The dollar standard and how the Fed itself created the perfect setup for a stock market crash
Disclaimer: This is neither financial nor trading advice and everyone should trade based on their own risk tolerance. Please leverage yourself accordingly. When you're done, ask yourself: "Am I jacked to the tits?". If the answer is "yes", you're good to go. We're probably experiencing the wildest markets in our lifetime. After doing some research and listening to opinions by several people, I wanted to share my own view on what happened in the market and what could happen in the future. There's no guarantee that the future plays out as I describe it or otherwise I'd become very rich. If you just want tickers and strikes...I don't know if this is going to help you. But anyways, scroll way down to the end. My current position is TLT 171c 8/21, opened on Friday 7/31 when TLT was at 170.50. This is a post trying to describe what it means that we've entered the "dollar standard" decades ago after leaving the gold standard. Furthermore I'll try to explain how the "dollar standard" is the biggest reason behind the 2008 and 2020 financial crisis, stock market crashes and how the Coronavirus pandemic was probably the best catalyst for the global dollar system to blow up.
Tackling the Dollar problem
Throughout the month of July we've seen the "death of the Dollar". At least that's what WSB thinks. It's easy to think that especially since it gets reiterated in most media outlets. I will take the contrarian view. This is a short-term "downturn" in the Dollar and very soon the Dollar will rise a lot against the Euro - supported by the Federal Reserve itself.US dollar Index (DXY)If you zoom out to the 3Y chart you'll see what everyone is being hysterical about. The dollar is dying! It was that low in 2018! This is the end! The Fed has done too much money printing! Zimbabwe and Weimar are coming to the US. There is more to it though. The DXY is dominated by two currency rates and the most important one by far is EURUSD.EURUSD makes up 57.6% of the DXY And we've seen EURUSD rise from 1.14 to 1.18 since July 21st, 2020. Why that date? On that date the European Commission (basically the "government" of the EU) announced that there was an agreement for the historical rescue package for the EU. That showed the markets that the EU seems to be strong and resilient, it seemed to be united (we're not really united, trust me as an European) and therefore there are more chances in the EU, the Euro and more chances taking risks in the EU.Meanwhile the US continued to struggle with the Coronavirus and some states like California went back to restricting public life. The US economy looked weaker and therefore the Euro rose a lot against the USD. From a technical point of view the DXY failed to break the 97.5 resistance in June three times - DXY bulls became exhausted and sellers gained control resulting in a pretty big selloff in the DXY.
Why the DXY is pretty useless
Considering that EURUSD is the dominant force in the DXY I have to say it's pretty useless as a measurement of the US dollar. Why? Well, the economy is a global economy. Global trade is not dominated by trade between the EU and the USA. There are a lot of big exporting nations besides Germany, many of them in Asia. We know about China, Japan, South Korea etc. Depending on the business sector there are a lot of big exporters in so-called "emerging markets". For example, Brazil and India are two of the biggest exporters of beef. Now, what does that mean? It means that we need to look at the US dollar from a broader perspective. Thankfully, the Fed itself provides a more accurate Dollar index. It's called the "Trade Weighted U.S. Dollar Index: Broad, Goods and Services". When you look at that index you will see that it didn't really collapse like the DXY. In fact, it still is as high as it was on March 10, 2020! You know, only two weeks before the stock market bottomed out. How can that be explained?
Global trade, emerging markets and global dollar shortage
Emerging markets are found in countries which have been shifting away from their traditional way of living towards being an industrial nation. Of course, Americans and most of the Europeans don't know how life was 300 years ago.China already completed that transition. Countries like Brazil and India are on its way. The MSCI Emerging Market Index lists 26 countries. Even South Korea is included. However there is a big problem for Emerging Markets: the Coronavirus and US Imports.The good thing about import and export data is that you can't fake it. Those numbers speak the truth. You can see that imports into the US haven't recovered to pre-Corona levels yet. It will be interesting to see the July data coming out on August 5th.Also you can look at exports from Emerging Market economies. Let's take South Korean exports YoY. You can see that South Korean exports are still heavily depressed compared to a year ago. Global trade hasn't really recovered.For July the data still has to be updated that's why you see a "0.0%" change right now.Less US imports mean less US dollars going into foreign countries including Emerging Markets.Those currency pairs are pretty unimpressed by the rising Euro. Let's look at a few examples. Use the 1Y chart to see what I mean. Indian Rupee to USDBrazilian Real to USDSouth Korean Won to USD What do you see if you look at the 1Y chart of those currency pairs? There's no recovery to pre-COVID levels. And this is pretty bad for the global financial system. Why? According to the Bank of International Settlements there is $12.6 trillion of dollar-denominated debt outside of the United States. Now the Coronavirus comes into play where economies around the world are struggling to go back to their previous levels while the currencies of Emerging Markets continue to be WEAK against the US dollar. This is very bad. We've already seen the IMF receiving requests for emergency loans from 80 countries on March 23th. What are we going to see? We know Argentina has defaulted on their debt more than once and make jokes about it. But what happens if we see 5 Argentinas? 10? 20? Even 80? Add to that that global travel is still depressed, especially for US citizens going anywhere. US citizens traveling to other countries is also a situation in which the precious US dollars would enter Emerging Market economies. But it's not happening right now and it won't happen unless we actually get a miracle treatment or the virus simply disappears. This is where the treasury market comes into play. But before that, let's quickly look at what QE (rising Fed balance sheet) does to the USD. Take a look at the Trade-Weighted US dollar Index. Look at it at max timeframe - you'll see what happened in 2008. The dollar went up (shocker).Now let's look at the Fed balance sheet at max timeframe. You will see: as soon as the Fed starts the QE engine, the USD goes UP, not down! September 2008 (Fed first buys MBS), March 2009, March 2020. Is it just a coincidence? No, as I'll explain below. They're correlated and probably even in causation.Oh and in all of those scenarios the stock market crashed...compared to February 2020, the Fed balance sheet grew by ONE TRILLION until March 25th, but the stock market had just finished crashing...can you please prove to me that QE makes stock prices go up? I think I've just proven the opposite correlation.
Bonds, bills, Gold and "inflation"
People laugh at bond bulls or at people buying bonds due to the dropping yields. "Haha you're stupid you're buying an asset which matures in 10 years and yields 5.3% STONKS go up way more!".Let me stop you right there. Why do you buy stocks? Will you hold those stocks until you die so that you regain your initial investment through dividends? No. You buy them because you expect them to go up based on fundamental analysis, news like earnings or other things. Then you sell them when you see your price target reached. The assets appreciated.Why do you buy options? You don't want to hold them until expiration unless they're -90% (what happens most of the time in WSB). You wait until the underlying asset does what you expect it does and then you sell the options to collect the premium. Again, the assets appreciated. It's the exact same thing with treasury securities. The people who've been buying bonds for the past years or even decades didn't want to wait until they mature. Those people want to sell the bonds as they appreciate. Bond prices have an inverse relationship with their yields which is logical when you think about it. Someone who desperately wants and needs the bonds for various reasons will accept to pay a higher price (supply and demand, ya know) and therefore accept a lower yield. By the way, both JP Morgan and Goldmans Sachs posted an unexpected profit this quarter, why? They made a killing trading bonds. US treasury securities are the most liquid asset in the world and they're also the safest asset you can hold. After all, if the US default on their debt you know that the world is doomed. So if US treasuries become worthless anything else has already become worthless. Now why is there so much demand for the safest and most liquid asset in the world? That demand isn't new but it's caused by the situation the global economy is in. Trade and travel are down and probably won't recover anytime soon, emerging markets are struggling both with the virus and their dollar-denominated debt and central banks around the world struggle to find solutions for the problems in the financial markets. How do we now that the markets aren't trusting central banks? Well, bonds tell us that and actually Gold tells us the same! TLT chartGold spot price chart TLT is an ETF which reflects the price of US treasuries with 20 or more years left until maturity. Basically the inverse of the 30 year treasury yield. As you can see from the 5Y chart bonds haven't been doing much from 2016 to mid-2019. Then the repo crisis of September 2019took place and TLT actually rallied in August 2019 before the repo crisis finally occurred!So the bond market signaled that something is wrong in the financial markets and that "something" manifested itself in the repo crisis. After the repo market crisis ended (the Fed didn't really do much to help it, before you ask), bonds again were quiet for three months and started rallying in January (!) while most of the world was sitting on their asses and downplaying the Coronavirus threat. But wait, how does Gold come into play? The Gold chart basically follows the same pattern as the TLT chart. Doing basically nothing from 2016 to mid-2019. From June until August Gold rose a staggering 200 dollars and then again stayed flat until December 2019. After that, Gold had another rally until March when it finally collapsed. Many people think rising Gold prices are a sign of inflation. But where is the inflation? We saw PCE price indices on Friday July 31st and they're at roughly 1%. We've seen CPIs from European countries and the EU itself. France and the EU (July 31st) as a whole had a very slight uptick in CPI while Germany (July 30th), Italy (July 31st) and Spain (July 30th) saw deflationary prints.There is no inflation, nowhere in the world. I'm sorry to burst that bubble. Yet, Gold prices still go up even when the Dollar rallies through the DXY (sadly I have to measure it that way now since the trade-weighted index isn't updated daily) and we know that there is no inflation from a monetary perspective. In fact, Fed chairman JPow, apparently the final boss for all bears, said on Wednesday July 29th that the Coronavirus pandemic is a deflationarydisinflationary event. Someone correct me there, thank you. But deflationary forces are still in place even if JPow wouldn't admit it. To conclude this rather long section: Both bonds and Gold are indicators for an upcoming financial crisis. Bond prices should fall and yields should go up to signal an economic recovery. But the opposite is happening. in that regard heavily rising Gold prices are a very bad signal for the future. Both bonds and Gold are screaming: "The central banks haven't solved the problems". By the way, Gold is also a very liquid asset if you want quick cash, that's why we saw it sell off in March because people needed dollars thanks to repo problems and margin calls.When the deflationary shock happens and another liquidity event occurs there will be another big price drop in precious metals and that's the dip which you could use to load up on metals by the way.
Dismantling the money printer
But the Fed! The M2 money stock is SHOOTING THROUGH THE ROOF! The printers are real!By the way, velocity of M2 was updated on July 30th and saw another sharp decline. If you take a closer look at the M2 stock you see three parts absolutely skyrocketing: savings, demand deposits and institutional money funds. Inflationary? No. So, the printers aren't real. I'm sorry.Quantitative easing (QE) is the biggest part of the Fed's operations to help the economy get back on its feet. What is QE?Upon doing QE the Fed "purchases" treasury and mortgage-backed securities from the commercial banks. The Fed forces the commercial banks to hand over those securities and in return the commercial banks reserve additional bank reserves at an account in the Federal Reserve. This may sound very confusing to everyone so let's make it simple by an analogy.I want to borrow a camera from you, I need it for my road trip. You agree but only if I give you some kind of security - for example 100 bucks as collateral.You keep the 100 bucks safe in your house and wait for me to return safely. You just wait and wait. You can't do anything else in this situation. Maybe my road trip takes a year. Maybe I come back earlier. But as long as I have your camera, the 100 bucks need to stay with you. In this analogy, I am the Fed. You = commercial banks. Camera = treasuries/MBS. 100 bucks = additional bank reserves held at the Fed.
Revisiting 2008 briefly: the true money printers
The true money printers are the commercial banks, not the central banks. The commercial banks give out loans and demand interest payments. Through those interest payments they create money out of thin air! At the end they'll have more money than before giving out the loan. That additional money can be used to give out more loans, buy more treasury/MBS Securities or gain more money through investing and trading. Before the global financial crisis commercial banks were really loose with their policy. You know, the whole "Big Short" story, housing bubble, NINJA loans and so on. The reckless handling of money by the commercial banks led to actual money printing and inflation, until the music suddenly stopped. Bear Stearns went tits up. Lehman went tits up. The banks learned from those years and completely changed, forever. They became very strict with their lending resulting in the Fed and the ECB not being able to raise their rates. By keeping the Fed funds rate low the Federal Reserve wants to encourage commercial banks to give out loans to stimulate the economy. But commercial banks are not playing along. They even accept negative rates in Europe rather than taking risks in the actual economy. The GFC of 2008 completely changed the financial landscape and the central banks have struggled to understand that. The system wasn't working anymore because the main players (the commercial banks) stopped playing with each other. That's also the reason why we see repeated problems in the repo market.
