February 2016

[admin]

Starting to have at least some exposure to rising energy prices with InterOil. It could take a while, but then again it could not, and we find prices here attractive enough to start accumulating.

[admin]

The trouble keeps accumulating in the world economy:

There were four reasons for this respite from an otherwise horrid start to the year: Attempts by central bankers, especially outside the U.S., to reassure markets; stepped-up negotiations among oil producers aimed at stabilizing prices; the rush by European banks to avoid joining the set of unhinged market segments by coming up with measures including repurchases of their securities; and some, albeit limited, positive U.S. economic news. Yet none of these factors serve to significantly counter, let alone, overcome three much bigger and more consequential realities.

Market Calm May Be Only a Brief Reprieve: Mohamed A. El-Erian

Sovereign wealth funds may withdraw $404.3 billion from global stock markets this year if crude prices stay between $30 to $40 per barrel as oil-rich nations seek to shore up their finances, according to the Sovereign Wealth Fund Institute.

Sovereign Wealth Funds May Sell $404 Billion of Equities - Bloomberg Business

The global economic slowdown is taking its toll on Europe’s powerhouse, as Germany’s exports slump for the first time since 2012 and business sentiment falls to the lowest level in more than a year. Data out on Tuesday showed exports dropped 0.6% in the fourth quarter, after growth of 1.5%, 1.8% and 0.3% in the previous three quarters of 2015. At the same time, the Ifo business climate index fell to 105.7 in February from 107.3 in January, missing estimates and marking its lowest level since December 2014.

‘Wake-up call’ for Germany as exports, confidence suffer from global slowdown - MarketWatch

Investors are running out of patience with European bank chieftains, and no wonder. Since the fall of Lehman Brothers in September 2008, eight of Europe’s biggest banks have announced layoffs adding up to about 100,000 employees, paid $63 billion in legal penalties, and lost $420 billion in market value. In 2015, Deutsche Bank lost a record €6.8 billion ($7.6 billion). In mid-February the industry suffered an epic selloff as subzero interest rates, China’s slowdown, the oil crash, and looming regulatory and litigation costs triggered an outbreak of fear not seen since the fall of 2008.

European Bank Nightmare Far From Over as Fines and Fintech Loom - Bloomberg Business

[admin]

We are shorting 1000 share ELLI at $86.75:

• This is a relatively short-term trade, not an investment
• The shares are very expensive, and had a monumental run-up in a very short-term, see the 2 year chart (click the thumbsized attachment) to see just how extraordinary that was
• In a volatile market like this there is bound to come a moment when they sell off.

[admin]

The ELLI short certainly isn't a bet against the company, which is run magnificently, it simply has gone up too much too fast. Stocks rarely go up forever in a straight line.

The biggest risk at this stage would be tailwind from a general market rally, but we still have shorted two September VIX futures (as well as some other long stuff) so we have some protection, and we could increase our short position if that happened.

[admin]

Here is why we sold our position in ELLI at $82 (with considerable gain in a short time, as we bought at $60.40 in December last year) and then shorted at $86.75 yesterday. Apart form the almost daily executive selling, there is also this:

Several research firms have recently weighed in on ELLI. RBC Capital cut their price objective on Ellie Mae from $80.00 to $78.00 in a report on Monday, February 8th. Oppenheimer reiterated an “outperform” rating and set a $82.00 price objective on shares of Ellie Mae in a report on Friday, February 12th. Zacks Investment Research upgraded Ellie Mae from a “hold” rating to a “buy” rating and set a $70.00 price objective on the stock in a report on Friday, February 12th. Roth Capital restated a “buy” rating and issued a $95.00 target price on shares of Ellie Mae in a research note on Thursday, October 29th. Finally, FBR & Co. cut their target price on Ellie Mae from $80.00 to $75.00 and set a “market perform” rating on the stock in a research note on Friday, February 12th. One analyst has rated the stock with a hold rating and eight have given a buy rating to the company. The stock has a consensus rating of “Buy” and an average target price of $74.33.

Ellie Mae Inc (ELLI) EVP Sells $1,219,500.00 in Stock - EMQ

We're way above the average (12 month) target price of analyst already, apart from having gone up very much, very fast (see previous entries). It could go on for a little longer, especially with tailwinds from the markets, but it will calm down eventually.

[admin]

Dangerous slowdown in Europe..

Unfortunately, this now seems to have been a false dawn. The latest nowcasts show eurozone growth at only 0.8 per cent, compared to 2.3 per cent in late 2015. This result is substantiated by other similar tracking models – for example, the Goldman Sachs “Retina” model now estimates that growth is running at only 0.4 per cent annualised. Eurozone growth has therefore now dropped to below that in the US, even though the latter has remained disappointing at only around 1.0 per cent.

Global slowdown spreads to the eurozone | Gavyn Davies

[admin]

Growth slowing, and now this:

The eurozone lurched back into deflation this month, putting more pressure on the European Central Bank to ramp up stimulus when it meets next week. Prices fell by 0.2pc in the year to February, according to figures published by Eurostat. The decline confounded economists, who had expected prices to remain steady.

Eurozone slides back into deflation

Without nominal income growth, how are countries supposed to stabilize their debt levels (let alone reducing them)

With German deflation, how will countries that lost 20-30% competitiveness in the first decade of the euro recoup that lost competitiveness? By letting prices fall faster than German prices? What will that do for their debt dynamics?

Inquiring minds like to know. With the Brexit vote looming and the refugee crisis worse than ever, Europe is really in a big funk.