Markets Turmoiled By Icahn Truthiness

What Carl giveth, Carl can taketh away. We have warned for a month that credit markets have been decompressing (amid saturation) even as stocks went only one way. The S&P has hit almost its LABIA-based Fed fair-value and VIX/VXV hit extreme complacency levels so we were primed for a fall so it's ironic that Icahn pricked the bubble (at least for one day). More ironic still was CNBC's dismissal of his warning "as he is not a market timer" – when they wait with baited breath for his next 'buy AAPL' tweet. Bill Dudley's economic bullishness (and hawkish policy talk) also weighed on stocks. Credit was weak from the start – even as equities broke to new records; Treasury yields slid all day (with a small bounce higher after Europe closed). The USD's early weakness retraced to unch by teh close – rallying from the US open (but EURJPY was a big driver of weakness in stocks). Commodities did not bounce – all flushed lower around the European close and never recovered as stockd dumped.

 

No Dear today… but close… (as the NASDAQ test up towards 4000 – managing  3999.47 – before tumbling in its high-beta way…

 

Credit has been flashing warnings for a while that the game (in the short term at least) is up…

 

But of course, today's drop in the context of the last month is hardly death for equities – though given our context of a never-falling market, it is a shock…

 

Spot the difference – Icahn's honesty tanked EURJPY (carry) and thus stocks declined…

 

FX markets were a roundabot with Europe selling the USD and US buying it…

 

Treasuries were a one-way street lower in yield (with a bounce at the European close)

 

Commodities rallied into the US open and European close then tumbled and flatlined all afternoon (even as USD rose and stocks slid)…

 

VIX bounced notably back above 13%

 

Charts: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/CS6RyXNdPAo/story01.htm Tyler Durden

Cannabis Clubs Are Flourishing in the UK

The Guardian has an interesting
article out today on the growth of so-called “cannabis clubs” that
have sprung up in the U.K.

From
The Guardian:

Over the past few years, local cannabis clubs have blossomed
over Britain. There are now 49 around the UK, which are united by
the UK Cannabis Social Club, an organisation founded in 2011 to
represent cannabis users. Operating primarily through Facebook,
(the LCC’s page has had 39,301 likesthe clubs bring cannabis users
together from all over Britain to discuss topics ranging from
fertiliser to self-medication and campaigning for the
decriminalisation of the drug. They also organise meetings, from a
recent 10,000 person smoke-out in Hyde Park to more intimate
evenings such as tonight’s soiree, allowing pensioners, students,
bricklayers and bankers to talk about one of their favourite
hobbies.

Clubs like the London Cannabis Club (LCC) continue despite the
possession of marijuana being illegal in the U.K. As the head of
the LCC points out, talking about pot is not against the law:

The fact that growing and possessing cannabis is illegal in
Britain does not deter many cannabis clubs across the UK from using
social media to publicise meetings – “It’s not illegal to talk
about cannabis,” says Boon – and the openness is part of the
campaign for normalisation. Members themselves usually keep their
involvement private: “Many of the people I’ve met have families,
high-profile jobs, mortgages and all sorts, and are terrified of
losing everything,” he adds.

LCC’s Facebook page (visit it here), includes not only a
collection of pot-related news from around the world, it also
features pictures of marijuana sent in by members (example
below):

The existence of clubs like the ones mentioned in The
Guardian could be used by British drug warriors like Peter
Hitchens to back up their claim that the war on drugs
is a myth:

How is it that, in a country where drugs are supposedly illegal
— where ‘evil dealers’ are endlessly denounced — that drugs are so
common and that little or nothing happens to those who are caught
in possession of them? How did the ‘cannabis warning’, a gesture
without force or penalty, unsanctioned by Parliament, become the
preferred response of the police to the crime of possession? How
can Pete Doherty drop illegal drugs on the floor of a courthouse,
be caught by a security guard and yet walk free from the building,
if we are — as we are so often told — running a regime of stern
prohibition?