How QE actually decreases liquidity before it's effective
The funny thing about QE is that it achieves the complete opposite of what it's supposed to achieve before actually leading to an economic recovery. What does that mean? Let's go back to my analogy with the camera. Before I take away your camera, you can do several things with it. If you need cash, you can sell it or go to a pawn shop. You can even lend your camera to someone for a daily fee and collect money through that.But then I come along and just take away your camera for a road trip for 100 bucks in collateral. What can you do with those 100 bucks? Basically nothing. You can't buy something else with those. You can't lend the money to someone else. It's basically dead capital. You can just look at it and wait until I come back. And this is what is happening with QE. Commercial banks buy treasuries and MBS due to many reasons, of course they're legally obliged to hold some treasuries, but they also need them to make business.When a commercial bank has a treasury security, they can do the following things with it:- Sell it to get cash- Give out loans against the treasury security- Lend the security to a short seller who wants to short bonds Now the commercial banks received a cash reserve account at the Fed in exchange for their treasury security. What can they do with that?- Give out loans against the reserve account That's it. The bank had to give away a very liquid and flexible asset and received an illiquid asset for it. Well done, Fed. The goal of the Fed is to encourage lending and borrowing through suppressing yields via QE. But it's not happening and we can see that in the H.8 data (assets and liabilities of the commercial banks).There is no recovery to be seen in the credit sector while the commercial banks continue to collect treasury securities and MBS. On one hand, they need to sell a portion of them to the Fed on the other hand they profit off those securities by trading them - remember JPM's earnings. So we see that while the Fed is actually decreasing liquidity in the markets by collecting all the treasuries it has collected in the past, interest rates are still too high. People are scared, and commercial banks don't want to give out loans. This means that as the economic recovery is stalling (another whopping 1.4M jobless claims on Thursday July 30th) the Fed needs to suppress interest rates even more. That means: more QE. that means: the liquidity dries up even more, thanks to the Fed. We heard JPow saying on Wednesday that the Fed will keep their minimum of 120 billion QE per month, but, and this is important, they can increase that amount anytime they see an emergency.And that's exactly what he will do. He will ramp up the QE machine again, removing more bond supply from the market and therefore decreasing the liquidity in financial markets even more. That's his Hail Mary play to force Americans back to taking on debt again.All of that while the government is taking on record debt due to "stimulus" (which is apparently only going to Apple, Amazon and Robinhood). Who pays for the government debt? The taxpayers. The wealthy people. The people who create jobs and opportunities. But in the future they have to pay more taxes to pay down the government debt (or at least pay for the interest). This means that they can't create opportunities right now due to the government going insane with their debt - and of course, there's still the Coronavirus.
"Without the Fed, yields would skyrocket"
This is wrong. The Fed has been keeping their basic level QE of 120 billion per month for months now. But ignoring the fake breakout in the beginning of June (thanks to reopening hopes), yields have been on a steady decline. Let's take a look at the Fed's balance sheet. The Fed has thankfully stayed away from purchasing more treasury bills (short term treasury securities). Bills are important for the repo market as collateral. They're the best collateral you can have and the Fed has already done enough damage by buying those treasury bills in March, destroying even more liquidity than usual. More interesting is the point "notes and bonds, nominal". The Fed added 13.691 billion worth of US treasury notes and bonds to their balance sheet. Luckily for us, the US Department of Treasury releases the results of treasury auctions when they occur. On July 28th there was an auction for the 7 year treasury note. You can find the results under "Note -> Term: 7-year -> Auction Date 07/28/2020 -> Competitive Results PDF". Or here's a link. What do we see? Indirect bidders, which are foreigners by the way, took 28 billion out of the total 44 billion. That's roughly 64% of the entire auction. Primary dealers are the ones which sell the securities to the commercial banks. Direct bidders are domestic buyers of treasuries. The conclusion is: There's insane demand for US treasury notes and bonds by foreigners. Those US treasuries are basically equivalent to US dollars. Now dollar bears should ask themselves this question: If the dollar is close to a collapse and the world wants to get rid fo the US dollar, why do foreigners (i.e. foreign central banks) continue to take 60-70% of every bond auction? They do it because they desperately need dollars and hope to drive prices up, supported by the Federal Reserve itself, in an attempt to have the dollar reserves when the next liquidity event occurs. So foreigners are buying way more treasuries than the Fed does. Final conclusion: the bond market has adjusted to the Fed being a player long time ago. It isn't the first time the Fed has messed around in the bond market.
How market participants are positioned
We know that commercial banks made good money trading bonds and stocks in the past quarter. Besides big tech the stock market is being stagnant, plain and simple. All the stimulus, stimulus#2, vaccinetalksgoingwell.exe, public appearances by Trump, Powell and their friends, the "money printing" (which isn't money printing) by the Fed couldn't push SPY back to ATH which is 339.08 btw. Who can we look at? Several people but let's take Bill Ackman. The one who made a killing with Credit Default Swaps in March and then went LONG (he said it live on TV). Well, there's an update about him:Bill Ackman saying he's effectively 100% longHe says that around the 2 minute mark. Of course, we shouldn't just believe what he says. After all he is a hedge fund manager and wants to make money. But we have to assume that he's long at a significant percentage - it doesn't even make sense to get rid of positions like Hilton when they haven't even recovered yet. Then again, there are sources to get a peek into the positions of hedge funds, let's take Hedgopia.We see: Hedge funds are starting to go long on the 10 year bond. They are very short the 30 year bond. They are very long the Euro, very short on VIX futures and short on the Dollar.
This is the perfect setup for a market meltdown. If hedge funds are really positioned like Ackman and Hedgopia describes, the situation could unwind after a liquidity event:The Fed increases QE to bring down the 30 year yield because the economy isn't recovering yet. We've already seen the correlation of QE and USD and QE and bond prices.That causes a giant short squeeze of hedge funds who are very short the 30 year bond. They need to cover their short positions. But Ackman said they're basically 100% long the stock market and nothing else. So what do they do? They need to sell stocks. Quickly. And what happens when there is a rapid sell-off in stocks? People start to hedge via put options. The VIX rises. But wait, hedge funds are short VIX futures, long Euro and short DXY. To cover their short positions on VIX futures, they need to go long there. VIX continues to go up and the prices of options go suborbital (as far as I can see).Also they need to get rid of Euro futures and cover their short DXY positions. That causes the USD to go up even more. And the Fed will sit there and do their things again: more QE, infinity QE^2, dollar swap lines, repo operations, TARP and whatever. The Fed will be helpless against the forces of the market and have to watch the stock market burn down and they won't even realize that they created the circumstances for it to happen - by their programs to "help the economy" and their talking on TV. Do you remember JPow on 60minutes talking about how they flooded the world with dollars and print it digitally? He wanted us poor people to believe that the Fed is causing hyperinflation and we should take on debt and invest into the stock market. After all, the Fed has it covered. But the Fed hasn't got it covered. And Powell knows it. That's why he's being a bear in the FOMC statements. He knows what's going on. But he can't do anything about it except what's apparently proven to be correct - QE, QE and more QE.
A final note about "stock market is not the economy"
It's true. The stock market doesn't reflect the current state of the economy. The current economy is in complete shambles. But a wise man told me that the stock market is the reflection of the first and second derivatives of the economy. That means: velocity and acceleration of the economy. In retrospect this makes sense. The economy was basically halted all around the world in March. Of course it's easy to have an insane acceleration of the economy when the economy is at 0 and the stock market reflected that. The peak of that accelerating economy ("max velocity" if you want to look at it like that) was in the beginning of June. All countries were reopening, vaccine hopes, JPow injecting confidence into the markets. Since then, SPY is stagnant, IWM/RUT, which is probably the most accurate reflection of the actual economy, has slightly gone down and people have bid up tech stocks in absolute panic mode. Even JPow admitted it. The economic recovery has slowed down and if we look at economic data, the recovery has already stopped completely. The economy is rolling over as we can see in the continued high initial unemployment claims. Another fact to factor into the stock market.
TLDR and positions or ban?
TLDR: global economy bad and dollar shortage. economy not recovering, JPow back to doing QE Infinity. QE Infinity will cause the final squeeze in both the bond and stock market and will force the unwinding of the whole system. Positions: idk. I'll throw in TLT 190c 12/18, SPY 220p 12/18, UUP 26c 12/18.That UUP call had 12.5k volume on Friday 7/31 btw.
Edit about positions and hedge funds
My current positions. You can laugh at my ZEN calls I completely failed with those.I personally will be entering one of the positions mentioned in the end - or similar ones. My personal opinion is that the SPY puts are the weakest try because you have to pay a lot of premium. Also I forgot talking about why hedge funds are shorting the 30 year bond. Someone asked me in the comments and here's my reply: "If you look at treasury yields and stock prices they're pretty much positively correlated. Yields go up, then stocks go up. Yields go down (like in March), then stocks go down. What hedge funds are doing is extremely risky but then again, "hedge funds" is just a name and the hedgies are known for doing extremely risky stuff. They're shorting the 30 year bond because they needs 30y yields to go UP to validate their long positions in the equity market. 30y yields going up means that people are welcoming risk again, taking on debt, spending in the economy. Milton Friedman labeled this the "interest rate fallacy". People usually think that low interest rates mean "easy money" but it's the opposite. Low interest rates mean that money is really tight and hard to get. Rising interest rates on the other hand signal an economic recovery, an increase in economic activity. So hedge funds try to fight the Fed - the Fed is buying the 30 year bonds! - to try to validate their stock market positions. They also short VIX futures to do the same thing. Equity bulls don't want to see VIX higher than 15. They're also short the dollar because it would also validate their position: if the economic recovery happens and the global US dollar cycle gets restored then it will be easy to get dollars and the USD will continue to go down. Then again, they're also fighting against the Fed in this situation because QE and the USD are correlated in my opinion. Another Redditor told me that people who shorted Japanese government bonds completely blew up because the Japanese central bank bought the bonds and the "widow maker trade" was born:https://www.investopedia.com/terms/w/widow-maker.asp"
Since I've mentioned him a lot in the comments, I recommend you check out Steven van Metre's YouTube channel. Especially the bottom passages of my post are based on the knowledge I received from watching his videos. Even if didn't agree with him on the fundamental issues (there are some things like Gold which I view differently than him) I took it as an inspiration to dig deeper. I think he's a great person and even if you're bullish on stocks you can learn something from Steven!
Thesis: SIGA Technologies, an anti-bioterror pharmaceutical company, will double their stock price in a year and triple or quadruple it in two years. They are in an incredibly strong financial position: zero debt, future US government purchases that may be greater than their market cap, and low expenses for operations and forward research. They also have amazing future growth prospects as foreign governments will buy their meds to prepare for future pandemics. Their drugs treat smallpox which is both more contagious and deadly (IFR ~30%!) than the Wuhan plague. Do you think absolutely no political or military leader will learn their lesson about pandemic preparedness? Do you think business leaders are going to put the pressure down since the cost of unpreparedness is orders of magnitude greater than preparedness? That’s what this play is all about. The play: Buy $SIGA stocks and hold for 2 years.
Market cap: $560 million Style: Value, when compared to other biotechs Products: Their primary product is an FDA approved oral antiviral (TPOXX) that treats all orthopox viruses (e.g. the dreaded smallpox). They are currently developing additional products for IV and pediatric treatment, another small molecule drug for treating orthopox viruses, and are developing therapeutics that use orthopox viruses for delivery of anticancer antigens. How SIGA makes money: 1) US government contracts to supply the Strategic National Stockpile, 2) US government contracts for research, 3) sales to foreign governments and potentially private parties. Note that their business doesn't care about prevailing market conditions and all of these are multi-year contracts. Debt: $0. They paid off an $86 MM loan in March. Cash holdings: $77.4 MM Total assets: $118.6 MM Net cash flow 2019: -$18.2 MM, as discussed below, 2019 was a transition year between govt contracts hence the low income. They made $400MM from closing contracts in 2018. Net cash flow 2020, my estimate: +$53 MM, see cash flow section below for how I got this figure
How this play can win
- The US govt through BARDA accelerates their purchasing of TPOXX to be and look more prepared for future pandemics. - Foreign governments purchase TPOXX for their own pandemic preparedness. Canada announced an intent to purchase in December. Others are likely to follow. IMO, the stock will hit $10 when 3 additional countries announce purchasing and $20 when they have a network of 10 purchasing countries plus additional research. The US gets a discount on TPOXX because they funded the initial research, others will likely pay three times as much per dose. - The US govt offers much more research funding to SIGA to design antivirals for other possible pandemic viruses. 10 years ago they had a small BARDA contract to look into antivirals for Lassa fever, a nasty rat flu boogaloo. They might renew or add to this type of research. - TPOXX gets additional approvals for IV use and prophylactic use (i.e. give to people in contact with infected, first responders or first city) and US buys more. They recently received a new $23 MM contract for developing this use. - A larger pharmaceutical company announces that they will purchase SIGA for $10-$15 share in a year. SIGA already has connections with Pfizer. - Large amounts of additional income help them pump with stock buybacks or fat dividends. I am totally convinced they are going to buyback or spit dividends in a year from now.
- Foreign governments don’t purchase TPOXX or don’t approve its safety/efficacy and rely on the vaccine for smallpox (but 1 in 5 people can’t take the vax and lots of deaths in first wave without TPOXX). - US govt does not add to stockpile, only keeps refreshing expired TPOXX. - US govt does not invest in additional pandemic preparedness research/invests only in competitors. - TPOXX may later be discovered to have a severe side-effect. (Oral formula is already FDA approved though). - There’s more risks listed in their 10-K, but I do not think they are significant enough to list here.
