Category: zerohedge

Trump Reveals The Secret Behind His Success

One of the recurring complaints about Donald Trump, if mostly emanating from those whom he is defeating on the campaign trail, is that the Republican presidential front-runner should act more “presidential.” Then, just a few days ago, the WaPo’s Chris Cillizza – one of Trump’s biggest media adversaries who has predicted Trump’s political demise countless times so far – wrote that Trump 2.0 is being unveiled.

It appears the WaPo will be wrong again, because on Saturday while speaking during a campaign speech in Waterbury, CT, Trump revealed the secret behind his success which he said comes from not acting “presidential” and lashed out at the idea that he should be more “presidential”, i.e. appeasing his critics, saying he’s done so well because he’s not acting like other politicians.

During his rally, Trump said he has been trying to follow the advice of family members and aides who told him to be more presidential, but now, “people are starting to say, ‘wait a minute, look what got you here.’” 

Trump compared his situation to a baseball player of golfer who succeeds with an unorthodox approach, and then is suddenly told to ‘change your swing.’ “And you never hear from them again, that’s the last time, right?”

And sure enough, as AP adds, Trump made it clear to his supporters that he’s not changing his pitch to voters, a day after his chief adviser assured Republican officials their party’s front-runner would show more restraint while campaigning.

Trump joked about how it’s easy to be presidential, making a series of faux somber faces. But he said told the crowd he can be serious and policy-minded when he has to be.

Manafort “said, ‘you know, Donald can be different when he’s in a room.’ Who isn’t,” asked Trump. “When I’m out here talking to you people, I’ve got to be different.” Trump had drawn attention in recent weeks for softened rhetoric, with some attributing his change of tone to newly-arrived campaign leader Paul Manafort.

“You know, being presidential’s easy — much easier than what I have to do,” he told thousands at a rally in Bridgeport, Connecticut. “Here, I have to rant and rave. I have to keep you people going. Otherwise you’re going to fall asleep on me, right?”

Well, he is right: his job during campaign rallies is to entertain, and he certainly has done a better job of it than any of his competitors.

Trump declared to the crowd that he has no intention of reversing any of his controversial policy plans, including building a wall along the length of the Southern border.

“Everything I say I’m going to do, folks, I’ll do,” he said.

That remains to be seen, but one thing is clear: whatever Trump has been doing in the past three weeks has worked, and as PredicIt shows, the odds of a brokered convention have crashed from the early April highs of nearly 80% to just 30%, and approaching the all time lows…

 

… while Trump’s probability for nomination has doubled over the same period.

 

In short: if Trump wants to win, he really shouldn’t change a thing.

* * *

Trump’s approach to acting “presidential” starts 50 minutes in the speech below.

via http://ift.tt/1SBFwZk Tyler Durden

These Are The Four Questions Goldman’s Clients Want Answered

There is little joy for bulls in David Kostin’s latest weekly kickstart, in which the chief Goldman strategist says that “the S&P 500 has reached our 2016 year-end target of 2100. We expect that the index will remain at this level given tepid US GDP growth, a mixed earnings outlook, and elevated valuation. Corporate repurchases are the main source of US equity demand. We forecast S&P 500 gross buybacks will rise by 7% to $600 billion in 2016. S&P 500 cash M&A spending surged 116% last year but we forecast a 40% decline in 2016 to $240 billion, reflecting increased regulatory scrutiny, new tax policies, and political and policy uncertainty.”

With that rather gloomy forecast out of the way, Goldman then goes on to list the four most pressing questions troubling its clients as of this moment, starting with “Where to from here?” As Kostin writes, this “is the question we receive most frequently from investors now that the S&P 500 has reached our year-end 2016 target. After an 11% plunge to start the year, US equities have rebounded by 14% and have now posted a 2% gain YTD. We maintain our forecast that S&P 500 will end the year at 2100, unchanged from the current level.”

Broad “big picture” questions aside, here are the four things Goldman’s clients would like answered asap.

1. Why will US stocks post a flat return through year-end? Mediocre economic growth, a mixed earnings outlook, and high valuation will limit further appreciation. (a) The US economy is growing, albeit at a tepid pace. Our colleagues in US Economics research estimate US GDP growth will average 1.8% in 2016. Weak end demand implies low sales growth and profit margins have been stagnant for the past five years. (b) The earnings outlook is cloudy because, although operating EPS will rise by 9% to $110 per share, adjusted EPS will be flat for the third consecutive year. Negative EPS revisions are likely during the course of the year. (c) Valuation is stretched given the S&P 500 index trades at the 86th percentile of long-term historical valuation based on seven metrics: P/E, EV/sales, EV/EBITDA, PEG ratio, free cash flow yield, cyclically-adjusted P/E, and P/B. Moreover, the median stock in the S&P 500 trades at the 96th percentile of historical valuation.

 

2. How much do buybacks contribute to the overall demand for shares? Corporate repurchases (net of share issuance) are the main source of net demand for US stocks. We forecast households, foreign investors, and pension funds will all be net sellers of US stocks in 2016.

 

Our recent report Flow of Funds: Buybacks drive demand, foreigners retreat (April 14, 2016) analyzed the supply and demand for shares and updated our forecasts. Corporate demand for US equities equaled $561 billion in 2015, a 40% jump from the prior year and the second-highest level since 1952 (2007 totaled $721 billion). In contrast, foreign investors sold $103 billion of US stocks in 2015, the lowest level of annual demand in 64 years. China, Canada, and the Middle East were the main drivers of overall foreign outflows. The surface appearance of $47 billion of mutual fund equity purchases was a mirage because most of these inflows were directed to non-US equity funds.

