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Macro

MNI US DataWatch


The February 8 week is fairly light, with the most important data report, retail sales, not coming until Friday. Prior to that, the Treasury will issue its monthly budget statement on Wednesday and weekly jobless claims will be reported on Thursday. The University of Michigan’s early February sentiment index and business inventory data for December will both be reported at 10:00 on Friday.

Here is a closer look at the key data in the coming week:

TREASURY BUDGET STATEMENT FOR JANUARY, WEDNESDAY, FEBRUARY 10 AT 2:00 P.M. ET

The U.S. Treasury is expected to a post a $16.0 billion budget gap in January, down from the $17.5 billion gap in January 2015. Some January outlays were shifted into December, resulting in lower outlays in January.

WEEKLY JOBLESS CLAIMS FOR FEBRUARY 6 WEEK, THURSDAY, FEBRUARY 11, AT 8:30 A.M. ET

The level of initial jobless claims is expected to rise by 2,000 to 287,000 in the February 2 week after an 8,000 increase in the previous week. The four-week moving average rose by 2,000 to 284,750 in the January 30 week and should rise by another 1,000 in the current week as the 283,000 level in the January 9 week will roll off the four-week average calculation, assuming the MNI forecast is correct and there are no revisions.

Seasonal adjustment factors expect unadjusted claims to decline very slightly in the February 6 week after rising by 16,296 in the previous week, when the snow storms in the East may have been a factor. In the comparable week a year ago, unadjusted claims rose by 17,515, compared with the small decline that seasonal adjustment factors had expected, so seasonally adjusted claims rose by 18,000 that week.

RETAIL SALES FOR JANUARY, FRIDAY, FEBRUARY 12, AT 8:30 A.M. ET

Retail sales are forecast to rebound by 0.1% in January after a 0.1% decline in December. Seasonally adjusted industry motor vehicle sales accelerated modestly in January, AAA reported that gasoline prices declined further in mid-January compared with one month earlier. Retail sales are expected to be flat excluding motor vehicles after December's 0.1% decline.

In the last 20 January reports, there have been 12 overestimates averaging 0.29 percentage point and only four underestimates averaging a much larger 0.95 percentage point due to two large outliers. The absolute average miss over the last 20 years was 0.37 percentage point, smaller than the 0.46 average in December due to large underestimates in 2006 and 2009. Over last 10 years, the absolute average miss was 0.53 percentage point, larger than the 0.45 average in December, with five overestimates and three underestimates, including those two outliers.

For non-auto sales, there have been seven overestimates in January over the last 20 years, averaging 0.30 percentage point and ten underestimates averaging 0.50 percentage point. The absolute average miss was 0.36 percentage point, the same as in December. Looking at the last 10 years, the absolute average miss was 0.38 percentage point, smaller than the 0.51 percentage point miss over the same period in December, with four overestimates and five underestimates, including outliers in 2006 and 2009.

PRELIMINARY MICHIGAN SENTIMENT FOR FEBRURY, FRIDAY, FEBRUARY 12, AT 10:00 A.M. ET

The Michigan Sentiment index is expected to hold steady at a reading of 92.0 in early-February.

BUSINESS INVENTORIES FOR DECEMBER, FRIDAY, FEBRUARY 12, AT 10:00 A.M. ET

Business inventories are expected to rise by 0.2% in December. Factory inventories rose 0.2% in the month, while factory shipments fell 1.4%. Retail trade sales fell 0.2% in December in the advance estimate.

MNI is a wholly owned subsidiary of Deutsche Börse Group.

This article is from Market News International (MNI) and is being posted with MNI’s permission. The views expressed in this article are solely those of the author and/or MNI and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8583




Stocks

Still No Margin of Safety in LinkedIn Shares


The professional networking site’s shares tumbled on poor 2016 guidance, but that doesn’t mean they are a good value today, writes Morningstar’s Neil Macker.

 

LinkedIn (LNKD) reported a strong end to 2015 driven by strong performance across all three segments. Despite beating four-quarter consensus projections, management provided weaker-than-expected 2016 guidance on both the top and bottom lines. While management has been conservative with full-year guidance in the past, the 2016 guidance came in lower than our previous projections and well below consensus estimates. We reaffirm the company's wide moat rating but are lowering our fair value estimate to $155 due to lower revenue growth expectations in 2016 and beyond as well as slower margin expansion than previously modeled. Given our lower fair value estimate, we don't believe the share price provides a large enough margin of safety at this time and we would encourage investors to wait before allocating new money to the name.

