The most helpless feeling in the world. The screaming. The running. The darkness. The earthquake. Anger. First day of a war. Never Forget? If only we could.
Early morning, 18 years later. Most people call this night… I go over in my head the friends lost. I try to see their faces. I try to hear their voices, their laughter. I want to forget more than I can. My briefcase that I carried to work is still in my garage right where I put it down… 18 years ago. Inside, I am sure there is a copy of the Wall Street Journal, along with paperwork associated with whatever I had been working on… also along with the debris of pulverized construction materials. That brief case will also smell. The smell of death. Horrible. The kind of smell that forces your hair to stand on end, forces you to stop in place, and forces instant nausea. Forces too much.
Still the zero-dark hours. I open the manila envelope just to take a look. My World Trade Center ID card. A younger man looks back at me from that card. A young man with a young wife, and a couple of young children, all of whom he loved so much. Just like those who disappeared. Never forget? Not an option. Still angry.
A Market Repricing
The big question now becomes… just what is priced in. Since August 28th, which is only two weeks ago, the Dow Jones Transportation Average has run 9.6%, while the Russell 2000 has picked up 6%. This while the broader indices have churned (literally) out more pedestrian increases of 3% to 4%. What makes the violence of these moves so interesting is that they come on the heels of an awful ISM Manufacturing report, less robust looking employment data, and in the wake of dreadful Chinese trade statistics. Perhaps that’s just it.
What is now clearly visible as widespread rotation has drawn ammunition from both the realm of safety as well as what has been considered growth. Not just U.S. Treasuries and Gold, but the strange bedfellows of Utility stocks, Staples, and Software/Cloud names. We label both growth and value stocks for a reason. Revenue (and stock price) growth versus steady (hopefully) performance coupled with lower valuations and perhaps revenue generation. Does it not then stand to reason that stocks that react well to improved prospects for trade relations that foster in turn a better environment for global economic growth, would then be the “true” growth stocks?
Scared? Don’t be. The world is a healthier place if prospects are improved for the Financial, Energy, and Industrial sectors. The world is a healthier place if credit over time actually bears a cost. The world is a healthier place if the yield curve steepens at the long end, while the still inverted shorter end sports negative spreads now much more shallow.
All of these moving parts represent conditions that investors can adjust to, and evolve with. My concern now, becomes the speed. Investors across the nation have no idea that humans no longer price risk assets in real time. What we have seen in 10 days probably should have taken six weeks. Thus, should the coming trade talks disappoint… should Europe or OPEC do something unforeseen, markets due to their own speed, may have to reprice more often. Nobody on the planet is used to, or comfortable with the kind of volatility that this might produce. A thick skin, will at times be necessary. Real thick.
Good News, Sort Of
The Census Bureau released quite a bit of data for the year 2018 on Tuesday. What’s most interesting is the drop in the national poverty rate to 11.8%, the fourth consecutive annual decline, and lower than the pre-financial crisis level of the year 2007 for the first time since. Glaring negatives within the report would be the 8.5% of, or 27.5 million Americans, lacking health insurance, up from 7.9% in 2017, as well as a median U.S. Household income more or less stuck in neutral. At a median of $63,179 per household, it appears that Americans have kept up with inflation and little more. This leads into my next thought.
As a lifelong runner, I find spin classes to be simply fantastic. Spinning forces the athlete (especially aging athletes) to work and sweat at levels that other forms of exercise just can not produce outside of the hottest and most humid conditions. The added benefit is that spin is much easier on the joints than running ever was. I am thinking that I can maintain a high level of physical conditioning by making sure that I incorporate several hours of spin into my workout regimen every week.
Peloton has now published a prospectus for what is sure to be a very highly publicized IPO. The plan is to offer 40 million class A shares priced in a range spanning from $26 to $29 per. There will also be an underwriters option for another six million shares. The idea is to raise $1.33 billion, which could value the firm at $8.2 billion.
As an investor, this is the problem that I see. I am what you might call a typical prospect as a consumer. I am already heavily engaged in the whole virtual spin class thing, and I am gainfully employed. Peloton for consumers is expensive. Very expensive. We’re talking about high end stationary bikes that retail for $2K or so, and then there are the on-line classes that users subscribe to for $39 a month. I already get all that through much cheaper, lesser known competitors.