 

We forecast S&P 500 gross buybacks will rise by 7% to $600 billion in 2016 and account for roughly 27% of total capital usage. With the US economy growing at a modest pace and capacity utilization at 75%, below the long-term average of 80%, we forecast overall S&P 500 capex will rise by just 1% as Energy spending falls sharply.

 

Buyback authorizations declined by 53% YTD (as of April 18) compared with the same period last year ($122 billion vs. $257 billion). One explanation for the sharp drop is that last year several firms announced large, multi-year buyback programs that they intend to execute over time. For example, AAPL and GE both announced $50 billion buyback programs in April 2015. While AAPL has roughly 60% of its buyback remaining, GE still has 93% of its program left to complete. Similarly, WMT announced a $20 billion buyback authorization last year and has an estimated 88% remaining. Our buyback desk estimates that approximately $210 billion of unused authorizations are available for execution as of the end of 1Q 2016.

 

3. What is the prospect for cash M&A spending by S&P 500 firms? We cut our 2016 S&P 500 cash M&A spending forecast to  $240 billion (from $300 billion) reflecting a 40% drop from 2015 total of $400 billion. Cash M&A spending soared by 116% last year so our reduced forecast for 2016 reflects a 30% increase from the 2014 level. In terms of overall spending, announced US M&A transactions fell by 38% on a year/year basis in 1Q. We believe regulatory scrutiny, new tax policies, and political and policy uncertainty in the US, Europe, and Asia will constrain M&A spending growth this year.

 

4. What investment strategies will generate outperformance in a flat market environment? We expect stocks with above-average dividend yield and growth will beat the flat S&P 500 return we predict over the next eight months. Our sector-neutral basket of 50 stocks (GSTHDIVG) has higher yield (2.7% vs. 2.1%), faster expected dividend growth over the next two years (12% vs. 6%) and a substantially lower P/E multiple (14.7x vs. 17.6x) than the S&P 500. The basket has returned 4% YTD compared with 3% for S&P 500.

And to think that just until a few weeks ago Goldman was on the value-growth un-rotation bandwagon, and was urgently pushing companies with “strong balance sheets” to clients. Somehow we doubt we are going to hear that reco for a while.

One other thing we certainly won’t hear about, is Goldman’s Hedge Fund VIP basket, which until recently was going to be made into an ETF. We are guessing those plans are put on hold?

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US Taxpayer Is Now A Major Counterparty To Wall Street Derivatives

Submitted by Pam Martens and Russ Martens via Wall Street On Parade,

According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”

This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story.

The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.

The New York Fed’s staff report of March 2015 concedes the following:

“Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.”

Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos?

According to Fannie and Freddie’s regulator of 2003, OFHEO, “The notional amount of the combined financial derivatives outstanding of Fannie Mae and Freddie Mac increased from $72 billion at the end of 1993, the first year for which comparable data were reported, to $1.6 trillion at year-end 2001.”  A 2010 report from the Federal Reserve Bank of St. Louis updates that information as follows:

“Fannie and Freddie presented considerable counterparty risk to the system through its large OTC derivatives book, similar in spirit to Long Term Capital Management (LTCM) in the summer of 1998 and to the investment banks during this current crisis. While often criticized for not adequately hedging the interest rate exposure of their portfolios, Fannie and Freddie were nevertheless major participants in the interest rate swaps market. In 2007, Fannie and Freddie had a notional amount of swaps and OTC derivatives outstanding of $1.38 trillion and $523 billion, respectively.

 

“The failure of Fannie and Freddie would have led to a winding down of large quantities of swaps with the usual systemic consequences. The mere quantity of transactions would have led to fire sales and invariably to liquidity funding problems for some of Fannie and Freddie’s OTC counterparties. Moreover, counterparties of Fannie and Freddie in a derivative contract might need to re-intermediate the contract right away, as it might be serving as a hedge of some underlying commercial risks. Therefore, due to counterparties’ liquidating the existing derivatives all at once and replacing their derivative positions at the same time, the markets would almost surely be destabilized due to the pure number of trades, required payment and settlement activity, and induced uncertainty, and the fact that this was taking place during a crisis.”

Did the bailout of Fannie and Freddie save the same cast of characters on Wall Street as were saved under the bailout of AIG (which funneled more than half the money out the backdoor  to Wall Street banks and hedge funds who were counterparties to AIG)?

According to Fannie and Freddie’s prior regulator, OFHEO: “At year-end 2001, five counterparties accounted for almost 60 percent of the total notional amount of Fannie Mae’s OTC derivatives, and 58 percent of Freddie Mac’s.” The report also notes that “The market for OTC derivatives is highly concentrated among a small number of dealers, primarily brokerage firms and commercial banks that are counterparties for at least one side of virtually all contracts. The largest dealers include JPMorgan Chase, Citigroup…Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley Dean Witter.”

According to a current report from the Office of the Comptroller of the Currency, those same banks (minus Deutsche and Lehman) account for the vast majority of derivatives in the U.S.

Lehman Brothers filed for bankruptcy one week after the government placed Fannie and Freddie into conservatorship. Merrill Lynch was taken over by Bank of America the same week. If you’re looking for a potential list of names of Wall Street players that needed a quick bailout of Fannie and Freddie, the above list is an excellent start.

Matt Taibbi reported at Rolling Stone three days ago that the government has been fighting a pitched battle to keep 11,000 documents pertaining to Fannie and Freddie under seal in a court case. You can rest assured that some of those documents relate to Fannie and Freddie derivatives and counterparties. But that pile of 11,000 documents pales in comparison to the 25 million documents the Justice Department withheld from the public when it settled its case against Citigroup in 2014 for $7 billion. What the public got instead was a meaningless 9-page statement of facts.

