Month: March 2018

In its self-description, Acxiom Corporation says it operates as “a marketing technology and services company” which “provides the data foundation for marketers around the world” and “offers products and services that enable people-based marketing.” In short: Acxiom is a online data broker, however one with a twist: a broker which is intimately linked to the data collected by Facebook on its 2 billion users.

Which is a problem: on Wednesday, in the aftermath of the ongoing Cambridge Analytica scandal, Facebook announced it would end its “Partner Categories” program, which fed data to firms like Acxiom, and would will no longer let advertisers use information from 3rd party data brokers, again like Acxiom. 

“We believe this step, winding down over the next six months, will help improve people’s privacy on Facebook,” Graham Mudd, Facebook product marketing director, said in a statement about the change in policy on data brokers on Wednesday. The company declined to give details on the larger review of its practices.

Facebook’s shutdown of the program is part of a broader effort to clean up the way it handles its users’ data, and would limit advertisers’ ability to target users on the social network. And, as part of the changes that will be rolled out over the next few weeks, Facebook said it will no longer let advertisers use information from third-party data brokers, like Acxiom and Epsilon Data Management, in targeting of ads on its system.

So, on Thursday, Acxiom said it expects the change in Facebook policy to cost up to $25 million in revenue and profit. And, more importantly, it also cost Acxiom up to a third of its market cap, as Acxiom shares fell as much as 34%, the largest drop since 2001, resulting in a value loss of over $600 million earlier in the day.

In other words, here is a visual representation of just how valuable Facebook user data really is…

… to other companies. Clearly the value of information on Facebook’s “product” – its user – to Facebook and Zuckerberg is exponentially greater.

Still, there was some confusion William Blair quickly chimed in that the selloff left Acxiom shares at attractive levels for investors, claiming that Acxiom doesn’t collect data from Facebook, although the market begs to differ.

The company hasn’t seen any effect so far on deal-related conversations and no one customer accounts for more than 10 percent of its revenue, Klauber said in a research note.

Finally, Not helping matters, On Thursday Ficus Investment Research came out with an unfavorable rating and price target of $20, implying another 15% downside for the shares, according to Bloomberg. Ficus pointed to Acxiom’s reliance on new products and upselling to drive growth, saying these are difficult to maintain in a competitive environment.

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Well that was an hour, day, week, month, quarter…

Despite recent weakness, gold wins Q1…

 

In equity land, The MSCI All-World Index of global stocks snapped a seven-quarter winning streak – its longest such stretch of gains since 1997 – while global bonds are set for their first decline in currency neutral terms since 2016.

This is the first quarterly drop for the S&P since Q3 2015 (China devaluation, flash crash) and this is the first back-to-back monthly losses for S&P since Oct 2016, and the biggest 2-month drop since Sept 2015.

The S&P broke its 9-quarter winning streak (biggest 2-month drop since Q1 2016), Dow also broke its 9-wtr win streak, with the biggest 2-month drop since Q3 2015 but Nasdaq managed to close green for a 7-quarter winning streak (but March was the worst month since Q1 2016).

Small Caps scrambled back into the green briefly for the quarter today (that would be the 9th quarterly gain in a row) – BUT THEN FAILED!

Despite the total bloodbath in FANG-style stocks in the last few weeks (down 8.2% in March, the biggest drop since Jan 2016), NYSE FANG+ managed to gain 8% in Q1 – its 7th quarterly advance in a row.

 

Financials had an ugly Q1 in Europe (2nd quarterly drop in a row, March worst month since Brexit in June 2016) and US (first quarterly drop since Q1 2016 and March was the worst month for US financials since Jan 2016)

 

BTFD disappeared in Q1 as the SMART money is fleeing the market…

 

VIX had its biggest quarterly spike since September 2011 (and is up two quarters in a row for the first time since 2015). While February was the biggest monthly spike since Aug 2015, March also rose (up 5 of the last six months) – interesting that VIX started to snap on a monthly basis when The Fed started normalizing its balance sheet…

 

On a normalized basis, the S&P ‘VIX’  rose the most in Q1 (even as Nasdaq ‘VIX’ spiked most this week)…

 

European HY credit spreads widened for the second quarter in a row (Q1 was worst since Q3 2015) and European IG credit spreads exploded wider for the first time since Q3 2015 with March the biggest IG spread spike since the crisis). HY spreads were stable in the US but IG crashed wider in Feb and March (March worst month for US IG since Jan 2016)

 

And perhaps most ominously, LIBOR-OIS spreads exploded for the second straight quarter, by the most since Q3 2011 (to its widest since Q1 2009).

