JP Morgan: Reduce Market Exposure; Don’t Chase Crude

JP Morgan’s global head of equity strategy, Steven Rees, isn’t a fan of this rally. As a matter of fact, it’s already higher than his year end target. As such, ergo, he recommends that you remove the beer bottle from your mouths and collectively sell your stocks in order to reallocate into a dividend stock buying strategy. Granted, this plot of his seems a bit convoluted and a tad hypocritical. After all, if stocks are truly overpriced, why not suggest cash?

Nevertheless, he wants everyone to know, aside from his wanton hatred for equities, he is NOT a fan of oil, especially after bargaining its nefarious way up to $40.

Oh, but he thinks earnings should get much better in the second half of the year, so you might need to ignore everything he just said.

Here we go again. Expect a litany of jargon from these Fed heads, trying to prime us to be painted red by a barrage of Federal Reserve hikes. Just the other day, Bullard suggested that low rates might be causing low inflation. Ergo, we should hike them in order to raise inflation.

The fuck?

Has it occurred to any of these brainiacs that the cause of deflation is DEBILITATING DEBT, which causes fiscal spending to be constrained and unproductive? Just a theory of mine.

Lacker in Paris today:

“The recent data on inflation – because they have come in firmer than expected – suggests that upside risks to inflation have increased maybe not significantly, but I think noticeably and materially,” Lacker said at a central banking conference at the Bank of France in Paris.

“We need to take that into consideration,” he said, adding that he expected core inflation firmer this year than last year and close to 2 percent in 2017.

The U.S. central bank said in its Wednesday policy statement that financial market-based measures of expected inflation were low.

“Although recent declines in inflation compensation do give me some pause, I think the evidence indicates that inflation expectations … remain well-anchored,” Lacker said. He cited studies that suggest public expectations of inflation guide actual price changes.

Let’s see if the market really likes the idea of higher rates, or if it was just kidding when it acted like it did for the past 5 weeks.

Sometimes I think these economists ingest psychedelic mushrooms before penning this cock-eyed stories. Hang on, let me take this shit serious for a second and stop laughing at it. Okay, I’m ready.

In order to avoid a significant overheating in the U.S. economy, the Fed must cease being the central bank for the world and instead return to their station at central bank for America. Moreover, it’s incumbent upon them to stave off debilitating inflation, affected by a rapidly increasing employment index, by hiking rates FOUR times this year.

“One interpretation of the recent moves by the European Central Bank and the Federal Reserve is that they represent coordinated attempt to ease global financial conditions while avoiding upward pressure on the U.S. dollar, especially against the Chinese renminbi,” write Chief Economist Jan Hatzius and Economist Sven Jari Stehn of Goldman Sachs Group Inc, giving a nod to the so-called “Plaza Accord 2.0” theory.

“To guard against significant overheating, we think that the FOMC would want output and employment growth to slow as we enter 2017,” the economists write. “But this seems inconsistent with the current setting of financial conditions.”

Put another way, if the blowout in spreads and strength of the dollar still hasn’t been enough to stop the U.S. unemployment rate from declining steadily—which implies that growth has been above-trend—then that alone is enough evidence to suspect much more tightening is required to rein in activity to a level at which the economy won’t be running too hot.

Goldman estimates that the Fed will need to carry out four rate hikes this year in order to strike this balancing act and avoid a more brisk removal of monetary accommodation later that could tip the economy into recession.

In other words, the strength of the domestic economy will soon force the Fed to return to being the central bank for the U.S., rather than the world.
“If we are right, the Fed’s willingness to keep policy easier for longer in the name of global policy coordination is likely to be short-lived and the funds rate will rise significantly further than currently discounted in the bond market,” conclude Hatzius and Stehn.

Both Hatzius and Stehn are morons of the first magnitude. These economists at Goldman are delusional, playful thinkers, men clad in velcro hoodies playing with their feces inside of rubber rooms.

At this point, the Valeant agony is minimized only by the reduced size in an already tattered position. Firms like Valueact and Pershing Square have endured heinous, unforgivable, losses at the hands of a M. Pearson. The bedraggled CEO of VRX is a fat, disgusting, troll of a man, who circumvents the world in search for orphan drugs, for the explicit purposes of raising their prices.

This business model, once revered by the Wall Street elite, has proven to be woeful.

Here we are, pre-market, and the stock is getting hammered on heavy volume, down 4.5% to $25.77.