I’m going to start off this section by answering the arguments you’ve already thought of. Who gives a shit about some old timey disease? The world militaries. Smallpox is a nasty disease. It's basic reproduction number, R0, is between 3-6, like the Wuhan coronavirus. It similarly has a 7-14 day lag time before symptoms show, although it is not known to be infectious for the first several days. Smallpox is also exceptionally deadly, ranging from 15-30% fatality rate depending upon the strain and in children and the elderly can reach a 75% mortality rate. Survivors are usually permanently scarred and may have life-long complications from the disease. A smallpox epidemic would actually make corona look like "just the flu." Infection around day 20 mark. Bangladesh, 1973. Bioterrorism or biowarfare with smallpox is a massive threat to the military and people and an obvious first choice of weapon for a bioterrorist. Careful governments will plan for it. Isn't smallpox eradicated? Yes. But. 1) There are still many samples across the world in government labs across the world. 2) The genome exists on computers in said labs. 3) Many other orthopox viruses exist such as cowpox and monkeypox. Monkeypox in particular has had more cases in subsaharan Africa in the last few years. There have even been small outbreaks in the US, UK, and Singapore within the last 20 years. What about vaccines?
Maybe you recall that in the 1790’s Edward Jenner discovered the first vaccine by giving people the milder cowpox to prevent smallpox. The state of the smallpox vaccine has not evolved significantly since then. The modern vaccine uses a two-prong poker to deliver a live smallpox virus that has been engineered to be very weak. However, it is still a real virus that can causes symptoms or spread the disease to others. One in five Americans have underlying conditions that prevent them from receiving this vaccine due to the symptoms it causes.
What do you do when smallpox starts spreading rapidly? You need to be able to treat the potentially 100s of thousands of people who will be infected before the immunization takes effect. The US is well-prepared with the vaccine having 300 million doses, nearly enough for every American. But you need a treatment as part of the defense strategy.
TPOXX is in the process of being approved as a prophylactic. I.e. if smallpox were to spread then people could be given both the vaccine and TPOXX at the same time to make sure they don’t get sick if they were exposed prior to vaccination. Prophylactic treatment could be extremely important to first-responders, military, and people in the most badly affected zones.
I am no expert in reading 10-K filings, but SIGA's 10-K is not too complicated. I encourage you to do your own DD before making this play and if you've never read a 10-K filing before this is a great one to cut your teeth on. SIGA only has one key product line and their debt is uncomplicated (nonexistent); the only tricky parts is following the government money. Balance sheet from most recent 10-Q Balance sheet So the things to look at here are:
SIGA has plenty of cash. Enough for two years operating expenses without any sort of austerity. Even if the economic downturn affected their business model, they would weather it easily.
They have $16 MM in inventory. That’s mostly TPOXX they’ve already manufactured. This is great because it means they will have low costs for meeting the current BARDA contract supply request for this year and that if they get more orders they can dedicate their supply chain to filling them.
No debt. There’s no risk of them going tits up soon. Unlike your other favorite plays against highly-leveraged trash companies (looking at you Zillow), SIGA can ride out a credit crunch with ease.
Stockholders’ equity aka book value. At a price to book of 5:1 this is a cheap biotech company, one of the reasons I see them as a value buy. Also of note, their property includes patents on TPOXX in virtually every country.
Cash flow In 2019, SIGA took a $7 million loss while in 2018 they punched a $422 million gain. How did that happen? Their entire business runs on multi-year govt contracts. 2018 saw an older BARDA contract end with the orders completely filled to stuff the strategic stockpile. 2019 was a transition year.They have a new contract with BARDA to replenish expiring TPOXX and research then purchase new formulations for IV and pediatric use. So, looking at their 201910-K their earnings look abysmal, but their forward looking earnings are much better given their recent news releases. Let’s look more at that contract since it is a principal revenue source. SIGA’s most recent 19C contract gives BARDA (Biomedical Advanced Research and Development Authority) the ability to purchase up to $602.5MM worth of product. The base contract guarantees $51.7 MM and BARDA announced the exercise of an additional $127.1 MM in purchasing for the next year as of a few weeks ago. Due to drug expiration and future preparedness, my opinion is that BARDA will exercise all of the purchasing options over the next 10 years. Here’s my 2020 cash flow estimate, I am inexperienced at this sort of analysis. Pro 10-K readers, please give me some criticism. -$24 MM from expenses for sales, admin, research, services ,patents. Average of last 2 years -10% because research activity is shut down -$7 MM from additional costs of terminating loan. 10-Q +$2 MM from part 1 of Canadian order. Press release +$75 MM from three quarters of $101 MM exercise of BARDA contract. Estimated because they will supply TPOXX the next three quarters of 2020 and Q1 2021, press release -$3 MM additional costs to fulfill orders. Estimate from BARDA contract’s allocation for supply costs +$10 MM from contracts for research. Estimate by Q1 research revenue x 4 ? a new $23 MM research contract with the department of defense was announced in June, unclear when they will receive the money at this time $0 from stock buybacks and dividends, they have never had a dividend, but did do $800k in buybacks last year. They might have paid down their debt to put them in a position to do a lot more buybacks, so this is subject to change. Total: +$53 MM I expect the next few years to be cash flow positive now that they are out of the development phase and into the deployment phase. As they get additional international buyers they will also need to service their expiring stockpiles. This puts them at a forward price to earnings estimate of 10:1, still a value play in the current environment. The high future cash flow is why I expect them to start pumping dividends or buybacks in a year. Since their research activities are primarily supported by the US government, they won't have other useful activities for the cash other than to return it to shareholders. Also, the guys who founded SIGA in the 90's probably want to retire on a fat dividend pretty soon. Dividends and buybacks are a big factor in how many analysts calculate stock prices so either development will push the share price up a lot. International Sales This is where SIGA make us gigatendies. The US sales are the bread and butter that will keep them afloat for years to come. International sales are where they grow. Their contracts with the US government let them sell TPOXX at about $350 per course because they funded the initial research, whereas Canada is paying about $950 per course giving SIGA a massive estimated 95% margin. Let's see who might be interested in buying TPOXX as the China flu crisis unwinds: we've got most of western Europe/NATO--UK, France,Italy, Austria, Sweden, Switzerland, Germany, Spain; Pacific countries wary of being in the China sphere--Taiwan, South Korea, Japan, Singapore, Australia,Malaysia, Vietnam, Indonesia; and wealthy Middle Eastern countries that need to hedge against instability--Israel, Turkey, Saudi Arabia, UAE, Qatar; a smattering of other countries getting wise to viral threats--Russia, India,Brazil, South Africa, Mexico. That's a lot of potential buyers and it will only take a few for SIGA's price to shoot up. Also note that SIGA does not market internationally themselves, they are partnered with Meridian, a Pfizer subsidiary, for international sales. SIGA also has an excellent moat internationally. They have patents for TPOXX and its analogs almost everywhere but China. Of course, there are still risks associated with international expansion, but the upside potential is yuuge. Let's hear it from the horse's mouth and see what SIGA had to say on their 2019 Q4 conference call:
Now let's discuss the international markets. The pursuit of international sales for oral TPOXX is a key focus for us at SIGA. Our partnership with Meridian Medical Technologies that we announced last June has been excellent. However as I've said many times the sales cycle is long for international government procurement of these types of products and each country has its own set of internal dynamics. ... I have been asked why we do not provide a country-by-country update on sales progress. We do not comment on specific progress with countries for two main reasons. First, we respect the confidentiality of our customers who would not want their deliberations to become public. And second, we would not want to signal to competitors which countries may be undergoing an expansion in their spending for biodefense. With that context in mind, we are pleased to share a progress report regarding the Canadian military, who announced in December and intend to issue contracts to support a Health Canada, regulatory filing and thep urchase of up to 15,825 courses of oral TPOXX for the Canadian military. A procurement order of this size would represent about 25%of the active military forces in Canada. Although this is a relatively modest number of courses it is precedent for military preparedness by a U.S. NATO ally.
What can we gather from that? They've got multiple sales in the works, but are keeping mum about it. Also, that it takes time to cut through government tape and announce these sales. Here's the single largest risk for this play: that it takes too long for international contracts to be announced. For this reason, I recommend buying stocks and not calls. The near term future is too unpredictable. Research Activities SIGA's main drug, oral TPOXX, is already completely FDA approved as safe in humans and effective in animals. A quirk of their niche is that since smallpox is eradicated, they can't ethically test the drug for effectiveness in humans. This helps their bottom line because they basically get to skip some of the trials of a typical drug development cycle. SIGA's most important upcoming products are TPOXX for IV, liquid pediatric, and prophylactic use. Due to the current pandemic, all human trials are postponed, but the barriers for these trials are quite low. They only need to demonstrate human safety for the alternate ROA drugs. For prophylactic TPOXX, SIGA needs to demonstrate that TPOXX does not interfere with immunity acquisition from the smallpox vaccine. That way a potentially exposed person can both be treated and vaccinated at the same time. If they fail to meet these research goals, then I doubt the BARDA contract will be exercised for full value. Because of the delay in these results due to corona, I doubt that they threaten the trade that I'm proposing. Orthopox viruses to deliver cancer therapeutics and older Lassa fever antivirals. I honestly don't know enough about their activities in these areas to make a comment. I think they are irrelevant to the base play, but could provide some surprise upside if there was a development. Insider trading The execs did more selling than buying last year which is perhaps bearish, but their most recent move was to buy a lot of stock in December after announcing the Canada deal. They sold stock at ~$5.80 in early 2019. Now, they're holding even though it is past $6. I think the COVID pandemic has massively increased SIGA’s value and their key people are holding at a price where they previously sold knowing that a lot more cash is coming in. I think there's also some possibility of acquisition at higher share price, being debt free makes them attractive to a buyer--just pick up all the shares, no liabilities to clean up. Positions I have 5% of my IRA in SIGA and a couple of long dated $10 calls (volume is shit FYI) in my funny money account. Thank you for reading my novel. Disclaimer: Just because I can write two coherent paragraphs on a play does not mean I know what I'm doing. Do your own due diligence.
IPO Filings/DRHP’s are some of the best places to learn from when you are trying to understand the company and industry it operates in. In this letter, we will delve into the IPO filing of CAMS (the largest RTA in the country)
Founded in 1998, CAMS ( Computer Age Management Services Pvt. Ltd ) is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of 69.4% based on mutual fund AUM managed by its clients (Asset Management Companies) during November 2019
This IPO is an offer of sale .i.e. the proceeds from the IPO will be going only to the existing shareholders selling their shares.
Shareholding pattern is available here. The subreddit does not let us post pictures.
Growth in the mutual fund industry on back of increasing savings moving towards financial assets: See chart here. Company has shown 17.4% CAGR from 2000-2019.
India’s mutual fund AUM as a % of GDP is significantly lower than the world average: See chart here. India is at 11%, compared to 103% for USA, 75% for France, 68% for Canada
The number of mutual fund houses have been largely stable over the last few years, hence, the growth in the revenues will be largely on back of growth of AUM managed by the fund houses.
Mutual fund industry comprises of 41 AMCs (excluding Infrastructure Debt Funds) and a majority of the total mutual fund AUM is managed by the top five AMCs which have approximately 60% of the total market share as of March 2019. (Market share of top five AMCs has risen in the last few years from 54% in financial year 2015 to 58% in financial year 2019)
Services provided by RTA’s to AMC’s:
Knowledge partner of AMC’s: Given the history of RTA’s association with AMC’s, they apply analytics to accumulated data and help AMCs in the development of innovative products
Service aggregator: RTA’s bring cost efficiency to the table due to having similar scope of work across major AMC’s (e.g. sending notifications to the customer)
Revenue is derived from fees charged for servicing the AAUM (average assets under management ) of the funds serviced by CAMS
Charge higher fees for equity mutual funds v/s debt funds
Contracts with Mutual fund and AIF clients are typically perpetual in nature, unless terminated by either party while it is 3-5 years for other clients
Major part of the revenue earned (estimated to be over 80%) is by means of tiered fees charged on the AUMs managed for which the MF RTAs provide service. These tend to decrease as a proportion of total AUMs once the AUMs surpass the tiers for which the fees are agreed on.
With the increase in AUM managed, the fees charged as proportion of AUM has been falling, but the extent of decline in pricing despite the strong growth in AUM (i.e. approximately a 30% CAGR) indicates the reasonably strong bargaining power enjoyed by MF RTAs
In FY 2020, MF RTAs witnessed some pricing pressure, as the SEBI reduced the total expense mutual funds were allowed to charge.
According to CRISIL, a moderate reduction in fees charged by RTAs as a proportion of AUM as the size of industry AUM increases is expected. However, RTAs will benefit from an expected increase in the share of equity and hybrid funds in industry AUM.
There is no impact of direct plans growth on RTA’s as RTAs as these are charged based on AUM, irrespective of which plan is opted for by investors
RTA’s also offer similar services to Alternate Investment Funds (AIF)
In addition, RTA’s also have offer similar services to insurance companies for policy servicing of e-insurance policies. There are 4 insurance repositories in India :
CAMS Insurance Repository Services Limited;
Central Insurance Repository Limited;
KARVY Insurance Repository Limited; and
NSDL Database Management Limited.