 

The broad US bond market’s total return fell in Q1 – the first drop since Q4 2016 – but March was the best month for bonds since August 2017… but all yields were higher across the term structure in Q1…

 

March saw the biggest yield curve flattening since September 2011 (the 7th flatter month in the last 8) and closed flatter for the 15th quarter of the last 17… 2s30s plunge to a 60 handle today!! – the lowest since Oct 2007

 

After winning in every quarter last year, Risk Parity funds tumbled in Q1 and while March was unchanged, February was the worst month for RP funds since Nov 2016…

 

The Dollar Index fell for the 5th straight quarter (the longest streak since March 2008) to its weakest level since Dec 2014. The Loonie was the worst performing major against the dollar and JPY the best performer

This was the worst quarter for cryptocurrencies ever with Bitcoin down almost 50% and breaking below its 200DMA…

 

Crude surged almost 10% on the quarter – the 3rd quarter of gains in a row (and WTI is up for the 6th month of the last 7) and gold gained over 2% but, despite the dollar weakness, silver and copper ended Q1 notably lower..

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“I Love The Smell of Window-Dressing In The Morning”

Having got the month and quarter out of the way, this week was total chaos – a combination of horrific headlines, weak liquidity, and concentrated positions into quarter-end spark massive realized vol in many asset classes, but nowhere more than in stocks, tech stocks…

 

A crazy day…

 

Futures show the real chaos since Jay Powell hiked rates… (NOTE – did traders already forget what happened on Tuesday’s panic-bid meltup?)

 

And investors have AMZN to thank for today’s mega-ramp…

 

AMZN was desperately trying to get back to its 100DMA…

 

FANG Stocks closed lower on the week even with today’s meltup…

 

Tesla was the worst-performing stock on the Nasdaq but many of the so-called FANGMAN stocks were ugly…TSLA, AMZN, NFLX, TSLA, and NVDA ended the week red (noted FB – upper orange – tumbled into the close on some new headlines)

 

Bank stocks bounced today but faded into the close…

 

The Dow bounced back above its Fib 38.2% retrace line today…

 

The S&P 500 held above its 200DMA once again but ios making lower highs…

 

Seriously though, if today’s spike in stocks wasn’t OPEX/Window-Dressing then we don’t know what is…

 

Treasury yields tumbled on the day with only the 2Y yield higher on the week…

 

The yield curve plunged on the week… with 2s30s hitting a 69 handle for the first time since Oct 2007

 

The Dollar Index was up on the week (lower today)…

 

 

Copper surged in the last 36 hours to end the week green but PMs and crude are lower…

 

Cryptos Carnaged this week… again…

 

We conclude with Mark Cudmore’s comments from before the open today:

The S&P 500 has yet to really break down — the longer it holds above the 200-day moving average, the bigger the crash will likely be when it happens.

WTI has again failed to hold above $65, forming a very ominous double top that must make the near- record net longs for WTI nervous. With U.S. output surging, and sliding commodities signaling a slowdown in demand for raw materials, the stars are aligning for a big, disinflationary step down by crude.

Treasury 10-year yields have had to be dragged down kicking-and-screaming because the Fed is sticking to its dots, but the latest capitulation of the term premium forewarns of a larger collapse in rates.

When they do, that will cast doubt on the Fed’s guidance and spread a fresh wave of disruption across assets that will start out in bonds, currently less volatile than FX and stocks relative to historical norms

So, rest up and enjoy those chocolates.

But, we’ll give the last word to Rudy…

“Sobering” https://t.co/lrVMB6Wl9o pic.twitter.com/lAsNjTjGeZ

— Rudolf E. Havenstein (@RudyHavenstein) March 29, 2018

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Bonus Chart: The Analogs remain…

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Submitted by Quoth The Raven,

In news that should surprise absolutely nobody, the Federal Reserve Bank of St. Louis has recently issued an article written by “a senior economist“ who was floored to find out that many Americans still lack retirement savings. Comically, the Federal Reserve Bank of St. Louis is part and parcel with a central bank lead economic system that does nothing but encourage deficit spending and debt, and so the tone of surprising concern contained in the article sits somewhere between irony and total absurdity.

The St. Louis Fed found that:

Overall, 35 percent of U.S. households do not participate in any retirement savings plan.²

Even among those households that do hold retirement accounts, many of them have low account balances. Figure 1 plots the sum of account balances of all IRAs, Keogh accounts and pension plans by percentile for various age groups.³ The median (50th percentile) household holds only $1,100 in its retirement account. Even the 70th and 80th percentiles of households have only about $40,000 and $106,000 in their retirement accounts, respectively.