LinkedIn posted strong double-digit growth in all three segments (talent solutions, marketing solutions, and premium subscriptions) for the fourth quarter, growing total revenue by 34% (37% excluding currency effects) to $862 million. Talent solutions, the largest segment, grew 45% as the company's registered members exceeded 400 million for the first time. Along with the 19% growth in members, the firm also posted 40% annual growth in members sharing content and doubling of open job listings. The large growth in usage by both members and corporations highlights the company’s unique position at the top of the professional social networking market as well as the sticky nature of its platform.

Management continued to focus on growth and engagement this quarter, strengthening our belief that LinkedIn remains focused on user experience over near-term revenue contribution. The firm launched its new flagship mobile app last quarter which allows R&D to quickly test out new features. LinkedIn will also launch new products in 2016 for recruiters including an easy-to-use suite of all hiring tools and launching tools to help with long-tail hiring.

Morningstar provides a constant source for investment ideas with our comprehensive analyst reports on equities, ETFs, and credit ratings from more than 100 analysts. U.S. Interactive Brokers clients can sign up for a free trial of these reports in Account Management.
 

This article is from Morningstar and is being posted with Morningstar's permission. The information provided in this article is from Morningstar and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8581




Fixed Income

MNI U.S. Risk-O-Meter


Sales of new investment-grade corporate bonds plunged from last week’s level, as recent market turbulence, underscored by oil price instability, some weaker-than-expected domestic economic data, fears about China's economic health, slowing global growth, as well as a host of geopolitical uncertainties spurred caution in the primary market. The backlog of new deals has been swelling as many issuers await a more stable backdrop for entry. Supranational organizations and foreign agencies topped supply volumes, followed by the Consumer Discretionary sector. Home Depot, Inc’s $3.0 billion, three-part bond was the largest offering of the week. Credit quality selection was a little less diverse, with ‘AAA’- (43.74%) and ‘A’-rated (39.56%) deals comprising the lion’s share compared to last week’s ‘BBB'-dominated offerings. Also, U.S. based (44%) and non-domestic issuers (56%) remained evenly distributed.

Keep pace with the latest corporate news with MNI's US Risk-O-Meter, a weekly recap of credit risk appetite! For more information and a full version of the US Risk-O-Meter, email Steven Levine at steven.levine@mni-news.com. Click here for more about MNI.
 

This article is from Market News International (MNI) and is being posted with MNI’s permission. The views expressed in this article are solely those of the author and/or MNI and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8582




Stocks

BNP's Arthur Kwong Says Investors Are Too Gloomy


The fund manager sees a better year for stocks helped by cheap oil. Why he likes India and Southeast Asia.

 

If China has become investor worry number-one, perhaps it’s time to stop measuring markets relative to a calendar conceived in Rome and instead mark time to the Middle Kingdom’s lunar zodiac.

This being the final trading day of the Year of the Goat, we can thus brush all of what’s happened in 2016 so far under that caprine rug and move on happily to a more promising period, the Year of the Monkey. That 8% tumble in Asian stocks since Dec. 31? Blame it on the Goat. And the 16% slump in Asian stocks this lunar year? No point bleating about that anymore.

To get some sense of what a simian future for stocks may look like, I sat down to chatter with BNP Paribas’ head of Asian equities, Arthur Kwong. Kwong manages three of BNP’s big Asian funds: the 68 million Euro Parvest Equity High Dividend Pacific fund, the 110 million Euro Parvest Equity Pacific Ex-Japan fund, and the 525 million Euro ($586 million) Parvest Best Equity Selection ex-Japan fund. All three lost money last year in dollar terms, but managed to lose a lot less than their respective benchmarks. In a beard-pulling year, that’s not baaad.

Kwong predicts the Year of the Monkey will give investors something to whoop about. The year of the goat is never looked on with much cheer in Chinese culture, he points out. Prospective parents – and investors – favor the year of the dragon, horse, tiger and the monkey.