Thanks to Occupy Wall Street and Senator Bernie Sanders, the public knows two concrete things about Wall Street: banks got bailed out, we got sold out and, the business model of Wall Street is fraud.

But until we have a President in the Oval Office who believes that the citizens of a genuine democracy deserve the right to sift through the documents of the most epic fraud in the history of financial markets so they can reach their own conclusions, all we really have are slogans, including the one that says we live in a democracy.

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“Something Disturbing Happened” – A Futures Trader Has Some Words Of Warning

Two days after we posted a note by a commodity trader according to whom “What Is Happening Has Absolutely No Reasonable Explanation” late last night we received another warning from a futures trader, one which is applicable to everyone who also trades futures and may be unfamiliar with the recent changes in Nymex and Globex “price banding.”  This is what he said yesterday.

Hi, I’m a daytrader and I read your site almost every day. Something disturbing happened this morning. I bought a nymex copper contract with an attached stop limit and take profit. My stop got rejected by the exchange. I think it was in pending mode. I ignored it and when the market moved up, i moved the stop up. Then the exchange accepted it. My take profit order got hit instead. Then, I shorted an ES. Again, the market rejected my stop limit.

 

Luckily the market went down so I was able to play around with the stop to see what worked – i moved it within 4 points of the market, the exchange accepted it, and when it reversed, the stop got filled.

 

I have been attaching stop limits to all my trades forever. They are always initially placed the same percentage away from the entry trade. I did not change anything today. There has never been a problem. Apparently, Globex & Nymex have introduced something called ‘price banding’ and on ES, the band for stop limits is now only 6 points.

 

That is not far enough away for me and I’m sure it’s the same for many other traders.

 

The price bands are also apparently dynamic, so if the price moves, the stop which was accepted by the exchange could now become invalid and will not get filled on a reversal. This has major implications, I don’t think I need to explain them to you.

Not to us, but certainly to all those other daytraders who see a sudden spike or dip in the market (or any given commodity), only to have their tight stop threshold triggered and be forced out of the original trade, even as the market immediately returns to its original, pre-momentum ignition level, leading many to scream in powerless fury at their computer screens over a loss that was the result of what may appear to have been a senseless move.

Some additional words of warning from us: whether trading futures or plain vanilla securities with attached stops, all the data is ultimately sold by either internalizers or exchanges to HFTs who pay lots of money to find the critical “pin” points that inflict the most pain and force the biggest market squeezes, either to the up or downside. While this may not be a major issue for long-term investors, day traders should beware as this is the activity that tends to result in violent algo-generated intraday spikes that stop out the most traders – there is nothing more that algos love than market orders, and right after that, converting a limit order into a market order – are then accelerate the direction move by covering their trade, allowing HFTs to pocket the incremental spread. 

This is also why increasingly more trading is shifting to dark pools (where HFTs also dominate activity), and why lit market liquidity has collapsed over the past few years, as HFTs are directionally unbiased, but will promptly frontrun any “whale” order – most of these are upward biased – and will just as violently cause a market “stop out” any time there is a critical mass of stop orders at key levels.

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CEOs Are Hopeful But “Looking For A Macro Curveball”

It's not just Halliburton ("What we are experiencing today is far beyond headwinds; it is unsustainable") and Intel (12,000 layoffs amid re-evaluation of programs) that are facing up to a new normal very different from expectations. As Avondale Asset Management notes, having poured over 100s of earnings transcripts, while most CEOs don’t see signs of an imminent downturn, the environment still feels a little fragile. It seems that almost everyone is on high alert for a macro curve-ball…

There are some green shoots that capital markets are opening back up, but there are also signs of sluggishness. Overall the economy appears to be ok, not deteriorating, but not robust either.

The Macro Outlook:

Even though things have gotten better, people are still waiting for a curveball

“I’m a superstitious person and I think the minute I think this is starting to go well, for some reason we’re going to get smacked down with some change in the market…Call it the curve ball discount there, I’m just waiting to see another quarter. And right now, I’d say all indicators are looking favorable for improvement as the year goes on. I actually want to see some of that improvement sustained; meaning, economic conditions and exchange.” —Abbott Labs CEO Miles White (Healthcare)

The environment still feels a little fragile

“many of the factors that were impacting the market in the first quarter…seem to have abated and although the market feels a little fragile from all that, it feels like – for the most part, that’s behind us. But we’ll see how the year progresses.” —Goldman Sachs CFO Harvey Schwartz (Investment Bank)

But while many are uneasy, few see signs of a downturn

“We believe that the global economy will continue to be uneasy…at this time we don’t see any signs of a broad-based global downturn. In fact, many companies expressed difficulty finding the right talent as evidenced by the findings of our 2015 talent shortage survey published late last year” —Manpower CEO Jonas Prising (Temp Staffing)

“the economy. It is what I would call good but not great. It’s okay…We see no practical possibilities of recession, notwithstanding the fact there’s been a lot of conversation about that. And the reason is because we think there is a very, very strong solid pent-up need for continuing investment. When I talk to business people…they’re not excited enough about the future to go out and make major expansions and so forth. But they’re driving trucks that have 250,000 miles on it. They got ten-year old equipment, and so stuff just wears out. And so, that’s why you have to keep investing.” —BB&T CEO Kelly King (Regional Bank)

Most agree that the economy isn’t great, but it hasn’t deteriorated

“things haven’t deteriorated, but things haven’t improved” —Visa CEO Charles Scharf (Credit Cards)