The answer is that the official version of events is simply
false. Since a momentous Cabinet meeting in February 1970, there
has been no ‘war on drugs’ in this country, only the official
pretence of one.

Of course, the U.K. doesn’t wage anywhere near as aggressive a
war on drugs as the U.S. does. However, the fact remains that
possession of drugs in the U.K. can
result in a prison term. Supplying drugs can also result in a
prison term, and the British government considers sharing drugs as
supplying. In June, the British government
reported that over 10,000 people in England and Wales were in
prison for drug offenses, representing 14 percent of the sentenced
prison population. 

There may be cannabis clubs in the U.K., but the growing and
possession of the product they are dedicated to is, unfortunately,
still illegal. 

Thankfully, it looks like Hitchens holds
a minority view when it comes to British drug policy, and at
least one British law enforcement official, the
chief constable of Durham Constabulary, believes that making
drugs legal would be a good policy change. 

from Hit & Run http://reason.com/blog/2013/11/18/cannabis-clubs-are-flourishing-in-the-uk
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A Peek Beneath Tesla’s Non-GAAP Hood Reveals Nothing But Cockroaches

Back in August, we joked that in the Tesla press-release the one most often used word was Non-GAAP (43 times). Conveniently, we provided a word cloud of the company’s Q2 release for the visual learners to grasp just this:

That TESLA’s earnings were an epic non-GAAP adjustment joke was only further cemented by the fact that the company itself provided a bridge between its GAAP and Non-GAAP earnings.

Of course, back then TSLA stock was merely the latest bubble frenzy so pointing out the obvious: namely that the realty behind the numbers presented for public consumption was far uglier than most expected.

Now, the euphoria is over and  the story is different, as not only has the company’s self-reported and erroneous record of making the safest car in the world gone up in flames, but the momentum appears terminally broken and following today’s most recent 11% drop, TSLA stock could soon be headed for double digit territory again.

More importantly, however, the end of the momentum story means that those who care about such anachronisms as fundamentals can once again look beneath the hood of TSLA to get the true story of what is really going.

There, with the help of Bloomberg’s forensic accounting sleuth Jonathan Weil one uncovers nothing but cockroaches.

From Weil:

Most companies that play the non-GAAP game goose their numbers by excluding expenses. Tesla does this, too. It backs out stock-based compensation, for example. But the biggest kick to its non-GAAP earnings comes from an increase in top-line revenue.

 

The company reported third-quarter non-GAAP revenue of $602.6 million, which was about 40 percent more than its GAAP revenue. It achieved such a boost by transforming $171.2 million of liabilities into sales.

 

Here’s how it worked. In April, Tesla started a new financing program under which customers have the option to sell their vehicles back to the company after three years for guaranteed minimum amounts. The accounting rules say Tesla can’t recognize all of the revenue immediately in those instances and must account for such transactions as leases. So after Tesla takes customers’ cash, it records liabilities for “deferred revenue” and “resale value guarantee” on its balance sheet.

 

Mahoney noted two main problems with including so much of those amounts in non-GAAP revenue. Some customers wouldn’t have chosen Tesla cars were it not for the financing program. So the non-GAAP revenue isn’t comparable to Tesla’s sales before the program began, and it may overstate the true growth and demand. Plus, by adding back the resale-value guarantee, the company “assumes that nobody is going to return the vehicle, for purposes of the non-GAAP revenue,” he said.

 

Lots of companies use gimmicky benchmarks in their earnings releases. What makes Tesla special is that it behaves as if it doesn’t know the proper way to present its non-GAAP numbers. In an ironic twist, two attorneys at Wilson Sonsini Goodrich & Rosati, which helped take Tesla public in 2010, penned a lengthy article in 2008 explaining the legal requirements and best practices for earnings releases; it’s still on the law firm’s website.

 

“GAAP comparison numbers in an earnings release must be set forth with equal or greater prominence to the non-GAAP numbers,” attorneys Steven Bochner and Richard Cameron Blake wrote. “For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the GAAP earnings per share prior to the non-GAAP earnings per share.”

