An Evil Market

Realizing all of you have done nothing but bank “fuck you money” this year, I wanted to offer an alternative view of this situation. I believe this market to be hell on earth, a brand of evil not seen since the middle ages.  Similar to ancient torture devices, this tape has designs to “purify” its inhabitants and offer them up to the Lord in sacrifice.

Look over the landscape and you will see mangled automobiles, blown out buildings with body parts festooned on them. Those who’ve survived are shell-shocked, numb to the world around them. For avocation, they play russian roulette and blog all day long about how the devil is literally inside of the NYSE.

This message will reach someone, somewhere, who’s brand new to the market, punk rookie, uninitiated bozo the clown. He will scoff at my prose and chalk it up to “old man at the market” syndrome, whatever the fuck that is.

I missed out on massive SLCA gains; but made gains elsewhere. While it’s true, Exodus did flag oversold yesterday and I was 90% long heading into today’s tape, I have nothing but sheer disdain for everything this market represents, with its morbid predilections for pain and misery, thrusted upon the good folks of the United Steaks,

You’ve got to love Uncle Carl, a million years old, like a vampire, energetic and trying to squeeze out that last billion or two before he goes.

Carl has a position in AIG. Now he wants changes and he wants them fucking now, God  damn it.

His letter to AIG:

Dear Peter:

It is my experience that in Corporate America, even when all available data points to the same undeniable conclusion and when all stakeholders desire the same mutually beneficial outcome, an external force is often still required to effect meaningful and positive change. This is the current situation in which AIG shareholders find themselves. The company continues to severely underperform its peers and is now facing an increasingly onerous regulatory burden which will only further erode its competitive position. Despite definitive action on the part of Congress and regulators to encourage this company to become smaller and simpler by splitting up, you have shown no sign of urgency and have chosen a “wait and see…for years” strategy void of decisive leadership. As a result AIG consistently trades at a substantial discount to book value. It is a “no-brainer” that the simple act of splitting this company up will greatly enhance shareholder value. AIG should immediately:

Pursue tax free separations of both its life and mortgage insurance subsidiaries to create three independent public companies. Each would be small enough to mitigate and avert the Systemically Important Financial Institution (“SIFI”) designation.
Embark on a much needed cost control program to close the gap with peers.
We believe there is no more need for procrastination, the time to act is now. I have already heard from several large shareholders who are frustrated with the lack of clear progress and are supportive of an AIG break up. I cannot fathom how you could ignore repeated requests from shareholders to execute a plan that would release billions of dollars of capital, free the company from onerous excess regulation, and leave shareholders owning stock in three separate, market leading insurance franchises.

“AIG is frankly overdue in following in the footsteps of all other major multi-lines in breaking up Life and P&C into separate companies. By separating into three independent companies, reducing unnecessary corporate overhead, operating at average industry returns, and buying back stock, AIG can trade at over $100 per share – 66% above its current $60 price,” John Paulson, President, Paulson & Co. Inc.

Too Big to Succeed

“We’re beginning to see discussions that these capital charges are sufficiently large it’s causing those firms to think seriously about whether or not they should spin off some of the enterprises to reduce their systemic footprint, and frankly, that’s exactly what we want to see happen.” Federal Reserve Chairman Janet Yellen, February 2014

Despite years of dismantling and selling non-core assets, AIG is still too large. The combination of life insurance and p&c insurance into a single entity offers no net benefit to shareholders (proven by industry low ROE), a fact that has driven other major multiline insurers to aggressively focus on a single line of business. We believe you must acknowledge that the current multiline strategy is not generating competitive returns. Separate monoline companies will be more focused, more efficient, generate better returns and, as a result, command significantly higher market valuations.

Additionally, “Because of AIG’s size and interconnectedness” the Financial Stability Oversight Council (“FSOC”) has deemed AIG a non-bank SIFI, subjecting the company to Federal Reserve oversight and increased capital requirements. We believe you must acknowledge that enhanced regulation is intended to be a tax on size, designed to approximate the cost that large companies impose on the financial system. The regulators have made clear that the best outcome is for SIFI’s to shrink and “reduce their systemic footprint.” If nothing is done, returns and AIG’s competitive position will continue to suffer as the SIFI regulation, including its costs and capital requirements, is fully implemented.