If an auspicious astrological animal puts investors in a better humor, so much the better. This year of the monkey is associated with the element fire in Chinese astrology. The last time we had a fire monkey year was in February 1956, a year during which the Dow Jones Industrials Average rose just 3%. Water monkeys seem to fare better: the Dow rose 12% back in 1944 and the MSCI World Index climbed 7% in the fire monkey year that began in late-January 2004.

Kwong isn’t relying on geomancy to allocate his portfolios; he’s counting on more temporal factors: low oil prices and the prospect for the U.S. Federal Reserve to raise interest rates.

Markets have been interpreting both as bad joss. Low oil prices are part of what investors worry is global demand so weak the world is teetering on the brink of a new recession, even deflation. And they fear higher U.S. interest rates – after its first rate hike in almost a decade last December the Fed was contemplating four more 0.25 percentage point increases this year – will make it worse.

Kwong thinks investors are bananas. “People are too negative,” he says. The International Monetary Fund recently lowered its forecast for global growth in 2016. But it still sees it clocking 3.6%, the fastest rate since 2011. China’s slowdown – the IMF sees its growth rate falling to 6.3% this year, it’s slowest since 1990 – is putting a brake on emerging Asia, Russia and Latin America that feed it with raw materials. But growth everywhere else is still accelerating.

Virtually all of Asia still imports oil and petroleum products, so low oil prices – Brent crude has fallen 43% in the Year of the Goat – are good news, Kwong argues. And even if the Fed makes good on its plan to jack up rates every quarter, it would only push its benchmark to 1.25%, hardly high enough to pull healthy Asian businesses under, he says.

Kwong hopes the Fed forges ahead with rate hikes to weed out highly leveraged investors using cheap dollars to drive up asset prices indiscriminately. That’s a point a number of strategists, central bankers and this column have made before: the cheap money used to pull the global economy out of recession has fed a global misallocation of capital, supporting investors and companies that may be ruined by an end to ultra-cheap credit, but depriving more promising companies of capital and making it harder for investment professionals to outperform the broader market. Even a monkey can make money when rates are zero – or below it.

SO WHICH MARKETS DOES HE LIKE? While Kwong is bearish on South Korea and neutral on Taiwan, he’s a big fan of India and Southeast Asia.

India, he says, is blissfully isolated from the China-led slowdown in emerging markets. On the contrary, he says, India benefits from falling oil prices and stands to benefit from lower prices for the Chinese machinery it needs to build its infrastructure. While the overall market looks relatively pricey, Kwong recommends hunting for value among banks, pharmaceutical, technology and consumer-related stocks.

In Southeast Asia, Kwong advises ignoring the headlines to focus on fundamentals: a young and growing population with relatively low wages that is luring massive investment from slower, aging economies like China, Korea and Japan. As China slows, for instance, its businesses are pushing south into Vietnam.

Kwong says he’s looking past Malaysia’s unfolding political scandal and its beleaguered commodities sector to focus on domestic consumer and property stocks. Presidential elections loom in the Philippines, but its political climate hasn’t been so stable in years.

And while headlines about the political obstacles facing Indonesia’s President, Joko Widodo, may send other foreign investors scurrying, Kwong says they help him better understand the local economy and which sectors stand to benefit. “I understand the noise,” he says. “You don’t want a market without noise.”

If Kwong is right, don’t be alarmed by that screeching you hear in Asia’s markets. That’s just the sound of the fire monkey getting ready to climb.

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

8580




Stocks

Danger Zone: Lowlights From 2015


Last week we covered some of the best Danger Zone calls from 2015. We did not include SolarCity (SCTY), which is down 27% since being put in the Danger Zone. It fell 22% just this past week as Nevada raised fees and cut credits on solar power. We named this event as a likely catalyst that would help drive the stock to as low as $9/share.

While we may have been wrong in 2015, the underlying issues that led to these companies being placed in the Danger Zone in the first place remain present. In fact, 2016 is already proving tough for investors holding these stocks, as seen in Figure 1.

Sources: New Constructs, LLC and company filings

Netflix (NFLX) ­– published February 2: Up 81% while the S&P 500 was up 1%

We first placed Netflix in the Danger Zone back in November 2013 and despite the market completely ignoring the flaws in the business model; we remain steadfast in our belief that Netflix, while a great product for consumers, is not a great company.

Netflix is an example of when the market has chosen to ignore shortcomings so long as Netflix keeps reporting strong revenue growth and impressive subscriber growth (in other words, a non-GAAP metric). We still believe that Netflix will face its day of reckoning and shares will collapse because of many reasons, three of which are highlighted below.

