Month: March 2018

A fatal crash earlier this month that left a Tesla Model X smouldering on the shoulder of the southbound lane of Highway 101 in Mountain View has hammered Tesla shares to their lowest level in a year while pushing the yield on its debt above 7% (though an ill-timed Moody’s downgrade also had something to do with that).

Once again, Tesla finds itself in the crosshairs of the National Transportation Safety Board. It’s last brush with the federal regulator ended without incident – the agency ruled that a fatal Florida crash was the result of driver error, and that Tesla’s controversial autopilot software (which has been implicated in several fatal accidents) was not at fault.

But as two teams from the NTSB sift through the evidence gathered from the fiery crash site, Tesla said in a blog post published Tuesday night that it hasn’t been able to analyze any of the data collected from the scene – and therefore doesn’t yet know what caused the crash – because the car was so badly damaged, as Bloomberg pointed out.

The company hasn’t been able to retrieve the vehicle’s logs and is working with authorities to access them. Tesla has disclosed whether the driver had engaged Tesla’s partially autonomous driving system, known as Autopilot, when the crash occurred.

Interest in the effectiveness of self-driving technologies is elevated thanks to a deadly Uber Technologies Inc. accident that happened days earlier involving an autonomous car and a woman who was crossing the street with her bicycle. That accident is believed to be the first fatality involving an autonomous vehicle.

Tesla owners have driven the same highway stretch with Autopilot engaged about 85,000 times since the system was introduced, and no accidents have been reported that the company is aware of, the carmaker said. The NTSB is investigating whether autopilot was involved in the crash and is also looking into techniques for safely removing smouldering battery components from electric vehicles.

Tesla said its battery packs are designed so that when a fire occurs, it spreads slowly so people have more time to exit the car. “That appears to be what happened here as we understand there were no occupants still in the Model X by the time the fire could have presented a risk,” Tesla said.

The post also showed photos of the concrete divider that the Model X hit. In days prior to the crash, a long metal barrier that extended out of the concrete divider, a barrier meant to absorb the impact of a crash before a driver hit concrete, had been present – but was removed some time before the fatal crash.

“The reason this crash was so severe is that the crash attenuator, a highway safety barrier which is designed to reduce the impact into a concrete lane divider, had either been removed or crushed in a prior accident without being replaced,” the post said.

A Tesla driver was killed in a Florida accident in 2016 when his vehicle, which was in Autopilot mode, failed to detect a truck cutting across his path. The NTSB also investigated that accident, and concluded that the driver should have been monitoring the car’s progress as the system indicates.

But Tesla’s problems aren’t limited to the crash investigation. Like the Cambridge Analytica scandal and its impact on Facebook, this crash has merely served to draw attention to Tesla’s chronic inability to hit its production goals. Musk is well behind on the company’s delivery targets for its Model 3 – what was supposed to be the crossover vehicle to bring electric vehicles to the middle-income market. Since its inception, Tesla has burned cash at an alarming rate, and if the business doesn’t find a way

John Thompson of Vistas Capital Management told MarketWatch that, unless Elon Musk “pulls a rabbit out of his hat” the company could be bankrupt within four months.

Thompson sense the core of the problem for Musk. That his company’s lofty share price has been built almost entirely on marketing – “the narrative”, as Thompson describes it.

But there’s only so much failure shareholders can countenance before even the gullible start asking questions.

“Companies eventually have to make a profit, and I don’t ever see that happening here.””This is one of the worst income statements I’ve ever seen and between the story and the financials, the financials will win out in this case.”

Meanwhile, Musk is up to his usual tricks – promising to delete Tesla’s and SpaceX’s Facebook pages in a reply to a random user, allowing him to deflect attention from Tesla’s troubles while simultaneously taking a shot at one of his chief rivals.

Shareholders are abandoning the stock…

And bond yields do not bode well for stocks…

Stormy weather in Muskville once again.

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Yesterday’s bloodbath in markets – after such exuberance on Monday – is set to continue if historical precedents are anything to go by. Nomura’s cross-asset-strategy chief Charlie McElligott notes that yesterday’s equities pain via a brutal factor-unwind resembles one of the most violent performance drawdowns in recent history – that of Jan / Feb 2016 – and seemingly “idiosyncratic risk” is now turning more “systemic” in crowded Tech “data” plays as “death-by-paper-cut” now becoming a longer-term regulatory overhang of their core “data commodity.”

