Posts by Michael Santoli
- Michael Santoli at Michael Santoli7 days ago
The stock market will stop quaking when the smart money is through selling. That might sound glib or obvious — something that’s more or less true by definition of each market drop. But it’s a particularly fitting observation now, because the current market tremors are more a matter of Wall Street’s elephants running from risk than the ground giving way underneath the economic recovery. The dominant themes of the sharp pullback have been a reversal of the winning investment trades of 2013 (which got very crowded and expensive), a rush by startup-backers and buyout artists to jam stock offerings into new investors’ hands, and heavy selling of shares by corporate insiders. This is all on the up-and-up, and all are typical features of a bull market. Yet there was just too strong a sense in recent weeks that those early to many winning ideas were done pressing their bets and wanted to – or were forced to – cash them in. Consider: The first quarter saw the highest volume of initial public offerings since 2000, with 70% of debuting companies having yet to turn profitable. About a third of the deals in the past month had traded below their offer price, a sign that supply was swamping demand or that the quality of the companies was slipping. The offering for Ally Financial Inc. (ALLY), while a relative victory for the U.S. government, which rescued it with a big investment during the financial crisis, has sagged in its first two days on the market, a decent example of supply-driven action. For good measure, Kenneth Moelis, the veteran investment banker who began at Michael Milken's Drexel Burnham Lambert ion the 1980s, is looking to take his 7-year-old advisory firm Moelis & Co. public at a $1.5 billion valuation. Private-equity firms have been exiting rapidly from companies they bought in recent years. According to data tracker Dealogic, buyout firms have raised $13 billion this year in 31 IPOs of their portfolio companies, a record level to this point in any year. Blackstone Group’s secondary offering of 15 million SeaWorld Entertainment Inc. (SEAS) shares — about one-sixth of all outstanding equity — as the company reported weak results further sent a message of the sharp guys ringing the register. Corporate insiders have been selling heavily in recent months, as executives take advantageof all-time highs in many stocks and the big indexes. While this isn’t a great market-timing indicator – and selling always tends to be active ahead of the tax deadline following a great year for stocks, as 2013 was – it fits neatly with the story that those with the best knowledge of businesses are not seeing good value in their shares. Perhaps most important to the day-to-day action, certain popular hedge-fund positions — no doubt amplified by margin-borrowing balances at all-time highs — have been upended. Merrill Lynch global strategist Michael Hartnett points out that the winners so far in 2014 (emerging-markets stocks, bonds and gold up) match exactly
- Michael Santoli at Michael Santoli9 days ago
When Adam Nash mentions that he twice hit the Silicon Valley IPO jackpot as a tech-startup employee before age 40, he doesn’t expect anyone to feel sorry for him. Still, the experience of being enriched as a senior executive of LinkedIn Corp. (LNKD) in 2011, and before that as a project manager at e-commerce software maker Preview Systems Inc. in 1999, presented its own unfamiliar challenges. Like thousands of other young members of fast-growing companies, he suddenly found himself with a block of an employer’s stock representing a large portion of his net worth and facing a variety of questions about whether, how, when and how much to sell, what to do about taxes and where to put the proceeds. Now, as CEO of the fast-growing software-driven investment firm Wealthfront, Nash is helping create a product to handle this process for the current generation of IPO beneficiaries, beginning with a large group of Twitter Inc. (TWTR) insiders who will be able to sell an aggregate $20 billion worth of shares come May 6. The company is unveiling a single-stock diversification service, initially for Twitter employees only but eventually for all clients, which automates the process of selling shares, covering taxes and reallocating the proceeds among spending needs and a long-term investment portfolio. While a limited number of Twitter-insider shares were freed for sale in February, on May 6 the broadest restrictions on selling by current and former employees and early Twitter investors will be lifted. A total of some 475 million shares, valued at $20 billion based on the stock’s current price of $42.41, will be unlocked for potential sale.
- Michael Santoli at Michael Santoli10 days ago
Any parent knows a surprise treat will draw complaints from the kid with the slightly smaller piece of candy. And grownups love a cheap lunch – unless we think someone else is getting a free one. It’s an established fact of behavioral research: Even if people are getting a good deal they did nothing to earn, they tend to become indignant when they think others are getting a better one.
This helps explain part of the public’s stance of righteous outrage over high-frequency stock trading practices, which have been thrown into harsh light by the release of Michael Lewis’s book “Flash Boys” and the author’s repeated characterization of the market as “rigged” in favor of these algorithm-wielding middlemen. Small investors, whether they acknowledge it or not, are tremendous beneficiaries of the cutthroat cyber-jockeying among electronic trading firms. Competition for public orders and a huge investment in the technological plumbing of the markets have given stay-at-home investors $8 commissions and instant trade executions at the best available price for a stock or exchange-traded fund.
- Michael Santoli at Daily Ticker11 days ago
The weeklong uproar over high-frequency trading has awakened the public and government regulators to what investment pros have known for years: The stock market has evolved into a dizzying multi-player videogame spread over dozens of electronic hubs and featuring dark “members only” levels, with scores tied to microsecond moves and fractions of pennies. As a result of Michael Lewis’ book Flash Boys and the media tizzy it’s prompted, pretty much all the inner workings of stock trading are going to be scrutinized by fresh eyes and regulators to “do something, anything” to fix it.