 

The bigger concern here should be what some investors call the “cockroach theory”: Where there is one problem, there probably are more. Tesla has disclosed compliance failures before. In March, its management concluded that Tesla’s ‘‘internal control over financial reporting was ineffective as of Dec. 31, 2012.’’ Its auditor, PricewaterhouseCoopers LLP, concurred. In a related matter, Tesla had to restate its cash-flow numbers for much of 2011 and 2012. In its latest quarterly report, filed last week, Tesla said its controls still weren’t effective as of Sept. 30. 

Because the only thing better than one flaming cockroach are many flaming cockroaches.

Weil’s conclusion:

None of these flubs has been especially damaging. Yet taken together, they suggest a company that lacks basic skills in accounting and disclosure, which could be a serious problem for a young manufacturer with a $17 billion stock-market value that loses money and trades for 9.5 times its revenue for the past four quarters. The next time Tesla messes up because of poor controls, the consequences could be worse.

 

As Tesla said in its latest annual report: ‘‘If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.’’

Oh well, at least the fully spontaneously combusted Tesla Model S (because the safest car in the world is never expected do something as silly as run over a metal object while on the road) makes for a very handy, if slightly smoldering, paperweight.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Wdoq6Tcxejg/story01.htm Tyler Durden

A Peek Beneath Tesla's Non-GAAP Hood Reveals Nothing But Cockroaches

Back in August, we joked that in the Tesla press-release the one most often used word was Non-GAAP (43 times). Conveniently, we provided a word cloud of the company’s Q2 release for the visual learners to grasp just this:

That TESLA’s earnings were an epic non-GAAP adjustment joke was only further cemented by the fact that the company itself provided a bridge between its GAAP and Non-GAAP earnings.

Of course, back then TSLA stock was merely the latest bubble frenzy so pointing out the obvious: namely that the realty behind the numbers presented for public consumption was far uglier than most expected.

Now, the euphoria is over and  the story is different, as not only has the company’s self-reported and erroneous record of making the safest car in the world gone up in flames, but the momentum appears terminally broken and following today’s most recent 11% drop, TSLA stock could soon be headed for double digit territory again.

More importantly, however, the end of the momentum story means that those who care about such anachronisms as fundamentals can once again look beneath the hood of TSLA to get the true story of what is really going.

There, with the help of Bloomberg’s forensic accounting sleuth Jonathan Weil one uncovers nothing but cockroaches.

From Weil:

Most companies that play the non-GAAP game goose their numbers by excluding expenses. Tesla does this, too. It backs out stock-based compensation, for example. But the biggest kick to its non-GAAP earnings comes from an increase in top-line revenue.

 

The company reported third-quarter non-GAAP revenue of $602.6 million, which was about 40 percent more than its GAAP revenue. It achieved such a boost by transforming $171.2 million of liabilities into sales.

 

Here’s how it worked. In April, Tesla started a new financing program under which customers have the option to sell their vehicles back to the company after three years for guaranteed minimum amounts. The accounting rules say Tesla can’t recognize all of the revenue immediately in those instances and must account for such transactions as leases. So after Tesla takes customers’ cash, it records liabilities for “deferred revenue” and “resale value guarantee” on its balance sheet.

 

Mahoney noted two main problems with including so much of those amounts in non-GAAP revenue. Some customers wouldn’t have chosen Tesla cars were it not for the financing program. So the non-GAAP revenue isn’t comparable to Tesla’s sales before the program began, and it may overstate the true growth and demand. Plus, by adding back the resale-value guarantee, the company “assumes that nobody is going to return the vehicle, for purposes of the non-GAAP revenue,” he said.

 

Lots of companies use gimmicky benchmarks in their earnings releases. What makes Tesla special is that it behaves as if it doesn’t know the proper way to present its non-GAAP numbers. In an ironic twist, two attorneys at Wilson Sonsini Goodrich & Rosati, which helped take Tesla public in 2010, penned a lengthy article in 2008 explaining the legal requirements and best practices for earnings releases; it’s still on the law firm’s website.