It also goes on to state that 35% of US households to not participate in any retirement savings plans. To make matters worse, even those households that do participate in these plans have incredibly low account balances.

In “additional details that stunned the Federal Reserve Bank of St. Louis and should be of no surprise to anyone who has been paying attention,” income inequality among retirement savers is drastic, as they point out:

By contrast, the 90th and 95th (not shown in the figure) percentiles of households hold considerable amounts, at about $310,000 and $612,000, respectively. This implies a high degree of inequality in retirement account balances across households.

Even more hilarious is the perfunctory statement of concern at the very bottom of the article, expressing what seems like genuine remorse for the fact that American households may have lower retirement account balances than they should.

Still, this article documents that many households either do not utilize or underutilize retirement accounts, such as ESPPs and IRAs. It could be worrisome that, for many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement.

Has it not occurred to the Federal Reserve Bank of St. Louis that this lack of savings should be an anomaly if the economy has really “recovered” the way the Fed wants us to believe over the last 10 years?

Even sadder is the fact that the Federal Reserve Bank of St. Louis doesn’t seem to understand that the economic system run in the United States does not reward people who save, rather important people who speculate and spend beyond their means. What little balances are held in retirement accounts are likely now locked up in a stock market that is becoming increasingly volatile and could very well soon correct while the rest of the “cash on the sidelines“ continues to depreciate 2% annually from the Fed’s objective of seeking information.

Thanks, Yellen! Keep those colors popped, Fed employees!

(Source: NY Fed Twitter)

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President Donald Trump made a surprise announcement on Thursday afternoon, stating during a speech in Richfield, Ohio dedicated to Trump’s infrastructure week, that US forces will be withdrawing from Syria, citing the defeat of ISIS and the need to defend US borders and rebuild crumbling infrastructure: “We’re coming out of Syria very soon. Let the other people take care of it now.” Others like Russia perhaps?

The US spent $7 trillion in the Middle East, Trump said, describing how the US would build schools only for insurgents to destroy them, while there was no funding to build schools in Ohio: “We build a school, they blow it up. We rebuild the school, they haven’t blown it up yet, but they will.”

Pres. Trump: “We’ll be coming out of Syria very soon. Let the other people take care of it now…We’re going to have 100% of the caliphate, as they call it —sometimes referred to as land. We’re taking it all back.” pic.twitter.com/N9cPYkS6pk

— Evan McMurry (@evanmcmurry) March 29, 2018

The president also pointed out the “wall” and 32,000 US troops guarding the border between North and South Korea, while the US border with Mexico was not likewise protected.

“Is there something a little bit wrong with that?” Trump asked the crowd.

Trump’s remarks about Syria are in line with what he said last month, at a press conference in Washington with Australian PM Malcolm Turnbull.

“We’re there for one reason: to get ISIS and get rid of ISIS, and to go home,” the US president had said. “We’re not there for any other reason and we’ve largely accomplished our goal.”

However, this goes against the previous pronouncements of his subordinates at the State Department and the military.

In January, former Secretary of State Rex Tillerson outlined a plan that proposed extended US presence in Syria to ensure a peaceful transfer of power to a “post-Assad leadership.” Previously, last December the Pentagon said US troops would remain in Syria for “as long as we need to, to support our partners and prevent the return of terrorist groups.”

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Via Global Macro Monitor,

What a farce.

South Korea, meanwhile, negotiated a permanent steel-tariff exemption in exchange for allowing additional U.S. auto imports.

But the claim of a “renegotiated” Korea-U.S. free-trade agreement should be viewed with skepticism. 

U.S. automakers already don’t export the allowable number of cars into South Korea today, let alone the expanded number.

And South Korean car exports, the main sources of the trade imbalance, were left alone. It was a limited, face-saving deal that everyone can tout as “preventing” a trade war.  

– New Republic

Why not just negotiate an increase in Korean imports of American flying cars and call it a victory?

 Nothing here.  Move on.

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The State Department will unveil new rules on Friday requiring most visitors or immigrants to the United States to turn over their recent social media histories, in accordance with one of President Trump’s key national security enhancements contained in his “extreme vetting” executive order.

In addition, travelers would be required to provide previous phone numbers, email addresses and a history of international travel from the preceding five years – as well as disclose any immigration problems they’ve had anywhere in the world, or any potential family ties to terrorism, according to the Washington Times. 