- Michael Santoli at Michael Santoli14 days ago
Like emails pushing discounted polo shirts and beach totes, shares of Lands' End Inc. will arrive unbidden in the accounts of Sears Holdings Inc. (SHLD) shareholders Friday evening. Such investors should welcome the gift and hang on to Lands' End stock, given its sturdy brand, prospects for financial improvement and the broadly favorable track record of investing in corporate spinoffs. The deal is good news for Sears, too, representing further progress in chairman and principal shareholder Edward Lampert’s long effort to realize the value of the company's better business assets and store real estate as the core Sears and Kmart retail operations continue to erode. Before liberating Lands' End, which Sears bought in 2002 for $1.9 billion, Lampert had hived off most of Sears Canada Ltd., Sears Hardware and Outdoor Stores Inc. (SHOS) and Orchard Supply (which later filed for bankruptcy), and the company has also said it might look for ways to separate or sell its automotive-service unit and a warranty business. All the while, Sears is actively marketing many of its 2,000 stores (of which it owns 700) for sale, re-lease or redevelopment. Sears shareholders of record as of March 24 will receive 0.300795 shares of Lands' End for each Sears Holdings share they own. Lampert, importantly, will own 48.4% of Lands' End upon the distribution of shares, matching his ownership of Sears. Lands' End shares, which will begin trading formally Monday on the Nasdaq under the symbol “LE,” have already been trading on a “when-issued” basis for the past couple of weeks, under the ticker "LEDMV". At a recent share price of $32, Lands' End carried a market value of $1 billion – near the upper end of the anticipated range based on several comparable companies. In February, I suggested Joseph A. Bank Clothiers Inc.'s (JOSB) deal to buy Eddie Bauer (which was later terminated when Men's Wearhouse made a $1.8 billion cash deal to buy Jos. A Bank) offered a rough gauge of Lands' End potential value, and arrived at $1 billion as the higher end of fair value.
- Michael Santoli at Michael Santoli15 days ago
Drought and severe cold mean hardship for farmers and headaches for strapped consumers facing higher grocery prices. But on Wall Street, the severe California water shortage and extreme winter weather conditions across the country are among reasons to warm to agriculture-related investments, which appear well-positioned to continue recovering after having spoiled in the commodity bust of recent years. Large harvests and cash exiting from the once-popular “commodity trade” among fund managers led to a serious slump in crop prices last year. But so far in 2014, the PowerShares DB Agriculture exchange-traded fund (DBA) has climbed 15% in price. This fund invests directly in a broad spectrum of crop and livestock commodity futures. This likely means an end of the brief reprieve from food inflation U.S. households were granted in 2013. The USDA forecasts retail food prices as a whole are likely to climb 2.5% to 3.5% in 2014, driven largely by drought-impacted supply strains on fruits, vegetables, dairy products and eggs.
- Michael Santoli at Michael Santoli17 days ago
Life is too short to waste time worrying over computer traders that sift the stock market for pennies with millisecond maneuvers. The phenomenon of “high-frequency trading” has gone from obscure cyber-nuisance to popular phantom menace in recent days. Credit — or blame — the release of Michael Lewis’s book on this Wall Street subculture, called “Flash Boys,” and his comments in a 60 Minutes segment Sunday that the stock market is “rigged” against ordinary investors and in favor of predatory software fraudsters exploiting arcane trading rules and enormous computing power for easy gain. This burst of media focus on the electronic scrum that occurs in suburban server farms was followed Tuesday by news the FBI is investigating potential insider-trading violations by unnamed HFT players who might have acted on information slightly ahead of when it becomes public to most investors. These storylines reinforce an abiding mood of public suspicion toward Wall Street institutions — one stoked in the tech bust more than a decade ago and fed potent fuel by the credit fraud and recklessness behind the 2008-’09 financial crisis. Yet the narrative of crooked computer sharpies feasting on the retirement accounts of grandma is simplistic and mostly wrong-minded. While certain HFT practices are of questionable value, and all unfair information advantages should be eliminated, here's a bit of perspective on this issue. While the U.S. equity market is maddeningly convoluted and open to all sorts of loophole-seeking gamesmanship, the fact is that, for small investors, trading stocks has never been cheaper, faster or fairer. Meanwhile, the middleman profits collected by HFT players are a fraction of their peak a few years ago and represent a trivial cost for investors as a whole.
- Michael Santoli2 mths ago
For years now, an investment in Sears Holdings Inc. (SHLD) has mostly hinged on how much the company’s various bits and pieces were worth to someone else on the open market. The next bit of Sears merchandise expected to hit the market is Lands' End, the venerable direct seller of clothing and outdoor gear the company acquired for $1.9 billion in 2002. Sears is now preparing to spin Lands' End off to shareholders.
- Michael Santoli2 mths ago
Even after the world’s most voracious consumer of bonds pushes away from the table, there still probably won’t be enough safe, nourishing government and mortgage-backed debt to satisfy investors’ appetite for it.
This reality should dampen or forestall any rise in interest rates, while also squeezing some investors into somewhat riskier investments than they would prefer -- or, in a worst-case scenario, riskier than they are equipped to handle should financial markets become unsettled.
The Federal Reserve began scaling back its purchases of Treasury and federal-agency mortgage securities in December, reducing its monthly buying to $75 billion from the $85 billion pace that had been in place since September 2012. That was cut further, to $65 billion, last month, and, barring severe erosion in economic growth indicators, the Fed is expected to continue this “tapering” process until bond-buying sunsets by the end of the year.
- Daily Ticker2 mths ago
The planned $45 billion merger of Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC) makes perfect business and financial sense – to the point that it was the obvious megadeal to expect in an industry clearly poised for consolidation. But will it, and should it, win approval from government regulators? And, if it does, what will it mean for the 30 million customers who would get their broadband and video service from the merged giant, and the hundreds of content networks that sell their programming to cable operators? As I discuss with Lauren Lyster in the attached video, the combination of Philadelphia-based Comcast, controlled by the Roberts family, and New York’s Time Warner Cable, which was spun off by Time Warner Inc. (TWX) in 2007, results in very little geographic overlap. Cable operators are all essentially local monopolies in the first place, so very few customers have had the choice of Time Warner or Comcast.