There are some green shoots

“The M&A pipeline is strong and some green shoots suggest the equity underwriting calendar may open up. The S&P level at the end of the first quarter will help with asset pricing in our Wealth Management business” —Morgan Stanley CEO James Gorman (Investment Bank)

The second quarter is feeling robust for loan growth

“we already know what quarter two is starting to look like, and it’s feeling pretty robust…we are on all cylinders on loans. Mortgages particularly are growing nicely as they – they didn’t a year ago” —US Bank CEO Richard Davis (Regional Bank)

But there are also a lot of areas that just feel sluggish

Intel projected a greater than expected decline in PC markets

“We now expect the PC markets to decline in the high single digits in 2016 versus our prior forecast of mid-single-digit decline. Our projection of the PC market remains more cautions than third-party estimates.” —Intel CFO Stacy Smith (Semiconductors)

Qualcomm lowered its expectations for mobile phone growth

“We are adjusting our estimate of calendar 2016 global 3G/4G device shipments to 1.625 billion to 1.725 billion devices, with year-over-year unit growth of approximately 8% at the midpoint, down from our previous midpoint estimate of approximately 10% growth.” —Qualcomm President Derek Aberle (Semiconductors)

Steel industry capacity utilization is only 71%

“For the steel platform as a whole, driven by the our flat roll operations, our production utilization rate for the first quarter 2016 increased to 88% as compared to overall industry utilization of approximately 71%.” —Steel Dynamics CEO Mark Millett (Steel)

Union Pacific expressed some doubt about whether the auto industry could meet sales expectations

“Turning to autos, light vehicle sales are forecasted at 17.8 million vehicles, a 2% increase above the 2015 seasonally adjustable annual rate of 17.5 million vehicles…While we expect low gasoline prices will continue to sustain demand, we remain cautious with respect to auto sales supporting these levels.” —Union Pacific EVP Eric Butler (Railroad)

Venture lenders are focusing a little more on credit quality

“There’s been a lot of discussions about things actually pulling back a little bit in [Technology & Life Sciences]…Today, we’re probably focusing more on credit quality, more on granularity.” —Comerica CEO Ralph Babb & EVP Patrick Faubion (Regional Bank)

The market for IT jobs may be slightly softer

“I would describe the demand for IT skills to still be healthy, maybe slightly softer.” —Manpower CEO Jonas Prising (Temp Staffing)

The market may be a little slower to open all the way back up

“I think after a tough first quarter like the whole market has experienced, I think that there may be a slow reaction function in terms of how various market participants engage the marketplace. But it feels like, as I said before, the most significant factors impacting the first quarter seem to have abated, at least for now.” —Goldman Sachs CFO Harvey Schwartz (Investment Bank)

International:

The weakened dollar is turning into a slight tailwind for companies

“Last year, we had a lot of headwinds, especially on the international revenue line…This year, we’re seeing the reverse of that with the weakening of the dollar…International contribution margin is benefiting from that.” —Netflix CFO David Wells (Movie Studio)

The dollar is still high in any relative sense though

“I’m not a central banker, but I would say the dollar is still very high in any relative sense. It has dropped a little from the peak, but it still is very high…The dollar is still a headwind. The strong dollar is still a headwind to U.S. exports.” —Union Pacific EVP Eric Butler (Railroad)

Pepsi is incrementally less optimistic about South America and Eastern Europe

“I think the two places where we’re probably incrementally less optimistic, number one is South America…And then number two is Eastern Europe.” —Pepsi CFO Hugh Johnston (Sugar Water)

Canadian Pacific said that it feels like the Canadian economy is bottoming

“So that said the Canadian economy though on a positive note appears to be stabilizing and recessionary fears seem to be subsiding. So we do feel that the second-quarter is going to be the bottom. Q3, Q4 obviously are going to be stronger on a demand standpoint.” —Canadian Pacific Railway COO Keith Creel (Railroad)

March was a disappointing month for Las Vegas Sands in Macau

“March was obviously disappointing. We had a really great January, February. March certainly softened up. Worldwide, I think Chinese tourism and consumer numbers are pretty depressing across the globe. And certainly, it was a little bit soft than we hoped in Macao. That was not the case in Singapore, but in Macao, we saw a downturn.” —Las Vegas Sands CEO Sheldon Adelson (Casino)

Low cost labor will continue to struggle vs. automation

“As you know, call centers are a very high turnover rate for employees. And with our decrease in calls coming in from our Wireless customers because of more online, more chat, more self-service, we will not hire as many customer call centers…So there’s opportunity to reduce force just through the attrition rate.” —Verizon CFO Fran Shammo (Telecom)

Financials:

It’s not easy being a bank these days

“Before getting into our quarterly results, I’d like to directly address the recent discussions of our fundamental performance. I’ve talked to many of our shareholders over the past several months…I want to make sure everyone recognizes that…[we] hear and understand the desire for improved returns…I know that we must earn our right to remain independent every day, and our management team and board are committed to doing what is in the best interest of our shareholders.” —Comerica CEO Ralph Babb (Regional Bank)

BB&T had been strategically acquiring banks, but is now applying the brakes

“I’m not trying to say that we wouldn’t dare do any tiny little bitty something. But as a practical matter, we are just not focusing on M&A now in insurance or bank…there’s a time to buy, and there’s time to run. And the last 24 months was a time to buy, because the times were right…now is the time to take time and to adjust” —BB&T CEO Kelly King (Regional Bank)

The flattening yield curve negated the benefit of higher short term rates

“make sure you guys are watching the slope of the curve too…the moment – the short end came up, the long end came down. And that has the same kind of impact on interest income that you would see on lack of rate movement.” —US Bank CEO Richard Davis (Regional Bank)