Moreover, people from countries where female genital mutilation is common practice would be directed to a website to ensure that they know the practice is illegal in the United States.

The Friday publication will begin a “comment period” before the government finalizes the policies.

“This upgrade to visa vetting is long overdue, and it’s appropriate to apply it to everyone seeking entry, because terrorism is a worldwide problem. The aim is to try to weed out people with radical or dangerous views,” said Jessica Vaughan, the director of policy studies at the Center for Immigration Studies – who called the effort to discourage female genital mutilation “innovative.” 

“The message needs to be sent that ‘we don’t do that here,’ ” she said.

Vaughan also says the State Department should also request information on whether female travelers intend to enter the United States in order to give birth – a practice known as “birth tourism” in which women visit the U.S. so that their child born on American soil is a U.S. citizen. 

The Department of Homeland Security (DHS) has entertained plans to track the social media accounts of immigrants entering the country, however the State Department’s Friday proposal would apply to tourists and others entering the country on temporary visas. In all, some 14 million people would be affected by the request for information, according to the department.

Privacy concerns

The Washington Times reports that Dan Crocetti, a former senior fraud investigator for U.S. Citizenship and Immigration Services, said it makes sense to collect the information — but said officers need to stay within privacy rules, too.

He said in the immigration context, looking at social media can help an adjudicator assess whether the story the applicant is telling for applying for a benefit rings true — such as in the case of a marriage petition.

But Mr. Crocetti said someone’s refusal to turn over the passwords or other non-public social media information can’t be used on its own to deny approval.

 “The use of social media is a wrench in their tool box. It’s not that you use that same wrench for everything you do, but it’s a wrench, it’s a different sized tool, and you have use that selectively,” he said.

The State Department currently collects information about travel history and family connections, however the new proposal will seek to collect prior passport numbers, information about family members and a longer history of past travel, employment and contact information. 

“Collecting this additional information from visa applicants will strengthen our process for vetting these applicants and confirming their identity,” said the State Department.

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Via AdventuresInCapitalism.com,

Before George Soros focused his energies on undermining Western Society, he wrote a book detailing his theory of reflexivity.

Reflexivity is the theory that the market’s own expectations about an event can help impact the actual future outcome of the event in a feedback loop of sorts. Take a mining company that needs to raise money to build a mine. Since the cost of the mine is fixed, if the share price goes up, there’s less dilution for all. The fact that a rising price, makes the shares ultimately more valuable in the real world – due to less dilution; sometimes helps to propel the share price higher in a virtuous feedback loop. If such a feedback loop starts, it tends to be self-reinforcing – at least if the stock promoters do their job correctly.

At the same time, the same dynamic can work in reverse, as we are about to witness with Tesla. While, there is some debate amongst those following the company, it seems that Tesla will have cash losses of between $3 and $6 billion this year, along with another $4 to $6 billion or so of cap-ex. Let’s call it a clean $10 billion of cash needs. Based on current burn rates, they should run out of money sometime late this summer. However, companies don’t ever run their cash to absolute zero – hence Tesla will likely need to raise capital sooner. This is where reflexivity kicks in.

With the bonds now at 87, the borrowing window is effectively closed – this then forces Tesla into the equity market.

Note how when the bonds started to leak, so did the share price. This was due to investors reflexively anticipating more dilution. However, the lower the share price goes, the more dilution there will be. $10 billion is serious dilution – even with Tesla’s massively inflated share price. Hence, the lower the shares go, the less valuable they will be in the future – as it leads to more dilution – which leads people to sell their shares as the company will be worth less – which leads to more dilution in a feedback loop.

At the same time, the decline in the share price, has impacted the debt rating (ridiculously, the bonds were only able to price, as they stood behind $60 billion of equity value – which seemed to imply that equity would be issued to pay off the debt) which may ultimately impact the vendor financing terms that Tesla uses for their parts purchases – which will deplete more working capital and force more equity issuance.

When a company consumes nearly a billion in cash each month, it needs to constantly tap the debt and equity markets. If the share price goes up, access to these markets goes up and cost of capital goes down. When it goes in reverse, it can often be a rapid descent – especially if investors lose hope that the losses will ever stop.

I believe that Tesla is now at that inflection point. In many ways, the lower the shares go, the worse things will get in terms of access to capital. When a blatant stock promotion ends, the unwind tends to be fast—especially when there’s lots of cash burn and debt. No wonder Musk is so focused on Mars—it may be the only place he can hide from the coming shareholder lawsuits.

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