A sea change.
Even Moody’s which is always late to the party with its warnings – but when it does warn, it’s a good idea to pay attention – finally warned: “Don’t fall into the trap of believing all is well outside of oil & gas.”
What happened on Friday was the culmination of another dreary week in the stock markets, with the Dow down 1.3% for the day and 1.6% for the week, the S&P 500 down 1.8% and 3.1% respectively, and the Nasdaq down 3.2% and 5.4%. The S&P 500 is now nearly 12% off its record close in May, 2015; the Nasdaq nearly 17%. So on the surface, given that the Nasdaq likes to plunge over 70% before crying uncle, not much has happened yet.
But beneath the surface, there have been some spectacular fireworks.
Not too long ago, during the bull market many folks still fondly remember and some think is still with us, a company could announce an earnings or revenue debacle but throw in a big share-buyback announcement, and its shares might not drop that much as dip buyers would jump in along with the company that was buying back its own shares, and they’d pump up the price again.
Those were the good times, the times of “consensual hallucination,” as we’ve come to call it, because all players tried so hard to be deluded. It was the big strategy that worked. But not anymore.
And that’s the sea change. Reality is returning, often suddenly, and in the most painful manner. Some standouts:
LinkedIn plunged 43.6% on Friday after the company had reported the fourth quarterly loss in a row, which brought its loss for the year to $166 million, its worst year ever. In the past, losses were a badge of honor. But as consensual hallucination fades, it’s time to make a profit, which LinkedIn hasn’t figured out yet. It also forecast slower growth this year. That’s a toxic mix. At $107.13, shares hit the lowest price since December 2012, down 61% from their 52-week high.
The vaunted FANGs, the mega-caps that have been holding up the overall indexes by their sheer weight, got clobbered too on Friday — Facebook down 5.8%, Amazon 6.4%, Netflix 7.7%, and Google parent Alphabet 3.6% — not because they reported anything in particular but because suddenly, valuations seemed high and risky.
Apparel company HanesBrands plunged 15.1% after disappointing quarterly earnings and guidance. Overall sales declined 7.4%, international sales plummeted 17%.
Lions Gate Entertainment, the studio behind “The Hunger Games,” plunged 28% after CEO Jon Feltheimer told analysts Friday morning that the company was “tracking below” its prior guidance but refused to provide new numbers. Shares have plunged 54% in three months, which will make merger discussions with cable channel Starz somewhat complex.
Tableau Software plunged 49% on Friday, wiping out $3 billion in market cap, after reporting a quarterly loss of $0.57 a share, vs a profit of $0.27 a year earlier. Its outlook was gloomy; it talked about a spending slowdown by its customers. Corporate cost cutting bites!
Thus inspired, investors dumped its peers. Salesforce.com plunged 13% (down 28% in two months) and Splunk plunged 23% (down 62% from its peak two years ago).
Guidewire Software plunged 11.8% during regular trading and another 1.6% in late trading, to $47.95, a price it had first seen in September 2013. Its product, software for insurance companies, is somehow considered “recession-proof.” It’s down 26% from its 52-week high.
Enterprise software company Atlassian plunged 15.0% to $20.19. The Sydney-based company, which is traded on the Nasdaq, released its first earnings report since its IPO in December and gave what was considered a “bullish” forecast, including a loss of around $0.10 a share for the year.
Atlassian went public at an IPO price of $22. Shares came out of the gate with a 32% gain, giving the company a market valuation of $8 billion, then climbed to over $31 by the end of December. In the six weeks since, they’ve plunged 30%.
Even after the rout, the company has a market valuation of $4.6 billion, or about 10 times annual sales, reminiscent of the 1999 Nasdaq days. It might take a lot more pain in a sour market before sales and market cap are properly aligned. Earnings per share won’t help; they’re expected to be a loss.
Ralph Lauren plunged 22.2% on Thursday, another 3% on Friday, for a two-day loss of 24.5%, to $87.25, after it reported earnings. Holiday sales had dropped 4.3%. A “year of transition,” CEO Ralph Lauren called it. But he was “greatly encouraged by…” yada-yada-yada, as sales are expected to remain flat or fall 2% for the year. Shares are down 53% from December 30, 2014.