 

“GAAP comparison numbers in an earnings release must be set forth with equal or greater prominence to the non-GAAP numbers,” attorneys Steven Bochner and Richard Cameron Blake wrote. “For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the GAAP earnings per share prior to the non-GAAP earnings per share.”

 

The bigger concern here should be what some investors call the “cockroach theory”: Where there is one problem, there probably are more. Tesla has disclosed compliance failures before. In March, its management concluded that Tesla’s ‘‘internal control over financial reporting was ineffective as of Dec. 31, 2012.’’ Its auditor, PricewaterhouseCoopers LLP, concurred. In a related matter, Tesla had to restate its cash-flow numbers for much of 2011 and 2012. In its latest quarterly report, filed last week, Tesla said its controls still weren’t effective as of Sept. 30. 

Because the only thing better than one flaming cockroach are many flaming cockroaches.

Weil’s conclusion:

None of these flubs has been especially damaging. Yet taken together, they suggest a company that lacks basic skills in accounting and disclosure, which could be a serious problem for a young manufacturer with a $17 billion stock-market value that loses money and trades for 9.5 times its revenue for the past four quarters. The next time Tesla messes up because of poor controls, the consequences could be worse.

 

As Tesla said in its latest annual report: ‘‘If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.’’

Oh well, at least the fully spontaneously combusted Tesla Model S (because the safest car in the world is never expected do something as silly as run over a metal object while on the road) makes for a very handy, if slightly smoldering, paperweight.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Wdoq6Tcxejg/story01.htm Tyler Durden

Cathy Young on Anti-Semitism in Europe

MenorahIs hostility toward Israel linked to hostility
toward Jews? A report on anti-Semitism in Europe, released on
November 8—the day before the anniversary of the Kristallnacht
pogrom that marked the start of the Nazi war on Jews 75 years
ago—addresses this contentious question. While Israel’s supporters
have long warned of a new strain of anti-Semitism camouflaged in
pro-Palestinian advocacy and opposition to Israeli policies,
Israel’s critics complain that charges of anti-Jewish bigotry are
used to silence dissent. Yet the latest study, Discrimination
and Hate Crime Against Jews in EU Member States, points out
Cathy Young, strongly suggests that “the new anti-Semitism” is not
a propagandist myth but a depressing reality.

View this article.

from Hit & Run http://reason.com/blog/2013/11/18/cathy-young-on-anti-semitism-in-europe
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Minnesota Needs To Figure Out Why It’s Indefinitely Detaining 698 Sex Offenders

The Minnesota Senate is holding a hearing
today on how to reform the state’s sex offender program. The
controversial program has kept hundreds of people locked up long
after their prison sentences expire.

The Minnesota Sex Offender Program is structured in such a way
that shortly before a sex offender is released from prison, a judge
can – with less burden of proof than is required in criminal cases
– order that the offender continue to be held in a treatment
facility aimed at rehabilitating them. The process is called civil
commitment. “Civil” in this case means “involuntary.”
Reuter‘s FindLaw database
explains:

The commitment is intended to reduce the risk of future
dangerous sexual behavior. It is not meant to serve a punishment
for past crimes. Civilly committed sex offenders may be held for an
indeterminate amount of time. In other words, they may be held as
long as warranted to successfully treat them and to satisfy public
safety concerns.

Though FindLaw describes the Minnesota law as “fairly typical,”
U.S. District Judge Donovan Frank has taken a more critical
approach. He is overseeing a class action lawsuit against the state
and cautions that the program may be unconstitutional. Frank
warned
that the program is conducted in an unconstitutional manner, and
that it had to be overhauled immediately or else face a potential
federal takeover.