“The other way it [the FSOC Designation Process] can make the system safer is by providing an incentive for designated companies to change their structure or operations so they can reduce the risk they pose and change their designation and the amount of oversight. In many ways [this] outcome is more desirable than the first because it would allow business to find the more efficient way to reduce the risk they pose to the economy.” Senator Elizabeth Warren at Secretary Lew’s testimony before the Senate Banking Committee, March 2015

We believe you should immediately pursue, in the quickest and most efficient manner, a separation of both life and mortgage insurance from the core p&c insurance business. We believe all three companies would be small enough to avert the increased capital requirements and regulations associated with non-bank SIFI status. In the face of a changing and potentially punitive regulatory framework, you must realize that insurance businesses of AIG’s caliber are more valuable to shareholders if held directly than they are as part of a SIFI conglomerate.

Competitive Cost Structure

AIG’s ROE is below its peers not only because of size and capital constraints, but also because of lack of cost control. You have acknowledged that returns are below peers and must be improved, even going so far as to provide a long-term ROE goal of 10%, which is still below peers. At the same time you have suggested returns would not increase by more than 0.5% per year. Amazingly you have turned the quest for a 10% ROE into a half decade journey. The one thing we do agree on is AIG’s lack of competitiveness. Do you honestly think now is not the time for the inevitable AIG transformation? You must be proactive and commit to closing 100% of the ROE gap between AIG and its peers.

It is now incumbent upon you to explain why, despite pressure from the stock price, regulators, and shareholders, the company should not take immediate and transformative action. Achieving these two goals in combination with continued share repurchases is the only realistic path to a healthy and competitive company and, more importantly, exceed the potential of any alternative plan. AIG has taken too long already and we hope you come to the same conclusion. Time is of the essence. We look forward to engaging with management, the Board, and shareholders.

Sincerely,

Carl C. Icahn

When I grow up, I want to be just like Carl.

I sold the best house in a bad neighborhood. The neighborhood got gentrified. Hipsters moved in. And now I want to place myself in a carnivale cannon and shoot myself into a red bricked wall.

Look at SLC, up 25%.

I’ve held this bastard for more than a year, rode it from $40 to $70, back down to drill bits. I averaged down in large quantities down here and capitulated ahead of their earnings report.

Why did I do that?

I drew a line in the sand and decided that I no longer wanted the pain that it was  doling out to me on a daily basis.  You have no idea how frustrated I am today.

I am pleased that the market is up 100 and that all of you are making money, children sucking on jollied ranchers, laughing at my plight. I will move on, like a locust, and destroy the next bear that I find. I will eat him whole (no homo) and enact the vengeance of 10,000 SLCA trades onto his entire bloodline.

Fuckitty fuck fuck fuck.

Do you recall when Italian yields were blowing out in the summer of 2011? Had it not been for european QE, Italy, Greece, Spain, Ireland and France probably would’ve failed and the euro and all of the people who use it–fucking destroyed.

On Tuesday, Italy sold 1.75 billion euros of zero-coupon, two-year paper at a yield of minus 0.023 percent for the first time ever.

The lowest yield paid at an auction of Italian bills had already fallen into negative territory in April, when six-month debt fetched a minimum yield of minus 0.011 percent.

Wednesday marked the first time in which also the average yield and the maximum yields were negative.

This is in stark contrast with a record 6.5 percent yield Italy paid to borrow over six-months in November 2011, when concerns over its public debt — the world’s fourth-largest — mounted amid fears of a possible break up of the euro zone.

For those of you who swear QE does nothing: eat on that Italian sausage. QE saved the fucking world!

Italy, europe’s most indebted nation, can now MAKE MONEY while borrowing it. What a splendid way for the west to finance its way out of a mess, without actually having to do anything at all. Keep spending, eating, drinking, and borrowing. The plebs will pay you to take their money.

I am sure Janet Yellen and her board of retarded governors are reading this tonight, scratching their balls saying “hey, we should raise interest rates.”

Ahead of tomorrow’s Fed meeting, this sort of news can do nothing but help make the case for another round of QE

“Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” said Zhu at a briefing by the China Iron & Steel Association. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.”

China’s mills — the linchpin of the global industry, producing half of worldwide output — are battling against oversupply and sinking prices as local consumption shrinks for the first time in a generation. The fallout from the industry’s struggles is hurting iron ore prices and boosting trade tensions as China’s mills seek to sell their surplus overseas.

“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.”

Now I know what you’re thinking.

“Why do more QE, since it has done nothing for us thus far?”

Oh really? Your science if off, mate. Just because the economy isn’t booming 1999 style, that doesn’t mean QE did nothing. As a point in fact, one could make the argument that without QE the euro would’ve collapsed and all of our stupid, fucking, banks too.

The economy needs more easing because there is deflation. Once the Fed comes around to the facts, stocks will be crashing bears’ fucking skulls again.

