David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Yeah, It's Still Water

    This article by Ben Hunt for Epsilon Theory may be of interest to subscribers. Here is a section:

    Over that same time span, Texas Instruments sold 90.8 million shares to management and board members as they exercised options and restricted stock grants, for a total of $2.5 billion. That works out to an average sale price of $27.51.

    The difference in average purchase price and average sale price, multiplied by the number of shares so affected, is the direct monetary benefit for management. This is true whether or not management sells their new shares into the buyback or holds them. That amount works out to be $3.6 billion.

    In other words, 40% of TXN’s stock buybacks over this five-year period were used to sterilize stock issuance to senior management and the board of directors.

    In other words, senior management and the board of directors received $3.6 BILLION in direct value from these stock buybacks.

    But wait, there’s more …As of December 31, 2018, there were still 40 million shares outstanding in the form of options and restricted stock grants to management and directors, at an average weighted exercise price of $55.

    At today’s stock price, that means there is an additional $2.6 BILLION in stock-based compensation already awarded to TXN’s executives and directors.

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    Treasury Prepares Another Debt Deluge as Fed Wades Into Market

    This article by Emily Barrett for Bloomberg may be of interest to subscribers. Here is a section:


    The wild card is how Treasury may address the elephant in the room. Dealers expect comment on last month’s turmoil in funding markets. And to some extent, the Treasury’s borrowing plans this fiscal year will be viewed, and traded, in light of the Fed’s T-bill purchases to replenish bank reserves. The central bank embarked on the program this month, saying it will run “at least into the second quarter” of 2020 at an initial monthly pace of about $60 billion.

     “They’re taking about half of net issuance next year,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

    Some say the Treasury’s relentless debt sales have contributed to a shortage of reserves in the financial system, which last month forced the Fed to resort to a money-market operation it hadn’t deployed since the financial crisis.

    Treasury Secretary Steven Mnuchin has rejected that notion, saying this month that the September upheaval had “nothing to do with our issuance.” But the department is clearly curious about how dealers are coping with growing supply. It sought comment in this month’s survey on “the interaction between primary dealer positions, auction participation, and recent repo market variability.”

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    Microsoft Rallies as Results Beat "Virtually Every Metric"

    This article by Ryan Vlastelica for Bloomberg may be of interest to subscribers. Here is a section:

    Growth in commercial bookings highlight “an impressive start” to the year. The results also featured a strong second-quarter earnings outlook, operating margins that “significantly outperformed,” and “solid” growth with Azure. “Microsoft remains the best positioned name in tech for the emerging Hybrid Cloud architecture, with improving margins sustaining a durable mid-teens total return profile.” Overweight rating, price target raised to $157 from $155.

    Bernstein, Mark Moerdler
    The company “beat virtually every metric driven by strength in Cloud, Sever & Tools, and Windows Pro.” Outperform rating, price target raised to $167 from $162. The analysts “remain positive & like buying” the stock.

    RBC Capital Markets, Alex Zukin
    This was “a strong start” to the year, “with bookings strength across the board” and “no macro weakness.” The revenue outlook “was lower than expected but with stronger margins, as gaming is expected to be weak.” Outperform rating, price target raised to $163 from $160.

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    ECB Restarting QE Will Need More Purchase of Private Debt

    This note by David Powell for Bloomberg may be of interest.

    The European Central Bank is running low on sovereign bonds to buy -- that undermines the credibility of its pledge to keep going until inflation picks up. If inflation takes two years to firm, the ECB could face a shortage of about 60 billion euros ($67 billion) in debt during the next phase of its asset-purchase program. At the present pace, the central bank could run out of bonds in little over a year, according to calculations by Bloomberg Economics. The best way out is to shift the composition of purchases: BE estimates the markets for corporate and covered bonds could easily bridge the gap.