The St. Paul Pioneer Press
states that “in nearly two decades since the program began,
only one sex offender has been conditionally released.” Over the
last decade, the number of committed individuals shot up from 200
to 698. This gives it a higher per capita detention rate than any
of the other 16 states with similar programs, and makes Minnesota
“the nation’s leader in indefinitely detaining such offenders.” The
number of detainees would be higher, but as the Wall Street
Journal
explains, “two dozen offenders have died while being held.”

The problem has been exacerbated by the state government’s
political parlaying. Several sources have noted that both
Republicans and Democrats seem less concerned with treating
hundreds of people justly and more concerned with protecting their
own political future in case one of the criminals reoffends.
Although Governor Mark Dayton (D)
supported releasing certain criminals, he quickly backed off
following bad press and halted any releases until the state
legislature comes up with a solution.
Likewise, although Sen. Warren Limmer (R), the ranking
Republican on today’s Senate panel, has openly criticized the civil
commitment program, his party has largely opposed previous
legislative attempts to change it.

from Hit & Run http://reason.com/blog/2013/11/18/minnesota-needs-to-figure-out-why-its-in
via IFTTT

Minnesota Needs To Figure Out Why It's Indefinitely Detaining 698 Sex Offenders

The Minnesota Senate is holding a hearing
today on how to reform the state’s sex offender program. The
controversial program has kept hundreds of people locked up long
after their prison sentences expire.

The Minnesota Sex Offender Program is structured in such a way
that shortly before a sex offender is released from prison, a judge
can – with less burden of proof than is required in criminal cases
– order that the offender continue to be held in a treatment
facility aimed at rehabilitating them. The process is called civil
commitment. “Civil” in this case means “involuntary.”
Reuter‘s FindLaw database
explains:

The commitment is intended to reduce the risk of future
dangerous sexual behavior. It is not meant to serve a punishment
for past crimes. Civilly committed sex offenders may be held for an
indeterminate amount of time. In other words, they may be held as
long as warranted to successfully treat them and to satisfy public
safety concerns.

Though FindLaw describes the Minnesota law as “fairly typical,”
U.S. District Judge Donovan Frank has taken a more critical
approach. He is overseeing a class action lawsuit against the state
and cautions that the program may be unconstitutional. Frank
warned
that the program is conducted in an unconstitutional manner, and
that it had to be overhauled immediately or else face a potential
federal takeover.

The St. Paul Pioneer Press
states that “in nearly two decades since the program began,
only one sex offender has been conditionally released.” Over the
last decade, the number of committed individuals shot up from 200
to 698. This gives it a higher per capita detention rate than any
of the other 16 states with similar programs, and makes Minnesota
“the nation’s leader in indefinitely detaining such offenders.” The
number of detainees would be higher, but as the Wall Street
Journal
explains, “two dozen offenders have died while being held.”

The problem has been exacerbated by the state government’s
political parlaying. Several sources have noted that both
Republicans and Democrats seem less concerned with treating
hundreds of people justly and more concerned with protecting their
own political future in case one of the criminals reoffends.
Although Governor Mark Dayton (D)
supported releasing certain criminals, he quickly backed off
following bad press and halted any releases until the state
legislature comes up with a solution.
Likewise, although Sen. Warren Limmer (R), the ranking
Republican on today’s Senate panel, has openly criticized the civil
commitment program, his party has largely opposed previous
legislative attempts to change it.

from Hit & Run http://reason.com/blog/2013/11/18/minnesota-needs-to-figure-out-why-its-in
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Icahn Pours Cold Water On Stocks, Says “Market Could Easily Have A Big Drop”

Carl Icahn, who is currently speaking at the Reuters Global Investment Outlook Summit, just poured cold water over the Fed’s 16,000 DJIA EOD price target.