  1. The company’s business is extremely costly to run. Soaring costs undermine any revenue growth Netflix reports. Netflix’s increasing streaming content costs, which we pointed out in April 2014 remain the main culprit of soaring costs. Additionally, the way Netflix accounts for its streaming content allows management to understate the true cash costs of content on its income statement. In fact, from 2011-2014, Netflix’s cash payments for content were nearly $1 billion higher than its reported content costs.
  2. Netflix is burning through cash. The accounting trickery above allows Netflix to report positive GAAP net income while free cash flow remains negative and is only getting worse. The cash burn has led Netflix to turn to the capital markets numerous times since 2010. As Netflix continues burning through cash, will investment banks be willing to continue lending the company money that is failing to generate adequate returns?
  3. Valuation requires unbelievable subscriber numbers. We’ve previously pointed out just how overvalued Netflix is by quantifying how many subscribers the company would need to justify its current valuation. At it current price of $108/share, NFLX would have to grow profits by 28% compounded annually for the next 19 years. In this scenario, the company would be generating $804 billion in revenue in 19 years, which at $9.99/month would imply Netflix has 6.7 billion worldwide subscribers. For reference, at the end of 3Q15, Netflix had 69 million worldwide subscribers and the global population is right around 7 billion.

While we have been wrong on Netflix in the past, the tide may be turning as Netflix fell 7% alone on January 13. With 4Q15 earnings scheduled for January 19, the moment investors realize Netflix’s “growth story” is unsustainable may be just around the corner. Netflix still earns our Dangerous rating and we see no reason to remove it from the Danger Zone.

Wayfair (W) – published March 30: Up 42% while the S&P 500 was down 2%

When we published our report on Wayfair in early 2015, we pointed out that the company was an unprofitable business entering a highly competitive industry, online retail. The business was reporting significant revenue growth, but after-tax profit (NOPAT) was in a steep decline and Wayfair’s return on invested capital (ROIC) was well below that of the competition.

We weren’t alone in believing that Wayfair had little ground to stand on in its industry, as notable short seller Andrew Left of Citron Research called Wayfair “the best short in years” and hedge fund manager Whitney Tilson announced that Wayfair was his largest short position. In fact, at the time of writing, short interest in Wayfair stood at 76% of the float, an amount that has since declined to around 40% of the float.

Despite the negative attention surrounding Wayfair, the stock was able to rise after reporting quarterly earnings that showed excellent growth in many metrics, such as revenue, adjusted EBITDA, or active customers. While many of the metrics Wayfair focuses on are non-GAAP, which allows them to hide subpar GAAP measures, the one item they have still failed to report is positive profits. With no profits, a -77% ROIC, and -11% NOPAT margin, we still fail to see how Wayfair creates a competitive advantage for its business, which must compete with retail giant Amazon (AMZN), as well as many smaller online retailers such as Overstock (OSTK) or Zulily, which was recently acquired by QVC.

The only thing the share price increase has done is caused W to become even more overvalued. To justify its current price of $41/share, Wayfair must immediately achieve 1% pre-tax margins (similar to Amazon or Overstock), and grow revenue by 30% compounded annually for the next 14 years. In this scenario, Wayfair would be generating $39 billion in revenue 14 years from now, which is equivalent to Best Buy’s 2015 revenue and greater than that of Nike’s 2015 revenue.

While Wayfair ended 2015 up 42% from our Danger Zone report, the stock has fallen 21% so far in 2016 and in volatile markets such as the one we’re facing now, could fall much further. In fact, Wayfair still earns our Very Dangerous rating.

athenahealth (ATHN) – published April 13: Up 26% while the S&P 500 was down 2%

athenahealth continued on a topic we focused on multiple times throughout 2015, high revenue growth cloud companies. See BOX, DWRE, SPLK, MKTO, or QLIK for cloud stocks that have outperformed as shorts since publish date. athenahealth serves the health care industry through electronic health records, and similar to other cloud software companies, had been reporting yearly revenue growth upwards of 30% The problem with this revenue growth was that it was becoming increasingly costly. When ATHN went public in 2007, it earned a NOPAT margin of 6%. Flash forward to 2014 and athenahealth’s NOPAT margin had contracted to 0.5%. Even worse, over the trailing twelve months NOPAT margin has fallen to 0%.