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    Nanoparticle tech reverses celiac disease in promising human trials

    This article by Rich Hardy for newatlas.com may be of interest to subscribers. Here is a section:

    This Phase 2 trial is small, involving only 34 patients, but it offers the first evidence of efficacy in human subjects. The prospective treatment involves two intravenous administrations of the nanoparticles, one week apart. Seven days after the second treatment the subjects were challenged with 12 grams (0.4 oz) of gluten per day for three days, and then six grams (0.2 oz) of gluten each day for the next 11 days. The majority of the subjects tolerated the gluten challenge following the nanoparticle treatment, showing an impressive 90 percent reduction in inflammatory markers compared to an untreated control group.

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    Email of the day on Cryptocurrencies and quantum computing from one of Iain Little's clients:

    Yep very well thanks, I'd say the Google quantum computing is all FUD, i.e. see here:

    Even if quantum came anywhere close to being able to break SHA256's cryptographic hash function, which actually “can’t” happen without a mathematical insight that makes it possible (because it requires too much work or too much luck), then the majority of those running the nodes would just vote for a hard fork by the devs to a stronger format like SHA-3  there would be consequences for old coins that weren't moved but bitcoin would adapt and survive. Also, all current banking, military etc. use this same SHA256 as far as I know so the world would have way more to worry about than bitcoin if it was ever broken.

    Here's some more stuff going on if reasons for the current drop in bitcoin's price were needed:

    But it could just as easily be normal market volatility, the price is still about double that of the start of the year and bitcoin likes to have these big corrections after making huge and rapid gains.

    I'd expect it's a combination of things but still normal market movements and nothing has fundamentally changed that would prevent bitcoin becoming gold2 as it is just better than gold and as people see this it's volatility will decrease as it's market cap increases, I'd imagine.

    Though I very much like both asset classes and feel much relieved to have taken so much off the table and into property, art & collectables etc.

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    Pence Criticizes China But Seeks Balance as Trade Talks Continue

    This article by Jenny Leonard and Justin Sink for Bloomberg may be of interest to subscribers. Here is a section:

    Pence’s speech comes at a crucial time in the U.S.-China relationship as the two countries remain locked in a trade war and jostle for military and commercial dominance in the Pacific. White House officials have debated for weeks how critical Pence should be, underscoring the stakes of his remarks, which come just a day before negotiators talk about progress toward agreeing on a phase one agreement over trade.

    The vice president was careful to balance his criticism with an olive branch. Rather than “decoupling” the two countries, the U.S. “seeks engagement with China and China’s engagement with the wider world,” he said. “Despite the great power competition that is underway and America’s growing strength, we want better for China.”

    Pence’s most stinging criticism of China was indirect, in remarks targeting Nike Inc. and the NBA.

    “Nike promotes itself as a so-called ‘social-justice champion,’ but when it comes to Hong Kong, it prefers checking its social conscience at the door,” Pence said.

    He accused the NBA of “siding with the Chinese Communist Party and silencing free speech.” The league apologized after an executive of the Houston Rocketsissued a tweet supportive of Hong Kong protesters, outraging Chinese authorities and many NBA fans in the country.

    “The NBA is acting like a wholly owned subsidiary of the authoritarian regime,” Pence said.

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    Tesla's Surprise Looks Strangely Familiar

    This article by Liam Denning for Bloomberg may be of interest to subscribers. Here is a section:

    Tesla’s free cash flow, meanwhile, was positive for the second quarter in a row, at $371 million. Again, that is positive. Again, the number was flattered by Tesla underspending on its capex budget. Guidance for the year was $1.5 billion to $2 billion. Based on the low spending in the first half, the mid-point of Tesla’s range implied it spending an average of $610 million in the third and fourth quarters. Capex came in $225 million below that level, equivalent to 61% of the free cash flow. Tesla’s capex continues to come in lower than its depreciation expense, which is striking for a company with such expansive ambitions. The company puts this down to rising efficiency.

    There is something ludicrous about the stock of a company already priced at $46 billion, or 422 times the 2020 GAAP earnings forecast, surging because it reported a small net profit rather than a small net loss (the consensus estimate was a negative $234 million). Ditto for a few hundred million of free cash flow largely explained by below-guidance capex. Tesla’s own forecast points to positive profits and free cash flow continuing, but which may suffer “temporary exceptions, particularly around the launch and ramp of new products.”

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