  • ICAHN: ‘VERY CAUTIOUS ON EQUITIES, MARKET COULD EASILY HAVE BIG DROP‘
  • ICAHN SAYS MANY COS. EARNINGS ARE A ‘MIRAGE,’ REUTERS SAYS
  • ICAHN: DOESN’T WANT FIGHT WITH APPLE,NO PLANS TO WALK AWAY

But… but.. two POMOs… Still, not too late for K-Fed and his merry unlimited balance sheet trading men to pull a record third POMO today and keep the “wealth effect” illusion going.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nJ_NDt2f0Zo/story01.htm Tyler Durden

Icahn Pours Cold Water On Stocks, Says "Market Could Easily Have A Big Drop"

Carl Icahn, who is currently speaking at the Reuters Global Investment Outlook Summit, just poured cold water over the Fed’s 16,000 DJIA EOD price target.

  • ICAHN: ‘VERY CAUTIOUS ON EQUITIES, MARKET COULD EASILY HAVE BIG DROP‘
  • ICAHN SAYS MANY COS. EARNINGS ARE A ‘MIRAGE,’ REUTERS SAYS
  • ICAHN: DOESN’T WANT FIGHT WITH APPLE,NO PLANS TO WALK AWAY

But… but.. two POMOs… Still, not too late for K-Fed and his merry unlimited balance sheet trading men to pull a record third POMO today and keep the “wealth effect” illusion going.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nJ_NDt2f0Zo/story01.htm Tyler Durden

The Dark Secret Of the Financial Services Industry

It’s almost never openly admitted in public, but the reality is that few if any investors actually beat the market in the long-term.

 

The reason for this is that most of the investment strategies employed by investors (professional or amateur) simply do not make money.

 

I know this runs counter to the claims of the entire financial services industry. But it is factually correct.

 

 In 2012, the S&P 500 roared up 16% including dividends. During that period, less than 40% of fund managers beat the market. Most investors could have simply invested in an index fund, paid less in fees, and done better.

 

If you spread out performance over the last two years (2011 and 2012) the results are even worsen with only 10% of funds beating the market.

 

If we stretch back even further, the results are even more dismal. For the ten years ended 1Q 2013, a mere 0.4% of mutual funds have beaten the market.

 

0.4%, as in less than half of one percent of funds.

 

These are investment “professionals,” folks whose jobs depend on producing gains, who cannot beat the market for any significant period.

 

The reason this fact is not better known is because the mutual fund industry usually closes its losing funds or merges them with other, better performing funds.

 

As a result, the mutual fund industry in general experiences a tremendous survivor bias. But the cold hard fact what I told you earlier: less than half of one percent of fund managers outperform the market over a ten-year period.

 

So how does one beat the market?

 

Cigar Butts and Moats.

 

“Cigar butts” was a term used by the father of value investing, Benjamin Graham, to describe investing in companies that trade at significant discounts to their underlying values. Graham likened these companies to old, used cigar butts that had been discarded, but which had just one more puff left in them.

 

Like discarded cigar butts, these investments were essentially “free”: investors had discarded them based on the perception that they had no value. 

 

However, many of these cigar butts do in fact have on last puff in them. And for a shrewd investor like Benjamin Graham, that last puff was the profit potential obtained by acquiring these companies at prices below their intrinsic value (below the value of the companies assets plus cash, minus its liabilities).

 

Graham used a lot of diversification, investing in hundreds of “cigar butts” to produce average annual gains of 20%, far outpacing the S&P 500’s 12.2% per year over the same time period.

 

So when I say that you can amass a fortune by investing in Cigar Butts, I’m not being facetious. For this reason, cigar butts, or deeply undervalued companies, will be a focus of this newsletter. And like Benjamin Graham, we’ll only be holding these companies in the short-term: until they reach their intrinsic value.

 

The other term, “moats” is in reference to the investments Warren Buffett, a student of Ben Graham and arguably the greatest living investor, seeks out…

 

Buffett amassed his enormous fortune through a systematic investment philosophy consisting of a few key ideas. However, the single most important one was buying companies with “moats” around them meaning that they have a competitive advantage that stops competitors from breaking into their market share.

 

Focus on these two approaches and you will fare well.

 

For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:

http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

 

Phoenix Capital Research


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8w7SuGeLfEs/story01.htm Phoenix Capital Research