Worrying words indeed. McElligott first breaks down just what happened yesterday – and where the real “cataclysmic” pain was felt – before moving on to ‘what happens next’?

SUMMARY

• The -4.1 z-score move in “Cash / Assets” factor – the best performing factor strategy of the past 2 years – speaks to likely forced capitulation / book blowouts, similar to what we experienced back in Feb 2016 as “equities market-neutral” performance was crushed in a violently-short period of time

• “Cash / Assets” is important because it is a pure proxy of the “Growth over Value” theme which has been the dominant reality of the post-GFC period and has accelerated in the past two years to look a lot like “Momentum” factor

• The analogs of similarly extreme prior drawdowns in “Cash / Assets” (again effectively a “Growth over Value” AND expression in its current-form) give us both “good” and “bad” forward-looking news

  • The “good” – said prior “extreme drawdowns” with this particular “Growth over Value” proxy ( “Cash / Assets” factor) have seen mean-reversion HIGHER at the SPX level on average from a 1w to 3m basis

  • The “bad” – “Cash / Assets” factor typically continues to underperform primarily due to the outperformance of the “short” leg from here (“defensives”)

• This then is an equities performance risk because “Cash / Assets” is effectively “Momentum” long-short and thus, mirrors general Equities Hedge Fund Long-Short positioning

• Further squeeze in the “short leg” of “Cash Assets” too squeezes the “short leg” of “Momentum” via the broad equities fund underweight / short in the “duration-sensitives” like REITs and Utilities

• This in turn only puts MORE pressure on the March CPI print to “come through” and hit the expected uptick off the back of the “Telco Service” roll-off mathematical boost, likely putting rates / USTs back under pressure

• Otherwise, further rates rally / short-squeeze will only perpetuate the pain being felt across equities underweights / short-books

OVERNIGHT:

The Bund / UST “flight to safety” rally and “seeming” short squeeze is further extended as yesterday’s equities-centric risk-unwind (un-packed in gory-detail below) chops ‘risk’ asset price-action overnight.  Blocks buys in RX earlier which printed at session highs set-up the next level for Bunds looks to be a retest of Dec ’17 contract highs, while TY too clears the 38.2% retrace of the YTD selloff move (121-18 is 50% next level).  Our rates team notes big real money demand overnight and “BIG” receiving flows in the 5Y through 15Y sector.

UST 30Y yields at 3.01 should act as a reminder to investors that YES, ‘long duration’ still works as a “risk off” hedge into this current softer economic growth backdrop, as opposed to the inadequate state of “duration as a hedge” back during the Feb vol spike.  That scenario was driven by the very contrary acceleration in “growth” economic data—especially wage- and inflation- kind–that in turn dictated the fixed-income selloff that drove the behavior which didn’t allow USTs to work as a hedge.  This time truly IS different, it seems…at least until the potential for March CPI headline to hit at 2.4% and the “bear raid” on fixed-income will take another “go” at USTs.

To this point, 3m $LIBOR sets +0.6, and despite the insane rally in fixed-income yday (front ED$ a 2.3 standard deviation move relative to 1Y returns), Darren Shames astutely notes that ED open interest STILL barely budged (Whites +36k/ Reds -3k/ Greens +46k/Blues -3.8k).  High conviction from the ‘bearish / paying rates’ crowd, indeed.

Not surprisingly, “growth-y” and tech-heavy Asian equities markets were hit hard overnight, although in pretty ‘sane’ fashion—TOPIX -1.0%, Nikkei -1.3%, HIS -2.3%, SHCOMP -1.4%, KOSPI -1.3%.  USD is only marginally firmer against G10, as the lower UST yields act to drag the currency down despite the “risk-off” nature of the recent trade.  Nonetheless, both Industrial Metals (iron ore -1.1%, copper -0.8%) and Crude (WTI -1.0% after last night’s surprise API inventory build at 6x’s the expected estimate—jarring the recent ‘demand-driven’ bounce theme) are both struggling and also feeding into the lower nominal- and ‘real-‘ yield dynamic that we currently see.

Spooz currently working their way back to overnight session highs with a Shire Pharma bid and a Walgreen’s earnings beat / raise.  But the damage of yesterday will loom for an extended period of time, I’d imagine.