Following are the are the mutual fund registrar and transfer agents operating in India:
Computer Age Management Services Limited (“CAMS”),
Sundaram BNP Paribas Fund Services (acquired by Karvy in October 2019)
Franklin Templeton Asset Management (India) Private Limited
See market share and total AUM of top fund houses here. CAMS services the 4 out of the top 5 AMC’s and 9 of the 15 largest AMC’s. It has been able to manage and hold on to its market share in the last few years: See chart here. CAMS is the clear leader vs/ peers in profitability with RoE of 29.5% , PAT margin of 19% and witnessed the revenue CAGR of 20% over 2016-19: See chart here. CAMS also has a 3X higher business per branch despite having only 22% higher number of branches than Karvy: See chart here. There are multiple reasons for the oligopolistic nature of the RTA industry leading to significant entry barriers:
High client stickiness due to humongous hassles involved in migration ,business disruption , customer and regulatory hassles . New players have not gain traction, only consolidation or building in-house RTA have led to switching of RTA’s - this is evidenced by the CAM’s number of clients being the same over the last 5 years: See chart here.
The average term of CAM’s relationship with its ten largest mutual fund clients is 18 years as of September 30, 2019
High Technology intensity requiring continuous up gradation of systems due to changes in regulations
Need of extensive branch network to address service needs of customers
High operating leverage: RTA helps in addressing investor and distributor needs which are not addressed online
CAMS also has a significant presence in insurance repository market: Given the miniscule penetration of e-policies, there is a significant headroom for growth in this market.
Regulatory Risk : SEBI in its press release in September and October 2018 had provided a maximum cap on the Total Expense Ratio (TER) which can be charged by mutual fund companies on the various type of products . This capping can potentially impact the revenues of service providers like CAMS since the AMC’s can renegotiate their fee contracts with CAMS
Client concentration Risk: Top 5 clients have contributed to 65-67% of revenues in last 4 years. Given the Oligopolistic nature of the market, the client concentration doesn’t seem to be reducing soon.
Consolidation in Industry: M&A in AMC’s can reduce the number of clients and grant more bargaining power to the AMC. In the past, they lost one of mutual fund clients’ due to their merger with another mutual fund that was serviced by a competitor
Provides portfolio of technology-based services, such as transaction origination interface, transaction execution,payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment , brokerage computation and compliance related service
Also provide certain services to alternative investment funds, insurance companies, banks and non-banking finance companies.
Managed mandated transactions (collections , reconciliations) for AMC,s NBFC’s etc
For Insurance companies - processing of new applications, holding policies in demat form, servicing and support for policies
Digitization of account opening, back office processing for banks and NBFC’s
Number of folios serviced by CAMS are 38.3 million as of September 30, 2019
Has 278 service centers, four call centers, four back offices of which three are in Chennai
See chart here. CAMS operates in 7 business verticals namely: Mutual Funds Services Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking and Non-Banking Services Business, KYC Registration Agency Business and Software Solutions Business Mutual Fund vertical services
Transfer services like transaction origination , managing KYC , execution of transaction processing from investors and payments, calculation & payment of brokerage commission fees to distributors, risk management services like reporting to SEBI, anti money laundering services, Customer care services through service branches for customer and distributors and call centre.
Distributor services like record and maintenance of brokerage structures , computation of payable /clawback brokerage/ distributor queries
Also has developed a bunch of applications including mobile apps and solutions for investor, corporate and AMC needs
Electronic Payment Collection services: Manage end-to-end automated clearing house transaction and electronic clearance services and service mutual funds, non-banking financial companies and insurance for automated payments Insurance services: Scrutinizing and processing of applications, training and onboarding of new insurance agents, submission of proposals, scanning, indexing and data entry, reminding policyholders of payment receipts Alternative Investment Fund Services: Similar to MF Banking and Non Banking Services Customer interface and back office processing KYC Registration Agency Business: Maintain KYC records on behalf of capital market intermediaries registered with SEBI, eliminating the need to repeat KYC procedure. Software Solutions Business: Software solutions business through subsidiary, SSPL which owns, develops and maintains the technology solutions for mutual fund clients, with a team of 362 people .
As of September 30, 2019, CAMS employed 4,314 full time and 2,136 contractual employees.
Given the high operational intensity of the business, employee expenses is the major cost at ~38% of the revenues.
Dividend Distribution Policy:
Company adopted a formal dividend policy on February 20, 2018 which was further amended on January 2, 2020.
Company aims to distribute a minimum dividend of 65% of the consolidated profit, net of tax, for relevant financial year
Notes on financial information:
Nearly 254 Cr investments in mutual funds , 45 Cr of trade receivables, 157 Cr of cash & cash equivalents as of HYFY19
No debt on the books, just long term lease liabilites of 105 Cr as of HYFY19
Bulk of the revenues is from data processing
Data processing comprises of core AAUM based revenue, revenue from services to insurance companies, banking and non-banking financial services companies and services to alternative investment funds and our KYC registration agency business.
Customer care services primarily comprise paper transaction volume-based fees and NACH volume based fee from electronic payment collection services business.
Recoverables comprise out of pocket expenses incurred on clients
Miscellaneous services comprises revenue from call centre services and fees for applications made available to clients. Software license fee, development and support services comprises fee earned by Subsidiary, SSPL for providing services to external clients.
Major part (~50%) of the operating expenses is the service expenses
Service expenses: Out of pocket expenses incurred for communication services to investors or distributors, stationary and postage on behalf of clients
Data entry expenses: primarily incurred to process paper applications in mutual fund services business
Customer service centre charges: Expenses primarily associated with management of service centres and payment of fees to centre heads
Claims: Incurred on account of claims raised against CAMS as well as funds set aside by CAMS to provide for future claims
There is no debt on the books of the company or its subsidiaries
At current share capital of 48,760,000 shares, this translates to a price of 1230/- , meaning a current P/E of 36x on FY20E
Other comments: Given that the growth in the CAM’s business with be primarily driven by the clients’ AUM growth , unless CAMS acquire more clients (which looks difficult to high entry barriers) and low pricing power, the earnings growth in the future will be largely in line with industry AUM growth. Note: All the notes are based onthe filed CAMS IPO prospectus, please consult your financial advisor for advice before investing in any product. P.S - Apologies. A lot of the charts are images that cannot be posted on this subreddit. However, all of these are available on the source article - https://www.thegalacticadvisors.com/post/computer-age-management-services-decoded.
Good morning from the UK. It’s Wednesday 15th April. The fire that severely damaged Notre-Dame Cathedral in Paris caught fire 1 year ago today on April 15 2019, Holy Monday and by the time it was finally put out it had destroyed the building’s spire and most of the roof. The stone vaults survived mostly intact, as did most of the cathedral’s artwork and relics. Covid-19 has delayed reconstruction efforts at Notre-Dame de Paris because removal of the melted scaffolding on the cathedral’s roof (scheduled to begin March 23) cannot take place whilst the country remains under coronavirus measures. On Good Friday Archbishop Michel Aupetit of Paris venerated Notre Dame Cathedral’s relic of Christ’s crown of thorns from inside the badly damaged cathedral. The archbishop prayed: “Lord Jesus, a year ago, this cathedral in which we are, was burning, causing astonishment and a worldwide impetus for it to be rebuilt, restored. Today we are in this half-collapsed cathedral to say that life is still there. The whole world is struck down by a pandemic that spreads death and paralyzes us. This crown of thorns was saved on the evening of the fire by the firefighters. It is the sign of what you suffered from the derision of men. But it is also the magnificent sign that tells us that you are joining us at the height of our suffering, that we are not alone and that you are with us always,” Aupetit said. Tonight though the Cathedral’s 339 year old 13 tonne bourdon bell (which is called Emmanuel and tuned to F#) will ring out to applaud the hard work of France’s medical workers engaged in the fight against Covid-19 (Source Liberation, in French and the Catholic News Agency). How much our lives can change in just one year.
Virus news in depth
Trump suspends funding of the world health organisation - the biggest Covid-19 story this morning is the decision by US President Donald Trump to suspend funding of the World Health Organisation pending a review. "Had the WHO done its job to get medical experts into China to objectively assess the situation on the ground and to call out China's lack of transparency, the outbreak could have been contained at its source with very little death," Trump said. US Secretary of State Mike Pompeo stated that the WHO "declined to call this a pandemic for an awfully long time because frankly the Chinese Communist Party didn't want that to happen." CNN reports that the US funds $400 million to $500 million to the WHO each year, Trump said, noting that China "contributes roughly $40 million." Another article from CNN points out that the UK announced an additional £65 million contribution to the WHO only a few days ago. Reaction to Trump's decision has been swift. Al Jazeera quotes Chinese Foreign Ministry spokesman Zhao Lijian during a daily briefing on the situation with the pandemic saying that the pandemic was at a critical stage and that the US' decision would affect all countries of the world. The news agency also quotes Dr Patrice Harris, president of the American Medical Association, who called it "a dangerous step in the wrong direction that will not make defeating COVID-19 easier". Bill Gates has tweeted “Halting funding for the World Health Organization during a world health crisis is as dangerous as it sounds. Their work is slowing the spread of COVID-19 and if that work is stopped no other organization can replace them. The world needs u/WHO now more than ever”. The Irish foreign minister Simon Coveney tweeted “This is indefensible decision, in midst of global pandemic. So many vulnerable populations rely on @WHO - deliberately undermining funding & trust now is shocking. Now is a time for global leadership & unity to save lives, not division and blame!” whilst Richard Horton, the editor-in-chief of the influential Lancet medical journal, wrote that Trump’s decision was “a crime against humanity … Every scientist, every health worker, every citizen must resist and rebel against this appalling betrayal of global solidarity”. Chile counts those who died of coronavirus as recovered because they're 'no longer contagious,' health minister says - News Week reports that cases of the novel coronavirus in Chile have climbed past 7,500, including 82 deaths, while over 2,300 have recovered from infection as of Tuesday, according to data from Johns Hopkins University but coronavirus patients in Chile who have died are being counted among the country's recovered population because they are "no longer contagious," Chile's Health Minister Jaime Mañalich said this week. "We have 898 patients who are no longer contagious, who are not a source of contagion for others and we include them as recovered. These are the people who have completed 14 days of diagnosis or who unfortunately have passed away," Mañalich announced at a press conference. It is unknown when Chile began including the dead among the number of people who have recovered. But the calculation has reportedly been adopted following validation by international health experts, the government claims. (Personal note: I just checked, as of 9am UK time Johns Hopkins has Chile down as 7912 cases with 92 deaths. Hat tip tochomponthebitfor this rather odd story).
Australia has jailed its first person for breaching isolation laws. The 35-year-old man will spend one month in jail after he repeatedly snuck out of a quarantine hotel to visit his girlfriend.
Japan also has PPE shortage problems; the Japanese city of Osaka has issued an urgent plea for citizens to donate plastic raincoats to hospitals running short of protective gear for staff treating coronavirus patients, with some doctors already having to resort to wearing garbage bags. Japanese medical workers have been warning for weeks that the medical system could soon be pushed to the brink, with nurses telling Reuters they were unsure whether their hospitals had enough advanced PPE such as N95 masks and plastic gowns. Some in Tokyo said they had been told to reuse masks.
Kandahar province has gone into full lockdown on Wednesday morning as Afghanistan reported its second biggest daily rise of new coronavirus cases in a week, triggered by a surge of infections in Kabul. The total number of identified infections is nearing 800.
India will allow industries located in the countryside to reopen next week, as well as resuming farm activities, to reduce the pain for millions of people hit by a lengthy shutdown in its coronavirus battle, the government said on Wednesday. Millions of people have been thrown out of work across south Asia since the lockdowns began last month, and growing anger in some areas was reflected in the commercial capital of Mumbai on Tuesday, when hundreds mobbed a train station demanding transport home.
Crowds and long lines have formed in the Moscow metro today as the city’s new electronic permission system may have backfired by trapping thousands of people at bottlenecks on public transport. Here’s a picture of the situation this morning.
In a first step towards easing coronavirus-related restrictions, Finland will lift roadblocks in the region around Helsinki on Wednesday, the prime minister, Sanna Marin, said. Travel restrictions to and from Uusimaa, the capital region, to the rest of the country began on 28 March, to prevent people from spreading the virus to other parts of the country. Marin said the government no longer had legal grounds to continue the lockdown, considering it an extreme measure to restrict people’s freedom of movement so strictly.
Germany’s government will extend restrictions on movement introduced last month to slow the spread of the coronavirus until at least 3 May, Handelsblatt business daily reported on Wednesday, citing the dpa news agency.
A German zoo has said it may have to feed some of its animals to others as it runs low on funds amid the coronavirus lockdown. Neumünster Zoo’s Verena Kaspari told Die Welt: If it comes to it, I’ll have to euthanise animals, rather than let them starve. At the worst, we would have to feed some of the animals to others. Kaspari said it would be an “unpleasant” last resort, but the zoo is not covered by the state emergency fund for small businesses and the zoo’s loss of income this spring is estimated at about €175,000 (£152,400).
Police in Berlin broke up a large birthday gathering in the early hours of Monday that violated Germany's social distancing restrictions. A 16-year-old girl was celebrating with 31 other people at an apartment in the German capital's central Mitte neighborhood. The girl's mother had apparently rented the property especially for the occasion. (Deutsche World link)
Denmark began reopening schools on Wednesday after a month-long closure over the coronavirus, becoming the first country in Europe to do so. Nurseries, kindergartens and primary schools are reopening in about half of the municipalities and about 35% of Copenhagen’s schools. Some parents have opposed the reopening of schools, citing health concerns. A petition titled “My child is not a guinea pig” has garnered some 18,000 signatures.