Outerwall plunged 17.3% to $27.04, now down 68% from its 52-week high. The movie-and-game-rental kiosk company reported Thursday evening that revenues plunged nearly 12% and net income 61%. “Solid 2015 results,” it called the phenomenon, “despite challenging headwinds that continued to impact Redbox,” whose movie rentals plunged 24.3%.
Sierra Wireless plunged 25.6% to $10.93 after it had reported earnings Thursday evening, with revenues down 2.8%. Despite a big income tax “recovery,” its “comprehensive loss” nearly doubled. It lowered its guidance and talked about “softer demand at select OEM customers.” Shares have plunged 78% since the beginning of 2015.
There were plenty of energy companies in the toxic stew. So just a couple of standouts:
Linn Energy plunged 58.3% to $0.50 cents a share on Friday, down 99% from June 2014. It has $11 billion in debt. So it said it would “explore strategic alternatives to strengthen its balance sheet and maximize the value of the company.” It said it has maxed out its credit line. So it has hired Lazard to help out with a big restructuring, either in or outside of bankruptcy court, a death knell for stockholders. And some classes of bondholders are going to get skinned.
Cheniere Energy plunged 9% to $25.10, down 70% from September 2014. Potential LNG importer and then exporter, and epic “story stock,” spent its entire existence borrowing money and blowing it. It has amassed $19 billion in liabilities, including $15.8 billion in long term debt. It lost $842 million over the past four quarters on $268 million in revenues. Carl Icahn is ruing the day he bought their hype, starting in August last year, when shares ranged between $60 and $70. As of December 7, his hedge fund owned 13.8%.
These are just examples. There are many more companies in similar conditions.
If the word “plunged” shows up a lot, it’s because that’s what has been going on in the stock market, on a company by company basis, not just on Friday, or this year, but for months, papered over by some mega-cap stocks that are now also letting go.
And as dip buyers and bottom fishers are figuring out: just because a stock has plunged doesn’t mean it can’t plunge a whole lot more. But they will keep trying, and there will be sharp rallies. Nothing goes to heck in a straight line.
And there’s a bitter irony. Read… Negative-Interest-Rate Effect already Dead, Central Banks Lost Control over Stocks
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The crash in LinkedIn may cause quite a few people to look down and see how far out on a limb they are.
It may shake folks out of the idea that the bear may approach slowly- that there are weeks if not months to debate whether that is his hot breath on our necks.
The basic October 1929 crash took place in only a week, from October 21 to 29. On Tuesday the 29 th, a messenger boy put in an order for a block of White Sewing Machine at a dollar a share and got it. It had hit 48 before the crash and closed at 11 the previous day. (The Great Crash- J.K. Galbraith)
What makes people think that in this day of robo- trading at millions of actions per second- that this reckoning is going to drag out for weeks?
We already know that so called stop- loss orders can be blown through when a market ‘gaps’
Up here in Canada a guy had a stop- loss order on a Chinese company, Sino-Forest, that got a listing on the Toronto exchange via the back door, taking over a shell company with a listing. This only saved the several billion dollar outfit a few hundred thousand but a lot of questions.
Short seller Carson Block investigated, shorted and announced it was a fraud, which turned out to be the case.
But for a few weeks it was a ‘he said, they said’ and our guy decided to take a chance, but he ‘protected’ himself with a stop loss at $16 and change.
Then it was referred to the RCMP- and our guy got out at 6 and change. He was lucky to get that because of course it went to zero and was de-listed.
But the RCMP went to China and made several arrests ( Joke)
Moral: unless you are a very special client your broker is not going to take a large loss to execute an order.
With a few interruptions from circuit -breakers, ( which will also prevent stop- loss executions) there is no reason for whole swaths of the ‘tech’ sector not to follow LinkedIn
+::-
Market value!
Earnings momentum stalling and declining earnings coming back to roost even with the accounting shenanigans and financial engineering with non-GAAP, mark to market, vain attempts to boost earnings via share buyback (thru cheap money), hide the loss weenie, guide down the earning thru out the quarter to “beat”, etc.