COMMENTARY:

Let’s skip right to the chase: the behavior within particular recent factor- and thematic- “winners” within the US equities space yesterday was so violent / so “tail” that the scale of the drawdown was reminiscent of the brutal market-neutral quant factor unwind period of Jan / Feb 2016.  For the unitiated, that particular episode of whiplash forced a number of heavily-leveraged “platform books” to liquidate around the Street,in turn destroying performance for many over the balance of that particular year, despite an almost immediate “snapback higher” in both relevant factors and broad SPX over the following weeks.

Yesterday was particularly stunning because it occurred with “Cash / Assets” factor–the “biggest factor winner” since July of 2016–which also happens to be the period marking the “cyclical lows” in UST yields before the past nearly two years of grinding higher.  In fact, Nomura’s “Cash / Asset” factor made 5 year lows on June 27th 2016, four days before UST 10Y yields made all-time lows on June 30th, 2016 (point-being, “quant factors” are just another tool to “see” shifts in the fundamental and macro landscape potentially sooner than other traditional methods).

The key here is this, as noted by our phenomenal Quant Strat Joe Mezrich in a piece from mid-February: “Amid the rise in interest rates since July 2016, sectors with high cash/total assets and low debt/equity—tech, financials (ex-banks) and industrials—have also outperformed, while sectors with the opposite characteristics—telecom, utilities, real estate and staples—have underperformed.”  So to me, this factor is an almost “pure” proxy of “Growth vs Value,” which has probably been the biggest theme within the entire equities since the GFC.

“CASH / ASSETS” AS A PURE EXPRESSION OF “GROWTH VS VALUE”:

Source: Bloomberg

Amidst all the ongoing questions with Tech / Growth “crowding,” the potentially massive regulatory implications of these “New Tech” companies–whose “revenue commodity” is data in the midst of this current #deletefacebook panic—is just simply enormous.  So extremely crowded conditions are met with now “large and slow-moving” regulatory overhang due to seemingly “idiosyncratic risk,” which perversely has now apparently turned into “systemic risk” for the “data” space (see Axios piece today noting a White House acceleration of negativity around Tech universe—both on tax and regulatory).

On top of the ongoing and ugly Facebook situation, you then incredibly “pile-on” with yesterday “short sale” report on Twitter (a stock +47% last year and what had been +33% YTD through Monday’s close) being “most exposed” to a similarly murky “data exposure” scenario, and then the “pure idiosyncratics” of mega-“high flyer” graphics-chip maker NVDA’s -7.8% 1d move (but +26% YTD through Monday’s close) after its involvement in the Uber car crash – while too TSLA (a stock +46% last year) slumped 8.2% yesterday as investors also question their own recent fatal car crash….you simply have the makings for one of the most “freak” blow-ups I’ve seen in my 17 years in the business.

Source: Bloomberg

Many of these companies, as shown by 1Y and YTD returns, are clear “Momentum” longs.  Many of these same companies are clear “Growth” longs.  The two biggest “drags” within the aforementioned and critical “Cash / Assets” factor long blowup yesterday?  TWTR -12.0% and NVDA -7.8%.  Third worst?  ADBE -6.6%, a huge “CLOUD DATA” player.  Fifth worst?  ANET, a “CLOUD DATA” player -6.4% on the day.  I could go on.

NOMURA ‘CASH / ASSETS’ FACTOR LARGEST LAGGARD % MOVERS YDAY—‘LIGHTS OUT’:

Source: Bloomberg

A HISTORY LESSON:

This is where it gets “familiar,” and not in the “good” way.  “Cash / Assets” market-neutral factor experienced a brutal -2.9% absolute move yesterday, which relative to the absurdly high Sharpe of this factor strategy over the last year was an even more amazing -4.1 z-score move.  That is CATACLYSMIC.

Source: Bloomberg

The last time we saw moves that extreme in this pure “Growth” factor expression?  February 5th, 2016—which was the day that still super-crowded “CLOUD DATA” play Tableau Software (ticker ‘DATA’ is the most meta-ironic thing I think I’ve ever seen in my life BTW) absolutely blew the market-neutral buyside to smithereens, as the stock traded -49.4% after a relatively benign “miss” caused a knock-on effect across the “cloud” theme which was an “ultra long” across tech books and growth funds around the Street.

