

via Zero Hedge http://ift.tt/1nUDHKf Tyler Durden

A quarter ago, when we commented on the latest post-earnings collapse in Whole Foods stock, we said that “Whole Foods Misses, Lowers Guidance, Or What Happens When You Ignore Buybacks At The Expense Of CapEx”, and broke down the results as follows:

.. the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.

Ok, the results were horrible, but one key thing was missing.

WFM continues to be a cash cow, generating tremendous amounts of bottom line cash. Which perhaps was its biggest failing as well – WFM reported that “year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock.”

The problem was clear: “Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending.”

As expected, the stock promptly collapsed by 10%:

 

A quarter later, Whole Foods management seems to have read our lament and acted accordingly. On the chart below see if you can figure out which is the company’s quarterly stock repurchase and capex activity without peeking at the legend:

 

Indeed, that red bar soaring from a negligible $55 million to a whopping $361 million is precisely what happens when a company realizes that its only recourse to “goose” EPS is to go full tilt buying back its stock in the open market.

And sure enough, when WFM reported earnings moments ago, it “magically” beat EPS expectations of $0.39, courtesy of its raging repurchasing activity, printing a $0.41 EPS.

However, that was as far as it went. Unfortunately, while this time Whole Foods remember to repurchase as much stock as it could, it missed the key metrics starting with comp store sales, which were +3.9% on expectations of 4.8%, but the biggest impact was the reduced full year guidance as follows:

• Sales growth: 9.6-9.9%, down from 10.5-11.0%
• Comp store sales growth: 4.1-4.4%, down from 5.0%-5.5%
• Operating margin: 6.4%-6.5%, down from 6.5-6.6%
• EPS growth: 3-4%, down from 3-6%.

And so on. The stock reaction:

So while we congratulate WFM management on finally figuring out that in the New Normal financial engineering is perhaps the only thing that matters to get the algo momentum ignition boost upon announcing earnings, next quarter it may want to pay some more attention to the underlying business model too.

via Zero Hedge http://ift.tt/1rI4BmH Tyler Durden

A quarter ago, when we commented on the latest post-earnings collapse in Whole Foods stock, we said that “Whole Foods Misses, Lowers Guidance, Or What Happens When You Ignore Buybacks At The Expense Of CapEx”, and broke down the results as follows:

.. the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.

Ok, the results were horrible, but one key thing was missing.

WFM continues to be a cash cow, generating tremendous amounts of bottom line cash. Which perhaps was its biggest failing as well – WFM reported that “year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock.”

The problem was clear: “Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending.”

As expected, the stock promptly collapsed by 10%:

 

A quarter later, Whole Foods management seems to have read our lament and acted accordingly. On the chart below see if you can figure out which is the company’s quarterly stock repurchase and capex activity without peeking at the legend:

 

Indeed, that red bar soaring from a negligible $55 million to a whopping $361 million is precisely what happens when a company realizes that its only recourse to “goose” EPS is to go full tilt buying back its stock in the open market.

And sure enough, when WFM reported earnings moments ago, it “magically” beat EPS expectations of $0.39, courtesy of its raging repurchasing activity, printing a $0.41 EPS.

However, that was as far as it went. Unfortunately, while this time Whole Foods remember to repurchase as much stock as it could, it missed the key metrics starting with comp store sales, which were +3.9% on expectations of 4.8%, but the biggest impact was the reduced full year guidance as follows:

• Sales growth: 9.6-9.9%, down from 10.5-11.0%
• Comp store sales growth: 4.1-4.4%, down from 5.0%-5.5%
• Operating margin: 6.4%-6.5%, down from 6.5-6.6%
• EPS growth: 3-4%, down from 3-6%.

And so on. The stock reaction:

So while we congratulate WFM management on finally figuring out that in the New Normal financial engineering is perhaps the only thing that matters to get the algo momentum ignition boost upon announcing earnings, next quarter it may want to pay some more attention to the underlying business model too.

via Zero Hedge http://ift.tt/1rI4BmH Tyler Durden