AuthorTopic: Big Slide v2.0 Begins  (Read 102466 times)

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📉 Markets slide on weak earnings; tech skid resumes
« Reply #585 on: October 19, 2018, 01:43:58 AM »
https://www.eastbaytimes.com/2018/10/18/markets-slide-on-weak-earnings-tech-skid-resumes/

 Business
Markets slide on weak earnings; tech skid resumes

By The Associated Press |
PUBLISHED: October 18, 2018 at 1:31 pm | UPDATED: October 18, 2018 at 1:31 pm

By Marley Jay | Associated Press


NEW YORK — U.S. stocks slumped again Thursday as investors continued to sell shares of technology and internet companies, industrials, and companies that rely on consumer spending.

Several industrial companies tumbled after releasing weak quarterly reports, and European stocks also fell as European Union leaders criticized Italy’s spending plans.

At the start of trading, stocks took small losses as bond prices fell and interest rates spiked. While the gain in interest rates didn’t last, stocks turned lower late in the morning, and by the end of the day they had wiped away most of their big rally on Tuesday.
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The S&P 500 fell 40 points, or 1.4 percent, to 2,768. The Dow Jones Industrial Average lost 327 points, or 1.3 percent, to 25,379. It was down as much as 470 earlier.

The Nasdaq gave up 157 points, or 2.1 percent, to 7,485. The Russell 2000 of smaller-company stocks fell 28 points, or 1.8 percent, to 1,560.

Stocks have skidded over the last two weeks, and there are signs investors are worried about future economic growth. The S&P 500 has fallen 5.5 percent in volatile trading since Oct. 3, and technology, industrial and energy companies have taken some of the biggest losses. Those companies tend to do better when the economy is growing more quickly and consumers and businesses have more money to spend.

Industrial and basic materials companies have taken bigger losses than any other part of the market over the last month, and one reason is that investors feel they are especially vulnerable in the ongoing trade dispute between the U.S. and China. They’re already dealing with tariffs on imported steel and aluminum, which have increased their costs and can also hurt sales.

“If uncertainty starts to creep in around trade or growth, that could be a risk to the recovery in … corporate spending,” said Jill Carey Hall, senior U.S. equity strategist for Bank of America Merrill Lynch.

The stocks that have held up the best include utility and household products companies. They don’t depend as much on economic growth, as consumers are likely to use about the same amount of electricity and buy the same amount of toilet paper or cereal regardless of the state of the economy.

European leaders expressed concern about the Italian government’s plans to increase spending and widen its budget deficit. European Union budget chief Pierre Moscovici told Italy’s economic minister that the government’s plans make it unlikely that Italy will be able to reduce its public debt to levels agreed upon by EU countries.

Italy’s FTSE MIB dropped 1.9 percent and Italian government bond prices dropped again, sending yields to their highest levels since February of 2014. Germany’s DAX dipped 1.1 percent. The French CAC 40 lost 0.5 percent and the FTSE 100 in Britain slipped 0.4 percent.
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Japan’s Nikkei 225 index sank 0.8 percent and the Kospi in South Korea lost 0.9 percent. Hong Kong’s Hang Seng index was little changed, and remained near its lowest level since May 2017.
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📉 U.S. stocks continue to slide, Dow and S&P now down for the year
« Reply #586 on: October 25, 2018, 12:04:01 AM »
https://www.nbcnews.com/business/business-news/u-s-stocks-continue-slide-dow-s-p-now-down-n924096

U.S. stocks continue to slide, Dow and S&P now down for the year
U.S. stocks plunged again on Wednesday, confirming a correction for the Nasdaq.


Image: Peter Mazza, Michael Urkonis
Specialist Peter Mazza, center, and trader Michael Urkonis work on the floor of the New York Stock Exchange on Oct. 23, 2018.Richard Drew / AP
Oct. 24, 2018 / 1:47 PM AKDT
By Reuters

U.S. stocks plunged again on Wednesday, confirming a correction for the Nasdaq and erasing the Dow and S&P 500's gains for the year, as disappointing forecasts from chipmakers and weak home sales data fueled jitters about economic and profit growth.

The Nasdaq closed down 12.4 percent from its Aug. 29 record closing high, falling 4.4 percent for the day in its biggest one-day percentage decline since Aug. 18, 2011.

"It's a big global risk-off trade," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Investment Management in New York.

"We've had some headwinds, higher interest rates affecting housing, tariffs causing input costs for manufacturers to go up, which makes earnings look not as stellar ... but that doesn't mean the whole economy is rolling over," he said.

Sales of new U.S. single-family homes fell to a near two-year low in September, the latest sign that rising mortgage rates and higher prices were hurting demand for housing.

Adding to weaker sentiment in late trading, the Federal Reserve said in its latest report on the economy that U.S. factories have raised their prices because of tariffs.

Stocks have been punished this month by a range of worries, from rising borrowing costs and bond yields to Italy's budget and the upcoming U.S. congressional elections in less than two weeks.

The Cboe Volatility Index , the most widely followed barometer of expected near-term gyrations for the S&P 500, jumped 4.52 points to close at 25.23, its highest close since Feb. 12. The S&P 500 fell for a sixth consecutive day.