As I am writing this, shares are halted with news pending. The way I see it, Pearson has to go, immediately. Since the business model is broken and their debt load is becoming an issue for the never-ending spiraling equity, they need to do a capital raise. At this point, the only thing that can turn the shares around is a takeover of the entire company. Even if that occurred, the geniuses who went long above $200 will never recover their original investment.

The tides have turned, permanently, for VRX and their ilk, which include ENPD and MNK.

It appears the zealots at Marriot have outbid Anbang for the takeover of Starwood. Let’s see if the Chinese step up and bid higher.

This is all very, very boring.

Via Briefing.com

Under the terms of the amended merger agreement, Starwood shareholders will receive $21.00 in cash and 0.80 shares of Marriott International, Inc. Class A common stock for each share of Starwood Hotels & Resorts Worldwide, Inc. common stock. Excluding its timeshare business, the transaction values Starwood at ~$13.6 bln ($79.53 per share), consisting of $10.0 bln of Marriott International stock, based on the closing price of $73.16 on March 18, 2016, and $3.6 bln of cash, based on approximately 170 mln outstanding Starwood shares. Starwood shareholders will own approximately 34 percent of the combined company’s common stock after completion of the merger, based on current shares outstanding.

In addition, Starwood stockholders are expected to receive separate consideration in the form of Interval Leisure Group (IILG) common stock from the spin-off of the Starwood timeshare business and subsequent merger with ILG, currently valued at $5.83 per Starwood share, based on ILG’s share price as of market close on March 18, 2016.

Both companies continue to expect the closing of this transaction will occur well before the planned date of the Marriott-Starwood merger closing. The amended agreement and the ILG transaction have a combined current value of $85.36 per share of Starwood common stock. As a result of extensive due diligence and joint integration planning, Marriott is confident it can achieve $250 mln in annual cost synergies within two years after closing, up from $200 mln estimated in November 2015 when announcing the original merger agreement. This revised agreement offers superior value for Starwood’s shareholders, the ability to close quickly, and provides value creation potential that will allow both sets of shareholders to benefit from improved financial performance.

Who the fuck bids $85.36 anyway? What did they calculate that price in a psyche ward somewhere, to the exact penny? Psychopaths.

Much of the seasonality data is regarded as ‘hocus pocus’, sheer moments of coincidence, by the bookworm crowd. The truth is, often times this hocus pocus stuff can save you an immense amount of coin, simply by following the paths worn out by fellow humans who have travailed similar paths before.

The above chart are the seasonality returns for the SPY, dating back to 1993, courtesy of Exodus. Moreover, the last time the SPY returned greater than 6% was in 2009 and 2010. In both circumstances, the market proceeded higher in April, with a 1.55% return in 2010 and a 9.93% return in 2009.

In May of 2010, however, the SPY plummeted by 7.95%.

Out of more than 200 industries listed in Exodus, just 4 posted negative results over the past month. Those were all in the drug sector, tethered to the obtuse racking of the biotech sector. The selling has been unrelenting and has greatly diverged from the rest of the market.

Interestingly, the top performing sector, by far, year to date, are utilities–currently up more than 14%.

The highest returns over the past month were in energy related stocks, up on average 36%, followed by aluminum (+26%) and Iron/Steel (+26%). Without question, the best performing stocks were the ones down the most in January and February, indicative of a classic dead cat bounce unsupported by improving fundamentals.

It’s also worth noting, tech stocks have lagged the rest of the market during the recent rally, up just 8.3%, representing the lowest return ex-utilities, of all the principle sectors. The tech heavy NASDAQ was up just 5%, compared to the broader based SPY return of +7%.

In other words, tech and biotech have purposely lagged, as degenerates piled in, headlong, into commodities and soon to be bankrupt retail outlets.

Screening for stocks with market caps above $10 billion, these were the standouts over the past month.

PBR +77%
CLR +77%
FCX +55%
BBD +53%
DVN +49%
VALE +41%
TSLA +39%
CX +36%
WY +32%
FCAU +27%
ULTA +27%
WDAY +26%
HPE +26%
AA +26%
FDX +26%
WHR +25%

The average return for stocks with market caps above $10 billion, over the past month was +9.7%. The average return for stocks with caps ranging from $1-5 billion was 12.3%. Markets caps $5-10 billion returned 10.6%. In general, returns were similar in all market cap groupings. The principle divergences were abundant in the tech and biotech sectors.

My take: while the idea of reflation is an alluring one. It is entirely without fundamental backing, as the Chinese economy continues to weaken–hampered by a 260% debt to GDP ratio, slowing growth and account receivables at 16 year highs.