Let’s take a trip down memory lane.  The investor masses by-and-large were set-up “long growth” in equities (Tech, Fins, Energy) / short fixed-income to start the year 2016, after the Fed had just begun their hiking-cycle the month prior in Dec ’15 on the basis of “economic escape velocity.”  Higher rates from “real economic growth” was about to begin, and it was time to get long the stuff that responds in this sort of expansion, against paying rates / short USTs.

However, we immediately saw a BRUTAL mean-reversion / pension fund rebalancing trade to start ’16 as the “deflation scare” absolutely NUKED Tech, Financials and Crude / the Energy space while the “bearish / paying rates” set-up saw “bond proxy” defensives RIP HIGHER as USTs rallied.  The crowded  “growth” trade was absolutely defenestrated then, against a whalloping fixed-income / duration / “low vol” rally…

January 2016 % return:

• SPY -5.0%
• QQQ -6.9%
• SMH -6.7%
• KRE -12.6%
• KBE -12.6%
• XLF -8.9%
• XLE -3.5%
• XLP +0.5%
• XLU +4.9%
• UST +6.6%
• TLT +5.6%
• EDV +8.4%

With this already brutal backdrop in January forcing multi-manager platform team blowouts and book unwinds across this heavily-leveraged equity market-neutral universe (“tight stop” risk management), the Tableau print at the start of February was the straw that broke the strategy’s back, “daisy-chaining” capitulation everywhere.  That lone stock blow-up sent the entire HFR Equities Market Neutral Index -3% in one day!

Source: Bloomberg

What’s the punchline?

 Some people really got hurt yesterday—in a BAD way.  When the buyside goes that quiet…you know things went “wrong.”

WHAT HAVE PRIOR BLOW-UPS IN THIS FACTOR MEANT FOR FUTURE RETURNS?

So to be fair, the positioning-angle of this current iteration of the “secular growth” trade has “only’ been this extreme for the past few years—meaning that analogs of prior blow-ups in “Cash / Assets” are not “apples to apples” per se.  But it still matters because this type of volatility, forced “stop-outs” and book capitulations only further weigh on my recent talking point since February, being the “damaged psyche” of risk- / equities- investors, who have been conditioned to ‘buy the dip’ time and time again to their benefit over the past 5+ years.  Now, there is a HARSH re-training occurring, as we’ve clearly transitioned to a TRADER’S MARKET from an EASY-CARRY / HIGH SHARPE / ‘SET IT AND FORGET IT’ one.

The daily stop-outs and drawdowns are also becoming too much for the institutional set, as almost every other day since the start of February, we see “shorts / underweights” outperforming “longs / overweights.”  GROSS-DOWN, again(and FWIW, I think at least part of the reason a lot of this isn’t being expressed purely in Prime Broker data is because so much of the hedging is done via Futures right now, and that data is sitting at Clearing Brokers):

Source: Bloomberg

The issue here is that there is “spill-over” into popular macro and systematic positioning as well:

Source: Bloomberg

So how about the good news first at the SPX-level, which is where cross-asset / macro is going to care.  The analogs dating-back to 2010 of prior extreme drawdowns with this particular “Growth over Value” proxy / theme (that being the “Cash / Assets” factor I’ve concentrated on above) have seen mean-reversion (HIGHER) at the SPX level—take a look at the following data run by my colleague Eric Passmore last night:

Source: Nomura

Now for the bad news—“Cash / Assets” factor typically continues to underperformprimarily due to the outperformance of the “short” leg from here (the “long” basket of “Growth” holds positive with a 60% ‘hit rate’ 2w out and a 50% hit rate 1m out).

So what’s in that “short leg” of the “Cash / Asset” basket which per the analog continues to squeeze painful higher and sap the returns of your ‘long’ leg?

All of the “Value” long stuff, the defensives / duration-sensitives / bond-proxies that nobody owns and frankly makes up the majority of the “Momentum” short as well—i.e. strategies that are running a “mirror” of “Momentum” long-short (broad equities HF long-short) are likely in for more downside chop over the coming month. 