"It looks like more panic and fear as the selling has continued to roll," said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance based in Charlotte, North Carolina.
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The Dow Jones Industrial Average fell 608.01 points, or 2.41 percent, to 24,583.42, the S&P 500 SPX> lost 84.59 points, or 3.09 percent, to 2,656.1 and the Nasdaq Composite dropped 329.14 points, or 4.43 percent, to 7,108.40.

On the earnings front, chipmakers Texas Instruments and STMicroelectronics warned of slowing demand. They followed disappointing forecasts on Tuesday from industrial giants Caterpillar and 3M .

Texas Instruments dropped 8.5 percent, helping pull the Philadelphia Semiconductor index down 6.6 percent in its biggest daily percentage drop since October 2014. Intel , due to report earnings later this week, was down 4.7 percent.

The beaten-down S&P technology sector retreated another 4.4 percent.

While third quarter profit growth estimates have risen to 22.4 percent from 21.6 percent in the last 10 days, weaker forecasts have pulled down fourth quarter growth estimates to 19.5 percent from 20 percent, according to I/B/E/S data from Refinitiv.

Declining issues outnumbered advancing ones on the NYSE by a 3.38-to-1 ratio; on Nasdaq, a 5.42-to-1 ratio favored decliners.

The S&P 500 posted 14 new 52-week highs and 91 new lows; the Nasdaq Composite recorded 15 new highs and 445 new lows.

About 9.6 billion shares changed hands on U.S. exchanges. That compares with the 8 billion daily average for the past 20 trading days.
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📉 Why I think the Ugly October in Stocks Is Just a Preamble
« Reply #587 on: October 30, 2018, 07:35:25 AM »
https://wolfstreet.com/2018/10/27/ugly-october-stocks-is-preamble-homebuilder-banks-construction-fangman/

Why I think the Ugly October in Stocks Is Just a Preamble
by Wolf Richter • Oct 27, 2018 • 115 Comment


Yet, the crybabies on Wall Street are already clamoring for the “Powell put.”

Let me just say right up front: The stock market did not “collapse.” It has experienced a sell-off that made some people’s ears ring, as sell-offs normally do, and October has been ugly so far, but it wasn’t a “collapse.”

This matters because the crybabies on Wall Street are already clamoring for the “Powell put.” But the folks at the Fed have been around, and they know what a routine sell-off looks like and what a crash looks like, and they’re glancing at these numbers, and they yawn. Because in the grander scheme of things, not much has happened yet. The next uptick lurks around the corner, powered by the dip buyers and massive corporate share-buybacks.

After the dotcom bubble, the Nasdaq plunged 78%. Wave after wave of dip buyers were rewarded with small goodies and then taken out the back and shot. Many companies disappeared entirely. That was an example of a collapse. That’s when the Fed got nervous.

Today there are only some segments that have gotten hit very hard, though it’s still no collapse, and we’ll get to a few of them.

The Dow was well-behaved. It fell about 3% for the entire week and is about flat year-to-date. Nothing special. The Dow is only 8.4% off its peak. And compared to a year ago, it’s still up 5.4%.

It’s not a crime for stocks to be flat year-to-date. Stocks might actually be down for the year, and they might be down for years. But people have forgotten, and younger people have never experienced it in their life, after a decade of blatant market manipulations by central banks that have created this centrally planned Everything Bubble that is now “gradually” deflating.

The S&P 500 fell about 4% this week and is only 9.3% off its peak. It’s about flat year-to-date (well, down a minuscule 0.6%) and up 3% compared to a year ago.

The Nasdaq fell 3.8% in the week and is down 12% from its peak, nearly all of it in October. But it’s still up 3.8% year-to-date and up nearly 7% from a year ago. This is a far cry from being down 78%!

Fed Chairman Jerome Powell isn’t going to get rattled by these numbers. Young investors who’ve never seen a real sell-off might, but Powell is an old hand, and this sell-off overall is nothing yet, especially after the huge run-up. For real damage to occur, the trip south would have to take a long time – years! And we’re just looking at the beginning of it.

And the crybabies on Wall Street are just crybabies.

That said, it’s getting interesting in some sectors. And this too is typical for the beginning of a stock-market downturn: Some segments let go first, others follow. When story-segments lose their story, they plunge. It’s that simple. Here are a few examples:

Homebuilders are getting crushed. Homebuilder stocks took off after the election in 2016, on a wing and a prayer, powered by hype about a Trump-inspired housing construction boom. The IShares US Home Construction ETF [ITB] soared 51% from November 3, 2016, through January 22, 2018.

But then reality set in that there would be no Trump-inspired housing construction boom, and that instead the housing market was beginning to hiss hot air. The ETF then plunged 34% over the nine months. Nearly the entire “Trump bump” has been wiped out even as the housing downturn has just begun (stock data via Investing.com):

Building and Construction stocks surged 50% after the election in hopes for a mega construction boom, based on the story of a $1.5 trillion infrastructure plan. Much of that $1.5 trillion would be distributed to these companies, that was the hype. When markets realized that this plan was a head-fake, these stocks started to crash.