Since the collapse of the Chinese stock market last year, margin lending plunged by 60%, partly thanks to a complete wipeout of the predominant retail oriented investor from the field of battle and also due to restrictions placed on margin lending by the Chinese government. Over the past month or so, things have settled down and a calm normality has replaced the frantic ‘jump out the window’ to meet a margin call trading action.

Obviously, it’s time to lever up the farmer again, by permitting him to margin out his trading accounts to reach ‘peak velocity’ to take full advantage of the coming renaissance.

The rate for 182-day loans will be cut to 3 percent, while that for 91 days will be lowered to 3.2 percent, the agency said. The 28-day lending rate will be reduced to 3.3 percent, while 14-day and 7-day costs will fall to 3.4 percent, it said. In a margin trade, investors use their own money for just a portion of a stock purchase and borrow the rest. The loans are backed by their investments, meaning that they may be forced to sell to repay the debt when prices fall.

China Securities Finance Corp., the state-backed agency that provides funding to brokerages for margin trading, will restart offering loans to securities firms for periods ranging from 7 days to 182 days, according to a statement posted on its website Friday. The agency will cut interest rates on the debt to as low as 3 percent, it said. China’s offshore equity-index futures rose.

“The loosening could reignite interest in the equity market, particularly as the regulators’ actions last year — to rein back private sector broker leverage — helped trigger the correction in equity prices,” said Koon Chow, senior macro and currency strategist at Union Bancaire Privee in London. “”It does look like they want a second chance at growing the equity market. We shall all be watching very closely whether leveraged buying of the equity market balloons again.”

Money is cheap in China and so are people.

Account receivable are roaring in China, up 23% over the past two year to an amazing $590 billion. In some heavy industrial sectors, the days to collect revenues have swelled to over 1,000. Overall, median collection days stand at 83, highest of all industrialized countries in the G-20, with exception to the deadbeat shoe shiners in Italy.

“It’s a big problem when you have rising insolvencies, a bad economic environment and less liquidity for small companies,” said Mahamoud Islam, the firm’s senior Asia economist in Hong Kong.

Those headwinds are increasingly visible in Chinese financial statements, where the accounts receivable and sales entries allow analysts to calculate “days sales outstanding,” or how long it takes a firm to get paid. The median collection time of 83 days, compiled by Bloomberg from the most-recent filings of mainland-domiciled firms, has climbed from 79 days in 2014 and 55 days in 2010. It’s higher than in any of the world’s 20 biggest economies except Italy, and compares with the 44-day median for companies in the MSCI Emerging Markets Index.

Chinese industrial firms take longest to convert sales into cash, at 131 days, followed by 120 days for technology companies and 118 days for telecommunications firms. While it varies by sector, a reading of more than 100 days is typically a “red flag,” said Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City, Utah. She’s been avoiding companies in the infrastructure and environmental-protection industries in part because they’re taking too long to collect payments.

“It could indicate future cash flow problems” or that a company is booking revenues too aggressively, said Sunderland, whose Global Opportunities Fund has gained an annualized 9.4 percent over the past three years, beating 94 percent of peers tracked by Bloomberg.

The trend of longer collection periods isn’t going to end anytime soon, according to Chen Xingdong, chief China economist at BNP Paribas SA. The former World Bank official sees at least two more years of delayed payments as companies struggle to reap better terms from their customers.
“The hard time is still ahead,” he said.

Year to date, the Chinese markets are down by a mere 6%, as bullish spirits persist amidst a litany of impending bankruptcies, which are on track to jump by 20% in 2016.

I love monopolies. Just like the good folks at House DuPont patented the color white, these two combined giants will crush the purses of Home Depot shoppers everywhere.

Ok, I’m exaggerating a bit. But this deal does combine two giant manufacturers of paint, something that is bound to provide them with the subtle, yet indelible, comforts of “pricing power.”

Sherwin-Williams will pay $113 a share in an all-cash transaction, the companies said Sunday in a statement. The price is about 41 percent higher than Valspar’s volume-weighted average price for the 30 days through March 18, according to the statement. Valspar closed on Friday at $83.83.

John Morikis, chief executive officer of Sherwin-Williams, is forging the company’s biggest deal ever less than three months after succeeding longtime CEO Christopher Conner. With Valspar, the company adds $4.39 billion of paint sales to its 2015 total of $11.3 billion

I can’t think of any ancillary winners from this deal, just an overall bullish statement for the home improvement market.