Source: Bloomberg

“CASH / ASSETS” LOOKS A LOT LIKE “MOMENTUM” BECAUSE OF THE “GROWTH VS VALUE” ATTRIBUTES:

Source: Bloomberg

ANALOGS SHOW THAT ‘CASH / ASSETS’ CONTINUES TO STRUGGLE OVER THE NEXT 1M AS THE ‘SHORT’ LEG (REITs, UTES) SQUEEZES HIGHER:

 

Source: Nomura

Below are the case-by-case prior returns since 2010:

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Authored by Tsvetana Paraskova via OilPrice.com,

Germany approved on Tuesday the construction and operation of the Russia-led Nord Stream 2 gas pipeline in its territorial waters, thus issuing all necessary permits for the German section of the project that has torn Europe and EU member states over the implications of Russia’s gas giant Gazprom gaining even more foothold on the European gas market.

Hailing the project as necessary to cover Europe’s future supply gap and contributing to the “security of supply and competition in the EU gas market,” the pipeline company Nord Stream 2 AG said on Tuesday that the permitting procedures in the other four countries along the route – Russia, Finland, Sweden and Denmark – were proceeding as planned.

“Further permits are expected to be issued in the coming months. Accordingly, scheduled construction works are to be implemented in 2018 as planned,” the company said.

Germany is the key beneficiary of Nord Stream 2 and supports the project on the grounds that it is an economic issue.

Other EU states, however–including Poland and the Baltic states, as well as the European Union institutions–argue that the project further solidifies Russia’s grip on Europe’s gas market and undermines efforts to diversify supplies.

For Russia, Nord Stream 2 – a project to twin the existing Nord Stream pipeline between Russia and Germany via the Baltic Sea — not only boosts its gas supplies to the EU, but also bypasses the Ukrainian transit route.

With the spy poisoning scandal in the UK and the West-Russia tension high, Nord Stream 2 has taken center stage in energy policies again in recent weeks. Earlier this month, U.S. Senators urged the U.S. Administration “to utilize all of the tools at its disposal to prevent its construction.

Last week, the Energy Committee at the European Parliament approved draft amendments to the EU rules to state that all gas pipelines from third countries into the EU must comply fully with EU gas market rules on EU territory, including Nord Stream 2, which is far from complying with those.

While it’s no surprise that Germany has now issued all permits to Nord Stream 2, other countries along the pipeline route, Denmark in particular, could block the proposed route in its waters on security grounds, but Danish officials are not rushing the decision. 

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After the virtually unchanged first revision to the original 2.5% Q4 GDP print, analysts were expecting a modest improvement in today’s final revision to the GDP estimate from the last quarter of 2017. However, the final number ended up being materially higher than expected, with the 3rd Q4 GDP estimate rising at an annualized 2.9% (2.88% to be precise), above the 2.7% estimate, and well above the 2.5% revised number.

And with the final number now in, we now know the US economy grew at a rate of 2.3% in 2017, well above the 1.5% 2016 growth rate (if below the 2.9% in 2015), thanks to the following quarterly growth rates: 1.2%, 3.1%, 3.2%, and 2.9%.

The upward revision to real GDP growth was accounted for by revisions to consumer spending on services and to  private inventory investment:

• Personal Consumption rose from 2.58% to 2.75% of the bottom line GDP
• Fixed Investment was virtually unchanged (from 1.29% to 1.31%)
• Private Inventories were a far smaller drag, shrinking from -0.7% to 0.53%
• Net Trade was also flat, revised from -1.13% to -1.16%
• Government also barely moved, from 0.49% to 0.51%.

In terms of numbers that the Fed will focus on, Personal consumption rose at an annualized 4.0% in 4Q after rising 2.2% prior quarter, beating estimates of 3.8% (as noted above, this contributed 2.75% of the final 2.88% Q4 GDP number). Overall, prices of goods and services increased 2.5% in the fourth quarter after increasing 1.7% in
the third quarter. Excluding food and energy, prices rose 2.0% after increasing 1.6% .

Meanwhile, the GDP price index rose 2.3% in 4Q after rising 2.1% prior quarter; while core PCE q/q rose 1.9% in 4Q after rising 1.3% prior quarter, in line with expectations.

Today’s release also disclosed that corporate profits decreased 0.1 percent at a quarterly rate in the fourth quarter after increasing 4.3 percent in the third quarter.  Profits of nonfinancial corporations increased 1.5% in the fourth quarter, profits of financial corporations decreased 3.0%, and profits from the rest of the world decreased 1.3%.  On an annual basis, corporate profits were up 2.7% in 4Q after rising 5.4% prior quarter.