The world will need more than one Covid-19 vaccine so drug companies must partner in the race to develop the weapons to fight the coronavirus, the GlaxoSmithKline chief executive officer, Emma Walmsley, said on Wednesday. GlaxoSmithKline Plc and Sanofi SA said on Tuesday they would develop a vaccine to fight the fast-spreading coronavirus. The drugmakers said they expect to start clinical trials for the vaccine in the second half of this year. If successful, the vaccine would be available in the second half of 2021.
Supply chain news in depth
Heathrow cargo flights rise 500% as airport restyles itself as ‘vital airbridge’ - The Guardian says that the number of cargo-only flights at Heathrow has surged to five times normal levels, with the airport now saying it is prioritising medical supplies as passenger travel grinds to a halt. Britain’s biggest airport expects passenger traffic expected to plunge by 90% in April, with remaining flights mainly limited to repatriating citizens stranded abroad during the coronavirus outbreak. Instead, the hub airport is restyling itself as a “vital airbridge” for supplies and medical essentials during the coronavirus crisis. The number of cargo-only flights has jumped significantly; Heathrow’s busiest day for cargo so far was on 31 March, when it handled 38 cargo flights in only one day (the airport usually deals with 47 cargo flights per week). In a related article, the Independent reports that whilst the UK’s East Midlands airport has experienced “only” a 54% drop in total air movements, it’s nevertheless experienced a 7.4% rise in cargo flights with the result that it’s now the tenth busiest airport in Europe putting it ahead of major hubs such as Rome, Munich and Madrid. (Personal note: I live close to East Midlands airport and have definitely noticed there’s still a fair bit of traffic coming and going; it helps that DHL Express have a decent presence there too). Global Airline Traffic Will Nearly Halve in 2020 - The Wall Street Journal reports that global airline traffic is expected to almost halve this year because of travel restrictions, with no recovery expected until the third quarter, according to an industry trade group. The International Air Transport Association forecast airlines would lose $314 billion in revenue this year, 25% more than its previous estimate as it incorporated more pessimistic assumptions about the hit to the global economy and the relaxation of travel restrictions. (Personal note: for contrast the drop in revenue for the global aviation industry after the 9/11 attacks was about $23bn according to anarticlein the Guardian; disruption in the industry from that event caused the bankruptcy of Swissair, Belgium's Sabena and Australia's Ansett whilst he American airlines United, US Airways, Northwest and Delta all filed for Chapter 11 bankruptcy protection from creditors). Amazon faces having its operations reduced to a bare minimum in France - a court has ruled the e-commerce giant can deliver only essential goods while the company evaluates its workers’ risk of coronavirus exposure says today’s Guardian live blog (link above). The court in Nanterre, outside Paris, said Amazon France had “failed to recognise its obligations regarding the security and health of its workers,” according to a ruling seen by AFP. While carrying out the health evaluation, Amazon can prepare and deliver only “food, hygiene and medical products,” the court said. The injunction must be carried out within 24 hours, or Amazon France could face fines of €1m (£873,500) per day. Amazon has one month to carry out the evaluation. Concern has grown over the safety precautions taken by the company; dozens of workers protested in the United States last month. Pandemic breaks Vietnam supply chains; loss of exports may be permanent - The Loadstar reports that Freight forwarders in Vietnam have seen cargo volumes down by up to 70% on pre-coronavirus levels, as their key markets remain under lockdown. According to Ho Chi Minh City-based supply chain consultant CEL, the world has entered a consumer demand crisis which could permanently alter its supply chains. “As we speak, the American consumer is currently already reducing expenditure on shoes, phones, appliances, clothes, cars and tools, for example,” said CEL managing partner Julien Brun. “Most of which are made in Asia, and a large portion in Vietnam.” When the coronavirus pandemic started in Wuhan in January, the crisis was seen as a China-specific problem from a supply chain perspective, and prompted a frantic search for alternative production and transport capacity in Vietnam, Mr Brun explained. Vietnam’s own reliance on China for raw materials and components quickly materialised, however, resulting in the start of delays and production challenges. “In a survey conducted by CEL at the end of March, 83% of companies in the physical value chain in Vietnam, including retailers, transporters, traders and manufacturers, had suffered supply issues over the past two months,” he said. “And 47% of them had issues specifically with Chinese suppliers, a large majority of which was over missing raw materials.” Mr Brun said manufacturers and retailers’ current sales volumes were too low to absorb fixed costs, leaving thousands of businesses with negative margins and thinning cash reserves.
Supply chain news in brief
The US Treasury has ordered Donald Trump’s name be printed on cheques to be sent to tens of millions of Americans affected by the coronavirus outbreak, a decision that will slow their delivery by several days, according to the Washington Post (link, not behind a paywall). Citing unnamed senior officials at the Internal Revenue Service (IRS), the Post reported the $1,200 cheques – being sent by the as part of a $2.3tn package enacted last month to cushion the economic blow from the pandemic – will “bear Trump’s name in the memo line, below a line that reads, ‘Economic Impact Payment’.” The Post said the “unprecedented decision” to include Trump’s name was announced to the IRS information technology team on Tuesday.
Share trading of Virgin Australia has been suspended at the airline’s request whilst it reviews financial restructuring options in a bid to avoid collapse. The halt comes after a previous halt last week where the airline announced it had requested a $1.4 billion loan from the Australian government. The airline also announced it was cutting all flights except for a single SYD-MEL (Sydney to Melbourne) return flight 6 days a week. Options that may be considered include existing creditors swapping debt for equity (i.e. creditors write off debt and are given shares instead), priority debt to new creditors (to encourage badly needed additional funds to come in from investors), restructuring or entering voluntary administration. (Source: Airlive.net)
Air Cargo News reports that Spice Jet (my favourite airline name of them all) is ramping up its cargo operation following the virus outbreak. On April 7, India-based SpiceJet operated the country’s first cargo-only passenger aircraft flight carrying vital medical supplies in the cabin. Since then, the airline has regularly used its Boeing 737 aircraft for cargo-only flights. SpiceJet has also recently operated special cargo flights to Abu Dhabi, Kuwait and other countries, to export local fresh fruits and vegetables and maintain supply chains. On April 9, SpiceXpress — SpiceJet’s dedicated cargo arm — operated a freighter flight on the Chennai-Singapore-Chennai route carrying critical medical equipment and other Covid-19 related medical supplies.
The LoadStar has reported that Air Canada has removed the seats on 3 of its 777’s to make more room for cargo. The aircraft are being converted by aircraft maintenance and cabin integration specialist Avianor, which will remove 422 passenger seats and designate cargo loading zones for lightweight boxes containing medical equipment, restrained with cargo nets.
U.S. carriers are asking the FAA to allow shipments in passenger cabins says Freightwaves. With a global shortage of air cargo space and extraordinary demand to move emergency medical supplies, some overseas passenger airlines are taking out the seats on aircraft to make more room for freight and U.S. airlines are asking the Federal Aviation Administration (FAA) for permission to fly cargo in the main deck where passengers normally sit, including the option of removing seats, an industry source familiar with the regulatory situation said. A decision on basic main-deck loading is expected very soon. FAA sign-off for more complex modifications could take a couple weeks longer, the person said, adding “the exact framework for seat loading under U.S. regulations is not yet fully elaborated.” Almost every domestic airline is interested in using the cabin for cargo in some form, according to the source.
Prologis Inc (which is one of the world’s largest logistics real estate investment trusts and has a lot of warehouses) has said 24% of its customers have inquired about rent releases and deferring payments in response to the COVID-19 pandemic, which has stunted demand for goods in many industries. On a business update call with analysts and investors earlier this week, the company said the release requests total 69 days of rent relief on 16.6% of the company’s portfolio. Prologis expects to grant deferrals in the form of a repayable loan to roughly one quarter of those that have sought relief. Management estimates the deferral loan amounts will equal 1% of the company’s gross annual rent. Of note, management said some of the inquiries have come from large, “financially sound” clients that are looking to take advantage of the current market in which some landlords are offering accommodative rent payment solutions. Freightwaves has more.
Amazon is going to start accepting all non-essential products to its warehouses again this week, a month after pausing those shipments says Business Insider. Amazon's spokesperson confirmed in an email to Business Insider that third-party sellers who use Amazon's warehouses to store their products will be able to resume sending in all non-essential items later this week. There will be limits to how many products per item the sellers can ship in, but the idea is to lift the restrictions imposed last month, the spokesperson said. "Later this week, we will allow more products into our fulfillment centers," Amazon's spokesperson said. "Products will be limited by quantity to enable us to continue prioritizing products and protecting employees, while also ensuring most selling partners can ship goods into our facilities." The change signals easing pressure on Amazon's supply chain that were caused by surging demand for essential products, like face masks and toilet paper, amid the coronavirus pandemic.
Good news section
99 year old world war 2 veteran Capt. Tom Moore has so far managed to raise £5m ($6.25m USD, €5.72m EUR) in donations to the NHS - the BBC says that Capt. Tom Moore is currently in the middle of completing 100 laps of his garden (25 metres in length) before his 100th birthday at the end of April. Mr Moore was born in Keighley, West Yorkshire and trained as a civil engineer before enlisting in the army for World War Two, rising to captain and serving in India and Burma. NHS Charities Together, which will benefit from the funds, said it was "truly inspired and humbled". Nearly 170,000 people from around the world have donated money to his fundraising page since it was set up last week. Mr Moore began raising funds to thank the "magnificent" NHS staff who helped him with treatment for cancer and a broken hip. If you’re interested in supporting him his fundraising page is here.
I hope your day is going well. This post might take a while to read, so sit back and be prepared to dedicate a little bit of time on this one. I promise you, this stuff is worth it to learn. Firstly, a recap of my progress so far trading pennystocks. I think my friend (more on this later) who introduced me to this subreddit did so on April 15th, not sure though. Here's where I'm at after 2.5 months of trading: https://preview.redd.it/co0o0qig92e51.png?width=795&format=png&auto=webp&s=c96713953f9a8c4fc66823719487e32c17c3b180 If you're familiar with my style of trading, you know that I risk small amounts, 5% per trade. However, I've started implementing a new strategy, where I scale into the position as the price moves in my favor, while at the same time eliminating the risk. it quite quickly compounds the tendies bro. All you have to do is adjust your stop loss higher as you buy more shares.
I've been trading with a great friend of mine. We became best bros in third grade when we both got accepted into the 'Gifted & Talented' program. He wishes to remain anonymous so that's as much as I'll say. Here is his fundamental analysis of AMTX: Ok so AMTX: last earnings call went well, they are a recycling company that is on the ground floor of recycling in India, also in California. They do biofuels like ethanol, that see good bumps when gas usage goes up and stays in the 40-60/barrel range. They held a Q/A in last earnings call in which they stated they anticipate the margins for ethanol profits to increase since some states are pushing for 15% ethanol blend over the current 10%, and studies have found that up to 20% is fine in vehicles. They also stated if they need to raise the stock price, they will do so with stock buy back, not reverse split. California is giving them grants for their recycling work, and they recently got 4 farms online for natural gas refinements, with 14 more signed up and should be connected to their plant soon. 4Q 2019 saw 52.1Mil revenue vs 38.8mil in 4Q 2018. Net loss was 7.7 mil for 4q2019, vs 11.4mil 4q2018. Revenue for 2019 202mil, 2018 was 171.5mil. They have the support of California regulators, and California Low Carbon Fuel standard is in their favor. They got their biodiesel plant in India up, all debt paid off, maintained 100% ownership with no dilution, and plan to use proceeds to pay down other debt and fund further renewable fuels projects. Expected revenue once india plant is at 100% production is 300mil from that plant alone. Planned biorefinery in California, with tax break of 12.5 mil offsetting equity, $125 mil from USDofAg. Expected revenue of $80mil, construction begins once engineering and procurement work is complete. I dont think its a 1400% runner, but they are doing good work, progressing towards significant revenue, and profit. And are the only company in all of India, and are in good with California, 2 huge biofuels markets. ______________________________________________________________________________________________ Ok now back to me, this is how we trade it. I apologize that I didn't post this sooner. I posted about taking this trade at $1.03 on my profile this morning.
HOW TO TRADE AMTX
Here is the chart that I made last night. I wanted to stay up and post all of this late last night but I fell asleep instead. You can see a lot going on here. The bro listed like seven different good things, and now we have like seven more good things. Truly inspirational. Great stock.
Golden Cross: On the daily chart, you can see those EMAs have crossed. And you can also see that the price had already broken out at the point. My friend and I are working on finding these slightly sooner, ideally for this one would've been in the $0.90 range, but hey, we don't need to capture 100% of the move.
You can see, that there were three seperate days where the price spiked, being held down by the 200ema each time. Anytime you see that, it is a very bullish sign.
It is also breaking out of the pennant that it created (red triangle)
The original entry for me was $1.03, with a stop loss at $0.91 and three seperate targets. It has already hit two of those, which brings the monthly fib extension target of $2.05 into play.