The PowerShares Dynamic Building & Construction ETF [PKB] has plunged 30% since January 23 and is back where it had been right after the election. This shows the “Trump bump” in operation: soaring on Wall-Street hype and crashing on reality:

Small-cap stocks are letting go. The Russell 2000 index, which tracks the stocks with smaller market capitalization, has plunged 15% since August 31. These companies are heavily focused on US operations, unlike their big brethren that have large operations overseas. The index is now down year-over-year, and is back where it had been on September 28, 2017:

The Big Banks are losing it. The US KBW Bank index, which tracks large US banks, spiked after the election in November 2016 on hope – now being realized – of banking deregulation by the incoming administration, at the time being staffed with Wall-Streeters. Then these stocks floundered until late 2017. When the corporate tax cuts started becoming reality, the bank stocks surged again. From the election through January 26, the KBW Bank index soared 55%.




But that was the peak. The index has since plunged 19%, and is back where it had been in February 2017, or about 18 months ago, having unwound over half of the banks “Trump bump”:

The FANGMAN stocks – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and NVIDIA – have lost $538 billion in market capitalization from their combined peak of $4.63 trillion on August 31. In other words, $538 billion went where it had come from.

But that 12% dive took them back to where they’d been on May 30. So, given the ludicrously ballooning share prices, nothing serious has happened yet. Remember: the entire Nasdaq plunged 78% over the years following the dotcom peak. And many stocks disappeared entirely.

Nevertheless, there was some variation: Apple [AAPL], the giant among giants, has dropped only 6.6% from the peak on October 3, and Microsoft [MSFT] only 6.9% over the same period. But Amazon [AMZN] has plunged 20% since September 4 and Facebook [FB] 33% since July 25.

So it boils down to this: Some stocks have gotten crushed, but the market overall has barely been dented – though the fundamentals are rotten, shares are still ludicrously overpriced, enthusiasm is still exuberant except on bad days, and blind faith in annually rising stock prices still reigns. And the fact that stocks like Tesla [TSLA] or Netflix continue to levitate beyond all reality shows that this downturn has a long way, and years, to go.
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Re: 📉 Why I think the Ugly October in Stocks Is Just a Preamble
« Reply #588 on: October 30, 2018, 11:40:35 AM »
https://wolfstreet.com/2018/10/27/ugly-october-stocks-is-preamble-homebuilder-banks-construction-fangman/

Why I think the Ugly October in Stocks Is Just a Preamble
by Wolf Richter • Oct 27, 2018 • 115 Comment


Yet, the crybabies on Wall Street are already clamoring for the “Powell put.”

Let me just say right up front: The stock market did not “collapse.” It has experienced a sell-off that made some people’s ears ring, as sell-offs normally do, and October has been ugly so far, but it wasn’t a “collapse.”

This matters because the crybabies on Wall Street are already clamoring for the “Powell put.” But the folks at the Fed have been around, and they know what a routine sell-off looks like and what a crash looks like, and they’re glancing at these numbers, and they yawn. Because in the grander scheme of things, not much has happened yet. The next uptick lurks around the corner, powered by the dip buyers and massive corporate share-buybacks.

After the dotcom bubble, the Nasdaq plunged 78%. Wave after wave of dip buyers were rewarded with small goodies and then taken out the back and shot. Many companies disappeared entirely. That was an example of a collapse. That’s when the Fed got nervous.

Today there are only some segments that have gotten hit very hard, though it’s still no collapse, and we’ll get to a few of them.

The Dow was well-behaved. It fell about 3% for the entire week and is about flat year-to-date. Nothing special. The Dow is only 8.4% off its peak. And compared to a year ago, it’s still up 5.4%.

It’s not a crime for stocks to be flat year-to-date. Stocks might actually be down for the year, and they might be down for years. But people have forgotten, and younger people have never experienced it in their life, after a decade of blatant market manipulations by central banks that have created this centrally planned Everything Bubble that is now “gradually” deflating.

The S&P 500 fell about 4% this week and is only 9.3% off its peak. It’s about flat year-to-date (well, down a minuscule 0.6%) and up 3% compared to a year ago.

The Nasdaq fell 3.8% in the week and is down 12% from its peak, nearly all of it in October. But it’s still up 3.8% year-to-date and up nearly 7% from a year ago. This is a far cry from being down 78%!

Fed Chairman Jerome Powell isn’t going to get rattled by these numbers. Young investors who’ve never seen a real sell-off might, but Powell is an old hand, and this sell-off overall is nothing yet, especially after the huge run-up. For real damage to occur, the trip south would have to take a long time – years! And we’re just looking at the beginning of it.

And the crybabies on Wall Street are just crybabies.

That said, it’s getting interesting in some sectors. And this too is typical for the beginning of a stock-market downturn: Some segments let go first, others follow. When story-segments lose their story, they plunge. It’s that simple. Here are a few examples:

Homebuilders are getting crushed. Homebuilder stocks took off after the election in 2016, on a wing and a prayer, powered by hype about a Trump-inspired housing construction boom. The IShares US Home Construction ETF [ITB] soared 51% from November 3, 2016, through January 22, 2018.

But then reality set in that there would be no Trump-inspired housing construction boom, and that instead the housing market was beginning to hiss hot air. The ETF then plunged 34% over the nine months. Nearly the entire “Trump bump” has been wiped out even as the housing downturn has just begun (stock data via Investing.com):

Building and Construction stocks surged 50% after the election in hopes for a mega construction boom, based on the story of a $1.5 trillion infrastructure plan. Much of that $1.5 trillion would be distributed to these companies, that was the hype. When markets realized that this plan was a head-fake, these stocks started to crash.