Overall, a strong end to the quarter and year, which however will mean that Q1 growth will have been pulled forward, and we expect downward revisions to Q1 GDP estimates later today.

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Boding well for Q1 GDP, Wholesale inventories accelerated further off January’s jump, rising 1.1% MoM in February (well above the 0.5% rise expected). This is the biggest monthly jump since Oct 2013.

 

 

While wholesale inventories built notably, retail inventory growth slowed from +0.7% MoM in January to +0.4% MoM in February…

 

No detail on sales for now to be able to judge just how much this is a ‘field of dreams’ number out of phase with consumption, but the wholesale beat will likely mean upgrades to Q1 GDP estimates are on their way.

Just remember, American consumers are saturated with debt just to maintain living standards, so “building it” may not be enough to ‘create’ consumption.

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Playboy said Wednesday that it will deactivate its Facebook pages to protest the social media company’s exploitation of user data for commercial profit, according to CNBC.

But taking things a step further, Cooper Hefner, Playboy’s chief creative officer and son of the late Hugh Hefner, accused Facebook of being “sexually repressive” (we know) and said Facebook’s policy guidelines “continue contradicting our values.”

 

We are stepping away from Facebook pic.twitter.com/4yFIdk2eDE

— Cooper Hefner (@cooperhefner) March 28, 2018

 

In a statement on Wednesday, Playboy said: “The recent news about Facebook’s alleged mismanagement of users’ data has solidified our decision to suspend our activity on the platform at this time.”

“There are more than 25 million fans who engage with Playboy via our various Facebook pages, and we do not want to be complicit in exposing them to the reported practices. That is why we have announced that we will be leaving Facebook’s platform, deactivating the Playboy accounts that Playboy Enterprises manages directly.”

The firm said it has “always stood for personal freedom and the celebration of sex,” and that its move to deactivate platforms on Facebook was “another step in that ongoing fight.”

Playboy, of course, isn’t the first company to shutter its Facebook page. Longtime Mark Zuckerberg rival Elon Musk said earlier this week that he’d deactivate Tesla’s and SpaceX’s Facebook pages.

Meanwhile, Mozilla and Commerzbank have suspended advertising campaigns.

In an effort to assuage users’ fears following revelations about the vast trove of data that Facebook (and its tech behemoth peers) collect and leverage for commercial purposes, Facebook is allowing users to see all the data that Facebook has collected – and, as one twitter pointed out, the full extent of the company’s data collection is much larger than one might expect.

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Two months after the Nikkei reported that Apple will halve its production target for the iPhone X in the three-month period from January from over 40 million units to around 20 million, in light of slower-than-expected sales in the year-end holiday shopping season in key markets such as Europe, the U.S. and China, and after JPM similarly warned that production of Apple’s flagship phone would plunge of 50%, “even larger than the decline of the iPhone 8/8+” and noted that the “weakness will continue in 1H18 as high-end smartphones are clearly hitting a plateau this year”…

… this morning Goldman joined the Apple skeptics when the bank’s analyst Rod Hall wrote that demand expectations for March and June quarters are already weak but early Q1 demand indicates “even lower actual numbers than consensus is modeling” and as a result, he is trimming his replacement rate expectations in response to what has been weak replacement consumer behavior this cycle.

Below is the gist of the note:

We reduce our replacement rate assumption for FY’18 by ~2pp to 33% from 35% earlier due to weaker than expected demand for the iPhone X. We have cut our Chinese replacement rate by 3pp to 19% for FY18 and also reduced our ex. China replacement rate by 1pp to 38%. Further, we cut FY’19 and FY’20 replacement rates by 1pp each to 32% and 29% respectively. We note that our assumptions for FY19 could prove conservative if larger format devices drive a better cycle in China this coming December quarter though we believe that data so far suggests that a more cautious approach is prudent.

We now forecast the overall replacement rate to drop by 7pp over the three years from FY’17-FY’20 similar to what we calculate occurred from FY’14-FY’17. This may appear overly conservative on its face but we point out that replacement cycles in emerging markets where iPhone base growth is highest tend to be materially lower than in developed markets where most Apple analysts reside.

In light of this, Hall cut his iPhone sales estimates for the March and June quarters by 1.7 million and 3.2 million units to 53 million and 40.3 million units respectively.

