Summer beach time is now over…
Time to keep the kids and your portfolio indoors. Collapsing oil and Chinese equity markets continued to damage emerging market currencies and global equity prices. Slow summer trading gave way to aggressive selling over the last three days, as risk investors moved to lock in year-to-date gains, and the only consistent buyers happened to be corporate treasurers. And once corporate buybacks left the market at 3:45 PM each day, the selling really accelerated. As the numbers continue to show, investors wanted out and they wanted out ASAP. Technical and psychological damage has been done, and investors will no longer be quick to buy the dip for a run to new highs. With many equity funds and ETFs looking at negative year-to-date returns, investors will need some significant convincing before committing new money into risky investments. Look for stability in oil, China, EM Currencies and High Yield Credit to appear before a floor can be set for Global Equities. Until then, keep your cash levels high and mouse pointer away from that BUY button.
Getting back to last week… How big was the selling leading up to today? Thursday and Friday saw back to back days of 30:1 Selling Volume to Buying Volume. This was notably significant.
Even the rush of investors to buy protection in the Options market caused the VIX to surge to past panic levels…
For the week, every Sector lost, with most down 5%+…
And now every Sector except Utilities is trading below its 200-day moving average, while also having a NEGATIVE 3 month return…
If you thought cheap valuations could help stop the selling last week, you were wrong…
@EddyElfenbein: Apple (NASDAQ:AAPL) is going for 10.8 times next year’s earnings. That includes $35 per share in cash.
After last week, most Equity Mutual Fund Style Boxes moved into the red for 2015…
Deutsche Bank (XETRA:DBKGn) gave you 10 reasons to worry further…
(@NickatFP)
Market volatility has caused many Economists and Strategists to throw their FOMC rate hike expectation in the trash…
The Financial Market is now also betting against a September FOMC hike…
Worries are now building that the Fed will not have a safety net (or cattle prod) to assist the U.S. economy in the event things get worse…
As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive. Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive government spending to battle the Great Depression. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending. Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers
China finally breaks the 200-day moving average as investors lose confidence in the Government…
Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency. The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress. Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar. Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.
Shanghai Composite Daily Chart
There will be blood…
There are no signs of an ease in production which makes future prices highly uncertain. With world growth slowing and storage filling up, what will stop energy prices from falling?
When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived. Instead, the price of crude has plunged by about 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi Arabia, not the U.S., and not even troubled producers from Russia to Iraq. Everyone who can seems locked into pumping as much oil as possible. Far from going out of business, American oil companies have stunned their global rivals by maintaining or even adding production as U.S. prices nose-dived from $100 a barrel to $70 late last year to, as of Friday, just above $40. Even more surprisingly, the Saudis have actually increased their production in the face of falling prices, in what analysts say is a pre-emptive effort to keep competitors like Iraq from stealing customers in Asia. The result is the energy-industry version of trench warfare, with producers all trying to gain an inch of market share no matter the cost
Mexico decided to hedge its uncertainty by locking in their 2016 production at $49. Wow.
Mexico has hedged its oil exports for next year at an average of $49 a barrel as the country looks to protect itself from the continued slump in global crude prices. The country’s finance ministry, which oversees the hedging operation – said in a statement that it had bought options that will cover 212m barrels of oil, at a cost of $1.09bn. The $49 a barrel price it locked in is well above the $38.15 a barrel the ministry said its heavy, sour grade crude is trading at at the moment. Marco Oviedo, analyst at Barclays (LONDON:BARC), said the hedge should reduce fiscal uncertainty for Mexico, which received 16 per cent of its income from oil revenues during the first quarter
I have to agree with the Energy positioning at Cumberland. This is no time for a fiduciary to try and be a hero right now.
We have continued to be at maximum underweight in the Energy sector since oil was $100 per barrel, and we are staying away from bottom fishing. We do not know where oil will bottom or how long it will stay there. We can see oil pricing itself in the $30-something price range per barrel and can make the case for some oils in the $20+ price range. Certain heavier crude oils are already trading in the low $20 price range. Oil prices are declining, and natural gas is in great abundance. The energy sector is in the process of reconfiguring itself, with the weaker players going through reorganizations, bankruptcies, defaults, and mergers or acquisitions. There will come a time when the energy sector is very attractive. That time has not yet come.
(Cumberland)
At some point, lower oil price benefits will rip through the economy. Airline ticket prices will see a big cut once the higher priced hedges roll off…
Speaking of Airlines, have you ever wondered how Delta Airlines (NYSE:DAL) gets you there faster and with fewer problems?
Delta was tops last year among U.S. airlines in on-time arrivals, according to the U.S. Transportation Department. It “mishandled” two bags per 1,000, half the number that went missing on American (NASDAQ:AAL), United (NYSE:UAL), and Southwest (NYSE:LUV). “We had 95 days without a single canceled flight,” says President Edward Bastian, who credits this record to Anderson’s “amazing grasp of operations technology,” adding “The other airlines, combined, had only 13.”