Perhaps most alarming was that the problems athenahealth was facing weren’t always an issue. As the electronic health record market became more lucrative, athenahealth saw its profitability collapse. Prior to 2012, ATHN earned a double digit ROIC and was growing economic earnings each year from 2007-2012. However, in 2013, after large competitors Cerner and Allscripts had joined the race athenahealth started losing its competitive edge. Compounding the increased competition, a 2013 re-assessment of a prior industry report found the adoption of services provided by ATHN and competitors had failed to produce savings and had mixed efficiency results for users. In the two years following this reassessment, revenue growth slowed, ROIC plummeted to 0%, and economic earnings turned negative.

Despite all the above, investors piled into ATHN in 2015 which helped drive the stock up 40% from its August lows. Unfortunately for these investors, the ride may come to an end when athenahealth reports earnings in early February. ATHN has fallen 6% so far in 2016 and its valuation remains alarmingly high. To justify its current price of $154/share, athenahealth must achieve pre-tax margins of 2.5% (last achieved in 2013) and grow NOPAT by 36% compounded annually for the next 23 years. When you remind yourself that ATHN hasn’t grown NOPAT since 2011 and its clear to see how overvalued ATHN has become. ATHN still earns our Very Dangerous rating.

Jarden Corporation (JAH) – published October 26: Up 21% while the S&P 500 was down 1%

In our initial report we noted that not only was Jarden destroying shareholder value through share dilution and debt issuance, it was doing so for the direct benefit of executives. Due to their executive compensation structure, Jarden executives were incentivized to grow EPS at any cost. With no regards to the economics of the business, Jarden began a long-term acquisitional growth strategy, which as we have pointed out before, due to the high-low fallacy, can artificially manufacture EPS growth while destroying shareholder value.

In addition to a misaligned executive structure, the acquisition’s that Jarden executing were becoming more inefficient. While Jarden once earned a 13% ROIC in 2002, over the trailing twelve months Jarden’s ROIC has fallen to 5%. With such a low ROIC, Jarden held little competitive advantage in the numerous markets it had entered over the years. Without acquisition, Jarden would be revealed to be the roll-up scheme that it had become.

In the Danger Zone report we noted that any potential suitor willing to acquire Jarden would have to integrate many business lines and products. We did not expect that such a suitor would arise when Newell Rubbermaid, a company placed in the Danger Zone in August 2014, announced it would be acquiring Jarden. Unfortunately for investors in NWL and JAH, this deal will not fix any of the issues in either business model, but will certainly help executives get paid.

To highlight just how bad of an acquisition this would be, we further expanded our analysis when we put the NWL/JAH acquisition in the Danger Zone. When analyzing these businesses, NWL, a business in decline, was acquiring JAH, a business with a long history of shareholder value destruction. Worst of all, the biggest “benefits” of the deal, as explained by NWL executives, just so happened to be growth in the exact metrics that determined executive compensation at Newell Rubbermaid. So once again, regardless of the economic impact, NWL executives would be able to meet or beat their target performance goals, and thereby receive a bigger payout.

While the initial pop of JAH led to the stock making this list, JAH is down 11% in 2016, which has erased any gains investors could have received due to exuberance over this acquisition. Could it be that investors are realizing that this deal only exists to line the pockets of executives?

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector, or theme.

About New Constructs

We find it. You benefit. Cutting-edge technology enables us to scale our forensics accounting expertise across 3000+ stocks. We shine a light in the dark corners of SEC filings so our clients can make safer, more informed decisions.

Our stock rating methodology instantly informs you of the quality of the business and the fairness of the stock’s valuation. We do the diligence on earnings quality and valuation so you don’t have to.

In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a "Buy" rating, Very Dangerous and Dangerous correspond to a "Sell" rating, while Neutral corresponds to a "Hold" rating.

Cutting-edge technology enables us to scale our forensics accounting expertise so that we can cover enough stocks to cover the ETFs that hold them as well. Learn more about New Constructs. Get a free trial. See what Barron’s has to say about our research.

This article is from New Constructs, LLC and is being posted with New Constructs, LLC’s permission. The views expressed in this article are solely those of the author and/or New Constructs, LLC and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


8579




Options

Profit From VIX to Play March FOMC Meeting


Options investors are embracing heaven or hell trades ahead of the next Federal Reserve meeting.