The PowerShares Dynamic Building & Construction ETF [PKB] has plunged 30% since January 23 and is back where it had been right after the election. This shows the “Trump bump” in operation: soaring on Wall-Street hype and crashing on reality:

Small-cap stocks are letting go. The Russell 2000 index, which tracks the stocks with smaller market capitalization, has plunged 15% since August 31. These companies are heavily focused on US operations, unlike their big brethren that have large operations overseas. The index is now down year-over-year, and is back where it had been on September 28, 2017:

The Big Banks are losing it. The US KBW Bank index, which tracks large US banks, spiked after the election in November 2016 on hope – now being realized – of banking deregulation by the incoming administration, at the time being staffed with Wall-Streeters. Then these stocks floundered until late 2017. When the corporate tax cuts started becoming reality, the bank stocks surged again. From the election through January 26, the KBW Bank index soared 55%.




But that was the peak. The index has since plunged 19%, and is back where it had been in February 2017, or about 18 months ago, having unwound over half of the banks “Trump bump”:

The FANGMAN stocks – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and NVIDIA – have lost $538 billion in market capitalization from their combined peak of $4.63 trillion on August 31. In other words, $538 billion went where it had come from.

But that 12% dive took them back to where they’d been on May 30. So, given the ludicrously ballooning share prices, nothing serious has happened yet. Remember: the entire Nasdaq plunged 78% over the years following the dotcom peak. And many stocks disappeared entirely.

Nevertheless, there was some variation: Apple [AAPL], the giant among giants, has dropped only 6.6% from the peak on October 3, and Microsoft [MSFT] only 6.9% over the same period. But Amazon [AMZN] has plunged 20% since September 4 and Facebook [FB] 33% since July 25.

So it boils down to this: Some stocks have gotten crushed, but the market overall has barely been dented – though the fundamentals are rotten, shares are still ludicrously overpriced, enthusiasm is still exuberant except on bad days, and blind faith in annually rising stock prices still reigns. And the fact that stocks like Tesla [TSLA] or Netflix continue to levitate beyond all reality shows that this downturn has a long way, and years, to go.

Wolf makes a fair statement. The markets looks to have topped, and between Trump's trade wars and the Fed continuing to raise rates, I'd look for equites to take a more serious hit over the next 12 months, at least.  There might be some bear market rallies that look pretty good, in the short run, but I think we get a crash, or at least a serious correction.

Gold is in a mild up-phase, but it took a hit this morning. But I doubt there are enough hedgies and pension funds owning gold to cause gold to crash like it did in 2008. Back then there was more institutional money in gold, compared to now. It's been sucking wind for years, and sentiment is still fairly bearish. I wouldn't look for $700.

I expect crypto to have another run, for the reasons I already stated. Last year was a bubble caused mostly by S. Koreans trying to do arbitrage trading, and the crash came because the SK gooberment crashed the party on that.

Very soon cryptos will be as easy to trade as stocks, and you can expect more interest from US people putting
them into their retirement plans, once the barriers are lowered. It's still very weird and hard to buy and hard to trade right now, and you can make mistakes and lose money just by making an error on a deposit ticket....once you send cryptos to the wrong place, most of the time it's just flat gone. Careful attention to detail when making transactions is very important.

Millenials have no trouble seeing Bitcoin as a safe haven asset, strange as that might sound. I hear it called that all the time.

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Re: 📉 Why I think the Ugly October in Stocks Is Just a Preamble
« Reply #589 on: October 30, 2018, 12:13:30 PM »
Millenials have no trouble seeing Bitcoin as a safe haven asset, strange as that might sound. I hear it called that all the time.

Please shoot me if I ever take investment advice from a Millenial.  ::)


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Re: Big Slide v2.0 Begins
« Reply #590 on: October 30, 2018, 12:14:47 PM »
Check me for pods if I do that.
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https://www.businessinsider.com/stock-market-news-sp-500-worst-month-since-financial-crisis-2018-10

'Red October' sees US stocks endure their worst month since the financial crisis
Will Martin and Trista Kelley


A still from the 1990 movie 'The Hunt for Red October,' which may or may not be a 100% accurate representation of the Cold War. The Cold War may have cost as much as $8 trillion. Paramount

    The S&P 500 is set to finish October with its worst month since the 2008-2009 financial crisis.
    The benchmark US index has lost about 8.5% this month, its biggest monthly drop since February 2009.
    Both the Dow and the Nasdaq have also endured major losses.
    Concerns including a US-China trade war, the Federal Reserve's interest-rate policy, and a slowdown in global growth led to a wave of heavy selling.
    Global stocks have also slumped, with the MSCI All-World Index losing 4.5%.

Stocks are set to end October having endured the worst month for the S&P 500 since February 2009 and the worst October since the 2008 financial crisis. The benchmark US index is set to drop about 8.5%, outdone by the 16.8% loss the index witnessed in 2008 just weeks after the collapse of Lehman Brothers.

The month was plagued by bad news but lacked a clear catalyst. Concerns as varied as a US-China trade war, the Federal Reserve's interest-rate policy, and a slowdown in global growth led to a wave of heavy selling in the S&P as well as in the Dow and the Nasdaq.