It’s not easy being an asset manager either

“the asset management industry in its current form is no longer a growth industry for a majority of traditional active asset managers. Overcapacity, chronically poor investment performance, high fees, competition from passive strategies, growing barriers to entry for access to distribution and the rapidly growing cost of regulatory compliance, taken together will challenge future growth and profitability for most legacy investment managers.” —Coen and Steers CEO Bob Steers (Real Estate Investment Management)

Consumer:

We have now lapped the sharp declines in gas prices, which should impact retail sales comps

“We have now lapped the sharp gas declines from last year…we had hoped that this would provide a tailwind for U.S. domestic volumes in the second half of fiscal 2016. This has not happened, as gas prices remain below the lows of last year.” —Visa CFO Vasant Prabhu (Payments)

Technology:

Technology startups have done a great job of marketing, but are still working on proving their business models

“the technology companies that I’m aware of, they have done a good job of sizzle in terms of the marketing but I don’t think that they have done as well a job in the execution of the plan where they are able to make money over a period of time.” —Brown and Brown CEO Powell Brown (Insurance Broker)

Data is the new oil

“data is the new oil. Like those who have the data, those who have the understanding of the consumer, we believe are the ones that are going to win.” —Under Armour CEO Kevin Plank (Apparel)

Google’s CEO says that they’ve only scratched the surface of what’s possible

“Google’s mission is to organize the world’s information and make it universally accessible and useful. And after 17 years, we have just scratched the surface of what’s possible.” —Google CEO Sundar Pichai (Internet)

Reed Hastings thinks that VR will probably be primarily a gaming format for at least a couple of years

“I think it’s mostly going to be an intense gaming format for a couple of years…So think of it like the PlayStation 5 or the XBox 2 or something…I think the center point for VR will be other sorts of things than watching a TV show in a VR headset. I don’t think that’ll be very popular” —Netflix CEO Reed Hastings (Movie Studio)

China is more digitally advanced than one might expect

“I’m constantly amazed at how advanced China is digitally. It’s got twice the number of cell phones, smartphones, as the U.S. population. And even in our offices, people go up and down the elevator to go to lunch, they’re looking up where the offers are available and where they can book a table, et cetera.” —YUM! China CEO Micky Pant (Restaurants)

Healthcare:

UnitedHealth is pulling out of a number of public exchanges

“The smaller overall market size and shorter-term higher risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustained basis. Next year we will remain in only a handful of states, and we will not carry financial exposure from exchanges into 2017.” —United Health CEO Stephen Hemsley (Health Insurance)

Industrials:

Flat rolled steel prices are rising thanks to positive trade case filings to prevent Chinese dumping

“for the first time in well over a year, we’ve begun to experience rising metal pricing for carbon steel products as well as stainless steel flat-rolled products. This pricing improvement, which accelerated towards the end of first quarter, was mainly result of the recent trade case filings by U.S. steel producers.” —Reliance Steel CEO Gregg Mollins (Steel)

Materials, Energy:

Core Labs believes that we will see a V bottom in oil markets

“Core believes crude oil markets rationalize in the second half of 2016…our second quarter 2016 results should mark the bottom of our anticipated V-shaped commodity recovery that should lead to increased crude oil prices followed by increased industry activity levels.” —Core Labs CEO David Demshur (Oil Service)

However, overbuilt industries don’t alway enjoy V shaped recoveries

“We have believed since the outset of this housing recovery that it would be more gradual than the V-shaped rebound, typical of most housing cycles. Our thesis is unchanged as we expect an extended recovery will continue to unfold for the next several years.” —Pulte Home CEO Richard Dugas (Homebuilder)

Distressed oil companies have been able to sell assets rather than make “defensive draws” on credit lines

“the vast majority of our borrowers are doing the opposite. They’re selling assets. They’re raising capital to make sure that they are staying within the confines of what they expect the new borrowing base to be. So we’re really pleased to see that.” —Comerica CCO Peter Guilfoile (Regional Bank)

Surprisingly, they are even able to sell assets at significant premiums to where lenders have them marked

“Since really last summer, our borrowers have sold about $1.7 billion of assets…on average the premium has been 93% above what we have those assets valued at in the borrowing base and in 2016 that premium is even higher. It’s about a 120%. So not only is there a lot of opportunity for our borrowers to sell assets to raise liquidity, but it’s a very accretive process when they’re doing it.” —Comerica CCO Peter Guilfoile (Regional Bank)

Oil companies are eager to turn production back on, but cautious

“I think that they’re being cautious about their next move. I think they want to see generally they wanted to see some additional recovery and see some stability in that recovery. I also think that as a group they’ve made themselves very, very flexible. I mean they are updating their outlook and updating their decision making. It’s no longer an annual process. It seems like it’s a biweekly process or something now as they’re looking at things which suggests that when they do decide to turn things back up, they’ll be able to turn it back up relatively quickly” —Kinder Morgan CEO Steve Kean (Oil Pipeline)

Miscellaneous Nuggets of Wisdom:

Have the courage to go after the right customers, not just any customer

“[we worked] to have the courage to go out there and get the right customers. I think there might have been a mentality here and maybe perhaps in other companies, where you’re trying to show some number to Wall Street, but at the end of the day it hurts you long term financially.” —Dish CEO Charlie Ergen (Satellite Television)

Laziness can help create an effective moat

“Our biggest enemy is inertia. The issue is that most people with a brokerage account do not want to bother with switching it. So therefore, even if they are — even if we succeed in convincing them that they would have a financial advantage, a large financial advantage, by bringing their account to us they still don’t want to do it, because of just laziness.” —Interactive Brokers CEO Thomas Petterfly (Retail Brokerage)