 

Heaven or hell trades are starting to dominate CBOE Volatility Index trading as investors prepare for the Federal Reserve’s March meeting.

Over the past few days, investors have begun assembling large VIX call positions that coincide with the March 15 to 16 meeting of the central bank’s rate-setting committee. Nothing is expected to happen at the meeting, but investors are leaving little to chance.

If the Federal Open Market Committee raises interest rates, the stock market would likely decline, perhaps sharply, and VIX would rally. If the Fed holds steady, stocks would likely rise, albeit modestly, and VIX could decline. Investors who expect the VIX to rise further can buy the Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures ETN (ticker: VXX).

An investor recently bought 50,000 VIX March 30 calls and sold the same number of VIX March 40 calls. The “spread” cost $1 and expresses a view that VIX, recently around 22, could surge to 40 by March expiration. Should that happen, stock prices would be sharply lower. The big trade was preceded by a 100,000 contract spread trade in the same strikes.

Other positioning in VIX includes the sale of 162,000 March 30 calls and the purchase of 81,000 March $23 calls, which produced a two-cent credit. This trade indicates an investor has found a way to get paid to own volatility and wager on a volatility spike.

To be sure, these VIX trades were almost certainly executed by money managers at hedge funds or mutual funds. They are the only ones who have such large investment portfolios and the ability to manage massive derivatives positions.

Unless your desk is a bank of computer screens, and lunch is often a bottle of Pepto-Bismol, consider a simpler approach for pre-positioning around March’s Federal Reserve meeting.

With VIX recently around 22, look to buy March 23 calls that were recently offered at $2.60. The trade proves profitable if the stock market sinks and VIX surges. If VIX hits 30 by expiration, the calls are worth around $7.

If you want to keep it even simpler – and VIX is a tricky trade because it prices off VIX futures -- buy puts on the SPDR S&P 500 ETF Trust (SPY). So far, about 600,000 March $175 puts have traded. The majority of the puts were bought. If you want to get in on another of Wall Street’s crowded Fed trades, the March $175 put was recently around $1.54. If the stock market tanks, and drops to $170, the put is worth $5.

Get investing analysis that moves stocks and markets—Subscribe to Barron’s for just $1 a week.
 
This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

8578




Stocks

Nasdaq Market Intelligence Desk - Equity Market Insight February 5, 2016


Market Update:

Equities in the US are lower this morning after a lower-than-expected Nonfarm payroll figure, and the US dollar is bouncing off its 3 month low. Surprisingly, crude oil is trading higher and not following (or leading) the broader markets. Consumer Discretionary and Info Technology are the worst performers, down 2.6%, and 2.5%, respectively.

  • In a closely watched payrolls number (aren't they all) ahead of the Fed’s March meeting, the US reported a much lower than expected increase in nonfarm payrolls of 151,000, well below the estimate of 190,000. Private payrolls rose 158,000 vs. a survey estimate of 180,000. The unemployment rate moved to 4.9% compared to the prior 5% reading. This is the first time since 2008 that the rate is below the psychologically important 5% barrier.
  • Labor participation ticked up 0.1% to 62.7% of the population and the “underemployment” rate was unchanged at 9.9%. The Dollar was little changed on the report and equities sold off initially. We would not be surprised for the market to move higher upon reflection. There seems to be something for everyone. Inflation doves can point to slow job growth. Hawks can point to the 4.9% unemployment number and the fact there is job growth. Still, almost no one expects the Fed to increase rates in March.  
  • In 2016, there has been a wave of offers coming from Chinese companies this year to acquire US-based companies. Reported by Bloomberg, “Businesses from Asia’s largest economy have announced $70 billion of cross-border acquisitions and investments this year, on track to break last year’s record of $123 billion.” One eye-catching headline this morning is that the Chicago Stock Exchange has agreed to sell itself to a Chinese Led group, Chongqing Casin Enterprise Group.
  • In a nod to Sunday’s game, we provide below the chart for the USDA Georgia Dock Chicken Ready To Cook Wings Spot Price (yes, there is such a thing). This is one of our favorite Bloomberg charts, simply because it exists. Over the past 5 years, the index price has spiked heading into the Super Bowl, for unsurprising reasons.  Americans reportedly eat 1.25 billion wings on game day (source: National Chicken Council). We bet we could find similar charts for pizza, beer, large-screen TV’s and antacid sales.    
  • Tyson Foods was higher by over $3 pre-open after reporting better than expected results and guiding the full year higher. By the way, Wingstop (NASDAQ:WING) rang the opening bell at our Times Square location this morning. 



