Exclusive Analysis for the Discerning Investor
“The crisis gripping the town at the centre of the global COVID-19 crisis in Italy has been witnessed by Sky News’ Chief Correspondent Stuart Ramsay.” — Sky News Related: MRNA, INO, NVAX, BNTX, APDN, VXRT, TNXP, EBS, PFE, JNJ, DVAX, IMV, IBIO, REGN, SNY, GSK, ABBV, TAK, HTBX, SRNE
Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). From Value Trap: “There may be just one other period in history that had more price-agnostic trading than today, and that may be the period pre-dating the publication of John Burr Williams’ work The Theory of Investment Value, or roughly 1928-1940. This was the most sustainably volatile period in stock market history, as measured by … Read more
Image Source: Frank Boston By Callum Turcan A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10 (link here). Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in … Read more
Buybacks and Wealth Destruction — — From Value Trap: “According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even … Read more
Image:Image: Sam’s Club (Crystal Lake, IL), March 14. Water and toilet paper continue to be completely sold out at most big box retailers as COVID-19 panic buying of consumer goods continues to spread. Fear-induced purchases in the US have also helped drive up investor sentiment toward consumer staples names with a large domestic presence. We caution, however, that near-term earnings bumps emanating from “stockpiling” have little impact on a company’s intrinsic value, which is derived more from normalized conditions, and in most cases, the panic buying of consumer goods is merely pulling demand forward. “You know what’s disappearing from the supermarket shelves? Toilet paper…There’s an acute shortage of toilet paper in the United States.” – Johnny Carson, in 1973, causing … Read more
Seeds of Financial Crisis May Have Been Sown, Volatility Soars — Image Shown: The broader market indices continue to reveal tremendous levels of volatility. The Dow Jones Industrial Average dropped 5.86%, or 1,465 points, to 23,553 during the trading session March 11.—From Value Trap: It seems like the markets experience a new financial crisis every decade or so. During the past few decades alone, there have been three significant banking crises: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital Management and the Russian/Asian financial crisis of the late 1990s; and the Great Recession of the last decade that not only toppled Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia but also caused the seizure of … Read more
This article was emailed to members the morning of March 10. The email can be accessed here. — By Brian Nelson, CFA — Very few bearish targets on the S&P 500 (SPY) ever get hit, but with the momentous all-time worst decline in the stock market March 9 (on a point basis), our target range of 2,350-2,750 has been breached–yet, another great call for those watching at home. The S&P 500 closed at 2,746.56 March 9, off about 19% from the all-time highs it reached just a few weeks ago. You have been ahead of developments. — As we have outlined extensively in Value Trap: Theory of Universal Valuation, the combination of indexing and quantitative algorithmic trading is creating a situation of tremendous … Read more
Image Shown: The Trump Administration is reportedly considering pushing for fiscal stimulus to offset the likely slowdown in US economic activity during the first half of 2020, which is arguably why equity markets are looking to rebound on Tuesday, March 10, after a harrowing trading session on Monday, March 9. By Callum Turcan US equity markets (SPY) started up strongly initially on Tuesday, March 10, likely due to reports coming out that the Trump Administration was considering recommending payroll tax cuts, paid leave, and special loans to small businesses to offset the negative impacts of the novel coronavirus (‘COVID-19’) epidemic. There are over 560 reported cases of COVID-19 in the US as of this writing, and unfortunately, that includes roughly … Read more
Image Source: Value Trap: Theory of Universal Valuation From Value Trap: “The banking sector was not the only sector that faced considerable selling pressure during the Financial Crisis of the late 2000s, of course. Other companies that required funding to maintain their business operations faced severe liquidity risk, or a situation where refinancing, or rolling over debt, might be difficult to do on fair terms, making such financing prohibitive in some cases. Those that faced outsize debt maturities during the most severe months of the credit crunch faced a real threat of Chapter 11 restructuring had the lending environment completely seized. In thinking about share prices as a range of probable fair value outcomes, equity prices tend to face pressure as … Read more
ALERT: Re-establishing “Crash Protection” — — From Value Trap: Theory of Universal Valuation: — “According to some estimates, fundamental traders, or those trading on firm-specific fundamentals, account for just 10% of trading on the exchanges today. Passive and quantitative investing, or price-agnostic trading, accounts for 6 times as much. Prices are set on the marginal trade, not on the amount of assets under management, and if most market participants aren’t trading on underlying business value, this in turn, can cause widespread dislocations in prices versus reasonably estimated intrinsic values (dislocations that may never fully be reconciled even over long periods of time). In such a scenario, the capital-raising function of markets could become significantly less attractive. What CEO would want the … Read more