There are a finite number of experts in a given field

“if the world created 5,000 cognitive experts, we would hire 5,000 cognitive experts…But there is a rate at which it doesn’t make sense for us to keep putting money into these because the world doesn’t create them anymore. It’s not a problem that can be solved by spending more money. It’s a problem that is constrained by the kinds of skills the world’s creating. So we have a global search on for talent.” —IBM CFO Martin Schroeter (Enterprise Tech)

The best organizations have a gravitational pull to attract those experts

“What we find is that skills have gravity and highly skilled people want to work with others in their fields who are also highly skilled. So they come here to work with our unique data sets, with our unique technologies, with our unique industry expertise, in order to change the way the world works in order to change the way industries operate, in order to change professions.” —IBM CFO Martin Schroeter (Enterprise Tech)

*  *  *

Source: Avondale Asset Management

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Russian Tanker Catches Fire In Caspian Sea

Amid surging supply of crude and the world's biggest traffic jam of tankers, we suspect more images like the following will be seen going forward. A Russian tanker has caught fire in the Caspian Sea near the territorial waters of Turkmenistan, leaving one dead.

The Palflot-2 vessel in distress is currently drifting in Turkmenistan’s territorial waters some 800 kilometers from Russia’s nearest port, Astrakhan.

As RT reports,

The Southern Regional Center of Russia’s Emergency Ministry has confirmed the fire on Palflot-2 tanker claimed the life of a ship’s mechanic, reportedly a citizen of Kazakhstan.

 

“We confirm the death of a single person. It was a mechanic. There were 11 crewmembers onboard, and 10 of them have been evacuated by a vessel belonging to the same company. They will be delivered to Astrakhan,” a source in the Emergency Ministry said.

 

Crew members of the Palflot-2 are citizens of Russia and Kazakhstan.

 

According to the Emergency Ministry, the tanker was not transporting any oil products and its tanks are filled with seawater as ballast.

 

The Emergency Ministry and the company owning the burning tanker agreed that extinguishing the fire on a vessel drifting so far from Russian shores is unpractical. It has been decided the ship should burn out, and its fate will be decided later.

So, on the bright side (for conservationists), the ship's tanks were loaded with seawater only (as ballast), but for crude bulls this does nothing to ease the global oil glut…

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One Day After Threatening The UK, Obama Plays Golf With David Cameron

Following his anti-Brexit Op-Ed which sparked much controversy and confusion as to just why the US president was interfering with yet another domestic issue, Obama held a press conference with UK PM David Cameron in which he in no uncertain terms threatened the UK with trade retaliation if the country were to exit the EU.

He said that “it’s fair to say that maybe some point down the line there might be a UK-US trade agreement but that’s not going to happen anytime soon because our focus is negotiating with a big bloc, the European Union, to get a trade agreement done. And the UK is going to be in the back of the queue, not because we don’t have a special relationship but because given the heavy lift on any trade agreement, us having access to a big market with a lot of countries rather than trying to do piecemeal trade agreements is hugely efficient.”

Friday’s full press conference can be watched below:

Incidentally, as reported earlier, thousands of Germans are protesting precisely the kind of “big trade deal” that Obama wants to entice the UK with, as support for the TTIP there has plunged from 55% in 2014 to only 17%. Germany is not alone: support for Obama’s “fair trade” deal has also tumbled in the US, with those supporting it tumbling from 53% to just 18%.

While it is unclear if Obama’s latest diplomatic snafu has hurt the anti-Brexit camp, what is clear is what Obama did the day after. He played golf with David Cameron, perhaps a hint of the “benefits” that any future premier will be deprived of should the democratic UK vote be against remaining in Europe.

It was Obama’s 286th round of golf in office, but the first time that Obama has golfed during an international trip, according to CBS News’ Mark Knoller.

As Reuters reports, Obama played a round of golf with British Prime Minister David Cameron at an exclusive course north of London on Saturday, making time in a busy overseas travel schedule for his favorite weekend pastime. Obama’s motorcade raced 20 miles (32 km) to The Grove after a meeting with the leader of Britain’s opposition Labour party, Jeremy Corbyn.

“The game at The Grove, a resort that is due to host the British Masters tournament later this year, is a sign of the close personal relationship between the two leaders: Obama rarely mixes business with his preferred way to take a break, and almost always golfs with friends and staff.“

Reporters were allowed to watch as Obama, ignoring damp and chilly weather, emerged from the long grass near a duck pond.

“Ooooh!” Obama groaned as he narrowly missed what appeared to be a 12-foot shot.

“Did you see that?” he shouted to reporters. “Robbed!”

There was no official word on the score.

Saturday is golf day for Obama, who usually plays on Andrews Air Force Base, near Washington.

He also plays in places where he travels, such as the stately Olympic club in San Francisco when he was in the Pacific coast city earlier this month.

He golfs most days of his summer vacation on Martha’s Vineyard, and during the winter holidays in Hawaii, where he has played against the prime ministers of Malaysia and New Zealand.

He has played Tiger Woods, and occasionally golfs with other sports stars, but rarely against other politicians. While on holiday in 2014, he delivered a somber statement on the murder of an American journalist by Islamic State militants – and then proceeded directly to a golf course to play 18 holes.

* * *

On Sunday, Obama heads to Hanover, Germany for talks with Chancellor Angela Merkel, where he will pitch the TTIP, his legacy “free trade deal”, precisely the kind of deal that he is threatening the UK with. The reason: support for said mega trade deal in Germany has cratered.