So the companies will resort to easiest way out thru RIF but painful for the workers and their families. Market will beg to the Fed for another QE, ZIRP and even NIRP (be careful what you wish for into the uncharted territory). But the Fed like other global CB cabals are running out of ammo while facing mother of all currency wars to boost the ailing economies. China facing hard landing with NPLs and mis-invesements galore. And lest we forget the dangerous Syrian proxy war with Russia/Iran/Shiite on 1 side and US/EU/Saudi/Sunni on the other. Who knows maybe even alliances with Sunni ISIS.
More room to fall as take a look at the once rising star Russel 2k and lot of denials on CNBC exhorting buy on the dip and it’s different this time mantra.
PS – one approach to ride the way down even on IRA account are double short ETFs: QID for Nas, SDS for S&P, TWM for R 2k
Riding down in double-short ETFs = bad idea.
Not on the list but deserving a place: TSLA. My put options are sitting pretty after I entered the position at 240 (TSLA is 160 now). They are still at a 22B market cap and losing massive amounts of cash per car sold. Their earnings is on feb. 10 so I’ve taken some trading capital out of the position.
Hedging works!
Been shorting TSLA since early Oct and can’t find more shares to short. Shorted and closed out short positions with little loss in 2014. It’s a real turd as raised $500 mil few months ago and great biz model of sell more and lose with with reported loss of $7k per car. German 3 along with Japanese and Korean (battery IP and major suppliers) automakers will eat TSLA alive in about 2 yrs and Musky’s joke gigafactory in NV will be money pit.
Musky will reveal the joke $35k model around despicable earnings time to hype it for production in 2017 – truly LOL given their pathetic track record and delays with new product introduction.
Allow me here a slight divagation on the topic.
For years people have been happily drinking the electric propaganda. By this I don’t mean that electric vehicles are bad or good, but that all these taxpayer-subsidized upstarts such as Tesla have a large headstart over established manufacturers.
Toyota, Daimler, Honda, Komatsu and Yamaha have all been investing heavily in hybrid and electric propulsion for decades now. Battery manufacturers such as Zytek, Matsushita Electrics (now Panasonic), Johnson Controls, Yuasa and Enersys have invested just as heavily.
Each and every one of these firms is a gigantic reality with immense R&D resources. To repeat a quip, Toyota probably spends more money designing an ashtray than any of these upstarts spends designing a whole car.
Then why are these firms been so conservative when it comes to electric propulsion?
The reason is very simple: they want it to be able to truly compete with diesel and internal combustion engines “out of the box”.
Hybrids have now proven their worth, not just in automotive but in heavy applications as well: hybrid Daimler buses and Komatsu mining equipment are every bit as reliable as their conventional counterparts, and generally with lower running costs to boot. The reason is they aren’t more widespread is prices are still (and probably will remain) high, hence they make sense only for customers who can afford to recoup the higher cost.
But cars are another matter completely. The vast majority of potentail car customers worldwide can afford a single car and need it to be acceptably reliable, versatile and, much more critical, cheap.
The BMW i3 electric car is smaller than a B-class hatchback but for the same (subsidized) prize you can get a 3-series wagon. If you opt for the version with a backup gasoline engine, you lose precious cargo space and price increases by a massive 20%. Inter nos, this engine is nothing fancy: it’s a standard scooter unit built by KYMCO in Taiwan.
Still way way too expensive: if BMW can afford to pull such a stunt, Toyota and Honda cannot, if not on markets where subsidies make it worth their while.
The upstarts may be the darlings of the sycophantic automotive press now, but once Toyota and Honda decide they are ready, it’s game over for each and every one of them.
The majors also have this odd hangup- they want to make money selling the car not their stock
Good article on the Nas demise and Internet 2.0 joke time wasting social network darlings
http://www.usatoday.com/story/tech/columnist/shinal/2016/02/05/bye-bye-internet-bubble-20/79887644/
Thinking about shorting Fakebook and Ctrips and Alibaba down 10, 30 and 33% respectively from 52 week highs. Watching Amazon to cover some shorts.
By the end of May 2015, Exxon was at $85. It closed last Friday at just over $80. Not much of a hit. I wouldn’t be counting out big oil just yet.