I have already exited half of my position and have a stop loss in profit so that I'm not losing any money and I've already secured the tendies
Here is the new chart, and what we can look for moving forward.
https://preview.redd.it/vokxj6wuf2e51.png?width=1828&format=png&auto=webp&s=df50c79a7210633d2fa8db03cff9a6ce225e0760 You can see that today was a bearish daily candle. However, look at the previous day's wick. It spiked through that monthly resistance and the weekly resistance above that. It is totally normal for a retracement in this area. And today's candle didnt even close within the body of the previous candle. The first potential trade is an entry anywhere below or at $1.18, or you could wait for a dip down to $1.12 depending on your style. I never wait for dips though because I'm impatient in trading sometimes. A stop loss of $1.07 would be sufficient imo. Underneath the weekly support at $1.12. If you don't know how to calculate position sizing yet, please learn before entering your next trade. The first target is a fibonacci 127 extension at $1.45. I will be looking to add positions here if i see bullish consolidation underneath monthly resistance at $1.40. The second target is at $1.70, which is a wick fill play off of that previous spike. It's also monthly resistance.
News Heading into Thursday July 23rd 2020 NOTE: PLEASE DO NOT YOLO THE VARIOUS TICKERS WITHOUT DOING RESEARCH. THE TIME STAMPS ON THE FOLLOWING ARTICLES MAY BE LATER THAN OTHERS ON THE WEB. THE CREATOR OF THIS THREAD COMPILED THE FOLLOWING IN A QUICK MANNER AND DOES NOT ATTEST TO THE VERACITY OF THE INFORMATION BELOW. YOU ARE RESPONSIBLE FOR VETTING YOUR OWN SOURCES AND DOING YOUR OWN DD.
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Wall Street Week Ahead for the trading week beginning August 3rd, 2020
Good Saturday morning to all of you here on stocks. I hope everyone on this sub made out pretty nicely in the market this past week, and is ready for the new trading month ahead. Here is everything you need to know to get you ready for the trading week beginning August 3rd, 2020.
Earnings and fiscal debate could be catalysts for stocks in the week ahead - (Source)
The market could lose some of its exuberance in the week ahead as the calendar turns to August, and investors await Friday’s July employment report and keep their eyes on Washington. The focus will also be squarely on politicians, as Congress struggles to find a middle ground on a new fiscal spending package and decide the fate of the $600 a week unemployment supplement that was set to expire July 31. Former vice president Joe Biden is also expected to name his running mate in the coming week. The jobs data will be crucial, particularly since the number of people filing for unemployment benefits has been edging higher, instead of falling back, as expected. According to Refinitiv, about 1.36 million new jobs are expected, well below the 4.8 million added in June, and the unemployment rate is expected to fall to 10.7% from 11.1%. Trading around the report could be volatile, since some economists expect more than 2 million jobs were added, and some even see flat or negative payrolls. Stocks have done well for the month of July, with the S&P 500 finishing at 3,271, a gain of 5.5%. The Nasdaq has performed the best, rising 6.8% for the month to 10,745, after a 3.7% gain for the past week. “August has traditionally been a challenging month for investors,” said Sam Stovall, chief investment strategist at CFRA. The market is entering what historically has been the worst two months for stocks. According to Stovall, the S&P 500 has been higher in August 53% of the time, and its average move is a gain of just 0.01%, going back to World War II. September is worse, down 0.51% on average, and up just 48% of the time. In presidential election years, however the odds for August gains are better, as it rose 63% of the time and 73%, when the incumbent is up for re-election. There are also about 120 S&P 500 companies reporting earnings, but the big earnings show for markets was this past week when four of the five biggest tech giants all reported Thursday afternoon. Three of those stocks — Apple, Amazon and Facebook — surged, helping Nasdaq outperform Friday with a more than 1.5% gain.
“We’re only a month into the reporting period, and things are going to become less and less important from an earnings perspective,” said Stovall. “I think investors are sort of disappointed in that the bar was set so low for second quarter earnings that expectations were that we were going to see a lot of companies beat, which we have. But we were also going to see a gradual uplift of earnings expectations for forward quarters. We’re not seeing that.” Eighty-two percent of the companies reporting so far have beaten estimates, well above the average 65%, according to Refinitiv. The earnings decline is now looking closer to 33% from an initial 40%, and tech, which has been leading the market is one of the best performers. Profits for the sector now look to be up 1.4%, according to I/B/E/S data from Refinitiv. Because the tech names have contributed so much to market gains, their earnings were an important test for the market, and they didn’t disappoint. But they didn’t manage to pull up the whole market very far on Friday. Among the names reporting in the coming week are a diverse group, including Disney, ViacomCBS, Bristol-Myers Squibb, Berkshire Hathaway, AIG, Clorox, and Wayfair, to name a few.
Politics now in play
“The earnings story is over. My call had been once we had gotten through the earnings season, we would be more vulnerable to a sustainable pullback,” said Barry Knapp, Ironside Macroeconomics managing partner and director of research. “Obviously, it’s volatility season, but it’s also an election year. ... We’re more vulnerable to that next week and earnings won’t hold us up.” Knapp said if President Donald Trump and Republicans do not begin to perform better in the polls by Labor Day, the market is likely to focus on what a Democratic win would mean for taxes and regulation. That could be a negative for stocks. “If he hasn’t made headway by then, it’s likely he’s done.That’s about the point when things become pretty set in stone. The market will presume that’s the case,” Knapp said. The politics of the stimulus package could also reverberate through markets, until it looks like the Senate Republicans and House Democrats can find common ground. The two sides look to be at a standoff, but an agreement is still expected in early August. The market is particularly watching to see what happens with the enhanced unemployment benefits. Republicans have proposed cutting it to $200, but Democrats support keeping it.
Cutting the size of the payments back might be good for the labor market and persuade more workers to return to work, some strategists say. However, there is also concern that the funding has helped stimulate the economy and keep the unemployed from defaulting on loans and payments. Consumer spending on goods in June was even higher than last year, and that was also seen as getting a lift from stimulus. Besides the jobs report, there are other important data like ISM manufacturing on Monday. There are also monthly vehicle sales Monday, and ISM nonmanufacturing data Wednesday. “I think the macro data is going to be fine next week,” said Knapp. “I’m not in the camp that thinks the payroll number is going to be negative.” NatWest Markets economist Kevin Cummins is one of the economists who expects the jobs gains to be much smaller than the past two months. He expects the payrolls to come in at just 200,000. “You look at jobless claims, and you see a stalling out,” he said. “The Fed is right. There is significant downside risk to the economy.”
A trade to watch
Treasury yields, in the 2-year to 7-year range, fell to new lows in the past week. The 10-year yield, not yet at a record low, was also falling and was at 0.53% Friday. At the same time, the dollar was down more than 1% on the week and 4% for the month. Gold was a beneficiary of the lower interest rates, weaker dollar trade, rising about 5% for the week and 10% for the month. Strategist say investors are reacting to super-low interest rates, concerns about the economy, and the possibility that huge government spending will send inflation higher. Investors are also jumping into inflation-protected bonds. According to Refinitiv’s Lipper, inflation-protected bond funds took in $271 million of net new money for the fund-flows week ended July 29, the sixth week of gains. About $1 billion went into the SPDR Gold Shares ETF, (GLD) in the last week, Lipper said. During this time period, the Treasury Inflation-Protected Securities funds recorded their two best weekly net inflows ever with increases of $1.9 billion and $1.5 billion, respectively, for the fund-flows weeks of June 24 and July 1. Lipper said investors started to put money into TIPS funds in the middle of the second quarter, and the flows have been . net positive in 11 out of 13 weeks since the beginning of May. This its second-worst quarterly net outflows ever as oil prices slumped in the first quarter. “I think this is going to be a much more inflationary decade. It will start out slowly. [Fed Chairman Jerome] Powell is right that more forces are putting downward pressure on inflation at present. But the market looks past that,” said Knapp. “The big story in 2021 will be the recovery of inflation. You’re already seeing it in import prices.”
This past week saw the following moves in the S&P:
August: Top NASDAQ & Russell 2000 Month of Election Years
August is amongst the worst months of the year. It is the worst DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 month over the last 32 years, 1988-2019 with average declines ranging from 0.1% by NASDAQ to 1.1% by DJIA. Contributing to this poor performance since 1987; the second shortest bear market in history (45 days) caused by turmoil in Russia, the Asian currency crisis and the Long-Term Capital Management hedge fund debacle ending August 31, 1998 with the DJIA shedding 6.4% that day. DJIA dropped a record 1344.22 points for the month, off 15.1%—which is the second worst monthly percentage DJIA loss since 1950. Saddam Hussein triggered a 10.0% slide in August 1990. The best DJIA gains occurred in 1982 (11.5%) and 1984 (9.8%) as bear markets ended. Sizeable losses in 2010, 2011, 2013 and 2015 of over 4% on DJIA have widened Augusts’ average decline.
However, in election years since 1950, Augusts’ rankings improve: #6 DJIA, #5 S&P 500, #1 NASDAQ (since 1971), #1 Russell 1000 and #1 Russell 2000 (since 1979). This year, the market’s performance in August will likely depend heavily on how July closes and whether or not the rate of covid-19 infection continues to accelerate which could force some areas to roll back reopenings.
August’s First Trading Day Bearish Last 23 Years
From the Stock Trader’s Almanac 2020 (page 88), it is known that the first trading days of each month combined gain nearly as much as all other days combined. However, the first trading day of August does not contribute to this phenomenon ranking worst among other First Trading Days in the 2020 Almanac. In the past 23 years DJIA has risen just 30.4% (up 7, down 16) of the time on the first trading day of August. Average and median losses are on the mild side due to a few sizable advances. Over the past nine years, DJIA and S&P 500 have both declined nine times.
Earlier today we posted a chart showing S&P 500 sector performance since the Nasdaq's recent peak on 7/20 when Technology stocks began what has now been a 10-day period of consolidation. Below we have updated these performance numbers to include today's moves. While not as many sectors remain in positive territory, the majority of sectors continue to outperform the S&P 500, while Technology drags the market lower. Along with Technology, Communication Services, and Consumer Discretionary are the only other sectors that have lagged the S&P 500, and their performance has been dragged down by the mega-cap tech-like stocks of Alphabet (GOOGL), Facebook (FB), and Amazon (AMZN).
Expanding on this theme of underlying strength in the index, the chart below shows the average performance of stocks in the S&P 500 grouped by sector. On an equal-weighted basis, the S&P 500 is actually up 1.3% since 7/20, and only two sectors (Technology and Materials) have seen negative average returns. On the upside, Real Estate (4.1%) has been the big winner followed by Consumer Discretionary (3.3%), and Consumer Staples (2.2%). The fact that Consumer Discretionary at the cap-weighted sector level is down over 1.4% while the average performance of stocks in the sector has been a gain of 3.3% illustrates what a mammoth impact AMZN has on that sector.
Breadth among S&P 500 stocks has also been overwhelmingly positive. For the S&P 500 as a whole, 59% of stocks in the index have had positive returns since the close on 7/20. Only two sectors (Technology and Materials) have seen fewer than half of their components post positive returns over that time, while Real Estate, Consumer Staples, and Utilities have seen roughly three-quarters of their components rally since 7/20.
At our Earnings Explorer tool available to clients on our website, we provide a real-time look at beat rates for both EPS and sales. Below is a snapshot from the website showing both the EPS and sales beat rates for US companies reporting earnings on a rolling 3-month basis. Currently, 64.61% of companies have exceeded consensus analyst EPS estimates over the last three months, while 63.75% of companies have beaten consensus sales estimates over the same time frame. In looking at the chart, you can see a big spike in the EPS beat rate over the last few weeks. Since earnings season began on July 13th, nearly 80% of companies have posted stronger than expected EPS numbers. That's a huge beat rate and suggests that analysts were too bearish on Q2 numbers heading into July. The revenue beat rate held up much better than EPS beats throughout the first half of 2020, but it too is on the upswing this season.
We also monitor how share prices are reacting to earnings reports. So far this earnings season, the average stock that has reported Q2 numbers has gained 1.31% on its earnings reaction day. That compares to a historical average one-day change of just 0.06% on earnings reaction days. As shown below, stocks that have beaten EPS estimates this season have gained 2.2% on earnings reaction days, while companies that have missed EPS estimates have fallen 1.89%. It's rare to see beats gaining more than misses decline, but that's what is happening this season.
Every Wednesday, we publish our Global Macro Dashboard which provides a high-level summary of market and economic data of some of the world's largest economies. Of the 23 stock markets tracked, just six including the US are positive year to date at the moment (in local currency). In the chart below we show the YTD performance of these six countries as well as the global median in 2020. As shown, even though it was actually the first to tip into the green YTD following the global sell-off in February and March very briefly back in early June, the US is up the least of this group with a YTD gain of 0.4%. China's stock market is up the most at +14%. Taiwan, South Korea, South Africa, and Malaysia are also outperforming the US but are up more modestly than China with the best of these, Taiwan, gaining 4.53% this year. Meanwhile, the median country in our Global Macro Dashboard remains down 6.2% YTD.