October selling was not limited to the US, with Chinese stocks plummeting and the MSCI All-World index dropping about 10%.

In the US in particular, the biggest concern for investors is that after years of monetary stimulus and a short-term boost from the Trump administration's tax cuts, more interest-rate increases and lower bond prices will ultimately bring the US economy to a halt.

Growth is still going strong, but many believe that will flip soon, particularly when factoring in the potential negative impact of President Donald Trump's trade war, which by some measures is already starting to hurt the domestic economy.

Another factor for the markets is the slowing Chinese economy, which after a decade or more of blockbuster growth is reaching maturity, bringing with it smaller increases in gross domestic product. Debt levels in China are also huge, another major concern for many in the markets.

China's account balance is down significantly from last year's 1.3% and is likely to turn into a small deficit in 2019. If so, that would be the first time in 24 years.

"The larger the stimulus used by China to offset the trade-war impact, the bigger will its deficit likely be," Tao Wang, UBS' chief China economist, said in a report earlier in the month.

That may hurt confidence and hasten outflows, putting pressure on the nation's currency.

"Although CNY depreciation can partially offset trade war impact, a large depreciation will likely hurt domestic confidence, trigger panic outflows and risk financial stability," UBS said, using the abbreviation for the Chinese yuan.

The tail end of October has seen an additional negative driver, particularly for the Nasdaq, as disappointing earnings reports from the US tech giants Amazon, Google, and Snap helped to further drag down sentiment.

Oil prices are also a major concern, with the combination of looming sanctions against Iran, and the possibility that Saudi Arabia will choke output in response to international outcry over the killing of the journalist Jamal Khashoggi in the country's consulate in Istanbul, leading some to believe prices could ratchet higher in coming months.

High oil prices tend to stunt economic growth, particularly in developing markets where increasing oil consumption is a key driver of rapid growth. Brent traded as high as $84 a barrel in early October, and while it has now fallen about 9% to $76 a barrel, that remains an elevated level compared with the past four years.

Though stocks have witnessed a horror month, they seemed likely to bounce a little on October's final day, with the S&P 500 set to gain about 0.7% once markets open at 9:30 a.m. in New York.

SEE ALSO: ALBERT EDWARDS: Investors are ignoring the 'most underrated risk' in markets, one that could spark an imminent blowup
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📉 GE Dodges the Question: “When Will GE File for Bankruptcy?”
« Reply #592 on: November 05, 2018, 02:01:10 AM »
https://wolfstreet.com/2018/11/02/what-general-electric-does-to-avoid-question-when-will-ge-file-for-bankruptcy/

What General Electric Is Doing to Dodge the Question: “When Will GE File for Bankruptcy?”
by Leonard Hyman and Willian Tilles • Nov 2, 2018 • 65 Comments   
The hail of two-notch downgrades doesn’t help.

Wolf here: Shares of General Electric [GE] are down over 3% this beautiful Friday morning, trading at $9.20. If they close at this level, they would mark a new nine-year closing low. Shares are down 52% year-to-date:


The lowest close since the 1990s was $6.66 on March 5, 2009, during the Financial Crisis. I remember well: The next morning, then CEO Jeff Inmelt was on CNBC, which was owned by NBC, which was owned by GE at the time. And Inmelt was hyping GE’s shares on GE’s TV station that gave him a huge slot of time to do so, and the share price, displayed prominently onscreen, ticked up with every word he spoke.

Inmelt was also on the Board of Directors of the New York Fed, which at that time was implementing the Fed’s alphabet-soup of bailout programs for banks, industrial companies with financial divisions, money market funds, foreign central banks (dollar swap lines), and the like. This included a bailout package for GE in form of short-term loans, without which GE might have had trouble making payroll because credit had frozen up and GE had been dependent on borrowing in the corporate paper market to meet its needs, and suddenly it couldn’t. Inmelt was involved in those bailout decisions and knew what GE would get, but didn’t mention anything on CNBC.

Now Inmelt is gone from GE (resigned in 2017 “earlier than expected”), and he is gone from the New York Fed (resigned in 2011 “due to increased demands on this time”), and CNBC no longer belongs to GE, and the new CEO is trying furiously to keep the whole charade form spiraling totally out of control hoping to be able to dodge the question: “When fill GE file for bankruptcy?”

Below are some of the things that GE is doing to avoid that fate.

By Leonard Hyman and Bill Tilles for WOLF STREET:

General Electric — at one time the world’s most formidable manufacturing company and now one of the world’s most mismanaged conglomerates — suffered more financial indignities this week: Its bond ratings got hit with back-to-back two-notch downgrades: Today by Fitch Ratings, from A to BBB+ due to the “deterioration at GE Power”; and earlier this week by Moody’s, from A2 to BAA1. This follows a similar move by Standard & Poor’s earlier in October.

The rating agencies also downgraded the company’s commercial paper (CP) program, a form of short-term borrowing. Moody’s cut GE’s CP ratings from P-1 to P-2. The new, lower CP ratings effectively prevents GE from further issuance of CP. However, GE still retains access to other, higher cost bank financed short term funding vehicles. But still, not a good look.