This is why…
A motivated workforce arguably has played a big role in Delta’s turnaround. The company has an unusually generous profit-sharing plan: It distributes 10% of profit to employees up to $2.5 billion, and 20% above that level. It paid out $1.1 billion in profit-sharing in 2014. With the exception of pilots, Delta’s workforce is nonunion, albeit not for lack of the unions’ trying.
Cheap airfare, check! 30% cheaper destination from 1 year ago, check!
When Unicorns start fighting over Private Chefs, it is time to fire up the grill for some Uni-burgers…
The unicorns, a class of hot start-ups valued at $1 billion or more, are all aggressively pursuing the best and brightest minds in Silicon Valley with promises of talked-about workplaces and eye-popping payouts. Amid a general scramble for talent, Google (NASDAQ:GOOGL), the Internet search company, has undergone specific raids from unicorns for engineers who specialize in crucial technologies like mapping.
In particular, Uber — the largest unicorn, with a valuation of more than $50 billion — has plundered Google’s mapping unit over the last 12 months, aiming to bolster its own map research. Airbnb, the popular short-term rental start-up, has gone on a more general hiring spree, poaching more than 100 workers.
The recruiting is not confined to the best engineers; sometimes it spills over to nontechnical employees too. Two of the chefs who prepared meals for Googlers, Alvin San and Rafael Monfort, have been hired away by Uber and Airbnb in the last 18 months.
(NYTimes)
Speaking of dead, magical horse meat, Twitter (NYSE:TWTR) traded below its IPO price last week…
Meanwhile, some wise technology company advice from the President of Softbank…
The head of Benchmark also spoke out to the Unicorns…
Tech stocks have been taking a beating lately, and venture capital investor Bill Gurley of Benchmark (NYSE:BHE) thinks it’s a sign. If the valuations of public tech companies are compressing, private market valuations might be next. In a tweetstorm Thursday night, Gurley warned startup unicorns — companies that are valued at more than a billion dollars — to prepare for leaner times. “We may be nearing the end of a cycle where growth is valued more than profitability,” Gurley said on Twitter. “It could be at an inflection point.
17% of student loans are severely delinquent…
Nearly 7 million Americans have gone at least a year without making a payment on their federal student loans, a high level of default that suggests a widening swath of households are unable or unwilling to pay back their school debt. As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this past week. That was up 6%, or 400,000 borrowers, from a year earlier. That translates into about 17% of all borrowers with federal loans being severely delinquent, a share that would be even higher if borrowers currently in school who aren’t yet required to repay were excluded. Millions of other borrowers are months behind but haven’t hit the 360-day threshold that the government defines as a default. Severe delinquencies are rising despite the sharp drop in unemployment over the past year and a big push by the Obama administration to enroll borrowers in programs that lower their monthly payments. Delinquencies on other types of debt such as credit cards and mortgages have fallen. And shorter-term defaults on student loans have declined over the past year
One way to fix the student loan problem would be to require 20 hours of Computer Science courses for any new student loan…
TIMES HAVE NEVER been better for computer science workers. Jobs in computing are growing at twice the national rate of other types of jobs. By 2020, according to the Bureau of Labor Statistics, there will be 1 million more computer science-related jobs than graduating students qualified to fill them. If any company has a vested interest in cultivating a strong talent pool of computer scientists, it’s Google. So the search giant set out to learn why students in the U.S. aren’t being prepared to bridge the talent deficit. In a big survey conducted with Gallup and released today, Google found a range of dysfunctional reasons more K-12 students aren’t learning computer science skills. Perhaps the most surprising: schools don’t think the demand from parents and students is there…
Two-thirds of parents surveyed said computer science should be required learning in schools; in lower-income households, parents were even more likely to hold that view. “We’re bickering all over the place in this country about what should and shouldn’t be taught in school,” Brandon Busteed, executive director of education and workforce development at Gallup, tells WIRED. “But what was surprising and clear from this study was that Americans very clearly want coding in the classroom.
The only new car review that you will need to read this year…
I recently spent several days driving the Tesla Model S — the torqued-up, all-wheel-drive P85D ($105,000) version — around Silicon Valley. I wafted up and down Bay Area freeways in electric silence, the car’s smooth adaptive cruise control doing everything but steering, and thus taking the edge off of the occasionally atrocious California traffic. (Full Autopilot is coming to Tesla (NASDAQ:TSLA) soon, eventually permitting on-ramp to off-ramp autonomous drive.) The roads in and around the tech world’s epicenter are, of course, dappled with Model S’s by now, and for a few days I felt part of the SV/EV in-crowd. My Tesla a-ha moment, however, came in a parking lot…
Finally, enjoy your last week of summer and be very careful in your return to the markets…
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