Technical Take:

As of 11:00 AM EST
Nasdaq Composite:
Advancers: 533
Decliners: 1769
Advance Volume: 19MM shares
Decline Volume: 146MM shares
New 52 week Highs (prior close): 24
New 52 week Lows (prior close): 90


A poor-to-mixed jobs report has been met by the thought course of least resistance (negatively) as futures immediately weakened upon its release and continued to slide after the open. In this and the many earnings land mines we’ve seen so far this season we’re reminded that among the most difficult encumbrances for a market to overcome or even accurately quantify is degraded investor sentiment. While it leads us back to the longer term conclusion we’re in a tough spot for equities which will take time and/or points to the downside to remedy, in the near term indices must hold support for the weekly close today.  

  • Much like yesterday, the S&P 500 Index (SPX) has been bouncing around support of the 1900 level, with investors lacking confidence to push higher and weighing the benefit to the downside. A weekly close below 1900 increases the likelihood of an 1850 – 1810 retest and lower levels in our opinion. At the same time a weekly close above 1950 indicates the rally is still alive and could grind higher in coming sessions; anything less but above 1900 and the jury is still out. See the weekly chart below where what looked like a promising reversal the other week only has disappointed so far, nearly wiping out all of the open to close gains from 1/22 week through the end of last week.
  • The Nasdaq Composite Index (CCMP) only marginally held support at 4500 yesterday and is on its lows for the day right now, 4423 and falling. The other day saw intraday lows at 4424 which some traders may see as a possible pivot. Equities as a whole though seem heavy and appear to want to move lower. 4400 – below 4300 would be the support zone that the index seems destined for. 

Nasdaq's Market Intelligence Desk (MID) Team includes:  

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.
Vincent Randazzo, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 13 years of experience in equity markets having served in equity research sales and desk analyst roles at major banks. Vincent’s specific expertise is in technical analysis and has been a Chartered Market Technician (CMT) since 2007.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8577




Stocks

Most Active OTCQX and OTCQB Securities by Dollar Volume - January 2016


In January, $16.6 billion was traded on the OTCQX Best, OTCQB Venture and Pink Markets, an increase of $1.3 billion from December.

Below are the top 20 most active securities on the OTCQX and OTCQB markets for the month of January.

OTCQX Highlights

Roche Holding Ltd. (OTCQX: RHHBY) continued to be the #1 most active OTCQX security in January, trading $939 million in dollar volume during the month.  #2 was BG Group PLC (OTCQX: BRGYY), which traded $330 million, followed by BNP Paribas (OTCQX: BNPQY) ($212M), Danone (OTCQX: DANOY) ($204M) and Allianz SE (OTCQX: AZSEY) ($136M).

New to the top 20 most active OTCQX list in January were:

-    Heineken N.V. (OTCQX: HEINY)
-    Kingfisher plc (OTCQX: KGFHY)
-    Technip (OTCQX: TKPPY)

OTCQB Highlights

Fannie Mae (OTCQB: FNMA, FNMAS) and Freddie Mac (OTCQB: FMCC, FMCKJ) continued to be the most actively traded OTCQB securities in January.

SolarWindow Technologies, Inc. (OTCQB: WNDW), a new addition in December, remained on the list in January.
Eight securities were new to the 20 most active OTCQB list in January:

-    CytoDyn Inc. (OTCQX: CYDY)
-    Fannie Mae (OTCQB: FNMAP, FNMFN, FNMAJ)
-    Farmers & Merchants Bank of Long Beach (CA) (OTCQX: FMBL)
-    Hydrocarb Energy Corporation (OTCQX: HECC)
-    PURE Bioscience (OTCQX: PURE)
-    Sunshine Biopharma Inc. (OTCQX: SBFM)

Sino Agro Food Inc. (OTCQX: SIAF), which was one of the most actively traded OTCQB securities in December, upgraded to the OTCQX Best Market in January.

To view the real time best bid/ask data for 10,000 OTCQX, OTCQB, and Pink securities, customers of Interactive Brokers can subscribe to OTC Markets Group data in Account Management.
 