He also cut his 2019, 2020 iPhone revenue and net income forecasts: Goldman now sees revenues decrease by 2.4% and 2.7% to $256.6bn and $272.5bn for FY’18 and FY’19 respectively; the company’s revised revenue estimates for FY’18 and FY’19 are 2.2% and 0.4% below consensus, while its net income estimate for FY’18 is 2.2% below consensus and for FY’19 is 1.2% ahead.

On a shipment and ASP basis, Goldman cut its FY’18, FY’19 and FY’20 iPhone shipments forecasts by 3.5%, 4.0%
and 1.8% to 217.3m, 223.8m and 223.4m units respectively – below consensus estimates of 221.3m, 226.8m and 238.3m units. However, the bank’s ASPs for FY’19 and FY’20 are 1.6% and 4.0% ahead of consensus due to proprietary bottom up modeling that suggests consensus continues to underestimate the impact of a mix shift toward higher priced phones “even as we now assume that Apple reduces prices somewhat in the high end.”

Hall warned that AAPL will have “material channel inventory” to clear in June in order to prepare for rollout of new products this fall, and has modeled just 1MM units of inventory build into the June quarter.

Unleashed, the Goldman analyst also reduced his ASP estimate for the June quarter by 2.3% due to above-average forecast inventory burn of 6.0 million units.

There was some good news: the Goldman analyst said that while replacement rates continue to decline in our model, the growing installed base provides support for the Y/Y growth in replacement shipments. We estimate that the primary installed base, made up of only first-hand iPhone owners, stands at 631m units in FQ1’18 and is growing strongly at 12% Y/Y.

Taking all of the above, Hall also cut his Neutral-rated Apple price target by $2 to $159, the second lowest on the Street, which has a median PT $195. Apple stock was modestly lower on the news.

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The National Rifle Association says it received foreign funds, however none of the money was used for election purposes, the gun lobby wrote in a letter to Senator Ron Wyden (D-OR).

“Our review of our records has found no foreign donations in connection with a United States election, either directly or through a conduit,” said John C. Frazer, the NRA’s secretary and general counsel, in March 19 letter that was made public by Wyden’s office.

Wyden had previously asked the NRA to comment on its fundraising efforts – noting that Alexander Torshin, a Russian lawmaker, ardent gun rights advocate and ally of Vladimir Putin, had attended the National Rifle Association’s annual meeting in 2016. 

U.S. authorities are probing whether the NRA funneled Russian funds into the 2016 presidential election – as the NRA spent over $50 million on the last election cycle, including $30.3 million which went towards support for then-candidate Donald Trump according to data compiled by the Center for Responsive Politics. 

In federal elections, the NRA typically ranks among heavyweight outside spending groups. For the second cycle in a row, it has earned a place in the top ten. But 2016 was a unique year for the organization, owing to the fact that many super PACs, like Karl Rove’s American Crossroads GPS, which spent roughly $115 million to elect Mitt Romney in 2012, declined to back Trump. The NRA stepped in to fill the void, putting at least $30.3 million on the line to help elect the real estate mogul, more than any other outside group — including the leading Trump super PAC, which spent $20.3 million. –opensecrets.org

“I am specifically troubled by the possibility that Russian-backed shell companies or intermediaries may have circumvented laws designed to prohibit foreign meddling in our elections by abusing the rules governing 501(c)(4) tax-exempt organizations,” Wyden wrote to the NRA. He sought details of any transactions with Russian nationals, as well as details of procedures that “ensure that funds from foreign sources are not used to influence U.S. elections.”

The NRA’s Frazer responded, saying that the organization “has strong policies and practices to ensure that we raise and spend our funds within the bounds of the law.” 

Frazer also noted that no Russian nationals had ever been members of the NRA’s top-tier membership level, the Golden Ring of Freedom program, which requires a $1 million donation, and is referred to as the group’s “premier donor recognition program.” 

In a response to the NRA’s March 19 letter, Wyden responded on March 27, asking for additional information about the NRA’s campaigning, communications and funding – along with a reiteration of his request for information about Russian members of the NRA’s Ring of Freedom or other donor programs. 

Wyden noted that Torshin shared images online of himself wearing a “Ring of Freedom” badge – seemingly contradicting the NRA’s statement. 

March 19 letter from NRA to Wyden

Marchj 27 response from Wyden to the NRA

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