Given it is up the most on a year to date basis, China has also gained the largest share of global equity market cap in 2020. As shown in the table below, China has gained 1.7 percentage points of global market cap in 2020 and now takes up 10.14%. China now joins the US as the only other country with a double-digit share of total world market cap. Despite this, China has actually lost share since the bear market lows on 3/23. Meanwhile, the US, Germany, Canada, India, South Korea, and Australia have all gained a significant share since 3/23.
Apple, Microsoft, Amazon, Google, and Facebook. These five stocks have helped spawn a number of acronyms as they try to capture the rise of mega-cap tech stocks that have led the market higher for much of the past decade. The average return for those five stocks so far this year has been a gain of more than 30%, while the broad S&P 500 Index is just marginally positive, at 0.4% through July 30. While many other areas of the market have remained largely static, the total market value of these stocks has dramatically increased, making them an increasingly large piece of market cap-weighted indexes such as the S&P 500. As shown in the LPL Chart of the Day, the combined weight of the top five stocks in the S&P 500 has increased to its highest level ever, at nearly 22%. Only one of those five stocks (Microsoft) was a top five name in the index during the previous peak of March 2000.
But does this pose a risk to the index? From a diversification standpoint, one could certainly argue it does. For instance, if any shared risks should come up, from regulation, for example, it could do outsized damage to cap-weighted indexes. However, we believe that the recent gains have been justified by the fundamentals, and we continue to favor both large caps over small caps, and growth-style stocks over value stocks. According to analysis from Credit Suisse, over the past 12 months, the top five stocks in the index have grown revenues at 11.2% vs. just 0.8% for the rest of the S&P 500. Further, the remainder of the S&P 500 has subtracted roughly $17 from S&P 500 earnings per share (EPS), while the top five stocks have added more than $12. Finally, while these stocks have been the face of the recent “stay-at-home trend” and may be more insulated from broader economic weakness, they are far from the only stocks making money this year. On July 30, the Philadelphia Stock Exchange Semiconductor Index hit a new all-time high and is now up more than 15% year-to-date. “After a huge run, many of these top stocks may be due for a pause,” said LPL Chief Market Strategist Ryan Detrick. “However, looking out over the next 6 to 12 months, we believe that investors will continue to place a premium on companies that are able to organically grow sales, especially in a low-growth environment.”
Here are the most notable companies (tickers) reporting earnings in this upcoming trading week ahead-
Clorox Co. (CLX) is confirmed to report earnings at approximately 6:30 AM ET on Monday, August 3, 2020. The consensus earnings estimate is $2.00 per share on revenue of $1.83 billion and the Earnings Whisper ® number is $2.06 per share. Investor sentiment going into the company's earnings release has 78% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 6.38% with revenue increasing by 12.48%. Short interest has increased by 9.5% since the company's last earnings release while the stock has drifted higher by 22.5% from its open following the earnings release to be 33.0% above its 200 day moving average of $177.86. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, July 31, 2020 there was some notable buying of 2,147 contracts of the $250.00 call and 1,848 contracts of the $220.00 put expiring on Friday, August 7, 2020. Option traders are pricing in a 7.2% move on earnings and the stock has averaged a 4.6% move in recent quarters.
Beyond Meat, Inc. (BYND) is confirmed to report earnings at approximately 4:05 PM ET on Tuesday, August 4, 2020. The consensus estimate is for a loss of $0.02 per share on revenue of $97.75 million and the Earnings Whisper ® number is $0.01 per share. Investor sentiment going into the company's earnings release has 71% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 300.00% with revenue increasing by 45.35%. Short interest has decreased by 27.3% since the company's last earnings release while the stock has drifted higher by 14.2% from its open following the earnings release to be 21.7% above its 200 day moving average of $103.45. Overall earnings estimates have been revised lower since the company's last earnings release. The stock has averaged a 23.1% move on earnings in recent quarters.
Square, Inc. (SQ) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, August 5, 2020. The consensus estimate is for a loss of $0.05 per share on revenue of $1.01 billion and the Earnings Whisper ® number is ($0.01) per share. Investor sentiment going into the company's earnings release has 59% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 126.32% with revenue decreasing by 13.99%. Short interest has decreased by 20.5% since the company's last earnings release while the stock has drifted higher by 85.9% from its open following the earnings release to be 71.3% above its 200 day moving average of $75.80. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, July 14, 2020 there was some notable buying of 9,381 contracts of the $97.50 call expiring on Friday, August 21, 2020. Option traders are pricing in a 9.7% move on earnings and the stock has averaged a 7.1% move in recent quarters.
Moderna, Inc., (MRNA) is confirmed to report earnings at approximately 7:00 AM ET on Wednesday, August 5, 2020. The consensus estimate is for a loss of $0.36 per share on revenue of $19.83 million and the Earnings Whisper ® number is ($0.34) per share. Investor sentiment going into the company's earnings release has 66% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 12.20% with revenue increasing by 51.57%. Short interest has increased by 3.5% since the company's last earnings release while the stock has drifted higher by 32.8% from its open following the earnings release to be 99.3% above its 200 day moving average of $37.17. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, July 24, 2020 there was some notable buying of 12,120 contracts of the $95.00 call expiring on Friday, August 21, 2020. Option traders are pricing in a 12.2% move on earnings and the stock has averaged a 8.3% move in recent quarters.
Roku Inc (ROKU) is confirmed to report earnings at approximately 4:00 PM ET on Wednesday, August 5, 2020. The consensus estimate is for a loss of $0.55 per share on revenue of $305.10 million and the Earnings Whisper ® number is ($0.47) per share. Investor sentiment going into the company's earnings release has 73% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 587.50% with revenue increasing by 21.99%. The stock has drifted higher by 23.3% from its open following the earnings release to be 23.0% above its 200 day moving average of $125.96. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, July 20, 2020 there was some notable buying of 4,243 contracts of the $125.00 put expiring on Friday, September 18, 2020. Option traders are pricing in a 13.8% move on earnings and the stock has averaged a 17.4% move in recent quarters.
Fastly, Inc. (FSLY) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, August 5, 2020. The consensus estimate is for a loss of $0.01 per share on revenue of $60.42 million and the Earnings Whisper ® number is $0.01 per share. Investor sentiment going into the company's earnings release has 82% expecting an earnings beat The company's guidance was for revenue of $70.00 million to $72.00 million. Consensus estimates are for year-over-year earnings growth of 93.75% with revenue increasing by 30.86%. Short interest has increased by 186.2% since the company's last earnings release while the stock has drifted higher by 229.3% from its open following the earnings release to be 186.0% above its 200 day moving average of $33.74. Overall earnings estimates have been revised higher since the company's last earnings release. The stock has averaged a 17.8% move on earnings in recent quarters.
Tyson Foods Inc. (TSN) is confirmed to report earnings at approximately 7:35 AM ET on Monday, August 3, 2020. The consensus earnings estimate is $0.90 per share on revenue of $10.49 billion and the Earnings Whisper ® number is $0.96 per share. Investor sentiment going into the company's earnings release has 44% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 38.78% with revenue decreasing by 3.63%. Short interest has decreased by 38.0% since the company's last earnings release while the stock has drifted higher by 5.5% from its open following the earnings release to be 14.3% below its 200 day moving average of $71.73. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, July 31, 2020 there was some notable buying of 1,804 contracts of the $60.00 put expiring on Friday, October 16, 2020. Option traders are pricing in a 6.6% move on earnings and the stock has averaged a 4.9% move in recent quarters.
Activision Blizzard, Inc. (ATVI) is confirmed to report earnings at approximately 4:05 PM ET on Tuesday, August 4, 2020. The consensus earnings estimate is $0.63 per share on revenue of $1.70 billion and the Earnings Whisper ® number is $0.73 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat The company's guidance was for earnings of approximately $0.64 per share. Consensus estimates are for year-over-year earnings growth of 57.50% with revenue increasing by 21.78%. Short interest has decreased by 32.3% since the company's last earnings release while the stock has drifted higher by 11.7% from its open following the earnings release to be 29.7% above its 200 day moving average of $63.71. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, July 31, 2020 there was some notable buying of 8,749 contracts of the $85.00 call expiring on Friday, August 21, 2020. Option traders are pricing in a 8.4% move on earnings and the stock has averaged a 3.9% move in recent quarters.
Chegg Inc. (CHGG) is confirmed to report earnings at approximately 4:05 PM ET on Monday, August 3, 2020. The consensus earnings estimate is $0.32 per share on revenue of $136.52 million and the Earnings Whisper ® number is $0.35 per share. Investor sentiment going into the company's earnings release has 85% expecting an earnings beat The company's guidance was for revenue of $135.00 million to $137.00 million. Consensus estimates are for year-over-year earnings growth of 100.00% with revenue increasing by 45.45%. Short interest has decreased by 21.9% since the company's last earnings release while the stock has drifted higher by 51.1% from its open following the earnings release to be 74.9% above its 200 day moving average of $46.28. Overall earnings estimates have been revised higher since the company's last earnings release. On Thursday, July 30, 2020 there was some notable buying of 2,335 contracts of the $90.00 call expiring on Friday, August 21, 2020. Option traders are pricing in a 13.5% move on earnings and the stock has averaged a 13.6% move in recent quarters.
CVS Health (CVS) is confirmed to report earnings at approximately 6:30 AM ET on Wednesday, August 5, 2020. The consensus earnings estimate is $1.91 per share on revenue of $64.49 billion and the Earnings Whisper ® number is $1.96 per share. Investor sentiment going into the company's earnings release has 75% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 1.06% with revenue increasing by 1.67%. Short interest has increased by 21.9% since the company's last earnings release while the stock has drifted lower by 0.8% from its open following the earnings release to be 5.7% below its 200 day moving average of $66.72. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, July 28, 2020 there was some notable buying of 4,028 contracts of the $85.00 call expiring on Friday, September 18, 2020. Option traders are pricing in a 5.3% move on earnings and the stock has averaged a 4.6% move in recent quarters.