Goodnight.

This has to be the single most dysfunctional tech stock on the planet. No wonder why Fred Wilson sold his shares to the ordinary folk. These guys running Twitter are animals.

Revenue will be $695 million to $710 million, the San Francisco-based company said in a statement Tuesday. That compares with analysts’ average projection for $741.6 million, according to data compiled by Bloomberg.

In the third quarter, when Dorsey was still interim chief, the company’s user base grew 11 percent to 320 million, compared with a forecast for 324 million and growth of 15 percent in the prior period. In the U.S., the world’s largest advertising market, Twitter’s user count remained flat at 66 million.

“The lack of meaningful user growth will clearly be a long-term challenge for Jack Dorsey and his team,” Sweeney said.

Twitter shares slumped to $27.69 in extended trading, after rising 1.5 percent to $31.34 at the close in New York. The stock has slipped 13 percent so far this year.

I am long the stock in pretty decent size. The drop in the after-hours, all but wipes out my recent gains and places me in a position to really, really, ardently hate on the dick-smokers running TWTR into the dirt.

Granted,  Jack is now running the company and perhaps he can turn the ship around. But the crux of the issue with Twitter is the lack of new user momentum. Friends and family that I know think Twitter is the dumbest thing ever. Frankly, if you don’t have a defined genre of people worth following, like us in finance, Twitter is one of the most inane concepts to have ever been created.

Finance and news is where Twitter’s true value is. Management should circle the wagons around that and make this thing into a Facebook-like cash cow.

Apple is scheduled to report earnings tonight. Estimates are for $1.88. According to Factset, average revenue estimate is $50.98 billion.

Let’s be honest about Apple. It, like AMZN, is a giant deflationary vortex that constantly draws from the economy to ingratiate itself.  What’s good for Apple is good for Apple, not necessarily good for everyone else. Bear that in mind when trying to extrapolate something from their soon to be reported quarterly earnings.

If, by chance, Apple misses earnings, then the market is entirely fucked. Let’s hope Tim Cook was solely focused on his business and not so much being happy with his sexual orientation.

I added to my JAZZ, XON, COST, CNC  and NK positions, defending and advancing the cause of Le Fly towards all the corners of the globe.

If you recall, last week the WSJ threw Miss Holmes and mega-cap, privately held, blood testing company, Theranos, under the bus.

And now this from the FDA:

Heavily redacted inspection reports, posted Tuesday by the U.S. FDA, said that Theranos’s “design validation did not ensure the device conforms to defined user needs and intended uses.” The name of the device was redacted. In addition, “the design was not validated under actual or simulated use conditions.”

The inspections were conducted Aug. 25 through Sept. 16 at Theranos’s Palo Alto and Newark, California, offices.

In other words, Theranos is full of shit and their magical blood test, which only requires a pin-prick, is most likely a far fetched fantasy.

According to Crunchbase, ATA Ventures, Continental Ventures, Draper Fisher, Tako Ventures, as well as Larry Ellison are investors in Theranos.

Can you say ‘down round’?

It was a nice respite, but now it’s over. The over-arching trend of debilitating deflation has resumed, taking with it wide swaths of market capitalization from the indices. You might be tempted to bottom fish from the sewage infested waters. But you’re only going to capture sick fish, who will eventually die on you.

Might I posit an alternative stance?

Instead of repeating my errors, why not allocate funds into boring stocks that work? My largest position, as of yesterday, was COST.  It’s holding up rather well in this tape, isn’t it? Simply screen for mega cap stocks within 5% of a 52 week high and start from there.

The small cap rally that has alluded us for so long isn’t going to happen now. Very simply, after a 9% move in October, it’s unlikely we’ll get much follow through from here.

I expect the market to tread water from now until January. My job, aside from being the best god damned finance blogger who has ever lived, is to protect gains and maximize my investment dollars by limiting downside and capturing easy upside.

I just don’t see easy gains here. Biotech is down; but are they cheap?

Sure, if we knew AGIO was gonna have killer data, we’d all pile in ahead of the move. But that’s not how the market works, at least not for non-congressmen.

We make assessments and then try to figure out if our conclusions are worthwhile, based on risk/reward metrics. I’ve been rifling through risky shit like crazy these past two years, enduring savage drawdowns and inhumane periods of capital loss.

Those days are over. Le Fly is no longer interested in the Fast Money, a term coined by catamites partaking in heinous acts of degeneracy.

“The Fly” is better than them, better than all of them. You will see the fruits of my labor soon come to fruition.