Also this week, GE virtually eliminated its quarterly dividend, slashing it from 12 cents to a penny. A belated Halloween themed headline could read, “Boston Slasher Strikes Again.” A year earlier GE’s board voted to cut its dividend from 24 cents to 12 cents.

In our view the previous dividend reduction was better anticipated than the most recent one. Why the hurried need for a cut last week? Probably for cash conservation reasons. GE badly needs the $3.9 billion in cash saved per year to meet financial needs such as $5 billion required for an underfunded pension fund and $3 billion to shore up the capitalization of GE’s finance arm (or what remains of it).

GE also requires considerable cash to retire existing debt. One of GE’s stated financial goals is to improve ratios of debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) to 2.5 times by 2020. In the present climate, we might refer to this as virtue signaling. Except here GE’s principal goal is to keep its respectable, investment-grade bond ratings.

The debt burden that GE’s management is presently struggling with stems from a strategy of borrowing heavily for M&A over the past decade. The biggest (and probably worst) was its purchase of French electrical equipment manufacturer Alstom in 2015 in which GE outbid arch rival Siemens. GE paid top dollar just as the market for electrical equipment began a sharp slide. This acquisition was recently written down by $22 billion reflecting the rather subdued prospects for the global power generation. Talk about a winner’s curse.

In order to raise cash and simplify its business, GE has arranged the sale of GE Transportation (locomotives, electric motors and propulsions systems for mining equipment, etc.), plans to dispose of its Baker Hughes oil services business, and intends to spin off (while retaining control) its profitable health services division.

The power division will be split into two businesses: gas turbines and everything else. This last strategic endeavor is probably the one that rankles the most insofar as it’s about two decades too late. A true house that Edison built would have pitted the fossil vs renewables organizations and let the markets sort it out.

How did GE get into the present mess and how did it manage to miss the turning point in a business it used to dominate? Despite recent disparaging comments regarding Harvard’s case studies, we believe this is something business school professors might want to examine. But it is history. For those in the power business, buyers and users of the equipment, what is the message?

First, the manufacture of gas turbines for electric power generation has become an oligopoly. Three suppliers dominate the market: Mitsubishi Hitachi (in clear lead), Siemens, and lastly GE.  Oligopolists almost by definition tend to abide one another, meaning that they do not engage in anything resembling robust competition. But with an uncertain business outlook, they may be reluctant to invest more money into their businesses. One almost immediate effect is a reduction in spending on research and development which creates a sort of feedback loop which eventually weakens product positioning against new technology.

The manufacturers may argue that the business will bottom out, that a turnaround will take place. And that revenues from servicing existing equipment will provide a steady stream of business anyway. We do not disagree with these prognostications. Renewables will not provide every new kilowatt of capacity, and gas turbines will be needed anyway to back up renewables.

But we also need to be aware that longer term the competition for gas turbines will come not from renewables but from storage devices such as batteries. In terms of capital allocation, we would wager that there is far more money chasing power storage technologies than there is chasing investment in gas turbine technology.

GE, under its new management and new CEO, Lawrence Culp, may resurrect itself as a well-run manufacturing conglomerate after paying down debt obligations and shoring up its pension obligations. The aviation and health groups (even after disposition of some shares) are large and profitable. And Baker-Hughes, despite its indefinite status, might still surprise to the upside depending on global energy prices.

However, Power, despite its worldwide decline, is still GE’s largest business. New management may succeed in growing the gas turbine business (or maybe better managing its slow decline). But to us the dividend cut symbolizes GE’s fading role in a business that it literally created. By Leonard Hyman and Bill Tilles for WOLF STREET

The financial Crisis was a decade ago. But its consequences still haunt us. Read… I Was Asked: “How & When Will the Next Financial Crisis Happen?” 
 
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📉 FAANG Stocks Lose More Than $300 Billion in Value This Month
« Reply #593 on: November 20, 2018, 04:25:53 AM »


https://www.barrons.com/articles/faang-stocks-are-getting-crushed-heres-why-1542670518

    Technology

FAANG Stocks Lose More Than $300 Billion in Value This Month

By Tae Kim
Nov. 19, 2018 6:35 p.m. ET

FAANG Stocks Lose More Than $300 Billion in Value This Month


Source Photograph by Chip Somodevilla/Getty Images

The market’s favorite technology stocks are getting crushed. The so-called FAANG stocks have lost more than $300 billion in stock value this month.

FAANG stocks are a basket of high-growth technology names: Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOGL) (parent company of Google).
FAANG Stocks Lose More Than $300 Billion in Value This Month

Apple is leading the decline list. More than $150 billion in value has been lost with a 15% decline in stock price month to date as investors grow increasingly worried about iPhone sales given warnings from suppliers and negative commentary by analysts.

The Wall Street Journal, citing people familiar with the matter, reported on Monday that Apple has cut orders in recent weeks for all three newly released iPhone models.

Read More: Apple Stock Could Keep Falling. Here’s Why.

Facebook is the second biggest loser at $58 billion decline in value as the social networking giant received more scrutiny, following a bombshell New York Times report last week that raised more questions about management’s response to platform misuse.

The total stock value lost from FAANG stocks month to date is $314.2 billion.

Even after the sharp drops, three FAANG stocks have positive returns so far this year. Netflix is still up more than 40% percent year to date followed by Amazon’s and Apple’s nearly 30% and 10% year-to-date gains, respectively.