I have heard from Peloton users just how much better their programs are. Know what? I’m a kid who grew up bench-pressing his father’s weights in a dark, dank basement. I don’t need, nor do I want pretty or trendy. I just want to work my tail off. What does a gym membership go for these days? At the low end, say Planet Fitness (PLNT) , maybe $10 per month. A more serious, gritty “muscle head” gym once outside of New York City will maybe get you for $30 a month at the most. Many of those will include Peloton-like competition with membership.
I just told you that at the median, households are not really beating inflation, and that more people need health insurance. A stationary bike targeting the high-end consumer? Oh, you land a few folks from planet plastic. The rest of us? I don’t know. For the fiscal year ended in June, Peloton sales increased 110%, while losses went from $-47.9 million to $-245.7 million. If growing losses 512% is good, then this one is for you.
The IPO to wait for may just be Saudi Aramco, the most profitable company (of any type) in the world. Speaking Tuesday from Abu Dhabi, Aramco President and CEO Amin Nasser told the press that the offering will commence “very soon”, whatever that means. They have been trying to get this done for years now.
Currently, what looks to be happening would be the floating of 1% of the company in Riyadh this year, and then another 1% next year outside of the local market. The goal of the crown price is to eventually list 5% of the firm, while seeing a $2 trillion valuation placed on the entirety of the corporation. Bear in mind that Saudi Aramco pumps 10% of the world’s oil, and holds the sole licence within the Kingdom of Saudi Arabia.
More than one item remains unresolved. While it is understood that the initial public offering will take place in Riyadh, in order to gain the kind of valuation that is being sought, the dual listing will have to take place where there is already a deeply liquid market in place. Depending on what paper you read, this could be Tokyo, or Hong Kong, or even London. New York appears to be a decided underdog due to the potential legal exposure that becomes apparent within U.S. jurisdictions.
On Wednesday morning, we learned that Bank of America (BAC) would be chosen for the top role among investment bankers. This may be seen as something of a surprise, as all had seemed to a agree that JP Morgan (JPM) might lead the deal. Morgan Stanley (MS) , Citigroup (C) , National Commerce Bank (Saudi government-owned), HSBC (HSBC) , and Goldman Sachs (GS) are all being mentioned as either potential participants or co-leads. My amateur opinion. This is going to involve all of them and more names will be added.
Note To Readers
Though we did take some Zscaler (ZS) off when the shares broke the 50 day SMA, we apparently should have taken the whole position off. We did not. These shares will open at a severe discount this morning to last night’s close. This opening will be well below panic, and that does require my own doctrine. I can sell more, add the portion sold higher back on and pretend it’s a victory, or try to trade around the position while watching for some stabilization.
No need to cry over split milk. Remember, we’re long a stable of oil names at optimal prices. Have to deal with a problem position up front however. Zscaler did post a good quarter. Zscaler did guide revenue toward consensus. The firm lowered guidance on profitability. That’s what we are dealing with.
My plan is to trade around the position small, just to try to turn a buck, and when I am reasonably certain that the shares are basing, I probably add back the sold shares. In the meantime, after the options market opens, don’t forget that this tool is always there as a method for net basis reduction. Not the end of the world. Take it slow.
Economics (All Times Eastern)
08:30 – PPI (Aug): Expecting 1.8% y/y, Last 1.7% y/y.
08:30 – Core PPI (Aug): Expecting 2.2% y/y, Last 2.1% y/y.
10:00 – Wholesale Inventories (July): Expecting 0.2% m/m, Last 0.0% m/m.
10:30 – Oil Inventories (Weekly): Last -4.771M.
10:30 – Gasoline Stocks (Weekly): Last -2.396M.
13:00 – Ten Year Note Auction: $24B.
The Fed (All Times Eastern)
FOMC Blackout Period Through September 17th.
Today’s Earnings Highlight (Consensus EPS Expectations)
After the Close: (ACB) (-.05)