OTC Markets Group Inc. (OTCQX: OTCM) operates Open, Transparent and Connected financial markets for 10,000 U.S. and global securities.  Through our OTC Link® ATS, we directly link a diverse network of broker-dealers that provide liquidity and execution services for a wide spectrum of securities.  We organize these securities into markets to inform investors of opportunities and risks: the OTCQX® Best Market; the OTCQB® Venture Market; and the Pink® Open Market.  

OTC Markets Group continues to be the global leader in exchange graduates, advancing more than 450 companies to the New York Stock Exchange, NASDAQ and NYSE MKT since 2009. In 2015, 60 companies graduated from the OTCQX, OTCQB and Pink markets to an exchange compared with nine graduates from Canada’s TSX Venture Exchange and four graduates from the London Stock Exchange’s AIM Market.

Our data-driven platform enables investors to easily trade through the broker of their choice at the best possible price and empowers a broad range of companies to improve the quality and availability of information for their investors.  To learn more about how we create better informed and more efficient financial markets, visit www.otcmarkets.com.

OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.

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OTC Markets Group Inc. provides no advice, recommendation or endorsement with respect to any company or securities.  Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. Investors should undertake their own due diligence and carefully evaluate companies before investing.

This article is from OTC Markets Group and is being posted with OTC Markets Group's permission. The information provided in this article is from OTC Markets Group and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Futures

Strong Chinese Bank Lending in Jan...


...More Liquidity from the PBoC; Chinese Steel Outlook Post-CNY

Surging bank lending in January; PBoC pump liquidity into the market... Anecdotal evidence suggests January may have been a record month for new bank loans in China (NB. formal PBoC bank lending figures will be published later this month). Domestic Chinese media indicated banks extended RMB 1.7tn in new loans during the first half of January alone, and speculated that the monthly total may exceed RMB 2tn for the first time (the previous monthly record was RMB 1.89tn, in March 2009). Meanwhile, the PBoC has been injecting significant liquidity into the financial system ahead of Chinese New Year (CNY). It is estimated that the central bank injected around RMB 2.7tn into the market in January through a combination of open market operations and through its various lending facilities.    

…prudent measures in the face of rising risks?  While the strong credit growth may ordinarily be a precursor for stronger domestic industrial activity, the recent surge in bank lending coincides with persistent sluggishness in headline manufacturing indicators. Indeed, some have suggested the recent surge in loan demand has been driven by intent to use RMB loans to pay down USD debt amidst growing fears of RMB depreciation. Separately, while central bank liquidity injections are not uncommon in the run-up to CNY, the amount this year has been large. A couple of thoughts. Firstly, the fact that the liquidity injections have been executed via open market operations and the PBoC’s various lending facilities could be an indication the central bank has little stomach to reduce interest rates or lower RRR in the current environment (which may be perceived as more ‘aggressive’ stimulus - risk of adding further pressure on the RMB?). Secondly, they may also be geared towards boosting liquidity amidst recent concerns of scandals around bankers acceptance bills, which have seen almost RMB 5bn of fraudulent activity revealed recently, and discount rates have been on the rise (the bills of exchange business in China is estimated to be worth around RMB 5tn). All things considered, these moves may prove prudent pre-emptive measures in the face of rising risks and uncertainties in the financial system.   

Looking through CNY in China’s steel industry.  Earlier this week we surveyed more than 100 industry participants on the outlook for both Chinese steel consumption and production levels post CNY. While there was no dominant consensual view in either case, the average view was weighted towards a moderate increase in steel consumption and a relatively smaller increase in steel production post CNY. There was also some divergence by region, with a clear majority of China-based respondents anticipating an increase in both consumption and production. Meanwhile, Asia ex-China respondents were the most cautious, generally expecting little change in consumption post CNY and on average a moderate decline in production.

 

This article is from Singapore Exchange and is being posted with Singapore Exchange’s permission. The views expressed in this article are solely those of the author and/or Singapore Exchange and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Futures

Gold Gains as Equities Try to Find Feet


Scott Shellady, Futures Institute Contributor

This video is from CME Group and is being posted with CME Group’s permission. The views expressed in this video are solely those of the author and/or CME Group and IB is not endorsing or recommending any investment or trading discussed in the video. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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