Write to Tae Kim at tae.kim@barrons.com
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📉 Stock-Market Margin Debt Plunges Most Since Lehman Moment
« Reply #594 on: November 23, 2018, 12:16:16 AM »
https://wolfstreet.com/2018/11/21/stock-market-margin-debt-plunges-most-since-lehman-moment/

Stock-Market Margin Debt Plunges Most Since Lehman Moment
by Wolf Richter • Nov 21, 2018 • 101 Comments   


It gets serious. Margin calls?

No one knows what the total leverage in the stock market is. But we know it’s huge and has surged in past years, based on the limited data we have, and from reports by various brokers about their “securities-based loans” (SBLs), and from individual fiascos when, for example, a $1.6 billion SBL to just one guy blows up. There are many ways to use leverage to fund stock holdings, including credit card loans, HELOCs, loans at the institutional level, loans by companies to its executives to buy the company’s shares, or the super-hot category of SBLs, where brokers lend to their clients. None of them are reported on an overall basis.

The only form of stock market leverage that is reported monthly is “margin debt” – the amount individual and institutional investors borrow from their brokers against their portfolios. Margin debt is subject to well-rehearsed margin calls. And apparently, they have kicked off.

In the ugliest stock-market October anyone can remember, margin debt plunged by $40.5 billion, FINRA (Financial Industry Regulatory Authority) reported this morning – the biggest plunge since November 2008, weeks after Lehman Brothers had filed for bankruptcy:


During the stock market boom since the Financial Crisis, this measure of margin debt has surged from high to high, reaching a peak in May 2018 of $669 billion, up 60% from the pre-Financial Crisis peak in July 2007, and up 117% since January 2012. Since the peak in May, margin debt has dropped by $62 billion (-9.2%). Note the $40.5-billion plunge in October:


In the two-decade scheme of things, the relationship between stock market surges and crashes and margin debt becomes obvious.

Back during the dot-com bubble, dot-com stocks, traded mostly on the Nasdaq, included what today are booming survivors like Amazon [AMZN], barely hangers-on like RealNetworks [RNWK], or goners like eToys.

At the time, these stocks soared by stunning amounts, and people, such as myself, used margin debt, to enhance their returns. When stocks plunged, the margin calls came, and these people had to sell their holdings into an illiquid and plunging market. They ended up selling their best and most liquid stuff first and watched their trash get trashed further.

When it was over by October 2002, the Nasdaq had plunged 78%. Over the same period, margin debt plunged 54%. A similar scenario played out during the Financial Crisis crash. And now we have the “Everything Bubble” to deal with:


Surging margin debt creates stock-market liquidity out of nothing, and this new liquidity is used to buy more stocks. In this manner, rising margin debt is the great accelerator on the way up.

When prices on individual stocks drop sharply – even as the S&P 500 index might decline at a moderate pace – investors, including hedge funds, with margin debt and concentrated holdings in these stocks may find that their portfolio has taken enough of a hit to where they get margin calls.

Now they have to dump stocks to pay down margin debt. This begets further selling pressure, which begets more margin calls, which begets more forced selling….  In this manner, a high level of margin debt turns into the great accelerator on the way down.

But this money from those stock sales doesn’t go into other stocks or another asset class, and it doesn’t sit at the “sidelines” waiting to jump in again at the next dip. Nope, it is used to pay down margin debt. And thus, this liquidity just evaporates without a trace.

October’s plunge in margin debt was just the beginning, a little dimple in the overall chart. Unwinding such a huge pile of margin debt and overall stock-market leverage takes time, years, and they’ll be interrupted with some brief increases that’ll make everyone feel better for a moment.

It gets costly when the entire market depends on a handful of over-hyped mega-caps. Read…  FANGMAN Stocks Plunge 4.4% Today, Down $905 Billion, or 20%, since Aug. 31 
 
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Re: Big Slide v2.0 Begins
« Reply #595 on: November 23, 2018, 06:17:56 AM »
In 2008 we saw gold take a hit during the margin call times. Now nobody important owns nearly as much gold, but cryptos are being hit.

To me, all the stuff about the BTC hard forks are overblown. What's driving the cryptos down is margin calls and....shorts, because the Masters are driving down cryptos, knowing they will soon be wanting to rotate into them...in 2019 or 2020. Cryptos have literally been falling since the day BTC futures debuted. Coincidence? I think not.

Meanwhile, enjoy your flight but keep you seatbelts fully fastened, because we expect to experience some turbulence.
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Re: Big Slide v2.0 Begins
« Reply #596 on: November 23, 2018, 06:48:42 AM »
In 2008 we saw gold take a hit during the margin call times. Now nobody important owns nearly as much gold, but cryptos are being hit.

The Ruskies have loaded up on Gold.  They're not important?

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Re: Big Slide v2.0 Begins
« Reply #597 on: November 23, 2018, 07:15:21 AM »
I misspoke, I guess. I was thinking of large investors, not central governments.

Many central governments are buying gold, because they see the dollar and US financial hegemony coming to an end.


More & More Countries are Buying Gold
3
 More & More Countries are Buying Gold
Many countries’ central banks are buying gold in part because of its very affordable price. Several countries have made their first major purchase of gold reserves, some for the first time in over 10 years. Could we be seeing an upward trend for gold soon?