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Towards A ‘Google World Order’?

Submitted by InsideSources via Valuewalk.com,

Government watchdogs and outside experts have long warned that Google had unprecedented and unfiltered access to the Obama White House, which has been a major beneficiary of Google’s massive campaign coffers.

Now, for the first time, two key parts of that entangled relationship, the extensive White House visits and revolving door between Google and the Obama administration, have been documented by the Campaign for Accountability and the Intercept, an investigative news outlet.

“It’s a relationship that bears watching,” Anne Weismann, the head of the Campaign for Accountability told the Intercept. Weismann’s group is starting a project that will bring more attention to Google’s role in Washington. Their joint findings are a vivid reminder of Google’s growing influence in Washington, DC.

From the start of his first term until last October, Google officials met in the White House with Obama administration officials once a week on average for a total of 427 visits. More than 180 White House officials attended those meetings. No other public company comes even close to that many White House visits.

(click image for link to interactive version)

A senior Google lobbyist visited the White House 128 times over that time period. Far more than any other lobbyist from major companies.

Close to 250 Google employees or government officials have travelled through the Google/Obama administration revolving door. Either from Google to the government or the reverse. There were 55 cases of Google officials coming to work for the federal government and 197 cases documented of government employees going to work for Google.

(click image for link to interactive version)

The massive increase in access to the upper echelons of the federal government has corresponded with the loosening of Google Inc. and its employees’ campaign contributions and lobbying purse strings. A few years back Google paid virtually no interest in Washington. In 2015, it spent $16.7 million lobbying, according to opensecrets.org, and it gave President Obama more than $800 thousand during his last presidential campaign.

It is still not precisely clear what Google gets in return, but watchdog groups claim it is plenty. Jeff Chester, Executive Director of the Center for Digital Democracy told the Intercept that “Google has been able to thwart regulatory scrutiny in terms of anti-competitive practices, and has played a key role in ensuring that the United States doesn’t protect at all the privacy of its citizens and its consumers.”

…

Read the full story here at The Intercept…

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The Canary In Canada’s Real Estate Mine Just Died: Toronto’s Urbancorp Files For Bankruptcy

Less than two weeks ago we documented that Toronto based Urbancorp, one of Canada’s largest residential developers, was having significant issues. Its attorney’s had taken the highly unusual step of terminating their contract, it hadn’t released 2015 financials due to the audit committee having “open issues and questions”, and most intriguing, a board member quit just two weeks after being appointed specifically to provide expertise in accounting.

For those unfamiliar with the company, Urbancorp was launched in 1993 by Alan Saskin, a former Cadillac Fairview executive, and has built dozens of condos and other housing developments in the Greater Toronto Area. This is how it describes itself on its website:

Urbancorp is proud to have created some of the most visionary home and condominium communities in the GTA.

 

As the premiere developer of the King West neighbourhood, Urbancorp transformed the old industrial lands of King Street West into the vibrant residential community of King West Village, including Bridge, Fuzion and ,the latest, Kingsclub Condominium. In the West Queen West neighbourhood, Urbancorp built Westside Gallery Lofts, Curve and, most recently, Edge and Epic on Triangle Park.

 

Urbancorp has built thriving new communities in other up-and-coming Toronto neighbourhoods. The Neighbourhoods of Queen Street East is comprised of three stunning new home communities along the Queen Street East corridor. With locations in Riverdale, Leslieville and The Beach, The Neighbourhoods of Queen Street East bring a fresh, modern vibe to the urban renaissance currently underway in Toronto’s east end.

And while the Greater Toronto Area may not be exactly Vancouver (where the real estate situation is getting more outlanding by the day), the local housing market has been consistently portrayed as sufficiently resilient and an indication of Canada’s economic stability.

But perhaps it isn’t, because late last night we learned that Urbancorp has filed for bankruptcy.

The filing which is seeking court approval to sell assets “to maximize real estate values for the benefit of creditors and other stakeholders,” came just four months after the company issued roughly $48 million in debt traded on the Tel Aviv Stock Exchange, and eight months after reportedly taking out at $225 million loan. To the best of our knowledge, the company failed to pay interest on its new debt even once (also known as a NCAA or No Coupon At All). As The Globe and Mail reports, several contractors have registered construction liens against a project in Toronto’s Leslieville neighborhood, and there are many lawsuits pending against the corporation as a result of contractors and brokers not being paid.

“We determined, after much consideration and consultation, that a court-supervised process is the best way to deal with current cash flow issues. This will allow us to reduce debt in an efficient manner while continuing to focus on our core business.” CEO Alan Saskin said in a statement.

Ironically, in filings with the Tel Aviv securities commission late last year, Urbancorp presented itself as a top ten developer with a “AAA credit rating.” Come to think of it, that’s Canada’s credit rating too…

Urbancorp has more than 1,000 homes under construction in the Toronto area, and the restructuring is meant to ensure the successful completion of those homes.

However, new projects may be a different story. As Bloomberg points out, government regulator Tarion Warranty Corporation has proposed to revoke Urbancorp’s registration. If the registration is ultimately revoked, it would mean that the company wouldn’t be able to build properties. An appeal has been filed.

From Tarion

Tarion has issued a Notice of Proposal (NOP) to revoke the registration of 17 Urbancorp related companies.  As the Registrar, Tarion has a duty to protect new home buyers by requiring builders to adhere to certain requirements in order to obtain registration, and ensure they continue to abide by ongoing obligations under the Act in order to maintain their licence.  The decision to issue this NOP was made due to the builder’s failure to meet Tarion’s ongoing registration requirements.