When the dust clears, and the little energy companies are smoke, big energy will be burning bright and even more powerful than ever.
Exxon is one of the megacaps that has weathered 2015 the best.
It had a “buy now” floor of $68 which it touched only once in 2015 to then bounce back to where it had been most of the time.
It seems, for all the hype around Dot Com 2.0, there are still plenty of believers in traditional brick and mortar blue chips.
It not clear to me why these stocks have not hit ZERO. I suspect the folks that panic first are going to be the wisest. When a stock loses 40% of its value in one day I call that FRAUD.
IMO, cash is king at the moment. You either short them when the real crash comes, or sit back and pick up the debris after the real crash.
The stock market is not supposed to be a one-way bet but it has become more of one as amateurs piled in in the hope of making a killing. Which they did while the momentum was there. Since prices became uncoupled from reality, it only needs a few with understanding of what investment is really all about for prices to tumble.
Long may it continue.
Reminds me of late 1999 and Jan 2000 when many of my co-workers new to stock investing were following Motley FOOLs and gloating over their returns. A guy who never invested in stock but 200 shares of CSCO in Jan for little over $100 per share. Back then there was this schism over so many folks upset over not getting IPO shares allocated to individual investors. Profit or even negative or 100X+ PE didn’t matter with growth at all cost.
Go forward 16 years and looks like Internet 2.0 is blowing up…
Many oldtimers have seen this before and the newbies will learn that history does repeat and big momentum can go both ways and yes Virgina – there is this thing called gravity.
Just when everyone thinks the only way to get any kind of return ON their money is the stock market, they start to worry about the return OF their money.
One element Wolf, that I haven’t seen anyone cover, and I hope you will dig into this, is the Chinese ‘requesting’ that US retailers use Yuan to pay for their imports ! , and my question is; Is there some US policy that forbids US retailers from using Yuan to pay for their imports ??? This may be what is halting the sea container shipping business, and maybe the bulk shipping as well. [For a ‘thin reed indicator’ proof, go to TigerDirect.com , they are a computer product online retailer, who used to have 100,000 different computer related items in stock by the hundreds of each,, who now has practically zero inventory. What happened to TD ?? are they going out of business, or are they waiting for US policy to change so they can resume buying stuff from China in Yuan?] If and when the US changes its policy on Yuan as a legitimate currency for US retailers to use, will we see a resumption of international trade ? or is the consumer really ‘dead’ ?
Tiger Direct closed all their stores and only has one somewhere. They are totally an online business now. I get email from them, but less and less lately.
As far as I know, buyers of foreign products can pay in any currency the seller requests. The Chinese want to be paid in Yuan because it increases the demand for their currency and the price.
which means you have to trade your dollars for yuan. there must be a subsidy from the pboc somewhere, or maybe it’s just “encouragement.”
the chinese just don’t get that they are deflating themselves., though maybe they do, out of ingrained habit.
Are the glory days of the stock market over?
Are the glory days of the USA over?
Indeed, after looking at the slate of presidential candidates I wonder if democracy is destined to be an enduring form of government. It’s all utterly depressing.
Relax. Today is a good day to pick up cheaper shares off REAL companies, with real earnings. Big oil is just one side of it. Food, beverages. Are people going to quit drinking coke, pepsi? Some healthcare is attractive, too.
While our neighbors in Canada pigged out on RE we already know how that game ends. Let us hope their just melts slowly not with the THUD heard in FL, AZ, CA and elsewhere.
I really don’t care where if the prices flop around as long as the dividends keep growing. Buy quality, buy them fairly, and hold them.
Be cautious in dividend play as there are reason for the fat dividend and even bluest of bluechip like Pfizer with good dividend is about to cross the old support dating back to 2013 and fell from $36 in July 2015 to $29.
The Coke product I buy just went up $0.30. Now I will wait for sales to buy it and will likely be buying less overall. Be careful making those investment decisions because the little people have hit a brick wall financially. The next haircut will be Comcast, and so on and so forth.
Tech bubble deux! And some more!
If you live in Silicon Valley be prepared!
Another dot.CON brewing at the SillyCON valley – 16 yrs later…