This summer, Poland made its largest gold investment since 1998 adding about nine tons to its bullion reserves in July and August. Thought the country still ranks outside the 30 biggest holders, it is also one of the largest additions by a European Union nation since 1998 making their reserves the highest they have been since 1983.

Economists identify gold’s recent drop to the lowest price in more than a year as a catalyst for Poland’s new purchase.

“The National Bank of Poland reserve management policy is based on diversification,” said Marcin Mazurek, a senior economist at mBank SA. “Perhaps the basic criterion is the low price of the gold, combined with the expectation for higher global inflation.”

Poland’s purchase “suggests gold’s appeal to central banks might be widening,” Matthew Turner, a strategist at Macquarie Group Ltd. In London, said in a recent report. “A broader and more representative base of central bank buyers can only be good news [for the gold market.]”

And according to Natalie Dempster, managing director of central banks ad public policy at the producer-funded World Gold Council, countries may be buying more gold amid expectations that the international monetary system will likely shift away from the dollar toward other currencies.

“Central banks have three main objectives when they are thinking about reserve assets: to keep their assets safe, to keep their assets liquid and to generate returns,” Dempster said.

“Gold can help to meet all three policy objectives.”

It seems that many central banks are purchasing gold this year alone. Central Banks have bought a total of 264 tons of gold this year, by far the most at this stage of the year in the last six years, according to Macquarie analysts.

Russia has by far been the biggest buyer in gold recently passing China for the fifth largest gold reserves in the world. Russia’s gold investments are largely attributed to the nation’s attempt to diversify from American investments; Russia mainly sold American bonds in order to purchase their gold. Currently, it is estimated that Russia holds nearly 1908.8 tons of gold.

France (2,436 tons) and Italy (2,451.8 tons) are the next two countries with the largest gold reserves in the world. The International Monetary Fund (IMF) is reported to have more gold reserves than Italy (2,814.1 tons).

In 2016, Germany put as much as $8 billion into gold coins, bars and exchange traded commodities, setting a new annual record for Germany and making it the world leader in gold investing at that point in time.

In a country that has gone through eight different currencies over the last 100 years, its no wonder that a 2016 survey found that 42 percent of Germans trust gold more than they do traditional paper currency.

Previously, Germany had rarely registered on any radar in regards to gold, as their first ETC didn’t even appear on the market until 2007. But after the financial crisis in 2008, the Germans sought a more reliable store of value as German investors worried about the state of their own banking system.

This led to the European Central Bank slashing interest rates, and smaller banks charging customers to hold their cash while yields on German bonds dropped into the negative. The combination of these events piqued German investors’ interest in gold.

Over the last 5 years, Germany’s central bank, The Deutsche Bundesbank, repatriated more than 675 metric tons of Cold War-era gold from New York and Paris. Today the central bank of Germany has the second largest gold reserves in the world (3,371 tons), following the Federal Reserve in the United States (8,133.5 tons).

These countries’ investment in gold seems to serve as a safe haven for the possibility of any sort of economic downturn, turmoil or recession. As countries diversify away from bonds and more toward gold, WGC analysts still believe there is room for further growth, citing a survey that shows latent demand in Germany holding strong with 59 percent in agreement that “gold will never lose its value in the long term.”

The Reserve Bank of India has also recently bought gold for the first time in nearly a decade in the last year, potentially signaling that gold may be making more of a rise in the near future. The RBI’s purchase of nearly 8.5 tons of gold increases their reserves to 566.23 tons as of last years annual report. That number is currently up to 573.10 tons. The RBI’s last major purchase of gold was in 2009 when it purchased 200 tons from the IMF in order to increase its reserves.

The RBI’s decision to buy gold is significant because unlike many other central banks, the RBI does not regularly trade gold. The RBI had sold close to $10 billion worth of US treasury securities between April and June of last year.

Other countries including the Netherlands, Japan, Switzerland, China, Kazakhstan, Turkey, and the Philippines have also recently added to their gold reserves in attempts to diversify from foreign currency.

https://invest.usgoldbureau.com/news/countries-buying-gold/

I was trying to explain short term market moves, not talk about how gold is moving, which is what's happening with gold. It doesn't just get bought and sold, it moves across borders.
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Re: Big Slide v2.0 Begins
« Reply #598 on: November 23, 2018, 07:21:26 AM »
I misspoke, I guess. I was thinking of large investors, not central governments.

Many central governments are buying gold, because they see the dollar and US financial hegemony coming to an end.

....

I was trying to explain short term market moves, not talk about how gold is moving, which is what's happening with gold. It doesn't just get bought and sold, it moves across borders.

Since Central Goobermints buy in such large amounts, shouldn't that affect the price?  How come it stays flat despite these large purchases?

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Re: Big Slide v2.0 Begins
« Reply #599 on: November 23, 2018, 07:27:14 AM »
The Chinese are the buyers who drive the price, and they only buy (right now) when gold hits their buy zone, which appears to be $1150 to $1200 these days.

The price is manipulated, and they (PBOC) are players, as are the bullion banks, who can easily manipulate paper gold markets using leverage and their 800 pound gorilla  advantage.

You know all this. Why are we having this conversation?
« Last Edit: November 23, 2018, 07:59:33 AM by Eddie »
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