 

As with all builders who are issued an NOP by Tarion, Urbancorp companies have the right to appeal this proposal to the Licence Appeal Tribunal (LAT), which they have done.  This appeal is currently in process.  During this time, Urbancorp remains registered under Tarion until the LAT appeal process is concluded. 

 

Despite the NOP, Urbancorp remains obligated to fulfill its commitments to its customers.  This includes addressing warranty claims, seeking registration for any current condominium projects and completing any existing sales.

 

It is important for home buyers and homeowners to know that they remain protected under the warranty, and Tarion will step in to fulfill the warranty obligations if Urbancorp fails to do so.  This includes deposit protection, delay compensation and construction warranties that can last up to seven years on a new home.

The bankruptcy filing of Urbancorp is the second major bankruptcy we have reported in the luxury residential space. Recall two weeks ago Manhattan’s Bauhouse Group filed for bankruptcy after defaulting on $147 million in debt.

The sudden and very rapid deterioration in the high-end real estate segment has received little attention so far. With everyone focusing on energy companies and their cash flow issues, few are paying attention to the fact that luxury real estate is collapsing, and not just in the US but as of last night, in Canada – at least in those cities where Chinese money laundering isn’t encouraged by the authorities – as well.

With the Urbancorp bankruptcy filing, and the first official canary death in Canada’s real estate “coal mine”, we anticipate that the near future for Canada’s real estate sector will be a far more volatile one. Excluding Vancouver of course: that particular Chinese money laundering hub will continue humming until the locals finally decide they have had enough of having their city sold to criminal Chinese oligarchs.

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“It’s A Trojan Horse” – Thousands Of Germans Protest TTIP Trade Deal One Day Before Obama Visit

Whether it is due to Trump’s increasingly vocal anti-free trade rhetoric or due to the ongoing deterioration in the global economy, there has been a big change in the public’s perception toward the transatlatnic deal known as TTIP in the recent months, with support for the agreement which was drafted by big corporations behind closed doors tumbling.

As Reuters reported last week, support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact.

The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17 percent of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55 percent two years ago.

 

In the United States, only 18 percent support the deal compared to 53 percent in 2014.

 

Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion.

 

To be sure, as Michael Krieger wrote on Thursday, “the writing was already on the wall a year ago, which is why politicians were scrambling to pass TPP fast track as quickly as possible, which, of course, they did. So the good news is the public is clearly waking up. What’s a bit depressing is that it’s taken so many decades. Yes, decades.”

But while Americans seemingly have more important things to be concerned about, in Germany the activists are once again making themselves heard. Recall that it was just last October when a stunning quarter million Germans packed the street of Berlin to protest Obama’s “Free Trade” deal.

 

Fast forward to today when one day before Obama visits Angela Merke in Germany to pitch the trade agreement, thousands of German protesters have once again come out on the streets of Hannover to say ‘No’ to the controversial TTIP US-EU trade deal. Many in Germany fear it will reduce consumer protection and undermine workers’ protection.

While the Transatlantic Trade and Investment Partnership (TTIP) between the US and Europe is set to create the world’s largest free trade zone, many Europeans worry that the agreement would elevate corporate interest above national interest. TTIP opponents say that cheaper goods and services would only hurt the EU and help the US.

“People say the deal is going to compromise the European Union sovereignty, and would create much more secrecy, with one of the biggest concerns being that the agreement is wrapped in a big veil of secrecy that people are not happy with,” RT’s Anastasia Churkina reported from Hannover.

 

According to BBC, German police estimate that about 30,000 people are taking part in the peaceful protest rally in Hannover. Many are carrying placards with slogans that read: “Stop TTIP!”

The demonstrators have also been voicing their anger over the secrecy surrounding the ongoing TTIP negotiations.

“The
TTIP between the American continent and Europe is very dangerous for
the democracy, for our nature and for the rights of the workers,”
protester Florian Rohrich told the BBC.

“The rights in America for
workers are much lower. It’s like the Trojan horse. They can’t change
our whole system. But they will – because TTIP is written by the groups,
by the companies, not by the politicians,” he added.

The negotiations were launched three years ago, and the next round is due to open on Monday in New York.

Obama’s visit to Germany, which is the US’ biggest trading partner, takes place two days after Obama stood next to the UK’s David Cameron and threatened that if the country votes for Brexit it would be pushed to the “back of the queue” when it comes to trade with the US, confirming Obama increasingly sees the threat of lost trade as a diplomatic weapon. German Chancellor Angela Merkel is set to discuss the TTIP deal with Obama when he visits a trade show in Hannover on Sunday and Monday. We expect comparable threats to Friday’s to emerge with Obama making it clear that Germany stands to lose if it does not endorse the TTIP.

Sure enough, in an interview with Bild, Obama said that “the Transatlantic Trade and Investment Partnership is one of the best ways to promote growth and create jobs.” Ironically, this comes just as support for the TTIP is tumbling on both sides of the Atlantic.

Wrapping up a deal would be a “win-win situation,” Angela Merkel announced in her weekly podcast, adding that “it is good for us as we will be able to appraise our competitors.”

In the best-case scenario, TTIP could cover over 40 percent of global GDP and account for large shares of world trade and foreign direct investment. Washington’s ambassador to Germany, Anthony L. Gardner, said in an exclusive interview with EurActiv in 2014 that “we need this deal to help solidify further the transatlantic alliance, to provide an economic equivalent to NATO and to set the rules of world trade before others do it for us.”

Meanwhile, as Americans mostly disapprove of the TTIP as of this moment if refuse to do anything about it, this is what took place in Hannover.

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