John Vincent's analysis of Berkshire's Q2 2020 common stock portfolio, reproduced here in full
Berkshire Hathaway's 13F stock portfolio value increased from ~$176B to ~$202B this quarter. Their largest three holdings are at ~64% of the entire portfolio. Berkshire Hathaway eliminated the large stake in the big-four airlines and decreased several businesses in the financial sector during the quarter. This article is part of a series that provides an ongoing analysis of the changes made to Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) 13F stock portfolio on a quarterly basis. It is based on Warren Buffett's regulatory 13F Form filed on 08/14/2020. Please visit our Tracking 10 Years Of Berkshire Hathaway's Investment Portfolio article series for an idea on how his holdings have progressed over the years and our previous update for the moves in Q1 2020. During Q1 2020, Berkshire Hathaway's 13F stock portfolio value increased ~15% from $176B to $202B. The top five positions account for more than three-quarters of the portfolio: Apple Inc. (NASDAQ:AAPL), Bank of America (NYSE:BAC), Coca-Cola (NYSE:KO), American Express (NYSE:AXP), and Kraft Heinz (NASDAQ:KHC). There are 41 individual stock positions many of which are minutely small compared to the overall size of the portfolio. Warren Buffett's writings (PDFs) are a treasure trove of information and are a very good source for anyone starting out on individual investing. Note: In Q2 2020, Berkshire Hathaway repurchased ~29M Class B Equivalent Shares for a total outlay of ~$5.1B. The average price paid was ~$176. Book Value as of Q2 2020 was ~$163 per share. So, the repurchase happened at ~108% of Book Value. Over the last few quarters, Berkshire has repurchased shares up to ~140% of Book Value. The Class B shares currently trade at ~$211. New Stakes Barrick Gold (GOLD): The very small 0.28% of the portfolio GOLD stake was purchased this quarter at prices between $18.50 and $28.25 and the stock currently trades at ~$27. Stake Disposals United Continental Holdings (UAL): A minutely small 0.18% UAL position as of Q3 2016 saw a huge ~540% increase in Q4 2016 at prices between $52.50 and $76. 2018 had seen a ~22% selling at prices between $63 and $98. The entire ~8% of the business stake was disposed at ~$28 in April. This is compared to their overall cost basis of ~$55 - lost around half their investment over a holding period of just over three years. The stock currently goes for $36.18. American Airlines (AAL): AAL stake was first purchased in Q3 2016. The original purchase was at prices between $28 and $39 and doubled in Q4 2016 at prices between $36.50 and $50. The entire ~10% of the business stake was disposed at ~$11 in April. This is compared to their overall cost-basis of ~$40 - lost around 75% of their investment over a holding period of just over three years. The stock is now at $13.33. Southwest Airlines (LUV): LUV was a ~1% portfolio stake purchased in Q4 2016 at prices between $38.50 and $51 and increased by ~10% in the following quarter at prices between $49.50 and $59. Q2 2018 saw another ~20% stake increase at prices between $50 and $57. The entire ~10% of the business stake was disposed at ~$30 in April. This is compared to their overall cost-basis of ~$42 - lost ~30% of their investment over a holding period of just over three years. The stock is now at $34.90. Restaurant Brands International (QSR): QSR is a 0.19% of the 13F portfolio position established in Q4 2014 at prices between $35 and $42. It started trading in December 2014 following a mergerename transaction between Tim Hortons and Burger King Worldwide. The stake was disposed during the quarter at prices between $33 and $60. The stock currently trades at $54.42. Note: Berkshire's stake in the business was ~4.2% as of last quarter. Delta Air Lines (DAL): DAL was a very small 0.19% position in Q3 2016. The stake saw a whopping ~850% increase in Q4 2016 at prices between $39 and $52. There was a ~20% increase in Q2 2018 at prices between $49 and $56 and that was followed with a ~8% increase in Q1 2019 at ~$49.50. The entire ~11% of the business stake was disposed at ~$22 in April. This is compared to their overall cost-basis of ~$44 - lost around half their investment over a holding period of just over three years. The stock currently trades at $28.95. Goldman Sachs (GS): GS was a minutely small 0.17% of the portfolio stake as of last quarter. It was established in Q4 2013. Berkshire received $5B worth of warrants to buy GS stock during the financial crisis (October 2008) at a strike price of $115 (43.5M shares) that was to expire October 1, 2013. Buffett exercised the right before expiry to start this long position. Recent activity follows: Q3 2018 saw a ~40% stake increase at prices between $220 and $243 while in Q4 2019 there was a ~35% selling at prices between $197 and $232. Last quarter saw another ~85% selling at prices between ~$135 and ~$250. The remainder position was disposed this quarter. GS currently trades at ~$208. Their overall cost-basis was ~$72 per share. Occidental Petroleum (OXY): The 0.32% of the portfolio OXY stake was purchased in Q3 2019 at prices between $42 and $53 and increased by ~150% next quarter at prices between $37 and $44. The disposal this quarter was at prices between $10.75 and $24.50. The stock currently trades at $14.64. Note: Berkshire also have warrants to purchase 80M shares of OXY at $62.50 per share. That came about as part of a $10B funding deal (perpetual preferred stock with 8% annual dividend) done in May last year. The dividend was paid in common stock rather than cash in April. Stake Increases Liberty SiriusXM Group (LSXMA) (LSXMK): The tracking stock was acquired as a result of Liberty Media's recapitalization in April 2016. Shareholders received one share of Liberty SiriusXM Group, 0.25 shares of Liberty Media Group and 0.1 shares of Liberty Braves Group for each share held. Berkshire held 30M shares of Liberty Media for which he received the same amount of Liberty SiriusXM Group shares. There was a ~40% stake increase in Q2 2017 at a cost-basis of ~$40 per share. This quarter saw another ~27% stake increase primarily through the $25.47 per share rights offering the company announced in May. The stock currently trades at $35.95. Note: LSXMA/LSXMK is trading at a significant NAV-discount to the parent's (SIRI) valuation. Kroger Co. (KR): KR is a 0.37% of the portfolio position established in Q4 2019 at prices between $24 and $29. This quarter saw a ~15% stake increase at prices between $30 and $34. The stock currently trades at $35.39. Store Capital (STOR): The 0.29% STOR stake was established in Q2 2017 in a private placement transaction at $20.25 per share. This quarter saw a ~30% stake increase at prices between $14.50 and $26.50. The stock is now at $25.26. Suncor Energy (SU): The 0.16% SU stake was purchased in Q4 2018 at prices between $26 and $40. Q4 2019 saw a ~40% stake increase at prices between $29 and $33. There was another ~30% stake increase this quarter at prices between $14.25 and $21.30. The stock is now at ~$17. Note: Suncor Energy has had a roundtrip in the portfolio. It was a 0.48% position purchased in Q2 2013 at prices between $27 and $32. That stake was disposed during Q2 and Q3 2016 at prices between $25.50 and $29. Stake Decreases Wells Fargo & Co. (WFC): WFC is now a ~3% of the 13F portfolio position. It is a very long-term stake. Recent activity follows: last year saw a ~25% selling at prices between $43 and $55. This quarter saw another ~27% selling at prices between $22.50 and $33.30. Berkshire's cost-basis is at ~$24.50 and their ownership stake is ~6%. The stock currently trades at $25.30. U.S. Bancorp (USB): The 2.40% USB stake has been in the portfolio since 2006. The original position was tripled during the 2007-2009 time frame. It was then kept relatively steady till Q2 2013 when ~17M shares were purchased at prices between $32 and $36. H1 2018 had seen a ~16% increase at prices between $49 and $58 and that was followed with a ~25% increase in Q3 2018 at prices between $50 and $55. The stock is now at $37.78 and Berkshire's cost-basis is ~$38. They control ~10% of the business. There was marginal selling this quarter. Bank of New York Mellon Corp. (BK): BK is a 1.38% of the 13F portfolio stake. The bulk of the original position was purchased in Q2 2012 at prices between $19.50 and $25. Recent activity follows: 2017 saw a ~180% increase at prices between $43.50 and $55 while 2018 saw another one-third increase at prices between $44.50 and $58.50. The stock currently trades at ~$37.53. There was a ~10% trimming this quarter. Berkshire's cost-basis on BK is ~$46 per share and ownership stake is ~9%. Charter Communications (CHTR): CHTR is a 1.31% of the portfolio position. It was established during the last three quarters of 2014 at prices between $118 and $170. In Q2 2015, the position was again increased by ~42% at prices between $168 and $193 and that was followed with another ~21% increase the following quarter at prices between $167 and $195. The stock currently trades at ~$605 compared to Berkshire's cost-basis of ~$178. The six quarters through Q4 2018 had seen a combined ~25% selling at prices between $250 and $395 and that was followed with a ~20% reduction in Q1 2019 at prices between $285 and $366. Q2 2019 saw a ~5% trimming and that was followed with a ~4% trimming this quarter. JPMorgan Chase (NYSE:JPM): The ~1% JPM stake was established in Q3 2018 at prices between $104 and $119 and increased by ~40% next quarter at prices between $92 and $115. There was another ~20% stake increase in Q1 2019 at prices between $97 and $107. The stock currently trades at ~$102. This quarter saw a ~60% selling at prices between $84 and $114. Sirius XM Holdings: The 0.15% SIRI stake was purchased in Q4 2016 at prices between $4.08 and $4.61. Q2 2017 saw selling: ~20% reduction at prices between $4.70 and $5.50. This quarter saw a ~60% selling at prices between $4.50 and $6.50. The stock is currently at ~$6. PNC Financial (PNC): The 0.28% PNC stake was established in Q3 2018 at prices between $134 and $146 and increased by just over one-third next quarter at prices between $110 and $140. There was a ~40% selling this quarter at prices between $95 and $131. The stock is now at ~$112. M&T Bank (MTB), Mastercard Inc. (MA), and Visa Inc. (V): These small (less than ~1% of the portfolio each) positions were sold down during the quarter. Kept Steady Apple Inc.: AAPL is currently the largest 13F portfolio stake by far at ~44%. It was established in Q1 2016 at prices between $93 and $110 and increased by ~55% the following quarter at prices between $90 and $112. Q4 2016 saw another ~275% increase at prices between $106 and $118 and that was followed with a stake doubling in January 2017 at prices between $116 and $122. There was another ~23% increase in Q4 2017 at prices between $154 and $176 and that was followed with a ~45% increase in Q1 2018 at prices between $155 and $182. Since then, the activity has been minor. The stock currently trades at ~$460. Note: Berkshire's overall cost-basis on Apple is ~$141 per share. They have a ~6% ownership stake in the business. Bank of America: Berkshire established this large (top three) ~11% of the portfolio position through the exercise of Bank of America warrants. The warrants had a strike price of $7.14 compared to the current price of $26.47. The cost to exercise was $5B and it was funded using the $5B in 6% preferred stock they held. There was a ~30% stake increase in Q3 2018 at prices between $27.75 and $31.80 and a marginal increase next quarter. Q2 2019 also saw a ~4% stake increase. Note: Regulatory filings since the quarter ended show them owning 1.032B shares. This is compared to 925M shares in the 13F report. The increase happened at an average cost of ~$25 per share. Berkshire's overall cost-basis is ~$14 and ownership stake is ~12%. American Express and Coca-Cola: These two very large stakes were kept steady during the last ~6 years. Buffett has said these positions will be held "permanently". Berkshire's cost-basis on AXP and KO are at around $8.49 and $3.25 respectively and the ownership stakes are at ~18% and ~9.5% respectively. Kraft Heinz Co.: KHC is currently a fairly large position at 5.13% of the portfolio. Kraft Heinz started trading in July 2015 with Berkshire owning just over 325M shares (~27% of the business). The stake came about because of two transactions with 3G capital as partner: a ~$4B net investment in 2013 for half of Heinz and a ~$5B investment for the acquisition of Kraft Foods Group in early 2015. Berkshire's cost-basis on KHC is ~$30 per share compared to the current price of $35.59. Moody's Inc. (MCO): MCO is a 3.35% of the 13F portfolio stake. It is a very long-term position and Buffett's cost basis is $10.05. The stock currently trades at ~$281. Berkshire controls ~13% of the business. DaVita Inc. (DVA): DVA is a 1.49% of the portfolio position that was aggressively built over several quarters in the 2012-13 time frame at prices between $30 and $49. The stock currently trades at ~$82 compared to Berkshire's overall cost-basis of ~$45 per share. Last quarter saw minor trimming. Note: Berkshire's ownership stake in DaVita is ~30%. VeriSign Inc. (VRSN): VRSN was first purchased in Q4 2012 at prices between $34 and $49.50. The position was more than doubled in Q1 2013 at prices between $38 and $48. The buying continued till Q2 2014 at prices up to $63. The stock currently trades at ~$207 and the position is at 1.31% of the portfolio (~10% of the business). Last quarter saw minor trimming. General Motors (GM): GM is a 0.93% of the 13F portfolio position that was first purchased in Q1 2012 at prices between $21 and $30. By Q3 2017, the position size had increased by around six-times (10M shares to 60M shares). Q4 2017 saw a reduction: ~17% selling at prices between $40.50 and $46.50. There was a ~38% stake increase in Q4 2018 at prices between $30.50 and $38.50. The stock currently trades at $27.86. Overall, Berkshire's cost-basis on GM is ~$32. Q4 2019 saw a ~3% stake increase while last quarter there was marginal trimming. Berkshire controls ~5.2% of the business. Amazon.com (AMZN): AMZN is a 0.73% of the portfolio stake established in Q1 2019 at prices between $1,500 and $1,820 and increased by ~11% next quarter at prices between $1,693 and $1,963. The stock currently trades at ~$3,148. There was marginal trimming last quarter. Liberty Global PLC (LBTYA) (LBTYK): The position was established in Q4 2013 at prices between $37.50 and $44.50 (adjusted for the 03/2014 stock-split) and increased in the following two quarters at prices between $38.50 and $46. The three quarters through Q1 2016 had also seen a combined ~30% increase at prices between $30 and $50. Q2 2016 saw a ~17% further increase at prices between $27 and $39. The stock is now at $21.54 and the stake is at 0.29% of the 13F portfolio. Axalta Coating Systems (AXTA): AXTA is a small 0.27% of the portfolio stake established in Q2 2015 at prices between $28 and $36 and increased by ~16% the following quarter at prices between $24.50 and $33.50. The stock currently trades at $23.90. Berkshire owns ~10% of the business. Teva Pharmaceutical (TEVA): TEVA is a very small 0.26% of the portfolio stake established in Q4 2017 at prices between $11.20 and $19.33 and more than doubled next quarter at prices between $16.50 and $22. The stock currently trades at $11.50. Synchrony Financial (SYF): SYF is a 0.22% of the portfolio position purchased in Q2 2017 at prices between $26.50 and $34.50 and increased by ~20% the following quarter at prices between $28.50 and $31.25. The stock is now at $24.93. Last quarter saw a ~3% trimming. Note: Synchrony is the private label credit-card business split-off from GE that started trading in August 2014 at ~$23 per share. RH Inc. (RH): The 0.21% of the portfolio RH position was established in Q3 2019 at prices between $119 and $174 and increased by ~40% next quarter at prices between $165 and $242. It is now at ~$314. Berkshire controls ~9% of the business. StoneCo Ltd. (STNE): STNE is a 0.27% position purchased in Q4 2018 at ~$21 per share compared to the current price of $48.21. Note: Berkshire has an ~11% ownership stake in StoneCo. In October 2018, WSJ reported that Berkshire had invested ~$300M each in two Fintechs - India's Paytm and Brazil's StoneCo (STNE). The Paytm investment was made in August 2018 while the STNE purchase was following its IPO in October 2018. Biogen Inc. (BIIB), Costco Wholesale (COST), Globe Life (GL), Johnson & Johnson (JNJ), Liberty LiLAC Group (LILA) (LILAK), Mondelez International (MDLZ), Procter & Gamble (PG), SPDR S&P 500 Index (SPY), United Parcel Service (UPS), and Vanguard S&P 500 Index (VOO): These very small positions (less than ~0.5% of the portfolio each) were kept steady this quarter. Note 1: Since November 2015, Warren Buffett is known to own ~8% of Seritage Growth Properties (SRG) at a cost-basis of $36.50 in his personal portfolio. It currently trades at $12.72. SRG is an REIT spinoff from Sears that started trading in July 2015. Note 2: Berkshire Hathaway also has a 225M share position in BYD Company at a cost-basis of ~$1 per share (~$2 per share in terms of ADRs - OTCPK:BYDDY). The ADR currently trades at $18.82.
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